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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-6366
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FLEET BOSTON CORPORATION
(Exact name of Registrant as specified in its charter)
RHODE ISLAND 05-0341324
(State of incorporation) (I.R.S. Employer Identification No.)
ONE FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
(Address of principal executive office) (Zip Code)
617 / 346-4000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange
Depositary Shares each representing a one-tenth interest in a share of
Series V 7.25% Perpetual Preferred Stock, $1 Par Value New York Stock Exchange
Depositary Shares each representing a one-fifth interest in a share of
Series VI 6.75% Perpetual Preferred Stock, $1 Par Value New York Stock Exchange
8.00% Trust Originated Preferred Securities issued by Fleet Capital
Trust I, Guaranteed by Fleet Boston Corporation New York Stock Exchange
7.05% Trust Originated Preferred Securities issued by Fleet Capital
Trust III, Guaranteed by Fleet Boston Corporation New York Stock Exchange
7.17% Trust Originated Preferred Securities issued by Fleet Capital
Trust IV, Guaranteed by Fleet Boston Corporation New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Warrants to purchase Common Stock New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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, and (2) has been subject to such filing
requirements for the past 90 days. YES XX 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. [ ]
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As of February 29, 2000, the aggregate market value of the voting stock
held by nonaffiliates of the Registrant was $24.3 billion.
The number of shares of common stock of the Registrant outstanding as of
February 29, 2000 was 902,784,913.
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DOCUMENTS INCORPORATED BY REFERENCE
Pertinent extracts from Registrant's Proxy Statement for its 2000 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission are incorporated into Part III.
Such information incorporated by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
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TABLE OF CONTENTS AND CROSS-REFERENCE INDEX
DESCRIPTION PAGE NUMBER
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Part 1. Item 1. Business................................................ 2-7
- Line of Business Information......................... 17-21, 55-56
- Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 11-37
- Acquisitions and Divestitures........................ 46-48
- Capital.............................................. 36, 63-64
- Dividends............................................ 35-36, 63-64
- Statistical Disclosure by Bank Holding Companies..... 6-7, 10, 22-27, 36,
44-45, 49-50, 52,
66-68
Item 2. Properties.............................................. 7
Item 3. Legal Proceedings....................................... 7, 63
Item 3A. Executive Officers of the Corporation................... 8-9
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
Stockholder Matters..................................... 9, 66
Item 6. Selected Financial Data................................. 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 11-37
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 27-34, 38
Item 8. Financial Statements and Supplementary Data............. 38-65, 67
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 69
Part III. Item 10. Directors and Executive Officers of the Registrant...... 8-9, 69*
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................................................ 40-43, 70-75
Signatures............................................................. 76
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*The information required by this Item is incorporated by
reference to the Corporation's Proxy Statement for its 2000
Annual Meeting of Stockholders.
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PART I.
ITEM 1. BUSINESS
GENERAL
On October 1, 1999, BankBoston Corporation ("BankBoston") merged with Fleet
Financial Group, Inc. ("Fleet") (the "Merger"). Following the Merger, Fleet was
renamed Fleet Boston Corporation (the "Corporation"), and is currently doing
business under the name "FleetBoston Financial". The Merger was accounted for as
a pooling of interests and, as such, financial information included in this
Report presents the combined financial condition and results of operations of
both companies as if they had operated as a combined entity for all periods
presented. In connection with obtaining regulatory approvals for the Merger, the
Corporation agreed to divest $13 billion of deposits and $9 billion of loans.
These divestitures will occur in 2000, and are expected to result in an
annualized reduction of net income of approximately $160 million, part of which
will impact 2000.
On February 1, 2000, the Office of the Comptroller of the Currency (the
"OCC") approved the Corporation's application to merge Fleet National Bank,
BankBoston, N.A. ("BKB"), Fleet Bank, National Association ("FBNA") and certain
other banking and trust subsidiaries of the Corporation. On March 1, 2000, Fleet
National Bank was merged into BKB, with the name of the surviving bank changed
to "Fleet National Bank" ("FNB"). The Corporation intends to consummate the
remaining bank mergers in stages throughout 2000.
The Corporation is a diversified financial services company organized under
the laws of the State of Rhode Island. The Corporation is a legal entity
separate and distinct from its subsidiaries, assisting such subsidiaries by
providing financial resources and management. At December 31, 1999, the
Corporation was the eighth largest bank holding company in the United States in
terms of total assets, with total assets of $190.7 billion, total deposits of
$114.9 billion and total stockholders' equity of $15.3 billion. As of that date,
the Corporation had approximately 59,200 employees.
The Corporation is engaged in a general commercial banking and investment
management business throughout the states of Rhode Island, New York,
Connecticut, Massachusetts, New Jersey, Maine, and New Hampshire and
internationally, principally in Latin America, through its principal banking
subsidiaries: FNB and FBNA. Each of these subsidiary banks is a member of the
Federal Reserve System, and the domestic deposits of each are insured by the
Federal Deposit Insurance Corporation (the "FDIC") to the extent provided by
law.
The Corporation also provides, through its subsidiaries, a variety of
financial services, including institutional and investment banking, cash
management, trade services, export finance, mortgage banking, corporate finance,
asset-based lending, commercial lending, real estate lending, government
banking, investment management services, equipment leasing, credit cards,
discount brokerage services, student loan processing and full-service banking in
leading Latin American markets.
The Corporation is managed along three principal business lines: Global
Banking and Financial Services, Commercial and Retail Banking and the National
Consumer Group. These business lines, including their operating results and
other key financial measures, are more fully discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
included in this Report under Item 7, and in Note 14 of the "Notes to
Consolidated Financial Statements" included under Item 8 of this Report.
For discussions of the Corporation's business activities, including its
lending activities, its cross-border outstandings and its management of
off-balance sheet exposure and the risks inherent in its businesses, refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included under Item 7 of this Report.
This Report, as well as other written or oral communications made from time
to time by the Corporation (including, without limitation, the Corporation's
1999 Summary Annual Report to Stockholders), may contain statements relating to
the future results of the Corporation (including certain projections and
business trends) that are considered "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including, but not limited to, changes in political and economic conditions,
either domestically or internationally; interest rate and currency fluctuations;
competitive product and pricing pressures within the Corporation's markets;
equity and bond market fluctuations; personal and corporate customers'
bankruptcies; inflation; lower than expected revenues following mergers,
acquisitions and integrations of acquired businesses, including the Merger;
lower than expected cost savings in connection with the Merger; greater than
expected negative impact of the divestitures required to obtain regulatory
approval of the Merger; technological changes, including the impact of the
Internet on the Corporation's businesses; adverse legislation or regulatory
changes affecting the businesses in which the Corporation is engaged; as well as
other risks and uncertainties detailed from time to time in the filings of the
Corporation with the Securities and Exchange Commission (the "SEC").
The executive office of the Corporation is located at One Federal Street,
Boston, Massachusetts, 02110 (telephone (617) 346-4000).
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COMPETITION
The Corporation's subsidiaries compete with other major financial
institutions, including commercial banks, investment banks, mutual savings
banks, savings and loan associations, credit unions, consumer finance companies
and other non-bank institutions, such as insurance companies, major retailers,
brokerage firms, and investment companies in the Northeast, throughout the
United States and internationally. The principal methods of competing
effectively in the financial services industry include improving customer
service through the quality and range of services provided, improving
efficiencies and pricing services competitively.
One outgrowth of the competitive environment discussed above has been
significant consolidation within the financial services industry on a global,
national and regional level. The Corporation continues to implement strategic
initiatives focused on expanding its core businesses and to explore, on an
ongoing basis, acquisition, divestiture and joint venture opportunities. The
Corporation analyzes each of its businesses in the context of customer demands,
competitive advantages, industry dynamics and growth potential.
For additional information with regard to the Corporation's acquisition and
divestiture activities, refer to Note 2 of the "Notes to Consolidated Financial
Statements" included under Item 8 of this Report.
SUPERVISION AND REGULATION
The business in which the Corporation and its subsidiaries are engaged is
subject to extensive supervision, regulation and examination by various bank
regulatory authorities and other governmental agencies in the states and
countries where the Corporation and its subsidiaries operate. The supervision,
regulation and examination to which the Corporation and its subsidiaries are
subject are intended primarily for the protection of depositors or are aimed at
carrying out broad public policy goals, rather than for the protection of
security holders.
Several of the more significant regulatory provisions applicable to banks
and bank holding companies to which the Corporation and its subsidiaries are
subject are discussed below, along with certain regulatory matters concerning
the Corporation and its subsidiaries. To the extent that the following
information describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory provisions. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Corporation and its subsidiaries.
General
As a bank holding company, the Corporation is subject to regulation under
the Bank Holding Company Act of 1956, as amended, and to inspection, examination
and supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). Under the Bank Holding Company Act, bank holding
companies generally may not acquire ownership or control of any company,
including a bank, without the prior approval of the Federal Reserve Board.
Various governmental requirements, including Sections 23A and 23B of the
Federal Reserve Act, as amended, limit borrowings by the Corporation and its
non-bank subsidiaries from its affiliate insured depository institutions, and
also limit various other transactions between the Corporation and its non-bank
subsidiaries, on the one hand, and its affiliate insured depository
institutions, on the other. Section 23A of the Federal Reserve Act also
generally requires that an insured depository institution's loans to its
non-bank affiliates be secured, and Section 23B of the Federal Reserve Act
generally requires that an insured depository institution's transactions with
its non-bank affiliates be on arm's length terms.
In addition to bank regulatory provisions, the Corporation and its
subsidiaries are also affected by the fiscal and monetary policies of the U.S.
federal government and the Federal Reserve Board, and by various other domestic
and international governmental requirements and regulations.
Liability for Bank Subsidiaries
Under current Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial and managerial strength to each of its
subsidiary banks and to maintain resources adequate to support each subsidiary
bank. This support may be required at times when the bank holding company may
not have the resources to provide it. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a U.S. federal bank
regulatory agency to maintain the capital of a subsidiary bank would be assumed
by the bankruptcy trustee and entitled to priority of payment. If a default
occurred with respect to a bank, any capital loans to the bank from its parent
holding company would be subordinate in right of payment to payment of the
bank's depositors and certain of its other obligations.
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The Corporation's principal domestic banks are FDIC-insured depository
institutions. As such, they can be held liable for any loss incurred, or
reasonably expected to be incurred, by the FDIC in connection with (1) the
default of a commonly controlled FDIC-insured depository institution; or (2) any
assistance provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of default.
"Default" generally is defined as the appointment of a conservator or
receiver and "in danger of default" generally is defined as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
Capital Requirements
Information concerning the Corporation and its subsidiaries with respect
to capital requirements is incorporated by reference from Note 20, "Regulatory
Matters," of the "Notes to Consolidated Financial Statements" included under
Item 8 of this Report, and from the "Capital Management" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included under Item 7 of this Report.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") and its implementing regulations established five capital categories
for insured depository institutions -- well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Pursuant to the authority granted under FDICIA, U.S. bank
regulatory agencies were empowered to impose progressively more restrictive
constraints on the operations, management and capital distributions of an
insured depository institution, depending on the category in which an
institution is classified. Unless a banking institution is well capitalized, it
is subject to restrictions on its ability to offer brokered deposits and on
certain other aspects of its operations. An undercapitalized banking institution
must develop a capital restoration plan and its parent bank holding company must
guarantee the bank's or thrift's compliance with the plan up to the lesser of 5%
of the bank's or thrift's assets at the time it became undercapitalized and the
amount needed to comply with the plan.
As of December 31, 1999, each of the Corporation's banking subsidiaries
was well capitalized, based on the prompt corrective action guidelines. It
should be noted, however, that a bank's capital category is determined solely
for the purpose of applying the OCC's, or the FDIC's, prompt corrective action
regulations and that the capital category may not constitute an accurate
representation of the bank's overall financial condition or prospects.
Dividend Restrictions
Various U.S. federal and state statutory provisions limit the amount of
dividends the Corporation's banking subsidiaries can pay to the Corporation
without regulatory approval. Dividend payments by national banks are limited to
the lesser of (1) the level of undivided profits; and (2) absent regulatory
approval, an amount not in excess of net income for the current year combined
with retained net income for the preceding two years.
The approval of the Federal Reserve Board is required for any dividend by
a state-chartered bank that is a member of the Federal Reserve System (a "state
member bank") if the total of all dividends declared by the bank in any calendar
year would exceed the total of its net profits, as defined by regulatory
agencies, for that year, combined with its retained net profits for the
preceding two years. A state member bank may not pay a dividend in an amount
greater than its net profits then on hand. A U.S. federal savings bank is
required to file an application with the Office of Thrift Supervision (the
"OTS") prior to the payment of any dividends if the total amount of all
dividends and other capital distributions for the current calendar year paid by
a U.S. federal savings bank exceeds its net income for that year as well as its
retained net income for the preceding two years. A prior notice to the OTS is
required if, among other things, a U.S. federal savings bank is proposing to pay
a dividend that would reduce the amount of, or retire any of part of, its common
or preferred stock or retire any part of any debt instruments which are included
in its capital for purposes of OTS regulations.
U.S. federal bank regulatory agencies also have authority to prohibit
banking institutions from paying dividends if those agencies determine that,
based on the financial condition of the bank, such payment would constitute an
unsafe or unsound practice. The ability of the Corporation's banking
subsidiaries to pay dividends in the future is currently, and could be further,
influenced by bank regulatory policies and capital guidelines.
At December 31, 1999, approximately $1.4 billion of the total
stockholders' equity of the Corporation's banking subsidiaries was available for
payment of dividends to the Corporation, without approval by the applicable
regulatory authority. Additional information concerning the Corporation and its
banking subsidiaries with respect to dividends is incorporated by reference from
Note 19, "Commitments, Contingencies and Other Disclosures," and Note 20,
"Regulatory Matters," of the "Notes to Consolidated Financial Statements"
included under Item 8 of this Report, and the "Liquidity Risk" and "Capital
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Management" sections of "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included under Item 7 of this Report.
Deposit Insurance Assessments
The deposits of each of the Corporation's domestic banks are insured up to
regulatory limits by the FDIC, and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund (the "BIF") and/or the
Savings Association Insurance Fund (the "SAIF") administered by the FDIC. The
FDIC has adopted regulations establishing a permanent risk-related deposit
insurance assessment system. Under this system, the FDIC places each insured
bank in one of nine risk categories based on (1) the bank's capitalization and
(2) supervisory evaluations provided to the FDIC by the institution's primary
U.S. federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
Currently, the annual insurance premiums on bank deposits insured by the
BIF and the SAIF vary between $0.00 per $100 of deposits, for banks classified
in the highest category, to $0.27 per $100 of deposits for banks classified in
the lowest category.
The Deposit Insurance Funds Act provides for assessments to be imposed on
insured depository institutions with respect to deposits insured by the BIF and
the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of Financing Corporation ("FICO") funding. The FDIC established the FICO
assessment rates at $0.01184 per $100 annually for BIF-assessable deposits and
$0.05920 per $100 annually for SAIF-assessable deposits. The FICO assessments do
not vary depending upon a depository institution's capitalization or supervisory
evaluations. The Corporation's banks held approximately $97 billion and $3
billion, respectively, of BIF-assessable and SAIF-assessable deposits as of
December 31, 1999.
Depositor Preference Statute
In the liquidation or other resolution of an institution by any receiver,
U.S. federal legislation provides that deposits and certain claims for
administrative expenses and employee compensation against the insured depository
institution would be afforded a priority over other general unsecured claims
against that institution, including federal funds and letters of credit.
Interstate Banking and Branching
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
("Riegle-Neal"), subject to certain concentration limits and other requirements:
(1) bank holding companies such as the Corporation are permitted to
acquire banks and bank holding companies located in any state;
(2) any bank that is a subsidiary of a bank holding company is permitted
to receive deposits, renew time deposits, close loans, service loans
and receive loan payments as an agent for any other bank subsidiary
of that bank holding company; and
(3) banks are permitted to acquire branch offices outside their home
states by merging with out-of-state banks, purchasing branches in
other states and establishing de novo branch offices in other
states. The ability of banks to acquire branch offices through the
purchase or opening of other branches is contingent, however, on the
host state having adopted legislation "opting in" to those
provisions of Riegle-Neal. In addition, the ability of a bank to
merge with a bank located in another state is contingent on the host
state not having adopted legislation "opting out" of that provision
of Riegle-Neal.
The Corporation is currently relying upon the provisions of Riegle-Neal to
consolidate certain of its banking subsidiaries under a single charter, and may
in the future rely upon Riegle-Neal to acquire banks in additional states.
Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company, unless the Federal Reserve Board
has been notified and has not objected to the transaction. Under a rebuttable
presumption established by the Federal Reserve Board, the acquisition of 10% or
more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, such as the
Corporation, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the bank holding company.
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In addition, a company is required to obtain the approval of the Federal
Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the
case of an acquiror that is a bank holding company) or more of any class of
outstanding common stock of a bank holding company, or otherwise obtaining
control or a "controlling influence" over that bank holding company.
Recent Legislation
On November 12, 1999, President Clinton signed into law legislation that
allows bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Act (the "GLB Act"), a bank holding
company that elects to become a financial holding company may engage in any
activity that the Federal Reserve Board, in consultation with the Secretary of
the Treasury, determines by regulation or order is (1) financial in nature, (2)
incidental to any such financial activity, or (3) complementary to any such
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The GLB
Act makes significant changes in U.S. banking law, principally by repealing the
restrictive provisions of the 1933 Glass-Steagall Act. The GLB Act specifies
certain activities that are deemed to be financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services; underwriting, dealing in or making a market in,
securities; and any activity currently permitted for bank holding companies by
the Federal Reserve Board under section 4(c)(8) of the Bank Holding Company Act.
The GLB Act does not authorize banks or their affiliates to engage in commercial
activities that are not financial in nature. A bank holding company may elect to
be treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well capitalized, well managed and have
at least a satisfactory rating under the Community Reinvestment Act. On February
14, 2000, the Corporation filed a letter with the Federal Reserve Bank of Boston
electing to be treated as a financial holding company under the GLB Act. The
Corporation anticipates that the Federal Reserve Board will act affirmatively on
the Corporation's election by March 13, 2000, which would make the election
effective on March 13, 2000.
National banks are also authorized by the GLB Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve Board, determines is
financial in nature or incidental to any such financial activity, except (1)
insurance underwriting, (2) real estate development or real estate investment
activities (unless otherwise permitted by law), (3) insurance company portfolio
investments and (4) merchant banking. The authority of a national bank to invest
in a financial subsidiary is subject to a number of conditions, including, among
other things, requirements that the bank must be well managed and well
capitalized (after deducting from the bank's capital outstanding investments in
financial subsidiaries). The GLB Act provides that state banks may invest in
financial subsidiaries (assuming they have the requisite investment authority
under applicable state law) subject to the same conditions that apply to
national bank investments in financial subsidiaries.
The GLB Act also contains a number of other provisions that will affect
the Corporation's operations and the operations of all financial institutions.
One of the new provisions relates to the financial privacy of consumers,
authorizing federal banking regulators to adopt rules that will limit the
ability of banks and other financial entities to disclose non-public information
about consumers to non-affiliated entities. These limitations are expected to
require more disclosure to consumers, and in some circumstances, to require
consent by the consumer before information is allowed to be provided to a third
party.
At this time, the Corporation is unable to predict the impact the GLB Act
may have upon its or its subsidiaries' financial condition or results of
operations.
Future Legislation
Changes to the laws and regulations in the states and countries where the
Corporation and its subsidiaries do business can affect the operating
environment of bank holding companies and their subsidiaries in substantial and
unpredictable ways. The Corporation cannot accurately predict whether
legislation will ultimately be enacted, and, if enacted, the ultimate effect
that it, or implementing regulations, would have upon its or its subsidiaries'
financial condition or results of operations.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following information, included under Items 6, 7 and 8 of this Report,
is incorporated by reference herein:
"Consolidated Average Balances/Interest Earned-Paid/Rates 1997-1999"
table - presents average balance sheet amounts, related taxable equivalent
interest earned or paid, and related average yields and rates paid.
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"Rate/Volume Analysis" table - presents changes in the taxable
equivalent interest income and expense for each major category of interest
earning assets and interest bearing liabilities.
Note 3, "Securities," of the "Notes to Consolidated Financial
Statements" and "Securities" table included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" - discloses
information regarding book values, market values, maturities, and weighted
average yields of securities (by category).
Note 4, "Loans and Leases," of the "Notes to Consolidated Financial
Statements" - discloses distribution of loans of the Corporation.
"Loans and Leases Maturity" table and "Interest Sensitivity of Loans
and Leases Over One Year" table - presents maturities and sensitivities of
loans to changes in interest rates.
Note 6, " Nonperforming Assets" and Note 1, "Summary of Significant
Accounting Policies - Loans and Leases" of the "Notes to Consolidated
Financial Statements" - discloses information on nonaccrual and past due
loans and leases and the Corporation's policy for placing loans on
nonaccrual status.
"Loans and Leases" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" - discloses information
regarding cross-border outstandings and other loan concentrations of the
Corporation.
"Reserve for Credit Losses" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - presents an
analysis of loss experience, the allocation of the reserve for credit
losses, and a description of factors which influenced management's
judgment in determining the amount of additions to the reserve charged to
operating expense.
"Consolidated Average Balances/Interest Earned-Paid/Rates 1997-1999"
table and the "Funding Sources" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - discloses
deposit information.
"Selected Financial Highlights" - presents return on assets, return on
equity, dividend payout ratio, and equity-to-assets ratio.
Note 9, "Short-Term Borrowings," of the "Notes to Consolidated
Financial Statements" - discloses information on short-term borrowings of
the Corporation.
ITEM 2. PROPERTIES
The Corporation maintains its corporate headquarters at One Federal Street,
Boston, Massachusetts. The Corporation or its subsidiaries also maintain
principal offices at 100 Federal Street and 75 State Street, Boston,
Massachusetts, 100 and 111 Westminster Street and One BankBoston Plaza,
Providence, Rhode Island and 777 Main Street and 100 Pearl Street, Hartford,
Connecticut. During 1999, the Corporation purchased 100 Federal Street, Boston,
Massachusetts from the lessor. The Corporation or its subsidiaries also maintain
administration and operations centers located in: Kingston, Melville, Utica,
Albany, West Seneca and Menands, New York; Boston, Dedham, Waltham and Malden,
Massachusetts; Moosic and Horsham, Pennsylvania; Milwaukee, Wisconsin;
Providence, East Providence and Lincoln, Rhode Island; and Hartford and Windsor,
Connecticut.
In Latin America, where FNB will continue to operate under the corporate
name "BankBoston, N.A." ("BankBoston"), BankBoston maintains banking
headquarters in Buenos Aires, Argentina, and Sao Paulo, Brazil. In 1997,
BankBoston entered into a contract to construct a new headquarters building in
Argentina, to be located near the existing headquarters. Construction began in
the first quarter of 1998 and is expected to be completed in the third quarter
of 2000. In addition, in September 1998, BankBoston acquired an undeveloped site
in Sao Paulo, Brazil. Construction of a new corporate office building commenced
in July 1999 and is expected to be completed in the fourth quarter of 2001.
None of these properties is subject to any material encumbrance. The
Corporation's subsidiaries also own or lease numerous other premises used in
their domestic and foreign operations.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Corporation is incorporated
by reference herein from Note 19, "Commitments, Contingencies and Other
Disclosures" of the "Notes to Consolidated Financial Statements," included under
Item 8 of this Report.
7
<PAGE>
ITEM 3A. EXECUTIVE OFFICERS OF THE CORPORATION
The names, positions, ages and business experience during the past five
years of the executive officers of the Corporation as of March 1, 2000 are set
forth below. The term of office of each executive officer extends until the
meeting of the Board of Directors immediately following the Annual Meeting of
Stockholders, and until a successor is chosen and qualified, unless they sooner
resign, retire, die or are removed.
<TABLE>
<CAPTION>
AGE AS OF
NAME POSITIONS WITH THE CORPORATION MARCH 1, 2000
- ---- ------------------------------ -------------
<S> <C> <C>
Terrence Murray................ Chairman and Chief Executive Officer 60
Charles K. Gifford............. President and Chief Operating Officer 57
Robert J. Higgins.............. President of Commercial and Retail Banking 54
Henrique C. Meirelles.......... President of Global Banking and Financial Services 54
David L. Eyles................. Vice Chairman and Chief Credit Officer 60
Paul F. Hogan.................. Vice Chairman, Corporate and Investment Banking 55
Peter J. Manning............... Vice Chairman 61
Eugene M. McQuade.............. Vice Chairman and Chief Financial Officer 51
H. Jay Sarles.................. Vice Chairman, National Financial Services,
and Chief Administrative Officer 54
Joseph Smialowski.............. Vice Chairman, Technology and Operations 51
Bradford H. Warner............. Vice Chairman, Investment Services 48
Brian T. Moynihan.............. Executive Vice President 40
William C. Mutterperl.......... Executive Vice President, General Counsel and Secretary 53
M. Anne Szostak................ Executive Vice President 49
Erich Schumann................. Senior Vice President and Chief Accounting Officer 50
Robert C. Lamb, Jr............. Controller 44
</TABLE>
Terrence Murray has served as Chairman, President and Chief Executive
Officer of the Corporation from 1989 to 1995, President and Chief Executive
Officer from 1995 to December 1996 and Chairman and Chief Executive Officer
since 1997. Mr. Murray has been a Director of the Corporation since 1976.
Charles K. Gifford became President and Chief Operating Officer of the
Corporation following the Merger. Prior to the Merger, Mr. Gifford had served as
Chairman, President and Chief Executive Officer of BankBoston from 1995 to 1996,
Chief Executive Officer from 1996 to 1997 and Chairman and Chief Executive
Officer from 1997 to October 1999. Mr. Gifford has been a Director of the
Corporation since October 1999.
Robert J. Higgins was named Vice Chairman of the Corporation in 1993,
President and Chief Operating Officer in 1997 and President of Commercial and
Retail Banking in October 1999. Mr. Higgins has been a Director of the
Corporation since October 1999.
Henrique C. Meirelles became President of Global Banking and Financial
Services of the Corporation following the Merger. Prior to the Merger, Mr.
Meirelles had served as BankBoston's Regional Manager of Brazil from 1994 to
1996 and President and Chief Operating Officer from 1996 to October 1999. Mr.
Meirelles has been a Director of the Corporation since October 1999.
David L. Eyles was named Executive Vice President and Chief Credit Officer
of the Corporation in 1995, and has been a Vice Chairman since 1998.
Paul F. Hogan became Vice Chairman, Corporate and Investment Banking of the
Corporation following the Merger. Prior to the Merger, Mr. Hogan had served as
Executive Vice President, Corporate Relationship Banking of BankBoston from 1995
to 1996, Vice Chairman, Corporate Banking from 1996 to 1997 and Vice Chairman,
Wholesale Banking from 1997 to October 1999.
Peter J. Manning became Vice Chairman of the Corporation following the
Merger. Prior to the Merger, Mr. Manning had served as Executive Director,
Mergers and Acquisitions of BankBoston from 1993 to 1996 and Executive Vice
President, Merger and Acquisitions from 1996 to October 1999.
Eugene M. McQuade was named Executive Vice President of the Corporation in
1993 and has served as Chief Financial Officer since 1993 and Vice Chairman
since 1997.
8
<PAGE>
H. Jay Sarles was named Vice Chairman of the Corporation in 1993, Chairman
of FBNA in 1996, Chief Administrative Officer of the Corporation in 1997 and
Vice Chairman, National Financial Services, and Chief Administrative Officer of
the Corporation in October 1999.
Joseph Smialowski became Vice Chairman, Technology and Operations of the
Corporation following the Merger. Prior to the Merger, Mr. Smialowski had served
as Executive Vice President, Technology and Operations of BankBoston from 1998
to October 1999. Before joining BankBoston, Mr. Smialowski served as Senior Vice
President and Chief Information Officer of Sears, Roebuck & Co. from 1993 to
1998.
Bradford H. Warner became Vice Chairman, Investment Services of the
Corporation following the Merger. Prior to the Merger, Mr. Warner had served as
Group Executive, Global Treasury of BankBoston from 1995 to 1996, Executive Vice
President, Global Capital Markets from 1996 to 1998 and Vice Chairman, Regional
Banking from 1998 to October 1999.
Brian T. Moynihan was named Managing Director, Corporate Strategy and
Development of the Corporation in 1994, Senior Vice President in 1998 and
Executive Vice President in October 1999.
William C. Mutterperl has served as General Counsel and Secretary of the
Corporation since 1985, Senior Vice President from 1989 to 1998 and Executive
Vice President since 1998.
M. Anne Szostak was named Senior Vice President, Human Resources of the
Corporation in 1994 and has served as Executive Vice President since 1998.
Erich Schumann became Senior Vice President and Chief Accounting Officer of
the Corporation following the Merger. Prior to the Merger, Mr. Schumann had
served as Chief Administrative Officer of BankBoston's Brazilian operations from
1994 to 1997, Executive Director, Finance of BankBoston from 1997 to 1998 and
Executive Vice President, Finance from 1998 to October 1999.
Robert C. Lamb, Jr. has served as Controller of the Corporation since 1993.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of 1999.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed on the New York Stock Exchange. At
December 31, 1999, the Corporation had 69,549 stockholders of record. For
information regarding high and low quarterly sales prices, and quarterly
dividends declared and paid, in each case on the Corporation's common stock, see
the "Common Stock Price and Dividend Information" table included under Item 8 of
this Report, which is incorporated by reference herein.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHLIGHTS(A)
Dollars in millions, except per share amounts 1999 1998 1997 1996 1995
Prepared on a fully taxable equivalent basis
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 6,799 $ 6,454 $ 6,192 $ 5,858 $ 5,389
Noninterest income 6,974 5,281 4,206 3,658 3,237
Total revenue 13,773 11,735 10,398 9,516 8,626
Noninterest expense 9,357 7,050 6,050 5,831 5,831
Provision for credit losses 933 850 522 444 376
Net income 2,038 2,324 2,246 1,860 1,351
- -----------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings $ 2.16 $ 2.47 $ 2.39 $ 1.88 $ 1.25
Diluted earnings 2.10 2.41 2.33 1.84 1.19
Market price (year-end)(b) 34.81 44.69 37.56 24.94 20.38
Cash dividends declared(b) 1.11 1.00 .92 .87 .82
Book value (year-end) 15.96 14.70 13.23 12.08 11.15
- -----------------------------------------------------------------------------------------------------------
AT YEAR-END
Assets $190,692 $177,894 $160,314 $151,955 $147,373
Securities 25,212 23,369 19,845 17,164 27,578
Loans 119,700 112,094 106,545 100,922 91,436
Reserve for credit losses 2,488 2,306 2,144 2,371 2,211
Deposits 114,896 118,178 109,497 109,902 98,186
Short-term borrowings 18,106 19,176 19,224 13,327 22,818
Long-term debt 25,349 14,411 8,191 8,460 8,686
Total stockholders' equity 15,307 14,204 13,041 12,702 11,359
- -----------------------------------------------------------------------------------------------------------
RATIOS
Return on average common equity 14.12% 17.64% 19.71% 16.31% 13.16%
Return on average assets 1.08 1.37 1.48 1.27 .95
Common dividend payout ratio 51.51 40.15 35.55 40.71 50.76
Net interest margin 4.23 4.40 4.68 4.57 4.24
Efficiency ratio(c) 60.0 58.2 57.2 59.9 60.4
Common equity-to-assets (year-end) 7.66 7.60 7.53 7.40 7.09
Average total equity-to-assets 7.82 8.03 8.02 8.31 7.69
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF 1999 AND 1998 OPERATING RESULTS(A)(C)
Dollars in millions, except per share amounts
Prepared on a fully taxable equivalent basis 1999 1998
- ---------------------------------------------------------------------------
FOR THE YEAR
Net interest income $ 6,799 $ 6,454
Noninterest income 6,974 5,281
Total revenue 13,773 11,735
Noninterest expense 8,255 6,832
Provision for credit losses 933 850
Net income 2,798 2,459
- ---------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings $ 2.98 $ 2.62
Diluted earnings 2.91 2.55
- ---------------------------------------------------------------------------
RATIOS
Return on average common equity 19.52% 18.69%
Return on average assets 1.48 1.44
- ---------------------------------------------------------------------------
(a)Information presented has been restated to reflect the merger with
BankBoston, which was accounted for as a pooling of interests.
(b)Amounts represent the historical market value and cash dividends of the
Corporation.
(c)Operating results and efficiency ratio exclude the impact of merger- and
restructuring-related charges and other special items.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On October 1, 1999, BankBoston Corporation (BankBoston) merged with Fleet
Financial Group, Inc. (Fleet). Following the merger, Fleet was renamed Fleet
Boston Corporation (the Corporation). The merger was accounted for as a pooling
of interests and, as such, financial information included in this discussion
presents the combined financial condition and results of operations of both
companies as if they had operated as a combined entity for all periods
presented. Refer to Note 2 to the Consolidated Financial Statements for further
discussion of the merger.
The Corporation's earnings were $2.0 billion, or $2.10 per diluted share,
for 1999, compared with $2.3 billion, or $2.41 per diluted share, for 1998.
Return on assets (ROA) and return on common equity (ROE) were 1.08% and 14.12%,
respectively, in 1999, compared to 1.37% and 17.64%, respectively, in 1998.
The Corporation recorded merger- and restructuring-related charges and
other costs of $1.1 billion ($760 million after-tax) in the fourth quarter of
1999. These items were composed of $850 million of charges to accrue for
merger-related expenses and a restructuring plan; $102 million of merger
integration costs that were incurred during the quarter; and $150 million to
establish a defined contribution plan to provide retention incentives at
Robertson Stephens. In 1998, the Corporation recorded merger- and
restructuring-related charges and other costs of $218 million ($135 million
after-tax) in connection with its acquisitions of The Quick & Reilly Group, Inc.
(Quick & Reilly), the domestic consumer credit card operations of Advanta
Corporation and Robertson Stephens, as well as a realignment of its Asian
operations and reductions in staff in its Emerging Market Sales, Trading and
Research unit. Refer to the Noninterest Expense section of this discussion, as
well as Note 8 to the Consolidated Financial Statements, for further discussion
of certain of these costs.
Excluding the effects of the merger- and restructuring-related charges and
other costs, operating net income increased 14% to $2.8 billion, or $2.91 per
diluted share in 1999, compared to operating net income of $2.5 billion, or
$2.55 per diluted share in 1998. On this same basis, ROA and ROE were 1.48% and
19.52%, respectively, in 1999 and 1.44% and 18.69%, respectively, in 1998.
In connection with obtaining regulatory approvals for the merger with
BankBoston, the Corporation agreed to divest $13 billion of deposits and $9
billion of loans. These divestitures will occur in 2000, and are expected to
result in an annualized net income reduction of approximately $160 million, part
of which will impact 2000.
The Corporation expects to achieve total annual cost savings of
approximately $600 million in connection with the integration of Fleet and
BankBoston. The integration process is well underway, and major systems
conversions are expected to be completed in 2000. The Corporation expects to
complete its actions related to achieving these cost savings by the end of 2000,
and as of year-end 1999 had achieved annualized cost savings of approximately
$100 million.
Excluding the effects of the aforementioned merger- and
restructuring-related charges and other costs, increases in both net income and
earnings per share during 1999 primarily reflect growth in many of the
Corporation's domestic businesses and in its Latin American operations. The
improved earnings also reflect the results of Robertson Stephens, acquired by
the Corporation in August 1998, for a full year versus four months in 1998, and
of Sanwa Business Credit (Sanwa), acquired by the Corporation in February 1999.
Net interest income on a fully taxable equivalent (FTE) basis totaled $6.8
billion for 1999, compared to $6.5 billion for 1998. This increase was
principally attributable to an increase in average loans and leases of $6.5
billion, due primarily to the Sanwa acquisition. Net interest margin for 1999
was 4.23%, a decline from 4.40% in 1998, primarily attributable to a higher
level of low-yield earning assets necessary to support an expanded investment
banking operation.
The provision for credit losses was $933 million in 1999, compared to $850
million in 1998. The increase in provision was due principally to the
acquisition of Sanwa, as well as higher credit losses in the domestic commercial
and international consumer loan portfolios.
Noninterest income increased $1.7 billion to $7.0 billion in 1999.
Increases were noted in all core revenue categories, in particular capital
markets, investment services, credit card and processing-related revenues.
Strong growth was noted over 1998 as a result of the aforementioned
acquisitions, as well as growth within existing and acquired businesses.
Noninterest expense totaled $9.4 billion for 1999, compared with $7.1
billion in 1998, resulting primarily from the aforementioned acquisitions,
growth in many of the Corporation's businesses, a rise in compensation expense
due to incentive payments related to higher revenue levels and the merger- and
restructuring-related charges and other costs described above.
This discussion may contain statements relating to future results of the
Corporation (including certain projections and business trends) that are
considered "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, which are more fully
discussed under Item 1 of this Report.
11
<PAGE>
RESULTS OF OPERATIONS
The following is a discussion and analysis of the Corporation's consolidated
results of operations. In order to understand this section in context, it should
be read in conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements included under Item 8 of this Report.
NET INTEREST INCOME
Year ended December 31 1999 1998 1997
FTE basis
In millions
===========================================================
Interest income $13,052 $12,341 $11,255
Tax-equivalent adjustment 57 59 64
Interest expense 6,310 5,946 5,127
- -----------------------------------------------------------
Net interest income $6,799 $6,454 $6,192
===========================================================
The $345 million, or 5%, increase in net interest income for 1999 compared to
1998 was due principally to higher interest income resulting from strong loan
growth in the domestic commercial and lease financing portfolios, primarily
loans and leases from the Sanwa acquisition.
NET INTEREST MARGIN AND INTEREST RATE SPREAD
Year ended December 31 1999 1998
FTE basis Average Average
Dollars in millions Balance Rate Balance Rate
==============================================================
Securities $24,518 6.48% $21,727 6.81%
Loans and leases:
Domestic 103,511 8.21 96,806 8.51
International 14,017 13.47 14,233 12.11
Due from brokers/dealers 3,239 4.57 3,765 4.89
Mortgages held for resale 2,445 7.18 2,685 7.04
Other 12,906 6.28 7,478 7.89
- --------------------------------------------------------------
Total interest earning 160,636 8.16 146,694 8.45
assets
- --------------------------------------------------------------
Deposits 90,687 3.88 88,634 4.18
Short-term borrowings 23,109 5.32 21,669 5.81
Due to brokers/dealers 4,145 4.65 4,501 4.75
Long-term debt 22,290 6.15 10,962 7.00
- --------------------------------------------------------------
Interest bearing 140,231 4.50 125,766 4.73
liabilities
- --------------------------------------------------------------
Interest rate spread 3.66 3.72
Interest free sources of 20,405 20,928
funds
- --------------------------------------------------------------
Total sources of funds $160,636 3.93% $146,694 4.05%
- --------------------------------------------------------------
Net interest margin 4.23% 4.40%
==============================================================
Net interest margin represents the relationship between net interest income and
average earning assets. Net interest margin is affected by several factors,
including fluctuations in the overall interest rate environment, funding
strategies of the Corporation, the mix of interest earning assets, interest
bearing liabilities and noninterest bearing liabilities, as well as the use of
interest rate derivatives that are used to manage interest rate risk.
Net interest margin for 1999 declined 17 basis points to 4.23%. This
decrease was primarily attributable to a higher level of low-yielding earning
assets necessary to support an expanded investment banking operation, as well as
an increased reliance on wholesale funding.
Average securities increased $2.8 billion to $24.5 billion in 1999, due
primarily to increases in international investments and marketable equity
securities.
Average domestic loans and leases increased $6.7 billion to $103.5 billion
in 1999, due primarily to the Sanwa acquisition. Other interest earning assets
increased $5.4 billion to $12.9 billion during 1999, as a result of an increase
in money market instruments necessary to support an expanded investment banking
operation.
Average interest bearing deposits increased $2.1 billion to $90.7 billion
in 1999, primarily the result of increased domestic money market deposits,
partially offset by a decline in savings and NOW balances and domestic time
deposits.
Average short-term borrowings increased $1.4 billion to $23.1 billion
during 1999, due to increases in securities sold under agreements to repurchase
necessary to support an expanded investment banking operation, partially offset
by declines in other short-term borrowings.
The $11.3 billion increase in average long-term debt was due primarily to
net increases in senior and subordinated debt and bank notes used to fund
acquisitions and loan growth. The 85 basis point decrease in the funding rate
was due to the issuance of additional debt at lower floating interest rates. It
is anticipated that the average rate on the Corporation's long-term portfolio
will more closely track movements in short-term interest rates, such as the
London Interbank Offered Rate (LIBOR), the prime rate and the Federal Funds
rate. These indices are closely related to the underlying assets responsible for
recent balance sheet growth.
NONINTEREST INCOME
Year ended December 31 1999 1998 1997
In millions
==========================================================
Capital markets revenue $2,104 $1,140 $ 914
Investment services revenue 1,513 1,212 990
Banking fees and commissions 1,501 1,339 1,207
Credit card revenue 737 455 98
Processing-related revenue 609 452 469
Gains on branch divestitures
and sales of businesses 50 254 243
Other noninterest income 460 429 285
- ----------------------------------------------------------
Total noninterest income $6,974 $5,281 $4,206
==========================================================
Noninterest income totaled $7.0 billion for 1999, up 32%, compared to $5.3
billion for 1998. This increase reflects growth in many of the Corporation's
businesses, such as Quick & Reilly and Robertson Stephens, and includes the full
year impact of the acquisition of Robertson Stephens, versus four months in
1998.
As a result of intensified competition and changing customer needs in the
financial services industry, the Corporation has made strategic decisions
directed at enhancing future fee revenue-producing activities. Throughout the
past several years, the Corporation has developed new products and service
lines, and broadened existing lines via acquisitions, to provide additional
revenue streams to complement its traditional banking products and services.
These include investment banking, brokerage, investment management, mutual fund
and annuity products, credit cards, venture capital investments, Internet
banking and domestic and international banking expansion.
12
<PAGE>
CAPITAL MARKETS REVENUE
Year ended December 31 1999 1998 1997
In millions
=============================================================
Principal investing $ 494 $ 381 $292
Market-making revenue 426 162 100
Underwriting revenue 366 47 19
Advisory fees 230 71 30
Trading profits and commissions 204 69 92
Foreign exchange revenue 203 174 128
Syndication/agency fees 164 105 133
Securities gains 7 115 113
Other revenue 10 16 7
- -------------------------------------------------------------
Total capital markets revenue $2,104 $1,140 $914
=============================================================
Capital markets revenue showed a significant increase, rising $964 million, or
85%, to $2.1 billion for 1999. This increase was driven by strong principal
investing, market-making and underwriting revenue, as well as a significant
increase in advisory fees, syndication/agency fees and trading profits and
commissions, partially offset by lower securities gains. These results include
the full year impact of Robertson Stephens in 1999 compared to four months in
1998, as well as strong growth within their business lines during 1999. In
addition to the impact of this acquisition, much of the increase in these
revenues was a result of the unprecedented strength in the U.S. capital markets,
particularly the technology sector. The Corporation's ability to continue to
experience increases in these types of revenues depends on a variety of factors,
including the condition of the economy, interest rates and equity markets. Thus,
the level of such revenues in the future cannot be predicted with certainty.
Principal investing revenues rose $113 million, or 30%, to $494 million for
1999. The growth in revenue included gains on the sale of several technology
stocks, reflecting effective investment strategies and continued strength in the
equity markets. The Corporation has been in the principal investing business
since 1959, and has one of the largest bank-owned businesses, with offices in
Boston, Providence, Palo Alto, London, Hong Kong, Buenos Aires and Sao Paulo.
During 1999, the Corporation made new investments totaling approximately $1
billion. As of December 31, 1999, the Corporation's Principal Investing
portfolio was composed of investments with an aggregate carrying value of
approximately $4 billion, composed of indirect investments in primary or
secondary funds, direct investments in privately held companies and direct
investments in companies whose stocks are publicly traded. Approximately 25% to
30% of the total portfolio is composed of investments in companies which operate
in the "new economy".
The total portfolio is diversified as to industry and geographically, with
approximately 75% of the portfolio domestic and 25% international, principally
Europe. The direct investments in public companies are carried at fair value,
with unrealized gains and losses recorded, net of tax, in other comprehensive
income, which is recorded as a separate component of stockholders' equity. These
gains or losses are not recorded in the Corporation's income statement until the
related investments are sold. The gross pre-tax unrealized gain on these direct
investments in public companies, none of which have been recorded in the income
statement, amounted to approximately $1.4 billion at December 31, 1999.
Market-making revenue increased $264 million, or 163%, to $426 million in
1999, reflecting growth in this business at Robertson Stephens and Quick &
Reilly, as well as the full year impact of the Corporation's purchase of
Robertson Stephens in August 1998 and Merrill Lynch Specialists, Inc. (MLSI) in
December 1998. Quick & Reilly is the second largest New York Stock Exchange
(NYSE) market-maker and also makes a market in over 4,300 NASDAQ securities.
These businesses benefited from the favorable market environment, which resulted
in increased transaction volume.
Underwriting revenue increased $319 million during 1999, again reflective
of the August 1998 acquisition of Robertson Stephens and the high volume of
initial public offering and private offering activity in that business during
1999.
Advisory fees increased $159 million to $230 million during 1999 as a
result of increased fees at Robertson Stephens. Advisory fees include fees
received for providing financial advice on mergers and acquisitions, private
clients transactions and other transactions.
Trading profits and commissions rose $135 million to $204 million in 1999,
primarily the result of the inclusion of Robertson Stephens for a full year in
1999 and the absence of losses incurred in 1998 in the emerging markets and high
yield trading portfolios.
Foreign exchange revenue increased $29 million, or 17%, to $203 million in
1999, as a result of higher customer demand during periods of volatility in
world financial markets.
Syndication/agency fees increased $59 million to $164 million in 1999, as a
result of higher transactional volume during 1999.
Securities gains declined $108 million as a result of fewer transactions in
the securities available for sale portfolio in response to the interest rate
risk position of the Corporation and the overall interest rate environment, as
well as impairment losses which were recorded on certain securities.
INVESTMENT SERVICES REVENUE
Year ended December 31 1999 1998 1997
In millions
========================================================
Investment management revenue $ 892 $ 849 $680
Brokerage fees and 621 363 310
commissions
- --------------------------------------------------------
Total investment services $1,513 $1,212 $990
revenue
========================================================
13
<PAGE>
Investment services revenue increased $301 million, or 25%, in 1999 to $1.5
billion. Changes in these revenues are discussed in more detail below.
Investment Management Revenue
Year ended December 31 1999 1998 1997
In millions
========================================================
Private Clients Group $374 $367 $333
Institutional businesses 150 156 149
International 142 131 109
Retail investments 122 92 72
Columbia Management Company 98 98 -
Other 6 5 17
- --------------------------------------------------------
Total $892 $849 $680
========================================================
Investment management revenue rose $43 million, or 5%, in 1999 to $892 million.
This improvement was due to the rise in the domestic equities market, which led
to increased sales of annuities and mutual fund products, and increased the
value of assets under management from approximately $116 billion at December 31,
1998 to approximately $129 billion at December 31, 1999. Internationally, the
Corporation is among the largest mutual fund providers in Argentina and Brazil.
Brokerage Fees and Commissions
Brokerage fees and commissions increased $258 million, or 71% in 1999 to $621
million, due to the aforementioned acquisition of Robertson Stephens, increased
transactional activity at Quick & Reilly, and higher clearing levels within U.S.
Clearing as a result of the strong performance in the domestic equity markets.
BANKING FEES AND COMMISSIONS
Banking fees and commissions, which includes fees received for cash management,
deposit accounts, electronic banking and other service fees, increased $162
million, or 12%, to $1.5 billion in 1999. The increase was due principally to
the continuing development of new product packaging and fee schedules, as well
as growth in the Corporation's customer base.
CREDIT CARD REVENUE
Credit card revenue increased $282 million, or 62%, to $737 million in 1999,
primarily the result of increased securitization revenue due to higher volumes,
as well as a full year impact of 1998 portfolio acquisitions. Increased
securitization revenue was a direct result of a strategic repositioning from a
primarily one-product portfolio to a multi-product portfolio, which focused on
replacing promotional rate products with stable fixed rate products. The
Corporation services $14.9 billion of securitized and owned credit card
receivables. The primary components of credit card revenue are related to the
Corporation's securitization activities. These activities result in
securitization income, servicing revenue, interchange fees, and amortization of
deferred acquisition costs.
The securitization of credit card receivables changes the Corporation's
status from that of a lender to that of a loan servicer. Accordingly, there is a
change in the classification of the revenue associated with the securitization
which is reported in the income statement. The Corporation's revenue over the
term of a securitization transaction may vary depending upon the credit
performance of the securitized receivables, because credit losses become a
component of the cash flows arising from the securitized receivables.
The following table depicts the consolidated financial statement impact as
if the securitized credit card receivables had, in fact, been owned, as well as
additional financial information pertaining to credit card receivables.
Credit Card Securitization Summary
Credit Card
Year ended December 31,1999 Securiti-
Dollars in millions Reported zation Managed
============================================================
Net interest income (FTE) $ 6,799 $ 984 $ 7,783
Provision for credit losses 933 573 1,506
Noninterest income 6,974 (411) 6,563
Noninterest expense 9,357 --- 9,357
Net income 2,038 --- 2,038
Assets at year-end $190,692 $9,086 $199,778
Average assets 188,779 8,857 197,636
Net interest margin 4.23% 11.11% 4.59%
============================================================
PROCESSING-RELATED REVENUE
Year ended December 31 1999 1998 1997
In millions
========================================================
Mortgage banking revenue, net $364 $253 $323
Student loan servicing fees 142 121 101
Other 103 78 45
- --------------------------------------------------------
Total processing-related $609 $452 $469
revenue
========================================================
Processing-related revenue increased $157 million, to $609 million in 1999, as
all components experienced growth in revenues. Net mortgage banking revenue is
discussed below. Student loan servicing fees increased $21 million, or 17%, at
AFSA Data Corporation (AFSA), the Corporation's student loan servicing
subsidiary, as accounts serviced increased 11% to 7.2 million in 1999. Other
processing-related revenue increased $25 million, due principally to higher
volume at the Corporation's healthcare processing business.
14
<PAGE>
Mortgage Banking Revenue, Net
Year ended December 31 1999 1998 1997
In millions
==========================================================
Net loan servicing revenue $ 548 $456 $450
Mortgage production revenue 173 196 111
Gains on sales of mortgage
servicing --- 34 10
Amortization/impairment charge (357) (433) (248)
- ----------------------------------------------------------
Total mortgage banking revenue, $ 364 $253 $323
net
==========================================================
Net mortgage banking revenue in 1999 increased $111 million, or 44%, from $253
million in 1998. This increase was due principally to increased net loan
servicing revenue and a decline in mortgage servicing rights (MSRs)
amortization/impairment, offset by a decline in the level of sales of mortgage
servicing and decreased mortgage production revenue.
Net loan servicing revenue represents fees received for servicing
residential mortgage loans. The $92 million, or 20%, increase in net loan
servicing revenue is attributable to the 26% growth in the size of the servicing
portfolio from approximately $119 billion at December 31, 1998 to approximately
$150 billion at December 31, 1999.
Mortgage production revenue includes income derived from the loan
origination process and gains on sales of mortgage originations. Mortgage
production revenue declined in 1999, but remained strong as loan production
volume equaled 1998 record levels. The Corporation did not recognize any gain on
the sales of MSRs during 1999. The Corporation's decision to sell MSRs depends
on a variety of factors, including the available markets and current market
prices for such servicing rights.
MSR amortization decreased $76 million to $357 million in 1999, due to the
absence of a $75 million impairment charge recorded in 1998 caused by the low
mortgage rate environment. Since MSRs are an interest rate-sensitive asset, the
value of the Corporation's mortgage servicing portfolio and related mortgage
banking revenue may be adversely impacted if mortgage interest rates decline and
actual or expected loan prepayments increase. For additional information
regarding pre-payment risk, refer to the Asset-Liability Management section of
this discussion.
OTHER
Gains on branch divestitures and sales of businesses consisted of a $50 million
gain on the Corporation's sale of its interest in a credit card venture in 1999.
1998 results included a $165 million gain from the Corporation's sale of its 26%
interest in HomeSide, Inc., an independent mortgage banking company, and gains
of $51 million and $38 million related to the sales of the BankBoston Berkshire
County, Massachusetts franchise and domestic institutional custody business,
respectively.
Other noninterest income increased $31 million to $460 million in 1999, due
primarily to revenues resulting from the aforementioned acquisitions and
increases in the Corporation's insurance and lease residual income.
NONINTEREST EXPENSE
Year ended December 31 1999 1998 1997
In millions
==========================================================
Employee compensation and
benefits $4,568 $3,556 $3,031
Occupancy and equipment 1,114 1,003 961
Intangible asset amortization 349 274 206
Legal and other professional 307 254 172
Marketing and public relations 276 253 225
Telephone 177 167 141
Printing and mailing 165 152 128
Other 1,551 1,253 1,161
- ----------------------------------------------------------
Merger- and restructuring-related
charges 850 138 25
- ----------------------------------------------------------
Total noninterest expense $9,357 $7,050 $6,050
==========================================================
Noninterest expense increased $2.3 billion, or 33%, to $9.4 billion in 1999, due
primarily to acquisitions, merger- and restructuring-related charges and other
costs, growth in acquired and existing businesses and higher compensation and
benefit costs resulting mainly from increases in incentive compensation.
Noninterest expense for 1999 reflects the full year impact of Robertson
Stephens, compared to four months for 1998, as well as Sanwa, acquired by the
Corporation in February 1999.
In connection with the merger, the Corporation recorded merger- and
restructuring-related charges and other costs of $1.1 billion in the fourth
quarter of 1999. These costs were composed of $850 million of charges to accrue
for merger-related costs and a restructuring plan; $102 million of integration
costs incurred during the fourth quarter; and $150 million to establish a
defined contribution plan for retention incentives at Robertson Stephens. The
$102 million of integration costs were composed of $25 million of employee
compensation and benefits costs, $39 million of occupancy and equipment costs,
$17 million of legal and other professional costs, primarily consulting fees,
and $21 million of other costs. The integration process is expected to be
completed by the end of 2000, during which the Corporation expects to incur
additional integration costs of approximately $200 million.
In 1998, the Corporation recorded merger- and restructuring-related charges
and other costs of $218 million in connection with its acquisitions of Quick &
Reilly, Robertson Stephens and the domestic consumer credit card operations of
Advanta, as well as a realignment of its Asian operations and reductions in
staff in its Emerging Market Sales, Trading and Research unit. Refer to Note 8
to the Consolidated Financial Statements for additional information on certain
of these costs.
Employee compensation and benefits increased $1 billion during 1999, due to
increased levels of incentive payments in businesses with strong volumes and
revenue growth, such as Robertson Stephens and Quick & Reilly. As previously
mentioned, the Corporation recorded a $150 million charge in 1999 related to the
establishment of a defined contribution plan for retention incentives at
Robertson Stephens.
Occupancy and equipment increased $111 million, or 11%, to $1.1 billion,
primarily as a result of merger integration costs of $39 million recorded in
the fourth quarter of 1999, as well as increased expenses associated with the
aforementioned acquisitions.
15
<PAGE>
Intangible asset amortization increased $75 million to $349 million in
1999, due mainly to the acquisitions of various credit card portfolios in 1998,
Sanwa, Robertson Stephens and MLSI, as well as additional goodwill recorded in
1999 related to the NatWest earnout agreement.
Legal and other professional expense increased $53 million during 1999, the
result of $17 million of merger integration costs incurred in the fourth quarter
of 1999, as well as the aforementioned acquisitions and other initiatives.
Marketing and public relations, telephone, and printing and mailing expenses
increased as a result of promotional mailings and higher volume at the
Corporation's processing-related businesses.
Other noninterest expense increased $298 million, or 24%, the result of
merger integration costs incurred in the fourth quarter of 1999 and increases
due to acquisitions and growth in existing businesses.
Excluding the effects of the merger- and restructuring-related charges and
other costs of $1.1 billion and $218 million in 1999 and 1998, respectively,
noninterest expense increased $1.4 billion, or 21%, in 1999 compared to 1998.
This increase resulted primarily from growth in the Corporation's businesses
acquired in 1999 and 1998, as well as the full year impact in 1999 of Robertson
Stephens and the February 1999 acquisition of Sanwa.
The Corporation expects to achieve total annual cost savings of
approximately $600 million as a result of the integration of Fleet and
BankBoston. The merger integration process is well underway, and major systems
conversions are expected to be completed in 2000. The Corporation expects to
complete its actions related to achieving these cost savings by the end of 2000,
and as of year-end 1999 had achieved annualized cost savings of approximately
$100 million. Because the merger integration process could be affected by many
factors beyond the control of the Corporation, such as regional and national
economic conditions, changes in integration plans and unanticipated changes in
business conditions, the Corporation's ability to achieve its expected cost
savings and the periods within which these cost savings may be achieved cannot
be predicted with absolute certainty.
YEAR 2000
The Corporation smoothly transitioned into the Year 2000. All systems,
processing functions, infrastructure and facilities were fully operational
during the century date change, and have remained fully operational to date. All
of the Corporation's business units (banks, international locations and other
subsidiaries) reported that they successfully conducted "business as usual" on
Monday, January 3, 2000, the first business day of 2000. In addition, the
Corporation's supermarket and mall branches that were scheduled to open for
business on January 1, 2000 did so successfully. Several thousand employees were
on hand over the rollover weekend to monitor and validate the transition into
the Year 2000, including all levels of management.
While the rollover to Year 2000 was successful, there can be no assurance
that Year 2000-related problems will not occur. Despite the Corporation's
efforts to identify and address Year 2000 issues, such issues may continue to
present risks to the Corporation, including business disruptions, operational
problems, credit and other financial losses, legal liability and other similar
risks. The Corporation's businesses, results of operations, and financial
position could be materially adversely affected. The Corporation has not
experienced, and does not anticipate, any significant problems related to its
transition into the Year 2000.
Both Fleet and BankBoston had extensive Year 2000 programs in place prior
to the merger. Based on the timing of the merger in relation to the beginning of
2000, management concluded that each of the Year 2000 programs should continue
to be carried out separately. As such, the Corporation's Year 2000 programs were
not significantly affected by the merger. Total costs for the Fleet program are
expected to be approximately $150 million, of which approximately 83% had been
incurred through December 31, 1999. The BankBoston program is expected to incur
incremental costs of $75 million. It is estimated that these incremental costs
represent over half of the BankBoston total program costs. Approximately 86% of
the BankBoston program costs had been incurred through December 31, 1999.
16
<PAGE>
INCOME TAXES
The Corporation recorded income tax expense of $1.4 billion for 1999 compared
with $1.5 billion for 1998. The effective tax rate was 40.5% in 1999 compared
with 38.5% in 1998. The increase in the effective tax rate was attributable to
the portion of the merger- and restructuring-related charge that was
nondeductible.
LINE OF BUSINESS INFORMATION
The Corporation is organized and managed along three principal lines of
business: Global Banking and Financial Services, Commercial and Retail Banking
and the National Consumer Group. The financial performance of these lines of
business is monitored by an internal profitability measurement system, which
provides line of business results and key performance measures. The following
table presents selected line of business results on an operating basis. These
results have been realigned to reflect the new organization that resulted from
the merger of Fleet and BankBoston, and have been reported using the management
reporting methodologies used by the combining companies during the periods
presented. A uniform set of management reporting methodologies has been
developed and will be implemented in 2000. The information is presented on a
fully taxable equivalent basis. Refer to Note 14 to the Consolidated Financial
Statements for additional information on the Corporation's lines of business.
