<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1996 0-20469
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U.S. TRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-3818952
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 852-1000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares, Par Value $1 Per Share
(Title of Class)
Rights to Purchase Series A Participating Cumulative Preferred Shares
(Title of Class)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CFR 230.405.)
$838,358,060 as of January 31, 1997
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
19,726,072 Common Shares, Par Value $1 Per Share, as of January 31, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended December
31, 1996 are incorporated by reference into Parts I and II. Portions of the
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held
April 22, 1997 are incorporated by reference into Part III.
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10-K CROSS-REFERENCE INDEX
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Page
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PART I
Item 1 Business............................................................. 74-77,(a)
Item 2 Properties........................................................... 77,(a)
Item 3 Legal Proceedings.................................................... 75,(a)
Item 4 Submissions of Matters to a Vote of Security Holders................. (b)
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters.............................................................. 66,(a)
Item 6 Selected Financial Data.............................................. 68,(a)
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 32-40,(a)
Item 8 Financial Statements and Supplementary Data.......................... 41-67,(a)
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. (b)
PART III
Item 10 Directors and Executive Officers of the Registrant................... 77,(a),(c)
Item 11 Executive Compensation............................................... (c)
Item 12 Security Ownership of Certain Beneficial Owners and Management....... (c)
Item 13 Certain Relationships and Related Transactions....................... (c)
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 3-5,(d)
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(a) Incorporated by reference to the Annual Report to Shareholders for the
fiscal year ended December 31, 1996.
(b) Nothing to report.
(c) Incorporated by reference to the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 22, 1997.
(d) Reports on Form 8-K: Nothing to report. Other schedules are omitted because
the required information either is not applicable or is not present in
amounts sufficient to require submission of schedule.
2
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INDEX OF EXHIBITS
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Exhibit No. Item
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2.1 Agreement and Plan of Merger dated as of November 18, 1994 (as amended,
supplemented or otherwise modified from time to time) between The Chase
Manhattan Corporation ("Chase") and the former U.S. Trust Corporation ("UST"),
filed as Appendix A to Exhibit 99.1 ("Exhibit 99.1") to UST's Annual Report on
Form 10-K (File No. 0-8709) for the fiscal year ended December 31, 1994.(1)(2)
2.2 Form of Agreement and Plan of Distribution among UST, the former United States
Trust Company of New York ("USTNY"), the Corporation and New U.S. Trust Company
of New York (the "Trust Company"), filed as Appendix B to Exhibit 99.1.(1)(2)
2.3 Form of Contribution and Assumption Agreement between USTNY and the Trust
Company, filed as Appendix C to Exhibit 99.1.(1)(2)
2.4 Form of Post Closing Covenants Agreement among Chase, UST, USTNY, the
Corporation and the Trust Company, filed as Appendix D to Exhibit 99.1.(1)
2.5 Tax Allocation Agreement dated as of September 1, 1995 among UST, the
Corporation and Chase, filed as Exhibit 2.5 to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.(1)
2.6 Services Agreement between USTNY and the Trust Company, dated September 1, 1995,
filed as Exhibit 2.6 to Amendment No. 1, dated December 27, 1995 to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995.(1)
3.1 Restated Certificate of Incorporation of the Corporation, filed as Exhibit 4(b)
to the Corporation's Registration Statement on Form S-8 (Registration No.
33-62371).(1)
3.2 By-Laws of the Corporation, filed as Appendix II to the Corporation's
Registration Statement on Form 10 dated February 9, 1995.(1)
4 Note: The exhibits filed herewith do not include the instruments with respect to
long-term debt of the Corporation and its subsidiaries, inasmuch as the total
amount of debt authorized under any such instrument does not exceed 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis.
The Corporation agrees, pursuant to Item 601 (b)(4)(iii) of Regulation S-K, that
it will furnish a copy of any such instrument to the Securities and Exchange
Commission upon request.
4.1 Rights Agreement, dated as of September 1, 1995, between the Corporation and
First Chicago Trust Company of New York, as Rights Agent, filed on September 5,
1995 as Exhibit 1 to the Corporation's Registration Statement on Form 8-A.(1)
4.2 Specimen certificate representing Rights to Purchase the Corporation's Series A
Participating Cumulative Preferred Shares, filed on September 5, 1995 as Exhibit
B to Exhibit 1 to the Corporation's Registration Statement on Form 8-A
registering such Rights.(1)
10.1 Sublease agreement, dated September 1, 1995, between The Chase Manhattan Bank
(National Association), as Sublessor, and the Trust Company, as Sublessee,
covering space at 770 Broadway, New York, New York, filed as Exhibit 10.1 to the
10-Q.(1)
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(1)Incorporated herein by reference.
(2)The copy of this document being incorporated by reference herein does not
include the exhibits and schedules thereto which are identified as being
omitted in the table of contents of this document. The Corporation undertakes
to furnish any such omitted exhibits and schedules to the Commission upon its
request.
3
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INDEX OF EXHIBITS -- (CONTINUED)
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Exhibit No. Item
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10.2 Lease, dated as of September 10, 1987, between 46-47 Associates, as Lessor, and
USTNY, as Lessee, covering space at 114 West 47th Street, New York, New York;
letters modifying the terms of such Lease dated, respectively, September 10,
1987 and October 2, 1989; Subordination Agreement dated as of September 10, 1987
between USTNY and 1133 Building Corp. subordinating to such Lease a ground lease
with respect to the property subject to such Lease; Right of First Refusal dated
as of September 10, 1987 between USTNY and the Lessor respecting the
construction of an annex (at 130 West 47th Street, New York, New York) adjacent
to the property subject to such Lease and which annex is to be subject to such
Lease; and Agreement dated as of September 10, 1987 among USTNY, the Lessor and
1155 Office Building Corp. under which USTNY and the Lessor may exercise an
option to purchase property (at 132 West 47th Street, New York, New York)
contiguous to the property subject to such Lease, filed as Exhibit (10)(k) to
UST's Annual Report on Form 10-K (File No. 0-8709) for the fiscal year ended
December 31, 1989.(1)
10.3 Lease modification agreement dated December 7, 1987, between 46-47 Associates,
as Lessor, and USTNY, as Lessee; Modification of Annex Agreement, dated December
7, 1987, between 46-47 Associates and USTNY; Modification of Right of First
Refusal Agreement, dated December 7, 1987, between 1133 Building Corp. and
USTNY, filed as Exhibit 10.5 to UST's Annual Report on Form 10-K (File No.
0-8709) for the fiscal year ended December 31, 1993 (the "1993 10-K").(1)
10.4 Confirmation and Clarification Agreement dated March 10, 1992, between 46-47
Associates, as Lessor, and USTNY, as Lessee, amending the lease agreement dated
September 10, 1987, filed as Exhibit 10.6 to the 1993 10-K.(1)
10.5 Clarification of Lease Modification Agreement, dated March 24, 1992, between
46-47 Associates, as Lessor, and USTNY as Lessee; Clarification of Right of
First Refusal Agreement, dated March 24, 1992, between 1133 Building Corp. and
USTNY; Termination of Annex Agreement, dated March 24, 1992, between 46-47
Associates and USTNY; Agreement, dated March 24, 1992, between 46-47 Associates
and USTNY; Grant of Easement and Zoning Lot and Development Agreement, dated
March 24, 1992, between 46-47 Associates and 1133 Building Corp., and Indenture,
dated March 24, 1992, between 46-47 Associates and David Puchall, filed as
Exhibit 10.7 to the 1993 10-K.(1)
10.6 Second Lease Modification Agreement, dated May 10, 1993, between 46-47
Associates, as Lessor, and USTNY, as Lessee, amending the lease agreement dated
September 10, 1987, filed as Exhibit 10.8 to the 1993 10-K.(1)
10.7 License agreement between 46-47 Associates and USTNY for space in Cellar 201 at
114 West 47th Street, New York, New York, filed as Exhibit 10.9 to UST's Annual
Report on Form 10-K (File No. 0-8709) for the fiscal year ended December 31,
1994.(1)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.8 U.S. Trust Corporation Stock Plan for Non-Officer Directors, as amended and
restated effective as of September 1, 1995, filed as Exhibit 10.8 to the
10-Q.(1)
10.9 1989 Stock Compensation Plan and Predecessor Plans of the Corporation, as
amended and restated through July 1, 1996.
10.10 Benefit Equalization Plan of the Corporation, as amended and restated effective
as of September 1, 1995 filed as Exhibit 10.10 to the 10-Q.(1)
10.11 Board Members' Retirement Plan of the Corporation, as amended and restated
effective as of September 1, 1995, filed as Exhibit 10.11 to the 10-Q.(1)
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(1)Incorporated herein by reference.
4
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INDEX OF EXHIBITS -- (CONTINUED)
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Exhibit No. Item
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10.12 Board Members' Deferred Compensation Plan of the Corporation, as amended and
restated through July 1, 1996.
10.13 1990 Annual Incentive Plan of the Trust Company and Affiliated Companies as
amended and restated effective as of September 1, 1995, filed as Exhibit 10.13
to the 10-Q.(1)
10.14 Incentive Award Plan of the Trust Company and Affiliated Companies as amended
and restated effective as of September 1, 1995, filed as Exhibit 10.14 to the
10-Q.(1)
10.15 1995 Annual Incentive Plan of the Trust Company and Affiliated Companies, as
amended and restated effective January 1, 1996.
10.16 1990 Change in Control and Severance Policy for Top Tier Officers of the Trust
Company and Affiliated Companies as amended and restated effective as of October
22, 1996.
10.17 1990 Change in Control and Severance Policy for Officers and Employees of the
Trust Company and Affiliated Companies as amended and restated effective as of
October 22, 1996.
10.18 Executive Deferred Compensation Plan of the Corporation, as amended and restated
through November 1, 1996.
10.19 Executive Incentive Plan of the Corporation, as adopted effective September 1,
1995, filed as Exhibit 10.19 to the 10-Q.(1)
10.20 1995 Stock Option Plan of the Corporation, as amended and restated effective
November 1, 1996.