LINE OF BUSINESS EARNINGS SUMMARY
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1999 1998 1999 1998
Dollars in millions Net Income Total Revenue Return on Equity
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Global Banking and Financial Services $1,290 $ 876 $6,127 $4,352 23% 19%
Commercial and Retail Banking 1,226 1,069 5,785 5,359 22 23
National Consumer Group 255 152 1,725 1,426 11 7
All Other (733) 227 136 598 - -
- ----------------------------------------------------------------------------------------------------------------
Total $2,038 $2,324 $13,773 $11,735 14% 18%
================================================================================================================
</TABLE>
During 1999, each of the three principal business lines posted increases in
earnings and revenue compared to 1998. Improved results were driven by growth in
existing businesses, as well as the Corporation's acquisitions. All Other for
1999 and 1998 included $1.1 billion ($760 million after-tax) and $218 million
($135 million after-tax), respectively, of merger- and restructuring-related
charges and other costs. These costs are more fully discussed in the Noninterest
Expense section of this discussion, and the merger- and restructuring-related
costs are more fully discussed in Note 8 to the Consolidated Financial
Statements.
The following discussion focuses on the components and results of each of
the three major business lines.
GLOBAL BANKING AND FINANCIAL SERVICES
Year ended December 31 1999 1998
Dollars in millions
===========================================================
Income Statement Data:
Net interest income (FTE) $2,012 $1,752
Noninterest income 4,115 2,600
Provision for credit losses 303 237
Noninterest expense 3,678 2,625
Taxes/FTE adjustment 856 614
- -----------------------------------------------------------
Net Income $1,290 $ 876
- -----------------------------------------------------------
Balance Sheet Data:
Average assets $77,860 $63,525
Average loans and leases 46,743 43,509
Average deposits 20,071 18,815
- -----------------------------------------------------------
Return on Equity 23% 19%
===========================================================
Global Banking and Financial Services includes Corporate and Investment Banking,
International Banking, Investment Services and Principal Investing. This unit
earned $1.3 billion in 1999, a 47% increase from 1998 earnings of $876 million.
Increased earnings for Global Banking and Financial Services were driven by
capital markets and investment services revenues, as the Corporation capitalized
on strategic acquisitions completed during the prior year, as well as the
strength of world financial markets. In addition, this group incurred pre-tax
trading losses and write-downs in 1998 totaling $125 million, primarily related
to the Asian financial crisis. A more detailed analysis of the supporting
business units follows.
Year ended December 31 1999 1998 1999 1998
Dollars in millions Net Income % Change Total Revenue % Change
================================================================================
Corporate and Investment
Banking $ 406 $183 122% $2,108 $1,032 104%
International Banking 338 243 39 1,816 1,517 20
Investment Services 334 269 24 1,752 1,444 21
Principal Investing 212 181 17 451 359 26
- --------------------------------------------------------------------------------
Total $1,290 $876 47% $6,127 $4,352 41%
================================================================================
17
<PAGE>
Corporate and Investment Banking
This line of business includes national specialized industry lending,
institutional banking, investment banking and capital markets activities. As a
result of its focus on the needs of large corporate customers and specialized
industries, this unit represents a diverse mix of corporate customers both by
geographic region and industry. Investment banking is conducted by Robertson
Stephens, which was acquired in August 1998, as well as the Corporation's other
corporate finance units. These units provide business customers with capital
formation, acquisition finance and long-term financial strategies. The
specialized industry and institutional lending units provide financial services
to corporate customers across the nation in high growth industries such as
media, communications, high tech, energy, financial institutions and healthcare.
This unit also services international clients through the multinational and
European units.
Corporate and Investment Banking earnings increased by $223 million, or
122%, compared to 1998, primarily due to the record levels of investment banking
activities which were reached in the world financial markets in 1999. Both
Robertson Stephens and the industry banking unit were benefactors of this
favorable investment banking environment. During 1998, Corporate and Investment
Banking incurred pre-tax trading losses of $105 million in connection with world
financial market volatility.
International Banking
The International Banking unit includes the Corporation's international
operations, predominantly in Brazil, where the Corporation has been in business
since 1947, and Argentina, where the Corporation has done business since 1917.
In both countries the Corporation is a recognized leader among financial
institutions. Further leveraging the expertise which it enjoys in these markets,
the Corporation has been able to develop unique strategies for managing
businesses in Argentina and Brazil. This business unit also includes operations
in other Latin American countries, as well as Asia, and offers sophisticated
foreign exchange products and other services through the capital markets unit.
This business line excludes operations in Europe, as well as international
operations related to large corporate and multinational customers, all of which
are part of the Corporate and Investment Banking business unit.
During the 1990s, Argentina has experienced a period of economic stability
and low inflation, with the Peso exchange rate tied one-for-one with the U.S.
dollar. Economic stability and growth has helped foster expansion and
acquisitions in the Argentine markets, where the Corporation currently operates
139 branches, including the operations of Deutsche Bank Argentina, S.A., which
were acquired in January 1998. The Corporation's total assets in Argentina
amounted to approximately $10 billion at December 31, 1999, compared to
approximately $9 billion at December 31, 1998. The Corporation operates diverse
businesses in this market. Corporate customer product offerings include
traditional retail lending services, cash management, trade services, foreign
exchange syndications, corporate finance and various investment banking
services. Consumers are provided access to mutual fund, insurance, credit card
and pension management products, in addition to the traditional deposit and
lending products.
Brazil has also enjoyed relative economic stability with a transition from
a sustained period of "hyperinflation," which lasted through the mid-1990s, to a
period of low inflation over the past few years. The Corporation offers a
diverse product mix in the Brazilian market. The corporate banking business
focuses principally on large companies, offering a full range of commercial and
investment banking products, with a significant portion of the lending book
related to import and export activity. In retail banking, the focus is on an
upscale customer base and offers a full line of products, including traditional
lending and deposit products, as well as credit cards, mutual funds, telebanking
and home banking. The Corporation has expanded branch banking in Brazil to 64
locations, and operates a strong mutual fund business, which is among the
largest in the country. The Corporation's total assets in Brazil amounted to
approximately $8 billion at December 31, 1999, compared to approximately $6
billion at December 31, 1998.
Compared to 1998, International Banking earnings increased by $95 million,
or 39%, driven primarily by increased revenues in Argentina and Brazil, as well
as a 23% increase in foreign exchange revenues, primarily in the capital markets
unit. These increases were attained despite economic volatility in 1999, which
resulted in a devaluation of the Brazilian currency and a significant recession
in Argentina. Revenues increased as a result of widening interest rate spreads
as well as increased banking fees, credit card revenues, mutual fund fees and
foreign exchange revenues in both countries. These higher revenues were partly
offset by increased operating costs associated with the regional branch
expansion and a higher provision for credit losses. International operations
increasingly emphasize deposit gathering (Argentina), top-tier consumer lending
opportunities (Brazil) and mutual fund fee generation. At December 31, 1999,
international mutual fund assets under management totaled $8.3 billion, while
average deposit balances were $9.6 billion for 1999. Loan balances at December
31, 1999 were $822 million ahead of 1998 at $14.5 billion, due primarily to
growth in commercial loans. Additional information relating to international
cross-border outstandings and currency positions and risks related to the
Corporation's International Banking unit is presented in the Cross-Border
Outstandings and Asset-Liability Management sections of this discussion.
18
<PAGE>
Investment Services
The Investment Services business line is comprised of several businesses
targeting the growing customer need for investment products and services. These
businesses include Quick & Reilly, which offers securities brokerage,
market-making and securities clearing services; the Private Clients Group, which
offers specialized asset management, estate settlement and deposit and credit
products to high-net-worth customers; Columbia Management, which sells
proprietary mutual funds and a wide range of investment products to retail and
institutional customers; and the Retail Investments Group, which markets the
Corporation's proprietary mutual fund families, as well as third party mutual
funds and annuity products through traditional retail distribution channels. In
addition, the Investment Services group includes several businesses which offer
retirement planning, large institutional asset management and not-for-profit
investment services.
The Investment Services unit earned $334 million in 1999, an increase of
$65 million, or 24%, compared to 1998. Assets under management, as well as
increased brokerage and market-making revenues, drove increased earnings. A $255
million, or 55%, increase in brokerage and market-making revenues at Quick &
Reilly resulted from the strength of financial markets during 1999. In addition,
investment management revenue remained strong at $694 million, as increased
sales of mutual funds and annuity products resulted in growth in assets under
management. At December 31, 1999, domestic assets under management totaled
approximately $120 billion.
Principal Investing
This business line provides startup capital and debt financing to new ventures
and selected small business ventures that are predominantly privately or closely
held companies. The Principal Investing business line had assets with an
aggregate carrying value of approximately $4 billion at year-end 1999. In 1999,
earnings increased $31 million to $212 million. Increased earnings were driven
by realized gains on the sale of several technology stocks as a result of
effective investment strategies and continued strength in the equity markets.
Principal Investing earnings are affected by the condition of equity markets,
the general state of the economy and the timing of sales.
COMMERCIAL AND RETAIL BANKING
Year ended December 31 1999 1998
Dollars in millions
============================================================
Income Statement Data:
Net interest income (FTE) $4,204 $3,941
Noninterest income 1,581 1,418
Provision for credit losses 374 339
Noninterest expense 3,351 3,194
Taxes/FTE adjustment 834 757
- ------------------------------------------------------------
Net Income $1,226 $1,069
- ------------------------------------------------------------
Balance Sheet Data:
Average assets $70,995 $60,918
Average loans and leases 59,667 52,489
Average deposits 79,014 78,174
- ------------------------------------------------------------
Return on Equity 22% 23%
============================================================
Commercial and Retail Banking includes domestic banking to consumer and small
business customers, as well as domestic commercial banking operations, which
includes middle market lending, asset-based lending, leasing, cash management,
trade finance and government banking services. Operating results reflect growth
in Commercial Banking loan and lease portfolios, as well as ongoing changes to
retail banking products and distribution channels. Earnings for this unit
increased $157 million, or 15%, as strong growth in commercial services was
complemented by relatively slower growth in the retail banking units.
Year ended December 31 1999 1998 % 1999 1998 %
Dollars in millions Net Income Change Total Revenue Change
=======================================================================
Commercial Finance $380 $265 43% $1,146 $ 770 49%
Retail Distribution 345 314 10 2,355 2,322 1
Commercial Banking 226 203 11 1,070 1,023 5
Small Business 224 214 5 850 828 3
Consumer Lending 51 73 (30) 364 416 (13)
- -----------------------------------------------------------------------
Total $1,226 $1,069 15% $5,785 $5,359 8%
=======================================================================
Commercial Finance
Commercial Finance focuses on the asset financing needs of corporate customers,
and offers asset-based lending, commercial real estate loans and leasing
products to corporate customers located throughout the nation. Commercial
Finance customers also have access to debt capital markets, cash management,
trade services, foreign exchange, international services, interest rate
protection and investment products. Commercial Finance earned $380 million in
1999, an increase of 43% compared to 1998. This increase in earnings was
primarily driven by
19
<PAGE>
loan growth of $8 billion, including the first quarter 1999 acquisition of
Sanwa, which accounted for nearly $6 billion of additional loan and lease
balances at the time of purchase. Completing strategic acquisitions like Sanwa
allows the Corporation to expand its market presence, differentiate itself from
the competition and strengthen account relationships by being able to offer
corporate customers a full range of sophisticated financing products to meet
their needs. Commercial Finance had $28 billion in average loans and leases
outstanding during 1999 compared to $20 billion during 1998.
Retail Distribution
Retail Distribution offers consumer retail services through various delivery
channels, and includes consumer deposit products and direct banking services.
The Corporation distributes consumer retail products and services through a
network of over 1,500 branches, including convenient in-store branches, 4,000
ATMs, electronic banking products, Internet banking and 24-hour customer call
centers. These delivery channels provide customers with the convenience to
manage their finances in virtually any manner suited to their needs. The
Corporation continues to expand its electronic banking customer base, which has
grown from 438,000 in 1998 to 669,000 in 1999, and currently has several
electronic banking initiatives in process.
This unit also includes the Corporation's Community Banking group, which
seeks to stimulate the economic revitalization of low and moderate income
neighborhoods in our eight state footprint. Community Banking is also
responsible for oversight of the Corporation's compliance with the provisions of
the Community Reinvestment Act. Community Banking includes 48 branches in select
inner-city neighborhoods where it serves the needs and reflects the linguistic
and cultural diversity of its 140,000 customers. A staff of community
development officers serves as information brokers who provide financial
education and referral services to low and moderate income customers. In
addition to providing traditional banking products and services, this group is a
leading provider of equity and at-risk capital for low and moderate and
historically underserved minority and women-owned businesses.
In 1999, Retail Distribution earned $345 million, a 10% increase over 1998
earnings of $314 million. Higher earnings were driven by increased fee revenues
resulting from product enhancements and aggressive pricing strategies
established in the latter part of 1998. Core deposit levels declined marginally,
as continued customer migration towards higher-yielding deposit products and
mutual funds was partly offset by the successful promotion of money market
accounts in selected markets. Operating costs remained relatively flat with the
prior year despite the need for continuing reconfiguration of distribution
channels to keep pace with the ever-changing preferences of today's customers.
During 1999, Retail Distribution had average core deposit balances of $55.1
billion compared with $55.5 billion during 1998.
Commercial Banking
Commercial Banking represents middle-market commercial lending, government
banking services, trade services and cash management services. Commercial
Banking provides a wide range of credit and banking services to customers
generally ranging in size from $10 million to $500 million in annual sales, as
well as government banking customers. As in the Commercial Finance unit, the
Corporation provides its Commercial Banking customers with superior access to
financial solutions, and supports its customers with services such as foreign
exchange, international services, interest rate protection and investment
products.
Commercial Banking earned $226 million in 1999, an 11% increase over the
$203 million earned in 1998, resulting from increased levels of cash management,
trade services and investment banking revenue. Declining spreads diminished some
of the additional revenue generated by the $1 billion of loan growth during the
year.
Small Business
The Small Business group provides a full range of financial services to
businesses with annual sales of up to $10 million. Services offered include
commercial lending, real estate lending, deposit products and cash management.
This unit also offers an array of innovative solutions to small business
customers, including: Business Solution Centers, where customers can
conveniently shop for tax, payroll, cash management and other services; Business
Leasing, where small business customers can access a number of leasing
alternatives; and [email protected], where the Corporation helps small
businesses develop a retail presence on the Internet. The Corporation is widely
recognized as the leading small business lender in the Northeast and the fourth
largest SBA lender in the country. Earnings for this unit were $224 million in
1999, slightly higher than 1998 earnings of $214 million. Higher account service
charges and increased merchant fees drove the increased earnings, enhanced by an
improved spread on loans and deposits and slightly improved credit quality.
Average loan balances were relatively unchanged at $4 billion for 1999, while
average deposit balances increased by $1 billion to nearly $12 billion. Fee
revenue generated from higher deposit volumes was offset by increased processing
costs and increased interest expense associated with the changing deposit mix.
20
<PAGE>
Consumer Lending
Consumer Lending offers a convenient and competitive selection of loan products
to consumers. Products and services are delivered through the many types of
retail distribution channels available to the Corporation's customers. Products
offered include home equity loans and student loans, as well as both direct and
indirect installment lending programs. The Consumer Lending business has nearly
$10 billion in consumer loan balances, excluding credit card and residential
mortgage products, which are managed as part of the National Consumer Group. The
Consumer Lending business earned $51 million in 1999, a decline of 30% from
1998. Lower earnings were primarily the result of lower loan balances, as this
unit has shifted away from certain higher-risk loan types.
NATIONAL CONSUMER GROUP
Year ended December 31 1999 1998
Dollars in millions
============================================================
Income Statement Data:
Net interest income (FTE) $ 456 $ 549
Noninterest income 1,269 877
Provision for credit losses 336 335
Noninterest expense 971 841
Taxes/FTE adjustment 163 98
- ------------------------------------------------------------
Net Income $ 255 $ 152
- ------------------------------------------------------------
Balance Sheet Data:
Average assets $13,435 $13,148
Average loans and leases 4,533 5,141
Average deposits 2,403 2,650
- ------------------------------------------------------------
Return on Equity 11% 7%
============================================================
The National Consumer Group includes credit card services, mortgage banking and
student loan processing. A more detailed analysis of these business lines
follows.
Year ended December 31 1999 1998 % 1999 1998 %
Dollars in millions Net Income Change Total Revenue Change
=======================================================================
Credit Cards $154 $85 81% $1,134 $921 23%
Mortgage Banking 71 42 69 404 357 13
Student Loan Processing 30 25 20 187 148 26
- -----------------------------------------------------------------------
Total $255 $152 68% $1,725 $1,426 21%
=======================================================================
The Corporation's credit card subsidiary is the eighth largest bank credit card
issuer in the nation. Fleet Mortgage, with offices located in 15 states,
originated approximately $35 billion of loans in 1999 and currently services a
mortgage portfolio of $150 billion and 1.6 million loans. Student Loan
Processing, through the Corporation's AFSA subsidiary, services approximately 7
million accounts nationwide and is the largest student loan service provider in
the nation, with approximately $61 billion of student loans serviced.
National Consumer Group earnings increased $103 million compared to 1998,
due primarily to the integration of 1998 acquisitions in the domestic consumer
credit card business and strong consumer confidence during 1999, as well as
increased mortgage banking revenues. The National Consumer Group also had
increased earnings in its AFSA unit, due to increased student loan account
volumes.
ALL OTHER
All Other includes certain transactions not allocated to the principal business
lines, the residual impact of methodology allocations, such as the provision for
credit losses, credit loss reserves and equity allocations, combined with
transfer pricing offsets. The business activities of the Treasury unit are also
included in All Other. The Treasury unit is responsible for managing the
Corporation's securities and residential mortgage portfolios, the
asset-liability management function and wholesale funding needs. For comparative
purposes, businesses sold during the year have been allocated to All Other.
Earnings in All Other can fluctuate with changes affecting the consolidated
provision for credit losses, one-time charges, gains and other actions not
driven by specific business units. In both 1999 and 1998, All Other included
several such transactions. The Corporation recorded merger- and
restructuring-related charges and other costs totaling $1.1 billion and $218
million in 1999 and 1998, respectively, and gains on sales of businesses of $50
million and $254 million in 1999 and 1998, respectively.
All Other had a net loss of $733 million in 1999 compared to net income of
$227 million in 1998. The decrease in earnings is primarily attributable to the
aforementioned merger- and restructuring-related charges and other costs
recorded in the fourth quarter of 1999 in connection with the merger with
BankBoston, as well as the absence of the gains realized on sales of businesses
in 1998.
21
<PAGE>
FINANCIAL CONDITION
Total assets increased $12.8 billion to $190.7 billion as of December 31, 1999,
the result of increases in trading assets, investment securities, mortgage
servicing rights and strong loan growth, offset, in part, by a decrease in
mortgages held for resale. In connection with obtaining regulatory approvals for
the merger with BankBoston, the Corporation agreed to divest $13 billion of
deposits and $9 billion of loans. These divestitures will occur in 2000.
Total loans at December 31, 1999 were $119.7 billion, an increase of 7%,
compared with $112.1 billion at December 31, 1998. The increase was attributable
to the acquisition of Sanwa and strong loan growth in the domestic commercial
loan and lease financing portfolios, offset, in part, by securitization activity
of $2.3 billion.
Total deposits decreased $3.3 billion to $114.9 billion at December 31,
1999. The decrease was due principally to declines of $1.4 billion in domestic
regular savings and NOW deposits, $2.6 billion in domestic time deposits and
$698 million in international deposits, partially offset by a $1.5 billion
increase in domestic money market deposits resulting from the Corporation's
efforts to maintain competitive low cost funding sources.
Short-term borrowings decreased $1.1 billion to $18.1 billion at December
31, 1999, primarily the result of a decrease in treasury, tax and loan
borrowings.
Long-term debt increased $10.9 billion to $25.3 billion as a result of
funding both acquisitions and balance sheet growth.
The Corporation's investment securities portfolio plays a significant role
in the management of the Corporation's balance sheet, as the liquid nature of
the securities portfolio enhances the efficiency of the balance sheet. The
amortized cost of securities available for sale increased $1.8 billion to $23.4
billion at December 31, 1999, compared to $21.7 billion at December 31, 1998.
The valuation of securities available for sale increased $514 million to a net
unrealized gain (pre-tax) position of $692 million at December 31, 1999, due to
increases in the value of marketable equity securities, primarily investments
held by the Corporation's Principal Investing business. Excluding the Principal
Investing portfolio, the Corporation's more traditional investment portfolio had
a net unrealized loss (pre-tax) of $673 million.
SECURITIES
<TABLE>
<CAPTION>
December 31 1999 1998 1997
Amortized Market Amortized Market Amortized Market
In millions Cost Value Cost Value Cost Value
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and government agencies $2,282 $2,196 $1,821 $1,845 $3,435 $3,466
Mortgage-backed securities 14,157 13,567 14,166 14,380 10,602 10,769
Other debt securities 4,850 4,853 4,188 4,135 2,521 2,513
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities 21,289 20,616 20,175 20,360 16,558 16,748
- ---------------------------------------------------------------------------------------------------------------------------
Marketable equity securities 977 2,342 446 439 392 447
Other equity securities 1,173 1,173 1,043 1,043 864 864
- ---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 23,439 24,131 21,664 21,842 17,814 18,059
- ---------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 1,081 1,081 1,527 1,537 1,786 1,794
- ---------------------------------------------------------------------------------------------------------------------------
Total securities $24,520 $25,212 $23,191 $23,379 $19,600 $19,853
===========================================================================================================================
</TABLE>
LOANS AND LEASES
December 31 1999 1998
In millions
========================================================
Domestic:
Commercial and industrial $55,184 $54,447
Commercial real estate 7,945 8,176
Consumer 30,885 29,789
Lease financing 10,933 5,750
- --------------------------------------------------------
Total domestic loans and leases 104,947 98,162
- --------------------------------------------------------
International:
Commercial 11,855 11,126
Consumer 2,898 2,806
- --------------------------------------------------------
Total international loans 14,753 13,932
and leases
- --------------------------------------------------------
Total loans and leases $119,700 $112,094
========================================================
The loan and lease portfolio inherently includes credit risk. The Corporation
attempts to control such risk through analysis of credit applications, portfolio
diversification and ongoing examinations of outstandings and delinquencies. The
Corporation strives to identify potential classified assets as early as
possible, to take charge- offs promptly based on realistic assessments of
probable losses and to maintain an adequate reserve for credit losses. The
Corporation's portfolio is well diversified by borrower, industry, product and
geographic location, thereby reducing the concentration of credit risk.
Total loans and leases increased $7.6 billion, or 7%, over December 31,
1998. Domestic loans and leases increased $6.8 billion, or 7%, while
international loans and leases increased $821 million, or 6%. The increase in
domestic loans and leases was due primarily to the addition of Sanwa loans and
leases in the first quarter of 1999. Partially offsetting the increase in
domestic loans and leases were securitizations of $1 billion of commercial and
industrial (C&I) loans, $900 million of credit card loans and $400 million of
home equity loans. Growth in the Corporation's international loan portfolio was
driven primarily by growth in the Brazilian commercial portfolio.
22
<PAGE>
Commercial and Industrial Loans
Domestic C&I loans increased $737 million to $55.2 billion at December 31, 1999,
primarily as a result of the addition of Sanwa loans, partially offset by $1
billion of securitizations.
Domestic C&I borrowers consist primarily of middle-market and large
corporate customers, and are well-diversified as to industry and companies
within each industry. International commercial borrower industry concentrations
consist primarily of banking and insurance, transportation, communications and
energy production and distribution.
Lease Financing
The Corporation is engaged in lease financing on both a domestic and
international basis. Domestic lease financing totaled $10.9 billion at December
31, 1999, compared with $5.8 billion at December 31, 1998. This 90% increase was
primarily attributable to the aforementioned acquisition of Sanwa. This
acquisition significantly expanded the Corporation's geographic presence,
existing product line and client base to include lease financing to
manufacturers of capital equipment and leasing programs for small businesses. As
a result of this acquisition, the Corporation's capital leasing business has
become the second-ranked bank lessor and one of the top ten leasing companies in
the United States.
Consumer Loans
December 31 1999 1998
In millions
========================================================
Domestic:
Residential real estate $10,881 $11,243
Home equity 7,095 6,550
Credit card 5,455 6,077
Student loans 1,407 1,447
Installment/other 6,047 4,472
- --------------------------------------------------------
Total domestic loans 30,885 29,789
- --------------------------------------------------------
International 2,898 2,806
- --------------------------------------------------------
Total consumer loans $33,783 $32,595
========================================================
Approximately 58% of the domestic consumer loan portfolio at December 31, 1999
consisted of loans secured by residential real estate, including second
mortgages, home equity loans and lines of credit. The Corporation manages the
risk associated with most types of consumer loans by utilizing uniform credit
standards when extending credit, together with systems that streamline the
process of monitoring delinquencies.
Domestic residential real estate loans, secured by one- to four-family
properties, decreased $362 million, or 3%, to $10.9 billion at December 31,
1999. The $545 million, or 8%, increase in domestic home equity loans was
primarily the result of increased mailing campaigns and new products offset, in
part, by a $400 million securitization.
Domestic credit card loans decreased $622 million to $5.5 billion at
December 31, 1999. The decrease was primarily the result of $900 million of
securitizations during 1999, partially offset by growth in the owned portfolio.
Installment and other consumer loans increased $1.6 billion, or 35%,
primarily due to an increase in margin loans at Quick & Reilly, as a result of
the strong equity markets.
Cross-Border Outstandings
In accordance with bank regulatory rules, cross-border outstandings are amounts
payable to the Corporation by residents of foreign countries, regardless of the
currency in which the claim is denominated, and local country claims in excess
of local country obligations. At December 31, 1999, total cross-border
outstandings were $12.9 billion, compared with $10.6 billion at December 31,
1998, which included $7.2 billion and $6.4 billion, respectively, of
cross-border outstandings to emerging markets countries. Excluded from
cross-border outstandings are the following:
o Local country claims that are funded by local country obligations payable
only in the country where issued, regardless of the currency in which the
claim or obligation is denominated.
o Local country claims funded by non-local country obligations (typically
denominated in U.S. dollars or other non-local currency), where the
providers of funds agree that, in the event their claims cannot be repaid
in the designated currency due to currency exchange restrictions in a given
country, they may either accept payment in local currency or wait to
receive the non-local currency until such time as it becomes available in
the local market. At December 31, 1999, such outstandings related to
emerging markets countries totaled $2.7 billion, compared with $2.2 billion
at December 31, 1998.
o Claims reallocated as a result of external guarantees, cash collateral,
or insurance contracts issued primarily by U.S. government agencies.
Cross-border outstandings include deposits in other banks, resale
agreements, trading securities, securities available for sale, securities held
to maturity, loans and lease financing, amounts due from customers on
acceptances, accrued interest receivable and revaluation gains on trading
derivatives.
In addition to credit risk, cross-border outstandings have the risk that,
as a result of political or economic conditions in a country, borrowers may be
unable to meet their contractual repayment obligations of principal and/or
23
<PAGE>
interest when due because of the unavailability of, or restrictions on, foreign
exchange needed by borrowers to repay their obligations. The Corporation manages
its cross-border outstandings using country exposure limits established by the
Country Exposure Committee.
The following table details by country the Corporation's approximate
cross-border outstandings that individually amounted to 1% or more of its
consolidated total assets at December 31, 1999, 1998, and 1997. Cross-border
outstandings to Brazil were less than 1% of consolidated total assets at
December 31, 1998 and 1997.
Significant Cross-Border Outstandings
December 31 1999(a) 1998(a) 1997(a)
Dollars in millions
=====================================================================
Argentina:
Banks $ 405 $ 125 $ 52
Government entities and agencies 1,470 775 740
Other 795 1,155 1,035
- ---------------------------------------------------------------------
Total $2,670 $2,055 $1,827
- ---------------------------------------------------------------------
Percentage of total assets 1.4% 1.2% 1.1%
- ---------------------------------------------------------------------
Commitments(b) $ 12 $ 11 $ 35
- ---------------------------------------------------------------------
Brazil:
Banks $ 170 --- ---
Government entities and agencies 1,540 --- ---
Other 210 --- ---
- ---------------------------------------------------------------------
Total $1,920 --- ---
- ---------------------------------------------------------------------
Percentage of total assets 1.0% --- ---
- ---------------------------------------------------------------------
Commitments(b) $ 30 --- ---
=====================================================================
(a)Cross-border outstandings in countries which totaled between .75% and 1% of
consolidated total assets at December 31, 1999, 1998 and 1997 were
approximately as follows: 1999-none; 1998-none; 1997-Brazil-$1.4 billion.
(b)Included within commitments are letters of credit, guarantees and the
undisbursed portions of loan commitments.
Total cross-border outstandings to Latin America were $6.4 billion at December
31, 1999. For additional information on Argentina and Brazil, see the Line of
Business Information section of this discussion.
NONPERFORMING ASSETS(A)(B)
===================================================================
In millions C&I CRE Consumer Total
- -------------------------------------------------------------------
Nonperforming loans and leases:
Current or less than 90 days past due
Domestic $336 $ 6 $ 6 $348
International 11 --- --- 11
Noncurrent
Domestic 99 23 82 204
International 85 48 99 232
Other real estate owned (OREO)
Domestic 1 17 11 29
International --- 13 4 17
- -------------------------------------------------------------------
Total NPAs-Domestic $436 $ 46 $ 99 $581
Total NPAs-International 96 61 103 260
- -------------------------------------------------------------------
Total NPAs, December 31, 1999 $532 $107 $202 $841
- -------------------------------------------------------------------
1998:
Total NPAs-Domestic $259 $95 $134 $488
Total NPAs-International 86 1 109 196
- -------------------------------------------------------------------
Total NPAs, December 31, 1998 $345 $96 $243 $684
===================================================================
(a)Throughout this Report, NPAs and related ratios do not include loans greater
than 90 days past due and still accruing interest ($320 million and $275
million at December 31, 1999 and 1998, respectively). Included in the 90 days
past due and still accruing interest amounts were $251 million and $248
million of consumer loans at December 31, 1999 and 1998, respectively.
(b)NPAs and related ratios at December 31, 1999 and 1998 do not include
$237 million and $46 million, respectively, of NPAs classified as held for
sale by accelerated disposition.
Nonperforming assets (NPAs) are assets on which income recognition has either
ceased or is limited. NPAs negatively affect the Corporation's earnings by
reducing interest income. In addition to NPAs, asset quality is measured by the
provision for credit losses, charge-offs and certain credit quality-related
ratios.
NPAs at December 31, 1999, as a percentage of total loans, leases and OREO,
and as a percentage of total assets, were .70% and .44%, respectively, compared
to .61% and .38%, respectively, at December 31, 1998. NPAs increased $157
million, or 23%, over the prior year. The rise in NPAs was due to an increase in
domestic NPAs of $93 million and a $64 million increase in international NPAs.
Future levels of NPAs will be influenced by the economic environment,
interest rates and other internal and external factors existing at the time. As
such, no assurance can be given as to future levels of NPAs.
24
<PAGE>
Activity in Nonperforming Assets
Year ended December 31 1999 1998
In millions
======================================================
Balance at beginning of year $ 684 $ 772
Additions 1,615 1,165
Reductions:
Payments/interest applied (501) (482)
Returned to accrual (74) (50)
Charge-offs/write-downs (656) (609)
Sales/other (64) (79)
- ------------------------------------------------------
Total reductions (1,295) (1,220)
- ------------------------------------------------------
Subtotal 1,004 717
- ------------------------------------------------------
Assets reclassified as held for sale 163) (33)
by accelerated disposition
- ------------------------------------------------------
Balance at end of year $ 841 $ 684
======================================================
RESERVE FOR CREDIT LOSSES
The reserve for credit losses represents the amount available for credit losses
inherent in the Corporation's loan and lease portfolios. The Corporation
performs periodic, systematic reviews of its portfolios to identify these
inherent losses, and to assess the overall probability of collection of these
portfolios. These reviews result in the identification and quantification of
loss factors, which are used in determining the amount of the reserve for credit
losses. In addition, the Corporation periodically evaluates prevailing economic
and business conditions, industry concentrations, including emerging markets
risks and cross-border outstandings, changes in the size and characteristics of
the portfolio and other pertinent factors. Portions of the reserve for credit
losses are allocated to cover the estimated losses inherent in each loan and
lease category based on the results of this detailed review process.
Commercial loans and leases are individually reviewed and assigned a credit
risk rating from "1" (low risk of loss) to "10" (high risk of loss). This
process includes the review of loans with a credit risk rating of "8" and above
and a principal balance greater than $250,000 to determine the need for a
specific loan loss allocation. Additionally, derived or calculated loan loss
allocations are provided for credit risk rated loans not specifically allocated.
Estimated loss factors are provided for loans with a credit risk rating of "1"
to "7" based on their specific credit risk rating classification. The
combination of these analyses is the basis for the determination of the
commercial loan and lease portions of the reserve for credit losses.
Consumer loans, which include credit cards, residential mortgages, home
equity loans/lines, direct/indirect loans, consumer finance and international
consumer loans, are generally evaluated as a group based on product type. The
determination of the consumer loan portion of the reserve for credit losses is
based on one year of forecasted net credit losses. This forecast is determined
using several modeling tools, including a delinquency roll rate model, a vintage
model and a regression model. Small business loans are analyzed in a similar
manner based on delinquency migration. This analysis includes two years of
forecasted net credit losses. The results of the analyses are reviewed and
discussed by the Corporation's Risk Management Committee, the respective lines
of business and the Collections group.
A "sovereign risk" analysis, which assesses the cross-border risk of credit
loss, is performed as part of the Corporation's review of its international
commercial and consumer loan portfolios.
Testing of forecasted net credit losses and specific allocations of the
reserve are performed on a quarterly basis. Adjustments to reserve allocations
for specific segments of the loan and lease portfolio may be made as a result of
this testing, based on the accuracy of forecasted net credit losses and other
credit- or policy-related issues.
The process used by the Corporation to determine the appropriate overall
reserve for credit losses is based on this analysis, taking into consideration
management's judgment. Reserve methodology is reviewed on a periodic basis and
modified as appropriate. Based on this analysis, including the aforementioned
assumptions, the Corporation believes that the reserve for credit losses is
adequate as of December 31, 1999.
Loans are charged off when they are deemed uncollectible, after giving
consideration to factors such as the customer's financial condition, underlying
collateral and guarantees, as well as general and industry economic conditions.
The Corporation's reserve for credit losses increased $182 million from
December 31, 1998, to $2.5 billion at December 31, 1999, primarily due to the
addition of reserves from the Sanwa acquisition. The 1999 provision for credit
losses was $933 million, $83 million higher than the prior year provision of
$850 million. The increase in the provision for credit losses was due primarily
to a higher level of losses in the domestic C&I loan portfolio compared to 1998,
and as a result of the Sanwa acquisition.
During 1999, the Corporation experienced loan growth of $7.6 billion, or
almost 7%, while the reserve for credit losses increased almost 8%. As a result
of core loan growth, the addition of approximately $6 billion in assets from the
Sanwa acquisition, and continued growth in new initiatives in various lines of
business, the risk
25
<PAGE>
characteristics of the Corporation's loan portfolio continue to change.
Additionally, the almost 13% increase in gross charge-offs was driven by a 66%
increase in gross charge-offs in the domestic C&I portfolio. Increased
charge-offs in the C&I portfolio were recorded in several lines of business,
requiring additional reserves to be allocated to this portfolio. Specifically,
reserve allocated to the domestic C&I portfolio rose from 43% of the total
reserve for credit losses at December 31, 1998 to over 57% at December 31, 1999.
An integral component of the Corporation's risk management process is to
ensure the proper allocation of the reserve for credit losses based upon an
analysis of risk characteristics, demonstrated losses, loan segmentations, and
other factors. The unallocated component of the reserve for credit losses
represents management's view that, given the complexities of the loan portfolio,
there are estimable losses that have been incurred within the portfolio but not
yet specifically identified.
This unallocated reserve may change periodically after evaluating factors
impacting assumptions utilized in the allocated reserve calculation. At December
31, 1999, the Corporation's allocated reserve for credit losses had increased to
95% of the total reserve for credit losses, due to acquisitions and the
application of common methodology to the combined portfolio.
Reserve for Credit Losses Allocation
<TABLE>
<CAPTION>
December 31 1999 1998 1997 1996 1995
====================================================================================================================================
Percent of Percent of Percent of Percent of Percent of
Loan Type to Loan Type to Loan Type to Loan Type to Loan Type to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,429 46.10% $ 991 47.41% $ 854 44.08% $ 898 41.54% $ 827 39.12%
Commercial real estate:
Construction 10 1.39 12 1.16 15 1.09 26 1.35 23 1.30
Interim/permanent 55 5.25 85 7.29 118 8.46 212 8.55 296 8.22
Residential real estate 33 9.09 30 10.03 50 11.82 80 11.13 126 17.22
Consumer 382 16.71 682 16.55 444 17.86 558 23.20 340 20.63
Lease financing 112 9.13 31 5.13 28 4.70 36 4.10 41 3.89
International 353 12.33 242 12.43 189 11.99 217 10.13 171 9.62
Unallocated 114 - 233 - 446 - 344 - 387 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,488 100.0% $2,306 100.0% $2,144 100.0% $2,371 100.0% $2,211 100.0%
====================================================================================================================================
</TABLE>
26
<PAGE>
Reserve for Credit Losses Activity
Year ended December 31 1999 1998 1997 1996 1995
In millions
======================================================================
Balance at beginning of year $2,306 $2,144 $2,371 $2,211 $2,323
Gross charge-offs:
Domestic:
Commercial and industrial 398 240 174 181 156
Commercial real estate 17 23 46 105 155
Residential real estate 12 21 29 45 88
Consumer 148 164 253 246 168
Credit card 372 369 300 161 70
Lease financing 47 1 2 4 4
International:
Consumer 121 91 38 32 35
Commercial 71 141 38 20 24
- ----------------------------------------------------------------------
Total gross charge-offs 1,186 1,050 880 794 700
- ----------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and industrial 79 73 73 72 65
Commercial real estate 18 28 39 33 46
Residential real estate 4 4 7 6 8
Consumer 36 42 60 54 56
Credit card 38 32 19 10 7
Lease financing 8 2 2 4 5
International:
Consumer 30 23 13 11 8
Commercial 77 12 12 4 7
- ----------------------------------------------------------------------
Total recoveries 290 216 225 194 202
- ----------------------------------------------------------------------
Net charge-offs 896 834 655 600 498
Provision 933 850 522 444 376
Acquired/divestitures/other 145 146 (94) 316 10
- ----------------------------------------------------------------------
Balance at end of year $2,488 $2,306 $2,144 $2,371 $2,211
======================================================================
Net charge-offs increased $62 million to $896 million in 1999, primarily as
result of increased charge-offs in the domestic C&I and lease financing
portfolios, offset, in part, by a decline in international net charge-offs.
Net charge-offs in the domestic C&I portfolio increased $152 million to
$319 million in 1999 compared to 1998, primarily the result of relatively lower
levels of charge-offs in this portfolio in 1998. Net charge-offs in the domestic
lease financing portfolio increased $40 million in 1999, primarily the result of
the acquisition of Sanwa.
International net charge-offs decreased $112 million to $85 million in
1999, due primarily to partial insurance recoveries in 1999, and related
charge-offs in 1998, of certain international private bank loans. Excluding the
effects of these recoveries and charge-offs, international net charge-offs were
relatively flat year to year.
The ratio of net charge-offs to average loans increased slightly to .76%,
compared to .75% at December 31, 1998.
ASSET-LIABILITY MANAGEMENT
The goal of asset-liability management is the prudent control of market risk,
liquidity and capital. Asset-liability management is governed by policies
reviewed and approved annually by the Corporation's Board of Directors (the
Board). The Board delegates responsibility for asset-liability management to the
corporate Asset, Liability and Capital Committee (ALCCO). ALCCO sets strategic
directives that guide the day-to-day asset-liability management activities of
the Corporation. ALCCO also reviews and approves all major market risk,
liquidity, and capital management programs.
MARKET RISK
Market risk is defined as the sensitivity of income to variations in interest
rates, foreign exchange rates, equity prices, commodity prices and other
market-driven rates or prices. As discussed below, the Corporation is exposed to
market risk in both its non-trading and trading operations.
NON-TRADING MARKET RISK
U.S. Dollar Denominated Risk
At December 31, 1999, U.S. dollar denominated assets comprised the majority of
the Corporation's balance sheet. Interest rate risk, including mortgage
prepayment risk, is by far the most significant non-trading market risk to which
the U.S. dollar denominated positions are exposed. Interest rate risk is defined
as the sensitivity of income or financial condition to variations in interest
rates. This risk arises directly from the Corporation's core banking activities
- - lending, deposit gathering, and loan servicing.
The primary goal of interest rate risk management is to control the
exposure to interest rate risk, both within limits approved by the Board and
within narrower guidelines approved by ALCCO. These limits and guidelines
reflect the Corporation's tolerance for interest rate risk over both short-term
and long-term time horizons.
The Corporation controls interest rate risk by identifying, quantifying and
hedging its exposures. The Corporation identifies and quantifies its interest
rate exposures using sophisticated simulation and valuation models, as
27
<PAGE>
well as simpler gap analyses, reflecting the known or assumed maturity,
repricing, and other cash flow characteristics of the Corporation's assets and
liabilities.
The Corporation manages the interest rate risk inherent in its core banking
operations using both on-balance sheet instruments, mainly fixed-rate portfolio
securities, and a variety of off-balance sheet instruments. The most frequently
used off-balance sheet instruments are interest rate swaps and options (e.g.,
interest rate caps and floors). When appropriate, forward rate agreements,
options on swaps, and exchange-traded futures and options are also used.
The major source of the Corporation's non-trading interest rate risk is the
difference in the maturity and repricing characteristics between the
Corporation's core banking assets and liabilities - loans and deposits. This
difference, or mismatch, is a risk to net interest income.
Most significantly, the Corporation's core banking assets and liabilities
are mismatched with respect to repricing frequency, maturity and/or index. Most
of the Corporation's commercial loans, for example, reprice rapidly in response
to changes in short-term interest rates (e.g., LIBOR and prime rate). In
contrast, many of its consumer deposits reprice slowly, if at all, in response
to changes in market interest rates. As a result, the core bank is
asset-sensitive.
In managing interest rate risk, the Corporation uses fixed-rate portfolio
securities and interest rate swaps to offset the general asset sensitivity of
the core bank. Additionally, the Corporation uses interest rate swaps to offset
basis risk, including specific exposure to changes in the prime rate. At
December 31, 1999 and 1998, interest rate swaps totaling $23.2 billion (notional
amount) were being used to manage risk to net interest income.
A second major source of non-trading interest rate risk is the sensitivity
of MSRs to prepayments. A mortgage borrower has the option to prepay a mortgage
loan at any time. When mortgage interest rates decline, the borrower has a
greater incentive to prepay a mortgage loan through a refinancing; when mortgage
interest rates rise, this incentive is reduced or eliminated. Since MSRs
represent the right to service mortgage loans, a decline in interest rates and
an actual (or probable) increase in mortgage prepayments shorten the expected
life of the MSR asset and reduce the amount of servicing fees to be received
and, therefore, the economic value of the MSRs. Correspondingly, an increase in
interest rates and an actual (or probable) decline in mortgage prepayments
lengthen the expected life of the MSR asset and enhance its economic value. The
expected income from and, therefore, the economic value of MSRs is sensitive to
movements in interest rates due to this sensitivity to mortgage prepayments.
To mitigate the risk of declining long-term interest rates, increased
mortgage prepayments and the potential impairment of MSRs, the Corporation uses
a variety of risk management instruments, including interest rate swaps, caps
and floors tied to "constant maturity" yields on long-term (e.g., 10-year)
Treasury notes and swaps, options on swaps, exchange-traded options on Treasury
bond and note futures contracts, and swaps linked to mortgage assets such as
"principal only" (P.O.) securities. These instruments gain value as interest
rates decline, mitigating the impairment of MSRs. At December 31, 1999 and 1998,
the Corporation had approximately $52.2 billion and $65.2 billion (notional
amount), respectively, of outstanding derivatives being used to manage risk to
the MSRs' valuation.
Complicating management's efforts to control non-trading exposure to
interest rate risk is the fundamental uncertainty of the maturity, repricing,
and/or runoff characteristics of some of the Corporation's core banking assets
and liabilities. This uncertainty often reflects optionality features contained
in these financial instruments. The most important optionality features are
contained in consumer deposits and loans.
For example, many of the Corporation's interest bearing retail deposit
products (e.g., interest checking, savings and money market deposits) have no
contractual maturity. Customers have the right to withdraw funds from these
deposit accounts freely. Deposit balances may therefore run off unexpectedly due
to changes in competitive or market conditions. To forestall such runoff, rates
on interest bearing deposits may have to be increased more (or reduced less)
than expected. Such repricing may not be highly correlated with the repricing of
prime rate-based or LIBOR-based loans. Finally, balances that leave the banking
franchise may have to be replaced with other more expensive retail or wholesale
deposits. Given the uncertainties surrounding deposit runoff and repricing, the
interest rate sensitivity of core bank liabilities cannot be determined
precisely.
Similarly, customers have the right to prepay loans, particularly
residential mortgage loans, without penalty. As a result, the Corporation's
mortgage-based assets (including mortgage loans and securities as well as MSRs)
are subject to prepayment risk. This risk tends to increase when interest rates
fall due to the benefits of refinancing. Since the future prepayment behavior of
the Corporation's customers is uncertain, the interest rate sensitivity of
mortgage assets cannot be exactly determined.
To cope with such uncertainties, management has developed a number of
assumptions. Depending on the product or behavior in question, each assumption
will reflect some combination of market data, research analysis and business
judgment. For example, assumptions for mortgage prepayments are derived from
third party prepayment estimates for comparable mortgage loans. Assumptions for
noncontractual deposits are based on a historical analysis of repricing and
runoff trends, heavily weighted to the recent past, modified by business
judgment concerning prospective competitive market influences.
To measure the sensitivity of its income to changes in interest rates, the
Corporation uses a variety of methods, including simulation, gap, and valuation
analyses.
Simulation analysis involves dynamically modeling interest income and
expense from the Corporation's on-
28
<PAGE>
balance sheet and off-balance sheet positions over a specified time period under
various interest rate scenarios and balance sheet structures. The Corporation
uses simulation analysis to measure the sensitivity of net interest income over
relatively short (e.g., 1-2 year) time horizons.
Key assumptions in these simulation analyses (and in the gap and valuation
analyses discussed below) relate to the behavior of interest rates and spreads,
the growth or shrinkage of product balances and the behavior of the
Corporation's deposit and loan customers. As indicated above, the most material
assumptions relate to the prepayment of mortgage assets, as well as the
repricing and/or runoff of noncontractual deposits.
As the future path of interest rates cannot be known in advance, management
uses simulation analysis to project earnings under various interest rate
scenarios. Some scenarios reflect reasonable or "most likely" economic
forecasts. Other scenarios are deliberately extreme, including immediate
interest rate "shocks," gradual interest rate "ramps," spread
narrowings/widenings, and yield curve "twists."
Usually, each analysis incorporates what management believes to be the most
appropriate assumptions about customer and competitor behavior in the specified
interest rate scenario. But in some analyses, assumptions are deliberately
manipulated to test the Corporation's exposure to "assumption risk."
The Corporation's Board 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 subsequent 12 months should decline by less than
7.5%. The Corporation was in compliance with this limit at December 31, 1999 and
1998. The following table reflects the estimated exposure of the Corporation's
net interest income for the next 12 months, assuming an immediate shift in
interest rates. This estimated exposure reflects the anticipated divestitures
more fully discussed in Note 2 to the Consolidated Financial Statements.
Estimated Exposure to
Rate Change Net Interest Income
(Basis Points) (In millions)
=======================================================
1999 1998
- -------------------------------------------------------
+200 $ (58) $ 7
-200 (12) (156)
=======================================================
Management believes that these estimates reflect a complete and accurate
representation of the Corporation's balance sheet. It should be emphasized,
however, that the estimated exposures set forth above are dependent on material
assumptions such as those previously discussed.
Management believes that the exposure of the Corporation's net interest
income to gradual and/or modest changes in interest rates is relatively small.
As indicated by the results of the simulation analysis, a sharp move in interest
rates, up or down, will tend to reduce net interest income, but by amounts that
are within corporate limits. This exposure is primarily related to two major
risk factors discussed earlier - the anticipated repricing/runoff of
noncontractual deposits and the assumed prepayment of mortgage loans and
securities.
Valuation analysis involves projecting future cash flows from the
Corporation's assets, liabilities and off-balance sheet positions over a very
long-term horizon, discounting those cash flows at appropriate interest rates,
and then aggregating the discounted cash flows. The Corporation's "economic
value of equity" (EVE) is the estimated net present value of the discounted cash
flows. The interest rate sensitivity of EVE is a measure of the sensitivity of
long-term earnings to changes in interest rates. The Corporation uses valuation
analysis (specifically, the sensitivity of EVE) to measure the exposure of
earnings and equity to changes in interest rates over a relatively long (e.g.,
>2-year) time horizon. Valuation analysis provides a more comprehensive measure
of the Corporation's exposure to interest rate risk than simulation analysis.
Valuation analysis incorporates a longer time horizon and also includes certain
interest rate-sensitive components of noninterest income, specifically mortgage
banking revenue.
The Corporation's Board limits on interest rate risk specify that if
interest rates were to shift immediately up or down 200 basis points, the
estimated EVE should decline by less than 10%. The Corporation was in compliance
with this limit at December 31, 1999 and 1998. The following table reflects the
Corporation's estimated exposure to economic value assuming an immediate shift
in interest rates. This estimated exposure reflects the anticipated divestitures
more fully discussed in Note 2 to the Consolidated Financial Statements.
Exposures are reported for shifts of +/- 100 basis points, as well as +/- 200
basis points because the sensitivity of EVE, in particular the sensitivity of
hedged MSRs, to changes in interest rates can be nonlinear. An immediate shift
in interest rates is used in this analysis to provide management with an
estimate of exposure under an extremely adverse scenario. A gradual shift in
interest rates should have a much more modest impact, due partly to anticipated
hedge activity.
Estimated Exposure to
Rate Change Economic Value
(Basis Points) (In millions)
=======================================================
1999 1998
- -------------------------------------------------------
+200 $ 118 $(328)
+100 65 (22)
-100 (539) (536)
-200 (1,457) (941)
=======================================================
29
<PAGE>
During early 1999, management continued to add fixed-rate portfolio securities
and interest rate swaps to control the asset sensitivity inherent in the
maturity and repricing mismatch of the core bank assets and liabilities. Late in
1999, there were relatively modest additions to portfolio securities and swaps,
as the planned deposit divestiture and the continued uptrend in interest rates
both reduced the immediate need for such hedges. Key assumptions related to the
EVE treatment of noncontractual deposits are subject to frequent and careful
management review. These assumptions are revised as necessary to reflect current
market conditions, business trends and product manager expectations.
It should be emphasized that valuation analysis focuses on the long-term
economic value of the Corporation's future cash flows. For some financial
instruments, the adverse impact of current movements in interest rates on
expected future cash flows must be recognized immediately. For example, if
interest rates decline and the related hedge is not effective, thereby reducing
estimated future fee income from MSRs such that the estimated economic value of
the MSRs falls below book value, an immediate impairment charge is required. In
contrast, for other financial instruments, such as fixed-rate investment
securities, the beneficial impact of a decline in interest rates on future
income is unrecognized unless the instruments are sold.
As a result of such accounting requirements, a portion of the EVE exposure
attributable to MSRs could materially impact earnings within the next 12 months
under certain extreme scenarios involving changes in market spreads, a decline
in implied option volatilities, and/or a greater-than-anticipated increase in
prepayments.
Off-balance sheet interest rate instruments used to manage net interest
income are designated as hedges of specific assets and liabilities. Accrual
accounting is applied to these hedges, and the income or expense is recorded in
the same category as that of the related balance sheet item. The periodic net
settlement of the interest rate risk management instruments is recorded as an
adjustment to net interest income. As of December 31, 1999, the Corporation had
net deferred income of $15.6 million relating to terminated interest rate swap
contracts, which will be amortized over the remaining life of the underlying
terminated interest rate contracts of approximately 7 years.
The interest rate instruments used to manage potential impairment of MSRs
are designated as hedges of the MSRs. Changes in fair value of the hedges are
recorded as adjustments to the carrying value of the MSRs and related hedges.
During 1999, net hedge losses of $947 million were deferred and recorded as
adjustments to the carrying value of the MSRs and related hedges. At December
31, 1999, the carrying value and fair value of the Corporation's MSRs were $3.3
billion and $3.5 billion, respectively.
In connection with the Corporation's management of its MSR hedge program,
the Corporation terminated (in notional amounts) $17 billion of interest rate
floor and option on swap agreements and $43 billion of call options purchased,
and added $19 billion and $43 billion of interest rate floor and option on swap
agreements and call options purchased, respectively, during 1999. Additionally,
the Corporation added $12 billion of interest rate cap and cap corridors and $10
billion of interest rate swap contracts, and terminated $21 billion and $13
billion, respectively, of these instruments during 1999.
These risk management activities do not completely eliminate interest rate
risk in the MSRs. The MSR hedges utilized were indexed to Treasury rates, swap
rates and mortgage rates. Treasury rates and swap rates may not move in tandem
with mortgage interest rates. In addition, as mortgage interest rates change,
actual prepayments may not respond exactly as anticipated. Other pricing
factors, such as the implied volatility of market yields, may affect the value
of the option hedges without similarly impacting the MSRs. Therefore, the
Corporation's hedging activity may not be sufficient to eliminate prepayment and
other market risk completely in all interest rate scenarios.
30
<PAGE>
Non-U.S. Dollar Denominated Risk
The Corporation's non-U.S. dollar denominated assets and liabilities are exposed
to interest rate and foreign exchange rate risks. The majority of the
Corporation's non-U.S. dollar denominated interest rate and foreign exchange
rate risk exposure stems from its operations in Latin America, primarily
Argentina and Brazil.
The Argentine interest rate risk position reflects repricing and/or
maturity mismatches arising primarily from the Corporation's corporate lending
and retail businesses. The interest rate risk related to these positions is
managed using simulation and valuation analyses much like those used to manage
the domestic interest rate risk position. At December 31, 1999, the net interest
income and economic value exposures of the Corporation's Argentine non-U.S.
dollar interest rate risk positions were approximately $1.5 million and $12.1
million, respectively, versus limits of $25 million and $26 million,
respectively.
The Corporation's Brazilian interest rate risk position, which is mostly
short-term in nature, reflects repricing and/or maturity mismatches arising
primarily from corporate lending, trade financing and treasury activities. Given
the short-term nature of those positions and the volatility of the markets, the
interest rate risk related to these positions is managed using a "value at risk"
(VAR) methodology, which is discussed in the Price Risk - Trading Activities
section. The VAR exposure for the Corporation's Brazilian non-U.S. dollar
denominated interest rate risk positions was approximately $6.6 million at
December 31, 1999, versus a limit of $15 million.
When deemed appropriate, the Corporation will take positions in certain
currencies with the intention of taking advantage of movements in currency and
interest rates. The Corporation takes currency positions by funding local
currency assets with dollars or by funding dollar assets with local currency
liabilities. Currency positions expose the Corporation to gains or losses that
depend on the relationship between currency price movements and interest rate
differentials. These positions are subject to limits established by ALCCO. The
majority of the Corporation's non-trading foreign exchange risk is generated by
its operations in Argentina and Brazil. The following table represents the
Corporation's currency positions in Argentina and Brazil for 1999 and 1998.
Currency Positions
December 31 1999 1998
In millions Year-end Average Year-end Average
===========================================================
Argentina(a) $297 $330 $421 $230
Brazil(b) 35 20 13 2
===========================================================
(a)Positions represent local currency assets funded by U.S. dollars for both
periods presented.
(b)1999 year-end position represents local currency assets funded by U.S.
dollars; 1999 average and 1998 positions represent dollar assets funded by
local currency liabilities.
To date, the Corporation's currency positions have been liquid in nature, and
management has been able to close and re-open these positions as necessary.
31
<PAGE>
Risk Management Instrument Analysis
<TABLE>
<CAPTION>
Weighted Weighted Average
December 31, 1999 Assets- Average Rate
Notional Liabilities Maturity Fair ------------------
Dollars in millions Value Hedged (Years) Value Receive Pay
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC INTEREST RATE RISK MANAGEMENT INSTRUMENTS
Interest rate swaps:
Receive fixed/pay variable $ 11,403 Variable-rate loans
200 Securities
1,144 Fixed-rate deposits
450 Short-term debt
5,609 Long-term debt
---------
18,806 3.0 $(388) 6.31% 6.47%
---------
Pay fixed/receive variable 8 Fixed-rate loans
14 Long-term debt
---------
22 4.9 --- 4.59 5.38
---------
Basis swaps 72 Securities
3,050 Deposits
50 Short-term debt
---------
3,172 .3 --- 6.26 5.75
---------
- ------------------------------------------------------------------------------------------------------------------------------------
Total domestic interest rate risk management
instruments 22,000 2.6 (388) 6.30% 6.37%
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL INTEREST RATE RISK MANAGEMENT
INSTRUMENTS
Interest rate swaps 1,202 Short-term assets and liabilities .5 (19) ---(a) ---(a)
Futures and forwards 523 Short-term assets and liabilities .4 --- --- ---
Interest rate options purchased 337 Deposits .7 32 --- ---
Interest rate options written 337 Deposits .8 (13 ) --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total international interest rate risk management
instruments 2,399 .6 --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total hedges of net interest income $ 24,399 2.4 $(388) 6.30% 6.37%
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING RISK MANAGEMENT INSTRUMENTS
Interest rate swaps:
Receive fixed/pay variable, P.O. swaps $ 5,327 MSRs 2.3 $(195) 6.6% 5.88%
Futures 330 MSRs .2 (12) --- ---
Options:
Interest rate floors and options on swaps 34,810 MSRs 4.0 118 ---(b) ---(b)
Interest rate caps and cap corridors 10,725 MSRs 4.3 284 ---(b) ---(b)
Call options purchased 960 MSRs .1 2 --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total options 46,495 4.0 404 --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total hedges of mortgage servicing rights $ 52,152 3.8 $197 6.69% 5.88%
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE RISK MANAGEMENT INSTRUMENTS
Swaps $ 5,000 Foreign currency denominated
assets and liabilities .6 $(124) --- ---
Spot and forward contracts 1,764 Foreign currency denominated
assets and liabilities .2 (13) --- ---
Futures 361 Foreign currency denominated
assets and liabilities .2 --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total hedges of foreign exchange $7,125 .5 $(137) --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total risk management instruments $83,676 3.1 $(328) 6.38% 6.27%
====================================================================================================================================
</TABLE>
(a)These interest rate swaps typically include the exchange of floating rate
indices that are indigenous to the Brazilian market and have been excluded
from the weighted average rate.
(b)The mortgage banking risk management interest rate floors and options on
swaps, and interest rate caps and cap corridors, have weighted average strike
rates of 5.20% and 6.85%, respectively.
32
<PAGE>
PRICE RISK - TRADING ACTIVITIES
Price risk is the risk of loss of earnings arising from adverse changes in the
value of trading portfolios of financial instruments. The Corporation's price
risk arises from market-making, dealing and position-taking in interest rate,
currency exchange rate, equity and precious metals markets.
This exposure mainly arises in the normal course of the Corporation's
business as a financial intermediary. The Corporation enters into interest rate,
currency exchange rate and precious metals contracts, primarily to satisfy the
investment and risk management needs of its customers. Equity positions result
mainly from the Corporation's market-making and underwriting activities.
In addition, the Corporation takes certain proprietary trading positions,
including positions in high yield and emerging markets fixed income securities,
local currency debt and equity securities, and related derivatives. The
Corporation expects these proprietary trading positions to benefit from
short-term movements in the prices of securities and from perceived
inefficiencies among the prices of various securities issued by the same country
or entity. Domestic fixed income trading activities also include position-taking
in U.S. Treasury and U.S. government agency securities.
The chart below presents the daily trading-related revenues, in millions of
dollars, that resulted from the Corporation's combined trading activities. The
Corporation has implemented a price risk management process to limit the
volatility of these daily earnings results.
(GRAPHIC OMITTED - Bar Chart representation
of 1999 Daily Trading-Related Revenues)
Revenues Number of Days
(In millions)
<$(3) 1
$(3) - $(2) 2
$(2) - $(1) 3
$(1) - $0 12
$0 - $1 19
$1 - $2 37
$2 - $3 48
$3 - $4 50
$4 - $5 41
$5 - $6 19
$6 - $7 11
$7 - $8 7
$8 - $9 4
$9 - $10 1
>$10 1
ALCCO and the Market Risk Committee (the MRC) have responsibility for
implementing the Board's policies governing price risk management. ALCCO issues
overall strategic direction to specify the extent of utilization for
Board-approved risk limits, based upon the Corporation's willingness to accept
price risk. The MRC has responsibility for allocating the overall price risk
limits set by ALCCO to the Corporation's risk-taking activities.
The Corporation uses a VAR methodology, based on industry-standard risk
measurement techniques, to measure the overall price risk inherent in its
trading activities. The system draws on historical and current market data to
estimate potential market volatility, and measures the risk to earnings at a 99%
confidence level, which means that the Corporation expects daily results to
exceed the potential loss as calculated by VAR only occasionally (i.e., no more
than one time for at least 100 trading days). The VAR methodology requires a
number of other key assumptions, including those related to the holding period,
the impact of credit spread risk, and the treatment of event risk. During 1999,
the Corporation enhanced its processes for price risk measurement and
monitoring against approved limits. The Corporation's aggregate daily exposure
averaged $38 million during 1999, and $44 million during 1998. At year-end,
total VAR usage measured $50 million, well within the $91 million limit
allocated by the MRC.
During 1999, the majority of the price risk in the Corporation's trading
operations arose from interest rate and equity components. Interest rate risk,
which includes directional and spread components, averaged approximately $19
million, or 51% of total trading VAR, and remained roughly constant throughout
the year. This risk component arises primarily from trading activity in the
domestic high yield market and the Argentinean and Brazilian sovereign and
high-end corporate bond markets.
The contribution to the Corporation's VAR from equity trading activities in
its Robertson Stephens and Quick & Reilly units rose throughout the year to 44%
of total trading VAR at year-end 1999, a level comparable to the interest rate
risk component. The individual activities comprising this risk type include the
second largest NYSE specialist firm, NASDAQ market-making, a convertible
33
<PAGE>
bond trading and underwriting business and an equity derivatives business.
Foreign exchange risk remained modest throughout 1999, and comprised about
14% of the Corporation's total trading VAR at year-end. The majority of this
risk arises from the Corporation's Argentinean and Brazilian operations.
Commodity risk, arising from a small precious metals activity supporting a
vibrant precious metals lending business, is not significant.
The table below presents the Corporation's VAR by risk type at December 31,
1999 and average VAR by risk type for 1999.
VAR by Risk Type
December 31, 1999 Year- % of % of
Dollars in millions End Total Average Total
==============================================================
Interest rate risk $21.3 42% $19.2 51%
Equity risk 21.8 44 11.7 31
Foreign exchange risk 6.8 14 7.0 18
Commodity risk .1 --- .1 ---
- --------------------------------------------------------------
Total risk $50.0 $38.0
==============================================================
The chart below presents the Corporation's daily aggregate trading VAR and
its daily aggregate trading-related revenues. Trading-related revenues include
both the amounts recorded as trading profits and commissions and foreign
exchange revenue, both components of capital markets revenue, as well as net
interest income from these trading positions.
(GRAPHIC OMITTED - Scatter graph of 1999 Daily Trading-Related
Revenues and VAR Measures)
The daily trading-related revenues include daily trading profits and
commissions and foreign exchange revenues, as well as daily trading-related net
interest income. During 1999, the daily trading-related revenues ranged from
losses of $3.7 million per day to profits of $10.0 million per day. VAR includes
all trading portfolios and the foreign exchange portfolio. During 1999, VAR
ranged from $25 million per day to $58 million per day.
In addition to the VAR framework, the Corporation employs other risk
measurement tools to evaluate and control price risk. These tools include
cumulative loss limits and overall portfolio size limits, as well as regular
stress tests and scenario analyses. Stress testing employs a VAR calculation
based on a ten-standard-deviation change in the prices of underlying risk
factors. Scenario analyses apply actual market conditions experienced in the
past against current positions.
While the VAR framework and the additional risk measurement tools
effectively ensure exposures remain within the Corporation's expressed tolerance
for price risk, they do not guarantee the avoidance of trading losses during
periods of extreme volatility.
34
<PAGE>
LIQUIDITY RISK
The objective of liquidity risk management is to assure the ability of the
Corporation and its subsidiaries to meet their financial obligations. These
obligations are the payment of deposits on demand or at their contractual
maturity, the repayment of borrowings as they mature, the ability to fund new
and existing loan commitments and the ability to take advantage of new business
opportunities. Liquidity is achieved by the maintenance of a strong base of core
customer funds; maturing short-term assets; the ability to sell marketable
securities; committed lines of credit and access to capital markets. Liquidity
may also be enhanced through the securitization of commercial and consumer
receivables. Liquidity is measured and monitored daily, allowing management to
better understand and react to balance sheet trends. ALCCO is responsible for
implementing the Board's policies and guidelines governing liquidity. U.S.
dollar liquidity management is centralized in Boston, with overseas operations
managing their own local currency liquidity requirements.
Liquidity at the bank level is managed through the monitoring of
anticipated changes in loans, core deposits and wholesale funds. Diversification
of liquidity sources by maturity, market, product and funds provider are
mandated through ALCCO guidelines. The Corporation's banking subsidiaries
routinely model liquidity under three economic scenarios, two of which involve
increasing levels of economic difficulty and financial market strain. Management
also maintains a detailed contingency liquidity plan designed to respond to an
overall decline in the condition of the banking industry or a problem specific
to the Corporation. The strength of the Corporation's liquidity position is its
base of core customer deposits. These core deposits are supplemented by
wholesale funding sources in the capital markets, as well as from direct
customer contacts. Wholesale funding sources include large certificates of
deposit, foreign branch deposits, federal funds, collateralized borrowings and a
$10 billion bank note program. Another important source of bank funding is the
securitization market. During 1999, $1 billion of C&I loans, $900 million of
credit card receivables and $400 million of home equity loans were securitized.
Additionally, the Corporation's banking subsidiaries accessed the Euro market.
The primary sources of liquidity for the parent company are interest and
dividends from subsidiaries, committed lines of credit and access to the money
and capital markets. Dividends from banking subsidiaries are limited by various
regulatory requirements related to capital adequacy and retained earnings. The
Corporation's subsidiaries rely on cash flows from operations, core deposits,
borrowings, short-term high-quality liquid assets, and, in the case of
non-banking subsidiaries, funds from the parent company.
At December 31, 1999, the Corporation's parent company had commercial paper
outstanding of $1.6 billion, compared with $1.0 billion at December 31, 1998.
The Corporation's parent company had excess funds at December 31, 1999 of $1.5
billion compared to $1.2 billion at December 31, 1998. The Corporation has
backup lines of credit totaling $1.3 billion to ensure funding is not
interrupted if commercial paper is not available. At December 31, 1999 and 1998,
the Corporation had no outstanding balances under these lines of credit.
The parent company had $2.4 billion available for the issuance of common
stock, preferred stock or trust preferred securities, senior or subordinated
securities and other debt securities at December 31, 1999 under a currently
effective shelf registration filed with the Securities and Exchange Commission
(the SEC).
FUNDING SOURCES
Components of Funding Sources
December 31 1999 1998
In millions
=======================================================
Deposits:
Domestic:
Demand $19,865 $19,948
Regular savings and NOW 10,443 11,816
Money market 41,916 40,414
Time 25,977 28,607
International 16,695 17,393
- -------------------------------------------------------
Total deposits 114,896 118,178
- -------------------------------------------------------
Short-term borrowings:
Federal funds purchased 4,134 3,953
Securities sold under
agreements to repurchase 5,395 5,744
Commercial paper 1,649 1,037
Other 6,928 8,442
- -------------------------------------------------------
Total short-term borrowings 18,106 19,176
- -------------------------------------------------------
Due to brokers/dealers 4,468 3,975
Long-term debt 25,349 14,411
- -------------------------------------------------------
Total $162,819 $155,740
=======================================================
Total deposits decreased $3.3 billion to $114.9 billion at December 31, 1999.
The decrease was due principally to declines of $1.4 billion in domestic regular
savings and NOW deposits, $2.6 billion in domestic time deposits and $698
million in international deposits, partially offset by a $1.5 billion increase
in domestic money market deposits, due to the Corporation's efforts to maintain
competitive low-cost funding sources.
35
<PAGE>
Certificates of deposit and other time deposits issued by domestic offices
in amounts of $100,000 or more as of December 31, 1999 will mature as presented
in the following table.
Maturity of Time Deposits - Domestic
December 31, 1999
In millions Certificates
Remaining maturity of Deposit
======================================================
3 months or less $4,851
3 to 6 months 1,571
6 to 12 months 1,042
Over 12 months 923
- ------------------------------------------------------
Total $8,387
======================================================
The majority of foreign office deposits are in denominations of $100,000 or
more.
Total short-term borrowings decreased $1.1 billion from December 31, 1998
to December 31, 1999, primarily the result of a decrease in other short-term
borrowings, particularly, treasury, tax and loan borrowings.
Due to brokers/dealers increased $493 million to $4.5 billion at December
31, 1999 resulting from increased trading activity in 1999.
Long-term debt increased by $10.9 billion to $25.3 billion at December 31,
1999 as a result of funding both acquisitions and balance sheet growth.
Management believes the Corporation has sufficient liquidity to meet its
liabilities to customers and debt holders. The effect of maturing liabilities is
discussed in the Asset-Liability Management section.
CAPITAL MANAGEMENT
A financial institution's capital serves to support asset growth and provide
protection against loss to depositors and creditors. The Corporation strives to
maintain an optimal level of capital, commensurate with its risk profile, on
which an attractive return to stockholders will be realized over both the short
and long term, while serving depositors', creditors' and regulatory needs. In
determining optimal capital levels, the Corporation also considers the capital
levels of its peers and the evaluations of the major rating agencies that assign
ratings to the Corporation's public debt. Common equity represents the
stockholders' investment in the Corporation. In addition to common equity,
regulatory capital includes, within certain limits, preferred stock,
subordinated debt and credit loss reserves.
In blending the requirements of each of these constituencies, the
Corporation has established target capital ranges that it believes will provide
for management flexibility and the deployment of capital in an optimally
efficient and profitable manner. These targets are reviewed periodically
relative to the Corporation's risk profile and prevailing economic conditions.
On January 15, 2000, the Corporation redeemed its 9.35% cumulative
preferred stock at its aggregate carrying value of $125 million.
The Corporation strives to maintain regulatory capital at approximately
.75%-1.25% above the minimum regulatory requirements for a well capitalized
institution, as defined in the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA). To be categorized as well capitalized, the Corporation's
banking subsidiaries must maintain a risk-based Total Capital ratio of at least
10%, a risk-based Tier 1 Capital ratio of at least 6%, and a Tier 1 Leverage
ratio of at least 5%, and not be subject to a written agreement, order or
capital directive with regulators. In addition, the Corporation currently has a
tangible common equity-to-assets ratio target range of 5.75%-6.25% and a total
equity-to-assets ratio target range of 7.50%-8.00%.
CAPITAL RATIOS
December 31 1999 1998
=========================================================
Risk-adjusted assets (in millions) $189,488 $174,599
Tier 1 risk-based capital ratio
(4% minimum) 6.82% 7.11%
Total risk-based capital ratio
(8% minimum) 11.50 11.51
Leverage ratio (a) 6.81 7.17
Common equity-to-assets ratio 7.66 7.60
Total equity-to-assets ratio 8.03 7.98
Tangible common equity-to-assets ratio 5.60 5.52
Tangible total equity-to-assets ratio 5.97 5.92
=========================================================
(a)The Corporation was subject to a 3% minimum and 4% minimum at December 31,
1999 and 1998, respectively.
At December 31, 1999, the Corporation and all of its banking subsidiaries
exceeded all regulatory required minimum capital ratios, and satisfied the
requirements of the well capitalized category established by FDICIA. The
Corporation's risk-based capital ratios decreased compared with December 31,
1998, reflecting the impact of the merger- and restructuring- related charges
and other costs recorded in the fourth quarter of 1999; this decrease is
expected to be offset in 2000 as a result of the anticipated gain on the
divestiture of branches, the related reduction in asset levels and the strong
internal generation of capital. Excess capital, defined as common equity above
the capital target, is available for core business investments and acquisitions.
As registered brokers/dealers and member firms of the NYSE, certain
subsidiaries of the Corporation are subject to rules of both the SEC and the
NYSE. These rules require members to maintain minimum levels of net capital, as
defined, and may restrict a member from expanding its business and declaring
dividends as its net capital approaches specified levels. At December 31, 1999,
these subsidiaries had aggregate net capital of approximately $527 million,
which exceeded aggregate minimum net capital requirements by approximately $436
million.
36
<PAGE>
COMPARISON OF 1998 AND 1997
The Corporation's net income for 1998 was $2.3 billion, or $2.41 per diluted
share, compared with $2.2 billion, or $2.33 per diluted share, in 1997. ROA and
ROE were 1.37% and 17.64%, respectively, for 1998 compared with 1.48% and
19.71%, respectively, for 1997.
Net interest income on an FTE basis totaled $6.5 billion in 1998, compared
with $6.2 billion in 1997. Net interest margin for 1998 was 4.40%, compared with
4.68% in 1997. The decrease in net interest margin was primarily attributable to
narrowed margins due to growth in commercial loans, the divestiture of certain
national consumer finance businesses in 1997, and the acquisitions of lower rate
spread activity at Quick & Reilly and the domestic consumer credit card
operations from Advanta.
The provision for credit losses was $850 million in 1998 compared with $522
million in 1997, with the increase due principally to increased credit card
charge-offs, as a result of higher levels of credit card receivables from the
acquisitions of various credit card portfolios, expansion in Latin America and
the charge-off of loans in the Corporation's international private bank.
Noninterest income increased over $1 billion to $5.3 billion in 1998.
Increases were noted in nearly all core revenue categories including banking
fees and commissions, investment services, capital markets and credit cards.
These increases reflect growth in core businesses, the impact of acquisitions,
and a strong domestic equity market.
Noninterest expense totaled $7.1 billion in 1998, compared with $6.1
billion in 1997. This increase was driven primarily by the aforementioned
acquisitions, branch expansions in Argentina and Brazil and other initiatives in
the Corporation's key businesses.
Total loans at December 31, 1998 were $112.1 billion, compared with $106.5
billion at December 31, 1997. The increase was attributable to strong loan
growth in the domestic and international C&I and lease financing portfolios, as
well as higher levels of credit card receivables as a result of various
portfolio acquisitions, and was partially offset by a slight decline in the
commercial real estate portfolio, as well as the securitization of $3.0 billion
of C&I and home equity loans.
Total deposits increased $8.7 billion to $118.2 billion at December 31,
1998. The increase was due principally to a $10.5 billion increase in domestic
money market deposits as a result of promotional rates aimed at attracting new
sources of funds, as well as increased international deposits. Partially
offsetting these increases were decreases in domestic regular savings and NOW
deposits.
Long-term debt increased $6.2 billion to $14.4 billion as a result of
funding both acquisitions and balance sheet growth.
RECENT ACCOUNTING DEVELOPMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of FASB
Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes comprehensive
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
standard requires that all derivative instruments be recorded in the balance
sheet at fair value. However, the accounting for changes in fair value of the
derivative instrument depends on whether the derivative instrument qualifies as
a hedge. If the derivative instrument does not qualify as a hedge, changes in
fair value are reported in earnings when they occur. If the derivative
instrument qualifies as a hedge, the accounting treatment varies based on the
type of risk being hedged.
In October 1998, the FASB formed a group of outside experts to assist with
interpretation issues raised by companies. This Derivatives Implementation Group
(the DIG) has addressed over 100 issues with the FASB and is scheduled to meet
through December 31, 2000.
The Corporation intends to adopt SFAS No. 133 as of January 1, 2001. The
adoption of this standard may cause volatility in both the income statement as
well as the equity section of the balance sheet. The impact of this Statement
cannot be currently estimated and will be dependent upon the fair value, nature
and purpose of the derivative instruments held by the Corporation as of January
1, 2001.
37
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth in the "Asset-Liability Management" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included under Item 7 of this Report, is incorporated by reference
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements and related notes of the
Corporation were prepared by management in conformity with generally accepted
accounting principles. Management is responsible for the integrity and fair
presentation of these financial statements.
Management has in place an internal accounting control system designed to
safeguard corporate assets from material loss or misuse and to ensure that all
transactions are first properly authorized and then recorded in the
Corporation's records. The internal control system includes an organizational
structure that provides appropriate delegation of authority and segregation of
duties, established policies and procedures, and comprehensive internal audit
and loan review programs. Management believes that this system provides
assurance that the Corporation's assets are adequately safeguarded and that its
records, which are the basis for the preparation of all financial statements,
are reliable.
The Audit and Risk Management Committees of the Board of Directors consist
solely of directors who are not employees of the Corporation or its
subsidiaries. During 1999, the Audit Committee met four times, and the Risk
Management Committee separately met four times, with internal auditors, credit
review management, the independent accountants, and representatives of senior
management to discuss the results of examinations and to review their activities
to ensure that each is properly discharging its responsibilities. The
independent accountants, internal auditors, and credit review management have
direct and unrestricted access to these committees at all times.
The Corporation's consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants. Its Report
of Independent Accountants, which is based on an audit made in accordance with
generally accepted auditing standards, expresses an opinion as to the fair
presentation of the consolidated financial statements. In performing its audit,
PricewaterhouseCoopers LLP considers the Corporation's internal control
structure to the extent it deems necessary in order to issue its opinion on the
consolidated financial statements.
<TABLE>
<S> <C> <C>
/S/ Terrence Murray /S/ Charles K. Gifford /S/ Eugene M. McQuade
------------------------- ------------------------- -------------------------
Terrence Murray Charles K. Gifford Eugene M. McQuade
Chairman and Chief Executive Officer President and Chief Operating Officer Vice Chairman and
Chief Financial Officer
</TABLE>
38
<PAGE>
[LOGO] PRICEWATERHOUSECOOPERS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Fleet Boston Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Fleet Boston Corporation and its subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 19, 2000
39
<PAGE>
FLEET BOSTON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
Dollars in millions, except per share amounts
==============================================================================================================================
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $10,561 $10,136 $9,318
Interest on securities and trading assets 1,699 1,565 1,379
Other 792 640 558
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 13,052 12,341 11,255
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits of domestic offices 2,407 2,601 2,439
Deposits of international offices 1,109 1,105 900
Short-term borrowings 1,230 1,259 1,052
Long-term debt 1,371 767 584
Other 193 214 152
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 6,310 5,946 5,127
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,742 6,395 6,128
- ------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 933 850 522
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 5,809 5,545 5,606
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Capital markets revenue 2,104 1,140 914
Investment services revenue 1,513 1,212 990
Banking fees and commissions 1,501 1,339 1,207
Credit card revenue 737 455 98
Processing-related revenue 609 452 469
Gains on branch divestitures and sales of businesses 50 254 243
Other 460 429 285
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 6,974 5,281 4,206
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 4,568 3,556 3,031
Occupancy 586 529 498
Equipment 528 474 463
Intangible asset amortization 349 274 206
Legal and other professional 307 254 172
Marketing and public relations 276 253 225
Merger- and restructuring-related charges 850 138 25
Other 1,893 1,572 1,430
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 9,357 7,050 6,050
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,426 3,776 3,762
Applicable income taxes 1,388 1,452 1,516
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,038 $ 2,324 $ 2,246
- ------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares outstanding (in millions) 943.5 939.1 924.0
Net income applicable to common shares $ 1,982 $ 2,264 $ 2,153
Basic earnings per share 2.16 2.47 2.39
Diluted earnings per share 2.10 2.41 2.33
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
40
<PAGE>
FLEET BOSTON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1999 1998
Dollars in millions, except share and per share amounts
==================================================================================================================
<S> <C> <C>
ASSETS
Cash, due from banks and interest-bearing deposits $10,627 $10,941
Federal funds sold and securities purchased under agreements to resell 2,353 2,566
Trading assets 7,849 4,364
Securities (market value: $25,212 in 1999 and $23,379 in 1998) 25,212 23,369
Loans and leases 119,700 112,094
Reserve for credit losses (2,488) (2,306)
- ------------------------------------------------------------------------------------------------------------------
Net loans and leases 117,212 109,788
- ------------------------------------------------------------------------------------------------------------------
Due from brokers/dealers 3,003 3,600
Mortgages held for resale 1,244 4,068
Premises and equipment 2,794 2,549
Mortgage servicing rights 3,325 1,405
Intangible assets 4,164 3,906
Other assets 12,909 11,338
- ------------------------------------------------------------------------------------------------------------------
Total assets $190,692 $177,894
==================================================================================================================
LIABILITIES
Deposits:
Domestic:
Noninterest bearing $24,773 $25,200
Interest bearing 73,428 75,585
International:
Noninterest bearing 1,532 1,144
Interest bearing 15,163 16,249
- ------------------------------------------------------------------------------------------------------------------
Total deposits 114,896 118,178
- ------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 9,529 9,697
Other short-term borrowings 8,577 9,479
Trading liabilities 3,807 2,326
Due to brokers/dealers 4,468 3,975
Long-term debt 25,349 14,411
Accrued expenses and other liabilities 8,759 5,624
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 175,385 163,690
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock 691 691
Common stock, par value $.01 (917,061,055 shares issued in 1999 and
935,155,537 shares issued in 1998) 9 9
Common surplus 4,150 4,706
Retained earnings 10,129 9,210
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale, net of tax 393 109
Cumulative translation adjustments, net of tax (6) (14)
Treasury stock, at cost (1,401,453 shares in 1999 and 16,215,465 shares in 1998) (59) (507)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 15,307 14,204
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $190,692 $177,894
==================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE>
FLEET BOSTON CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Preferred Common Common Retained Comprehensive Treasury
Dollars in millions, except per share amounts Stock Stock Surplus Earnings Income Stock Total
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $1,461 $5 $4,653 $6,543 $100 $ (60) $12,702
Net income - - - 2,246 - - 2,246
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of taxes of $161 - - - - 243 - -
Less: reclassification adjustment for net gains
included in net income, net of taxes of $135 - - - - 199 - -
Change in translation adjustment, net of taxes of $3 - - - - (4) - -
---------
Other comprehensive income - - - - 40 - 40
---------
Total comprehensive income - - - - - - 2,286
Cash dividends declared on common stock ($.92 per share) - - - (467) - - (467)
Cash dividends declared on preferred stock - - - (62) - - (62)
Cash dividends declared by pooled company prior to merger - - - (329) - - (329)
Redemption of preferred stock (408) - - - - - (408)
Common stock issued in connection with:
Dividend reinvestment and employee benefit plans - - (41) (21) - 293 231
Reissuance of treasury stock - - 161 - - 595 756
Business combinations - - 24 - - 21 45
Treasury stock purchased - - - - - (1,587) (1,587)
Adjustment to retained earnings reflecting pooled
entity different year-end - - - (23) - - (23)
Exchange of Series V preferred stock for trust
preferred securities (84) - - - - - (84)
Other items, net - - (20) - - 1 (19)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $969 $5 $4,777 $7,887 $140 $(737) $13,041
- --------------------------------------------------------------------------------------------------------------------------------
Net income - - - 2,324 - - 2,324
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of taxes of $109 - - - - 172 - -
Less: reclassification adjustment for net gains
included in net income, net of taxes of $134 - - - - 214 - -
Change in translation adjustment, net of taxes of $2 - - - - (3) - -
---------
Other comprehensive income - - - - (45) - (45)
-------
Total comprehensive income - - - - - - 2,279
Cash dividends declared on common stock ($1.00 per share) - - - (568) - - (568)
Cash dividends declared on preferred stock - - - (51) - - (51)
Cash dividends declared by pooled company prior to merger - - - (350) - - (350)
Redemption of preferred stock (278) - - - - - (278)
Common stock issued in connection with dividend
reinvestment and employee benefit plans - - (65) (34) - 281 182
Treasury stock purchased - - - - - (51) (51)
Two-for-one common stock split - 4 (4) - - - -
Other items, net - - (2) 2 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $691 $9 $4,706 $9,210 $ 95 $(507) $14,204
- ---------------------------------------------------------------------------------------------------------------------------------
Net income - - - 2,038 - - 2,038
Other comprehensive income:
Net unrealized securities gains arising during the
period, net of taxes of $378 - - - - 502 - -
Less: reclassification adjustment for net gains
included in net income, net of taxes of $148 - - - - 218 - -
Change in translation adjustment, net of taxes of $5 - - - - 8 - -
---------
Other comprehensive income - - - - 292 - 292
-------
Total comprehensive income - - - - - - 2,330
Cash dividends declared on common stock ($1.11 per share) - - - (736) - - (736)
Cash dividends declared on preferred stock - - - (51) - - (51)
Cash dividends declared by pooled company prior to merger - - - (285) - - (285)
Common stock issued in connection with dividend reinvestment
and employee benefit plans - - 219 (44) - 124 299
Retirement of treasury stock - - (840) - - 840 -
Treasury stock purchased - - - - - (24) (24)
Settlement of forward purchase contracts - - 49 (6) - (492) (449)
Other items, net - - 16 3 - - 19
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $691 $9 $4,150 $10,129 $387 $(59) $15,307
=================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
42
<PAGE>
FLEET BOSTON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
In millions
==========================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,038 $2,324 $2,246
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 474 404 340
Amortization and impairment of mortgage servicing rights 357 433 248
Amortization of other intangible assets 349 274 206
Provision for credit losses 933 850 522
Deferred income tax expense 499 210 596
Securities gains (7) (115) (113)
Gains on branch divestitures and sales of businesses (50) (254) (243)
Merger- and restructuring-related charges 850 138 25
Originations and purchases of mortgages held for resale (28,258) (30,336) (15,400)
Proceeds from sales of mortgages held for resale 31,082 27,839 14,982
Increase in trading assets (3,485) (1,016) (1,287)
Increase in trading liabilities 1,481 1,094 664
Decrease (increase) in due from brokers/dealers 597 (90) (892)
Increase in accrued receivables, net (320) (136) (138)
Increase (decrease) in due to brokers/dealers 493 (341) 1,237
Increase in accrued liabilities, net 664 149 456
Other, net (1,887) (2,467) 1,114
- --------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by (used in) operating activities 5,810 (1,040) 4,563
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (15,129) (22,274) (14,311)
Proceeds from sales of securities available for sale 9,266 14,867 8,125
Proceeds from maturities of securities available for sale 4,515 3,807 3,786
Purchases of securities held to maturity (1,310) (1,292) (1,492)
Proceeds from maturities of securities held to maturity 1,385 1,557 1,437
Net cash and cash equivalents (paid) for businesses acquired (613) (226) (525)
Purchases of credit card loan portfolios (151) (1,870) ---
Proceeds from sales of loan portfolios by banking subsidiary 2,300 4,981 1,295
Net increase in loans and leases (5,029) (5,494) (11,274)
Net cash and cash equivalents received from divestitures and sales
of businesses 50 213 3,887
Purchase of investment in bank-owned life insurance --- (900) (650)
Purchases of mortgage servicing rights (1,015) (485) (271)
Purchases of premises and equipment (818) (691) (476)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flow used in investing activities (6,549) (7,807) (10,469)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (3,282) 4,925 (405)
Net (decrease) increase in short-term borrowings (1,428) (918) 5,897
Proceeds from issuance of long-term debt 7,975 7,585 1,992
Repayments of long-term debt (1,666) (1,365) (2,261)
Proceeds from issuance of common stock 299 182 987
Redemption and repurchase of common and preferred stock (24) (329) (1,995)
Settlement of forward purchase contracts (449) --- ---
Cash dividends paid (950) (937) (858)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by financing activities 475 9,143 3,357
- --------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency translation on cash (50) (29) (17)
- --------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (314) 267 (2,566)
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 10,941 10,674 13,240
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $10,627 $10,941 $10,674
==========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
43
<PAGE>
FLEET BOSTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and financial reporting policies of Fleet Boston Corporation (the
Corporation) conform to generally accepted accounting principles. The
Corporation is a diversified financial services company headquartered in Boston,
Massachusetts, and is organized along functional lines of business, which
include Global Banking and Financial Services, Commercial and Retail Banking and
the National Consumer Group. Prior period financial statements have been
restated to give retroactive effect to the Corporation's merger with BankBoston
Corporation (BankBoston), completed on October 1, 1999, which was accounted for
as a pooling of interests. See Note 2 for additional information regarding the
merger.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
The following is a summary of the significant accounting policies.
BASIS OF PRESENTATION. The consolidated financial statements of the Corporation
include the accounts of the Corporation and its subsidiaries, including its
major banking subsidiaries: Fleet National Bank and Fleet Bank, National
Association. All material intercompany transactions and balances have been
eliminated. Certain prior year amounts have been reclassified to conform to
current year presentation.
CASH AND CASH EQUIVALENTS. For purposes of the accompanying consolidated
statement of cash flows, the Corporation defines cash and cash equivalents to
include cash, due from banks and interest-bearing deposits. Foreign currency
cash flows are converted to U.S. dollars using average rates for the period.
TRADING ASSETS AND LIABILITIES. Trading assets include securities held in
anticipation of short-term market movements and for resale to customers.
Trading liabilities include obligations to deliver securities not yet purchased.
Trading assets and liabilities also include derivative financial instruments,
primarily interest rate derivatives, including futures and forwards, interest
rate swaps and interest rate options, as well as foreign exchange products.
The Corporation values trading assets at fair value. Trading securities and
derivative financial instruments are valued using quoted market prices, when
available. If quoted market prices are not available, the fair value is
estimated by using pricing models, quoted prices of instruments with similar
characteristics or discounted cash flows. Realized and unrealized gains and
losses are recorded in trading profits and commissions, a component of capital
markets revenue. Foreign exchange products are valued at prevailing market rates
on a present value basis, and the resulting realized and unrealized gains and
losses are recorded in foreign exchange revenue, a component of capital markets
revenue. Interest on trading assets, including off-balance sheet instruments, is
included in interest income.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY. This portfolio principally
includes debt securities that are purchased in connection with the Corporation's
asset-liability management activities and securities held in connection with the
Corporation's Principal Investing and capital markets-related businesses. These
securities are classified at the time of purchase, based on management's
intentions, as held to maturity or available for sale.
Securities held to maturity are debt securities that management has the
positive intent and ability to hold to maturity. Securities held to maturity are
stated at cost, net of the amortization of any premium and the accretion of any
discount. Securities available for sale are those that management intends to
hold for an indefinite period of time, including securities used as part of the
asset-liability management strategy, that may be sold in response to changes in
interest rates, prepayment risk, liquidity needs or other similar factors.
Within the available for sale category, equity securities that have a readily
determinable fair value and debt securities are reported at fair value, with
unrealized gains and losses recorded, net of tax, as a separate component of
stockholders' equity. Equity securities that do not have a readily determinable
fair value are reported at cost. Realized gains and losses, which are computed
using the specific identification method, and unrealized losses on individual
securities that are deemed to be other than temporary are recorded in securities
gains, a component of capital markets revenue.
LOANS AND LEASES. Loans are stated at the principal amount outstanding, net of
charge-offs and unearned income, if any. Lease financing receivables, including
leveraged leases, are reported at the aggregate of lease payments receivable and
estimated residual values, net of unearned and deferred income, including
unamortized investment credits. Leveraged leases are reported net of
non-recourse debt. Unearned income is recognized to yield a level rate of return
on the net investment in the leases.
Loans and lease financing receivables are placed on nonaccrual status as a
result of past-due status or a judgment by management that, although payments
are current, such action is prudent. Commercial loans and leases on which
payments are past due 90 days or more are placed on nonaccrual status, unless
they are well-secured and in the process of collection or renewal. Certain
consumer loans, including residential mortgage and installment loans, are placed
on nonaccrual status at no more than 120 days past due, and all other consumer
loans, including credit card accounts and lines of credit, are charged off at no
more than 180 days past due. When a loan or
44
<PAGE>
lease is placed on nonaccrual status, interest accrued but uncollected is
generally reversed against interest income. Cash receipts on nonaccruing
commercial loans and leases are generally applied to reduce the unpaid principal
balance, and cash receipts on nonaccruing consumer loans are recognized in
income on a cash basis.
Loans and leases are returned to accrual status when they become current as
to principal and interest or demonstrate a period of performance under the
contractual terms and, in management's opinion, are fully collectible.
RESERVE FOR CREDIT LOSSES. The reserve for credit losses is available for future
charge-offs of existing extensions of credit. Loans and leases, or portions
thereof, deemed uncollectible are charged off against the reserve, while
recoveries of amounts previously charged off are credited to the reserve.
Amounts are charged off after giving consideration to such factors as the
customer's financial condition, underlying collateral and guarantees, and
general and industry economic conditions.
The reserve for credit losses reflects management's estimate of losses
inherent in the portfolio, considering evaluations of individual credits and
concentrations of credit risk, net losses charged to the reserve, changes in the
quality of the credit portfolio, levels of nonaccrual loans and leases, current
economic conditions, cross-border risks, changes in the size and character of
the credit risks and other pertinent factors. The reserve for credit losses
related to loans that are identified as impaired, which are primarily commercial
and commercial real estate loans on nonaccrual status, is based on discounted
cash flows using the loan's effective interest rate, or the fair value of the
collateral for collateral-dependent loans, or the observable market price of the
impaired loan. Based on these analyses, the reserve for credit losses is
maintained at levels considered adequate by management to provide for credit
losses inherent in these portfolios.
DUE FROM/DUE TO BROKERS/DEALERS. Receivables from brokers/dealers and clearing
organizations include amounts receivable for securities failed to deliver,
certain deposits for securities borrowed, amounts receivable from clearing
organizations relating to open transactions, good-faith and margin deposits, and
commissions and floor-brokerage receivables. Payables to brokers/dealers and
clearing organizations include amounts payable for securities failed to receive,
certain deposits received for securities loaned, amounts payable to clearing
organizations on open transactions, and floor-brokerage payables. In addition,
the net receivable or payable arising from unsettled trades is reflected in
these classifications.
MORTGAGES HELD FOR RESALE. Mortgages held for resale are recorded at the lower
of aggregate cost or fair value. Fair value is determined by outstanding
commitments from investors or by current investor yield requirements.
MORTGAGE SERVICING RIGHTS (MSRS). The Corporation recognizes rights to service
mortgage loans as separate assets. The total cost of mortgage loans sold or
securitized is allocated between loans and servicing rights based upon the
relative fair values of each. Purchased MSRs are initially recorded at cost. All
MSRs are subsequently carried at the lower of the initial carrying value,
adjusted for amortization and deferred hedge gains/losses, or fair value. Fair
values are estimated based on market prices for similar MSRs and on the
discounted anticipated future net cash flows considering market loan prepayment
predictions, interest rates, servicing costs and other economic factors. For
purposes of impairment evaluation and measurement, the Corporation stratifies
MSRs based on predominant risk characteristics of the underlying loans,
including loan type, amortization type (fixed or adjustable) and note rate. To
the extent that the carrying value of MSRs exceeds fair value by individual
stratum, a valuation reserve is established, which is adjusted in the future as
the value of MSRs increases or decreases. The cost of MSRs is amortized in
proportion to, and over the period of, estimated net servicing income.
INTANGIBLE ASSETS. Intangible assets are generally amortized on a straight-line
basis over the estimated period benefited. The excess of cost over the assigned
value of net assets acquired in business combinations (goodwill) is amortized on
a straight-line basis over periods ranging from ten to thirty years. In certain
acquisitions, a core deposit intangible asset is recorded and amortized over a
period not to exceed ten years. Purchased credit card intangibles are amortized
over a period not to exceed six years. The Corporation periodically reviews its
intangible assets for events or changes in circumstances that may indicate that
the carrying amount of the assets may not be recoverable, in which case an
impairment charge is recorded.
LOAN AND LEASE SALES AND SECURITIZATIONS. The Corporation securitizes, sells and
services residential mortgages, commercial loans, credit card receivables and
other loans and leases. Loans and leases held for sale are recorded at the lower
of aggregate cost or fair value. Retained interests in securitized assets,
including debt securities and interest-only strips, are initially recorded at
their allocated carrying amounts based on the relative fair value of assets sold
and retained, and are subsequently carried at fair value. Gains on sale and
servicing fees are recorded in noninterest income.
INCOME TAXES. The Corporation records current tax liabilities or assets through
charges or credits to the current tax provision for the estimated taxes payable
or refundable for the current year. The Corporation records deferred tax assets
and liabilities for future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to
45
<PAGE>
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A deferred tax valuation allowance is established if it
is more likely than not that all or a portion of the Corporation's deferred tax
assets will not be realized.
RISK MANAGEMENT ACTIVITIES. The Corporation enters into certain interest rate
instruments, including interest rate swaps, caps and floor agreements, and
futures contracts to manage exposure to interest rate risk associated with
interest earning assets and interest bearing liabilities. For those interest
rate instruments that alter the repricing characteristics of assets or
liabilities, the net differential to be paid or received on the instruments is
treated as an adjustment to the yield on the underlying assets or liabilities
(the accrual method).
To qualify for accrual accounting, the interest rate instrument must be
designated to specific assets or liabilities or pools of similar assets or
liabilities and must effectively alter the interest rate characteristics of the
related assets or liabilities. For instruments that are designated to
floating-rate assets or liabilities to be effective, there must be high
correlation between the floating interest rate index on the underlying asset or
liability and the offsetting rate on the derivative. The Corporation measures
initial and ongoing correlation by statistical analysis of the relative
movements of the interest rate indices over time.
If correlation were to cease on any interest rate instrument hedging net
interest income, it would then be accounted for as a trading instrument. If an
interest rate instrument hedging net interest income is terminated, the gain or
loss is deferred and amortized over the shorter of the remaining contractual
life of the terminated risk management instrument or the maturity of the
designated asset or liability. If the designated asset or liability matures, is
sold, is settled or its balance falls below the notional amount of the
instrument, the hedge is usually terminated; if not, accrual accounting is
discontinued to the extent that the notional amount exceeds the balance, and
accounting for trading instruments is applied to the excess amount.
The Corporation also uses interest rate instruments and combinations of
interest rate instruments to hedge the value of its mortgage servicing
portfolio. Such instruments are designated as hedges of specific strata of MSRs.
To qualify for hedge accounting, net changes in value of the hedges are expected
to be highly correlated with changes in the value of the hedged MSRs, and
combinations of options purchased and sold must be entered into
contemporaneously and result in a net purchased option position. Changes in the
value of risk management instruments are treated as adjustments to the carrying
value of the hedged MSRs.
If correlation were to cease on the interest rate instrument hedging MSRs,
they would then be accounted for as trading instruments. If an interest rate
instrument hedging MSRs is terminated, the gain or loss is treated as an
adjustment to the carrying value of hedged MSRs and amortized over its
remaining life.
The Corporation also enters into foreign exchange contracts to hedge a
portion of its own foreign exchange exposure, including foreign currency
positions. Such contracts are revalued at the spot rate, with any forward
premium or discount amortized over the life of the contract to net interest
income.
FOREIGN CURRENCY TRANSLATION. The Corporation translates the financial
statements of its foreign operations into U.S. dollars. A functional currency is
designated for each foreign unit, generally the currency of the primary economic
environment in which it operates. Where the functional currency is not the U.S.
dollar, assets and liabilities are translated into U.S. dollars at period-end
exchange rates, while income and expenses are translated using average rates for
the period. The resulting translation adjustments and any related hedge gains
and losses are recorded, net of tax, as a separate component of stockholders'
equity.
For foreign units where the functional currency is the U.S. dollar,
including units that operate in a hyperinflationary environment, the financial
statements are translated into U.S. dollars using period-end exchange rates for
monetary assets and liabilities, exchange rates in effect on the date of
acquisition for premises and equipment (and related depreciation), and the
average exchange rate during the period for income and expenses. The resulting
translation adjustments and related hedge gains and losses for these units are
recorded in current period income.
The Corporation hedges a portion of its exposure to translation gains and
losses in overseas branches and foreign subsidiaries through the purchase of
foreign exchange rate contracts and through investments in fixed assets and
securities.
NOTE 2. MERGERS, ACQUISITIONS AND DIVESTITURES
As previously disclosed, BankBoston merged with Fleet Financial Group, Inc.
(Fleet) on October 1, 1999. Under the terms of the merger agreement, Fleet
issued approximately 353 million shares of its common stock in exchange for
substantially all of the outstanding common shares of BankBoston, by exchanging
1.1844 Fleet shares for each outstanding share of BankBoston. The merger was
accounted for as a pooling of interests and, accordingly, the accompanying
consolidated financial statements present the combined results of operations,
financial position and changes in cash flows of both companies as though they
had operated as a combined entity for all periods presented.
In connection with obtaining regulatory approvals for the merger, the
Corporation signed definitive agreements to divest approximately $13 billion of
deposits and $9 billion of loans. The Corporation will execute these
divestitures in 2000. In connection with the merger, the Corporation recorded
merger- and restructuring-related charges and merger integration costs of $850
million and $102 million, respectively. These costs are more fully discussed in
Note 8.
46
<PAGE>
The following table sets forth the results of operations of Fleet and
BankBoston for the nine months ended September 30, 1999. These results are
included in the results of operations for the year ended December 31, 1999,
presented in the accompanying consolidated statements of income.
Nine months ended September 30, 1999
In millions Fleet BankBoston Combined
=============================================================
Net interest income $3,066 $2,004 $5,070
Noninterest income 2,963 2,038 5,001
Net income 1,327 745 2,072
=============================================================
The following tables set forth reconciliations of revenue and net income
previously reported by Fleet with the combined amounts presented in the
accompanying consolidated statements of income for the years ended December 31,
1998 and 1997.
Year ended December 31, 1998
In millions Fleet BankBoston Combined
=============================================================
Net interest income $3,869 $2,526 $6,395
Noninterest income 3,237 2,044 5,281
Net income 1,532 792 2,324
- -------------------------------------------------------------
Year ended December 31, 1997
In millions Fleet BankBoston Combined
=============================================================
Net interest income $3,700 $2,428 $6,128
Noninterest income 2,631 1,575 4,206
Net income 1,367 879 2,246
=============================================================
On February 1, 1999, the Corporation acquired Sanwa Business Credit (Sanwa), a
leasing and asset-based lending company, from Sanwa Bank, Ltd. Sanwa offers a
wide variety of asset-based lending, equipment leasing and vendor finance
programs throughout the United States and had approximately $6 billion in assets
at the date of acquisition. Since this acquisition was accounted for under the
purchase method of accounting, the acquisition has been included in the
accompanying consolidated financial statements since the acquisition date.
Goodwill of approximately $385 million was recorded and is being amortized on a
straight-line basis over twenty five years. Pro forma results of operations
including Sanwa for the years ended December 31, 1999 and 1998 are not
presented, since the results would not have been significantly different in
relation to the Corporation's results of operations.
On December 18, 1998, the Corporation acquired Merrill Lynch Specialists,
Inc. (MLSI), a New York Stock Exchange (NYSE) specialist firm, from Merrill
Lynch & Co., Inc. The management staff and listings of MLSI merged with JJC
Specialist, a division of Fleet Securities, Inc. Goodwill of approximately $106
million was recorded and is being amortized on a straight-line basis over
fifteen years.
On August 31, 1998, the Corporation completed its acquisition of the
investment banking operations of Robertson Stephens from BankAmerica Corporation
for $400 million in cash. The acquired operations were merged into one of the
Corporation's Section 20 subsidiaries. In connection with the acquisition and in
addition to the purchase price, the Corporation agreed to pay $400 million,
composed of stock options with an estimated value of approximately $100 million
and approximately $300 million in cash compensation, to employees of the
acquired operations over future periods. In connection with this agreement, the
Corporation recorded compensation expense of $57 million in 1999 and $94 million
in 1998. Since this acquisition was accounted for under the purchase method of
accounting, the acquisition has been included in the accompanying consolidated
financial statements since the acquisition date. Goodwill of approximately $300
million is being amortized on a straight-line basis over twenty five years. In
1999, unrelated to the acquisition, the Corporation recorded compensation
expense of $150 million to establish a defined contribution plan to provide
retention incentives at Robertson Stephens. The establishment of this plan
eliminated the Corporation's remaining obligations under the original agreement
described above.
On February 20, 1998, the Corporation consummated its acquisition of the
domestic consumer credit card operations of Advanta Corporation. Since this
acquisition was accounted for under the purchase method of accounting, the
acquisition has been included in the accompanying consolidated financial
statements since the acquisition date. The acquisition provided approximately
$11.5 billion of managed credit card receivables, of which approximately $2
billion reside in the accompanying consolidated balance sheet in consumer loans.
A purchased credit card intangible asset of approximately $150 million was
recorded and is being amortized over 6 years. Additionally, goodwill of
approximately $500 million was recorded and is being amortized on a
straight-line basis over fifteen years. Subject to the level of earnings from
these operations, the Corporation may be required to make additional payments of
up to $100 million over 5 years, which, if paid, will be recorded as goodwill.
On February 10, 1998, the Corporation completed the sale of its 26 percent
minority interest in HomeSide, Inc. (HomeSide). The sale of the minority
interest in HomeSide, an independent mortgage banking company formed in 1996 in
connection with the Corporation's sale of one of its mortgage banking
subsidiaries, resulted in a pre-tax gain of approximately $165 million.
On February 1, 1998, the Corporation consummated its acquisition of The
Quick & Reilly Group, Inc. (Quick & Reilly), one of the country's largest
discount brokerage firms. The acquisition was accounted for as a pooling of
interests and, as such, the accompanying consolidated financial statements
present the results of operations, financial position and changes in cash flows
of Quick & Reilly and the Corporation as though the companies had operated as a
combined entity for all periods presented. Under the terms of the Quick & Reilly
merger, approximately 44 million of the Corporation's common shares were issued
in exchange for substantially all of the outstanding Quick & Reilly common
shares, by exchanging 1.156 of the Corporation's shares for each outstanding
share of Quick & Reilly.
47
<PAGE>
On January 30, 1998, the Corporation completed its acquisition of Deutsche
Bank Argentina, S.A. (Deutsche Argentina), a full service bank with
approximately $1 billion of loans and $1.5 billion of deposits, for
approximately $255 million in cash. Goodwill of approximately $127 million was
recorded and is being amortized on a straight-line basis over fifteen years. The
acquisition, which excluded Deutsche Argentina's pension fund, insurance and
investment banking businesses, was accounted for as a purchase. The acquisition
has been included in the accompanying consolidated financial statements since
the acquisition date.
On December 10, 1997, the Corporation completed its acquisition of Columbia
Management Company (Columbia), a Portland, Oregon-based asset management company
with approximately $21 billion of assets under management. Goodwill of
approximately $466 million was recorded and is being amortized on a
straight-line basis over thirty years. The Corporation may be required to make
additional payments up to $110 million in accordance with an earnout calculation
which, if paid, will be recorded as goodwill. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the Corporation's
consolidated financial statements include Columbia for the periods subsequent to
the acquisition date.
During 1997, the Corporation sold Option One, a mortgage banking
subsidiary; the Corporate Trust division; a portion of its indirect auto lending
portfolio; and Fidelity Acceptance Corporation (FAC), a consumer finance
subsidiary. The aggregate pre-tax net gain recorded on these sales totaled $243
million.
NOTE 3. SECURITIES
<TABLE>
<CAPTION>
December 31 1999 1998
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
In millions Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and government
agencies $ 2,282 $ - $ 86 $ 2,196 $ 1,821 $ 24 $ - $ 1,845
Mortgage-backed securities 14,157 8 598 13,567 14,166 252 38 14,380
Other debt securities 4,850 58 55 4,853 4,188 36 89 4,135
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 21,289 66 739 20,616 20,175 312 127 20,360
- -----------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities 977 1,387 22 2,342 446 7 14 439
Other equity securities 1,173 - - 1,173 1,043 - - 1,043
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale 23,439 1,453 761 24,131 21,664 319 141 21,842
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY:
State and municipal 1,053 1 1 1,053 1,056 5 - 1,061
U.S. Treasury and government
agencies 15 - - 15 307 4 - 311
Mortgage-backed securities - - - - 139 1 - 140
Other debt securities 13 - - 13 25 - - 25
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 1,081 1 1 1,081 1,527 10 - 1,537
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities $24,520 $1,454 $762 $25,212 $23,191 $329 $141 $23,379
===================================================================================================================================
</TABLE>
At December 31, 1999, $4.5 billion of securities were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes, compared with $6.9 billion at December 31, 1998.
Proceeds from sales of available for sale securities during 1999, 1998 and
1997 were $9 billion, $15 billion and $8 billion, respectively. Gross gains of
$89 million and gross losses of $28 million were realized on those sales in
1999, gross gains of $165 million and gross losses of $28 million were realized
on those sales in 1998, and gross gains of $139 million and gross losses of $26
million were realized on those sales in 1997. In addition, the Corporation
recognized losses of $54 million in 1999 and $22 million in 1998 resulting from
the write-down of certain securities available for sale which experienced a
decline in value that was deemed other than temporary. The above amounts for
each year exclude principal investing revenues, which are included in capital
markets revenue.
The carrying values, by contractual maturity, of debt securities held to
maturity and securities available for sale are shown in the following tables.
Actual maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
48
<PAGE>
Maturities of Securities Available for Sale
December 31, 1999 Within 1 to 5 5 to 10 After 10
Dollars in millions 1 Year Years Years Years Total
- ---------------------------------------------------------------------------
Carrying value:
U.S. Treasury and
government
agencies $ 311 $1,121 $ 764 $ --- $2,196
Mortgage-backed
securities 3 120 1,898 11,546 13,567
Other debt
securities 802 2,807 961 283 4,853
- ---------------------------------------------------------------------------
Total debt securities $1,116 $4,048 $3,623 $11,829 $20,616
- ---------------------------------------------------------------------------
Percent of total
debt securities 5.41% 19.64% 17.57% 57.38% 100%
Weighted average
yield(a) 8.09 9.06 6.54 6.52 7.10
- ---------------------------------------------------------------------------
Amortized cost $1,116 $4,039 $3,828 $12,306 $21,289
===========================================================================
Maturities of Securities Held to Maturity
December 31, 1999 Within 1 to 5 5 to 10 After 10
Dollars in millions 1 Year Years Years Years Total
- ---------------------------------------------------------------------------
Carrying value:
U.S. Treasury and
government
agencies $ --- $15 $ --- $--- $ 15
Mortgage-backed
securities --- --- --- --- ---
State and municipal 978 55 16 4 1,053
Other debt securities --- 4 9 --- 13
- ---------------------------------------------------------------------------
Total debt securities $978 $74 $ 25 $4 $1,081
- ---------------------------------------------------------------------------
Percent of total
debt securities 90.47% 6.85% 2.31% .37% 100%
Weighted average
yield(a) 5.57 7.75 8.32 5.69 5.74
- ---------------------------------------------------------------------------
Market value $977 $75 $ 26 $3 $1,081
===========================================================================
(a)A tax-equivalent adjustment has been included in the calculations
of the yields to reflect this income as if it had been fully taxable.
The tax-equivalent adjustment is based upon the applicable federal
and state income tax rates.
NOTE 4. LOANS AND LEASES
<TABLE>
<CAPTION>
December 31 1999 1998 1997 1996 1995
In millions
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial and industrial $ 55,184 $ 54,447 $ 48,239 $ 42,247 $36,095
Commercial real estate:
Construction 1,659 1,301 1,162 1,358 1,184
Interim/permanent 6,286 6,875 7,740 8,307 7,193
Residential real estate 10,881 11,243 12,589 11,232 15,749
Consumer 20,004 18,546 19,027 23,413 18,862
Lease financing(a) 10,933 5,750 5,013 4,140 3,557
- -----------------------------------------------------------------------------------------------------------------------------
Total domestic loans and leases, net of unearned
income 104,947 98,162 93,770 90,697 82,640
- -----------------------------------------------------------------------------------------------------------------------------
International:
Commercial 11,855 11,126 10,817 8,920 7,799
Consumer 2,898 2,806 1,958 1,305 997
- -----------------------------------------------------------------------------------------------------------------------------
Total international loans and leases, net of unearned
income 14,753 13,932 12,775 10,225 8,796
- -----------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income(b) $119,700 $112,094 $106,545 $100,922 $91,436
=============================================================================================================================
</TABLE>
(a)The Corporation's leases consist principally of full-payout, direct financing
leases. The Corporation's investment in leveraged leases totaled $2.2 billion
for 1999. For federal income tax purposes, the Corporation has the tax
benefit of depreciation on the entire leased unit and interest on the
long-term debt. Deferred taxes arising from leveraged leases totaled $1.7
billion in 1999. Future minimum lease payments to be received are $2.49
billion, 2000; $1.87 billion, 2001; $1.42 billion, 2002; $1.06 billion, 2003;
$709 million, 2004; $3.38 billion, 2005 and thereafter.
(b)Net of unearned income of $2.7 billion, $1.8 billion, $1.4 billion, $1.2
billion and $759 million, at December 31, 1999, 1998, 1997, 1996 and 1995,
respectively.
49
<PAGE>
NOTE 5. RESERVE FOR CREDIT LOSSES
Year ended December 31 1999 1998 1997
In millions
- -------------------------------------------------------
Balance at beginning of year $2,306 $2,144 $2,371
Provision charged to income 933 850 522
Loans and leases charged off (1,186) (1,050) (880)
Recoveries of loans and leases
charged off 290 216 225
Acquisitions/divestitures/other 145 146 (94)
- -------------------------------------------------------
Balance at end of year $2,488 $2,306 $2,144
=======================================================
"Acquisitions/Divestitures/Other" primarily related to the acquisition of Sanwa
in 1999, the acquisitions of credit card receivables and Deutsche Argentina in
1998 and the sale of FAC in 1997.
NOTE 6. NONPERFORMING ASSETS (NPAS)
December 31 1999 1998 1997 1996 1995
Dollars in millions
- -------------------------------------------------------
Nonperforming loans
and leases:
Current or less than
90 days
past due $359 $220 $233 $ 280 $174
Noncurrent 436 420 479 818 639
Other real estate
owned (OREO) 46 44 60 77 128
- -------------------------------------------------------
Total NPAs(a) $841 $684 $772 $1,175 $941
- -------------------------------------------------------
NPAs as a percent
of outstanding loans,
leases and OREO .70% .61% .72% 1.16% 1.03%
- -------------------------------------------------------
Accruing loans and
leases contractually
past due 90 days or
more $320 $275 $233 $ 288 $214
=======================================================
(a)Excludes $237 million, $46 million, $214 million, $265 million and $317
million of NPAs classified as held for sale by accelerated disposition at
December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
The following table sets forth the status of impaired loans, which are primarily
commercial and commercial real estate loans on nonaccrual status:
Impaired Loans
December 31 1999 1998
In millions
- ---------------------------------------------------
Impaired loans with a reserve $512 $297
Impaired loans without a reserve 60 114
- ---------------------------------------------------
Total impaired loans $572 $411
- ---------------------------------------------------
Reserve for impaired loans (a) $163 $76
- ---------------------------------------------------
Average balance of impaired loans
during the year ended December 31 $449 $439
===================================================
(a)The reserve for impaired loans is part of the Corporation's overall reserve
for credit losses.
Substantially all of the impaired loans presented above were on nonaccrual
status and the amount of interest income recognized on impaired loans was not
significant. The Corporation had no significant outstanding commitments to lend
additional funds to customers whose loans have been placed on nonaccrual status
or the terms of which have been modified.
NOTE 7. MORTGAGE SERVICING RIGHTS
Year ended December 31 1999 1998 1997
In millions
- -------------------------------------------------------
Balance at beginning of year $1,405 $1,768 $1,566
Additions 1,370 803 586
Sales (40) (66) (20)
Deferred hedge loss/(gain) 947 (667) (116)
Amortization/Impairment charge (357) (433) (248)
- -------------------------------------------------------
Balance at end of year $3,325 $1,405 $1,768
=======================================================
Various interest rate instruments, which are designated as hedges of MSRs, are
used to manage potential MSR impairment. Changes in fair value of the hedges are
recorded as adjustments to the carrying value of the MSRs and related hedges.
During 1999 and 1998, net hedge losses of $947 million and net hedge gains of
$667 million, respectively, were deferred and recorded as adjustments to the
carrying value of the MSRs and the related hedges. The aggregate fair value of
the Corporation's MSRs was approximately $3.5 billion as of December 31, 1999.
The level of amortization was consistent with 1998, excluding a $75 impairment
charge recorded in 1998. See Note 17 for more information on MSR risk
management.
NOTE 8. MERGER- AND RESTRUCTURING-RELATED CHARGES
In 1999, the Corporation recorded $850 million of merger- and
restructuring-related charges in connection with its merger with BankBoston,
composed of $383 million of merger-related charges and $467 million of
restructuring charges. In addition to the merger- and restructuring-related
charges, the Corporation incurred $102 million of integration costs. These
integration costs, which are expensed as incurred, resulted from the merger
integration process the Corporation began in the fourth quarter of 1999 and
expects to complete by the end of 2000. The merger- and restructuring-related
charges and merger integration costs were included in noninterest expense in the
accompanying consolidated statements of income and allocated to All Other for
line of business reporting purposes.
The merger- and restructuring-related charges and projected integration
costs were developed through an extensive process involving key managers in the
affected business lines. Accounting and finance personnel and external experts,
such as actuaries and consultants, reviewed the plan with executive management
and the Corporation's Board of Directors before recording these charges in the
fourth quarter of 1999.
The following table discloses information about the merger- and
restructuring-related charges and integration costs.
50
<PAGE>
In millions
- ---------------------------------------------------------------
Merger charges
Personnel $233
Transaction costs/other 150
- ---------------------------------------------------------------
Total merger charges $383
- ---------------------------------------------------------------
Restructuring charges
Personnel 357
Technology and operations 77
Facilities 28
Other 5
- ---------------------------------------------------------------
Total restructuring charges 467
- ---------------------------------------------------------------
Total merger- and restructuring-related charges $850
- ---------------------------------------------------------------
Integration costs 102
- ---------------------------------------------------------------
Total $952
===============================================================
MERGER-RELATED CHARGES
The Corporation's merger-related charges of $383 million related to costs
incurred as a direct result of the merger, with $233 million related to
personnel and $150 million related to transaction costs and other merger-related
expenses. Personnel-related costs included $87 million related to contractual
arrangements for key executives, $36 million related to announced benefit
adjustments effected as a result of changes to conform Fleet and BankBoston
benefit plans and $110 million related to incentive compensation plans,
resulting from change in control provisions in these plans. Transaction
costs/other principally related to investment banking, legal and accounting
fees, as well as community-based commitments resulting from the merger.
Substantially all of the transaction costs were paid by December 31, 1999.
RESTRUCTURING-RELATED CHARGES
The Corporation's restructuring-related charges of $467 million resulted from a
restructuring plan that management committed to and communicated to employees in
1999 in connection with its integration of the combining companies. Of the $467
million charge, $357 million related to personnel, $77 million related to
technology and operations, $28 million related to facilities and $5 million
related to other restructuring expenses. Management expects to fully implement
the restructuring plan in 2000.
Personnel-related costs of $357 million related to severance, which may be
paid in a lump sum or over a defined period, and benefit program changes and
outplacement services for approximately 4,000 employees to be terminated in
connection with the restructuring, principally as a result of duplicate
functions within the combined company. Of the total employees to be terminated,
approximately 14% are in Global Banking and Financial Services; approximately
15% are in Commercial and Retail Banking; approximately 1% are in the National
Consumer Group; and the remaining 70% are in support units. Substantially all of
the affected employees will be notified by September 30, 2000. The Corporation
anticipates that approximately 78% of terminated employees will be leaving the
Corporation throughout the first nine months of 2000, and that the remaining
employees will leave the Corporation by December 31, 2000. As of December 31,
1999, $27 million in personnel benefits had been paid and approximately 775
employees had been terminated and left the Corporation.