10.21 Agreements re supplemental retirement benefits for Messrs. Schwarz, Maurer and
Taylor, as amended and restated as of August 29, 1995, filed as Exhibit 10.21 to
the 10-Q.(1)
11 Statement re Computation of Net Income Per Share
13 1996 Annual Report to Shareholders
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
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(1)Incorporated herein by reference.
This Report has been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission, and the financial statements have
been prepared in accordance with such rules and regulations and with generally
accepted accounting principles, by officers and employees of the Corporation and
its affiliates. This has been done under the general supervision of Richard E.
Brinkmann, Senior Vice President and Comptroller, who has executed this Report
on the Corporation's behalf. It has been reviewed by other operating and staff
personnel of the Corporation and such affiliates and by counsel. The
consolidated financial statements have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants, as indicated in their report.
This Report contains much detailed information, of which the various
signatories cannot and do not have independent personal knowledge. The
signatories believe, however, that the preparation and review processes
summarized above are such as ordinarily to afford reasonable assurance of
compliance with applicable requirements.
5
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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.
U. S. TRUST CORPORATION
(Registrant)
By: /s/ RICHARD E. BRINKMANN
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Richard E. Brinkmann
Comptroller and Chief
Planning Officer
Dated: March 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
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Signature Title Date
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/s/ H. MARSHALL SCHWARZ Chairman of the Board March 11, 1997
- ------------------------------------------ and Director (Principal
H. Marshall Schwarz Executive Officer)
/s/ JOHN L. KIRBY Treasurer and Chief March 11, 1997
- ------------------------------------------ Financial Officer
John L. Kirby
/s/ RICHARD E. BRINKMANN Comptroller and Chief March 11, 1997
- ------------------------------------------ Planning Officer
Richard E. Brinkmann
/s/ ELEANOR BAUM Director March 11, 1997
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Eleanor Baum
/s/ SAMUEL C. BUTLER Director March 11, 1997
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Samuel C. Butler
/s/ PETER O. CRISP Director March 11, 1997
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Peter O. Crisp
/s/ PAUL W. DOUGLAS Director March 11, 1997
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Paul W. Douglas
/s/ ANTONIA M. GRUMBACH Director March 11, 1997
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Antonia M. Grumbach
/s/ FREDERIC C. HAMILTON Director March 11, 1997
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Frederic C. Hamilton
/s/ PETER L. MALKIN Director March 11, 1997
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Peter L. Malkin
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Signature Title Date
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/s/ JEFFREY S. MAURER President, Chief Operating March 11, 1997
- ------------------------------------------ Officer and Director
Jeffrey S. Maurer
/s/ PHILIPPE DE MONTEBELLO Director March 11, 1997
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Philippe de Montebello
/s/ DAVID A. OLSEN Director March 11, 1997
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David A. Olsen
/s/ PHILIP L. SMITH Director March 11, 1997
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Philip L. Smith
/s/ JOHN HOYT STOOKEY Director March 11, 1997
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John Hoyt Stookey
/s/ FREDERICK B. TAYLOR Vice Chairman of the March 11, 1997
- ------------------------------------------ Board, Chief Investment
Frederick B. Taylor Officer and Director
/s/ RICHARD F. TUCKER Director March 11, 1997
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Richard F. Tucker
/s/ CARROLL L. WAINWRIGHT, JR. Director March 11, 1997
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Carroll L. Wainwright, Jr.
/s/ ROBERT N. WILSON Director March 11, 1997
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Robert N. Wilson
/s/ RUTH A. WOODEN Director March 11, 1997
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Ruth A. Wooden
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Exhibit 10.9
1989 STOCK COMPENSATION PLAN AND PREDECESSOR PLANS
OF U.S. TRUST CORPORATION
AS AMENDED AND RESTATED THROUGH JULY 1, 1996
SECTION 1. INTRODUCTION
1.1 PURPOSE
The Plan hereinafter set forth represents a continuation of certain
stock-based compensation plans maintained by U.S. Trust Corporation before its
merger with The Chase Manhattan Corporation ("Chase") pursuant to the Agreement
and Plan of Merger dated as of November 18, 1994 between Chase and U.S. Trust
Corporation (the "Merger Agreement"). The plans so continued are (i) all
portions of the 1989 Stock Compensation Plan of U.S. Trust Corporation other
than Section 2 thereof and any other provisions of such plan to the extent they
relate to stock options (such continued portions are referred to herein as the
"Prior Plan"), (ii) the 1988 Long-Term Performance Plan of U.S. Trust
Corporation, and (iii) the Long-Term Performance Plan of U.S. Trust Corporation
(the plans described in (ii) and (iii) are referred to herein as the
"Predecessor Plans").
As set forth herein, the Prior Plan and the Predecessor Plans were
amended, restated and renamed effective as of September 1, 1995 (a) to reflect
the transfer of the Prior Plan and the Predecessor Plans to and their adoption
by the Corporation, and the Corporation's assumption of and becoming solely
responsible for all liabilities and obligations of U.S. Trust Corporation under
the Prior Plan and the Predecessor Plans, effective immediately before the "New
Holdings Distribution", as defined in the Merger Agreement, (b) to consolidate
the Prior Plan and the Predecessor Plans, as so transferred and adopted, into a
single plan, and (c) to reflect the "Distribution" and the "Merger", as defined
in the Merger Agreement. The Plan has been further amended to make certain
changes in the Plan's Earnings Crediting Options effective as of July 1, 1996.
The purpose of this Plan is to set forth the terms under which payment
will be made with respect to Restricted Common Shares, Performance Share Units
and Benefit Equalization Units awarded to Participants under the Prior Plan and
Predecessor Plans. No new Restricted Common Shares, Performance Share Units or
Benefit Equalization Units shall be awarded to any Participant under this Plan.
1.2 DEFINITIONS
As used herein, the following terms shall have the following meanings:
<PAGE> 2
"ADJUSTED NUMBER" shall mean, with respect to the Phantom Share Units
and Benefit Equalization Units standing to a Participant's credit under the Plan
immediately prior to the Effective Time, an adjusted number of such units
determined by dividing (i) the product of (A) the number of such Phantom Share
Units, or Benefit Equalization Units, as the case may be, multiplied by (B) the
Average Market Value of one Common Share of U.S. Trust Corporation during the
30-day period ending on the day immediately preceding the Chase Merger Closing
Date, by (ii) the Average When-Issued Market Value of one common share of the
Corporation.
"AFFILIATED COMPANIES" shall mean (i) with respect to U.S. Trust
Corporation, each of its direct or indirect subsidiaries, and (ii) with respect
to the Corporation, each of its direct or indirect subsidiaries.
"AVERAGE MARKET VALUE" shall mean, with respect to one Common Share as
of any date or with respect to any period, the mean between the per-share high
and low prices for the Common Shares on such date, or on each trading day during
such period, as quoted on the NASDAQ National Market System, or, if the Common
Shares are not traded on such system, on such other securities market or
securities exchange on which such shares are traded as the Committee shall
determine.
"AVERAGE WHEN-ISSUED MARKET VALUE" shall mean, with respect to one
common share of the Corporation, the amount representing the 10-day average of
the daily average of the high bid and low asked prices for such share in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated on a "when-issued" basis on each of the 10 trading days immediately
preceding the Chase Merger Closing Date.
"AWARD shall mean the award of Performance Share Units made to a
Participant for an Open Cycle pursuant to Section 4.1 of the Prior Plan.
"BENEFICIARY" shall mean the person or persons designated by a
Participant in accordance with Section 6.9 to receive any amount, or any Common
Shares, payable under the Plan upon the Participant's death.
"BENEFIT EQUALIZATION UNIT," "PERFORMANCE SHARE UNIT" and "PHANTOM
SHARE UNIT" shall mean a unit of measurement equivalent to one Common Share,
with none of the attendant rights of a shareholder of such share, including,
without limitation, the right to vote such share and the right to receive
dividends thereon, except to the extent otherwise specifically provided herein.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Corporation.
"CHANGE IN CONTROL" shall mean that any of the following events has
occurred after the Chase Merger Closing Date:
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(i) 20% or more of the Common Shares has been acquired by any
person (as defined by Section 3(a)(9) of the Securities Exchange Act of
1934) other than directly from the Corporation;
(ii) there has been a merger or equivalent combination after
which 49% or more of the voting shares of the surviving corporation is
held by persons other than former shareholders of the Corporation; or
(iii) 20% or more of the directors elected by shareholders to
the Board of Directors are persons who were not nominated by the Board
of Directors or the Executive Committee of the Board of Directors in
the most recent proxy statement of the Corporation;
provided, however, that notwithstanding anything in the Plan to the contrary, no
Change in Control shall be deemed to have occurred, and no rights arising upon a
Change in Control as provided in Sections 3.6, 4.7 and 5.4 shall exist, to the
extent that the Board of Directors so directs by resolution adopted prior to the
Change in Control, or not later than 45 days after the Change in Control if the
percentage of Common Shares acquired or directors elected under clause (i) or
(iii) of the foregoing definition of Change in Control shall be at least 20% but
less than 25%. Any resolution of the Board of Directors adopted in accordance
with the provisions of this definition directing that a Change in Control shall
be deemed not to have occurred for purposes of this Plan and that Sections 3.6,
4.7 and 5.4, or any of such Sections shall not become effective, may be
rescinded or countermanded at any time with or without retroactive effect.
"CHASE MERGER CLOSING DATE" shall mean the "Closing Date", as defined
in Section 1.2 of the Merger Agreement.
"COMMITTEE" shall mean the Compensation and Benefits Committee of the
Board of Directors.
"COMMON SHARES" shall mean (i) prior to the Chase Merger Closing Date,
the common shares ($1.00 par value per share) of U.S. Trust Corporation, and
(ii) after the Chase Merger Closing Date, the common shares ($1.00 par value per
share) of the Corporation.