Technology and operations costs of $77 million included $37 million of
liabilities incurred for contract cancellation penalties resulting from
duplicate or incompatible systems, and $40 million of write-offs of certain
capitalized assets, including business projects in process that will not be
completed by the Corporation, and losses incurred from the write-off of computer
hardware and software held for disposition. As of December 31, 1999, $13 million
in contract cancellation penalties had been paid, and all of the assets written
off were taken out of service.
Facilities charges of $28 million represent the present value of future
lease obligations and lease cancellation penalties recorded in connection with
vacating duplicate headquarters, banking operation facilities and branch
offices.
The following table discloses activity in the restructuring-related accrual
during the year ended December 31, 1999.
Restructuring Accrual Activity
In millions
===========================================================
Restructuring charges recorded $467
Cash payments (40)
Noncash write-downs (40)
- -----------------------------------------------------------
Balance at December 31, 1999 $387
===========================================================
INTEGRATION COSTS
The Corporation's integration costs, which will be expensed as incurred, include
the costs of converting duplicate computer systems, training and relocation of
employees and departments, consolidation of facilities and customer
communications. Certain assets, principally computer hardware and software,
banking operations and administrative facilities, will be used during 2000 until
the integration of computer systems and banking operations has been completed,
and will then be disposed. Approximately $39 million of the total integration
costs incurred in 1999 related to the incremental depreciation on these assets,
which was calculated based on the assets' shortened useful lives, over the
depreciation that would otherwise have been recorded.
51
<PAGE>
1998 MERGER- AND RESTRUCTURING-RELATED CHARGES
In 1998, the Corporation recorded $138 million of merger- and
restructuring-related charges, composed of $59 million of merger-related charges
and $79 million of restructuring-related charges. These charges resulted from
the Corporation's acquisitions of Quick & Reilly and the domestic consumer
credit card operations of Advanta, as well as a realignment of its Asian
operations and reductions in staff in its Emerging Market Sales, Trading and
Research unit. The merger-related charges were composed of professional fees
pertaining to investment banking, legal and accounting services,
personnel-related costs, including retention payments, and costs related to
system conversions. The restructuring-related charges were composed of personnel
costs such as employee severance and outplacement assistance, facilities
charges, including costs of terminating lease obligations, and asset write-offs
resulting primarily from the closing of offices in India, Japan, the Philippines
and Taiwan. At December 31, 1999, substantially all of the restructuring-related
charges had been paid.
NOTE 9. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Securities
Federal Sold Under Other Total
Funds Agreements to Short-Term Short-Term
Purchased Repurchase Borrowings Borrowings
Dollars in millions
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Balance at December 31 $4,134 $5,395 $8,577 $18,106
Highest balance at any month-end 4,334 13,543 12,492 30,369
Average balance for the year 3,430 10,172 9,507 23,109
Weighted average interest rate as of December 31 2.70% 3.01% 6.91% 4.79%
Weighted average interest rate paid for the year 5.06 4.63 6.16 5.32
- ----------------------------------------------------------------------------------------------------------------------
1998
Balance at December 31 $3,953 $5,744 $ 9,479 $19,176
Highest balance at any month-end 5,649 7,642 16,034 29,325
Average balance for the year 5,043 5,380 11,246 21,669
Weighted average interest rate as of December 31 4.53% 4.31% 6.11% 5.25%
Weighted average interest rate paid for the year 5.48 4.65 6.51 5.81
- ----------------------------------------------------------------------------------------------------------------------
1997
Balance at December 31 $4,537 $4,419 $10,268 $19,224
Highest balance at any month-end 6,014 5,200 11,617 22,831
Average balance for the year 4,394 4,686 8,047 17,127
Weighted average interest rate as of December 31 5.88% 4.96% 6.59% 6.07%
Weighted average interest rate paid for the year 6.05 4.90 6.92 6.14
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally mature within 30 days of the transaction date. The Corporation
generally maintains control of the securities in repurchase transactions.
Other short-term borrowings generally mature within 90 days, although
commercial paper may have a term of up to 270 days. Total credit facilities
available at December 31, 1999 and 1998 were $1.3 billion, with no amount
outstanding at either year-end.
52
<PAGE>
NOTE 10. LONG-TERM DEBT
December 31 1999 1998
Dollars in millions Maturity Date
- -------------------------------------------------------------
Senior notes and debentures:
Parent company:
Floating-rate MTNs 1999-2005 $2,380 $1,460
Fixed-rate MTNs 6.125%-6.849% 1999-2005 395 95
7.25% notes 1999 - 200
7.125% notes 2000 250 250
Other 2013 1 1
- -------------------------------------------------------------
Total parent company 3,026 2,006
- -------------------------------------------------------------
Affiliates:
FHLB borrowings 1999-2019 303 238
Floating-rate notes 1999-2039 12,032 2,987
Fixed-rate notes 1999-2012 1,290 1,034
Other 1999-2026 168 67
- -------------------------------------------------------------
Total affiliates 13,793 4,326
- -------------------------------------------------------------
Total senior notes and
debentures 16,819 6,332
- -------------------------------------------------------------
Subordinated notes and debentures:
Parent company:
7.625%-9.85% subordinated notes 1999 - 450
Floating-rate subordinated notes 2001 186 186
9.00%-9.90% subordinated notes 2001 325 325
6.875%-7.20% subordinated notes 2003 400 400
6.625%-8.125% subordinated notes 2004 549 549
6.625% subordinated notes 2005 350 349
7.125% subordinated notes 2006 300 300
8.625% subordinated notes 2007 107 107
6.375%-6.50% subordinated notes 2008 500 500
7.375% subordinated notes 2009 500 -
7.00%-7.75% subordinated MTNs 2011-2013 320 320
6.70%-6.875% subordinated notes 2028 750 750
- -------------------------------------------------------------
Total parent company 4,287 4,236
- -------------------------------------------------------------
Affiliates:
8.375% subordinated notes 2002 200 200
8.00% subordinated notes 2004 199 199
8.625% subordinated notes 2005 250 250
7.375% subordinated notes 2006 200 200
6.50%-7.00% subordinated notes 2007 397 397
6.375% subordinated notes 2008 748 748
5.75% subordinated notes 2009 400 -
- -------------------------------------------------------------
Total affiliates 2,394 1,994
- -------------------------------------------------------------
Total subordinated notes and
debentures 6,681 6,230
- -------------------------------------------------------------
Company-obligated mandatorily redeem-
able trust securities of
capital trusts(a) 1,849 1,849
- -------------------------------------------------------------
Total long-term debt $25,349 $14,411
=============================================================
(a)See trust securities on the following page.
The subordinated notes all provide for single principal payments at maturity,
with the exception of $186 million of floating-rate subordinated notes due 2001
and $320 million of subordinated medium-term notes (MTNs). The subordinated MTNs
are callable as follows: $100 million in 2000, $170 million in 2001 and $50
million in 2002. The floating-rate subordinated notes due 2001 are currently
callable on any interest payment date. All of the parent company fixed-rate
senior notes pay interest semiannually, provide for single principal payments
and are not redeemable prior to maturity.
During 1999, the Corporation issued $1.2 billion of senior floating-rate MTNs
due 2000 through 2002, $300 million of 6.125% senior fixed-rate notes due 2002
and $500 million of 7.375% subordinated notes.
The banking subsidiaries issued $8.6 billion of senior fixed- and
floating-rate bank notes during 1999, including $1 billion in the Euro market.
The fixed rates range from 5.59% to 6.33%. The floating-rate bank notes pay
interest at rates tied to the one-month or three-month London Interbank Offered
Rate (LIBOR), reset monthly or quarterly, the Federal Funds rate, reset daily,
and the prime rate, reset daily. During 1999, the banking subsidiaries also
issued $400 million of 5.75% subordinated notes due 2009.
As part of its interest rate risk management process, the Corporation uses
interest rate swaps to modify the repricing and maturity characteristics of
certain long-term debt. These interest rate risk management activities are
discussed in greater detail in Note 17.
The aggregate payments required to retire long-term debt are: $5.9 billion in
2000; $5.9 billion in 2001; $3.7 billion in 2002; $879 million in 2003; $1.8
billion in 2004; $765 million in 2005; and $6.4 billion thereafter.
The Corporation currently has an effective shelf registration statement filed
with the Securities and Exchange Commission (the SEC), providing for the
issuance of common and preferred stock or trust preferred securities, senior or
subordinated debt securities and other debt securities, with a remaining
availability of $2.4 billion at December 31, 1999.
Trust Securities
The Corporation has nine statutory business trusts, of which the Corporation
owns all of the common securities. These trusts have no independent assets or
operations, and exist for the sole purpose of issuing trust securities and
investing the proceeds thereof in an equivalent amount of junior subordinated
debentures issued by the Corporation.
The junior subordinated debentures, which are the sole assets of the trusts,
are unsecured obligations of the Corporation, and are subordinate and junior in
right of payment to all present and future senior and subordinated indebtedness
and certain other financial obligations of the Corporation. The principal amount
of subordinated debentures held by each trust equals the aggregate liquidation
amount of its trust securities and its common securities. See Note 22 for the
aggregate amount of subordinated debentures currently outstanding. The
subordinated debentures bear interest at the same rate, and will mature on the
same date, as the corresponding trust securities. The Corporation fully and
unconditionally guarantees each trust's obligations under the trust securities.
The aggregate amount of such trust securities outstanding totaled $1.849 billion
at December 31, 1999 and 1998. A summary of the trust securities issued and
outstanding follows.
53
<PAGE>
<TABLE>
<CAPTION>
Amount Outstanding Earliest Distribution Liquidation
(In millions) Original Prepayment Stated Payment reference per
December 31 1999 1998 Issue Date Rate Option Date Maturity Frequency Trust Security
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BankBoston Capital Trust I $ 250 $ 250 11/26/96 8.25% 12/15/2006 12/15/2026 semi-annually $1,000
Fleet Capital Trust I 84 84 2/4/97 8.00% 4/15/2001 2/15/2027 quarterly 25
BankBoston Capital Trust II 250 250 12/10/96 7.75% 12/15/2006 12/15/2026 semi-annually 1,000
Fleet Capital Trust II 250 250 12/11/96 7.92% 12/15/2006 12/11/2026 semi-annually 1,000
BankBoston Capital Trust III 248 248 6/4/97 LIBOR + .75% 6/15/2007 6/15/2027 quarterly 1,000
Fleet Capital Trust III 120 120 1/29/98 7.05% 3/31/2003 3/31/2028 quarterly 25
BankBoston Capital Trust IV 247 247 6/8/98 LIBOR + .60% 6/08/2003 6/08/2028 quarterly 1,000
Fleet Capital Trust IV 150 150 4/28/98 7.17% 3/31/2003 3/31/2028 quarterly 25
Fleet Capital Trust V 250 250 12/18/98 LIBOR + 1.00% 12/18/2003 12/18/2028 quarterly 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total trust securities $1,849 $1,849
===================================================================================================================================
</TABLE>
All of the trust securities may be prepaid at the option of the trusts, in whole
or in part, on or after the prepayment option dates listed above. At December
31, 1999, the interest rates on the BankBoston Capital Trust III and IV and
Fleet Capital Trust V floating-rate trust securities were 6.87%, 6.72% and
7.14%, respectively.
NOTE 11. PREFERRED STOCK
The following is a summary of the Corporation's preferred stock outstanding:
<TABLE>
<CAPTION>
December 31 Stated Earliest Redemption Interest
Dollars in millions, except per Value 1999 1998 Redemption Price Per Depositary
share amounts Per Share Shares Outstanding Outstanding Date Per Share(a) Share(d)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7.25% Series V perpetual preferred $250 765,010 $191 $191 4/15/2001 $250 10%
6.75% Series VI perpetual preferred 250 600,000 150 150 4/15/2006 250 20
6.60% Series VII cumulative preferred(b) 250 700,000 175 175 4/01/2006 250 20
6.59% Series VIII noncumulative
preferred(c) 250 200,000 50 50 10/01/2001 250 20
9.35% cumulative preferred 250 500,000 125 125 1/15/2000 250 10
- ---------------------------------------------------------------------------------------------------------------------------------
Total preferred stock $691 $691
=================================================================================================================================
</TABLE>
(a)Plus accrued but unpaid dividends.
(b)After April 1, 2006, the rate will adjust based on a U.S. Treasury security
rate.
(c)After October 1, 2006, the rate will adjust based on a U.S. Treasury
security rate.
(d)Ownership held in the form of depositary shares.
On January 15, 2000, the Corporation redeemed all of the outstanding shares of
its 9.35% cumulative preferred stock at its aggregate carrying value of $125
million.
Dividends on outstanding preferred stock issues are payable quarterly. All
the preferred stock outstanding has preference over the Corporation's common
stock with respect to the payment of dividends and distribution of assets in the
event of a liquidation or dissolution of the Corporation. Except in certain
circumstances, the holders of preferred stock have no voting rights.
NOTE 12. COMMON STOCK
At December 31, 1999, the Corporation had 915.7 million common shares
outstanding. Shares reserved for future issuance in connection with the
Corporation's stock plans, stock options and outstanding rights and warrants
totaled 107 million. In connection with the merger with BankBoston, shareholders
approved an increase in the authorized shares of the Corporation's common stock
to 2 billion on August 11, 1999. During 1999, the Corporation settled forward
purchase contracts related to the purchase of 12.3 million shares of its common
stock, purchased .6 million shares of its common stock in the open market, and
sold 5.3 million treasury shares to its dividend reinvestment plan and employee
benefit plans, including stock incentive plans. In addition, 22.4 million
treasury shares were retired.
The following table presents the warrants on the Corporation's common stock
that were outstanding as of December 31, 1999:
Stock Warrants
December 31, 1999 Exercise Expiration
Shares in millions Shares Price Date
- -------------------------------------------------------------
13.0 $8.83 7/21/01
4.8 21.94 1/27/01
=============================================================
During 1990, the Corporation's Board of Directors declared a dividend of one
preferred share purchase right for each outstanding share of the Corporation's
common stock (adjusted to one-half of a right per share upon the Corporation's
two-for-one common stock split, which was effective during 1998). Under certain
conditions, a right may be exercised to purchase 1/100 of the Corporation's
cumulative participating preferred stock at a price of $50, subject to
adjustment. The rights become exercisable if a party acquires 10% or more (in
the case of certain qualified investors, 15% or more) of the issued and
outstanding shares of the Corporation's common stock, or after the commencement
of a tender or exchange offer for 10% or more of the issued and outstanding
shares. When exercisable under certain conditions, each right would entitle the
holder to receive upon exercise of a right that number of shares of common stock
having a market value of two times the exercise price of the right. The rights
will expire in 2000 and may be redeemed in whole, but not in part, at a price of
$.005 per share at any time prior
54
<PAGE>
to expiration or the acquisition of 10% of the Corporation's common stock.
NOTE 13. EARNINGS PER COMMON SHARE
The following table presents a reconciliation of earnings per common share as of
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Dollars in millions, except share and
per share amounts Basic Diluted Basic Diluted Basic Diluted
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average shares outstanding 919,347,086 919,347,086 916,122,733 916,122,733 902,441,828 902,441,828
Additional shares due to:
Stock options - 11,742,926 - 10,648,590 - 10,726,087
Warrants - 12,437,929 - 12,365,147 - 10,852,678
- -------------------------------------------------------------------------------------------------------------------------
Total equivalent shares 919,347,086 943,527,941 916,122,733 939,136,470 902,441,828 924,020,593
- -------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Net income $2,038 $2,038 $ 2,324 $ 2,324 $ 2,246 $ 2,246
Less preferred stock dividends and
other (56) (56) (60) (60) (93) (93)
- -------------------------------------------------------------------------------------------------------------------------
Net income available to common
stockholders $1,982 $1,982 $ 2,264 $ 2,264 $ 2,153 $ 2,153
- -------------------------------------------------------------------------------------------------------------------------
Total equivalent shares 919,347,086 943,527,941 916,122,733 939,136,470 902,441,828 924,020,593
- -------------------------------------------------------------------------------------------------------------------------
Earnings per share $2.16 $2.10 $ 2.47 $ 2.41 $ 2.39 $ 2.33
=========================================================================================================================
</TABLE>
Options and warrants to purchase 15,408,054 shares of common stock at exercise
prices between $36.66 and $48.97; 1,322,285 shares of common stock at exercise
prices between $40.21 and $48.97; and 8,237,060 shares of common stock at
exercise prices between $31.88 and $37.02 at December 31, 1999, 1998, and 1997,
respectively, were outstanding but were not included in the computation of
diluted earnings per share because such options and warrants were antidilutive.
NOTE 14. LINE OF BUSINESS INFORMATION
The Corporation is managed through three principal business lines: Global
Banking and Financial Services, Commercial and Retail Banking and the National
Consumer Group. GLOBAL BANKING AND FINANCIAL SERVICES includes Corporate and
Investment Banking, International Banking, Investment Services and Principal
Investing. COMMERCIAL AND RETAIL BANKING includes domestic retail banking to
consumer and small business customers, as well as domestic commercial banking
operations, which includes middle-market lending, asset-based lending, leasing,
cash management, trade finance and government tax processing services. The
NATIONAL CONSUMER GROUP includes Mortgage Banking, Credit Cards and Student Loan
Processing. ALL OTHER includes allocated support units, the management
accounting control units and certain transactions or events not driven by
specific business lines, including merger- and restructuring-related charges and
other costs and gains on sales of businesses. Management accounting control
units include management accounting offsets to transfer pricing, equity and
provision for credit loss allocations. All Other also includes the Corporation's
Treasury function, which is responsible for managing the interest rate risk,
liquidity and wholesale funding needs of the Corporation. The financial
performance of the Corporation's lines of business is monitored by an internal
profitability measurement system. Periodic financial statements are produced and
reviewed by senior management. Within business units, assets, liabilities and
equity are match-funded utilizing similar maturity, liquidity and repricing
information. Additionally, equity, credit loss provision and credit loss
reserves are assigned on an economic basis. The Corporation has developed a
risk-adjusted methodology that quantifies risk types (e.g., credit and operating
risk) within business units and assigns capital accordingly. Provisions for
credit losses and reserves for credit losses are allocated to each business line
based on economic modeling of long-term expected loss rates. Management
reporting methodologies are in place for assigning expenses that are not
directly incurred by businesses, such as overhead, operations and technology
expense. These methodologies are periodically refined and results are restated
to reflect methodological and/or management organization changes. As a result of
the integration of Fleet and BankBoston, business line results are based on the
blended methodologies of both companies. While integration efforts continue,
management reporting methodologies will continue to evolve, and prior period
business line results will be restated accordingly.
55
<PAGE>
The following table presents financial information for the Corporation's lines
of business for 1999, 1998 and 1997, on a fully taxable equivalent basis.
Consolidated net interest income and income taxes include tax-equivalent
adjustments of $57 million, $59 million and $64 million for 1999, 1998 and 1997,
respectively. Information for 1998 and 1997 is presented on a basis consistent
with 1999, and, as such, has been restated for changes in the Corporation's
organizational structure and internal management reporting methodologies
implemented during 1999.
<TABLE>
<CAPTION>
Global Banking National
Year ended December 31, 1999 and Financial Commercial and Consumer All Fleet Boston
In millions Services(b) Retail Banking Group Others(a) Corporation
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income $2,012 $4,204 $ 456 $ 127 $ 6,799
Noninterest income 4,115 1,581 1,269 9 6,974
- -----------------------------------------------------------------------------------------------------------
Total revenue 6,127 5,785 1,725 136 13,773
Provision for credit losses 303 374 336 (80) 933
Noninterest expense 3,678 3,351 971 1,357 9,357
Income taxes 856 834 163 (408) 1,445
- -----------------------------------------------------------------------------------------------------------
Net income $1,290 $1,226 $ 255 $ (733) $ 2,038
- -----------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Average total assets $77,860 $70,995 $13,435 $26,489 $188,779
- -----------------------------------------------------------------------------------------------------------
Other Financial Data (pre-tax):
Depreciation and amortization $ 139 $ 259 $ 514 $ 268 $ 1,180
Merger- and restructuring-related charges - - - 850 850
===========================================================================================================
Global Banking National
Year ended December 31, 1998 and Financial Commercial and Consumer All Fleet Boston
In millions Services(b) Retail Banking Group Others(a) Corporation
===========================================================================================================
Income Statement Data:
Net interest income $ 1,752 $ 3,941 $ 549 $ 212 $ 6,454
Noninterest income 2,600 1,418 877 386 5,281
- -----------------------------------------------------------------------------------------------------------
Total revenue 4,352 5,359 1,426 598 11,735
Provision for credit losses 237 339 335 (61) 850
Noninterest expense 2,625 3,194 841 390 7,050
Income taxes 614 757 98 42 1,511
- -----------------------------------------------------------------------------------------------------------
Net income $ 876 $ 1,069 $ 152 $ 227 $ 2,324
- -----------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Average total assets $63,525 $ 60,918 $13,148 $32,637 $170,228
- -----------------------------------------------------------------------------------------------------------
Other Financial Data (pre-tax):
Depreciation and amortization $ 111 $ 243 $ 545 $ 212 $ 1,111
Merger- and restructuring-related charges - - - 138 138
===========================================================================================================
Global Banking National
Year ended December 31, 1997 and Financial Commercial and Consumer All Fleet Boston
In millions Services(b) Retail Banking Group Others(a) Corporation
===========================================================================================================
Income Statement Data:
Net interest income $1,412 $ 3,950 $ 382 $ 448 $ 6,192
Noninterest income 2,057 1,335 485 329 4,206
- -----------------------------------------------------------------------------------------------------------
Total revenue 3,469 5,285 867 777 10,398
Provision for credit losses 189 390 294 (351) 522
Noninterest expense 2,007 3,113 505 425 6,050
Income taxes 523 779 29 249 1,580
- -----------------------------------------------------------------------------------------------------------
Net income $ 750 $1,003 $ 39 $ 454 $ 2,246
- -----------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Average total assets $51,211 $58,353 $9,601 $32,721 $151,886
- -----------------------------------------------------------------------------------------------------------
Other Financial Data (pre-tax):
Depreciation and amortization $ 72 $ 251 $ 288 $ 183 $ 794
Merger- and restructuring-related charges - - - 25 25
===========================================================================================================
</TABLE>
(a) All Other includes net income of the Treasury unit of $210 million in 1999,
$233 million in 1998 and $168 million in 1997. Average total assets
allocated to All Other primarily consist of residential mortgage loans and
securities managed by the Treasury unit.
(b) Includes revenue and net income from international operations, principally
Argentina and Brazil, of $1.6 billion and $301 million, respectively, in
1999; $1.3 billion and $217 million, respectively, in 1998; and $912
million and $141 million, respectively, in 1997. International average
total assets were $19.7 billion, $18.5 billion and $13.9 billion for
1999, 1998 and 1997, respectively.
56
<PAGE>
NOTE 15. EMPLOYEE BENEFITS
STOCK INCENTIVE PLANS
The Corporation maintains stock incentive plans for certain employees and for
non-employee directors. The plans provide for the grant of stock options,
restricted stock, stock appreciation rights (SARs) and other stock awards.
Options to purchase common stock are granted at fair value on the grant date,
generally vest over one- to five-year periods and expire at the end of six to
ten years. On October 1, 1999, all outstanding BankBoston options became fully
vested and exercisable. Options granted to virtually all BankBoston employees in
1996 and 1998 under the Corporation's Shared Opportunities Programs expire in
2002 and 2004, respectively.
<TABLE>
<CAPTION>
Stock Options
December 31 1999 1998 1997
==================================================================================================================================
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 65,144,978 $28.84 40,456,226 $22.88 39,694,483 $18.14
Granted 21,466,132 35.44 33,770,232 34.18 12,682,052 31.46
Exercised (6,079,648) 24.73 (6,680,787) 19.56 (9,483,747) 15.65
Forfeited (3,013,444) 33.58 (2,400,693) 28.95 (2,436,562) 21.50
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 77,518,018 $30.85 65,144,978 $28.84 40,456,226 $22.88
- ----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 51,962,759 $28.27 21,011,951 $21.49 17,260,461 $17.95
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Stock Options Outstanding and Exercisable
December 31, 1999 Options Outstanding Options Exercisable
===================================================================================================================
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Outstanding Price
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$ 3 - $18 4,763,401 3.2 Years $13.03 4,668,819 $12.95
19 - 27 13,639,043 5.4 Years 21.43 12,427,184 21.48
28 - 36 29,582,595 7.6 Years 31.10 26,378,385 30.78
37 - 41 28,236,536 9.1 Years 37.58 7,790,620 38.30
42 - 49 1,296,443 8.6 Years 43.38 697,751 44.55
- -------------------------------------------------------------------------------------------------------------------
$ 3 - $49 77,518,018 7.5 Years $30.85 51,962,759 $28.27
===================================================================================================================
</TABLE>
Restricted Stock Plan
The Corporation maintains restricted stock plans under which key employees are
awarded shares of the Corporation's common stock, subject to certain vesting
requirements.
Under the terms of the Corporation's restricted stock awards, employees are
generally required to continue employment with the Corporation for a stated
period after the award in order to become fully vested in the shares awarded.
For certain restricted stock awards, vesting is contingent upon, or will be
accelerated if, certain pre- established performance goals are attained. The
performance periods range from two to five years. The remaining restricted stock
vests over three years. During 1999, 1998 and 1997, grants of 3,430,879 shares;
1,554,713 shares; and 1,180,144 shares, respectively, of restricted stock were
made. As of December 31, 1999, 1998 and 1997, outstanding shares totaled
3,226,668; 2,774,303; and 1,884,925, respectively, with average grant prices of
$36.90, $38.30 and $31.14, respectively. Compensation expense recognized for
restricted stock during 1999, 1998 and 1997 was $56 million, $32 million, and
$20 million, respectively. Restricted stock grants issued to BankBoston
employees prior to the merger, and outstanding on October 1, 1999, vested on
that date. The acceleration of the restricted stock vesting resulted in $56
million of additional compensation expense that was included in the
merger-related charges described in Note 8.
In 1998, the Corporation implemented an employee stock purchase plan which
allowed eligible BankBoston employees to purchase the Corporation's common
stock, up to certain limits, at the lesser of its fair market value at the
beginning of the specified offering period or 85% of its fair value at the end
of such period. In 1999, 238,687 shares of common stock were issued under the
plan at a price of $30.50.
Pro Forma Fair Value Information
The Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," in 1996. As permitted by that
standard, the Corporation elected not to adopt the fair value accounting
provisions of the standard and to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Had
compensation expense for the Corporation's stock options and awards been
determined in accordance with the fair value accounting provisions of SFAS No.
123, the Corporation's net income and diluted earnings per share would have been
as follows:
57
<PAGE>
Year ended December 31 1999 1998 1997
=============================================================
Net income (in As reported $2,038 $2,324 $2,246
millions) Pro forma 1,930 2,271 2,214
Diluted earnings As reported $2.10 $2.41 $2.33
per share Pro forma 2.00 2.36 2.30
=============================================================
Solely for purposes of providing the disclosures required by SFAS No. 123, the
fair value of each stock option and stock award was estimated on the date of
grant using the Black-Scholes option-pricing model, with the following weighted
average assumptions:
Year ended December 31 1999 1998 1997
===========================================================
Dividend yield 3.0% 2.9% 2.9%
Volatility 28 27 25
Risk-free interest rate 6 5 6
Expected option life 5 years 5 years 6 years
===========================================================
The estimated weighted average grant date fair values per share of stock
options granted and restricted stock granted were as follows:
Year ended December 31 1999 1998 1997
=========================================================
Stock options $9.20 $ 8.50 $ 8.18
Restricted stock 30.52 34.80 29.78
=========================================================
PENSION AND POSTRETIREMENT BENEFIT PLANS
The Corporation maintains qualified noncontributory, defined benefit pension
plans covering substantially all domestic employees, as well as nonqualified
non-contributory defined benefit plans for certain executives. The qualified
plans are funded in compliance with the Employee Retirement Income Security Act
of 1974 (ERISA) and the Internal Revenue Code of 1986, as amended.
The Corporation also provides certain postretirement health and life
insurance benefits for eligible retired domestic employees. Postretirement
benefits are accrued over the service lives of the employees.
The following tables summarize benefit obligation, asset activity, funded
status and expense for the plans:
Other
Pension Postretirement
Benefits Benefits
----------------------------------
December 31 1999 1998 1999 1998
In millions
=============================================================
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $1,665 $1,549 $193 $ 208
Service cost 76 65 2 2
Interest cost 111 109 13 12
Participant contributions - - 5 5
Curtailment (gain) (10) - (9) -
Settlement loss 2 - - -
Acquisitions 28 - - -
Special termination 8 1 - -
benefits
Plan amendments (5) 13 6 -
Benefits paid (130) (152) (26) (24)
Actuarial loss or (gain) (217) 80 (15) (10)
- -------------------------------------------------------------
Benefit obligation at end
of year $1,528 $1,665 $169 $ 193
- -------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year $2,064 $1,887 $ 35 $ 19
Actual return on plan
assets 377 266 7 4
Acquisitions 20 - - -
Employer contributions 8 63 15 31
Participant contributions - - 5 8
Benefits paid (122) (152) (20) (27)
- -------------------------------------------------------------
Fair value of plan assets
at end of year $2,347 $2,064 $ 42 $ 35
- -------------------------------------------------------------
RECONCILIATION OF FUNDED STATUS
Funded status $819 $399 $(127) $(158)
Unrecognized actuarial gain (486) (46) (51) (32)
Unrecognized transition
(asset) or obligation (3) (5) 53 113
Unrecognized prior service
cost (9) (1) - 2
- -------------------------------------------------------------
Net amount recognized $321 $ 347 $ (125) $ (75)
- -------------------------------------------------------------
Prepaid pension cost $443 $ 448 $ - $ -
Accrued benefit liability,
net (122) (101) (125) (75)
- -------------------------------------------------------------
Net amount recognized $321 $ 347 $ (125) $ (75)
=============================================================
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $203 million, $161 million and $4 million, respectively, as
of December 31, 1999 and $223 million, $160 million and $14 million,
respectively, as of December 31, 1998.
58
<PAGE>
<TABLE>
<CAPTION>
Pension and Postretirement Benefit Expense
Pension Benefits Other Postretirement Benefits
-----------------------------------------------------------------------
Year ended December 31 1999 1998 1997 1999 1998 1997
Dollars in millions
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT EXPENSE
Service cost $ 76 $ 65 $ 61 $ 2 $ 2 $ 1
Interest cost 111 109 104 13 12 16
Expected return on plan assets (171) (171) (150) (3) (2) (2)
Net amortization and recognized actuarial
loss or (gain) 5 5 (4) 6 7 5
- ---------------------------------------------------------------------------------------------------------------------
Net periodic benefit expense $21 $ 8 $ 11 $18 $ 19 $20
- ---------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS AS OF DECEMBER 31
Discount rate 8.00% 6.75% 7.25% 8.00% 6.75% 7.25%
Expected rate of return on plan assets 10.00 9.56 9.56 10.00 10.00 10.00
Rate of compensation increase 5.00 4.81 4.81
Healthcare cost trend rate 8.50 7.08 7.68
=====================================================================================================================
</TABLE>
The healthcare cost trend rate is projected to decrease gradually over the next
several years to approximately 5.00%, and remain level thereafter. A 1% increase
or decrease in the healthcare cost trend rate assumption does not have a
significant effect on postretirement benefit obligation or expense.
The BankBoston merger resulted in $63 million in settlement and curtailment
charges related to staffing reductions and change in control provisions which
were initiated during 1999 with $12 million of the charge related to pension
plans and $51 million related to postretirement plans. Part of the
postretirement plan charge related to a plan amendment. The charges were
included in the accompanying consolidated statement of income for the year ended
December 31, 1999, but are excluded from the previous table detailing net
periodic pension and postretirement benefit expense. These 1999 benefit
adjustments were included in the merger-related charges described in Note 8.
The Corporation maintains defined contribution savings plans covering
substantially all domestic employees. The Corporation's expense for these plans
was $75 million, $71 million and $69 million for 1999, 1998 and 1997,
respectively.
NOTE 16. INCOME TAXES
The components of income before income taxes and income tax expense are
summarized below:
Income Before Income Taxes
Year ended December 31 1999 1998 1997
In millions
========================================================
Income before income taxes:
Domestic $2,841 $3,426 $3,293
Foreign 585 350 469
- -------------------------------------------------------
Total income before income
taxes $3,426 $3,776 $3,762
========================================================
Income Tax Expense
Year ended December 31 1999 1998 1997
In millions
=====================================================
Current income taxes:
Federal $ 503 $ 893 $ 676
Foreign:
Based on income 197 106 67
Withheld on interest
and dividends 73 60 38
State and local 116 183 139
- -----------------------------------------------------
Total current income taxes $ 889 $1,242 $ 920
- -----------------------------------------------------
Deferred income taxes:
Federal $ 399 $ 159 $ 469
State and local 100 51 127
- -----------------------------------------------------
Total deferred income
taxes $ 499 $ 210 $ 596
- -----------------------------------------------------
Total income tax expense:
Federal $ 902 $1,052 $1,145
Foreign 270 166 105
State and local 216 234 266
- -----------------------------------------------------
Applicable income taxes $1,388 $1,452 $1,516
=====================================================
The income tax expense for the years ended December 31, 1999, 1998 and 1997
varied from the amount computed by applying the statutory income tax rate to
income before income taxes. A reconciliation between the statutory and effective
tax rates follows:
Statutory Rate Analysis
Year ended December 31 1999 1998 1997
============================================================
Tax at statutory rate 35.0% 35.0% 35.0%
Increases (decreases) in
taxes resulting from:
State and local income taxes,
net of federal income tax
benefit 4.1 4.0 4.6
Non-creditable foreign taxes --- .5 .6
Goodwill amortization 1.7 1.3 1.4
Tax-exempt income (.7) (.7) (.7)
Other, net .4 (1.6) (.6)
- ------------------------------------------------------------
Effective tax rate 40.5% 38.5% 40.3%
============================================================
59
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Significant components of the Corporation's net deferred tax liability as of
December 31, 1999 and 1998 are presented in the following table:
Net Deferred Tax Liability
December 31 1999 1998
In millions
=======================================================
Deferred tax assets:
Reserve for credit losses $ 745 $ 840
Expenses not currently deductible 519 179
Employee benefits 286 210
Other 469 333
- -------------------------------------------------------
Total gross deferred tax assets 2,019 1,562
Less: valuation allowance 30 23
- -------------------------------------------------------
Total gross deferred tax assets $1,989 $1,539
- -------------------------------------------------------
Deferred tax liabilities:
Lease financing $2,279 $1,764
Mortgage banking 508 169
Unrealized gain on securities
available for sale 362 71
Other 445 408
- -------------------------------------------------------
Total gross deferred tax
liabilities $3,594 $2,412
- -------------------------------------------------------
Net deferred tax liability $1,605 $ 873
=======================================================
The Corporation has evaluated the available evidence supporting the future
realization of its gross deferred tax assets of $1,989 million and $1,539
million at December 31, 1999 and 1998, respectively, including the amount and
timing of future taxable income, and has determined that it is more likely than
not that the assets will be realized. Given the nature of state tax laws, the
Corporation believes that uncertainty remains concerning the realization of tax
benefits in various state jurisdictions. The Corporation recorded cumulative
state tax benefits, net of federal taxes, of $112 million and $75 million at
December 31, 1999 and 1998, respectively. State valuation reserves of $30
million and $23 million have been established at December 31, 1999 and 1998,
respectively.
NOTE 17. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
TRADING ACTIVITIES. All of the Corporation's trading positions are carried at
fair value, with realized and unrealized gains and losses reflected in trading
profits and commissions, a component of capital markets revenue. The following
table represents the notional, or contractual, amount of the Corporation's
off-balance sheet interest rate, foreign exchange and equity trading instruments
and related credit exposure:
Trading Instruments with Off-Balance Sheet Risk
Contract or
Notional Credit
Amount Exposure
December 31 1999 1998 1999 1998
In millions
===============================================================
Interest rate contracts $127,584 $106,610 $1,685 $829
Foreign exchange
contracts 91,378 57,927 1,846 1,319
Equity contracts 2,400 --- 402 ---
===============================================================
Notional principal amounts are a measure of the volume of agreements transacted,
but the level of credit exposure is significantly less. The amount of credit
exposure can be estimated by calculating the cost to replace, on a present value
basis and at current market rates, all profitable contracts outstanding at
year-end. Credit exposure disclosures relate to accounting losses that would be
recognized if the counterparties completely failed to perform their obligations.
To manage its level of credit exposure, the Corporation deals with
counterparties of good credit standing, establishes counterparty credit limits,
in certain cases has the ability to require securities collateral, and enters
into netting agreements whenever possible.
The amounts disclosed below represent the end-of-period fair values of
derivative financial instruments held or issued for trading purposes and the
average aggregate fair values during 1999 for those instruments:
Trading Instruments
Fair Value Average
December 31, 1999 (Carrying Fair
In millions Amount) Value
=================================================
Interest rate contracts:
Assets $1,685 $1,069
Liabilities (1,468) (1,009)
Foreign exchange contracts:
Assets $1,846 $1,337
Liabilities (1,750) (1,373)
Equity contracts:
Assets $ 402 $ 114
Liabilities (155) (73)
=================================================
RISK MANAGEMENT ACTIVITIES. The Corporation's principal objective in holding or
issuing derivatives for purposes other than trading is the management of
interest rate and currency risk.
The major source of the Corporation's non-trading U.S. denominated interest
rate risk is the difference in the repricing characteristics of the
Corporation's core banking assets and liabilities - loans and deposits. This
difference, or mismatch, is a risk to net interest income. In managing net
interest income, the Corporation uses interest rate swaps to offset the general
asset sensitivity of the core bank. Additionally, the Corporation uses interest
rate swaps to offset basis risk, including the specific exposure to changes in
prime interest rates.
A second major source of the Corporation's non-trading U.S. dollar
denominated interest rate risk is the sensitivity of its MSRs to prepayments. A
mortgage borrower has the option to prepay a mortgage loan at any time. When
mortgage interest rates decline, borrowers have a greater incentive to prepay
mortgage loans through a refinancing. To mitigate the risk of declining
long-term interest rates, increased mortgage prepayments, and the potential
impairment of MSRs, the Corporation uses a variety of risk management
instruments, including interest rate swaps, caps and floors, options on swaps,
and exchange-traded options on Treasury bond and note futures. These instruments
gain value as interest rates decline, mitigating the impairment of MSRs.
Decreases in the value of these instruments and related cash flows aggregating
$947 million were recorded as adjustments to the carrying value of MSRs during
1999.
The Corporation's non-U.S. dollar denominated assets and liabilities are
exposed to interest rate and foreign exchange rate risks. The majority of the
Corporation's non-
60
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U.S. dollar denominated interest rate and foreign exchange rate risk exposure
stems from its operations in Latin America, primarily Argentina and Brazil.
Interest rate risk is managed through the use of interest rate swap instruments.
Foreign exchange rate risk is managed through the use of foreign currency spot,
forward, futures, option and swap contracts. The primary risks in these
transactions arise from the exposure to changes in foreign currency exchange
rates and the ability of counterparties to meet the terms of those contracts.
The following table presents the notional amount and fair value of risk
management instruments at December 31, 1999 and 1998:
Risk Management Instruments
December 31 1999 1998
Notional Fair Notional Fair
In millions Amount Value Amount Value
===================================================================
INTEREST RATE RISK
MANAGEMENT INSTRUMENTS:
Domestic:
Receive fixed/pay
variable $18,806 $(388) $16,768 $ 354
Pay fixed/receive
variable 22 - 303 -
Basis swaps 3,172 - 3,137 (29)
International:
Interest rate swaps 1,202 (19) 2,985 (22)
Futures and forwards 523 - 734 -
Interest rate options
purchased 337 32 2,411 89
Interest rate options
written 337 (13) 1,911 (66)
FOREIGN EXCHANGE RISK
MANAGEMENT INSTRUMENTS:
Swaps 5,000 (124) - -
Spot and forward
contracts 1,764 (13) 3,469 13
Options purchased - - 68 -
Futures 361 - - -
MORTGAGE BANKING RISK
MANAGEMENT INSTRUMENTS:
Receive fixed/pay
variable, P.O. swaps 5,327 (195) 7,011 83
Futures 330 (12) 730 (5)
Interest rate floors and
options on swaps 34,810 118 39,560 517
Interest rate caps and
cap corridors 10,725 284 14,759 68
Call options purchased 960 2 3,150 27
- -------------------------------------------------------------------
Total risk management
instruments $83,676 $(328) $96,996 $1,029
===================================================================
Interest rate swap agreements involve the exchange of fixed- and variable-rate
interest payments based upon a notional principal amount and maturity date.
Interest rate basis swaps involve the exchange of floating-rate interest
payments based on various indices, such as U.S. Treasury bill rates and LIBOR.
In a purchased interest rate floor agreement, cash interest payments are
received only if current interest rates fall below a predetermined interest
rate. Purchased or sold interest rate cap agreements are similar to interest
rate floor agreements, except that cash interest payments are received or made
only if current interest rates rise above predetermined interest rates. Options
on swap agreements provide the holder the right to enter into an interest rate
swap at a predetermined rate and time in the future.
The Corporation's interest rate risk management instruments had credit
exposure of $96 million at December 31, 1999, versus $566 million at December
31, 1998. The Corporation's foreign exchange rate risk management instruments
had credit exposure of $124 million at December 31, 1999, versus $35 million at
December 31, 1998. The Corporation's mortgage banking risk management
instruments had credit exposure of $175 million at December 31, 1999, versus
$349 million at December 31, 1998. The periodic net settlement of interest rate
risk management instruments is recorded as an adjustment to net interest income.
As of December 31, 1999, the Corporation had net deferred income of $15.6
million related to terminated interest rate swap contracts, which will be
amortized over the remaining life of the underlying terminated contracts of
approximately 7 years.
Other Financial Instruments
Contract or
Notional Amount
December 31 1999 1998
In millions
=========================================================
Commitments to extend credit:
Commercial and industrial loans $69,936 $64,825
Commercial real estate 3,367 2,940
Credit card lines 50,360 55,203
Home equity lines 5,359 5,810
Other unused commitments 4,824 5,130
Residential mortgages 1,098 3,773
- ---------------------------------------------------------
Total commitments to extend credit $134,944 $137,681
Letters of credit, financial
guarantees and foreign office
guarantees (net of
participations) $12,974 $12,238
Commitments to sell loans 2,130 6,069
Recourse on assets sold 994 488
=========================================================
Commitments to extend credit are agreements to lend to customers in accordance
with contractual provisions. These commitments usually are for specific periods
or contain termination clauses and may require the payment of a fee. The total
amounts of unused commitments do not necessarily represent future cash
requirements, in that commitments often expire without being drawn upon.
Letters of credit and financial guarantees are agreements whereby the
Corporation guarantees the performance of a customer to a third party.
Collateral is required to support letters of credit in accordance with
management's evaluation of the creditworthiness of each customer. The credit
exposure assumed in issuing letters of credit is essentially equal to that in
other lending activities. Management does not anticipate any significant losses
as a result of these transactions.
Commitments to sell loans have off-balance sheet market risk to the extent
that the Corporation does not have available loans to fill those commitments.
This would require the Corporation to purchase loans in the open market.
NOTE 18. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values are
based on estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various
61
<PAGE>
financial instruments, discount rates, estimates of future cash flows, future
expected loss experience and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair values. Derived fair
value estimates cannot necessarily be substantiated by comparison to independent
markets and, in many cases, could not be realized in an immediate sale of the
instrument. In addition, because of differences in methodologies and assumptions
used to estimate fair values, the Corporation's fair values should not be
compared to those of other financial institutions.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not purport to
represent the underlying market value of the Corporation.
The following describes the methods and assumptions used by the Corporation
in estimating the fair values of financial instruments.
CASH AND CASH EQUIVALENTS. The carrying amounts reported in the balance sheet
approximate fair values because maturities are less than 90 days.
TRADING ASSETS AND LIABILITIES. Trading assets and liabilities are carried at
fair value in the balance sheet. Values for trading securities are generally
based on quoted, or other independent, market prices. Values for interest rate
and foreign exchange products are based on quoted, or other independent, market
prices, or are estimated using pricing models or discounted cash flows.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY. Fair values are based
primarily on quoted, or other independent, market prices. For certain debt and
equity investments made in connection with the Corporation's Principal Investing
business that do not trade on established exchanges, and for which markets do
not exist, estimates of fair value are based upon management's review of the
investee's financial results, condition and prospects.
LOANS. The fair values of certain commercial and consumer loans are estimated by
discounting the contractual cash flows using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality. The
carrying value of certain other loans approximates fair value due to the
short-term and/or frequent repricing characteristics of these loans. For
residential real estate loans, fair value is estimated by reference to quoted
market prices. For nonperforming loans and certain loans where the credit
quality of the borrower has deteriorated significantly, fair values are
estimated by discounting expected cash flows at a rate commensurate with the
risk associated with the estimated cash flows, based on recent appraisals of the
underlying collateral or by reference to recent loan sales.
MORTGAGES HELD FOR RESALE. Fair value is estimated using the quoted market
prices for securities backed by similar types of loans and current dealer
commitments to purchase loans. These loans are priced to be sold with servicing
rights retained.
DEPOSITS. The carrying amount of deposits with no stated maturity or a maturity
of less than 90 days is considered, by definition, to be equal to their fair
value. Fair value of fixed-rate time deposits is estimated by discounting
contractual cash flows using interest rates currently offered on the deposit
products. Fair value for variable-rate time deposits approximates their carrying
value. Fair value estimates for deposits do not include the benefit that results
from the low-cost funding provided by the deposit liabilities compared to the
cost of alternative forms of funding (core deposit intangibles).
SHORT-TERM BORROWINGS. Short-term borrowings generally mature in 90 days or less
and, accordingly, the carrying amount reported in the balance sheet approximates
fair value.
LONG-TERM DEBT. The fair value of the Corporation's long-term debt, including
the short-term portion, is estimated based on quoted market prices for the
issues for which there is a market, or by discounting cash flows based on
current rates available to the Corporation for similar types of borrowing
arrangements.
OFF-BALANCE SHEET INSTRUMENTS. Fair values for off-balance sheet instruments are
estimated based on quoted market prices or dealer quotes, and represent the
amount the Corporation would receive or pay to execute a new agreement with
identical terms considering current interest rates.
INTEREST RATE AND FOREIGN EXCHANGE INSTRUMENTS. The fair values of interest rate
and foreign exchange contracts used to manage interest rate, currency and market
risks are estimated based on market information and other relevant
characteristics using pricing models, including option models.
62
<PAGE>
Fair Value of Financial Instruments
December 31 1999 1998
Carrying Fair Carrying Fair
In millions Value Value Value Value
==============================================================
On-balance sheet financial assets:
Financial assets for
which carrying value
approximates fair
value $14,367 $14,367 $14,618 $14,618
Trading assets 7,849 7,849 4,364 4,364
Securities 25,212 25,870 23,369 23,595
Loans(a) 105,863 107,536 103,596 105,467
Mortgages held for
resale 1,244 1,244 4,068 4,068
Financial instruments
included in other
assets 3,214 3,214 2,672 2,764
On-balance sheet financial
liabilities:
Deposits 114,896 115,154 118,178 118,760
Short-term borrowings 18,106 18,106 19,176 19,176
Trading liabilities 3,807 3,807 2,326 2,326
Long-term debt 25,349 24,938 14,411 14,732
Financial instruments
included in other
liabilities 1,278 1,278 975 975
Off-balance sheet financial
instruments:
Interest rate risk
management instruments (2) (388) 32 326
Foreign exchange risk
management instruments - (137) - 13
Commitments to originate
or purchase loans - 70 - (58)
Commitments to sell
loans 1 12 2 (1)
Standby and commercial
letters of credit,
foreign office
guarantees and similar - 15 - (13)
instruments
==============================================================
(a)Excludes net book value of leases of $11.3 billion and $6.2 billion at
December 31, 1999 and 1998, respectively.
Disclosure of fair values is not required for certain items, such as lease
financing, investments accounted for under the equity method of accounting,
obligations for pension and other postretirement benefits, premises and
equipment, OREO, prepaid expenses, core deposit intangibles and the value of
customer relationships associated with certain types of consumer loans,
particularly the credit card portfolio, other intangible assets, MSRs and income
tax assets and liabilities. Accordingly, the aggregate fair value amounts
presented above do not purport to represent, and should not be considered
representative of, the underlying "market" or franchise value of the
Corporation.
NOTE 19. COMMITMENTS, CONTINGENCIES AND OTHER DISCLOSURES
The Corporation and its subsidiaries are involved in various legal proceedings
arising out of, and incidental to, their respective businesses. Management of
the Corporation, based on its review with counsel of the development of these
matters to date, considers that the aggregate loss resulting from the final
outcome, if any, of these proceedings should not be material to the
Corporation's financial condition or results of operations.
LEASE COMMITMENTS. The Corporation has obligations under a number of
noncancelable operating leases for premises and equipment. The minimum annual
rental commitments under these leases at December 31, 1999, exclusive of taxes
and other charges, were as follows: $264 million in 2000; $242 million in 2001;
$219 million in 2002; $194 million in 2003; $165 million in 2004; and $567
million in 2005 and thereafter. Total rental expense for 1999, 1998 and 1997,
including cancelable and noncancelable leases, amounted to $279 million, $264
million and $254 million, respectively.
Certain leases contain escalation clauses, which correspond with increased
real estate taxes and other operating expenses, and renewal options calling for
increased rents as the leases are renewed. No restrictions are imposed by any
lease agreement regarding the payment of dividends, additional debt financing,
or entering into further lease agreements.
TRANSACTION AND DIVIDEND RESTRICTIONS. The Corporation's banking subsidiaries
are subject to restrictions under federal law that limit the transfer of funds
by the subsidiary banks to the Corporation and its non-banking subsidiaries.
Such transfers by any subsidiary bank to the Corporation or any non-banking
subsidiary are limited in amount to 10% of such bank's capital and surplus.
Various federal and state banking statutes limit the amount of dividends the
subsidiary banks can pay to the Corporation without regulatory approval. The
payment of dividends by any subsidiary bank may also be affected by other
factors, such as the maintenance of adequate capital for such subsidiary bank.
Various regulators and the Boards of Directors of the affected institutions
continue to review dividend declarations and capital requirements of the
Corporation and its subsidiaries consistent with current earnings, future
earning prospects and other factors. At December 31, 1999, the banking
subsidiaries in the aggregate could have declared an additional $1.4 billion of
dividends without prior regulatory approval.
RESTRICTIONS ON CASH AND DUE FROM BANKS. The Corporation's banking subsidiaries
are subject to requirements of the Board of Governors of the Federal Reserve
Board (the Federal Reserve) to maintain certain reserve balances. At December
31, 1999 and 1998, these reserve balances were $2.5 billion and $2.6 billion,
respectively.
NOTE 20. REGULATORY MATTERS
As a bank holding company, the Corporation is subject to regulation by the
Federal Reserve, the Office of the Comptroller of the Currency (the OCC) and the
Office of Thrift Supervision (the OTS), as well as state regulators. Under the
regulatory capital adequacy guidelines and the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA), the Corporation and its banking
subsidiaries must meet specific capital requirements. These requirements are
expressed in terms of the following ratios: (1) Risk-based Total Capital (Total
Capital/risk-weighted on- and off-balance sheet assets); (2) Risk-based Tier 1
Capital (Tier 1 Capital/risk-weighted on- and off-balance sheet assets); and (3)
Leverage (Tier 1 Capital/adjusted average quarterly assets). To meet all minimum
regulatory capital requirements, the Corporation and its banking subsidiaries
must maintain a
63
<PAGE>
Risk-based Total Capital ratio of at least 8%, a Risk-based Tier 1 Capital ratio
of at least 4%, and a Tier 1 Leverage ratio of at least 3%. Failure to meet
minimum capital requirements can result in the initiation of certain actions
that, if undertaken, could have a material effect on the Corporation's financial
statements. To be categorized as well capitalized under the prompt corrective
action provisions of FDICIA, the Corporation's banking subsidiaries must
maintain a Risk-based Total Capital ratio of at least 10%, a Risk-based Tier 1
Capital ratio of at least 6%, and a Tier 1 Leverage ratio of at least 5%, and
not be subject to a written agreement, order or capital directive with
regulators.
The following table presents capital and capital ratio information for the
Corporation as of December 31, 1999 and 1998:
Regulatory Capital Ratios
December 31 1999 1998
Dollars in millions
======================================================================
Actual:
Risk-Based Tier 1 Capital $12,927 6.82% $12,417 7.11%
Risk-Based Total Capital 21,782 11.50 20,092 11.51
Leverage 12,927 6.81 12,417 7.17
Minimum regulatory
capital standards:
Risk-Based Tier 1 Capital 7,580 4.00 6,984 4.00
Risk-Based Total Capital 15,159 8.00 13,968 8.00
Leverage 5,698 3.00 6,930 4.00
======================================================================
As of December 31, 1999, each of the Corporation's banking subsidiaries
satisfied the requirements of the well capitalized category under the regulatory
framework established by FDICIA. There are no conditions or events since that
date that management believes have changed the capital category of these
subsidiaries. The capital categories of each of the Corporation's bank
subsidiaries are determined solely for purposes of applying FDICIA's provisions,
and such capital categories may not constitute an accurate representation of the
overall financial condition or prospects of any of the Corporation's banking
subsidiaries.
As registered broker/dealers and member firms of the New York Stock Exchange
(NYSE), certain subsidiaries of the Corporation are subject to rules of both the
SEC and the NYSE. These rules require these subsidiaries to maintain minimum
levels of net capital, as defined, and may restrict them from expanding their
business and declaring dividends if their net capital falls below specified
levels. At December 31, 1999, these subsidiaries had aggregate net capital of
approximately $527 million, which exceeded aggregate minimum net capital
requirements by approximately $436 million.
NOTE 21. DISCLOSURE FOR STATEMENTS OF CASH FLOWS
Year ended December 31 1999 1998 1997
In millions
===========================================================
Supplemental disclosure for
cash paid during the period for:
Interest expense $6,083 $5,878 $5,150
Income taxes, net of refund 936 823 786
- -----------------------------------------------------------
Assets acquired and liabilities
assumed in business
combinations were as follows:
Assets acquired, net of cash
and cash equivalents
received 6,073 5,284 546
Net cash and cash equivalents
(paid) (613) (226) (525)
Liabilities assumed 5,460 5,058 21
- -----------------------------------------------------------
Divestitures:
Assets sold, net of cash
received --- 239 3,668
Net cash received for
divestitures --- 213 3,887
Liabilities sold --- 280 24
===========================================================
NOTE 22. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Statements of Income
Year ended December 31 1999 1998 1997
In millions
===========================================================
Dividends from subsidiaries:
Banking subsidiaries $1,860 $1,229 $2,177
Other subsidiaries 202 450 181
Interest income 471 418 310
Other 7 45 37
- -----------------------------------------------------------
Total income 2,540 2,142 2,705
- -----------------------------------------------------------
Interest expense 643 550 440
Noninterest expense 238 42 42
- -----------------------------------------------------------
Total expense 881 592 482
- -----------------------------------------------------------
Income before income taxes and
equity in undistributed income
of subsidiaries 1,659 1,550 2,223
Applicable income taxes
(benefit) (92) (51) (71)
- -----------------------------------------------------------
Income before equity in
undistributed income of
subsidiaries 1,751 1,601 2,294
Equity in undistributed income
of subsidiaries 287 723 (48)
- -----------------------------------------------------------
Net income $2,038 $2,324 $2,246
===========================================================
Balance Sheets
December 31 1999 1998
In millions
===========================================================
Assets:
Money market instruments $1,636 $ 596
Securities 8 5
Loans receivable from:
Banking subsidiaries 2,922 2,784
Other subsidiaries 3,875 2,984
- -----------------------------------------------------------
6,797 5,768
Investment in subsidiaries:
Banking subsidiaries 15,275 14,657
Other subsidiaries 2,294 1,502
- -----------------------------------------------------------
17,569 16,159
Other 1,109 1,511
- -----------------------------------------------------------
Total assets $27,119 $24,039
- -----------------------------------------------------------
Liabilities:
Short-term borrowings $1,649 $ 988
Accrued liabilities 944 696
Long-term debt(a) 9,219 8,151
- -----------------------------------------------------------
Total liabilities 11,812 9,835
- -----------------------------------------------------------
Stockholders' equity 15,307 14,204
- -----------------------------------------------------------
Total liabilities and $27,119 $24,039
stockholders' equity
===========================================================
(a)Includes junior subordinated debentures payable to subsidiary trusts of
$1,906 million in 1999 and $1,909 million in 1998.
64
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Statements of Cash Flows
Year ended December 31 1999 1998 1997
In millions
===============================================================
Cash flows from operating activities:
Net income $ 2,038 $ 2,324 $ 2,246
Adjustments for noncash items:
Equity in undistributed
income of subsidiaries (287) (723) 48
Depreciation and amortization 15 10 11
Net securities losses --- (33) (22)
Increase (decrease) in accrued
liabilities, net 248 35 (11)
Other, net 370 (439) (1)
- ---------------------------------------------------------------
Net cash flow provided by
operating activities 2,384 1,174 2,271
- ---------------------------------------------------------------
Cash flows from investing activities:
Purchases of securities (6) --- (15)
Proceeds from sales and
maturities of securities --- 80 58
Net cash provided from (used
for) short-term investments in
bank subsidiary --- (302) 448
Net increase in loans made to
affiliates (1,029) (1,339) (668)
Return of capital from
subsidiaries 60 112 3
Proceeds from liquidation of
subsidiary 12 14 ---
Capital contributions to
subsidiaries (895) (1,484) (436)
- ---------------------------------------------------------------
Net cash flow used in
investing activities (1,858) (2,919) (610)
- ---------------------------------------------------------------
Cash flows from financing
activities:
Net increase in short-term
borrowings 570 177 135
Proceeds from issuance of
long-term debt 2,034 3,281 989
Repayments of long-term debt (966) (907) (859)
Proceeds from issuance of
common stock 299 182 987
Redemption and repurchase of
common and preferred stock (473) (329) (1,995)
Cash dividends paid (950) (937) (858)
- ---------------------------------------------------------------
Net cash flow provided by
(used in) financing activities 514 1,467 (1,601)
- ---------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 1,040 (278) 60
- ---------------------------------------------------------------
Cash and cash equivalents at
beginning of year 596 874 814
- ---------------------------------------------------------------
Cash and cash equivalents at
end of year $1,636 $ 596 $ 874
===============================================================
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FLEET BOSTON CORPORATION
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Consolidated Average Balances/Interest Earned-Paid/Rates 1997-1999 (Unaudited)
<TABLE>
<CAPTION>
December 31 1999 1998 1997
Interest Interest Interest
Average Earned/ Average Earned/ Average Earned/
Dollars in millions(a) Balance Paid(b) Rate Balance Paid(b) Rate Balance Paid(b) Rate
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing deposits $1,451 $ 129 8.87% $1,552 $ 131 8.46% $1,922 $ 151 7.88%
Federal funds sold and securities
purchased under agreements to resell 8,319 515 6.19 3,488 325 9.32 2,529 273 10.81
Trading account securities 2,774 150 5.41 2,223 132 5.93 1,955 127 6.48
Securities available for sale 22,591 1,486 6.58 19,658 1,353 6.88 16,143 1,171 7.25
Securities held to maturity 598 21 3.51 741 38 5.13 862 44 5.07
Nontaxable securities 1,329 82 6.17 1,328 87 6.55 1,316 87 6.58
Loans and leases - domestic(c) 103,511 8,497 8.21 96,806 8,236 8.51 91,340 7,922 8.67
Loans and leases - international(c) 14,017 1,888 13.47 14,233 1,723 12.11 11,029 1,250 11.34
Due from brokers/dealers 3,239 148 4.57 3,765 184 4.89 2,884 133 4.62
Mortgages held for resale 2,445 176 7.18 2,685 189 7.04 1,503 115 7.63
Assets held for disposition 320 17 5.21 161 2 1.12 747 46 6.18
Foreclosed property and repossessed 42 --- --- 54 --- --- 75 --- ---
equipment
- --------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 160,636 13,109 8.16 146,694 12,400 8.45 132,305 11,319 8.56
================================================================================================================================
Accrued interest receivable 1,308 --- --- 1,032 --- --- 1,022 --- ---
Reserve for credit losses (2,499) --- --- (2,244) --- --- (2,253) --- ---
Other assets 29,334 --- --- 24,746 --- --- 20,812 --- ---
- --------------------------------------------------------------------------------------------------------------------------------
Total assets (d) $188,779 $13,109 --- $170,228 $12,400 --- $151,886 $11,319 ---
================================================================================================================================
Liabilities and stockholders' equity:
Deposits
Savings $47,267 $1,058 2.24% $44,332 $1,078 2.43% $42,168 $1,016 2.41%
Time 27,127 1,349 4.97 28,348 1,523 5.37 26,645 1,423 5.34
International 16,293 1,109 6.81 15,954 1,105 6.92 13,624 900 6.61
- --------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 90,687 3,516 3.88 88,634 3,706 4.18 82,437 3,339 4.05
- --------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 23,109 1,230 5.32 21,669 1,259 5.81 17,127 1,052 6.14
Due to brokers/dealers 4,145 193 4.65 4,501 214 4.75 3,463 152 4.39
Long-term debt 22,290 1,371 6.15 10,962 767 7.00 7,993 584 7.30
- --------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 140,231 6,310 4.50 125,766 5,946 4.73 111,020 5,127 4.62
- --------------------------------------------------------------------------------------------------------------------------------
Net interest spread --- 6,799 3.66 --- 6,454 3.72 --- 6,192 3.94
- --------------------------------------------------------------------------------------------------------------------------------
Demand deposits and other 24,096 --- --- 24,042 --- --- 23,812 --- ---
noninterest-bearing time deposits
Other liabilities 9,685 --- --- 6,746 --- --- 4,866 --- ---
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 174,012 6,310 --- 156,554 5,946 --- 139,698 5,127 ---
- --------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity and dual convertible 14,767 --- --- 13,674 --- --- 12,188 --- ---
preferred stock
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $188,779 $6,310 --- $170,228 $5,946 --- $151,886 $5,127 ---
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.23% 4.40% 4.68%
================================================================================================================================
</TABLE>
(a)The data in this table is presented on a fully taxable equivalent basis. The
tax-equivalent adjustment is based upon the applicable federal and state
income tax rates.
(b)Includes fee income of $402 million, $340 million and $264 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
(c)Nonperforming loans are included in average balances used to determine rates.
(d)At December 31, 1999, 1998 and 1997, average international assets and
liabilities, as a percentage of total average consolidated assets and
liabilities, amounted to 12.4% and 12.2%, 12.0% and 12.1% and 9.7% and 9.6%,
respectively.
Common Stock Price and Dividend Information(a) (Unaudited)
<TABLE>
<CAPTION>
By quarter 1999 1998
4 3 2 1 4 3 2 1
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Price
High $43.69 $44.88 $44.94 $46.75 $44.69 $44.22 $45.00 $42.53
Low 33.81 35.06 37.38 37.63 31.69 32.78 39.00 34.31
- --------------------------------------------------------------------------------------------------------------
Dividends declared .30 .27 .27 .27 .270 .245 .245 .245
Dividends paid .27 .27 .27 .27 .245 .245 .245 .245
==============================================================================================================
</TABLE>
(a)The Corporation's common stock is listed on the New York Stock Exchange under
the symbol "FBF". The table above sets forth, for the periods indicated, the
range of high and low sale prices per share of the Corporation's common stock
on the composite tape and dividends declared and paid per share. At December
31, 1999, the Corporation had 69,549 shareholders of record.
66
<PAGE>
Rate/Volume Analysis (Unaudited)
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to(a) Increase (Decrease) Due to(a)
- -----------------------------------------------------------------------------------------------------------------------
In millions Volume Rate Net Volume Rate Net
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest earned on: (b)
Interest bearing deposits $(6) $ 4 $(2) $ (32) $ 12 $ (20)
Federal funds sold and securities purchased under
agreements to resell 251 (61) 190 82 (30) 52
Trading account securities 28 (10) 18 14 (9) 5
Securities available for sale 189 (56) 133 238 (56) 182
Securities held to maturity (6) (11) (17) (7) 1 (6)
Nontaxable securities --- (5) (5) --- --- ---
Loans and leases - domestic 529 (268) 261 461 (147) 314
Loans and leases - international (26) 191 165 384 89 473
Due from brokers/dealers (25) (11) (36) 43 8 51
Mortgages held for resale (17) 4 (13) 82 (8) 74
Assets held for disposition 3 12 15 (21) (23) (44)
- -----------------------------------------------------------------------------------------------------------------------
Total interest earning assets 920 (211) 709 1,244 (163) 1,081
- -----------------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits-
Savings-domestic 95 (115) (20) 53 9 62
Time-domestic (64) (110) (174) 91 9 100
International 15 (11) 4 161 44 205
- -----------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 46 (236) (190) 305 62 367
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 111 (140) (29) 260 (53) 207
Due to brokers/dealers (16) (5) (21) 48 14 62
Long-term debt 684 (80) 604 206 (23) 183
- -----------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 825 (461) 364 819 --- 819
- -----------------------------------------------------------------------------------------------------------------------
Net interest differential(c) $ 95 $ 250 $ 345 $ 425 $(163) $ 262
=======================================================================================================================
</TABLE>
(a) The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
(b) Tax-equivalent adjustment has been included in the calculations to reflect
this income as if it had been fully taxable. The tax-equivalent adjustment is
based upon the applicable federal and state income tax rates. The adjustment
included in interest income was $57 million in 1999, $59 million in 1998 and
$64 million in 1997.
(c) Includes fee income of $402 million, $340 million and $264 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
Quarterly Summarized Financial Information (Unaudited)
By Quarter
<TABLE>
<CAPTION>
Dollars in millions, 1999 1998
except per share amounts 1 2 3 4 Year 1 2 3 4 Year
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $3,149 $3,231 $3,298 $3,374 $13,052 $2,930 $3,106 $3,140 $3,165 $12,341
Interest expense 1,481 1,529 1,598 1,702 6,310 1,399 1,495 1,544 1,508 5,946
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 1,668 1,702 1,700 1,672 6,742 1,531 1,611 1,596 1,657 6,395
- -----------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 219 241 228 245 933 232 178 180 260 850
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 1,449 1,461 1,472 1,427 5,809 1,299 1,433 1,416 1,397 5,545
Securities gains (losses) (2) (3) 14 (2) 7 76 11 37 (9) 115
Other noninterest income 1,560 1,754 1,678 1,975 6,967 1,210 1,260 1,195 1,501 5,166
- -----------------------------------------------------------------------------------------------------------------------------
3,007 3,212 3,164 3,400 12,783 2,585 2,704 2,648 2,889 10,826
Noninterest expense 1,935 2,081 2,016 3,325 9,357 1,659 1,668 1,832 1,891 7,050
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,072 1,131 1,148 75 3,426 926 1,036 816 998 3,776
Applicable income taxes 411 431 437 109 1,388 365 401 310 376 1,452
- -----------------------------------------------------------------------------------------------------------------------------
Net income $661 $700 $711 $ (34) $2,038 $ 561 $ 635 $ 506 $ 622 $2,324
- -----------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $645 $685 $698 $ (46) $1,982 $ 545 $ 618 $ 492 $ 609 $2,264
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share .70 .74 .76 (.05) 2.16 .60 .67 .54 .66 2.47
Diluted earnings per share .68 .72 .74 (.05) 2.10 .58 .66 .52 .65 2.41
Average number of common shares
(in thousands):
Basic 919,052 921,100 921,818 915,431 919,347 914,264 916,134 916,314 917,738 916,123
Diluted 942,088 946,922 946,472 915,431 943,528 938,760 942,038 938,098 939,517 939,136
=============================================================================================================================
</TABLE>
67
<PAGE>
Loans and Leases Maturity (Unaudited)
==============================================================
December 31, 1999 WITHIN 1 TO AFTER
In millions 1 YEAR 5 YEARS 5 YEARS TOTAL
- --------------------------------------------------------------
Domestic:
Commercial and
industrial $17,370 $30,169 $7,645 $55,184
Commercial real estate:
Construction 522 907 230 1,659
Interim/permanent 1,979 3,436 871 6,286
Residential real estate 1,243 3,725 5,913 10,881
Consumer 9,185 4,903 5,916 20,004
Lease financing 2,979 7,124 830 10,933
- --------------------------------------------------------------
Total domestic loans and
leases 33,278 50,264 21,405 104,947
- --------------------------------------------------------------
International:
Commercial 10,122 1,650 83 11,855
Consumer 2,475 403 20 2,898
- --------------------------------------------------------------
Total international
loans and leases 12,597 2,053 103 14,753
- --------------------------------------------------------------
Total $45,875 $52,317 $21,508 $119,700
==============================================================
Interest Sensitivity of Loans and Leases Over One Year
(Unaudited)
=================================================================
December 31, 1999 PREDETERMINED FLOATING
In millions INTEREST RATES INTEREST RATES TOTAL
- -----------------------------------------------------------------
1 to 5 years $14,324 $37,993 $52,317
After 5 years 8,268 13,240 21,508
- -----------------------------------------------------------------
Total $22,592 $51,233 $73,825
=================================================================
68
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 19, 1999, the Corporation dismissed KPMG LLP ("KPMG") as the
Corporation's independent public accountants. Also on November 19, 1999, the
Corporation selected PricewaterhouseCoopers LLP ("PwC") to replace KPMG as the
Corporation's independent public accountants. The decision to change auditors
was approved by the Audit Committee of the Board of Directors. PwC previously
served as the independent public accountants for BankBoston.
KPMG's report on the financial statements of the Corporation for each of
the past two fiscal years did not contain any adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the Corporation's two most recent fiscal years,
and the subsequent interim period through November 19, 1999, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
KPMG to make reference to the subject matter of the disagreements in connection
with its audit report with respect to financial statements of the Corporation.
During the Corporation's two most recent fiscal years, and the subsequent
interim period through November 19, 1999, there was no disagreement or
difference of opinion with KPMG regarding any "reportable event," as that term
is defined in Regulation S-K.
The Corporation provided KPMG with a copy of its Current Report on Form 8-K
dated November 19, 1999, which reported the change in accountants. Such Current
Report included a letter that KPMG furnished to the Corporation, addressed to
the SEC, stating that it agreed with the statements made by the Corporation in
the Current Report.
During the two most recent fiscal years and the subsequent interim period
through November 19, 1999, neither the Corporation, nor anyone on behalf of the
Corporation, consulted PwC regarding either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the financial statements of the
Corporation or any matter that was either the subject of a disagreement, within
the meaning of Regulation S-K, or any reportable event, as that term is defined
in Regulation S-K.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers of the Corporation which responds
to this Item is incorporated by reference from Item 3A contained in Part I of
this Report. The information that responds to this Item with respect to
directors is incorporated by reference from the section entitled "Election of
Directors" in the Corporation's definitive proxy statement for its 2000 Annual
Meeting of Stockholders, which is required to be filed pursuant to Regulation
14A under the Exchange Act and which will be filed with the SEC not later than
120 days after the end of the Corporation's fiscal year (the "Proxy Statement").
Information with respect to compliance by the Corporation's directors and
executive officers with Section 16(a) of the Exchange Act is incorporated by
reference from the subsection entitled "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item is incorporated by
reference from the section entitled "Compensation of Executive Officers" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item is incorporated by
reference from the sections entitled "Election of Directors," "Security
Ownership of Directors and Executive Officers" and "Security Ownership of
Certain Beneficial Owners" in the Proxy Statement.
69
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item is incorporated by
reference from the subsection entitled "Indebtedness and Other Transactions" in
the Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). The financial statements of the Corporation required in response to
this Item are incorporated by reference from Item 8 of this Report.
(a)(2). Not applicable.
(a)(3). See the exhibits listed below under Item 14(c).
(b) The Corporation filed eight Current Reports on Form 8-K from October 1,
1999 to the date of this Report:
- Two Current Reports on Form 8-K dated October 1, 1999, both
announcing the closing of the merger between Fleet and BankBoston.
- Current Report on Form 8-K dated October 20, 1999 announcing third
quarter earnings of the Corporation and an 11% increase in the
quarterly common stock dividend to $.30 per common share.
- Current Report on Form 8-K dated November 19, 1999 reporting a
change in independent public accountants.
- Current Report on Form 8-K dated November 22, 1999 filing the
Supplemental Consolidated Financial Statements of the Corporation.
- Current Report on Form 8-K dated December 1, 1999 reporting the
sale of $500 million of 7.375% Subordinated Notes due 2009.
- Current Report on Form 8-K dated December 23, 1999 reporting the
establishment of a $2 billion medium-term note program under the
Corporation's shelf registration statement.
- Current Report on Form 8-K dated January 19, 2000 announcing fourth
quarter and fiscal 1999 earnings for the Corporation.
70
<PAGE>
(C) EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C> <C>
2 (a) Agreement and Plan of Merger dated December 19, 1995 between the Corporation and National
Westminster Bank Plc ("NatWest") (1)
2 (b) First Amendment to Agreement and Plan of Merger dated May 1, 1996 between the Corporation and
NatWest (2)
3 (a) Restated Articles of Incorporation of the Corporation (3)
3 (b) Certificate of Designations establishing the Corporation's Series V 7.25% Perpetual Preferred Stock (4)
3 (c) Certificate of Designations establishing the Corporation's Series VI 6.75% Perpetual Preferred Stock (5)
3 (d) Certificate of Designations establishing the Corporation's Series VII Fixed/Adjustable Rate Cumulative
Preferred Stock (6)
3 (e) Certificate of Designations establishing the Corporation's Series VIII Fixed/Adjustable Rate
Noncumulative Preferred Stock (7)
3 (f) By-Laws of the Corporation, as amended (8)
4 (a) Rights Agreement dated November 21, 1990, as amended by First Amendment to Rights Agreement dated March
28, 1991, a Second Amendment to Rights Agreement dated July 12, 1991, a Third Amendment to Rights
Agreement dated February 20, 1995 and a Fourth Amendment to Rights Agreement dated
March 14, 1999 (9)
4 (b) Instruments defining the rights of security holders, including indentures (10)
4 (c) Form of Rights Certificate for stock purchase rights issued to Whitehall Associates, L.P., and
KKR Partners II, L.P. (11)
10 (a)* Form of Change in Control Agreement for certain officers, together with Schedule of Persons who have
entered into such agreements (12)
10 (b)* Revised Schedule of Executive Officers who have entered into certain Change in Control Agreements
10 (c) Stock Purchase Agreement dated July 12, 1991 among the Corporation and Whitehall Associates, L.P.,
and KKR Partners II, L.P. (13)
10 (d) Exchange Agreement dated December 31, 1995 among the Corporation and Whitehall Associates, L.P., and
KKR Partners II, L.P. (14)
10 (e)* Supplemental Executive Retirement Plan (15)
10 (f)* Amendment One to Supplemental Executive Retirement Plan (16)
10 (g)* Amendment Two to Supplemental Executive Retirement Plan
10 (h)* Amendment Three to Supplemental Executive Retirement Plan
10 (i)* Amendment Four to Supplemental Executive Retirement Plan
10 (j)* Amendment Five to Supplemental Executive Retirement Plan
10 (k)* Amended and Restated 1994 Performance-Based Bonus Plan for the Named Executive Officers
10 (l)* Amended and Restated 1992 Stock Option and Restricted Stock Plan
10 (m)* Employment Agreement dated as of February 20, 1995 between the Corporation and Joel B. Alvord (17)
10 (n)* Shawmut National Corporation 1989 Nonemployees Directors' Restricted Stock Plan (assumed by the
Corporation on November 30, 1995) (18)
10 (o)* 1995 Restricted Stock Plan (19)
10 (p)* Executive Deferred Compensation Plan No. 1
10 (q)* Amendment One to Executive Deferred Compensation Plan No. 1
10 (r)* Executive Deferred Compensation Plan No. 2
10 (s)* Amendment One to Executive Deferred Compensation Plan No. 2
10 (t)* Amendment Two to Executive Deferred Compensation Plan No. 2
10 (u)* Executive Supplemental Plan (20)
10 (v)* Amendment One to Executive Supplemental Plan
</TABLE>
71
<PAGE>
<TABLE>
<S> <C> <C>
10 (w)* Retirement Income Assurance Plan (21)
10 (x)* Amendment One to Retirement Income Assurance Plan
10 (y)* Amendment Two to Retirement Income Assurance Plan
10 (z)* Trust Agreement for the Executive Deferred Compensation Plans No. 1 and 2
10 (aa)* Trust Agreement for the Executive Supplemental Plan (22)
10 (bb)* Trust Agreement for the Retirement Income Assurance Plan and the Supplemental Executive Retirement
Plan (23)
10 (cc)* Employment Agreement dated September 16, 1997 between Thomas C. Quick and The Quick & Reilly
Group, Inc. (assumed by a subsidiary of the Corporation on February 1, 1998) (24)
10 (dd)* Stock Unit Contract dated December 17, 1997 between the Corporation and Terrence Murray (25)
10 (ee)* Amendment dated January 25, 2000 to Stock Unit Contract between the Corporation and Terrence Murray
10 (ff)* Fleet Financial Group, Inc./Quick & Reilly Group, Inc. Stock Option Plan, as amended by Amendment
No. 1 to Fleet Financial Group, Inc./Quick & Reilly Group, Inc. Stock Option Plan and Amendment No. 2
to Fleet Financial Group, Inc./Quick & Reilly Group, Inc. Stock Option Plan (26)
10 (gg)* Directors Deferred Compensation and Stock Unit Plan (27)
10 (hh)* FleetBoston Financial 1996 Long-Term Incentive Plan (assumed by the Corporation on October 1, 1999)
10 (ii)* BankBoston Corporation 1991 Long-Term Stock Incentive Plan (assumed by the Corporation on
October 1, 1999) (28)
10 (jj)* BankBoston Corporation Executive Deferred Compensation Plan (assumed by the Corporation on
October 1, 1999) (29)
10 (kk)* BankBoston, N.A. Bonus Supplemental Employee Retirement Plan (assumed by the Corporation on
October 1, 1999) (30)
10 (ll)* Description of BankBoston Corporation's Supplemental Life Insurance Plan (assumed by the Corporation on
October 1, 1999) (31)
10 (mm)* BankBoston, N.A. Excess Benefit Supplemental Employee Retirement Plan (assumed by the Corporation on
October 1, 1999) (32)
10 (nn)* Description of BankBoston Corporation's Supplemental Long-Term Disability Plan (assumed by the
Corporation on October 1, 1999) (33)
10 (oo)* BankBoston Corporation's Director Stock Award Plan (assumed by the Corporation on October 1, 1999) (34)
10 (pp)* Form of Severance Agreement between BankBoston Corporation and Erich Schumann (assumed by the
Corporation on October 1, 1999) (35)
10 (qq)* BankBoston Corporation Directors Deferred Compensation Plan (assumed by the Corporation on
October 1, 1999) (36)
10 (rr)* BankBoston, N.A. Directors Deferred Compensation Plan (assumed by the Corporation on October 1, 1999) (37)
10 (ss)* BankBoston Corporation 1997 Stock Option Plan for Non-Employee Directors (assumed by the
Corporation on October 1, 1999) (38)
10 (tt)* Description of BankBoston Corporation's Director Retirement Benefits Exchange Program (assumed by the
Corporation on October 1, 1999) (39)
10 (uu)* Letter Agreement dated as of August 15, 1997 between BankBoston Corporation and Henrique Meirelles
(assumed by the Corporation on October 1, 1999) (40)
10 (vv)* Employment Agreement dated as of March 14, 1999 between the Corporation and Charles K. Gifford (41)
10 (ww)* Employment Agreement dated as of March 14, 1999 between the Corporation and Henrique C. Meirelles (42)
10 (xx)* Employment Agreement dated as of March 14, 1999 between the Corporation and Paul F. Hogan (43)
10 (yy)* Employment Agreement dated as of March 14, 1999 between the Corporation and Bradford H. Warner (44)
10 (zz)* Employment Agreement dated September 7, 1999 between the Corporation and Robert J. Higgins (45)
10 (aaa)* Employment Agreement dated as of October 29, 1999 between the Corporation and David L. Eyles
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
10 (bbb)* Form of Change in Control Agreement entered into with Charles K. Gifford, Henrique C. Meirelles, Paul
F. Hogan and Bradford H. Warner
10 (ccc)* Form of Change in Control Agreement entered into with Joseph Smialowski
10 (ddd)* Retention and Deferred Compensation Agreement dated December 31, 1999 between the Corporation and Peter
J. Manning
12 Computation of Consolidated Ratios of Earnings to Fixed Charges
21 Subsidiaries of the Corporation
23 Consent of Independent Accountants
27 1999 Financial Data Schedule
- --------
*Management contract, or compensatory plan or arrangement
(1) Incorporated by reference to Exhibit 2 of the Corporation's Form 8-K Current Report dated December 19,
1995.
(2) Incorporated by reference to Exhibit 2 of the Corporation's Form 8-K Current Report dated May 1, 1996.
(3) Incorporated by reference to Exhibit 3 of the Corporation's Form 10-Q for the quarter ended September
30, 1999.
(4) Incorporated by reference to Exhibit 4(a) of the Corporation's Form 8-K Current Report dated February
21, 1996.
(5) Incorporated by reference to Exhibit 4(b) of the Corporation's Form 8-K Current Report dated February
21, 1996.
(6) Incorporated by reference to Exhibit 4(a) of the Corporation's Form 8-K Current Report dated March 26,
1996.
(7) Incorporated by reference to Exhibit 4(a) of the Corporation's Form 8-K Current Report dated September
27, 1996.
(8) Incorporated by reference to Exhibit 4(l) of the Corporation's Registration Statement on Form S-3
(File No. 333-86829).
(9) Incorporated by reference to the Corporation's Registration Statement on Form 8-A dated November 29,
1990, the Corporation's Form 8 Amendment to Application or Report dated September 6, 1991 and the
Corporation's Forms 8-A/A dated March 17, 1995 and May 5, 1999.
(10) The Corporation has no instruments defining the rights of holders of its long-term debt where the amount
of securities authorized under any such instrument exceeds 10% of the total assets of the
Corporation and its subsidiaries on a consolidated basis. The Corporation hereby agrees to furnish to
the Commission upon request a copy of any instrument defining the rights of those debt holders.
(11) Incorporated by reference to Exhibit 4(c) of the Corporation's Form 8-K Current Report dated July 12,
1991.
(12) Incorporated by reference to Exhibit 10(a) of the Corporation's Form 10-K Annual Report for the fiscal
year ended December 31, 1997.
</TABLE>
73
<PAGE>
<TABLE>
<S> <C>
(13) Incorporated by reference to Exhibit 4 of the Corporation's Form 8-K Current Report dated July 12,
1991.
(14) Incorporated by reference to Exhibit 2(b) of the Corporation's Form 8-K Current Report dated December
19, 1995.
(15) Incorporated by reference to Exhibit 10(d) of the Corporation's Form 10-Q for the quarter ended June
30, 1996.
(16) Incorporated by reference to Exhibit 10(z) of the Corporation's Form 10-K Annual Report for fiscal
year ended December 31, 1997.
(17) Incorporated by reference to Exhibit 10(j) of the Corporation's Form 10-K Annual Report for the fiscal
year ended December 31, 1995.
(18) Incorporated by reference to Shawmut's 1989 Proxy Statement dated March 13, 1989 (File No. 1-10102).
(19) Incorporated by reference to Exhibit 10(o) of the Corporation's Form 10-K Annual Report for the fiscal
year ended December 31, 1995.
(20) Incorporated by reference to Exhibit 10(c) of the Corporation's Form 10-Q for the quarter ended June
30, 1996.
(21) Incorporated by reference to Exhibit 10(e) of the Corporation's Form 10-Q for the quarter ended June
30, 1996.
(22) Incorporated by reference to Exhibit 10(g) of the Corporation's Form 10-Q for the quarter ended June
30, 1996.
(23) Incorporated by reference to Exhibit 10(h) of the Corporation's Form 10-Q for the quarter ended June
30, 1996.
(24) Incorporated by reference to Exhibit 10(w) of the Corporation's Form 10-K Annual Report for fiscal
year ended December 31, 1997.
(25) Incorporated by reference to Exhibit 10(z) of the Corporation's Form 10-K Annual Report for fiscal
year ended December 31, 1997.
(26) Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 of the Corporation's Registration Statement on
Form S-8 (File No. 333-42247).
(27) Incorporated by reference to Exhibit 10(bb) of the Corporation's Form 10-K Annual Report for fiscal
year ended December 31, 1998.
(28) Incorporated by reference to Exhibit 10(c) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1997 (File No. 1-6522).
(29) Incorporated by reference to Exhibit 10(d) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1994 (File No. 1-6522).
(30) Incorporated by reference to Exhibit 10(e) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1994 (File No. 1-6522).
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
(31) Incorporated by reference to Exhibit 10(h) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1988 (File No. 1-6522).
(32) Incorporated by reference to Exhibit 10(g) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1994 (File No. 1-6522).
(33) Incorporated by reference to Exhibit 10(l) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1993 (File No. 1-6522).
(34) Incorporated by reference to Exhibit 10(l) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1998 (File No. 1-6522).
(35) Incorporated by reference to Exhibit 10(n) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1998 (File No. 1-6522).
(36) Incorporated by reference to Exhibit 10(q) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1994 (File No. 1-6522).
(37) Incorporated by reference to Exhibit 10(r) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1994 (File No. 1-6522).
(38) Incorporated by reference to Exhibit 10(q) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1997 (File No. 1-6522).
(39) Incorporated by reference to Exhibit 10(r) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1997 (File No. 1-6522).
(40) Incorporated by reference to Exhibit 10(bb) of BankBoston Corporation's Form 10-K Annual Report for
fiscal year ended December 31, 1997 (File No. 1-6522).
(41) Incorporated by reference to Exhibit 10(a) of the Corporation's Registration Statement on Form S-4
(File No. 333-82433).
(42) Incorporated by reference to Exhibit 10(b) of the Corporation's Registration Statement on Form S-4
(File No. 333-82433).
(43) Incorporated by reference to Exhibit 10(c) of the Corporation's Registration Statement on Form S-4
(File No. 333-82433).
(44) Incorporated by reference to Exhibit 10(d) of the Corporation's Registration Statement on Form S-4
(File No. 333-82433).
(45) Incorporated by reference to Exhibit 10 of the Corporation's Form 10-Q for the quarter ended September
30, 1999.
(d)Financial Statement Schedules - None.
</TABLE>
75
<PAGE>
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.
FLEET BOSTON CORPORATION
(Registrant)
/s/ Eugene M. McQuade /s/ Erich Schumann
- ------------------------------------- ---------------------------------------
Eugene M. McQuade Erich Schumann
Vice Chairman and Senior Vice President and
Chief Financial Officer Chief Accounting Officer
Dated March 3, 2000 Dated March 3, 2000
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 in the capacities indicated.
<TABLE>
<S> <C> <C>
/s/ Terrence Murray /s/ James F. Hardymon
---------------------------------------------- --------------------------------------------
Terrence Murray, Chairman, James F. Hardymon, Director
Chief Executive Officer and Director
/s/ Charles K. Gifford /s/ Marian L. Heard
---------------------------------------------- --------------------------------------------
Charles K. Gifford, President, Marian L. Heard, Director
Chief Operating Officer and Director
/s/ Robert J. Higgins /s/ Robert M. Kavner
---------------------------------------------- --------------------------------------------
Robert J. Higgins Robert M. Kavner, Director
President of Commercial and Retail Banking
and Director
/s/ Henrique de Campos Meirelles /s/ Thomas J. May
---------------------------------------------- --------------------------------------------
Henrique de Campos Meirelles Thomas J. May, Director
President of Global Banking and Financial
Services and Director
/s/ Joel B. Alvord /s/ Donald F. McHenry
---------------------------------------------- --------------------------------------------
Joel B. Alvord, Director Donald F. McHenry, Director
/s/ William Barnet, III /s/ Michael B. Picotte
---------------------------------------------- --------------------------------------------
William Barnet, III, Director Michael B. Picotte, Director
/s/ Daniel P. Burnham /s/ Thomas R. Piper
---------------------------------------------- --------------------------------------------
Daniel P. Burnham, Director Thomas R. Piper, Director
/s/ Paul J. Choquette, Jr. /s/ Thomas C. Quick
---------------------------------------------- --------------------------------------------
Paul J. Choquette, Jr., Director Thomas C. Quick, Director
/s/ John T. Collins /s/ Francene S. Rodgers
---------------------------------------------- --------------------------------------------
John T. Collins, Director Francene S. Rodgers, Director
/s/ William F. Connell /s/ John W. Rowe
---------------------------------------------- --------------------------------------------
William F. Connell, Director John W. Rowe, Director
/s/ Gary L. Countryman /s/ Thomas M. Ryan
---------------------------------------------- --------------------------------------------
Gary L. Countryman, Director Thomas M. Ryan, Director
/s/ Alice F. Emerson /s/ Paul R. Tregurtha
---------------------------------------------- --------------------------------------------
Alice F. Emerson, Director Paul R. Tregurtha, Director
</TABLE>
76
EXHIBIT 10(b)
FLEET BOSTON CORPORATION
Revised Schedule of Executive Officers Who Have Entered into
Certain Change in Control Agreements
A. Benefit -- 3x Base Plus Bonus:
Terrence Murray
Robert J. Higgins
David L. Eyles
Eugene M. McQuade
H. Jay Sarles
Brian T. Moynihan
William C. Mutterperl
M. Anne Szostak
B. Benefit -- 2x Base Plus Bonus:
Robert C. Lamb, Jr.
AMENDMENT TWO
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(1996 RESTATEMENT)
Sections 5.1 and 5.2 are amended effective October 15, 1997 to read as follows:
5.1 AMOUNT OF BENEFITS. The amount of the benefit payable under the Plan
to a Participant will be equal to (a) minus (b), but not less than zero,
where
(a) is the amount of benefit the Participant would have been entitled
to receive under the Basic Plan in the form of a "Single Life Annuity"
commencing on his "Annuity Starting Date" if (i) under Section 5.1(a)(i) of
the Basic Plan, "52.5%" were replaced by "60%", (ii) the term
"Compensation" under the Basic Plan included bonus awards to which the
Participant is entitled under the Corporate Executive Incentive Plan or
other incentive award program, (iii) the limitations of sections 401(a)(17)
and 415 of the Code (and the provisions of the Basic Plan applying those
limitations) did not exist, and (iv) the Participant were treated under the
Basic Plan as a "Participant" who is not a "Cash Balance Participant"; and
(b) is the sum of (i) the benefit payable to the Participant under the
Basic Plan, and (ii) the benefit payable to the Participant under the Fleet
Financial Group, Inc. Retirement Income Assurance Plan, as in effect from
time to time; provided that the amounts determined in (i) and (ii) shall be
expressed in the form of a "Single Life Annuity" commencing on the
Participant's "Annuity Starting Date" (with such quoted terms having the
meaning set forth in the Basic Plan).
5.2 CALCULATION AND PAYMENT OF BENEFITS. Except with respect to a
Participant who is a "Cash Balance Participant" under the Basic Plan,
benefits payable under the Plan shall be calculated in the same manner,
paid in the same form, commence at the same time, and paid under the same
terms and conditions as the benefits payable to the Participant (or
Beneficiary) under the Basic Plan. A Participant who is a "Cash Balance
Participant" under the Basic Plan shall have the right to elect benefits
under the Plan under the same terms and conditions (and only under the same
terms and conditions), including but not limited to manner of calculation,
form of payment and time of commencement, as the Participant would under
the
<PAGE>
Basic Plan if the Participant were not a "Cash Balance Participant."
Except as otherwise provided herein, the rights of a Participant are
determined based on the terms of the Plan in effect at the time the
Participant terminated employment.
IN WITNESS WHEREOF, this Amendment One has been adopted by the Human Resources
and Planning Committee on the 15th day of October, 1997 and is executed by a
duly authorized officer of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
---------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
AMENDMENT THREE
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. Section 5.1 is amended effective July 1, 1998 to read as follows:
5.1 Amount of Benefits. The amount of the benefit payable under the Plan
to a Participant will be equal to (a) minus (b), but not less than zero,
where
(a) is the amount of benefit the Participant would have been entitled
to receive under the Basic Plan in the form of a "Single Life Annuity"
commencing on his "Annuity Starting Date" if (i) under Section 5.1(a)(i) of
the Basic Plan, "52.5%" were replaced by "60%", (ii) the term
"Compensation" under the Basic Plan included bonus awards (A) paid to the
Participant on or after January 1, 1994 under the Corporate Executive
Incentive Plan or other short-term incentive award program of the Company
and (B) paid while the Employee is a Participant in the Plan, (iii) the
limitations of sections 401(a)(17) and 415 of the Code (and the provisions
of the Basic Plan applying those limitations) did not exist, and (iv) the
Participant were treated under the Basic Plan as a "Participant" who is not
a "Cash Balance Participant", and
(b) is the sum of (i) the benefit payable to the Participant under the
Basic Plan, and (ii) the benefit payable to the Participant under the Fleet
Financial Group, Inc. Retirement Income Assurance Plan, as in effect from
time to time; provided that the amounts determined in (i) and (ii) shall be
expressed in the form of a "Single Life Annuity" commencing on the
Participant's "Annuity Starting Date" (with such quoted terms having the
meaning set forth in the Basic Plan).
2. Section 8.8 is added effective July 1, 1998 to read as follows:
8.8 Nonduplication of Benefits. The benefits payable to a Participant
under this Plan shall be reduced on an Actuarial Equivalent basis by the
benefit such Participant earned under any other nonqualified defined
benefit plan, which counts bonuses as part of compensation under the plan
formula, and which does not provide for a reduction of benefits under such
plan, for benefits payable under this Plan, to the extent that the benefits
under such plan were accrued upon the Participant's service that was
included as Credited Service under this Plan.
<PAGE>
3. 5.5 Effect of Disregard of Service. To the extent that service for a
calendar year is not taken into account in determining the amount of
benefit under Section 5.1(a), such year shall also be disregarded for
purposes of determining the amount of benefit under Section 5.1(b).
4. Appendix A is added to read as follows:
APPENDIX A
SPECIAL RULES
This Appendix A is part of the Plan and contains special rules applicable
only to the Participants described herein. If provisions of this Appendix A
conflict with any other provisions of the Plan with respect to such
Participants, the provisions of this Appendix A shall govern.
A. PROVISIONS APPLICABLE TO NAMED FLEET EXECUTIVES
1. Mr. Zucchini: The minutes of the September 14, 1993 meeting of the
Executive Compensation Committee of the Company include the following statement:
"The Committee approved the crediting of 5 additional years service in 1998
and an additional 5 years of service in 2003 to Michael Zucchini's,
non-qualified retirement plan benefit, based on continuous employment to
the years 1998 and 2003, respectively; and the acceleration of the
additional credited service in the event of a change of control."
2. Mr. Breitman: Leo Breitman shall become a Participant in this Plan
effective January 1, 1997, and bonuses paid to him on or after that date
shall be counted as part of his Compensation. Mr. Breitman's Credited
Service shall be based on an Employment Commencement Date of July 1, 1991.
2
<PAGE>
B. SHAWMUT NATIONAL CORPORATION
1. The Shawmut National Corporation Executive Supplement Retirement Plan
("Shawmut SERP") terminated effective November 30, 1995. This Section B of
Appendix A shall apply solely to former participants in the Shawmut SERP or the
Shawmut National Corporation Excess Benefit Plan ("Shawmut Excess Plan") who are
Participants in this Plan (collectively, "Shawmut Participants").
2. Unless otherwise provided in this Appendix A or by the Company in
writing, (1) Shawmut Participants shall become Participants in this Plan
effective December 1, 1995, (2) the base compensation, but not bonuses, paid by
Shawmut National Corporation to Shawmut Participants shall be treated as
Compensation under this Plan, and (3) only the Company service of Shawmut
Participants shall be treated as Credited Service under the Plan.
3. A Participant's benefit under the Shawmut SERP that is attributable to
service that is also treated as Credited Service under this Plan shall be offset
against the benefit otherwise payable under this Plan with respect to such
Credited Service.
4. Mr. Overstrom: For purposes of Section 5.1(a), Mr. Gunnar Overstrom's
Credited Service shall be determined by counting service taken into account
under the Shawmut SERP. Mr. Overstrom's Employment Contract with the Company has
special provisions that must be taken into account in determining his pension
benefit under the combination of this Plan and his Employment Contract.
5. Mr. Eyles: For purposes of Section 5.1(a), Mr. David Eyles' Credited
Service shall be determined as if he became a Participant on March 2, 1992. For
purposes of the offset under Section 8.8, no amount in excess of the age 62
Actuarial Equivalent of Mr. Eyles' Shawmut SERP benefit shall be taken into
account if Mr. Eyles begins receiving his Plan benefit after age 62.
6. The liability for the benefits under the Shawmut SERP of the following
former participants, or beneficiary of a former participant, in the Shawmut SERP
shall be transferred to this Plan as of the date of termination of the Shawmut
SERP.
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- --------------------- --------------------------- ----------------------------
NAME BIRTH DATE PAYMENT FORM ANNUAL BENEFIT
- ------------------------------------- --------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Kalchbrenner, Patricia 01/01/33 Single life annuity 1,591.44
- ------------------------------------- --------------------- --------------------------- ----------------------------
Spencer, Jr. Harry 02/03/25 50% J&S 1,319.04
- ------------------------------------- --------------------- --------------------------- ----------------------------
</TABLE>
IN WITNESS WHEREOF, this Amendment Three has been adopted by the Human Resources
and Planning Committee on the 17th day of June, 1998 and is executed by a duly
authorized officer of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
---------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
AMENDMENT FOUR
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(1996 RESTATEMENT)
1. Section 3.2 is amended effective August 15, 1999 to read as follows:
3.2. TERMINATION OF PARTICIPATION. The Chief Executive Officer of the
Company may terminate a Participant prospectively for any reason. Any such
termination of participation shall not reduce the benefit accrued by the
Participant up to the date of termination.
2. Section 5.4 is amended effective August 15, 1999 to read as follows:
5.4 VESTING. If a Participant or Beneficiary is not entitled to receive a
benefit under the Basic Plan because the benefit is not vested, the
Participant or Beneficiary shall also not be entitled to receive benefits
under the Plan.
3. Section 5.5 is added effective August 15, 1999 to read as follows:
5.5 FORFEITURES. Notwithstanding anything in this Plan to the contrary,
any benefits payable to a Participant hereunder may be forfeited,
discontinued or reduced prior to a Change of Control, if the Committee
determines, in its discretion, based on the advice and recommendation of
management, that (i) the Participant has been convicted of a felony, or
(ii) the Participant has failed to contest a prosecution for a felony, or
(iii) the Participant has engaged in willful misconduct or dishonesty, any
of which is directly harmful to the business or reputation of the Company.
Following a Change of Control, a Participant's benefits may be forfeited,
discontinued or reduced only if a Participant has been convicted of a
felony or has failed to contest a prosecution for a felony.
4. Article 7 is amended effective August 15, 1999 to read as follows:
Article 7. AMENDMENT OR TERMINATION OF PLAN.
The Plan may be amended or terminated in writing by the Committee or the
Company in any manner at any time. Notwithstanding the previous sentence,
no such amendment or termination may reduce the amount of a Participant's
benefit or his distribution rights related thereto as determined under the
provisions of the Plan in effect immediately prior to such amendment or
termination, and this second sentence of Article 7 is irrevocable and may
not be amended.
<PAGE>
IN WITNESS WHEREOF, this Amendment Four has been adopted by the Human Resources
and Planning Committee on the 15th day of August, 1999 and is executed by a duly
authorized officer of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
---------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
AMENDMENT FIVE
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(1996 RESTATEMENT)
1. Upon the effective date of the final legal approval of the change in the
name of the Company to FleetBoston Financial Corporation, the name "Fleet
Financial Group, Inc." will be replaced by the name "FleetBoston Financial
Corporation" wherever it appears in the Plan.
2. Section 8.9 is added effective January 1, 2000 to read as follows:
8.9 SOCIAL SECURITY TAX. Subject to the requirements of Code
section 3121(v)(2) and the regulations thereunder, the Committee has
the full discretion and authority to determine when Federal Insurance
Contribution Act ("FICA") taxes on a Participant's Plan benefit or
account are paid and whether any portion of such FICA taxes shall be
withheld from the Participant's wages or deducted from the
Participant's benefit or account.
IN WITNESS WHEREOF, this Amendment Five is executed by a duly authorized officer
of Fleet Boston Corporation.
FLEET BOSTON CORPORATION
By: /s/ WILLIAM C. MUTTERPERL
---------------------------
William C. Mutterperl
Executive Vice President, Secretary and
General Counsel
FLEET FINANCIAL GROUP, INC.
AMENDED AND RESTATED 1994 PERFORMANCE-BASED
BONUS PLAN FOR THE NAMED EXECUTIVE OFFICERS
Overview
The 1994 performance-based bonus plan (the "Bonus Plan") for the Named
Executive Officers of Fleet Financial Group, Inc. (the "Corporation") supports
the Corporation's objective of paying for performance which increases
shareholder value by providing for a maximum bonus award, which award may be
reduced at the discretion of the Human Resources and Board Governance Committee
of the Board of Directors of the Corporation, or any successor committee (the
"Committee"), based solely on the Corporation's yearly financial performance as
measured by Return on Equity ("ROE") and Net Income, as adjusted for
extraordinary charges and changes in Generally Accepted Accounting Principles
("GAAP").
Committee
The Committee shall consist of three or more members of the Board of
Directors, each of whom shall be an "outside" director as such term is defined
in Rule 1.162-27 (now in effect or as amended) of the Internal Revenue Code of
1986, as amended. The Committee shall certify to the attainment of the
performance goals set forth herein prior to any payments made pursuant to the
Bonus Plan. The Committee shall have the right, in its sole discretion, to
reduce any bonus awards payable under the Bonus Plan.
Eligibility
The Chief Executive Officer and any other employee of the Corporation
who is named as a Named Executive Officer in the Corporation's most recent proxy
statement (together with the Chief Executive Officer, the ("Named Executives"))
are eligible to participate in the Bonus Plan.
Formula for Bonus Pool
Named Executives
If the Corporation's ROE in any year equals 15%, then the maximum
amount payable under the Bonus Plan to each Named Executive shall be .24% of Net
Income. For each .5% increase in ROE over 15%, the percentage of Net Income
payable to each Named Executive as a bonus shall increase by .005%. Conversely,
for each .5% percentage decrease in ROE from 15%, the percentage of Net Income
payable to each Named Executive shall decrease by .005%. No bonus shall be
payable under the Bonus Plan to any Named Executive if the Corporation's ROE is
less than 10%.
Effect of Acquisitions/Unusual Earnings Impact
If the Corporation makes a major strategic acquisition during the year
which reduces ROE or Net Income, the calculation of ROE and Net Income for
purposes of calculating the bonus amounts payable under the Bonus Plan shall
exclude the effect of such acquisition. In addition, ROE and Net Income may be
adjusted for extraordinary charges and changes in GAAP.
Miscellaneous
In no event shall the cost of the Bonus Plan exceed more than 10% of
the Corporation's annual average income before taxes for the preceding five
years.
FLEETBOSTON FINANCIAL
AMENDED AND RESTATED 1992 STOCK OPTION AND RESTRICTED
STOCK PLAN (AS AMENDED THROUGH DECEMBER 21, 1999)
1. Purpose
This Amended and Restated 1992 Stock Option and Restricted Stock Plan
(the "Plan") constitutes an amendment and restatement of the 1992 Stock Option
and Restricted Stock Plan which was adopted by the Board of Directors of Fleet
Boston Corporation (the "Corporation") on January 15, 1992, and approved by the
stockholders of the Corporation on April 15, 1992, further amended on February
16, 1994 and approved by the stockholders on April 20, 1994 (the "1994
Amendment"), further amended on February 21, 1996 and approved by the
stockholders on April 17, 1996 (the "1996 Amendment"), further amended on
February 17, 1999 and approved by the stockholders on April 21, 1999 (the "April
1999 Amendment") and further amended on December 21, 1999 (the "December 1999
Amendment"). The purpose of this Plan is to advance the interests of the
Corporation by enhancing the ability of the Corporation and its subsidiaries to
attract and retain officers, employees and non-employee directors to the
Corporation, to reward such individuals for their contributions and to encourage
them to take into account the long-term interests of the Corporation through
interests in the Corporation's Common Stock, $.01 par value per share (the
"Stock"). Any officer, director or employee selected to receive an award under
the Plan is referred to as a "participant".
The Plan provides for the grant of options to acquire Stock
("Options"), which may be incentive options ("ISOs") within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"), and awards of Stock
subject to certain restrictions ("Restricted Stock"). Under the Plan, Restricted
Stock consists exclusively of (i) Stock subject to performance-based
restrictions intended to comply with the provisions of Section 162(m) of the
Code ("Performance-Based Restricted Stock) and (ii) Stock awarded to
non-employee directors in lieu of some or all of the cash compensation such
directors would otherwise receive for their service as directors ("Non-employee
Director Restricted Stock"). Grants of Options and awards of Restricted Stock
are referred to herein as "Awards". The grant of an Option may also involve the
grant of stock appreciation rights as described in Section 6.
2. Administration
The Plan shall be administered, construed and interpreted by the Board
of Directors or by one or more committees appointed by the Board of Directors of
the Corporation (any such committee being referred to herein as the
"Committee"). The Committee shall have the discretionary authority, not
inconsistent with the express provisions of the Plan, (a) to make Awards to such
<PAGE>
participants as the Committee may select; (b) to determine the time or times
when Awards shall be granted and the number of shares of Stock subject to each
Award; (c) to determine which Options are, and which Options are not, intended
to be ISOs; (d) to determine the terms and conditions of each Award; (e) to
prescribe the form or forms of instruments evidencing Awards and any other
instruments required under the Plan and to change such forms from time to time;
(f) to adopt, amend, and rescind rules and regulations for the administration of
the Plan; and (g) to interpret the Plan and to decide any questions and settle
all controversies and disputes that may arise in connection with the Plan. Such
determinations of the Committee shall be conclusive and shall bind all parties.
No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith, and the members shall be
entitled to indemnification and reimbursement in the manner provided in the
Corporation's By-laws.
As used in the Plan, the "fair market value" of Stock as of any date
shall be the mean of the high and low sale prices of the shares of Stock on the
principal exchange on which the Stock is traded on such date or as the Committee
may otherwise determine.
3. Eligibility
Persons eligible to receive Awards under the Plan shall be those key
employees and officers, who, in the opinion of the Committee, are in a position
to make a significant contribution to the success of the Corporation and its
subsidiaries. No person who beneficially owns five percent or more of the
outstanding Stock of the Corporation shall be eligible to participate in the
Plan, to exercise an Option previously granted to him or her or to take full
possession of Restricted Stock previously issued to him or her. A "subsidiary"
of the Corporation shall mean a corporation, whether domestic or foreign, in
which the Corporation shall own, directly or indirectly, a majority of the
capital shares entitled to vote at the annual meeting thereof. Non-employee
directors shall be eligible to receive Awards under the Plan in lieu of some or
all of the cash compensation they would otherwise receive for their services as
directors, to the extent that their eligibility for such Awards would not
disqualify them as disinterested persons for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
4. Stock Subject to Awards
The Stock subject to Awards under the Plan shall be either authorized
but unissued shares or treasury shares. Subject to adjustment in accordance with
the provisions of Paragraph 5(g) and 7(e) hereof, the total number of shares
(the "Eligible Shares") of such Stock shall be 74,500,000 shares. Subject to
like adjustment, the total amount of Stock as to which Options may be granted or
-2-
<PAGE>
Stock Awards may be issued to any one person participating under the Plan shall
not exceed the aggregate number of shares that equal ten percent of the total
amount of shares outstanding Stock of the Corporation. Subject to like
adjustment, the maximum number of shares issuable upon the exercise of options
that are ISOs shall be 30,000,000.
In the event that any outstanding Option or Restricted Stock Award under
the Plan for any reason expires, is forfeited or is terminated prior to the end
of the period during which Awards may be made under the Plan, the shares of
Stock allocable to the unexercised portion of such Option or the portion of such
Restricted Stock Award that has terminated or been forfeited may again be
subject to award under the Plan. Shares of Stock delivered to the Corporation to
pay the exercise price of any Option or to satisfy the tax withholding
consequences of an Option exercise or the grant or vesting of Restricted Stock
shall again be subject to award under the Plan.
5. Terms and Conditions Applicable to all Options Granted Under the Plan
Options granted pursuant to the Plan shall be evidenced by agreements
in such form as the Committee shall, from time to time, approve, which
agreements shall in substance include and comply with and be subject to the
following terms and conditions:
a. Medium and Time of Payment
The exercise price of an Option shall be payable either (i) in United
States dollars in cash or by check, bank draft or money order payable to the
order of the Corporation, (ii) through the delivery of shares of Stock owned by
the optionee with a fair market value equal to the option price or (iii) by a
combination of (i) and (ii). Fair market value of Stock so delivered shall be
determined on the date of exercise. Unless the Committee otherwise determines,
an optionee may engage in successive exchange (or series of exchanges) in which
Stock such optionee is entitled to receive upon exercise of an Option may be
simultaneously utilized as payment for the exercise of an additional Option or
Options.
To the extent permitted by applicable law, the Committee may permit
payment of the Option exercise price through arrangements with a brokerage firm
under which such firm, on behalf of the optionee, will pay the exercise price to
the Corporation and the Corporation shall promptly deliver to such firm the
number of shares of Stock subject to the Option so that the firm may sell such
shares, or a portion thereof, for the account of the optionee. In addition, the
Committee may permit payment of the Option exercise price by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Corporation sufficient funds to pay the exercise price as soon as the shares
subject to the Option, or a portion thereof, are sold on behalf of the optionee.
-3-
<PAGE>
b. Numbers of shares
The Option shall state the total number of shares to which it pertains.
No Option may be exercised in part for fewer than twenty shares. Subject to
adjustment as provided in Section 5(g), in any fiscal year of the Corporation,
the aggregate number of shares of Stock of the Corporation as to which Options
may be granted to any one participant shall not exceed 650,000.
c. Option Price
The exercise price of an Option shall be not less than the fair market
value of the shares of Stock covered by the Option on the date of grant except
that (i) in connection with an amendment of an Option which does not reduce the
exercise price of the Option but which, in the opinion of the Committee, is or
may be treated for tax or other technical purposes (including, in particular,
for purposes of Section 16 of the Exchange Act) as a new grant of the Option,
the exercise price of such amended Option may be less than the then fair market
value of the shares of Stock subject to such Option so long as such exercise
price is equal to or greater than the exercise price of the original Option, and
(ii) in connection with an acquisition, consolidation, merger or other
extraordinary transaction, Options may be granted at less than the then fair
market value in order to replace Options previously granted by one or more
parties to such transaction (or their affiliates) so long as the aggregate
spread on such replacement Options for any recipient of such Options is equal to
or less than the aggregate spread on the Options being replaced.
d. Expiration of Options
Each Option granted under the Plan shall expire on a date determined by
the Committee which date may not be more than ten years from the date the Option
is granted.
e. Date of Exercise
The Committee may, in its discretion, provide that an Option may not be
exercised in whole or in part for any period or periods of time specified by the
Committee. Except as may be so provided, any Option may be exercised in whole at
any time, or in part from time to time, during its term. In the case of an
Option not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Option may be exercised.
f. Termination of Service
The Committee shall, subject to the provision of Section 5(d), determine
for each Award of an Option the extent to which the participant (or his legal
-4-
<PAGE>
representative) shall have the right to exercise the Option following
termination of such participant's service to the Corporation or any subsidiary.
Such provisions may reflect distinctions based on the reasons for the
termination of service and any other relevant factors that the Committee may
determine.
g. Adjustments on Changes in Stock
The aggregate number of shares of Stock as to which Options may be
granted under the Plan, the aggregate number of shares of Stock as to which
Options may be granted to any one such participant, the number of shares of
Stock covered by each outstanding Option, and the exercise price per share of
each outstanding Option, shall be proportionately adjusted by the Committee for
any increase or decrease in the number of issued shares of Stock resulting from
subdivisions or consolidation of shares or other capital adjustments, the
payment of a Stock dividend or any other increase or decrease in such shares
effected without receipt of consideration by the Corporation; provided, however,
that no such adjustment shall be made unless and until the aggregate effect of
all such increases and decreases accruing after the effective date of the 1996
Amendment shall have increased or decreased the number of issued shares of Stock
by five percent or more; and provided further, that any factional shares
resulting from any such adjustment shall be eliminated. Any such determination
by the Committee shall be conclusive.
h. Assignability
Except as permitted by the Committee, Options shall be nontransferable
except by the laws of descent and distribution or pursuant to a qualified
domestic relations order. So long as nontransferability of an Option shall be
required to exempt the grant of an Option from the provisions of Section 16(b)
of the Exchange Act, no Option that the Committee intends to grant in a
transaction exempted from such Section may be assigned or transferred except by
will or by the laws of descent and distribution. So long as nontransferability
of ISOs is a requirement of the Code, unless the Committee specifies otherwise,
no Option granted as an ISO may be assigned or transferred except by will, by
the laws of descent and distribution or pursuant to a qualified domestic
relations order.
i. Rights as a Stockholder
An optionee shall have no rights as a stockholder with respect to shares
covered by an Option until the date the shares are issued and only after such
shares are fully paid. No adjustment will be made for dividends or other rights
the record date for which is prior to the date of such issuance.
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<PAGE>
j. Tax Withholding
The Committee shall have the right to require that the participant
exercising the Option remit to the Corporation an amount sufficient to satisfy
any federal, state, or local withholding tax requirements (or make other
arrangements satisfactory to the Committee with regard to such taxes) prior to
the delivery of any Stock pursuant to the exercise of the Option. If permitted
by the Committee, either at the time of the grant of the Option or in connection
with its exercise, the participant may elect, at such time and in such manner as
the Committee may prescribe, to satisfy such withholding obligation by (i)
delivering Stock having a fair market value equal to such withholding
obligations, or (ii) requesting that the Corporation withhold from the shares of
Stock to be delivered upon the exercise a number of shares of Stock having a
fair market value equal to such withholding obligation.
In the case of an ISO, the Committee may require as a condition of exercise that
the participant exercising the Option agree to inform the Corporation promptly
of any disposition (within the meaning of Section 424(c) of the Code and the
regulations thereunder) of Stock received upon exercise.
k. Change in Control
Notwithstanding the provisions of any Option that provide for its
exercise in installments, such Option shall become immediately exercisable in
the event of a change in control. For purposes of this paragraph 5(k), a "Change
in Control" shall mean any of the following events:
(a) The acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of the then outstanding shares of common stock of
the Corporation (the "Outstanding Corporation Common Stock"); provided, however,
that any acquisition by the Corporation or its subsidiaries, or any employee
benefit plan (or related trust) of the Corporation or its subsidiaries, of 25%
or more of the Outstanding Corporation Common Stock shall not constitute a
Change of Control; and provided, further that any acquisition by a corporation
with respect to which, following such acquisition, more than 50% of the then
outstanding shares of common stock of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Corporation
Common Stock immediately prior to such acquisition in substantially the same
proportion as their ownership immediately prior to such acquisition of the
Outstanding Corporation Common Stock, shall not constitute a Change of Control;
or
(b) Individuals who, as of October 1, 1999, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of
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<PAGE>
the Board, provided that any individual becoming a director subsequent to
October 1, 1999 whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Corporation (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
(c) Consummation of a reorganization, merger, consolidation,
sale or other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in each case, with respect to which all
or substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Corporation Common Stock immediately prior to such
Business Combination do not, following such Business Combination, beneficially
own, directly or indirectly, more than 50% of the then outstanding shares of
common stock of the corporation resulting from such a Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more subsidiaries).
(d) Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
Anything in the Plan to the contrary notwithstanding, if an
event that would, but for this paragraph, constitute a Change of Control results
from or arises out of a purchase or other acquisition of the Corporation,
directly or indirectly, by a corporation or other entity in which the Executive
has a greater than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change in Control.
l. Additional Restrictions and Conditions
The Committee may impose such other restrictions and conditions (in
addition to those required by the provisions of this Plan) on any Award of
Options hereunder and may waive any such additional restrictions and conditions,
so long as (i) any such additional restrictions and conditions are consistent
with the terms of this Plan and (ii) such waiver does not waive any restriction
or condition required by the provisions of this Plan.
m. Repricing
The Committee shall not, without further approval of the stockholders
of the Corporation, (i) authorize the amendment of any outstanding Option to
reduce the exercise price of such Option or (ii) grant a replacement Option upon
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<PAGE>
the surrender and cancellation of a previously granted Option for the purpose of
reducing the exercise price of such Option. Nothing contained in this section
shall affect the Committee's right to make the adjustment permitted under
Section 5(g).
6. Stock Appreciation Rights
At the discretion of the Committee, a participant who has been granted an
Option may also be granted the right to require the Corporation to purchase all
or a portion of such Option for cancellation (a "stock appreciation right"). To
the extent that the participant exercises this right, the Corporation shall pay
him in cash and/or Stock the excess of the fair market value of each share of
Stock covered by the Option (or a portion thereof purchased), determined on the
date the election is made, over the exercise price of the Option. The election
shall be made by delivering written notice thereof to the Committee. Shares
subject to the Option so purchased shall not again be available for purposes of
the Plan. Subject to adjustment as provided in Section 5(g), in any fiscal year
of the Corporation, the aggregate number of shares of Stock as to which stock
appreciation rights may be granted to any one person participating under the
Plan shall not exceed 650,000.
7. Terms and Conditions Applicable to Restricted Stock Awards
Awards of Restricted Stock may be Performance-Based Restricted Stock,
as described in Section 7(i), or Non-employee Director Restricted Stock, as
described in Section 7 (j). The provisions of Sections 7(a) through 7(h) are
applicable to all shares of Restricted Stock.
a. Number of Shares
The total number of shares of Restricted Stock that may be awarded
under the Plan on a cumulative basis shall not exceed one half of one percent of
the Stock of the Corporation outstanding at the date of any such Award. In any
fiscal year of the Corporation, the aggregate number of shares of Stock as to
which Restricted Stock Awards may be granted to any one person participating
under the Plan shall not exceed 200,000.
Each Restricted Stock Award under the Plan shall be evidenced by a
stock certificate of the Corporation, registered in the name of the participant,
accompanied by an agreement in such form as the Committee shall prescribe from
time to time. The Restricted Stock Awards shall comply with the following terms
and conditions and with such other terms and conditions not inconsistent with
the terms of this Plan as the Committee, in its discretion, shall establish.
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<PAGE>
b. Stock Legends; Prohibition on Disposition
Certificates for shares of Restricted Stock shall bear an appropriate
legend referring to the restrictions to which they are subject, and any attempt
to dispose of any such shares of Stock in contravention of such restrictions
shall be null and void and without effect. The certificates representing shares
of Restricted Stock shall be held by the Corporation until the restrictions are
satisfied.
c. Termination of Service
The Committee shall determine the extent to which the restrictions on
any Restricted Stock Award shall lapse upon the termination of the participant's
service to the Corporation and its subsidiaries, due to death, disability,
retirement or for any other reason. If the restrictions on all or any portion of
a Restricted Stock Award shall not lapse, the participant, or in the event of
his death, his personal representative, shall forthwith deliver to the Secretary
of the Corporation such instruments of transfer, if any, as may reasonably be
required to transfer the shares back to the Corporation.
d. Change in Control
Upon the occurrence of a change in of the Corporation, as determined in
Paragraph 5(k) of this Plan, all restrictions then outstanding with respect to
shares of Restricted Stock shall automatically expire and be of no further force
and effect and all certificates representing such shares of Stock shall be
delivered to the participant.
e. Adjustment for Changes in Stock
The Committee shall proportionately adjust the aggregate number of
shares of Stock as to which Restricted Stock Awards may be granted to
participants under the Plan and the aggregate number of shares of Stock as to
which Restricted Stock Awards may be granted to any one such person for any
increase or decrease in the number of issued shares of Stock resulting from the
subdivision or consolidation of shares or other capital adjustments, the payment
of a stock dividend, or any other increase or decrease in such shares without
the payment of consideration; provided, however, that no such adjustment shall
be made unless and until the aggregate effect of all such increases and
decreases accruing after the effective date of the 1996 Amendment shall have
increased or decreased the number of issued shares of Stock of the Corporation
by five percent or more; and provided, further, that any fractional shares
resulting from any such adjustment shall be eliminated. Any such determination
by the Committee shall be conclusive. Shares of Stock issued with respect to any
outstanding Awards as a result of any of the foregoing events shall be subject
to the same restrictions.