"CORPORATION" shall mean New USTC Holdings Corporation, which will
assume the name of "U.S. Trust Corporation" as of the time the New Holdings
Distribution is effective.
"DETERMINED VALUE" shall mean the higher of (i) the highest bid price
per Common Share during the twelve months immediately preceding the date of a
Change in Control, or (ii) the highest price per Common Share actually paid in
connection with any Change in Control (including, without limitation, prices
paid in any subsequent merger or combination with any entity that acquires
control of the Corporation).
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"DIVIDEND PAYMENT DATE" shall mean the date on which a dividend is paid
on Common Shares.
"EFFECTIVE TIME" shall mean "Effective Time" as defined in Section 1.3
of the Merger Agreement.
"401(K) PLAN" shall mean the 401(k) Plan and ESOP of United States
Trust Company of New York and Affiliated Companies.
"OPEN CYCLES" shall mean the Performance Cycles (as defined in the
Prior Plan) established under Section 4 of the Prior Plan for the periods
ending, respectively, on December 31, 1995, and on December 31, 1996.
"PARTICIPANT" shall mean any employee or former employee of the
Corporation, U.S. Trust Corporation, or any of their Affiliated Companies who,
immediately prior to the Chase Merger Closing Date, had any unpaid amount,
Phantom Share Unit, Benefit Equalization Unit, or any Performance Share Unit for
any Open Cycle standing to his or her credit under the Prior Plan or any of the
Predecessor Plans.
"PRIME RATE" shall mean, with respect to any calendar month, the prime
rate as quoted by United States Trust Company of New York on the last business
day of such month.
"RESTRICTED COMMON SHARES" shall mean Common Shares which are subject
to Restrictions, and any new, additional or different securities a Participant
may become entitled to receive with respect to such shares by virtue of a stock
split or stock dividend or any other change in corporate or capital structure of
U.S. Trust Corporation or the Corporation.
"RESTRICTED PERIOD" shall mean the period of time during which
Restricted Common Shares are subject to Restrictions as provided in Section 3.
"RESTRICTIONS shall mean the restrictions applicable to Restricted
Common Shares as provided in Section 3.
1.3 ADMINISTRATION
The Plan shall be administered by the Committee. A majority of the
members of the Committee shall constitute a quorum. The Committee may act at a
meeting, including a telephone meeting, by action of a majority of the members
present, or without a meeting by unanimous written consent. The Committee shall
have the authority, in its discretion, to establish from time to time guidelines
or regulations for the administration of the Plan, interpret the Plan, cause
appropriate records to be established, and make all determinations and take all
other actions considered necessary or advisable for the administration of the
Plan.
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All decisions, actions or interpretations of the Committee under the
Plan shall be final, conclusive and binding upon all parties.
SECTION 2. AUTHORIZED SHARES
2.1 MAXIMUM NUMBER OF COMMON SHARES AVAILABLE FOR AWARDS
Subject to Section 2.2 but notwithstanding any other provision of the
Plan, the number of Common Shares that may be distributed to Participants
pursuant to this Plan shall be limited to (i) 400,000 Common Shares, plus (ii) a
number of Common Shares equal to the total number of additional Phantom Share
Units and Benefit Equalization Units credited to Participants with respect to
dividends paid on Common Shares pursuant to Sections 4.5 and 5.2.
2.2 ADJUSTMENT IN MAXIMUM NUMBER OF SHARES
As of the Effective Time, the number of Common Shares that may be
distributed to Participants pursuant to this Plan, as specified in clause (i) of
Section 2.1, shall be adjusted so as to equal the sum of (w) the aggregate
number of Phantom Share Units to be credited to Participants pursuant to the
first sentence of Section 4.2(d) and the first sentence of Section 4.2(e)(iv),
(x) the aggregate Adjusted Number of Phantom Share Units determined for
Participants under Section 4.3(d), (y) the aggregate Adjusted Number of Benefit
Equalization Units determined for Participants under Section 5.1, and (z) 4,500
Common Shares.
2.3 SOURCE OF SHARES
The Common Shares distributed under the Plan may be authorized and
unissued shares, shares held in the treasury of the Corporation, or shares
purchased on the open market by the Corporation (at such time or times and in
such manner as it may determine); provided, however, that Restricted Common
Shares (other than any such shares that are shares of Chase common stock) shall
be distributed from shares held in the treasury of the Corporation. The
Corporation shall be under no obligation to acquire Common Shares for
distribution to Participants before payment in Common Shares is due.
SECTION 3. RESTRICTED COMMON SHARES
3.1 AWARDS OF RESTRICTED COMMON SHARES
Restricted Common Shares awarded to a Participant under the Prior Plan
shall remain subject to the same Restrictions, for the same Restricted Period,
as applied with respect to such shares under Section 3.2 of the Prior Plan. Such
Restrictions shall be binding on the Corporation and on the Participants and
their Beneficiaries.