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<PAGE>
f. Effect of Attempted Transfer
No benefit payable or interest in any Restricted Stock Award shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge and any such attempted action shall be void and no
such interest in any Restricted Stock Award shall be in any manner liable for or
subject to debts, contracts, liabilities, engagements or torts of any
participant or his beneficiary. If any participant or beneficiary shall become
bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit payable under or interest in any
Restricted Stock Award, then the Committee, in its discretion, may hold or apply
such benefit or interest or any part thereof to or for the benefit of such
participant or his beneficiary, his spouse, children, blood relatives or other
dependents, or any of them, in any such manner and such proportions as the
Committee may consider proper.
g. Payment of taxes
The Corporation shall have the right to deduct from any Restricted
Stock Award or other payment hereunder any amount that federal, state, local or
foreign tax law requires to be withheld with respect to such Award or payment or
to require that the participant, prior to or simultaneously with the Corporation
incurring any obligation to withhold any such amount, pay such amount to the
Corporation in cash or, at the option of the Corporation, shares of Stock (which
shall be valued at the fair market value on the date of payment). There is no
obligation under the Plan that any participant be advised of the existence of
the tax or the amount required to be withheld. Without limiting the generality
of the foregoing, in any case where it is determined that tax is required to be
withheld in connection with the issuance, transfer or delivery of shares of
Stock under this Plan, the Corporation may, pursuant to such rules as the
Committee may establish, reduce the number of shares so issued, transferred or
delivered by such number of shares as the Corporation may deem appropriate in
its sole discretion to comply with such withholding. Notwithstanding any other
provision of this Plan, the Committee may impose such conditions on the payment
of any withholding obligations as may be required to satisfy applicable
regulatory requirements, including without limitation, those under the Exchange
Act.
h. Rights as a Stockholder
A participant shall have the right to receive dividends on shares of
Stock subject to the Restricted Stock Award during the applicable Restricted
Period, to vote the Stock subject to the award and to enjoy all other
stockholder rights, except that the employee shall not be entitled to delivery
of the stock certificate until the applicable Restricted Period shall have
lapsed (if at all).
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<PAGE>
i. Performance-Based Restricted Stock
Awards of Performance-Based Restricted Stock are intended to qualify as
performance-based for the purposes of Section 162(m) of the Code. The Committee
shall provide that shares of Stock issued to a participant in connection with an
Award of Performance-Based Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, for such period as the Committee shall
determine, beginning on the date on which the Award is granted (the "Restricted
Period") and that the Restricted Period applicable to such Restricted Stock
shall lapse (if at all) only if certain preestablished objectives are attained.
Performance goals may be based on any of the following criteria: (i) earnings or
earnings per share, (ii) return on equity, (iii) return on assets, (iv)
revenues, (v) expenses, (vi) one or more operating ratios, (vii) stock price,
(viii) stockholder return, (ix) market share, (x) charge-offs, (xi) credit
quality, (xii) reductions in non-performing assets, (xiii) customer satisfaction
measures and (xiv) the accomplishment of mergers, acquisitions, dispositions or
similar extraordinary business transactions. The Committee shall establish one
or more objective performance goals for each such Award of Restricted Stock on
the date of grant. The performance goals selected in any case need not be
applicable across the Corporation, but may be particular to an individual's
function or business unit. The Committee shall determine whether such
performance goals are attained and such determination shall be final and
conclusive. In the event that the performance goals are not met, the Restricted
Stock shall be forfeited and transferred to, and reacquired by, the Corporation
at no cost to the Corporation.
The Committee may impose such other restrictions and conditions (in
addition to the performance-based restrictions described above) on any Award of
shares of Performance-Based Restricted Stock as the Committee deems appropriate
and may waive any such additional restrictions and conditions, so long as such
waiver does not waive any restriction described in the previous paragraph.
Nothing herein shall limit the Committee's ability to reduce the amount payable
under an Award upon the attainment of the performance goal(s), provided,
however, that the Committee shall have no right under any circumstance to
increase the amount payable under, or waive compliance with, any applicable
performance goal(s).
j. Non-employee Director Restricted Stock
Awards of Non-employee Director Restricted Stock shall be made
exclusively to directors of the Corporation who are not employees of the
Corporation or any of its subsidiaries. The Committee shall provide that shares
issued in connection with an Award of Non-employee Director Restricted Stock may
not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of, except by will or the laws of descent and distribution, until the earlier
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<PAGE>
of (i) the director's retirement as a director of the Corporation at or after
the retirement age specified in the Corporation's By-laws, (ii) the director's
death or total and permanent disability or (iii) the director's resignation from
the Board of Directors of the Corporation with the consent of such Board. Shares
of Non-employee Director Restricted Stock may be awarded only in lieu of cash
compensation that would otherwise have been payable to the director receiving
such Award and such cash compensation shall be reduced by the fair market value
of the shares of Stock so awarded on the date of such Award.
The Committee may impose such other restrictions and conditions (in
addition to the restrictions described above) on any Award of shares of
Non-employee Director Restricted Stock as the Committee deems appropriate and
may waive any such additional restrictions and conditions applicable to such
shares as long as such waiver does not waive any restriction described in the
preceding paragraph.
8. Amendment; Applicability to Outstanding Options
The Committee may alter, amend or suspend the Plan at any time or alter
and amend Awards granted hereunder; provided, however, that no such amendment
may, without the consent of any participant to whom an Option shall theretofore
have been granted or to whom a Restricted Stock Award shall theretofore have
been issued, adversely affect the right of such participation under such Award.
Unless the Committee otherwise determines, any amendment to the Plan effected by
the 1996 Amendment shall not apply to any Option outstanding on the date of
stockholder approval of the 1996 Amendment held by a participant subject to
Section 16(a) of the Exchange Act if the effect of such application would be to
cause the Option to be deemed to have been regranted for purposes of Rule 16b-3
under the Exchange Act, and provided, further, that no material amendment of the
Plan may, without stockholder approval thereof, become effective if such
approval is required for purposes of Rule 16b-3 under the Exchange Act.
9. Termination
Options and Restricted Stock Awards may be granted pursuant to the Plan
from time to time within a period of ten years from January 15, 1992. The Board
of Directors may terminate the Plan at any time, and no Options shall be granted
nor Restricted Stock awarded thereafter. Such termination shall not affect the
validity of any Award then outstanding.
10. Legality of Grant
The granting of any Award under this Plan and the issuance or transfer
of Options and shares of Stock pursuant hereto are subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
regulatory or
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<PAGE>
government agency (including, without limitation, no-action positions of the
Securities and Exchange Commission) which may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. Without limiting
the generality of the foregoing, no Awards may be granted under this Plan and no
Options or shares shall be issued by the Corporation, nor cash payments made by
the Corporation pursuant to or in connection with any such Award unless and
until in any such case all legal requirements applicable to the issuance or
payment have, in the opinion of counsel for the Corporation, been complied with.
In connection with any Option or Stock issuance or transfer, the person
acquiring the shares or the Option shall, if requested by the Corporation, give
assurance satisfactory to counsel to the Corporation with respect to such
matters as the Corporation may deem desirable to assure compliance with all
applicable legal requirements.
11. Effective Date
The April 1999 Amendment became effective upon the adoption thereof by
the affirmative vote of a majority of stockholders, present in person or
represented by proxy, and entitled to vote thereon at the 1999 Annual Meeting of
Stockholders when a quorum was present.
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FLEET FINANCIAL GROUP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN NO. 1
(1997 RESTATEMENT)
<PAGE>
SECTION 1. PURPOSE OF THE PLAN; SELECTION OF PARTICIPANTS; PLAN FROZEN
Fleet Financial Group, Inc. (the "Employer") established this Executive
Deferred Compensation Plan No. 1 (the "Plan"), originally effective as of
December 12, 1984, in order to assist it and its subsidiaries and affiliates in
retaining executive level employees by providing such employees with the
opportunity to defer receipt of certain amounts of compensation; thereby giving
them flexibility in their personal tax and financial planning. In addition,
amounts of compensation deferred pursuant to Section 2 of the Plan will provide
additional death and retirement benefits for them. The Plan is intended to be "a
plan which is unfunded and is maintained by an employer primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees" within the meaning of sections 201(2), 301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be administered in a manner consistent with that intent.
The executives eligible to participate in the Plan will be selected by
the Human Resources and Planning Committee, or any successor committee, of the
Board of Directors of the Employer (the "Committee") from time to time. When an
executive has been designated as eligible for participation in the Plan, he or
she will be promptly notified by the Committee and given the opportunity to make
an election to defer compensation under Section 2 and/or Section 3 of the Plan.
An executive who makes such an election is hereinafter referred to as an
"Employee."
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<PAGE>
The Employer hereby amends and restates the Plan effective as of
December 17, 1997. Notwithstanding any provision contained herein to the
contrary, effective as of April 1, 1989, the Plan was frozen and no subsequent
elections to defer compensation can be made.
SECTION 2. RETIREMENT AND DEATH BENEFITS
(a) An Employee may elect to defer receipt of salary, awards under the
Employer's Corporate Executive Incentive Plan and other compensation over a
period not exceeding seven years (the "deferral period") in such amount as shall
be selected by him, but not less than a total of $20,000 or more than a total of
$50,000. The total amount to be deferred during the deferral period shall be
specified by the Employee in his or her deferred compensation agreement. The
commitment made in said agreement shall be irrevocable unless the Committee, at
the request of the Employee, waives the requirement to defer with respect to
amounts which have not been deferred for the calendar year prior to the date the
request is received by the Committee. The Employee shall have the right to
change the amount to be deferred for any future year, provided such change is
made in writing and delivered to the Committee prior to January 1 of the year in
which the amount of deferred compensation which is to be changed would be
earned, and also provided that no such change may be made if it would reduce the
total amount to be deferred under the Employee's deferred compensation
agreement. Amounts deferred shall be deducted first
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<PAGE>
from any incentive compensation award which the Employee would otherwise receive
in a year for which his or her deferral election is in effect, and any remaining
amount to be deferred for such year shall be withheld from the Employee's salary
in approximately equal amounts beginning in the month following the month in
which incentive compensation awards are paid.
(b) Interest equivalents, for Employees who became participants in the
Plan prior to December 1, 1986, will be credited monthly to the amounts of
deferred compensation in accordance with the following schedule:
Interest Rate on Cumulative
Period of Deferral Deferred Amounts
------------------ ----------------
Year 1 6%
Year 2 7-1/2%
Year 3 9%
Year 4 10-1/2%
Year 5 12%
Year 6 13-1/2%
Year 7 15%
Interest equivalents, for Employees who became participants in the Plan
on or after December 1, 1986 and prior to November 1, 1988, will be credited
monthly to the amounts of deferred compensation in accordance with the following
schedule:
Interest Rate on Cumulative
Period of Deferral Deferred Amounts
------------------ ----------------
Year 1 5%
Year 2 5-3/4%
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<PAGE>
Year 3 6-1/2%
Year 4 7-1/4%
Year 5 8%
Year 6 8-3/4%
Year 7 10%
Interest equivalents, for Employees who become participants in the Plan
on or after November 1, 1988, will be credited monthly to the amounts of
deferred compensation in accordance with the following schedule:
Interest Rate on Cumulative
Period of Deferral Deferred Amounts
------------------ ----------------
Year 1 5%
Year 2 5-3/4%
Year 3 6-1/2%
Year 4 7-1/4%
Year 5 7-3/4%
Year 6 8-1/4%
Year 7 9%
(c) Compensation which is deferred under paragraph (a) shall be
paid by the Employer to the Employee or beneficiary as hereinafter provided:
(i) If the Employee's employment with the Employer is
terminated before all amounts to be deferred under paragraph (a) have been
deferred, the Employee shall receive a lump sum payment (less applicable
withholding) equal to the total amount of compensation deferred at the time of
termination plus interest equivalents credited
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<PAGE>
under paragraph (b) hereof as of the first day of the third month following the
date of the Employee's termination of employment with the Employer.
(ii) If the Employee's employment with the Employer is
terminated after all amounts which are scheduled to be deferred under paragraph
(a) hereof have been deferred but prior to the expiration of seven years after
the initial amount is deferred, the Employee will receive a lump sum payment
(less applicable withholding) equal to the total amount of his or her deferred
compensation plus interest equivalents as of the first day of the third month
following the date of the Employee's termination of employment with the
Employer.
(iii) If the Employee's employment with the Employer
terminates after seven years following the date the initial amount is deferred
for him or her hereunder but prior to attaining age 55 and completing five years
of continuous service with the Employer (or its subsidiary or affiliate) and
prior to attaining age 65, the Employee will be entitled to receive a lump sum
payment (less applicable withholding) equal to the total amount of compensation
deferred plus interest equivalents at the rate of 15 percent (10 percent for
Employees who become participants in the Plan on or after December 1, 1986 and
prior to November 1, 1988, and 9 percent for Employees who become participants
in the Plan on or after November 1, 1988). The lump sum payment shall be made as
soon as practicable following termination of the employment; provided, however,
that the Employee may, with the prior written approval of the Committee,
irrevocably elect prior
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<PAGE>
to his or her termination of employment to defer receipt of his or her lump sum
payment to a specified date not later than age 65.
(iv) Upon any of the following events, the Employee will be
entitled to receive retirement income (less applicable withholding) as set forth
in his or her compensation deferral agreement in a lump sum payment as soon as
practicable following termination of employment or may elect to defer receipt to
a specified date not later than age 65 and to receive such balance in a series
of up to fifteen annual installments: (1) the termination of employment of an
Employee with the Employer (or its subsidiary or affiliate) after attaining age
65; (2) the termination of employment of an Employee (or its subsidiary or
affiliate) after attaining age 55 and completing five years of continuous
service with the Employer (or its subsidiary or affiliate); (3) the designation
by the Committee in its sole discretion that an Employee shall be entitled to
receive his or her balance as described below (regardless of the Employee's age
and years of service); or (4) a "change of control" as defined in the trust
referred to under Section 7. An election under the Plan to defer receipt beyond
termination of employment or to receive installment payments must be
irrevocable, must be made prior to termination of employment, and (unless the
election is made upon a change of control) requires the prior written consent of
the Committee. If retirement occurs before or after age 65, the amount of
retirement income will be less or greater than the amount specified in the
agreement but will be calculated as though the amount deferred had been credited
with interest at 15
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<PAGE>
percent (10 percent for Employees who become participants in the Plan on or
after December 1, 1986 and prior to November 1, 1988 and 9 percent for Employees
who become participants in the Plan on or after November 1, 1988).
(v) If the Employee's employment with the Employer (or its
subsidiary or affiliate) terminates prior to attaining age 55 and completing ten
years of service with the employer (or its subsidiary or affiliate) due to
"Fleet Focus" reductions, the Employee will be entitled to elect to receive his
or her benefit (less applicable withholding) in a lump sum payment as soon as
practicable following termination or may elect to defer receipt to a specified
date not later than age 65 and, if such specified date is age 55 or later, to
receive such balance in a series of up to fifteen annual installment payments.
Such election must be irrevocable and must be made during the "30 day notice
period" specified under the Fleet Focus program. The amount deferred under this
subsection will be credited with interest at the annual rate of 8 percent or, if
less, the rate credited to Participants who are active Employees under the Plan.
(d) In the event of an Employee's death prior to commencing
distributions under this Section, his or her beneficiary shall receive in a lump
sum payment a death benefit in such amount as shall be set forth in the
Employee's compensation deferral agreement or, if greater, in the same amount as
the Employee would have received under paragraph (c)(iv) of this Section if he
or she had retired on the day before he or she died, except as hereinafter
provided. If death occurs within two years after the initial deferral
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<PAGE>
of compensation under this Section as a result of suicide or a condition which
was known but not disclosed at the time of the initial deferral, the Employee's
beneficiary will not receive the death benefit specified in the compensation
deferral agreement, but will only receive the amount of compensation deferred
plus interest determined in accordance with the schedule in paragraph (b) of
this Section. If the Employee dies after commencing distributions under this
Section, the balance of the installments or payments which would have been made
to the Employee shall be paid to his or her beneficiary in a lump sum payment
or, if the Employee was eligible under this Section and so elected for his or
her beneficiary, in a series of up to fifteen annual installment payments,
commencing as soon as practicable following the Employee's death.
(e) If as the result of circumstances beyond the control of the
Employee, the Employee has an unanticipated emergency which would result in
severe financial hardship, the Employee may request to withdraw all or a portion
of his or her deferred compensation under this Section (less applicable
withholding) to satisfy his or her financial emergency. The Committee in its
sole discretion will determine whether a severe financial hardship exists and
what amount, if any, may be withdrawn. Subject to a withdrawal penalty as
hereinafter specified, from time to time an Employee may elect to withdraw in a
lump sum payment all or a portion of his or her deferred compensation under this
Section (less applicable withholding) in accordance with procedures established
by the Committee. The amount of such withdrawal, however, will be reduced
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<PAGE>
by a percentage of the withdrawal amount, which shall be forfeited by the
Employee. Such percentage will be equal to the interest equivalent in effect for
such Employee at the time of such withdrawal election increased by three
percentage points; provided, however, that such percentage may never be less
than 10 percent. No withdrawal penalty shall apply to a withdrawal due to severe
financial hardship.
SECTION 3. DEFERRAL OF MANAGEMENT INCENTIVE AWARDS
(a) An Employee may annually elect to defer receipt of awards under the
Employer's Corporate Executive Incentive Plan, to the extent such awards are not
deferred under Section 2 of this Plan, subject to the approval of the Committee.
The amount of deferral and the period of deferral shall be set forth in a
deferral election form. Amounts deferred under this Section may be deferred
until age 65, provided the Employee remains in the employ of the Employer until
age 65 or retires from the employ of the Employer prior to age 65.
(b) Payment of deferred incentive awards may be made in a lump sum or
in annual installments or deferred annual installments as requested by the
Employee and approved by the Committee. Once the Committee has approved a
deferred form of payment, its decision and the Employee's election is
irrevocable except as permitted in Section 2(e) above.
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<PAGE>
(c) Interest equivalents will be credited on deferred incentive
compensation awards on a monthly basis as if the awards had been invested in a
money market account at Fleet National Bank on the date of the award. Payment of
the deferred incentive awards shall include the interest equivalents credited to
the awards.
(d) In the event of the Employee's termination of employment with the
Employer other than on account of death, disability or retirement, the entire
amount of compensation deferred under this Section shall become due and payable
in one lump sum together with interest credited to the amount deferred as of the
first day of the third month following the date of the Employee's termination of
employment with the Employer.
(e) In the event of the Employee's death prior to commencing
distributions under this Section, his or her beneficiary shall receive in a lump
sum payment the total amount of incentive compensation awards deferred under
this Section with interest. In the event of an Employee's death after commencing
distributions under this Section, the remainder of the installments due to the
Employee shall be paid to his or her beneficiary in a lump sum payment or, if
the Employee was eligible under this Section and so elected for his or her
beneficiary, in annual installment payments, commencing as soon as practicable
following the Employee's death.
(f) If as the result of circumstances beyond the control of the
Employee, the Employee has an unanticipated emergency which would result in
severe financial hardship, the Employee may request to withdraw all or a portion
of his or her deferred
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compensation under this Section (less applicable withholding) to satisfy his or
her financial emergency. The Committee in its sole discretion will determine
whether a severe financial hardship exists and what amount, if any, may be
withdrawn. Subject to a withdrawal penalty as hereinafter specified, from time
to time an Employee may elect to withdraw in a lump sum payment all or a portion
of his or her deferred compensation under this Section (less applicable
withholding) in accordance with procedures established by the Committee. The
amount of such withdrawal, however, will be reduced by a percentage of the
withdrawal amount, which shall be forfeited by the Employee. Such percentage
will be equal to the interest equivalent in effect for such Employee at the time
of such withdrawal election increased by three percentage points; provided,
however, that such percentage may never be less than 10 percent. No withdrawal
penalty shall apply to a withdrawal due to severe financial hardship.
SECTION 4. AGREEMENTS AND ELECTIONS TO DEFER COMPENSATION
Each agreement or election to defer compensation under this Plan shall
be made by December 31 of the calendar year prior to the calendar year in which
the compensation to be deferred is earned, except as hereinafter provided.
Notwithstanding the foregoing, within thirty days after the initial adoption of
this Plan, or if later, within thirty days after an Employee is notified by the
Employer of his or her eligibility to participate in the Plan, an Employee may
elect to defer all or any portion of an incentive compensation award to
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<PAGE>
which he or she might become entitled for the calendar year in which the
election is made.
SECTION 5. ASSIGNMENT OR ALIENATION
Compensation which is deferred under Section 2 or Section 3 of the Plan
and payments which are due under either Section may not be assigned, alienated,
pledged, sold, transferred or encumbered and shall not be subject to attachment,
garnishment or legal process, except as may otherwise be required by law.
SECTION 6. DESIGNATION OF BENEFICIARY
An Employee may designate a beneficiary or beneficiaries, or change any
prior designation, to receive his or her benefits under this Plan (less
applicable withholding) upon his or her death on a form approved by the
Committee. If the beneficiary has commenced distributions, but dies before all
payments have been made, the remaining balance of the installments or payments
will be distributed in a lump sum payment to the beneficiary's estate as soon as
practicable following receipt of notice of the beneficiary's death. If no
beneficiary is designated (or if a designated beneficiary does not survive the
Employee), the remaining balance of the installments or payments will be paid to
the Employee's estate in a lump sum payment.
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SECTION 7. NATURE OF CLAIM FOR PAYMENTS
Except as herein provided, the Employer shall not be required to set
aside or segregate any assets of any kind to meet its obligations hereunder. An
Employee shall have no right on account of the Plan in or to any specific assets
of the Employer or to any assets of the trust described in the next paragraph.
Any right to any payment the Employee may have on account of the Plan shall be
solely that of a general, unsecured creditor of the Employer.
To assist in meeting its obligations under the Plan, the Employer has
established a trust pursuant to the Trust Agreement for Executive Deferred
Compensation Plans No. 1 and 2, dated as of June 19, 1996, as subsequently
amended, of which the Employer is treated as the owner under Subpart E of
Subchapter J, Chapter I of the Internal Revenue Code of 1986, as amended (a
"grantor trust"), and may deposit funds or property (including insurance
contracts) with the trustee of the grantor trust (the "Trustee"). Upon a "change
of control," as defined in Schedule A of the grantor trust, the Employer shall
promptly appoint an independent trustee (which may not be the Employer or any
subsidiary or affiliate) for the grantor trust, and, if at the time of a "change
of control" as defined in the trust, the trust has not been fully funded, the
Employer shall, within the time and manner specified under such trust, deposit
in such trust amounts sufficient to satisfy all obligations under the Plan as of
the date of deposit.
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<PAGE>
In all events, the Employer shall remain ultimately liable for the
benefits payable under this Plan, and to the extent the assets at the disposal
of the Trustee are insufficient to enable the Trustee to satisfy all benefits,
the Employer shall pay all such benefits necessary to meet its obligations under
this Plan.
The obligations of the Employer hereunder shall be binding upon its
successors and assigns, whether by merger, consolidation or acquisition of all
or substantially all of its business or assets.
SECTION 8. ADMINISTRATION
The Plan will be administered by the Committee. The Committee will have
full discretionary authority to interpret the provisions of the Plan and decide
all questions and settle all disputes which may arise in connection with the
Plan, and may establish its own operative and administrative rules and
procedures in connection therewith, provided such procedures are consistent with
the requirements of section 503 of ERISA and the regulations thereunder. All
interpretations, decisions and determinations made by the Committee will be
binding on all persons concerned. No member of the Committee who is a
participant in the Plan may vote or otherwise participate in any decision or act
with respect to a matter relating solely to himself or herself (or to his or her
beneficiaries).
Except as the Committee may otherwise provide by written resolution,
the Committee delegates its duties and responsibilities under Section 3 with
respect to non-
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executive officers (except for the duty to establish eligibility
criteria under Article 4) to the Director of Corporate Human Resources, who may
further delegate certain of such duties and responsibilities to other officers
of the Company. For purposes of the Plan, any action taken by any such delegate
pursuant to such delegation shall be considered to have been taken by the
Committee. The Employer agrees to indemnify and to defend to the fullest
possible extent permitted by law any member of the Committee and any delegatee
(including any person who formerly served as a member of the Committee or as a
delegatee) against all liabilities, damages, costs and expenses (including
attorneys' fees and amounts paid in settlement of any claims approved by the
Employer) occasioned by any act or omission to act in connection with the Plan,
if such act or omission is in good faith.
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<PAGE>
SECTION 9. AMENDMENT OR TERMINATION OF PLAN
The Plan may be altered, amended, revoked or terminated in writing by
the Committee or the Employer, in any manner and at any time; provided, however,
that following a "change of control" as defined in the trust referred to under
Section 7, no such alteration, amendment, revocation or termination shall reduce
the amount of an Employee's benefit or his or her rights to such benefit as
determined under the provisions of the Plan in effect, immediately prior to such
change of control, or otherwise adversely affect the Employee's benefits under
the Plan, without the written consent of the Employee; and further provided,
however, that following a "change of control" as defined in the trust referred
to under Section 7, the provisions of this Section 9 may not be amended.
IN WITNESS WHEREOF, this amended and restated Plan has been adopted by
the Committee on December 17, 1997, and is executed by a duly authorized
officers of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
-------------------------
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AMENDMENT ONE
TO THE
FLEET FINANCIAL GROUP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN NO. 1
The following amendments are effective as of January 1, 2000.
1. Upon the effective date of the final legal approval of the change in the
name of the Employer to FleetBoston Financial Corporation, the name "Fleet
Financial Group, Inc." will be replaced by the name "FleetBoston Financial
Corporation" wherever it appears in the Plan.
2. Section 2(c) is amended by adding paragraph (vi) to the end thereof to read
as follows:
(vi) Notwithstanding the foregoing, any election to defer receipt
of benefits under Section 2(c) is not valid or effective unless filed
with the Committee either by December 31, 1999 or at least one year
prior to the Employee's last day of active employment. An Employee
whose distribution of benefits is not governed by a deferred
compensation agreement under Section 2(a) and who does not have a
valid, timely election in effect on the last day of active employment
shall have his or her benefit promptly paid out in a lump sum following
termination of employment (i.e., after the end of salary continuation
payments, if applicable).
3. Section 2(f) is added to read as follows:
(f) Notwithstanding anything in the Plan to the contrary
regarding the form of benefits an Employee may elect, an Employee who
is eligible for benefits under this Section 2 may elect to receive his
or her benefit in the form of an age 65 single life annuity with an
actuarial value (using the Fleet Financial Group, Inc. Pension Plan's
actuarial assumptions) equal to 50% of the Employee's account balance.
4. Section 3(b) is amended to read as follows:
Payments of deferred incentive awards may be made in a lump sum, as an
age 65 single life annuity (as described in Section 3(g)), or in annual
installments or deferred annual installments, subject to the
requirements of Section 2(c)(vi).
<PAGE>
5. Section 3(g) is added to read as follows:
(g) Notwithstanding anything in the Plan to the contrary
regarding the form of benefits an Employee may elect, an Employee who
is eligible for benefits under this Section 3 may elect to receive his
or her benefit in the form of an age 65 single life annuity with an
actuarial value (using the Fleet Financial Group, Inc. Pension Plan's
actuarial assumptions) equal to 50% of the Employee's account balance.
6. Section 9 is amended to read as follows:
SECTION 9. AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be amended or terminated in writing by the
Committee or the Company in any manner at any time. Notwithstanding the
previous sentence, no such amendment or termination shall reduce the
amount of an Employee's benefit or his or her distribution rights
related thereto as determined under the provisions of the Plan in
effect immediately prior to such amendment or termination, and this
second sentence of Section 9 is irrevocable and may not be amended.
7. Section 10 is added to read as follows:
SECTION 10. SOCIAL SECURITY TAX
Subject to the requirements of Code section 3121(v)(2) and the
regulations thereunder, the Committee has the full discretion and
authority to determine when Federal Insurance Contribution Act ("FICA")
taxes on a Employee's Plan benefit or account are paid and whether any
portion of such FICA taxes shall be withheld from the Employee's wages
or deducted from the Employee's benefit or account.
2
<PAGE>
IN WITNESS WHEREOF, the provisions of this Amendment One were adopted by the
Human Resources and Board Governance Committee on the 21st day of December,
1999, or are hereby adopted, and this Amendment One is executed by a duly
authorized officer of Fleet Boston Corporation.
FLEET BOSTON CORPORATION
By: /s/ WILLIAM C. MUTTERPERL
--------------------------
William C. Mutterperl
Executive Vice President,
Secretary and General
Counsel
3
FLEET FINANCIAL GROUP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN NO. 2
(1997 RESTATEMENT)
<PAGE>
ARTICLE 1. INTRODUCTION
Fleet Financial Group, Inc. hereby amends, restates and continues the
Fleet Financial Group, Inc. Executive Deferred Compensation Plan No. 2 effective
as of December 17, 1997. The original effective date of the Plan is January 1,
1992. The Company established the Plan to attract, retain and motivate certain
of its key employees, as well as those of its subsidiaries and affiliates, by
providing them with the opportunity to defer receipt of certain amounts of
compensation. The Plan is intended to be "a plan which is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and
shall be administered in a manner consistent with that intent.
ARTICLE 2. DEFINITIONS
As used herein, the masculine pronoun shall include the feminine
gender, and the singular shall include the plural, and the plural, the singular,
and the following terms shall have the following meanings unless a different
meaning is clearly required by the context.
"ACCOUNT" means the separate account for a Participant established
pursuant to Section 7.1, which may pass to a Beneficiary pursuant to Article 9.
"BENEFICIARY" means a beneficiary designated in accordance with
Article 9.
"CHANGE OF CONTROL" is defined in Schedule A to the Trust Agreement.
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"COMMITTEE" means the Human Resources and Planning Committee, or any
successor committee, of the Board of Directors of the Company.
"COMPANY" means Fleet Financial Group, Inc.
"DEFERRAL COMPENSATION" is defined in Section 5.1.
"DEFERRAL DATE" is defined in Section 8.2.
"DEFERRALS" means Deferral Compensation credited to a Participant's
Account during a calendar year as a result of a Participant's elections pursuant
to Section 5.2, plus, except where the context otherwise requires, amounts
attributable (i.e., credited interest) to amounts deferred during such calendar
year. Depending upon the context, "Deferrals" may mean Deferrals for a single
calendar year or for two or more calendar years.
"EMPLOYER" means the Company and its subsidiaries and affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"PARTICIPANT" means an executive who is selected to participate in the
Plan, and who elects to participate in the Plan, in accordance with Article 4.
"PLAN" means the Fleet Financial Group, Inc. Executive Deferred
Compensation Plan No. 2 as set forth herein and in all subsequent amendments
hereto.
"TRUST" means the trust established under the Trust Agreement.
"TRUST AGREEMENT" means the Trust Agreement for Executive Deferred
Compensation Plans No. 1 and 2 dated as of June 19, 1996, as subsequently
amended, or any successor trust agreement, as in effect from time to time.
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"TRUSTEE" means the trustee of the Trust.
"VESTED" is defined in Section 8.5.
ARTICLE 3. ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Committee. The
Committee shall have full discretionary authority to interpret the provisions of
the Plan and decide all questions and settle all disputes which may arise in
connection with the Plan, and may establish its own operative and administrative
rules and procedures in connection therewith, provided such procedures are
consistent with the requirements of section 503 of ERISA and the regulations
thereunder. All interpretations, decisions and determinations made by the
Committee shall be binding on all persons concerned. No action of the Committee
may reduce the amount of a Participant's Account below the amount of such
Account immediately before such action. No member of the Committee who is a
Participant in the Plan may vote or otherwise participate in any decision or act
with respect to a matter relating solely to himself (or to his Beneficiaries).
3.2 DELEGATION BY COMMITTEE. Except as the Committee may otherwise
provide by written resolution, the Committee delegates its duties and
responsibilities under Section 3 with respect to non-executive officers (except
for the duty to establish eligibility criteria under Article 4) to the Director
of Corporate Human Resources, who may further delegate certain of such duties
and responsibilities to other officers of the
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Company. For purposes of the Plan, any action taken by any such delegate
pursuant to such delegation shall be considered to have been taken by the
Committee.
3.3 INDEMNIFICATION. The Company agrees to indemnify and to defend to
the fullest possible extent permitted by law any member of the Committee and any
delegatee (including any person who formerly served as a member of the Committee
or as a delegatee) against all liabilities, damages, costs and expenses
(including attorneys' fees and amounts paid in settlement of any claims approved
by the Company) occasioned by any act or omission to act in connection with the
Plan, if such act or omission is in good faith.
ARTICLE 4. SELECTION OF PARTICIPANTS
The Committee shall select, or shall establish the applicable criteria
for determining, the employees of the Company or its subsidiaries or affiliates
who are eligible to participate in the Plan. When an executive has been selected
to participate in the Plan, he will be notified by the Committee and given the
opportunity to elect to defer compensation under the Plan. An executive who
makes such an election is hereinafter referred to as a "Participant."
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<PAGE>
ARTICLE 5. DEFERRAL OF COMPENSATION
5.1 DEFERRAL COMPENSATION. From time to time the Committee shall
establish if or to what extent base salary or bonuses under one or more
incentive bonus programs may be deferred under the Plan ("Deferral
Compensation").
5.2 DEFERRAL ELECTIONS. For each calendar year, a Participant may
irrevocably elect, in accordance with this Article and Article 8, to defer
receipt of all or part of his Deferral Compensation for the year in which such
Compensation would otherwise be paid; provided, however, that unless the
Committee consents, such deferred amount for the year may not be less than
$10,000. A Participant's election to defer base salary, if base salary is
includable in Deferral Compensation at such time, must be made on or before
December 15 for base salary payable in the succeeding calendar year. A
Participant's election to defer an incentive award, if the incentive award is
includable in Deferral Compensation at such time, must be made prior to the time
the amount of the award is determined under the applicable incentive award
program and, in any event, prior to December 15 of the year for which the
incentive award performance is determined. In the case of a Participant who
becomes employed and eligible for the Plan during the same calendar year, the
elections described in this Article may be made no later than 30 days following
his first day of eligibility. The Committee may, in unusual circumstances,
extend the foregoing December 15 deadlines to no later than December 31
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if it concludes that such action is necessary to permit Participants a
reasonable time to make deferral decisions.
ARTICLE 6. INTEREST EQUIVALENT FACTOR
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<PAGE>
6.1 IN GENERAL. From time to time the Committee shall determine annual
interest equivalent factors that apply to Deferrals made in each calendar year.
The Committee may determine different interest equivalent factors for Deferrals
made in different calendar years, and except as otherwise provided herein, the
Committee may change each year the interest equivalent factor applicable to
Deferrals made in a specified calendar year. Except as otherwise provided in
Sections 6.2 and 6.3, the annual interest equivalent factor for Vested
Participants for Deferrals prior to 1998 shall be 12 percent. Except as
otherwise provided with respect to a Change in Control, the annual interest
equivalent factors for Deferrals after 1997 may be changed from time to time by
the Committee. Unless the Committee decides otherwise, with respect to Deferrals
for each calendar year, the annual interest equivalent factors applicable during
the period after termination of employment for Participants who are Vested
pursuant to Section 8.5(c) shall be 400 basis points less than the factors
applicable during the same period for Vested Participants who are employees.
Notwithstanding the foregoing, the annual interest equivalent factors applicable
to a Participant's Deferrals (i) at the time of the Participant's death shall
continue to apply until the Participant's Account is entirely distributed and
(ii) shall be consistent with any severance or other agreement between the
Company and the Participant.
6.2 PRIOR TO FIVE YEARS OF PARTICIPATION. The annual interest
equivalent factors applied to Deferrals of a Participant who terminates
employment with the
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Employer less than five years from the date that Deferrals of the Participant
are first credited under the Plan (or, if earlier, are first credited under the
Fleet Financial Group, Inc. Executive Deferred Compensation Plan No. 1) shall be
determined in accordance with the schedule below, unless, prior to termination
of employment: (i) the Participant becomes Vested; or (ii) the Participant dies.
Basis points subtracted from
the declared annual interest
Year of Participation equivalent factors
--------------------- ------------------
1st Year 500
2nd Year 400
3rd Year 300
4th Year 200
5th Year 100
After the Participant has five years of participation in the Plan, the value of
the Participant's Account shall be redetermined by disregarding the preceding
provisions of Section 6.2, so that the declared annual interest equivalent
factors applicable to Vested Participants during the deferral period are applied
retroactively to the respective initial Deferral Dates.
6.3 DURING DISTRIBUTION OR UPON CHANGE OF CONTROL. The annual interest
equivalent factors applied to Deferrals of a Participant following commencement
(by the Participant or his Beneficiary) of annual installment distributions
shall be fixed at the interest equivalent factors applied to the Participant's
Deferrals immediately prior to the commencement of annual installment
distributions. Following a Change of Control, the
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<PAGE>
annual interest equivalent factors applied to Deferrals of a Participant shall
not be less than the highest annual interest equivalent factors applicable to
Deferrals of the Participant prior to the Change of Control (determined without
regard to Section 6.2).
ARTICLE 7. PARTICIPANT ACCOUNTS
7.1 ESTABLISHMENT OF ACCOUNTS. The Committee shall establish a separate
Account for each Participant reflecting the amounts due the Participant under
the Plan and shall cause the Company to establish on its books Accounts
reflecting the Company's obligation to pay Participants the amounts due under
the Plan.
7.2 ADJUSTMENTS TO ACCOUNTS. From time to time the Committee shall
adjust each Participant's Account to credit (i) amounts which the Participant
has elected to defer under Article 5 and (ii) amounts based on the annual
interest equivalent factors determined under Article 6. A Participant's Account
shall also be adjusted to reflect benefit payments and withdrawals under Article
8. A Participant's Account shall continue to be adjusted under this Article 7
until the entire amount credited to the Account has been paid to the Participant
or his Beneficiary.
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<PAGE>
ARTICLE 8. DISTRIBUTION OF BENEFITS
8.1 FOLLOWING TERMINATION OF EMPLOYMENT
(a) At the time an executive becomes a Participant, or, if
later, by December 28, 1998, the Participant shall elect the manner in which his
entire Account (other than amounts distributed prior to termination of
employment pursuant to the Participant's election under Section 8.2, 8.3, or
8.4) is to be distributed, from among the following options:
(1) A lump sum
(i) upon termination of employment (including
termination due to retirement); or
(ii) at a future date, not before termination of
employment, but by age 65 or immediately
following termination, whichever is later.
(2) In up to 15 annual installments, commencing:
(i) immediately upon termination of employment;
or
(ii) at a future date, not before termination of
employment, but by age 65 or immediately
following termination, whichever is later.
Notwithstanding the foregoing, a Participant must be Vested when his employment
terminates or he will receive his entire Account in a lump sum at termination. A
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<PAGE>
Participant who has elected to receive payment at a time and in a form described
in this Section 8.1(a) may change such election at any time up to 12 months
prior to the date of his termination of employment. A changed election made in
the 12-month period prior to his termination of employment is not valid and has
no effect.
(b) Notwithstanding Section 8.1(a), in the event a Participant is not
Vested at the time of termination of employment, or if the value of a
Participant's Account is equal to or less than $10,000 as of the date of
termination of employment, or if the Participant has not made an election in
accordance with Section 8.1(a), the Participant's Account shall be fully
distributed in a lump sum as soon as practicable following termination of
employment.
(c) Notwithstanding anything in this Plan to the contrary, for a Vested
Participant who terminates employment before January 1, 2000, an election may be
made at any time prior to termination of employment to defer receipt beyond
termination of employment or to receive installment payments, but such election
is effective only with the written consent of the Committee.
8.2 IN-SERVICE DISTRIBUTION UPON A SPECIFIED DATE. At the time of a
deferral election in accordance with Article 5, a Participant may irrevocably
elect to receive payment in a lump sum of a selected amount or percentage of the
total amounts deferred pursuant to such election (and interest credited thereto
in accordance with Article 6) at a
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<PAGE>
specified date ("Deferral Date"). Such election shall be effective only if the
Participant is an employee of the Employer on the Deferral Date.
8.3 FINANCIAL HARDSHIP DISTRIBUTION. In the event a Participant suffers
an unanticipated emergency due to circumstances beyond his control that results
in a financial hardship, the Participant may request a distribution of all or
any part of his Account. The Committee shall determine whether such a financial
hardship exists and what amount, if any, may be distributed. In no event shall
the aggregate amount of the distribution exceed either the value of the
Participant's Account or the amount determined by the Committee to be necessary
to alleviate the Participant's financial hardship (such hardship amount may
include taxes owed because of such distribution) and that is not reasonably
available from other resources of the Participant.
8.4 WITHDRAWALS. Subject to a Withdrawal Penalty (as hereinafter
defined), a Participant may elect under this Section 8.4, at any time prior to
the time that an amount in his Account would otherwise be paid, to withdraw in a
single lump sum payment all or a specified portion of the balance of his or her
Account in accordance with procedures established by the Committee. Such
withdrawals shall be reduced by a percentage of the total amount requested,
which shall be forfeited by the Participant. Such percentage shall be equal to
the annual interest equivalent factor that applies to Deferrals made during the
calendar year of such withdrawal election, increased by three percentage points
("Withdrawal Penalty"); provided, however, that such Withdrawal Penalty may
never be
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<PAGE>
less than 10 percent. No Withdrawal Penalty shall apply to a withdrawal
or distribution made in accordance with Section 8.1, 8.2 or 8.3.
8.5 VESTING. A Participant shall be Vested upon:
-------
(a) reaching age 65;
(b) reaching age 55 and completing five years of
continuous service with the Employer;
(c) designation by the Committee, in its sole discretion
that a Participant shall be treated as Vested
(regardless of the Participant's age and years of
service);
(d) a Change of Control; or
(e) terminating employment with the Employer, after
completing 10 years of continuous service with the
Employer but prior to attaining age 55, due to "Fleet
Focus" reductions.
8.6 DISABILITY. For purposes of the Plan, a Participant who ceases
active employment because of a disability is considered to have terminated
employment, except that a Participant who is disabled is not considered to have
terminated employment while receiving benefits under the Company's long term
disability plan.
8.7 TAX WITHHOLDING. To the extent required by applicable law, Federal,
State, and other taxes shall be withheld from a distribution.
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ARTICLE 9. BENEFICIARY BENEFITS
A Participant, on a form approved by the Committee, may designate a
Beneficiary, or change any prior designation, to receive the remaining balance
of his Account upon his death. Payments to a Beneficiary under this Article 9
shall be made in a lump sum or, if the Participant was Vested and so elects for
his Beneficiary, in a series of up to 15 annual installment payments, commencing
as soon as practicable following the Participant's death. Notwithstanding the
preceding sentence, if a Participant dies after annual installments have
commenced, the Beneficiary shall receive any remaining installments in
accordance with the Participant's installment election. Notwithstanding the
preceding two sentences, if a Beneficiary survives the Participant but dies
before the Participant's entire Account has been distributed, the remaining
balance of the Participant's Account shall be distributed in a lump sum to the
Beneficiary's estate as soon as practicable following receipt of notice of the
Beneficiary's death. If no Beneficiary is designated (or if a designated
Beneficiary does not survive the Participant), the balance credited to the
Participant's Account shall be paid to the Participant's estate in a lump sum as
soon as practicable following receipt of notice of the Participant's death.
ARTICLE 10. NATURE OF CLAIM FOR PAYMENTS
Except as herein provided, the Company shall not be required to set
aside or segregate any assets of any kind to meet its obligations hereunder. A
Participant shall
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<PAGE>
have no right on account of the Plan in or to any specific assets of the Company
or to any assets of the Trust. Any right to any payment the Participant may have
on account of the Plan shall be solely that of a general, unsecured creditor of
the Company.
To assist in meeting its obligations under the Plan, the Company has
caused the Trust to be established, of which the Company is treated as the owner
under Subpart E of Subchapter J, Chapter I of the Internal Revenue Code of 1986,
as amended, and may deposit funds with the Trustee of the Trust. Upon a Change
of Control, the Company shall promptly appoint an independent Trustee (which may
not be the Company or any subsidiary or affiliate) for the Trust, and, if at the
time of a Change of Control, the Trust has not been fully funded, the Company
shall, within the time and manner specified under such Trust, deposit in such
Trust amounts sufficient to satisfy all obligations under the Plan as of the
date of deposit.
In all events, the Company shall remain ultimately liable for the
benefits payable under this Plan, and to the extent the assets at the disposal
of the Trustee are insufficient to enable the Trustee to satisfy all benefits,
the Company shall pay all such benefits necessary to meet its obligations under
this Plan.
The obligations of the Company hereunder shall be binding upon its
successors and assigns, whether by merger, consolidation or acquisition of all
or substantially all of its business or assets.
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<PAGE>
ARTICLE 11. ASSIGNMENT OR ALIENATION
The interest hereunder of any Participant or Beneficiary shall not be
alienable by the Participant or Beneficiary by assignment or any other method
and will not be subject to be taken by his creditors by any process whatsoever,
and any attempt to cause such interest to be so subjected shall not be
recognized.
ARTICLE 12. NO CONTRACT OF EMPLOYMENT
The Plan shall not be deemed to constitute a contract of employment
between the Company and any Participant, or to be consideration for the
employment of any Participant.
ARTICLE 13. AMENDMENT OR TERMINATION OF PLAN
The Plan may be altered, amended, revoked or terminated in writing by
the Committee or the Company, in any manner and at any time; provided, however,
that following a Change of Control, no such alteration, amendment, revocation or
termination shall reduce the amount of a Participant's Account or his or her
rights to such Account as determined under the provisions of the Plan in effect
immediately prior to such Change of Control, or otherwise adversely affect the
Participant's benefits under the Plan, without the written consent of the
Participant; and further provided, however, that following a Change of Control,
the provisions of this Article 13 may not be amended.
-17-
<PAGE>
ARTICLE 14. MERGER OF THE SHAWMUT NATIONAL CORPORATION DEFERRED COMPENSATION
PLAN
Each individual who was a participant in the Shawmut National
Corporation Deferred Compensation Plan immediately prior to the date as of which
Shawmut National Corporation merged with Fleet Financial Group, Inc., who became
an employee of the Company or a subsidiary or affiliate as of said merger date,
and who consented in writing to the provisions of the Instrument of Amendment
and Merger of the Shawmut National Corporation Deferred Compensation Plan with
the Fleet Financial Group, Inc. Executive Deferred Compensation Plan No. 2,
shall become a Participant in the Plan as of January 1, 1996. As of January 1,
1996, the Committee shall establish an Account for each such Participant under
the Plan and will credit to such Account as of January 1, 1996 an amount equal
to the value of such Participant's "Deferral Account" under the Shawmut National
Corporation Deferred Compensation Plan, determined by the Company, immediately
prior to January 1, 1996. To the extent such value is determined with reference
to the value of shares of Fleet Financial Group, Inc. common stock, the value of
each such share shall be equal to the average of the closing prices for Fleet
Financial Group, Inc. common stock for the month of December, 1995, as shown in
The Wall Street Journal.
ARTICLE 15. GOVERNING LAW
-18-
<PAGE>
This Plan shall be governed and construed in accordance with the laws
of the State of Rhode Island, to the extent such laws are not preempted by
federal law.
IN WITNESS WHEREOF, this amended and restated Plan has been adopted by
the Committee on December 17, 1997, and is executed by a duly authorized officer
of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
--------------------------
-19-
AMENDMENT ONE
TO
THE FLEET FINANCIAL GROUP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN NO. 2
(1997 RESTATEMENT)
The Fleet Financial Group, Inc. Executive Deferred Compensation Plan
No. 2 is amended effective February 1, 1999 by adding the following new Section
8.8:
8.8 TRANSFER OF BENEFITS TO PLAN OF ACQUIRER. Notwithstanding anything
in this Plan to the contrary, if the Company sells a business or business unit
(whether in an asset or stock sale) and the acquirer maintains a nonqualified
deferred compensation plan that agrees to accept a transfer from this Plan of
the benefit liabilities of the Participants who become employees of the acquirer
as a result of the sale, such liabilities will be so transferred and the sale of
the business or business unit will not be treated as a termination of employment
of such Participants for purposes of the Plan.
IN WITNESS WHEREOF, this Amendment One has been adopted by the Human
Resources and Planning Committee on the 17th day of February, 1999 and is
executed by a duly authorized officer of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
--------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
AMENDMENT TWO
TO THE
FLEET FINANCIAL GROUP, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN NO. 2
The following amendments are effective as of January 1, 2000.
1. Upon the effective date of the final legal approval of the change in the
name of the Company to FleetBoston Financial Corporation, the name "Fleet
Financial Group, Inc." will be replaced by the name "FleetBoston Financial
Corporation" wherever it appears in the Plan.
2. Section 6.2 is clarified by inserting the words "without retroactive
adjustment" after the words "determined in accordance with the schedule
below".
3. Section 8.1(a) is amended by adding a new paragraph (3) immediately
preceding the flush language to read as follows:
(3) An age 65 single life annuity with an actuarial value (using
the Fleet Financial Group, Inc. Pension Plan's actuarial
assumptions) equal to 50% of the Participant's Account
balance.
4. The last two sentences of Section 8.1(a) are amended to read as follows:
A Participant who has elected to receive payment at a time and in a
form described in this Section 8.1(a) is permitted to change such
election at any time up to one year prior to the Participant's last day
of active employment. An election made less than one year before the
Participant's last day of active employment is not valid and has no
effect.
5. Section 8.1(b) is amended by adding the following to the end thereof:
(i.e., after the end of salary continuation payments, if applicable).
6. Article 13 is amended to read as follows:
ARTICLE 13. AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be amended or terminated in writing by the
Committee or the Company in any manner at any time. Notwithstanding the
previous sentence, no such amendment or
<PAGE>
termination shall reduce the amount of a Participant's Account or his
or her distribution rights related thereto as determined under the
provisions of the Plan in effect immediately prior to such amendment
or termination, and this second sentence of Article 13 is irrevocable
and may not be amended.
7. Article 16 is added to read as follows:
ARTICLE 16. SOCIAL SECURITY TAX
Subject to the requirements of Code section 3121(v)(2) and the
regulations thereunder, the Committee has the full discretion and
authority to determine when Federal Insurance Contribution Act ("FICA")
taxes on a Participant's Plan benefits are paid and whether any portion
of such FICA taxes shall be withheld from the Participant's wages or
deducted from the Participant's Account.
IN WITNESS WHEREOF, the provisions of this Amendment Two were adopted by the
Human Resources and Board Governance Committee on the 21st day of December,
1999, or are hereby adopted, and this Amendment Two is executed by a duly
authorized officer of Fleet Boston Corporation.
FLEET BOSTON CORPORATION
By: /s/ WILLIAM C. MUTTERPERL
-------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
2
AMENDMENT ONE
TO THE
FLEET FINANCIAL GROUP, INC.
EXECUTIVE SUPPLEMENTAL PLAN
The following amendments are effective as of January 1, 2000.
1. Upon the effective date of the final legal approval of the change in
the name of the Company to FleetBoston Financial Corporation, the name
"Fleet Financial Group, Inc." will be replaced by the name "FleetBoston
Financial Corporation" wherever it appears in the Plan.
2. Article 2 is amended by replacing the phrase "Corporate Benefits
Director" with the phrase "Director of Rewards, Recognition and Benefit
Services or such Director's designee" wherever it appears therein.
3. The first sentence of Article 3 is amended to read as follows:
Each employee of the Employer who is a Participant in the
Fleet Savings Plan and who is employed during the deferral
election period in December of a Plan Year is eligible to
participate in the Plan with respect to his or her regular
base salary for the following calendar year in excess of the
qualified plan dollar limitation under Section 401(a)(17) of
the Code.
4. Article 8 is amended by adding the following at the end thereof:
A Participant shall be fully vested in his or her Account at all times.
5. Article 9 is amended to read as follows:
ARTICLE 9. PARTICIPANT BENEFITS
9.1 DISTRIBUTION ELECTIONS. Except as otherwise limited by
this Article, a Participant shall have the right to elect the timing
and form of the distribution of his or her Account, or to change any
prior election, on a form approved by the Committee. An election under
this Article 9 is not valid or effective unless filed with the
Committee either by December 31, 1999 or at least one year prior to the
Participant's last day of active employment. A Participant who does not
have a valid, timely election in effect on the last day of active
employment shall have his or her Account promptly paid out in a lump
sum following termination of employment (i.e., after the end of salary
continuation payments, if applicable).
<PAGE>
9.2 TERMINATION BEFORE AGE 55 WITH FIVE YEARS OF SERVICE. A
Participant who terminates employment with the Employer prior to
attaining age 55 and also completing five years of continuous service
with the Employer shall have the right to elect to receive the balance
credited to his or her Account on a specified date following
termination of employment (but not later than his or her 65th birthday)
in a single payment.
9.3 OTHER TERMINATIONS. A Participant who terminates
employment with the Employer after both attaining age 55 and completing
five years of continuous service with the Employer (or who, under a
severance or other special arrangement, is treated as having attained
age 55 and completed five year of continuous service) or after
attaining age 65 shall have the right to elect to receive or to begin
to receive the balance credited to his or her Account on a specified
date (or beginning on a specified date) following termination of
employment (but not later than his or her 65th birthday or, if later,
his or her date of termination of employment) either in a lump sum or
in a series of up to fifteen annual installment payments.
9.4 HARDSHIP WITHDRAWALS. A Participant who incurs a severe
financial hardship due to circumstances beyond his or her control may
request to withdraw all or a portion of his or her Account to the
extent necessary to satisfy his or her financial emergency. The
Committee in its sole discretion will determine whether a severe
financial hardship exists and what amount, if any, may be withdrawn.
9.5 FORCED CASHOUT OF SMALL AMOUNTS. Notwithstanding Sections
9.1, 9.2 and 9.3, if the value of a Participant's Account at the time
of termination of employment is $10,000 or less, the Participant's
Account shall be promptly paid out in a lump sum.
6. Article 14 is amended to read as follows:
ARTICLE 14. AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be amended or terminated in writing by the
Committee or the Company in any manner at any time. Notwithstanding the
previous sentence, no such amendment or termination shall reduce the
amount of a Participant's Account or his or her distribution rights
related thereto as determined under the provisions of the Plan in
effect immediately prior to such amendment or
2
<PAGE>
termination, and this second sentence of Article 14 is irrevocable and
may not be amended.
7. Article 16 is added to read as follows:
ARTICLE 16. SOCIAL SECURITY TAX
Subject to the requirements of Code section 3121(v)(2) and the
regulations thereunder, the Committee has the full discretion and
authority to determine when Federal Insurance Contribution Act ("FICA")
taxes on a Participant's Plan benefits are paid and whether any portion
of such FICA taxes shall be withheld from the Participant's wages or
deducted from the Participant's Account.
IN WITNESS WHEREOF, the provisions of this Amendment One were adopted by the
Human Resources and Board Governance Committee on the 21st day of December,
1999, or are hereby adopted, and this Amendment One is executed by a duly
authorized officer of Fleet Boston Corporation.
FLEET BOSTON CORPORATION
By: /s/ WILLIAM C. MUTTERPERL
--------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
3
AMENDMENT ONE
TO THE
FLEET FINANCIAL GROUP, INC.
RETIREMENT INCOME ASSURANCE PLAN
1. Section 7.8 is added effective January 1, 1997 to read as follows:
7.8 Nonduplication of Benefits
The benefits payable to a Participant under this Plan shall be reduced
on an Actuarial Equivalent basis by the benefit such Participant earned
under any other similar nonqualified excess defined benefit plan that
does not provide for a reduction of benefits under such plan, for
benefits payable under this Plan, to the extent that the benefits under
such plan were accrued upon the Participant's service that was included
as Credited Service under this Plan.
2. Appendix A is added to read as follows:
-1-
<PAGE>
APPENDIX A
SPECIAL RULES FOR SERVICE WITH ACQUIRED ENTITIES
This Appendix A is part of the Plan and contains special rules
applicable only to the Participants described herein. If provisions of this
Appendix A conflict with any other provisions of the Plan with respect to such
Participants, the provisions of this Appendix A shall govern.
A. SHAWMUT NATIONAL CORPORATION
1. The Shawmut National Corporation Excess Benefit Plan ("Shawmut
Excess Plan") shall merge into the Plan effective as of January 1, 1997. As of
that date, the liabilities of the Shawmut Excess Plan shall become the
liabilities of the Plan and the Shawmut Excess Plan shall cease to exist.
Notwithstanding anything in the Plan to the contrary, the benefit under this
Plan of a Participant who was a former participant in the Shawmut Excess Plan
shall not be less than the benefit such participant would be deemed to have
accrued under the terms of the Shawmut Excess Plan as of the date this Appendix
A was adopted.
2. Each individual who was a participant in the Shawmut Excess Plan or
the Shawmut National Corporation Executive Supplemental Retirement Plan
("Shawmut SERP") immediately prior to the date as of which Shawmut National
Corporation merged with Fleet Financial Group, Inc., and who became an employee
of the Company or a subsidiary or affiliate as of said merger date, shall become
a Participant in the Plan as of January 1, 1997. This Section A of Appendix A
shall apply solely to former participants in the Shawmut Excess Plan or Shawmut
SERP ("Shawmut Participants").
3. The benefits of Shawmut Participants shall be determined by taking
into account the principles and provisions of Specification Schedule J of the
Basic Plan. For Participants who are not Cash Balance Participants, this
includes adjustment of their 12/31/96 benefit, transferred from the Shawmut
Excess Plan, for increases in Average Annual Compensation after 1996.
-2-
<PAGE>
4. As of January 1, 1997, the following Cash Balance Participants shall
have the following opening amounts credited to their Cash Balance Accounts under
this Plan, which represents the total value of their benefits under the Shawmut
Excess Plan as of December 31, 1996, reduced by the deemed Shawmut Excess Plan
offset described in Section 5 below, where applicable, expressed as a single
sum:
<TABLE>
<CAPTION>
----------------------------------------- --------------------------- ------------------------------
OPENING CASH
NAME SOC. SEC.# BALANCE
----------------------------------------- --------------------------- ------------------------------
<S> <C> <C>
CLAFFEE, JAMES ###-##-#### $ 2,418.50
----------------------------------------- --------------------------- ------------------------------
DELFINO, PAUL ###-##-#### $ 6,747.34
----------------------------------------- --------------------------- ------------------------------
EYLES, DAVID ###-##-#### $ 17,775.70
----------------------------------------- --------------------------- ------------------------------
FALK, MICHAEL ###-##-#### $ 1,509.82
----------------------------------------- --------------------------- ------------------------------
HEDGES JR., ROBERT ###-##-#### $ 3,074.22
----------------------------------------- --------------------------- ------------------------------
HUSTON, JOHN ###-##-#### $ 7,843.30
----------------------------------------- --------------------------- ------------------------------
MALLON, WILLIAM ###-##-#### $ 4,567.26
----------------------------------------- --------------------------- ------------------------------
</TABLE>
5. Because participants in the Shawmut SERP were not also participants
in the Shawmut Excess Plan, their benefit under the Plan, which is calculated by
taking into account their service with Shawmut, shall be reduced by the
following amounts, or the Actuarial Equivalent thereof, which are the benefits
that they would have accrued under the Shawmut Excess Plan as of December 31,
1996, with Credited Service frozen as of December 1, 1995, if they had been
participants in the Shawmut Excess Plan:
<TABLE>
<CAPTION>
------------------------------------------ ----------------------- ---------------------------------------
EXCESS PLAN OFFSET
NAME SOC. SEC.# OF MONTHLY NORMAL RETIREMENT BENEFIT
------------------------------------------ ----------------------- ---------------------------------------
<S> <C> <C>
BERGER, JOHN ###-##-#### $ 382.62
------------------------------------------ ----------------------- ---------------------------------------
BROMAGE, WILLIAM ###-##-#### $ 364.00
------------------------------------------ ----------------------- ---------------------------------------
KRAUS, EILEEN ###-##-#### $ 2,294.25
------------------------------------------ ----------------------- ---------------------------------------
OVERSTROM, GUNNAR ###-##-#### $ 8,170.96
------------------------------------------ ----------------------- ---------------------------------------
ROTTNER, SUSAN ###-##-#### $ 565.74
------------------------------------------ ----------------------- ---------------------------------------
</TABLE>
-3-
<PAGE>
IN WITNESS WHEREOF, this Amendment One has been adopted by the Human Resources
and Planning Committee on the 17th day of June, 1998 and is executed by a duly
authorized officer of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ WILLIAM C. MUTTERPERL
-------------------------
William C. Mutterperl
Executive Vice President, Secretary
and General Counsel
-4-
AMENDMENT TWO
TO THE
FLEET FINANCIAL GROUP, INC.
RETIREMENT INCOME ASSURANCE PLAN
Except as otherwise provided below, the following amendments are effective as of
January 1, 2000.
1. Upon the effective date of the final legal approval of the change in
the name of the Company to FleetBoston Financial Corporation, the name
"Fleet Financial Group, Inc." will be replaced by the name "FleetBoston
Financial Corporation" wherever it appears in the Plan.
2. Section 4.2 is amended to read as follows:
4.2 PAYMENT OF BENEFITS TO TRADITIONAL PARTICIPANTS.
Benefits payable under the Plan to or in respect of a Participant
who is not a Cash Balance Participant under the Basic Plan shall be
calculated in the same manner, paid in the same form, commence at
the same time, and paid under the same terms and conditions as the
benefits paid to the Participant (or Beneficiary) under the Basic
Plan. Such Participant's benefit payment election under the Basic
Plan shall be treated as his or her benefit payment election under
the Plan.
3. Sections 4.3 and 4.4 are renumbered as 4.4 and 4.5, respectively, and a
new Section 4.3 is added to Article IV to read as follows:
4.3 PAYMENT OF BENEFITS TO CASH BALANCE PARTICIPANTS.
(a) Except as otherwise provided in this Section 4.3, benefits payable
under the Plan to or in respect of a Participant who is a Cash
Balance Participant under the Basic Plan shall be calculated in the
same manner and payable in the same forms, at the same times, and
under the same terms and conditions as the benefits payable to the
Participant (or Beneficiary) under the Basic Plan.
(b) A Cash Balance Participant (or Beneficiary) shall separately elect
the form and timing of his or her benefit under the Plan and under
the Basic Plan. Such election under the Plan, or change in any
prior election, shall be made on a form approved by the Committee.
An election under this Section 4.3 is not valid or effective unless
filed
<PAGE>
with the Committee either by December 31, 1999 or at least one
year prior to the Participant's last day of active employment.
(c) A Participant who does not have a valid, timely election in effect
on the last day of active employment shall have his or her benefit
promptly paid out in a lump sum following termination of employment
(i.e., after the end of salary continuation payments, if
applicable).
(d) Notwithstanding the foregoing provisions of this Section 4.3, if
the value of a Cash Balance Participant's benefit under the Plan at
the time of termination of employment is $10,000 or less, the
Participant's benefit shall be paid out in a lump sum as soon as
administratively practicable following termination of employment.
4. Section 4.5 is amended to read as follows:
4.5 VESTING. If a Participant or Beneficiary is not entitled
to receive a benefit under the Basic Plan because the benefit is not
vested, the Participant or Beneficiary shall also not be entitled to
receive benefits under the Plan.
5. Article 5 is amended by replacing the phrase "Corporate Benefits
Director" with the phrase "Director of Rewards, Recognition and Benefit
Services or such Director's designee" wherever it appears therein.
6. The last sentence of Article 5 is amended effective January 1, 1996, by
replacing the term "omissions" with the term "omission".
7. Article 6 is amended to read as follows:
ARTICLE 6. AMENDMENT OR TERMINATION OF THE PLAN
The Plan may be amended or terminated in writing by the
Committee or the Company in any manner at any time. Notwithstanding the
previous sentence, no such amendment or termination shall reduce the
amount of a Participant's benefit or his or her distribution rights
related thereto as determined under the provisions of the Plan in
effect immediately prior to such amendment or termination, and this
second sentence of Article 6 is irrevocable and may not be amended.
8. Section 7.9 is added to read as follows:
2
<PAGE>
7.9 SOCIAL SECURITY TAX. Subject to the requirements of Code section
3121(v)(2) and the regulations thereunder, the Committee has the full
discretion and authority to determine when Federal Insurance
Contribution Act ("FICA") taxes on a Participant's Plan benefit or
account are paid and whether any portion of such FICA taxes shall be
withheld from the Participant's wages or deducted from the
Participant's benefit or account.
IN WITNESS WHEREOF, the provisions of this Amendment Two were adopted by the
Human Resources and Board Governance Committee on the 21st day of December,
1999, or are hereby adopted, and this Amendment Two is executed by a duly
authorized officer of Fleet Boston Corporation.
FLEET BOSTON CORPORATION
By: /s/ WILLIAM C. MUTTERPERL
-------------------------
William C. Mutterperl
Executive Vice President,
Secretary and General
Counsel
3
FLEET FINANCIAL GROUP, INC.
TRUST AGREEMENT FOR
EXECUTIVE DEFERRED COMPENSATION PLANS NO. 1 AND 2
(1997 RESTATEMENT)
<PAGE>
TRUST AGREEMENT FOR
EXECUTIVE DEFERRED COMPENSATION PLANS NO. 1 AND 2
This Agreement made as of this 17th day of December, 1997 by and
between Fleet Financial Group, Inc. (the "Company"), whose address is One
Federal Street, Boston, Massachusetts 02110 and Fleet National Bank (the
"Trustee"), of One Monarch Place, Springfield, Massachusetts 01102.
WITNESSETH
WHEREAS the Company has adopted certain unfunded plans and arrangements
providing deferred compensation and supplemental executive retirement benefits
for certain executive employees, former executive employees and their
beneficiaries; and
WHEREAS the Company established a trust (the "Trust") and transferred
to the Trust assets which shall be held therein, subject to the claims of the
Company's creditors in the event of the Company's Insolvency, as hereinafter
defined, until paid to Trust Beneficiaries, as hereinafter defined, in such
manner and at such times as hereinafter specified; and
WHEREAS the Company desires to make additional changes to this Trust
Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. TRUST FUND
(a) Subject to the claims of its creditors as set forth in Section 5,
the Company hereby deposits with the Trustee in trust one hundred dollars ($100)
which shall become the principal of the Trust to be held, administered and
disposed of by the Trustee as provided in this Trust Agreement.
(b) The purpose of the Trust is to pay as they come due benefits under
specified benefit plans and arrangements of the Company and its subsidiaries.
The Company shall specify which of such plans and arrangements are to be
associated with this Trust (the "Benefit Plans") by designating them on Schedule
B to this Agreement as from time to time in effect. The Company shall also
specify on Schedule B, either by name or
<PAGE>
otherwise, which of its employees and the employees of its subsidiaries, and
their beneficiaries, are eligible to receive benefit payments hereunder (each
such person is referred to herein as a "Trust Beneficiary").
(c) The Trust hereby established shall become irrevocable upon a Change
of Control, as hereinafter defined as to all amounts held in Trust as of the
Change of Control and all amounts contributed in Trust thereafter, and earnings
on such amounts. Prior to a Change of Control the Trust may be revoked by the
Company at any time by a writing delivered to the Trustee. Upon such revocation,
all amounts held in the Trust shall be paid to, or upon the direction of, the
Company.
(d) The Trust is intended to be a trust of which the Company is treated
as the owner under Subpart E of Subchapter J, Chapter 1 of the Internal Revenue
Code of 1986, as from time to time amended, and shall be construed accordingly.
(e) The principal of the Trust and any earnings thereon which are not
returned to the Company in accordance with the specific provisions of this
Agreement or used to defray the expenses of the Trust shall be used exclusively
for the benefit of Trust Beneficiaries subject in every case to the provisions
of Section 5 (relating to Insolvency of the Company). The Trust Beneficiaries
shall not have any preferred claim on, or any beneficial ownership interest in,
any assets of the Trust prior to the time such assets are distributed hereunder,
and all rights of Trust Beneficiaries created under any of the Benefit Plans or
under this Trust Agreement shall be mere unsecured contractual rights against
the Company.
SECTION 2. CHANGE OF CONTROL
For all purposes of this Agreement, "Change of Control" means a Change
of Control, as defined in Schedule A hereto, of the Company.
SECTION 3. CONTRIBUTIONS TO THE TRUST
-3-
<PAGE>
(a) The Company may at any time and from time to time make additional
deposits of cash or other property in Trust with the Trustee to augment the
principal to be held, administered and disposed of by the Trustee as provided in
this Trust Agreement. Upon a determination by the Board of Directors of the
Company that a Change of Control is imminent, the Company shall contribute to
the Trust, except as the Board of Directors of the Company shall otherwise
specify, the full amount anticipated to be required under paragraph (c) below.
Upon the actual occurrence of a Change of Control, the Company shall make such
additional contributions to the Trust as are required by paragraph (c). Prior to
a Change of Control, the Company may at any time withdraw from the Trust such
amounts as it may designate in writing to the Trustee.
(b) Contributions to the Trust and earnings thereon shall be allocated,
in such manner as the Company shall designate in writing to the Trustee prior to
a Change of Control, among the benefits payable under specified Benefit Plans.
The allocations described in this paragraph shall not require the segregation or
separate investment of any assets held in Trust, and nothing in this paragraph
shall be construed as conferring on any Trust Beneficiary any rights in specific
assets of the Trust.
(c) Within 90 days after a Change of Control (or 180 days, if the
Company delivers to the Trustee evidence satisfactory to the Trustee that the
computations necessary hereunder cannot be completed in 90 days), the Company
shall contribute to the Trust the present value, determined as hereinafter
provided, of all benefits remaining to be paid under the Benefit Plans
designated on Schedule B as in effect immediately prior to the Change of
Control, including benefits in pay status and benefits payable in the future in
respect of persons not yet retired, less amounts previously contributed to the
Trust in respect of each such Benefit Plan and less any such amounts paid
directly to Trust Beneficiaries by the Company following the Change of Control.
The present value of benefits payable in the future shall be determined using
the assumptions set forth in Schedule C to this Agreement as in effect
immediately prior to the Change of Control. The Trustee shall have no
responsibility for determining the adequacy of any amount contributed hereunder.
(d) Amounts transferred to the Trust in respect of the Benefit Plans
above, shall be held in Trust until distributed in accordance with this
Agreement and the provisions of Schedule B.
(e) In addition to the contributions described above in this Section,
the Company shall within 15 days of a Change of Control deposit an amount
determined as hereafter provided for use in helping to defray the legal expenses
of Trust Beneficiaries in enforcing their rights under the Benefit Plans. The
amounts to be deposited in the Trust
-4-
<PAGE>
in accordance with the immediately preceding sentence shall be the amount fixed
by the Human Resources and Planning Committee of the Board of Directors of the
Company, or any successor committee of said Board (the "Committee"), prior to
the Change of Control; provided, that if no such amount is fixed, the amount to
be deposited shall be 15 percent of the present value of all benefits as
determined under paragraph (c) above of this Section 3; and further provided,
that such amount shall not exceed [amount to be inserted].
SECTION 4. PAYMENTS TO TRUST BENEFICIARIES
(a) The Trustee shall make payments of benefits to Trust Beneficiaries
from the assets of the Trust in accordance with the provisions of Schedule B and
the other terms of this Agreement, as from time to time in effect.
(b) Schedule B as from time to time in effect shall specify the
amounts, or the bases for determining the amounts, payable to each Trust
Beneficiary under each Benefit Plan. The Company may at any time and from time
to time modify or supplement the provisions of Schedule B by delivery of an
instrument in writing to the Trustee; provided, however, that following a Change
of Control no such modification or supplement shall reduce the benefits payable
hereunder to any person then designated as a Trust Beneficiary with respect to a
plan or arrangement then specified as a Benefit Plan below the level specified
by the terms of such Benefit Plan as in effect immediately prior to the Change
of Control, except by reason of the correction of a clear error or unless such
Trust Beneficiary consents in writing to such modification or supplement.
Nothing in the preceding sentence shall require payment hereunder, following a
Change of Control, of benefits that would not be payable (e.g., because of
termination for cause) under the express terms of a Benefit Plan in effect
immediately prior to the Change of Control. Prior to a Change of Control the
name of any Trust Beneficiary and any other benefit information, including the
designation of Benefit Plans. may be added to or deleted from Schedule B in the
discretion of the Company.
(c) Upon receipt of evidence satisfactory to the Trustee that a benefit
otherwise payable hereunder has been paid by the Company directly to a Trust
Beneficiary, the Trustee shall reimburse the Company for such payment. The
Trustee shall not be obligated to make any reimbursement hereunder unless it
receives such evidence of payment by the Company at least three (3) business
days prior to the scheduled date for payment of the benefit from the Trust.
-5-
<PAGE>
SECTION 5. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARIES WHEN
COMPANY INSOLVENT
(a) The Company shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) the Company is unable to pay its debts as they mature, or
(ii) the Company is subject to a pending proceeding as a debtor under the
Bankruptcy Code.
(b) At all times during the continuance of this Trust, the principal
and income of the Trust shall be subject to claims of general creditors of the
Company, but only to the extent hereafter set forth. If at any time the Trustee
has actual knowledge, or has determined, that the Company is Insolvent, the
Trustee shall deliver any undistributed principal and income in the Trust to
satisfy such claims as a court of competent Jurisdiction may direct. The Board
of Directors and the Chief Executive Officer, or if he shall have delegated the
responsibility to the Chief Financial Officer, the Chief Financial Officer of
the Company shall have the duty to inform the Trustee of the Company's
Insolvency. If the Company or a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall independently determine, within thirty (30) days after receipt of
such notice, whether the Company is Insolvent and, pending such determination,
shall discontinue payments of benefits to Trust Beneficiaries. shall hold the
Trust assets for the benefit of the Company's general creditors, and shall
resume payment of benefits to Trust Beneficiaries in accordance with Section 4
of this Trust Agreement only after the Trustee has determined that the Company
is not Insolvent (or is no longer Insolvent, if the Trustee initially determined
the Company to be Insolvent). Unless the Trustee has actual knowledge of the
Company's Insolvency or has received an allegation of Insolvency as provided in
the preceding sentence, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such evidence
concerning the Company's solvency as may be furnished to the Trustee which will
give the Trustee a reasonable basis for making a determination concerning the
Company's solvency. Nothing in this Trust Agreement shall in any way diminish
any rights of any Trust Beneficiary to pursue his or her rights as a general
creditor of the Company with respect to his or her benefits hereunder or
otherwise.
(c) If the Trustee discontinues payments of benefits from the Trust and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments which would
have been made to Trust Beneficiaries in accordance with Schedule B during the
period of such discontinuance, less the aggregate amount of payments made to
Trust Beneficiaries by the Company in lieu of the payments provided for
hereunder during any such period of discontinuance (together with interest on
the amount delayed at the prime rate then in effect at the
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<PAGE>
Trustee on the date of said payment).
SECTION 6. INVESTMENT OF PRINCIPAL AND INCOME
Prior to a Change of Control, the Trustee shall invest the principal of
the Trust and any earnings thereon in accordance with such investment
objectives, policies and restrictions as the Company may from time to time
prescribe, or, if the Company has appointed an investment manager to manage or
direct the investment of some or all of the assets of the Trust, in accordance
with the directions of such investment manager. The Trustee shall have no duty
to inquire into or review the aforesaid investment objectives, policies, or
restrictions. or the investments made pursuant to the directions of an
investment manager. In no event, however, shall assets held in the Trust be
invested in securities or obligations issued by the Company or any affiliate of
the Company. Following a Change of Control, the Trustee shall invest the assets
of the Trust as it determines in its sole discretion, in any form of tangible or
intangible property, real or personal, or in the securities or obligations of
any form of enterprise whenever it may be located (other than in securities or
obligations of the Company or any affiliate of the Company).
SECTION 7. DISPOSITION OF PRINCIPAL AND INCOME
During the term of this Trust, all principal amounts contributed to the
Trust and all interest thereon, net of expenses, shall be accumulated and
reinvested for the purposes herein provided. Subject to the provisions of
Sections l(c), 3(a), 4 and 12, the Company shall have no right or power to
direct the Trustee to return to the Company or to direct to others any of the
Trust assets before all payments of benefits payable under the Trust, and all
payments in respect of legal expenses incurred to enforce rights to such
benefits, have been made to Trust Beneficiaries. Upon payment of all such
benefits and legal expenses, the Trustee shall return to the Company all
amounts, if any, then remaining in the Trust.
SECTION 8. ACCOUNTING BY THE TRUSTEE
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other actions required to be done,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. All such accounts, books and records shall be open to
inspection and audit at all reasonable times by the Company. Within sixty (60)
days following the close of each calendar year and
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<PAGE>
within sixty (60) days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year as the date of such
removal or resignation, as the case may be.
SECTION 9. RESPONSIBILITY OF THE TRUSTEE
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person 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; provided, however, that the
Trustee shall incur no liability to anyone for any action reasonably taken in
accordance with a written direction, request, or approval given by the Company
or by an investment manager appointed by the Company that is contemplated by and
complies with the terms of this Trust Agreement, including distributions made in
accordance with Schedule B as from time to time in effect, and to that extent
shall be relieved of the prudent person rule for investments.
(b) The Company agrees to indemnify the Trustee against all loss or
expense incurred by the Trustee under this Agreement, except that in no event
shall the Company indemnify the Trustee against any loss or expense incurred by
reason of the Trustee's own negligence or misconduct. Without limiting the
foregoing, the Trustee shall not be required to undertake or to defend on behalf
of any person any litigation arising in connection with this Trust agreement,
unless it be first indemnified by the Company against its prospective costs,
expenses and liability.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Trustee generally) with respect to any of its duties or obligations
hereunder, including any determination as to whether a Change of Control has
occurred or as to whether the Company is Insolvent, and shall not be held
responsible for acting or refraining from acting in accordance with the advice
of any such counsel selected with reasonable care.
(d) The Trustee may hire agents, legal counsel, accountants, actuaries,
investment managers and financial consultants.
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<PAGE>
(e) The Trustee shall have, without exclusions, all powers conferred on
trustees by applicable law unless expressly provided otherwise herein.
(f) Nothing in this Trust Agreement shall be construed as constituting
the Trustee plan "administrator," as that term is defined in Section 3(16) of
ERISA, of any plan or arrangement pursuant to which benefits are provided
hereunder.
SECTION 10. COMPENSATION AND EXPENSES OF THE TRUSTEE
The Trustee shall be entitled to receive such reasonable compensation
for its services as shall be agreed upon by the Company and the Trustee. The
Trustee shall also be entitled to receive its reasonable expenses incurred with
respect to the administration of the Trust. All such compensation and expenses
shall be payable by the Company, but if not paid by the Company shall be a
charge against and may be paid from the assets of the Trust.
SECTION 11. REPLACEMENT OF THE TRUSTEE
The Trustee may be removed by the Company at any time prior to a Change
of Control, or may resign at any time, in either case by notice in writing. Upon
the removal or the resignation of the Trustee, a new trustee, which shall be a
bank or trust company having a combined capital and surplus of not less than
$50,000,000 shall be appointed by the Company. Following a Change of Control,
the Trustee cannot be removed by the Company; provided, however, if at the time
of a Change of Control the Trustee is Fleet National Bank, or its successor, or
any other entity affiliated with (i) the Company or (ii) any individual, entity,
or group acquiring beneficial ownership or control of the Company in connection
with a Change of Control, the Company shall within 15 days remove said Trustee
and appoint an unaffiliated bank or trust company which meets the capital and
surplus requirements of this Section 11.
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<PAGE>
SECTION 12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended at any time and to any extent by
a written instrument executed by the Committee or the Company; provided, that no
such amendment that would increase the duties or responsibilities of the Trustee
shall be effective unless the Trustee shall have consented thereto; and further
provided, that following a Change of Control no amendment having an adverse
effect on the benefits or legal expenses payable hereunder to any Trust
Beneficiary shall be effective without the written consent of such Trust
Beneficiary; and further provided, that following a Change of Control the
provisions of this Section 12 may not be amended.
(b) The Trust shall not terminate until the date on which the last Trust
Beneficiary ceases to be entitled to benefits payable under the Trust, unless
sooner revoked in writing in accordance with Section 1.
(c) Upon termination of the Trust or upon revocation of the Trust under
Section 1, all assets remaining in the Trust shall be returned to the Company.
SECTION 13. SEVERABILITY AND ALIENATION
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition without invalidating the
remaining provisions hereof.
(b) To the extent permitted by law, benefits to Trust Beneficiaries
under this Agreement may not be anticipated, assigned (either at law or in
equity), alienated or subject to attachment, garnishment, levy, execution or
other legal or equitable process and no benefit actually paid to Trust
Beneficiaries by the Trustee shall be subject to any claim for repayment by the
Company or the Trustee.
SECTION 14. GOVERNING LAW
This Trust Agreement shall be governed by and construed in accordance
with the laws of Rhode Island.
SECTION 15. COUNTERPARTS
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This agreement shall be executed in duplicate counterparts, one of such
counterpart for each party hereto and each copy of which shall serve as an
original for all purposes, but both counterpart copies shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the Company and the Trustee have executed this
Agreement as of the date first above written.
FLEET FINANCIAL GROUP, INC.
By /s/ WILLIAM C. MUTTERPERL
-------------------------
FLEET NATIONAL BANK
By /s/ DONALD JONES
-----------------
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SCHEDULE A
To The Trust Agreement For
Executive Deferred Compensation Plans No. 1 and 2
Definition of "Change of Control"
"Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 25 % or more of the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock"); provided, however, that any
acquisition by the Company or its subsidiaries, or any employee benefit plan (or
related trust) of the Company or its subsidiaries, of 25% or more of the
Outstanding Company Common Stock shall not constitute a Change of Control; and
provided, further that any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then outstanding shares of
common stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock immediately prior
to such acquisition in substantially the same proportion as their ownership
immediately prior to such acquisition of the Outstanding Company Common Stock,
shall not constitute a Change of Control; or
(b) Individuals who, as of January 1, 1996, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, provided that any individual becoming a director subsequent to January 1,
1996 whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company (as
such terms are used in Rule 14a- 11 of Regulation 14A promulgated under the
Exchange Act); or
(c) Consummation of a reorganization, merger, consolidation, sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company
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<PAGE>
Common Stock immediately prior to such Business Combination do not, following
such Business Combination, beneficially own, directly or indirectly, more than
50% of the then outstanding shares of common stock of the corporation resulting
from such a Business Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries).
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Anything in this Agreement to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change of Control results from
or arises out of a purchase or other acquisition of the Company, directly or
indirectly, by a corporation or other entity in which any Trust Beneficiary has
a greater than ten percent (10%) direct or indirect equity interest. such event
shall not constitute a Change of Control solely with respect to such Trust
Beneficiary.
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<PAGE>
SCHEDULE B
To The Trust Agreement For
Executive Deferred Compensation Plans No. 1 and 2
I. List of Benefit Plans and Amendments to be Funded by Trust
Executive Deferred Compensation Plan No. 1
Executive Deferred Compensation Plan No. 2
II. Trust Beneficiaries and Amounts or Basis for Determining Amounts
Payable to each Trust Beneficiary under each Benefit Plan listed in
I above
The identification of Trust Beneficiaries (active and inactive) and
their Plan
Values may be obtained from the Director of Corporate Benefits.
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<PAGE>
SCHEDULE C
To The Trust Agreement For
Executive Deferred Compensation Plans No. 1 and 2
Mortality: 80% of 83GAM
Discount Rate: 7%
[other assumptions to be inserted]
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First Amendment to Agreement
First Amendment to Agreement, dated as of January 25, 2000, by and
between Fleet Boston Corporation (formerly Fleet Financial Group, Inc.), a Rhode
Island Corporation (the "Company"), and Terrence Murray (the "Executive").
WHEREAS, as of December 17, 1997, the Company and the Executive entered
into an Agreement (the "Agreement") as part of a retention strategy for the
Executive and in recognition of his invaluable contributions to the Company's
success;
WHEREAS, the Company and the Executive have determined that it would be
desirable to amend the Agreement in the manner set forth in this First
Amendment;
NOW, THEREFORE, pursuant to Section 4(i) of the Agreement, the Company
and the Executive hereby agree as follows:
1. Section 2(c)(i) of the Agreement is hereby amended by deleting the
words "one year" in the first and second sentences of the first
paragraph and in the second paragraph thereof, and inserting in their
place the words "three years".
2. All of the terms and provisions of the Agreement not amended hereby
shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by the duly authorized officer and the Executive has executed this
First Amendment.
Fleet Boston Corporation
By: /s/ M. ANNE SZOSTAK
-------------------
/s/ TERRENCE MURRAY
Terrence Murray
FLEETBOSTON FINANCIAL
1996 Long-Term Incentive Plan
(As amended through December 21, 1999)
1. Purpose.
The FleetBoston Financial 1996 Long-Term Incentive Plan (the "Plan") has
been adopted to create and enhance significant ownership of the Common Stock of
the Corporation by key officers and employees of the Corporation and its
Affiliates. Additional purposes of the Plan include providing a meaningful
incentive to Participants to make substantial contributions to the Corporation's
future success, enhancing the Corporation's ability to attract and retain
persons who will make such contributions, and ensuring that the Corporation has
competitive compensation opportunities for such key officers and employees.
By furthering these objectives, the Plan is intended to benefit the
interests of the stockholders of the Corporation.
2. Definitions.
As used herein, the following words or terms have the meanings set forth
below:
2.1. "Affiliate" means (a) a corporation or other entity in which the
Corporation owns, directly or indirectly or has the power to vote or cause to be
voted, stock or other ownership interests representing more than 50% of the
total combined voting power of such entity or (b) any other entity in which the
Corporation has a significant equity interest, as determined by the Committee.
Except as determined by the Committee in particular cases, if an entity ceases
to be an Affiliate for any reason (a "disaffiliation"), the employment of each
individual who was employed by the entity shall be treated as having been
involuntarily terminated by the Corporation and its Affiliates effective upon
such disaffiliation, unless such individual thereafter continues to be employed
by the Corporation or another entity which remains an Affiliate.
<PAGE>
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2.2. "Award" means any Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares or Other Awards granted under the Plan.
2.3. "Award Documentation" means a writing delivered to a Participant
specifying the terms and conditions of an Award and containing such other terms
and conditions not inconsistent with the provisions of the Plan as the Committee
considers necessary or advisable.
2.4. "Beneficial Ownership" shall have the meaning defined in Rule 13d-3
promulgated under the Exchange Act.
2.5. "Board " means the Board of Directors of the Corporation, except
that, whenever action is to be taken under the Plan with respect to a Reporting
Person, "Board " shall mean only such directors who are "disinterested persons"
or "non-employee directors," as applicable, within the meaning of Rule 16b-3
under the Exchange Act or any successor rule.
2.6. "Business Combination" means a reorganization, merger, consolidation,
sale or other disposition of all or substantially all of the assets of the
Corporation
2.7. A "Change in Control" shall mean any of the following events:
2.7.1. The acquisition, other than from the Corporation, by any
individual, entity or Group of Beneficial Ownership of 25% or more of the
Outstanding Shares; provided, however, that any acquisition by the Corporation
or its subsidiaries, or any employee benefit plan (or related trust) of the
Corporation or its subsidiaries, of 25% or more of the Outstanding Shares shall
not constitute a Change in Control; and provided, further that any acquisition
by a corporation with respect to which, following such acquisition, more than
50% of the then outstanding shares of common stock of such corporation is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the Outstanding
Shares immediately prior to such acquisition in substantially the same
proportion as their ownership immediately prior to such acquisition of the
Outstanding Shares, shall not constitute a Change in Control; or
2.7.2. Individuals who constitute the Incumbent Board cease for
any reason to constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to October 1,
<PAGE>
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1999 whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Corporation (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
2.7.3. Consummation of a Business Combination, in each case, with
respect to which all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Common Stock immediately prior to
such Business Combination do not, following such Business Combination,
beneficially own, directly or indirectly, more than 50% of the then outstanding
shares of common stock of the corporation resulting from such a Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more subsidiaries); or
2.7.4. Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
Anything in the Plan to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change in Control results from
or arises out of a purchase or other acquisition of the Corporation, directly or
indirectly, by a corporation or other entity in which a Participant has a
greater than ten percent (10%) direct or indirect equity interest, such event
shall not constitute a Change in Control.
2.8. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
2.9. "Committee" means the committee appointed by the Board with
authority to administer the Plan. Membership of the Committee shall at all times
be constituted consistent with exemption under Rule 16b-3 under the Exchange Act
(or any successor rule) of those Awards that are intended to be so exempt and
with qualification under the Performance-Based Exception of those Awards that
are intended
<PAGE>
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to so qualify. To the extent that the Committee delegates its power to make
Awards as permitted by Section 4.1, all references in the Plan to the
Committee's authority to make Awards and determinations with respect thereto
shall be deemed to include the Committee's delegate or delegates.
2.10. "Common Stock" or "Stock" means the Common Stock, par value $.01 per
share, of the Corporation.
2.11. "Corporation" means Fleet Boston Corporation (doing business as
FleetBoston Financial Corporation), a corporation established under the laws of
the state of Rhode Island.
2.12. "Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner acceptable to the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
2.13. "Disability" means a physical or mental condition of such a nature
that it would qualify a Participant for benefits under the long-term disability
insurance plan of the Corporation or any successor plan. The Committee shall
have the authority to determine whether and when, consistent with the foregoing,
a Participant has suffered a Disability for purposes of the Plan.
2.14. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
2.15. "Fair Market Value," in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "NYSE-Composite Transactions" section of the Eastern Edition of
The Wall Street Journal, or if no prices are quoted for that day, for the last
preceding day on which such prices of Common Stock are so quoted. In the event
"NYSE-Composite Transactions" cease to be reported, the Committee shall adopt
some other appropriate method for determining Fair Market Value.
2.16. "Freestanding SAR" means an SAR that is granted independently of any
Options.
2.17. "Group" shall have the meaning defined in Section 13(d)(3) or
14(d)(2) of the Exchange Act.
<PAGE>
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2.18. "Incentive Stock Option" means an Option, granted to a Participant
pursuant to Section 8, which is intended to satisfy the requirements of Section
422(b) of the Code or any successor provision.
2.19. "Incumbent Board" means the Board as constituted as of October 1,
1999.
2.20. "Nonqualified Stock Option" means an Option, granted to a
Participant pursuant to Section 8, which is not intended to qualify as an
Incentive Stock Option.
2.21. "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.22. "Other Award" means an Award (other than an Option, SAR, Restricted
Stock or Performance Share) granted to a Participant pursuant to Section 12. An
Other Award may consist of Shares, fixed or variable units valued or based on
Common Stock, fixed or variable units valued or based on measures (including
performance measures) that are unrelated to Common Stock, or any combination of
the foregoing. An Other Award that consists of units other than Shares, whether
or not valued or based on Common Stock, may be made payable in cash or Shares or
a combination of cash and Shares.
2.23. "Outstanding Shares" means the then outstanding Shares of Common
Stock.
2.24. "Participant" means an individual selected by the Committee to
receive an Award under the Plan.
2.25. "Performance-Based Exception" means the performance-based exception
from the deductibility limits set forth in Section 162(m) of the Code and the
Section 162(m) Regulations.
2.26. "Performance Goals" means, with respect to Awards that are intended
to qualify for the Performance-Based Exception, objectively determinable
performance goals established by the Committee within the time period specified
in the Section 162(m) Regulations and based on any of the following criteria:
(a) earnings, (b) return on equity, (c) return on assets, (d) return on
investment, (e) revenues, (f) expenses; (g) the operating ratio; (h) stock
price; (i) stockholder return; (j) market share; (k) charge-offs, (l) credit
quality, or (m) customer satisfaction measures. Such Performance Goals may be
particular to a Participant or the division, branch, line of business, Affiliate
or other unit in which the Participant works, or may be based on the performance
of the Corporation on a consolidated basis. Notwithstanding the preestablishment
of a Performance Goal with respect to an Award in accordance with the Section
162(m)
<PAGE>
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Regulations, nothing herein shall be construed as limiting the Committee's
ability to reduce the amount payable under the Award (including, for this
purpose, reducing the amount of any Award that would otherwise be granted, or
reducing the portion of any Award that would otherwise vest) upon attainment of
such Performance Goal.
2.27. "Performance Period" means the period of time designated by the
Committee applicable to a Performance Stock Award during which specified
Performance Goals shall be measured.
2.28. "Performance Share" means an Award granted to a Participant pursuant
to Section 11.
2.29. "Prior Plan" means the BankBoston Corporation 1991 Long-Term Stock
Incentive Plan.
2.30. "Reporting Person" means a person required to file reports under
Section 16(a) of the Exchange Act or any successor statute.
2.31. "Restricted Period" means the period during which the transfer of
shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of Performance Goals or upon the occurrence of other events as
determined by the Committee), and the Shares are subject to a substantial risk
of forfeiture, as provided in Section 10.
2.32. "Restricted Stock" means an Award granted to a Participant pursuant
to Section 10.
2.33. "Retirement" means termination of employment with the Corporation or
any Affiliate if such termination of employment constitutes normal retirement,
early retirement, disability retirement or other retirement as provided for at
the time of such termination of employment under the applicable retirement
program then maintained by the Corporation or the Affiliate, provided that the
Participant does not continue in the employment of the Corporation or any
Affiliate and provided further that such termination does not constitute a
Termination for Cause.
2.34. "Section 162(m) Regulations" means the regulations promulgated under
Section 162(m) of the Code, as amended from time to time.
2.35. "Shares" means shares of Common Stock.
2.36. "Stock Appreciation Right" or "SAR" means an Award granted to a
Participant, alone or in connection with a related Option, pursuant to Section
9.
<PAGE>
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2.37. "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase a share of Common Stock under the related Option (and when a share of
Common Stock is purchased under the related Option, the Tandem SAR shall
similarly be canceled).
2.38. "Termination for Cause" means the termination of a Participant's
employment due to any act which, in the discretionary judgment of the Committee,
is deemed inimical to the best interests of the Corporation or any Affiliate,
including, but not limited to: (a) willful and gross misconduct in respect of
the Participant's duties for the Corporation or the Affiliate, (b) conviction of
a felony or perpetration of a common law fraud, (c) willful failure to comply
with applicable laws or regulations with respect to the execution of the
Corporation's or the Affiliate's businesses or (d) theft, fraud, embezzlement,
dishonesty or other conduct which has resulted or is likely to result in
material economic or other damage to the Corporation or any Affiliate.
3. Effective Date and Term.
Subject to approval by the Corporation's stockholders, the Plan shall
become effective as of January 1, 1997, and Awards may be granted under the Plan
from and after that date. No Awards may be made under the Plan after December
31, 2006, but Awards theretofore granted may extend beyond that date.
Notwithstanding the foregoing, no Incentive Stock Options shall be granted after
December 20, 2005.
4. Administration.
4.1. The Plan shall be administered by the Committee. Subject to the
provisions set forth herein, the Committee shall have full authority to
determine the provisions of Awards, including, without limitation, vesting
schedules, price, performance standards (including Performance Goals), length of
relevant performance, restriction or option period, dividend rights,
post-retirement and termination rights, payment alternatives such as cash,
stock, contingent awards or other means of payment consistent with the purposes
of the Plan and individual Award Documentation. The Committee also shall have
full authority to interpret the terms of the Plan and of Awards made under the
Plan, to adopt, amend and
<PAGE>
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rescind rules and guidelines for the administration of the Plan and for its own
acts and proceedings and to decide all questions and settle all controversies
and disputes which may arise in connection with the Plan. To the extent
permitted by applicable law, the Committee may delegate to one or more executive
officers who are also directors of the Corporation the power to make Awards to
Participants who are not Reporting Persons at the time of such Awards and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of Awards for such Participants as a group.
4.2. Notwithstanding Section 4.1 and subject to the provisions set forth
herein, the Board shall approve or ratify Awards made under the Plan to any
executive officer who is also a director of the Corporation.
4.3. The decision of the Committee on any matter as to which it is given
authority under Section 4.1 above shall be final and binding on all persons
concerned.
5. Shares Subject to the Plan.
5.1. Subject to adjustment in accordance with the provisions of Section
13.8 and subject to Section 5.4, (a) the total number of Shares available for
grants of Awards (including, without limitation, Awards of Restricted Stock and
Performance Shares) in any calendar year shall not exceed one and one-quarter
percent (1.25%) of the outstanding Common Stock as of the first business day of
such calendar year and (b) the total number of Shares available for grants of
Restricted Stock and Performance Shares in any calendar year shall not exceed
one-half of one percent (.5%) of the outstanding Common Stock as of the first
business day of such calendar year. Shares issued under the Plan may consist in
whole or in part of authorized but unissued Shares, Shares held as treasury
stock or previously issued Shares reacquired by the Corporation, including
Shares purchased on the open market. Notwithstanding the foregoing, the maximum
number of Shares that may be issued under Incentive Stock Options awarded under
the Plan, subject to adjustment in accordance with Section 13.8, shall be
10,000,000* Shares.
5.2. Subject to adjustment in accordance with Section 13.8, the total
number of Shares available for grants of Awards in any calendar year to any
Participant shall not exceed the lesser of (a) three-tenths
- --------
* As adjusted for BankBoston Corporation's two-for-one stock split, effective as
of June 22, 1998.
<PAGE>
-9-
of one percent (.3%) of the outstanding Common Stock as of the first business
day of such calendar year or (b) 1,200,000* Shares.
5.3. For purposes of calculating the total number of Shares available for
grants of Awards, (a) the grant of a Performance Share shall be deemed to be
equal to the maximum number of Shares which may be issued upon payment of the
Performance Share and (b) where the value of an Award is variable on the date it
is granted, the value shall be deemed to be the maximum limitation of the Award.
Awards payable solely in cash shall not reduce the number of Shares available
for Awards granted under the Plan.
5.4. There shall be carried forward and available for Awards under the
Plan in each succeeding calendar year, in addition to Shares available for grant
under Section 5.1, all of the following: (a) any unused portion of the limit set
forth in Section 5.1 for any preceding calendar years; (b) Shares represented by
Awards which, during that calendar year or any preceding calendar years, have
been canceled, forfeited, surrendered, terminated or expire unexercised (with
the exception of the termination of a Tandem SAR upon the exercise of the
related Option, or the termination of a related Option upon exercise of the
corresponding Tandem SAR), or which are settled in a manner that results in
fewer Shares outstanding than were initially awarded (including, without
limitation, the surrender of Shares as full or partial payment for the Award or
any tax obligation thereon); (c) the excess amount of variable Awards which
become fixed at less than their maximum limitations; (d) authorized Shares as to
which Options, SARs and Restricted Stock were not granted under the Prior Plan
as of December 31, 1996 and (e) Shares granted under the Prior Plan subject to
Options, SARs or Restricted Stock which, during that calendar year or any
preceding calendar years, have been canceled, forfeited, surrendered, terminated
or expire unexercised or which are settled in a manner that results in fewer
Shares outstanding than were initially awarded (including, without limitation,
the surrender of Shares as full or partial payment for the Award or any tax
obligation thereon).
6. Eligibility for Awards. Any officer or employee of the Corporation or its
Affiliates who, in the opinion of the Committee, is in a position to have a
significant effect upon the Corporation's business and consolidated earnings,
shall be eligible to receive an Award under the Plan.
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7. Grant of Awards. From time to time while the Plan is in effect, the Committee
may, in its absolute discretion, select from among the persons eligible to
receive Awards (including persons to whom Awards were previously granted) those
persons to whom Awards are to be granted. Such Awards may be granted on a stand
alone, combination or tandem basis. In addition to granting Awards for purposes
of incentive compensation, Awards may also be made in tandem with or in lieu of
other current or deferred employee compensation.
8. Options.
8.1. Grant of Options. Subject to the provisions of the Plan, the
Committee may award Options, alone or in combination with other Awards under the
Plan. Options granted under the Plan may be either Incentive Stock Options or
Nonqualified Stock Options. The terms and conditions of Incentive Stock Options
shall be subject to and comply with Section 422(b) of the Code or any successor
provision, and any regulations thereunder.
8.2. Option Price. The Option price per share of Common Stock, with
respect to each Option, shall not be less than the Fair Market Value per share
at the time the Option is granted.
8.3. Period of Options. An Option shall be exercisable during such period
of time as the Committee shall determine, subject, in the case of Incentive
Stock Options, to any limitation required by the Code. It is contemplated that
the Committee will provide that an Option shall not be exercisable after the
expiration of ten years from the date the Option is granted.
8.4. Exercise of Options. Each Option shall be made exercisable at such
time or times, and shall be subject to such conditions or restrictions, as the
Committee shall determine. It is contemplated that the Committee will normally
provide that the right to exercise an Option will accrue on the first
anniversary of the date of grant with respect to 50 percent of the number of
shares of Common Stock subject to the Option and that the right to exercise the
Option with respect to the balance of the shares subject thereto will accrue on
the second anniversary of the date of grant. However, the Committee may, in its
discretion, in any case provide that the Option will be exercisable immediately
with respect to all
<PAGE>
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of the shares of Common Stock subject to the Option or that the right to
exercise the Option will accrue in different installments and at different times
from those set forth above.
8.5. Payment for and Delivery of Stock. Payment of the Option exercise
price may be made by any of the following methods, as determined by the
Committee at the time the Option is granted: (a) in cash or its equivalent (b)
by delivery of Shares already owned by the Participant, valued at their Fair
Market Value on the date of exercise (provided that any Shares so delivered
shall have been held by the Participant for such period, if any, as the
Committee shall determine), (c) subject to such guidelines as may be promulgated
by the Committee, by delivery of a notice instructing the Corporation to deliver
the Shares being purchased to a broker, subject to the broker's delivery of cash
to the Corporation equal to the purchase price and any applicable withholding
taxes, (d) by delivery of such other lawful consideration as the Committee may
determine or (e) by any combination of the foregoing. The Committee may provide
for the automatic award of an Option upon the delivery of Shares to the
Corporation in payment of the exercise price of another Option for up to the
number of Shares delivered to the Corporation in payment of the exercise price
of such other Option.
8.6. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
exercise an Option following the termination of the Participant's employment
with the Corporation and its Affiliates. Such provisions shall be determined in
the sole discretion of the Committee and may reflect distinctions based on the
reasons for termination of employment, including, without limitation,
termination of employment by reason of the Participant's death, Retirement or
Disability.
9. Stock Appreciation Rights.
9.1. Grant of SARs. Subject to the provisions of the Plan, the Committee
may award SARs alone or in combination with other Awards under the Plan.
<PAGE>
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9.2. Grant Price. The grant price of a Freestanding SAR shall not be less
than the Fair Market Value of the Common Stock at the time of grant of the SAR.
The grant price of a Tandem SAR shall not be less than the Option exercise price
of the related Option.
9.3. Term of SARs. An SAR shall be exercisable during such period of time
as the Committee shall determine. It is contemplated that the Committee will
provide that an SAR shall not be exercisable after the expiration of ten years
from the date the SAR is granted.
9.4. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
9.5 Exercise of Freestanding SARs. Freestanding SARs shall be made
exercisable at such time or times, and shall be subject to such conditions or
restrictions, as the Committee shall determine. It is contemplated that the
Committee will normally provide that the right to exercise 50 percent of any
Freestanding SARs granted hereunder will accrue on the first anniversary of the
date of grant and that the right to exercise the balance of such Freestanding
SARs will accrue on the second anniversary of the date of grant. However, the
Committee may, in its discretion, in any case provide that Freestanding SARs
will be exercisable immediately or that the right to exercise Freestanding SARs
will accrue in different installments and at different times from those set
forth above.
9.6. Payment of SARs. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Corporation in an amount determined by
multiplying (a) the excess, if any, of the Fair Market Value of a share of
Common Stock on the date of exercise over the grant price by (b) the number of
Shares with respect to which the SAR is exercised. SARs may be payable in cash,
Shares or a combination of the two, as provided by the Committee. Shares issued
on the settlement of the exercise of SARs shall be valued at their Fair Market
Value on the date of exercise.
9.7. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated
<PAGE>
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Beneficiary shall have the right to exercise an SAR following the termination of
the Participant's employment with the Corporation and its Affiliates. Such
provisions shall be determined in the sole discretion of the Committee and may
reflect distinctions based on the reasons for termination of employment,
including, without limitation, termination of employment by reason of the
Participant's death, Retirement or Disability.
10. Restricted Stock.
10.1. Grant of Restricted Stock. Subject to the provisions of the Plan,
the Committee may award Restricted Stock alone or in combination with other
Awards under the Plan.
10.2. Terms of Restricted Stock. The Restricted Period and other
provisions of each Restricted Stock Award shall be established by the Committee
and shall be set forth in the Participant's Award Documentation.
10.3. Nontransferability; Other Restrictions. Except as provided in this
Section 10, shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during the Restricted Period. The Committee may
impose such other conditions and/or restrictions on any shares of Restricted
Stock granted under the Plan as it may deem advisable including, without
limitation, performance-based restrictions (whether or not based upon the
achievement of Performance Goals), employment-based restrictions and/or
restrictions under applicable federal or state securities laws.
10.4. Participants' Rights in Restricted Stock. Shares of Restricted Stock
shall be evidenced in such manner as the Committee may determine. Any
certificates issued in respect of Restricted Stock shall be registered in the
name of the Participant and, except as otherwise determined by the Committee,
shall be delivered to the Participant after the last day of the Restricted
Period. Except as otherwise provided by the Committee, during and after the
Restricted Period, dividends with respect to any Restricted Stock shall be paid
to, and voting rights with respect to any such Shares shall be vested in, the
Participant. To the extent provided by the Committee, Participants may defer the
receipt of any dividends payable during the Restricted Period with respect to
Restricted Stock.
<PAGE>
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10.5. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent, if any, to which the Participant or the
Participant's legal representative, guardian or Designated Beneficiary shall
have the right to receive unvested shares of Restricted Stock following the
termination of the Participant's employment with the Corporation and its
Affiliates. Such provisions shall be determined in the sole discretion of the
Committee and may reflect distinctions based on the reasons for termination of
employment, including, without limitation, termination of employment by reason
of the Participant's death, Retirement or Disability.
10.6. Consideration for Restricted Stock. Restricted Stock shall be issued
for no cash consideration or such minimum consideration as may be required under
applicable law.
11. Performance Shares.
11.1. Grant of Performance Shares. Subject to the provisions of the Plan,
the Committee may award Performance Shares alone or in combination with other
Awards under the Plan. The number and/or vesting of Performance Shares granted,
in the Committee's discretion, shall be contingent upon the degree of attainment
of the Performance Goals over the Performance Period.
11.2. Form and Timing of Payment of Performance Shares. During the course
of a Performance Period, the Committee shall determine the number of Performance
Shares as to which the Participant has earned the right to be paid based upon
the attainment of the applicable Performance Goals. The Committee shall pay any
earned Performance Shares as soon as practicable after they are earned in the
form of cash, Shares or a combination thereof (as determined by the Committee)
having an aggregate Fair Market Value equal to the number of Performance Shares
earned multiplied by the Fair Market Value of a share of Common Stock determined
as of the date such Performance Shares were earned. Any Shares used to pay out
earned Performance Shares may be granted subject to any restrictions deemed
appropriate by the Committee. To the extent provided by the Committee,
Participants may defer the receipt of payment of any Performance Shares or other
amounts (e.g., dividend equivalent rights) earned pursuant to the Award
Documentation.
<PAGE>
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11.3. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
receive unearned Performance Shares following the termination of the
Participant's employment with the Corporation and its Affiliates. Such
provisions shall be determined in the sole discretion of the Committee and may
reflect distinctions based on the reasons for termination of employment,
including, without limitation, termination of employment by reason of the
Participant's death, Retirement or Disability.
12. Other Awards.
12.1. Grant of Other Awards. Subject to the provisions of the Plan, the
Committee may award Other Awards alone or in combination with other Awards under
the Plan.
12.2. Terms of Other Awards. The Committee shall determine the terms and
provisions of Other Awards including, without limitation, any transfer
restrictions, vesting provisions, the value of such Awards and the form and
timing of payment of such Awards.
12.3. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
exercise or receive Other Awards following the termination of the Participant's
employment with the Corporation and its Affiliates. Such provisions shall be
determined in the sole discretion of the Committee and may reflect distinctions
based on the reasons for termination of employment, including, without
limitation, termination of employment by reason of the Participant's death,
Retirement or Disability.
13. General Provisions Applicable to Awards.
13.1. Non-transferability of Awards. Subject to the provisions of this
Section, (a) no Award under the Plan shall be transferable otherwise than by
will, by the laws of descent and distribution, or by operation of a "qualified
domestic relations order," as that term is defined in the Code, and (b) during
the lifetime of the Participant to whom an Award has been granted, rights under
the Award may be exercised only by the Participant, the Participant's guardian
or legal representative, or by the assignee of the Award
<PAGE>
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under a "qualified domestic relations order." Notwithstanding the foregoing, the
Committee may provide for greater transferability in the case of any Award,
including, without limitation, transfer to one or more members of the
Participant's family or to a partnership or trust established for the benefit of
one or more members of the Participant's family. In no event shall Incentive
Stock Options awarded under the Plan be transferable other than as permitted
under the rules prescribed in the Code for incentive stock options. An Award
that is intended to be exempt under Rule 16b-3 under the Exchange Act or any
successor rule, or that is intended to qualify for the Performance-Based
Exception, shall be transferable only to the extent consistent with such
exemption or qualification. Nothing in this Section shall be construed as
restricting the transfer of Shares that have become free of other transfer
restrictions under the Plan or that were awarded free of any such restrictions.
13.3. Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter. The Committee may grant Awards hereunder
that are intended to satisfy the Performance-Based Exception and Awards that are
not intended to satisfy that exception. Awards hereunder that are intended to
satisfy the Performance-Based Exception shall be subject to the limitations of
Section 5.2. In no event shall an Award hereunder which is not intended to
satisfy the Performance-Based Exception be conditioned upon an Award hereunder
(to the same Participant) which is intended to satisfy the Performance-Based
Exception.
13.4. Tax Withholding. The Committee shall require, on such terms as it
deems necessary, that the Participant pay to the Corporation, or make other
satisfactory provision for payment of, any federal, state or local taxes
required by law to be withheld in respect of Awards under the Plan. In the
Committee's discretion, a Participant may elect to satisfy all or a portion of
his or her federal, state and local tax withholding requirements by having
Shares withheld from the Shares otherwise issuable in connection with the event
creating the tax obligation, or by delivering to the Corporation previously
owned Shares,
<PAGE>
-17-
valued at their Fair Market Value on the date that withholding taxes are
determined. The Corporation and its Affiliates may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind otherwise due
to the Participant.
13.5. Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws. Notwithstanding the provisions of this Section 13.5, Awards to
any such individuals who are Reporting Persons shall be made in accordance with
the other provisions of the Plan, except as otherwise permitted by Rule 16b-3
under the Exchange Act or any successor rule.
13.6. Amendment of Award. The Committee may amend, modify, terminate or
waive any condition or provision of any outstanding Award, including
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization and converting an Incentive Stock Option to
a Nonqualified Stock Option; provided, however, that the Committee may not
(except in accordance with Section 13.8) increase the number of Shares subject
to any outstanding Award or decrease the Option or award price of the Award. The
Participant's consent to any such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
13.7. Acceleration of Vesting; Waiver of Restrictions. Notwithstanding any
provision of the Plan or any Award Documentation to the contrary, the Committee,
in its sole discretion, shall have the power at any time to (a) accelerate the
vesting or exercisability of any Award granted under the Plan, including,
without limitation, acceleration to such date that would result in such Awards
becoming immediately vested or exercisable, or (b) waive any restrictions of any
Award granted under the Plan.
13.8. Changes in Stock; Adjustment of Awards. In the event of a stock
dividend, stock split or other change in corporate structure or capitalization
affecting the Common Stock or any other transaction (including, without
limitation, an extraordinary cash dividend) which, in the determination of the
Committee, affects the Common Stock such that an adjustment is required in order
to preserve the
<PAGE>
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benefits or potential benefits intended to be made available under the Plan,
then the Committee shall equitably adjust any or all of (a) the number and kind
of Shares in respect of which Awards may be made under the Plan, (b) the number
and kind of Shares subject to outstanding Awards, and (c) the Option or grant
price with respect to any of the foregoing, provided that the number of Shares
subject to any Award shall always be a whole number. In the event of any merger,
consolidation, dissolution or liquidation of the Corporation, the Committee, in
its sole discretion, may, as to any outstanding Awards, make such substitution
or adjustment in the aggregate number of Shares reserved for issuance under the
Plan and in the number and purchase price (if any) of Shares subject to such
Awards as it may determine, make outstanding Awards fully exercisable, or amend
or terminate such Awards upon such terms and conditions as it shall provide
(which, in the case of the termination of the vested portion of any Award, shall
require payment or other consideration which the Committee deems equitable in
the circumstances). Notwithstanding the foregoing, in the case of an Award
intended to qualify as an Incentive Stock Option or to qualify for the
Performance-Based Exception, adjustment shall be made under this Section 13.8
only to the extent, if any, consistent with continued qualification of the Award
as an Incentive Stock Option or continued qualification of the award for the
Performance-Based Exception, as the case may be.
13.9. Change In Control. Unless otherwise provided in a Participant's
Award Documentation, upon the occurrence of a Change in Control of the
Corporation, (a) any and all Options and SARs granted hereunder shall become
immediately exercisable, and shall remain exercisable through their entire term;
(b) any Restricted Periods and restrictions imposed on Restricted Stock shall
lapse; and (c) the target payout opportunities attainable under all outstanding
Awards of Restricted Stock and Performance Shares shall be deemed to have been
fully earned for the entire Performance Period(s) as of the effective date of
the Change in Control, and the vesting of all Awards shall be accelerated as of
the effective date of the Change in Control.
13.10. Dividend Equivalent Rights. The Committee may, in its discretion,
provide that any dividends declared on Shares subject to an Award, and which
would have been paid with respect to such
<PAGE>
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Shares had they been owned by a Participant, be paid to the Participant in
Shares, cash or a combination of cash and Shares, as specified in the Award
Documentation.
14. Miscellaneous.
14.1. No Right to Employment. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to continued employment. The Corporation and its
Affiliates expressly reserve the right at any time to terminate the employment
of a Participant free from any liability or claim under the Plan, except as may
be expressly provided in the applicable Award. Except as specifically provided
by the Committee in any particular case, the loss of existing or potential
profit in Awards granted under the Plan shall not constitute an element of
damages in the event of termination of employment of a Participant, even if
termination is in violation of an obligation of the Corporation or an Affiliate
to the Participant, by contract or otherwise.
14.2. No Rights as a Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any Shares to be distributed under the Plan
until he or she becomes the holder thereof. A Participant to whom Common Stock
is awarded shall be considered the holder of the stock at the time of the Award
except as otherwise provided in the applicable Award.
14.3. No Fractional Shares. No fractional Shares shall be issued under the
Plan, and cash shall be paid in lieu of any fractional Shares in settlement.
14.4. Unfunded Plan. The Plan shall be unfunded, shall not create (or be
construed to create) a trust or a separate fund or funds, and shall not
establish any fiduciary relationship between the Corporation and any Participant
or other person.
14.5. Successors and Assigns. The Plan shall be binding on all successors
and assigns of the Participant, including without limitation the Participant's
Designated Beneficiary or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
14.6. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time; provided, however, that no amendment
which requires stockholder approval in order
<PAGE>
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for those Awards that are intended to be exempt under Rule 16b-3 under the
Exchange Act (or any successor rule) to be so exempt or for those Awards that
are intended to qualify under the Performance-Based Exception to so qualify
shall be effective unless approved by the requisite vote of the Corporation's
stockholders. The Committee may make non-material amendments to the Plan.
14.7. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
EMPLOYMENT AGREEMENT
AGREEMENT by and between Fleet Financial Group, Inc., a Rhode Island
corporation ("Fleet" or the "Company") and David L. Eyles (the "Executive")
dated as of the 29th day of October 1999.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. Fleet hereby agrees to employ the Executive, and the
Executive hereby agrees to remain in the employ of Fleet subject to the terms
and conditions of this Agreement, for the period commencing on the date hereof
and ending on January 10, 2002 (the "Employment Period").
2. TERMS OF EMPLOYMENT. (a) Position and Duties. (i) During the Employment
Period, the Executive shall serve as Vice Chairman and Chief Risk Officer,
reporting directly to the Chairman and Chief Executive Officer, with appropriate
authority, duties and responsibilities. The Executive shall be located in
Hartford, Connecticut.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and time during normal business
hours to the business and affairs of Fleet and to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder. The
foregoing shall not limit the Executive from being involved in personal
investment, charitable and for-profit Board activities at a level commensurate
with his current level, subject to Company policy on new Board activities.
(b) COMPENSATION. (i) BASE SALARY. Effective upon the consummation of
the merger of Fleet with BankBoston Corporation (the "Merger"), the annual base
salary of the Executive shall be increased to $450,000. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base Salary")
of no less than $450,000. Any further increase in the Executive's Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to the Annual Base Salary as so increased. As used in this Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with Fleet.
(ii) ANNUAL BONUS. The Executive shall be entitled to receive an
annual bonus with respect to calendar year 1999 of no less than $650,000,
subject to the Executive's rights of deferral, which will be paid in February
2000. The Executive shall be entitled to receive an annual bonus with respect to
calendar year 2000 of no less than $700,000, subject to the Executive's rights
of deferral, which will be paid in February 2001. The Executive shall be
entitled to receive an annual bonus with respect to calendar year 2001 of no
less than $750,000, subject to the Executive's rights of deferral, which will be
paid in February 2002.
<PAGE>
In the event the Executive's employment is terminated by Fleet without
Cause (as defined in Section 3 (b)), including by reason of the death or
disability of the Executive, or by the Executive with Good Reason (as defined in
Section 3 (c)), during any calendar year of the Employment Period, the Executive
or his estate shall be entitled to receive a pro rated bonus for that calendar
year.
The amount of the pro rated bonus shall be the product of (i) a fraction,
the numerator of which is the number of days elapsed in the applicable year, and
the denominator of which is 365, multiplied by (ii) the Annual Bonus amount
specified in this section for the full calendar year.
(iii) OTHER EMPLOYEE BENEFIT PLANS. During the Employment Period,
except as otherwise expressly provided herein, the Executive shall be entitled
to participate in, and shall receive awards under, all employee benefit, welfare
and other plans, practices and programs, including perquisites applicable to
peer executives of Fleet at a level commensurate with such peer executives. Any
equity grants awarded prior to the Merger will be governed by the terms and
conditions of the underlying restricted stock agreement or stock option
agreement, as the case may be.
Upon the consummation of the Merger, the Executive will be granted 50,000
shares of performance-based restricted stock (the "Restricted Stock Grant").
Subject to the attainment of performance criteria as outlined in the applicable
restricted stock agreement, all restrictions shall lapse, with respect to 50% of
the Restricted Stock Grant on the first anniversary of the date of the grant,
and with respect to the remaining 50% of the Restricted Stock Grant on the
second anniversary of the date of the grant.