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3.2 RESTRICTIONS AND RESTRICTED PERIOD
All Common Shares of the Corporation and all shares of Chase common
stock received with respect to a Participant's Restricted Common Shares pursuant
to the Distribution and the Merger shall be treated as Restricted Common Shares
for purposes of this Plan, and shall be subject to the same Restrictions, for
the same Restricted Period, as applied to the shares with respect to which they
were received.
3.3 RIGHTS AS SHAREHOLDERS
Except for the Restrictions referred to in Sections 3.1 and 3.2, and
subject to the forfeiture provisions described in Section 3.5, each Participant
shall have, with respect to his or her Restricted Common Shares, all rights of a
holder of Common Shares including the right to receive all dividends or other
distributions made or paid in respect of such shares and the right to vote such
shares at regular or special meetings of the shareholders of the Corporation.
3.4 DELIVERY OF SHARES
A Participant's Restricted Common Shares shall be held in the
Participant's name in a book entry account maintained by the Corporation. At the
conclusion of the Restricted Period imposed with respect to a Participant's
Restricted Common Shares, or upon the prior approval of the Committee as
provided in Section 3.5, and subject to the satisfaction of the applicable tax
withholding requirements provided in Section 6.8, certificates representing such
Restricted Common Shares will be delivered to the Participant or, if the
Participant has died, to the Participant's Beneficiary, free of all
Restrictions.
3.5 TERMINATION OF EMPLOYMENT
In the event of any Participant's termination of employment with the
Corporation and its Affiliated Companies, all of the Participant's Restricted
Common Shares which are then still subject to Restrictions will be forfeited by
the Participant and become the property of the Corporation. However, the
Committee may, if the Committee in its sole discretion determines that the
circumstances warrant such action, approve the delivery to the Participant of
all or any part of the Restricted Common Shares which would otherwise be
forfeited pursuant to this Section, upon such conditions as it shall determine.
3.6 CHANGE IN CONTROL
Upon the occurrence of a Change in Control, all Restricted Periods
shall end, the Restrictions applicable to all Restricted Common Shares shall
lapse, and in lieu of delivery of such shares to the Participants free from such
Restrictions as provided in Section 3.4, the Corporation's obligation in respect
of such shares shall be discharged by payment to each of the applicable
Participants of a single cash lump sum. The amount of such cash lump sum shall
be determined by
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multiplying the number of Restricted Common Shares held in the Participant's
name by the Determined Value of one Common Share. The single cash lump sum
amount so determined, reduced by any taxes withheld pursuant to Section 6.8,
shall be paid to the Participant as soon as practicable following the Change in
Control.
SECTION 4. PERFORMANCE SHARE UNITS
4.1 PERFORMANCE SHARE UNIT AWARDS FOR OPEN CYCLES
At the Effective Time, all Performance Goals (as defined in the Prior
Plan) determined for each of the Open Cycles pursuant to Section 4.1 of the
Prior Plan shall be deemed to have been fully met, and all Performance Share
Units awarded to each Participant for each of the Open Cycles pursuant to
Section 4.1 of the Prior Plan shall be deemed to have been fully earned.
4.2 PAYMENT OF AWARDS FOR OPEN CYCLES
Payment with respect to a Participant's Award for an Open Cycle shall
be made in accordance with the following provisions:
(a) The total amount payable with respect to a Participant's Award for
an Open Cycle shall be equal to the product of (i) the sum of (A) the number of
Performance Share Units awarded to the Participant for such cycle and (B) the
number of additional Performance Share Units credited to the Participant with
respect to such Award pursuant to Section 4.1 of the Prior Plan on account of
dividends paid on Common Shares after the start of such cycle and before the
Chase Merger Closing Date, multiplied by (ii) the Average Market Value of one
Common Share during the 30-day period ending on the day immediately preceding
the Chase Merger Closing Date.
(b) The portion of the total amount payable with respect to a
Participant's Award for an Open Cycle which the Participant has not elected to
defer pursuant to an election made by the Participant under Section 4.4 of the
Prior Plan (the "Non-Deferred Portion of the Participant's Award") shall be paid
to the Participant as soon as practicable after the close of such cycle. In the
case of a Participant whose employment with the Corporation and its Affiliated
Companies terminates after the Chase Merger Closing Date but before the end of
the cycle by reason of death, disability or retirement, payment of the Non-
Deferred Portion of the Participant's Award for such cycle shall be made as of
the first day of the month following the date of such termination of the
Participant's employment (the Participant's "Termination Date").
(c) Payment with respect to 50% of the Non-Deferred Portion of a
Participant's Award for an Open Cycle shall be made in the form of a single
lump-sum cash payment. Such payment shall include interest on 50% of the
Non-Deferred Portion of the Participant's Award, which shall be credited at the
Prime Rate for each calendar month or portion thereof in the period from the
Chase
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Merger Closing Date to the end of the cycle or, if earlier, the last day of the
month in which the Participant's Termination Date occurs.
(d) With respect to the remaining 50% of the Non-Deferred Portion of a
Participant's Award for an Open Cycle, the Participant shall be credited, as of
the Chase Merger Closing Date, with a number of Phantom Share Units ("PSU's")
determined by dividing (i) the dollar value of 50% of the Non-Deferred Portion
of the Participant's Award, by (ii) the Average When-Issued Market Value of one
common share of the Corporation. As of each Dividend Payment Date occurring
after the Chase Merger Closing Date but before the end of such cycle or, if
earlier, the last day of the month in which the Participant's Termination Date
occurs, the Participant shall also be credited hereunder with a number of
additional PSU's determined by first (x) multiplying (A) the number of PSU's
standing to the Participant's credit under this Section 4.2(d) on the date such
dividend was declared, by (B) the per-share dollar amount of the dividend so
paid, and then (y) dividing the resulting amount by the Average Market Value of
one Common Share on the Dividend Payment Date. Payment with respect to such
remaining 50% of the Non-Deferred Portion of the Participant's Award shall be
made in the form of (1) a number of Common Shares equal to the number of whole
PSU's standing to the Participant's credit under this Section 4.2(d) as of the
last day of the month preceding the month in which such payment is made, and (2)
a cash payment in an amount determined by multiplying (A) any fractional part of
a PSU standing to the Participant's credit as of such last day, by (B) the
Average Market Value of one Common Share on the business day immediately
preceding the date on which such payment is made.
(e) The portion of a Participant's Award for an Open Cycle which the
Participant has elected to defer pursuant to an election made by the Participant
under Section 4.4 of the Prior Plan (the "Deferred Portion" of the Participant's
Award) shall be credited to the "Account" established for the Participant under
Section 4.3, in accordance with the following provisions:
(i) The Deferred Portion of a Participant's Award for an Open
Cycle shall be credited to the Participant's Account as of the first
day of the month following the close of such cycle or, if earlier, on
the first day of the month following the Participant's Termination
Date.
(ii) The Deferred Portion of a Participant's Award shall be
credited to the "Interest Portion" and to the "PSU Portion" (as defined
in Section 4.3) of the Participant's Account in such percentages as
the Participant specified in the deferral election made by the
Participant with respect to such Award pursuant to Section 4.4 of the
Prior Plan.
(iii) That part of the Deferred Portion of a Participant's
Award for an Open Cycle which the Participant elected to have credited
to the Interest Portion of his or her Account shall be credited to the
Interest Portion together with interest on the amount to be so
credited, calculated at the Prime Rate, for each calendar month or
portion thereof in the period from the Chase Merger Closing Date to the
end of the cycle or, if earlier, the last day of the month in which the
Participant's Termination Date occurs.
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(iv) With respect to that part of the Deferred Portion of a
Participant's Award for an Open Cycle which the Participant elected to
have credited to the PSU Portion of his or her Account, the Participant
shall be credited, as of the Chase Merger Closing Date, with a number
of PSU's determined by dividing (A) the dollar value of that part of
the Deferred Portion by (B) the Average When-Issued Market Value of
one common share of the Corporation. As of each Dividend Payment Date
occurring after the Chase Merger Closing Date but before the end of
such cycle or, if earlier, the last day of the month in which the
Participant's Termination Date occurs, the Participant shall be
credited hereunder with a number of additional PSU's determined by
first (x) multiplying (A) the number of PSU's standing to the
Participant's credit under this Section 4.2(e)(iv) on the date such
dividend was declared, by (B) the per-share dollar amount of the
dividend so paid, and then (y) dividing the resulting amount by the
Average Market Value of one Common Share on the Dividend Payment Date.
That part of the Deferred Portion of a Participant's Award for an Open
Cycle that is to be credited to the PSU Portion of the Participant's
Account shall be credited thereto in the form of a number of PSU's
equal to the total number of PSU's standing to the Participant's credit
under this Section 4.2(e)(iv) as of the time the Deferred Portion of
the Participant's Award is to be credited to the Participant's Account
as provided in clause (i) above.
(f) Notwithstanding any other provisions in Section 4.1 or in this
Section 4.2 to the contrary, a Participant whose employment terminates prior to
the end of any Open Cycle for any reason other than death, disability or
retirement shall not be entitled to receive any payment with respect to the
Participant's Award for such cycle, or to have any portion of such Award
deferred pursuant to any election the Participant may have made under Section
4.4 of the Prior Plan, except to the extent that the Committee, in its sole
discretion, otherwise determines.
4.3 ACCOUNTS FOR DEFERRED AWARDS
As of the time this Plan is adopted by the Corporation, there shall be
established on the books and records of the Corporation, for bookkeeping
purposes only, a separate account ("Account") for each Participant, to reflect
the Participant's interest in the Deferred Portion of the Participant's Awards
for Open Cycles, and in all amounts which the Participant elected to defer under
the Prior Plan and the Predecessor Plans that remained unpaid or that had not
yet become payable as of the time of the adoption of this Plan. The Account so
established for each Participant shall be maintained in accordance with the
following provisions:
(a) The Account established for each Participant shall consist of two
sub-accounts referred to herein, respectively, as the "Interest Portion" and the
"PSU Portion".