The Executive is eligible to receive a 1999 stock option award in such
amount as recommended by the Chairman and CEO of Fleet and approved by the Human
Resources and Planning Committee of the Board of Directors. Any stock option
award will be subject to the terms and provisions of the underlying stock option
agreement entered into for peer executives.
If the Executive's employment is terminated by Fleet without Cause (as
defined in Section 3 (b)), including by reason of the death or disability of the
Executive, or by the Executive with Good Reason (as defined in Section 3 (c)),
at any time during the Employment Period, Fleet shall cause the Restricted Stock
Grant, to the extent then unvested or forfeitable, to become immediately and
fully vested. Any stock option awards granted to the Executive will be governed
by the terms of the underlying stock option agreement, including, but not
limited to, the provision that permits an optionee who is retirement eligible to
exercise stock options that were granted after April 1994 through 1998, and that
were vested as of the retirement date, for a period of 12 months following
termination of employment.
As of the end of calendar year 1999, the Executive shall be eligible to
receive, but not entitled to receive, any additional equity awards.
2
<PAGE>
(iv) RETIREMENT BENEFITS. Commencing on February 1, 2002, the
Executive shall be entitled to receive a retirement benefit of at least $200,000
per annum, in the form of a 50% Joint & Survivor benefit, or its actuarial
equivalent as elected by him under the provisions of the applicable plans based
on a deemed termination of employment date of January 10, 2002 (the "Retirement
Benefit'). Except to the extent provided below, the Retirement Benefit shall be
inclusive of the amounts payable to the Executive or his survivor under any
qualified or nonqualified defined benefit pension plan or cash balance plan of
Fleet, its predecessors or their respective affiliates (collectively, the
"Company Retirement Plans") and any additional amounts payable under the Fleet
Supplemental Executive Retirement Plan and covered in the "rabbi" trust
therefor.
In addition to the Retirement Benefit provided above, the Executive shall
be entitled to receive a benefit payable from the Supplemental Executive
Retirement Plan of Shawmut National Corporation (the "Frozen SERP"). The
benefit, payable as of February 1, 2002, is estimated to be $86,000 per annum,
based on a 50% Joint & Survivor Benefit.
Further, whether or not the Executive remains an employee of Fleet through
the Employment Period, the Executive shall be entitled to the retiree medical
benefits to which he would have been entitled had he been age 55 and had 10
years of service with Shawmut National Corporation as of December 31, 1996.
Specifically, the Executive will have access to group rates from the date
employment with Fleet is terminated due to retirement or any other reason and
upon attainment of age 65, the Executive will be entitled to a monthly subsidy
for retiree and spouse medical coverage.
If the Executive's employment is terminated by Fleet without Cause (as
defined in Section 3 (b)), including by reason of death or disability of the
Executive, or by the Executive with Good Reason (as defined in Section 3 (c)),
at any time during the Employment Period, the Executive shall be entitled to
receive the benefits as described in this Section 2 (b) (iv), except to the
extent that the amount of the Retirement Benefit and Frozen SERP may be
actuarially reduced to reflect an earlier benefit commencement date if elected;
provided, however, that per the terms of the Frozen SERP, the benefit
commencement date cannot be earlier than the first of the month following the
month in which the Executive attains age sixty-two (62).
Notwithstanding the foregoing, in the event the Executive's employment
terminates in a manner not entitling him to benefits pursuant to Section 4 (a)
prior to January 10, 2002, the Retirement Benefit and the Frozen SERP shall not
be paid to the Executive, but instead the Executive shall be entitled to his
accrued and vested benefit under the Company Retirement Plans and the Frozen
SERP as of the Date of Termination, payable in accordance with the applicable
plan document, determined using the applicable covered compensation paid to the
Executive.
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In the event of the Executive's death or disability following January 10,
2002, the Executive or his estate shall be entitled to receive the Retirement
Benefit and the Frozen SERP.
(v) INDEMNIFICATION/D & O INSURANCE. The Executive shall be
entitled to indemnification with respect to the performance of his duties
hereunder, and directors' and officers' liability insurance, on the same terms
and conditions as generally available to peer executives of Fleet. The Company's
obligations under this Section 2 (b) (v) shall survive the termination of the
Employment Period and this Agreement in accordance with the applicable indemnity
policy and directors' and officers' liability insurance of Fleet maintained by
the Company for other officers and directors.
3. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Executive cannot, because of physical or mental
disability, perform his material duties hereunder for 180 consecutive days, at
the end of such period, Fleet may give to the Executive written notice in
accordance with Section 3 (d) of this Agreement of its intention to terminate
his employment. In such event, the Executive's employment with Fleet shall
terminate effective on the 30th day after receipt of such notice by the
Executive, provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's material
duties.
(b) CAUSE. Fleet may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with Fleet or one of its affiliates (other
than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chairman of Fleet, which specifically identifies
the manner in which the Board believes the Executive has not substantially
performed the Executive's duties; or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct with regard to Fleet that is materially and demonstrably
injurious to the Company; or
(iii) conviction of a felony (other than a traffic violation) or
guilty or nolo contrendere plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of
the Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief by the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chairman or a senior
officer of Fleet, or based upon the advice of counsel for Fleet, shall
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be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of Fleet.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) a material breach by Fleet of a material term of this
Agreement, after Fleet has been given a reasonable opportunity to cure such
breach and has failed to do so;
(ii) any requirement by Fleet that the Executive's services be
rendered primarily at a location or locations other than Hartford, CT, or any
requirement by Fleet that the Executive relocate more than thirty-five miles
from his current location;
(iii) the assignment to the Executive of any duties or
responsibilities inconsistent in any respect with those customarily associated
with the position (including status, office, title and reporting requirements)
to be held by the Executive during the applicable period pursuant to this
Agreement, the appointment of any other Executive to perform any of the duties
or responsibilities customarily associated with the position to be held by the
Executive during the applicable period pursuant to this Agreement, or any other
action by Fleet that results in a diminution or other material adverse change in
the Executive's position, authority, duties or responsibilities, other than an
isolated, insubstantial and inadvertent action that is not taken in bad faith
and is remedied by Fleet promptly after receipt of notice thereof from the
Executive;
(iv) any failure by Fleet to comply with any provision of Section
2 of this Agreement, other than an isolated, insubstantial and inadvertent
failure that is not taken in bad faith and is remedied by Fleet promptly after
receipt of notice thereof from the Executive;
(d) NOTICE OF TERMINATION. Any termination by Fleet for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 12 of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which:
(i) indicates the specific termination provision in this Agreement
relied upon;
(ii) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated; and
(iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date (which dates
shall be not more than thirty days after the giving of such notice).
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The failure by the Executive or Fleet to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or Fleet,
respectively, hereunder or preclude the Executive or Fleet, respectively, from
asserting such fact or circumstance in enforcing the Executive's or Fleet's
rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means January 10, 2002,
or if earlier:
(i) if the Executive's employment is terminated by Fleet for
Cause, or by the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein within 30 days of such notice,
as the case may be;
(ii) if the Executive's employment is terminated by Fleet other
than for Cause or Disability, or by Executive for other than Good Reason, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination;
(iii) if the Executive's employment is terminated by reason of
death or disability, the Date of Termination shall be the date as defined in
Section 3(a) of this Agreement.
4. OBLIGATIONS OF FLEET UPON TERMINATION. (a) If, during the Employment
Period, Fleet shall terminate the Executive's employment other than for Cause or
the Executive shall terminate for Good Reason, or the Date of Termination occurs
by reason of the expiration of the Employment Period on January 10, 2002:
(i) Until January 10, 2002, the Executive shall remain on Fleet's
payroll and continue to be treated as an employee of Fleet for purposes of
payment of Annual Base Salary and participation in the Company's welfare (other
than long-term disability), retirement, deferred compensation and stock
incentive plans and other equity plans, except as may be separately provided for
in this Agreement, and thereafter as a "retiree" under them, provided that the
Executive shall not be entitled to, but will remain eligible for, additional
awards under any of Fleet's stock incentive plans, other than as provided for in
Section 2 (b) (iii); further, provided, however, that the Executive shall be
entitled receive a pro rated bonus for the year of termination in accordance
with the provisions of Section 2 (b) (ii) of this Agreement. In addition, the
Executive shall be entitled to benefits as outlined in Section 2 (b) (iv).
Further, the continuation of the Executive on Fleet's payroll shall not prevent
him from commencing employment with another employer;
(ii) Fleet shall continue to pay to the Executive his Annual Base
Salary for the duration of the Employment Period;
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(iii) to the extent not theretofore paid or provided, Fleet shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, or policy or practice or contract or agreement of Fleet and its
affiliated companies through the Date of Termination (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits"); and
(iv) the Executive shall have the same election rights as to the
form of benefits and commencement dates as if his Date of Termination was
January 10, 2002; provided, however, that the Frozen SERP payment may not
commence prior to December 1, 2001.
(b) CAUSE; OTHER THAN FOR GOOD REASON; DEATH OR DISABILITY. If the
Executive's employment shall be terminated for Cause, or the Executive
terminates his employment without Good Reason, or the Executive shall die or is
terminated because of Disability during the Employment Period, the Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (w) his Annual Base Salary through the Date
of Termination, (x) other Benefits, which in the case of the Executive's Death
or Disability, shall include death or disability benefits under Fleet's death or
disability plan in which the Executive participates, in each case to the extent
theretofore unpaid, (y) in the case of Death or Disability, his pro rated bonus
amount, determined in accordance with Section 2 (b) (ii), and (z) as provided in
Section 2 (b) (iii) and Section 2 (b) (iv) above.
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by Fleet or any of its affiliated companies for
which the Executive may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company of any of its affiliated companies. Vested benefits
and other amounts that the Executive is otherwise entitled to receive under any
plan, policy, practice or program of, or any contract of agreement with, the
Company of any of its affiliated companies on or after the Date of Termination
shall be payable in accordance with the terms of each such plan, policy,
practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
6. NON-DUPLICATION OF BENEFITS. To the extent the Executive is or becomes
entitled to receive compensation and benefits payable in accordance with the
terms of an existing agreement (e.g., a change in control agreement) to which
the Executive and Fleet are parties, any compensation and/or benefits that shall
be or become payable according to the terms and conditions of this Agreement
will not be paid to the extent any payment0 is deemed duplicative.
7. FULL SETTLEMENT. Fleet's obligation to make the payments provided for
in, and otherwise to perform its obligations under, this Agreement shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action that Fleet
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may have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any provisions of this Agreement
and such amounts hall not be reduced, regardless of whether the Executive
obtains other employment.
8. CONFIDENTIAL INFORMATION. (a) The Executive shall hold in a fiduciary
capacity for the benefit of Fleet all secret or confidential information,
knowledge or data relating to Fleet or any of its affiliated companies and their
respective businesses that the Executive obtains during the Executive's
employment by Fleet or any of its affiliated companies and that is not public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with Fleet, the Executive shall not, without the prior written
consent of Fleet, or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than Fleet and those designated by it.
(b) In the event of a breach or a threatened breach of Section 8 (a),
the Executive agrees that Fleet shall be entitled to injunctive relief in a
court of appropriate jurisdiction to remedy any such breach or threatened
breach, the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of Section 8.
9. MUTUAL RELEASES. On the Date of Termination, or if later, January 10,
2002, the Executive and Fleet agree to execute the releases attached as Exhibit
A hereto. The Executive agrees that his right to receive the benefits set forth
in Section 4 are conditioned upon his executing and not revoking the release,
provided Fleet delivers its reciprocal release.
10. INDEMNIFICATION; ATTORNEYS' FEES. The Company shall pay or indemnify
the Executive to the full extent permitted by law and the by-laws of Fleet for
all expenses, costs, liabilities and legal fees which the Executive may incur in
the discharge of his duties hereunder. The Company also agrees to pay, as
incurred, to the fullest extent permitted by law, or indemnify the Executive if
such payment is not legally permitted, for all legal fees and expenses that the
Executive may in good faith incur as a result of any contest by the Company, the
Executive or others of the validity or enforceability of or liability under, or
otherwise involving, any provision of this Agreement, together with interest on
any delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code (the "Code").
11. SUCCESSORS. (a) This Agreement is personal to the Executive and without
the prior written consent of Fleet shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution, except that upon
the Executive's death after the Employment Period any amounts due hereunder
shall be paid to his estate or beneficiary, as the case may be. If the Executive
shall die prior to January 10, 2002, the
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Executive's estate shall be entitled to the remaining payments and benefits as
described in Section 4 (b). This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Fleet and its successors and assigns.
(c) Fleet will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Fleet to assume expressly and to agree to perform
this Agreement in the same manner and to the same extent that Fleet would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean Fleet as hereinbefore defined and any successor
to its business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in
accordance with the laws of the state of Rhode Island, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------
150 Balfour Drive
West Hartford, CT 06117
If to Fleet:
------------
One Federal Street
Boston, MA 02110
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
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(e) The Executive's or Fleet's failure to insist upon strict compliance
with any provision of this Agreement or the failure to assert any right the
Executive or Fleet may have hereunder shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
(f) From and after the date hereof, this Agreement shall supersede any
other employment, severance or change in control agreement between the parties
with respect to the subject matter hereof, provided that this Agreement shall
not supersede the change in control agreement between the parties if a change of
control (as defined therein) occurs prior to the Date of Termination, except to
the extent that such agreement and this Agreement would provide duplicative
benefits.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, assigned, alienated or subject to attachment, garnishment,
levy, execution or other legal or equitable process except as required by law.
Any attempt by the Executive to anticipate, assign, sell, transfer, pledge,
encumber or charge the same shall be void. Payments hereunder shall not be
considered assets of the Executive in the event of insolvency or bankruptcy.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, Fleet has cause
these presents to be executed in its name on its behalf, all as of the day and
year first written above.
/s/ DAVID L. EYLES
------------------
David L. Eyles
FLEET FINANCIAL GROUP, INC.
/s/ M. ANNE SZOSTAK
-------------------
By: M. Anne Szostak
Title: Executive Vice President
Director of Human Resources
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EXHIBIT A
GENERAL RELEASE
THIS GENERAL RELEASE is entered into between Fleet Financial
Group, Inc., a Rhode Island Corporation (the "Company") and David L. Eyles (the
"Executive") as of the _____ day of __________, ____. The Company and the
Executive agree as follows:
1. Employment Status. The Executive's employment with the Company has
terminated effective as of _________, __, ____.
2. Payment and Benefits. Upon acceptance of the terms set forth herein, the
Company as of the date of termination shall provide the Executive with the
payments and benefits set forth in the Employment Agreement between the
Company and the Executive, dated as of August __, 1999 (the "Employment
Agreement") and the amounts otherwise due to the Executive upon such
termination under the Company's plans and programs.
3. No Liability. This Release does not constitute an admission by the Company,
or any of its subsidiaries, affiliates, divisions, trustees, officers,
directors, partners, agents, or employees, of any unlawful acts or of any
violation of federal, state or local laws.
4. Release. In consideration of the payments and benefits set forth in the
Employment Agreement, the Executive for himself, or his heirs,
administrators, representatives, executors, successors and assigns
(collectively, the "Executive Releasors") does hereby irrevocably and
unconditionally release, acquit and forever discharge the Company and its
subsidiaries, affiliates, divisions, successors, assigns, trustees,
officers, directors, partners, agents, and former and current employees,
including without limitation, all persons acting by, through, under or in
concert with any of them (collectively, the "Company Releasees"), and each
of them from any and all charges, complaints, claims, liabilities,
obligations, promises, agreements, controversies, damages, remedies,
actions, causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorneys' fees and costs ) of any nature whatsoever,
known or unknown, whether in law or equity and whether arising under
federal, state or local law and in particular any claim for discrimination
based upon race, color, ethnicity, sex, age (including the Age
Discrimination Employment Act of 1967), national origin, religion,
disability, or any other unlawful criterion or circumstance, which
Executive Releasors had, now have, or may have to claim to have in the
future against each or any of the Company Releasees from the beginning of
the world until the date of the execution of this Release relating to the
Executive's employment with the Company and its subsidiaries and
affiliates; provided, however, that nothing herein shall release the
Company from the obligation to make the payments described in the
Employment Agreement prior
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to the satisfaction of such payments in full and to indemnify the Executive
in accordance with Section 2 (b) (v) of the Employment Agreement.
5. Bar. The Executive acknowledges and agrees that if should hereafter make
any claim or demand or commence or threaten to commence any action, claim
or proceeding against the Company Releasees with respect to any cause,
matter or thing which is the subject of Paragraph 4 of this Release, this
Release may be raised as a complete bar to any such action, claim or
proceeding, and the applicable Company Releasees may recover from the
Executive all costs incurred in connection with such action, claim or
proceeding, including attorneys' fees.
6. Governing Law. This Release shall be governed by and construed in
accordance with the laws of the State of Rhode Island.
7. Acknowledgement. The parties hereto have read this Release, understand it,
and voluntarily accept its terms, and the Executive acknowledges that he
has been advised by the Company to seek the advice of legal counsel before
entering into this Release, and has been provided with a period of
twenty-one (21) days in which to consider entering into this Release.
8. Revocation. The Executive has a period of seven (7) days following the
execution of this Release during which the Executive may revoke this
Release, and this Release shall not become effective or enforceable until
such revocation period has expired.
9. Counterparts. This Release may be executed by the parties hereto in
counterparts, which taken together shall be deemed one original.
IN WITNESS WHEREOF, the parties have executed this Release on the date
first set forth above.
------------------------------
David L. Eyles
FLEET FINANCIAL GROUP, INC.
-----------------------------
By:
Title:
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GENERAL RELEASE
THIS GENERAL RELEASE is executive and delivered by Fleet Financial Group,
Inc., a Rhode Island Corporation (the "Company") to David L. Eyles (the
"Executive").
1. Release. The Company, on its own behalf and on behalf of its subsidiaries
and affiliates, agree to and do hereby irrevocably and unconditionally
release, acquit and forever discharge the Executive, his heirs, executors,
and administrators (hereinafter collectively referred to as the "Executive
Releasees"), with respect to and from any and all charges, complaints,
claims, liabilities, obligations, promises, agreements, controversies,
damages, remedies, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses of any kind whatsoever, known or unknown,
whether in law or equity and whether arising under federal, state or local
law for, upon, or by reason or, any matter, course or thing whatsoever from
the beginning of the world until the date of the execution of this Release
relating to the Executive's employment with the Company and its
subsidiaries and affiliates; provided, however, that nothing herein shall
release the Executive from the obligations or restrictions arising under or
referred to or described in Section 8 of the Employment Agreement between
the Company and the Executive dated as of August __, 1999 (the "Employment
Agreement"), or impair the right or ability of the Company to enforce such
provisions in accordance with the terms of the Employment Agreement. All
claims released by the undersigned pursuant to this Release shall
collectively be referred to herein as the "Released Company Claims."
Notwithstanding the foregoing, in no event shall the Released Company
Claims include any claims involving fraud, or willful misconduct with
respect to the Company on the part of the Executive, which fraud or willful
misconduct is not known to an Officer of the Company as of August __, 1999.
2. Bar. The Company, on its own behalf and on behalf of its subsidiaries and
affiliates, acknowledge and agree that if they should hererafter make any
claim or demand or commence or threaten to commence any action, claim or
proceeding against the Executive Releasees with respect to any cause,
matter or thing which is the subject of Paragraph 1 of this Release, this
Release may be raised as a complete bar to any such action, claim or
proceeding, and the applicable Executive Releasees may recover from the
Company, its subsidiaries and affiliates all costs incurred in connecction
with such action, claim or proceeding, including attorneys' fees.
3. Governing Law. This Release shall be governed by and construed in
accordance with the laws of the State of Rhode Island.
4. Successors. This Release shall be binding upon the Company, its
subsidiaries and affiliates and their successors and assigns.
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5. Counterparts. This Release may be executed by the parties hereto in
counterparts, which taken together shall be deemed one original.
IN WITNESS WHEREOF, this Release has been executed on behalf of each of
the Company and the Executive on this ___ day of __________, ____.
------------------------------
David L. Eyles
FLEET FINANCIAL GROUP, INC.
------------------------------
By:
Title:
AGREEMENT
AGREEMENT by and between FLEET BOSTON CORPORATION, a Rhode Island
corporation (the "Company"), and [ ] (the "Executive"), dated as of
October 1, 1999.
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
bank holding companies. Therefore, in order to accomplish these objectives, the
Board caused the Company to enter into an Agreement with the Executive.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall be the first date during the
"Change of Control Period" (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
the Executive's employment with the Company is terminated or the Executive
ceases to be an officer of the Company prior to the date on which a Change of
Control occurs, and it is reasonably demonstrated that such termination of
employment (1) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (2) otherwise arose in
connection with or anticipation of the Change of Control, then for all purposes
of this Agreement the "Effective Date" shall mean the date immediately prior to
the date of such termination of employment.
(b) The "Change of Control Period" is the period commencing on
the date hereof and ending on the earlier to occur of (x) the third anniversary
of such date and (y) the Executive's normal retirement under the Fleet Boston
Corporation Pension Plan or similar BankBoston Plan in which the Executive is a
participant ("Normal Retirement Date"); provided, however, that commencing on
the date one year after the date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof is hereinafter referred to
as the "Renewal Date"), the Change of Control Period shall be automatically
extended without any further action by the Company or the Executive so as to
terminate three years from such Renewal Date; provided, however, that if either
the Company or the Executive shall give notice in writing to the other, 120 days
prior to the Renewal Date, stating that the Change of Control Period shall not
be extended, then the Change of Control Period shall expire three years from the
date hereof, or if later, three years from the last effective Renewal Date.
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2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock"); provided, however, that
any acquisition by the Company or its subsidiaries, or any employee benefit plan
(or related trust) of the Company or its subsidiaries, of 25% or more of the
Outstanding Company Common Stock shall not constitute a Change of Control; and
provided, further that any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then outstanding shares of
common stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock immediately prior
to such acquisition in substantially the same proportion as their ownership
immediately prior to such acquisition of the Outstanding Company Common Stock,
shall not constitute a Change of Control; or
(b) Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual becoming a
director subsequent to the date of this Agreement whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) Consummation of a reorganization, merger, consolidation,
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly or indirectly, more than 50% of the then outstanding shares of common
stock of the corporation resulting from such a Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries).
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Anything in this Agreement to the contrary notwithstanding, if
an event that would, but for this paragraph, constitute a Change of Control
results from or arises out of a purchase or other acquisition of the Company,
directly or indirectly, by a corporation or other entity in which the Executive
has a greater than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change of Control.
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3. Employment Period. Subject to the terms and conditions hereof, the
Company hereby agrees to continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company, for the period commencing
on the Effective Date and ending on the earlier to occur of (x) the last day of
the twenty-fourth month following the month in which the Effective Date occurs,
and (y) the Executive's Normal Retirement Date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"),
which shall be paid at a bi-weekly rate, at least equal to twelve times
the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month
period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be
reviewed at least annually and shall be increased at any time and from
time to time as shall be substantially consistent with increases in
base salary awarded in the ordinary course of business to other peer
executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer
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to Annual Base Salary as so increased. As used in this Agreement, the
term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the average annualized (for any fiscal year consisting
of less than twelve full months or with respect to which the Executive
has been employed by the Company for less than twelve full months)
bonus (the "Average Annual Bonus") paid or payable to the Executive by
the Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date
occurs, or such shorter period of the Executive's employment with the
Company. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iii) Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary and Annual Bonus payable as hereinabove
provided, the Executive shall be entitled to participate during the
Employment Period in all incentive, savings and retirement plans,
practices, policies and programs applicable to other peer executives of
the Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive, savings and retirement benefits opportunities, in each case,
less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive
under such plans, practices, policies and programs as in effect at any
time during the one-year period immediately preceding the Effective
Date.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) and applicable to other peer
executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide benefits
which are less favorable, in the aggregate, than the most favorable of
such plans, practices, policies and programs in effect at any time
during the one-year period immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect at any time during the one-year
period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
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(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with
the most favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect at any time during the
one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company and
its affiliated companies at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies as in effect at any time during the
one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" means the absence of the Executive from the Executive's duties with
the Company on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for "Cause". For purposes of this
Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the
Executive and intended to result in substantial personal enrichment of the
Executive at the expense of the Company, (ii) repeated violations by the
Executive of the Executive's obligations under Section 4(a) of this Agreement
which are demonstrably willful and deliberate on the Executive's part and which
are not remedied in a reasonable period of time after receipt of written notice
from the Company or (iii) the conviction of the Executive of a felony involving
moral turpitude.
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(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section
4(a)(i)(B) hereof;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with
and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30 day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days after the giving
of such notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing the Executive's
rights hereunder.
(e) Date of Termination. "Date of Termination" means the date
of receipt of the Notice of Termination or any later date specified therein, as
the case may be; provided, however, that (i) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
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of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company Upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than the sum of the following
obligations: (i) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (ii) the product of (A) the
greater of (x) the Annual Bonus paid or payable (and annualized for any fiscal
year consisting of less than 12 full months or for which the Executive has been
employed for less than 12 full months) to the Executive for the most recently
completed fiscal year during the Employment Period, if any, and (y) the Average
Annual Bonus (such greater amount hereafter referred to as the "Highest Annual
Bonus") and (B) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365 and (iii) any accrued vacation pay not yet paid by the Company (the
amounts described in subparagraphs (i), (ii) and (iii) are hereafter referred to
as "Accrued Obligations"). All Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. Anything in this Agreement to the contrary
notwithstanding, the Executive's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company and any of
its affiliated companies to surviving families of peer executives of the Company
and such affiliated companies under such plans, programs, practices and policies
relating to family death benefits, if any, as in effect with respect to other
peer executives and their families at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their families.
(b) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations. All Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the Executive shall
be entitled after the Disability Effective Date to receive disability and other
benefits at least equal to the most favorable of those provided by the Company
and its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect with respect to other peer executives and their
families at any time during the one-year period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families.
(c) Cause; Other Than for Good Reason. If the Executive's
employment shall be terminated for Cause or other than for Good Reason during
the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
Annual Base Salary through the Date of Termination to the extent theretofore
unpaid. In such case, such amounts shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
(d) Good Reason; Other Than for Cause or Disability. If,
during the
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Employment Period, the Company shall terminate the Executive's employment other
than for Cause or Disability, or if the Executive shall terminate employment
under this Agreement for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
A. all Accrued Obligations; and
B. an amount equal to the product of (x) three and (y)
the sum of (i) Annual Base Salary and (ii) the Highest Annual
Bonus; and
C. a lump sum retirement benefit equal to the
difference between (a) the actuarial equivalent of the benefit
under the Fleet Boston Corporation Pension Plan or similar
BankBoston Plan in which the Executive is a participant (the
"Pension Plan"), as supplemented by the Retirement Income
Assurance Plan or any successor to such plan or similar
BankBoston Plan in which the Executive is a participant (the
"RIAP") and the Supplemental Executive Retirement Plan or any
successor to such plan or similar BankBoston Plan in which the
Executive is a participant (the "SERP"; and together with the
RIAP and the Pension Plan or similar BankBoston Plan in which
the Executive is a participant , collectively referred to as
the "Retirement Plans"), which the Executive would receive if
the Executive was fully vested in the Retirement Plans and the
Executive's employment continued at the compensation level
provided for in Sections 4(b)(i) and 4(b)(ii) for three years
after the Date of Termination, and such three additional years
shall be credited to the Executive for purposes of calculating
the Executive's age, final average salary and years of service
accrued under the Retirement Plans, provided, however, that
any benefit to the Executive under any one or more of the
Retirement Plans shall be included in the foregoing
calculation only to the extent the Executive participated in
such Retirement Plans immediately prior to the Effective Date,
and (b) the actuarial equivalent of the Executive's actual
benefit (paid or payable), if any, under the Retirement Plans;
and
D. the Executive shall be entitled to receive a
lump-sum payment equal to (i) the employer matching
contributions that the Company would have made on the
Executive's behalf to the Fleet Boston Corporation Savings
Plan or other similar or successor plan or similar BankBoston
Plan in which the Executive is a participant (the "Savings
Plan") and the Executive Supplemental Plan or similar
BankBoston Plan in which the Executive is a participant
(assuming the maximum employee deferral election, and the
maximum employer matching contribution rate, permitted under
each of the Savings Plan and Executive Supplemental Plan) if
the Executive's employment continued at the compensation level
provided for in Section 4(b)(i) for three years, plus (ii) the
amount, if any, of his account in the Savings Plan which is
forfeitable on the Date of Termination; and
(ii) for three years after the Executive's Date of
Termination, or such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those
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which would have been provided in accordance with the applicable plans,
programs, practices and policies described in Section 4(b)(iv) of this
Agreement as if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies and their families. For purposes of determining eligibility
of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to
have remained employed until three years after the Date of Termination
and to have retired on the last day of such period.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plans, programs, policies or practices,
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any other agreements with the Company or
any of its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of the Company or any of its affiliated companies at or subsequent to
the Date of Termination shall be payable in accordance with such plan, policy,
practice or program except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to Section 9 of this
Agreement), plus in each case interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a),
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if it shall be determined that the Executive is entitled to a Gross-Up Payment,
but that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $50,000 (taking
into account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount
(the "Reduced Amount") such that the receipt of Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick unless such firm shall be the accounting firm of the
Company or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive (which may be KPMG Peat
Marwick if agreed to by the Executive), or, if the Company does not so agree
within 10 days of the Date of Termination, such an accounting firm shall be
selected by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the date such firm is selected or such earlier time as is reasonably
requested by the Company. All fees and expenses to the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by an Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
receives written notification of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, provided, however, that the Company's
selection of one or more attorneys to provide legal
representation with
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respect to such claim shall be subject to the Executive's
prior written approval;
(iii) cooperate with the Company in good faith in order
to contest such claim effectively; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Coordination with the Employment Agreement, as may be amended from
time to time, between the Executive and Fleet Financial Group, Inc.
dated March 14, 1999 ("Employment Agreement).
From and after a Change in Control and during the term of this
Agreement, in the event of any termination of employment that entitles the
Executive to benefits under both this
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Agreement and the Employment Agreement, the Executive shall be entitled to
benefits hereunder only to the extent that the aggregate amount of benefits to
which he is entitled hereunder exceeds the aggregate amount of benefits to which
he is entitled under the Employment Agreement. Notwithstanding any provision to
the contrary contained herein, the terms and conditions of the Executive's
employment with the Company during the term of the Employment Agreement shall be
governed by the Employment Agreement.
11. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive' s employment with the Company,
the Executive shall not, without the prior written consent of the Company,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
12. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Rhode Island, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
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[ ]
Fleet Boston Corporation
100 Federal Street
Boston, MA 02110
If to the Company:
Fleet Boston Corporation
100 Federal Street
Boston, MA 02110
Attention: General Counsel
or such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof and by
entering into this Agreement the Executive waives all rights he may have under
the Company's separation policy.
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the day and year first above-written.
-----------------------------
[ ]
FLEET BOSTON CORPORATION
By___________________________
William C. Mutterperl
Executive Vice President
13
AGREEMENT
AGREEMENT by and between FLEET BOSTON CORPORATION, a Rhode Island
corporation (the "Company"), and JOSEPH A. SMIALOWSKI (the "Executive"), dated
as of the 1st day of October, 1999.
WHEREAS, the Human Resources and Board Governance Committee (the
"Committee") of the Board of Directors of the Company (the "Board") determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Committee believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
bank holding companies. Therefore, in order to accomplish these objectives, the
Committee caused the Company to enter into this Agreement with the Executive.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall be the first date during the
"Change of Control Period" (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
the Executive's employment with the Company is terminated or the Executive
ceases to be an officer of the Company prior to the date on which a Change of
Control occurs, and it is reasonably demonstrated that such termination of
employment (1) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (2) otherwise arose in
connection with or anticipation of the Change of Control, then for all purposes
of this Agreement the "Effective Date" shall mean the date immediately prior to
the date of such termination of employment.
(b) The "Change of Control Period" is the period commencing on
the date hereof and ending on the earlier to occur of (x) the third anniversary
of such date and (y) the Executive's normal retirement under the Fleet Boston
Corporation Pension Plan or similar BankBoston Plan which the Executive is a
participant ("Normal Retirement Date"); provided, however, that commencing on
the date one year after the date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof is hereinafter referred to
as the "Renewal Date"), the Change of Control Period shall be automatically
extended without any further action by the Company or the Executive so as to
terminate three years from such Renewal Date; provided, however, that if either
the Company or the Executive shall give notice in writing to the other, 120 days
prior to the Renewal Date, stating that the Change of Control Period shall not
be extended, then the Change of Control Period shall expire three years from the
date hereof, or if later, three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
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(a) The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock"); provided, however, that
any acquisition by the Company or its subsidiaries, or any employee benefit plan
(or related trust) of the Company or its subsidiaries, of 25% or more of the
Outstanding Company Common Stock shall not constitute a Change of Control; and
provided, further that any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then outstanding shares of
common stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock immediately prior
to such acquisition in substantially the same proportion as their ownership
immediately prior to such acquisition of the Outstanding Company Common Stock,
shall not constitute a Change of Control; or
(b) Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any individual becoming a
director subsequent to the date of this Agreement whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the Directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) Consummation of a reorganization, merger, consolidation,
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, with respect to which all or
substantially all of the individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly or indirectly, more than 50% of the then outstanding shares of common
stock of the corporation resulting from such a Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries).
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Anything in this Agreement to the contrary notwithstanding, if
an event that would, but for this paragraph, constitute a Change of Control
results from or arises out of a purchase or other acquisition of the Company,
directly or indirectly, by a corporation or other entity in which the Executive
has a greater than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof, the
Company hereby agrees to continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company, for the period commencing
on the Effective Date and ending on the earlier to occur of (x) the last day of
the twenty-fourth month following the month
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in which the Effective Date occurs, and (y) the Executive's Normal Retirement
Date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood
and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"),
which shall be paid at a bi-weekly rate, at least equal to twelve times
the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month
period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be
reviewed at least annually and shall be increased at any time and from
time to time as shall be substantially consistent with increases in
base salary awarded in the ordinary course of business to other peer
executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary
as so increased. As used in this Agreement, the term "affiliated
companies" includes any company controlled by, controlling or under
common control with the Company.
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(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the average annualized (for any fiscal year consisting
of less than twelve full months or with respect to which the Executive
has been employed by the Company for less than twelve full months)
bonus (the "Average Annual Bonus") paid or payable to the Executive by
the Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date
occurs, or such shorter period of the Executive's employment with the
Company. Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iii) Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary and Annual Bonus payable as hereinabove
provided, the Executive shall be entitled to participate during the
Employment Period in all incentive, savings and retirement plans,
practices, policies and programs applicable to other peer executives of
the Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive with
incentive, savings and retirement benefits opportunities, in each case,
less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive
under such plans, practices, policies and programs as in effect at any
time during the one-year period immediately preceding the Effective
Date.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) and applicable to other peer
executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide benefits
which are less favorable, in the aggregate, than the most favorable of
such plans, practices, policies and programs in effect at any time
during the one-year period immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and
its affiliated companies in effect at any time during the one-year
period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with
the most favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect at any time during the
one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
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(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company and
its affiliated companies at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies as in effect at any time during the
one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" means the absence of the Executive from the Executive's duties with
the Company on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for "Cause". For purposes of this
Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the
Executive and intended to result in substantial personal enrichment of the
Executive at the expense of the Company, (ii) repeated violations by the
Executive of the Executive's obligations under Section 4(a) of this Agreement
which are demonstrably willful and deliberate on the Executive's part and which
are not remedied in a reasonable period of time after receipt of written notice
from the Company or (iii) the conviction of the Executive of a felony involving
moral turpitude.
(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of
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this Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section
4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive for
any reason during the 30 day period immediately following the first anniversary
of the Effective Date shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days after the giving
of such notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing the Executive's
rights hereunder.
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(e) Date of Termination. "Date of Termination" means the date
of receipt of the Notice of Termination or any later date specified therein, as
the case may be; provided, however, that (i) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company Upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than the sum of the following
obligations: (i) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (ii) the product of (A) the
greater of (x) the Annual Bonus paid or payable (and annualized for any fiscal
year consisting of less than 12 full months or for which the Executive has been
employed for less than 12 full months) to the Executive for the most recently
completed fiscal year during the Employment Period, if any, and (y) the Average
Annual Bonus (such greater amount hereafter referred to as the "Highest Annual
Bonus") and (B) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365 and (iii) any accrued vacation pay not yet paid by the Company (the
amounts described in subparagraphs (i), (ii) and (iii) are hereafter referred to
as "Accrued Obligations"). All Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. Anything in this Agreement to the contrary
notwithstanding, the Executive's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company and any of
its affiliated companies to surviving families of peer executives of the Company
and such affiliated companies under such plans, programs, practices and policies
relating to family death benefits, if any, as in effect with respect to other
peer executives and their families at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their families.
(b) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations. All Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the Executive shall
be entitled after the Disability Effective Date to receive disability and other
benefits at least equal to the most favorable of those provided by the Company
and its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect with respect to other peer executives and their
families at any time during the one-year period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families.
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(c) Cause; Other Than for Good Reason. If the Executive's
employment shall be terminated for Cause or other than for Good Reason during
the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
Annual Base Salary through the Date of Termination to the extent theretofore
unpaid. In such case, such amounts shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
(d) Good Reason; Other Than for Cause or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability, or if the Executive shall
terminate employment under this Agreement for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
A. all Accrued Obligations; and
B. an amount equal to the product of (x) three and
(y) the sum of (i) Annual Base Salary and (ii) the Highest
Annual Bonus; and
C. a lump sum retirement benefit equal to the
difference between (a) the actuarial equivalent of the benefit
under the Fleet Boston Corporation Pension Plan or similar
BankBoston Plan in which the Executive is a participant (the
"Pension Plan"), as supplemented by the Retirement Income
Assurance Plan or any successor to such plan or similar
BankBoston Plan in which the Executive is a participant (the
"RIAP") and the Supplemental Executive Retirement Plan or any
successor to such plan or similar plan sponsored by BankBoston
in which the Executive is a participant (the "SERP"; and
together with the RIAP and the Pension Plan or similar
BankBoston Plan in which the Executive is a participant,
collectively referred to as the "Retirement Plans"), which the
Executive would receive if the Executive was fully vested in
the Retirement Plans and the Executive's employment continued
at the compensation level provided for in Sections 4(b)(i) and
4(b)(ii) for three years after the Date of Termination, and
such three additional years shall be credited to the Executive
for purposes of calculating the Executive's age, final average
salary and years of service accrued under the Retirement
Plans, provided, however, that any benefit to the Executive
under any one or more of the Retirement Plans shall be
included in the foregoing calculation only to the extent the
Executive participated in such Retirement Plans immediately
prior to the Effective Date, and (b) the actuarial equivalent
of the Executive's actual benefit (paid or payable), if any,
under the Retirement Plans; and
D. the Executive shall be entitled to receive a
lump-sum payment equal to (i) the employer matching
contributions that the Company would have made on the
Executive's behalf to the Fleet Boston Corporation Savings
Plan or other similar or successor plan or similar BankBoston
Plan in which the Executive is a participant (the "Savings
Plan") and the Executive Supplemental Plan or similar
BankBoston Plan in which the Executive is a participant
(assuming the maximum employee deferral election, and the
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maximum employer matching contribution rate, permitted under
each of the Savings Plan and Executive Supplemental Plan) if
the Executive's employment continued at the compensation level
provided for in Section 4(b)(i) for three years, plus (ii) the
amount, if any, of his account in the Savings Plan which is
forfeitable on the Date of Termination; and
(ii) for three years after the Executive's Date of
Termination, or such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which
would have been provided in accordance with the applicable plans,
programs, practices and policies described in Section 4(b)(iv) of this
Agreement as if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies and their families. For purposes of determining eligibility
of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to
have remained employed until three years after the Date of Termination
and to have retired on the last day of such period.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plans, programs, policies or practices,
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any other agreements with the Company or
any of its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of the Company or any of its affiliated companies at or subsequent to
the Date of Termination shall be payable in accordance with such plan, policy,
practice or program except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to Section 9 of this
Agreement), plus in each case interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be
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subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it
shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $50,000 (taking
into account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount
(the "Reduced Amount") such that the receipt of Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick unless such firm shall be the accounting firm of the
Company or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive (which may be KPMG Peat
Marwick if agreed to by the Executive), or, if the Company does not so agree
within 10 days of the Date of Termination, such an accounting firm shall be
selected by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the date such firm is selected or such earlier time as is reasonably
requested by the Company. All fees and expenses to the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by an Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
receives written notification of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company
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notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, provided, however, that the Company's selection of one or more
attorneys to provide legal representation with respect to such claim
shall be subject to the Executive's prior written approval;
(iii) cooperate with the Company in good faith in
order to contest such claim effectively; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance
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<PAGE>
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive' s employment with the
Company, the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Rhode Island, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Joseph A. Smialowski
100 Federal Street
Boston, MA 02110
If to the Company:
Fleet Boston Corporation
100 Federal Street
Boston, MA 02110
Attention: General Counsel
or such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision thereof.
(f) No provision of this Agreement shall make the Executive
eligible to participate or a participant in any of the Company's employee plans
or employee benefits that the Executive was not eligible to participate or a
participant prior to the Effective Date.
(g) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof and by
entering into this Agreement the Executive waives all rights he may have under
the Company's separation policy.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the day and year first above-written.
/s/ JOSEPH A. SMIALOWSKI
---------------------------
Joseph A. Smialowski
FLEET BOSTON CORPORATION
By /s/ WILLIAM C. MUTTERPERL
-------------------------
William C. Mutterperl
Executive Vice President
14
EXECUTION COPY
RETENTION AND DEFERRED COMPENSATION AGREEMENT
THIS RETENTION AND DEFERRED COMPENSATION AGREEMENT
("Agreement") dated December 31, 1999 and effective as of October 1, 1999 (the
"Effective Date") by and between Fleet Boston Corporation, a corporation
organized under the laws of Rhode Island (the "Company") and Peter J. Manning
(the "Executive").
WITNESSETH:
WHEREAS, the Company has determined that appropriate steps should be
taken to encourage the Executive to remain employed by the Company by providing
for certain benefits;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree to the following:
1. Definitions. The following terms shall have the meanings ascribed to
them below.
(a) "Cause," for termination of the Executive's employment by the
Company, shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a notice
of termination for Good Reason by the Executive) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in gross misconduct which is demonstrably and
materially injurious to the Company or any of its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company. A termination of the Executive's employment for Cause shall not be
effective for purposes of this Agreement unless there is delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three
<PAGE>
quarters (3/4) of the entire membership of the Company's Board of Directors
("Board") at a meeting of the Board that was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in clause (i) or (ii) of the
definition of Cause herein, and specifying the particulars thereof in detail.
(b) "Change in Control" shall mean
(i) The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the then outstanding
shares of common stock of the Company (the "Outstanding Company Common
Stock"); provided, however, that any acquisition by the Company or its
subsidiaries, or any employee benefit plan (or related trust) of the
Company or its subsidiaries, of 25% or more of the Outstanding Company
Common Stock shall not constitute a Change of Control; and provided,
further, that any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then outstanding shares of
common stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common Stock
immediately prior to such acquisition in substantially the same proportion
as their ownership immediately prior to such acquisition of the Outstanding
Company Common Stock, shall not constitute a Change of Control; or
(ii) Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date of this Agreement whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
Directors of the Company (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
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(iii) Consummation of a reorganization, merger, consolidation,
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, with respect to which all
or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately prior
to such Business Combination do not, following such Business Combination,
beneficially own, directly or indirectly, more than 50% of the then
outstanding shares of common stock of the corporation resulting from such a
Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries).
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Anything in this Agreement to the contrary notwithstanding, if an
event that would, but for this paragraph, constitute a Change of Control
results from or arises out of a purchase or other acquisition of the Company,
directly or indirectly, by a corporation or other entity in which the Executive
has a greater than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change of Control.
(c) "Date of Termination," with respect to termination of employment
by reason of death, shall mean the date of death, and with respect to any other
termination of employment, shall mean the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days, except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than fifteen
(15) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given). "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon, shall
(if applicable) set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated, and shall specify the date on which the termination
of employment shall be effective.
"Good Reason," for termination by the Executive of the Executive's employment,
shall mean any reason that is approved by Charles K Gifford or, in the event
that Mr. Gifford ceases to be an executive officer of the Company, any reason
deemed sufficient by the Executive.
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2. Retention Payment.
(a) The Executive shall be entitled to receive on the Distribution
Date (as defined in Section 3) an amount equal to $2,705,000 (the "Retention
Payment") if any of the following events shall occur:
(i) the Executive's employment with the Company continues
through the second anniversary of the Effective Date of this Agreement (the
"Retention Date"), or
(ii) the Executive's employment with the Company is terminated
prior to the Retention Date by the Company without Cause, or
(iii) the Executive's employment with the Company is terminated
prior to the Retention Date by the Executive for Good Reason, or
(iv) the Executive's employment with the Company is terminated
prior to the Retention Date by reason of death or disability; or
(v) a Change in Control occurs prior to the Retention Date.
If the Executive's employment is terminated prior to the Retention Date (i) by
the Company for Cause or (ii) by the Executive other than for Good Reason, the
Executive shall not be entitled to any portion of the Retention Payment.
(b) The Retention Payment shall accrue interest at an annual rate
equal to the "prime rate," as in effect from time to time, compounded daily,
during the period (the "Interest Term") commencing on the Effective Date of this
Agreement and ending on the Distribution Date, as defined in Section 3 (subject
to the limitation that the average interest rate used in each full or partial
calendar year during the Interest Term shall in no event exceed 10%). If the
Executive's employment is terminated prior to the Retention Date (i) by the
Company for Cause or (ii) by the Executive other than for Good Reason, the
Executive shall not be entitled to any portion of such accrued interest.
3. Distribution of Retention Payment.
(a) No portion of the Retention Payment may be distributed
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<PAGE>
to the Executive during the period that the Executive is employed by the
Company. If the Executive becomes entitled to the Retention Payment pursuant to
Section 2(a), the Executive may elect to have the Retention Payment distributed
in any of the following forms: (i) in a cash lump sum no later than the fifth
business day following the Date of Termination; or (ii) in periodic installments
for a period of 5, 10 or 15 years following the Date of Termination; provided,
however, if the Executive is less than 55 years old when the Executive becomes
entitled to distribution of the Retention Payments, only the lump sum payment
option described in (i) above shall be available to the Executive. The term
"Distribution Date," with respect to a lump-sum payment or one in a series of
periodic payments, shall mean the date on which such payment is made.
(b) The Executive may designate a beneficiary who will be entitled to
any portion of the Retention Payment to which the Executive is entitled in the
event of his death. The beneficiary may be designated or changed by the
Executive (without the consent of any prior beneficiary) on a form provided by
the Company and delivered to the Company before his death. If no such
beneficiary shall have been designated, or if no designated beneficiary shall
survive the Executive, the Retention Payment, if not previously paid, shall be
paid to the Executive's estate.
(c) On the Effective Date of this Agreement, the Executive shall make
an initial written election as to the form and time of the distribution of the
Retention Payment, in the space provided on the signature page of this
Agreement. At any time after the initial election, the Executive may change his
election by delivering to the Company written notice of such change; provided,
however, that no such subsequent election shall be effective unless such notice
is delivered to the Company at least 12 months prior to the Executive's (i)
reasonably anticipated retirement from the Company or (ii) termination of
employment.
4. Additional Payment. It is the intention of the parties hereto that no
part of the Retention Payment will be treated as an "excess parachute payment"
for purposes of the excise tax (the "Excise Tax") imposed under section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"). If, however, an
Excise Tax is imposed upon the Retention Payment or any other payment or deemed
payment made to the Executive, then the Company shall make an additional payment
to the Executive in accordance with the terms and conditions set forth on
Appendix I hereto.
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<PAGE>
5. Legal Fees. The Company also shall pay to the Executive all legal
fees and expenses that may be incurred in good faith by the Executive in seeking
to obtain or enforce any benefit or right provided by this Agreement. Such
payments shall be made within five (5) business days after delivery of the
Executive's written requests for payment accompanied with such evidence of fees
and expenses incurred as the Company reasonably may require.
6. No Effect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish the Executive's existing rights (or
rights which would accrue solely as a result of the passage of time) under any
employee benefit plan or employment agreement or other contract, plan or
arrangement nor shall any amounts payable hereunder be considered in determining
the amount of benefits payable to the Executive under any such plan, agreement
or contract.
7. Nonalienation of Benefits. The right of the Executive or any other
person to the payment of deferred compensation or other benefits under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment or garnishment by
creditors of the Executive or the Executive's beneficiary or estate.
8. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to the Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid that becomes bound by the terms and provisions of this Agreement, by
operation of law or otherwise.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, legatees and beneficiaries. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such
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<PAGE>
designee, to the Executive's estate.
9. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed, if to the Executive, to the address
printed on the signature page of this Agreement, and if to the Company, to its
headquarters, attention: General Counsel, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing by the Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party that are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts
without regard to its conflicts of law principles.
11. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein, and shall
be deemed to supersede the agreement entered into between the Executive and
BankBoston Corporation, dated June 25, 1998, as amended (the "Severance
Agreement"), and any promises, covenants, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter contained herein.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FLEET BOSTON CORPORATION
/s/ M. ANNE SZOSTAK
---------------------------------
By: M. Anne Szostak
Title: Executive Vice Presidnet
/s/ PETER J. MANNING
---------------------------------------
Name: Peter J. Manning
Address: 84 Partridge Lane
Concord, MA 01742
I hereby elect to receive the Retention Payment as follows:
[ ] In one lump-sum payment, within five days following the Date of
Termination.
[X] In a series of quarterly payments, commencing on the Date of
Termination and ending on the 15th anniversary thereof (select 5th,
10th or 15th anniversary).
/s/ PETER J. MANNING
----------------------------------
Peter J. Manning
8
<PAGE>
APPENDIX I
Procedures for Determination of Additional Payment
(a) Subject to the limitations set forth in paragraph (e) of this
Appendix, if the Executive becomes subject to the excise tax (the "Excise Tax")
imposed under section 4999 of the Internal Revenue Code of 1986, as amended(the
"Code"), upon "excess parachute payments" (as defined in section 280G of the
Code), the Company shall promptly pay the Executive the amount or amounts (a
"Gross-Up Payment") that are necessary to place the Executive in the same
after-tax (taking into account federal, state, local income, excise,
unemployment and other taxes) financial position that he would have been in if
he had not incurred any tax liability under section 4999 of the Code, but only
to the extent that the Excise Tax results in a payment to the Internal Revenue
Service.
(b) If the Company has determined that no Gross-Up Payment is necessary,
then in no case will the Executive file a tax return which takes a position that
any Excise Tax is payable, unless he receives a written opinion from his tax
advisor that it is more likely than not that such Excise Tax is due and payable.
Upon receipt of such written opinion, the Executive shall communicate such
written opinion to the Company not less than 30 days prior to filing the tax
return to which the opinion refers. Prior to the due date for the filing of such
tax return, the Company shall pay to the Executive the Gross-Up Payment
described above.
(c) Each party will notify the other in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after such party is informed in
writing of such a claim and such party shall apprise the other party of the
nature of such claim and the date on which such claim is requested to be paid.
(d) The Company shall bear and pay directly all costs and expenses
(including legal fees and additional interest and penalties) incurred in
connection with any such claim or proceeding, to the extent related to the
Excise Tax, and shall indemnify and hold the Executive harmless, on an after-tax
basis, as provided in paragraph (a) of this Appendix, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses.
(e) In the event that all "parachute payments," as defined in section
280G of the Code, payable to the Executive (after deduction of the net amount of
federal, state and local income and employment taxes and the amount of Excise
Tax to which the Executive would be subject in respect of such "parachute
payments") does not equal or exceed 110% of the largest amount of "parachute
payments" that would result in no portion thereof being subject to the Excise
Tax (after deduction of the net amount of federal, state and local income and
employment taxes on such reduced payments), then paragraph (a) of this Appendix
shall not apply and the Retention Payment shall be reduced as necessary to
ensure that no portion of the
9
<PAGE>
"parachute payments" is subject to the Excise Tax.
If it is finally determined that the Excise Tax is less than the amount taken
into account in calculating the Gross-Up Payment under paragraph (a) hereof,
and/or the Retention Payment is to be reduced or further reduced pursuant to
paragraph (e) hereof, then the Executive shall promptly repay to the Company (x)
the portion of the Gross-Up Payment attributable to the excess Excise Tax and/or
(y) the excess Retention Payment, as applicable, plus interest on the amount of
such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the
Code, but such repayment plus interest thereon shall be required only to the
extent that such repayment results (1) (in the case of any repayment in the
Gross-Up Payment) in a reduction in the Excise Tax and (2) (in the case of any
repayment in the Gross-Up Payment or the Retention Payment) a dollar-for-dollar
reduction in the Executive's taxable income and wages for purposes of federal,
state and local income and employment taxes. If it is finally determined that
the Excise Tax exceeds the amount taken into account in calculating the Gross-Up
Payment under paragraph (a) hereof and/or the Retention Payment should not have
been reduced to the extent that it was, the Company shall promptly make an
additional Gross-Up Payment to the Executive and/or pay the Executive any
portion of the Retention Payment incorrectly reduced, as appropriate (plus any
interest, penalties or additions payable by the Executive with respect to such
excess and such portion), plus interest on the amount of such repayment at 120%
of the rate provided in section 1274(b)(2)(B) of the Code.
10
EXHIBIT 12
FLEET BOSTON CORPORATION
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
EXCLUDING INTEREST ON DEPOSITS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes $3,426 $3,776 $3,762 $3,185 $2,354 $2,431
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 2,794 2,240 1,788 1,686 2,492 2,112
(2) 1/3 of rent 103 96 92 95 90 88
(b) Preferred dividends 85 97 157 183 129 118
------ ------ ------ ------ ------ ------
(c) Adjusted earnings $6,408 $6,209 $5,799 $5,149 $5,065 $4,749
====== ====== ====== ====== ====== ======
Fixed charges and preferred dividends $2,982 $2,433 $2,037 $1,964 $2,711 $2,318
====== ====== ====== ====== ====== ======
Adjusted earnings/fixed charges 2.15x 2.55x 2.85x 2.62x 1.87x 2.05x
====== ====== ====== ====== ====== ======
</TABLE>
INCLUDING INTEREST ON DEPOSITS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes $3,426 $3,776 $3,762 $3,185 $2,354 $2,431
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 2,794 2,240 1,788 1,686 2,492 2,112
(2) 1/3 of rent 103 96 92 95 90 88
(3) Interest on deposits 3,516 3,706 3,339 3,433 3,517 2,471
(b) Preferred dividends 85 97 157 183 129 118
------ ------ ------ ------ ------ ------
(c) Adjusted earnings $9,924 $9,915 $9,138 $8,582 $8,582 $7,220
====== ====== ====== ====== ====== ======
Fixed charges and preferred dividends $6,498 $6,139 $5,376 $5,397 $6,228 $4,789
====== ====== ====== ====== ====== ======
Adjusted earnings/fixed charges 1.53x 1.62x 1.70x 1.59x 1.38x 1.51x
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 12 (CONTINUED)
FLEET BOSTON CORPORATION
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes $3,426 $3,776 $3,762 $3,185 $2,354 $2,431
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 2,794 2,240 1,788 1,686 2,492 2,112
(2) 1/3 of rent 103 96 92 95 90 88
------ ------ ------ ------ ------ ------
(b) Adjusted earnings $6,323 $6,112 $5,642 $4,966 $4,936 $4,631
====== ====== ====== ====== ====== ======
Fixed charges $2,897 $2,336 $1,880 $1,781 $2,582 $2,200
====== ====== ====== ====== ====== ======
Adjusted earnings/fixed charges 2.18x 2.62x 3.00x 2.79x 1.91x 2.11x
====== ====== ====== ====== ====== ======
</TABLE>
INCLUDING INTEREST ON DEPOSITS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes $3,426 $3,776 $3,762 $3,185 $2,354 $2,431
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 2,794 2,240 1,788 1,686 2,492 2,112
(2) 1/3 of rent 103 96 92 95 90 88
(3) Interest on deposits 3,516 3,706 3,339 3,433 3,517 2,471
------ ------ ------ ------ ------ ------
(b) Adjusted earnings $9,839 $9,818 $8,981 $8,399 $8,453 $7,102
====== ====== ====== ====== ====== ======
Fixed charges $6,413 $6,042 $5,219 $5,214 $6,099 $4,671
====== ====== ====== ====== ====== ======
Adjusted earnings/fixed charges 1.53x 1.62x 1.72x 1.61x 1.39x 1.52x
====== ====== ====== ====== ====== ======
</TABLE>
EXHIBIT 21
FLEET BOSTON CORPORATION
SUBSIDIARIES OF THE CORPORATION
SUBSIDIARY JURISDICTION OF INCORPORATION
- ---------- -----------------------------
Fleet National Bank United States
Fleet Bank (RI), National Association United States
Fleet Credit Card Holdings, Inc. Delaware
Fleet Credit Card Services, L.P. (98.73%) Rhode Island
Fleet Mortgage Group, Inc. Rhode Island
Fleet Holding Corp. Rhode Island
Fleet Capital Corporation Rhode Island
Fleet Leasing Partners I, L.P. Rhode Island
Fleet Business Credit Corporation Delaware
Fleet RI Holding Corp. Rhode Island
Fleet Investment Advisors Inc. New York
Fleet Investment Services, Inc. Rhode Island
Boston World Holding Corporation Massachusetts
Boston Overseas Financial Corporation Argentina
Fleet Bank, National Association United States
Fleet Private Equity Co., Inc. Rhode Island
Quick & Reilly/Fleet Securities, Inc. Delaware
FleetBoston Robertson Stephens Inc. Massachusetts
BancBoston Investments Inc. Massachusetts
BancBoston Capital, Inc. Massachusetts
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-43625, 33-36707, 333-62905, 333-86829), Form
S-8 (Nos. 33-19425, 33-25872, 33-65230, 33-48818, 33-56061, 33-62367, 33-59139,
333-16037, 333-44517, 333-68153, 333-83365, 333-95727), and Form S-4 (Nos.
33-58573, 33-58933, 333-42247, 333-82433) of Fleet Boston Corporation of our
report dated January 19, 2000 relating to the financial statements, which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1999 consolidated financial statements and management's discussion and
analysis of financial condition and results of operations contained in the Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,855
<INT-BEARING-DEPOSITS> 1,772
<FED-FUNDS-SOLD> 2,353
<TRADING-ASSETS> 7,849
<INVESTMENTS-HELD-FOR-SALE> 24,131
<INVESTMENTS-CARRYING> 1,081
<INVESTMENTS-MARKET> 1,081
<LOANS> 119,700
<ALLOWANCE> 2,488
<TOTAL-ASSETS> 190,692
<DEPOSITS> 114,896
<SHORT-TERM> 18,106
<LIABILITIES-OTHER> 17,034
<LONG-TERM> 25,349
0
691
<COMMON> 9
<OTHER-SE> 14,607
<TOTAL-LIABILITIES-AND-EQUITY> 190,692
<INTEREST-LOAN> 10,561
<INTEREST-INVEST> 1,699
<INTEREST-OTHER> 792
<INTEREST-TOTAL> 13,052
<INTEREST-DEPOSIT> 3,516
<INTEREST-EXPENSE> 6,310
<INTEREST-INCOME-NET> 6,742
<LOAN-LOSSES> 933
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 9,357
<INCOME-PRETAX> 3,426
<INCOME-PRE-EXTRAORDINARY> 3,426
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,038
<EPS-BASIC> 2.16
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 4.23
<LOANS-NON> 795
<LOANS-PAST> 320
<LOANS-TROUBLED> 40
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,306
<CHARGE-OFFS> 1,186
<RECOVERIES> 290
<ALLOWANCE-CLOSE> 2,488
<ALLOWANCE-DOMESTIC> 2,021
<ALLOWANCE-FOREIGN> 353
<ALLOWANCE-UNALLOCATED> 114
</TABLE>