(b) As of the time this Plan is adopted by the Corporation, the
Interest Portion of each Participant's Account shall be credited with an amount
equal to the aggregate amount of the balances, determined as of the close of
business on the day preceding the Chase Merger Closing Date, of the Interest
Portion of the Accounts maintained for the Participant under the Prior Plan and
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the Predecessor Plans. For purposes of the foregoing, the balance of the
Interest Portion of a Participant's Account under the Long-Term Performance Plan
of U.S. Trust Corporation, as determined as of the close of business on such
preceding day, shall reflect the crediting of interest to the "R.O.E. Balance"
(as defined in Section 7F of such plan) of the Interest Portion of the
Participant's Account (i) for the fiscal year 1994, based on a deemed "R.O.E."
(as defined in Section 7F of such plan) for U.S. Trust Corporation for such year
of 20%; and (ii) for all periods beginning on January 1, 1995 and ending at the
close of business on the day preceding the Chase Merger Closing Date, based on
the "Earnings Crediting Options" (as defined in Section 7G(iii) of such plan) in
effect for the R.O.E. Balance for such periods pursuant to the election made by
the Participant under such plan.
(c) As of the time this Plan is adopted by the Corporation, the PSU
Portion of each Participant's Account shall be credited with a number of PSU's
equal to the aggregate number of PSU's included in the balances, determined as
of the close of business on the day preceding the Chase Merger Closing Date, of
the PSU Portion of the Participant's Accounts under the Prior Plan and the
Predecessor Plans.
(d) As of the Effective Time, the number of PSU's credited to the PSU
Portion of a Participant's Account hereunder pursuant to (c) above shall be
adjusted so as to equal the Adjusted Number of such PSU's.
(e) The Interest Portion and the PSU Portion of a Participant's Account
shall be credited with amounts in respect of the Deferred Portion of a
Participant's Award for any Open Cycle, at the time and in the manner provided
in Section 4.2(e).
(f) The Interest Portion and the PSU Portion of a Participant's Account
shall be adjusted from time to time to reflect all interest or Earnings (as
defined in Section 4.4), and all additional PSU's, to be credited to such
Portions pursuant to Sections 4.4 and 4.5, and all payments made with respect to
such Portions pursuant to Section 4.6.
(g) A Participant's interest in his or her Account shall be fully
vested and nonforfeitable at all times.
4.4 CREDITS TO INTEREST PORTION
In the case of any Participant whose employment with U.S. Trust
Corporation and its Affiliated Companies terminated prior to January 1, 1994,
interest shall continue to be credited to the Interest Portion of such
Participant's Account hereunder in accordance with the applicable provisions of
the Prior Plan and the Predecessor Plans as in effect at the time of such
Participant's termination of employment, for all periods ending after the Chase
Merger Closing Date, until payment with respect to the Interest Portion of such
Participant's Account has been made in full; provided, however, that interest on
the R.O.E. Balance of the Interest Portion of any such Participant's Account
under the Long-Term Performance Plan of U.S. Trust Corporation shall be
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credited at the Prime Rate for all periods ending after the Chase Merger Closing
Date. In the case of each other Participant, the Interest Portion of the
Participant's Account shall be credited with Earnings for periods beginning on
and after July 1, 1996 in accordance with the following provisions:
(a) As of the last day of each calendar month, each part of the balance
of the Interest Portion of a Participant's Account for which a separate Earnings
Crediting Option (as hereinafter defined) is in effect under this Section 4.4
shall be credited with an amount determined by multiplying such part of the
balance by a percentage corresponding to the Applicable Rate of Return (as
hereinafter defined) for such month under such Earnings Crediting Option. The
amount so credited (which may be positive or negative depending on whether the
Applicable Rate of Return for the month is positive or negative) is referred to
herein as "Earnings".
(b) For purposes of this Section 4.4, the term "Earnings Crediting
Option" shall mean, as of any date of reference on or after July 1, 1996, any
one of the following: the S&P 500 Index, the Lehman Bros. Government/Corporate
Bond Index, the IBC's Money Fund Report First Tier Average, and the Prime Rate.
Notwithstanding the foregoing, the Committee may at any time, in its
sole discretion, determine (i) that any option referred to in the preceding
paragraph shall cease to constitute an Earnings Crediting Option for purposes of
this Section 4.4, or (ii) that any other index or hypothetical investment fund
or referenced rate of return shall constitute an Earnings Crediting Option for
purposes of this Plan. Participants shall be notified in writing, at least 45
days in advance, of any change in the Plan's Earnings Crediting Options.
(c) The "Applicable Rate of Return" for any month shall mean (i) in the
case of the S&P 500 Index, the percentage, as determined by the Committee, by
which (A) the value of such Index as of the last business day of such month, as
adjusted to reflect all income earned for such month on the securities included
in such Index, exceeds, or is less than, (B) the value of such Index as of the
last business day of the immediately preceding month, determined without taking
such adjustment into account; (ii) in the case of the Lehman Bros.
Government/Corporate Bond Index, the percentage, as determined by the Committee,
by which the value of such Index as of the last business day of such month
exceeds, or is less than, the value of such Index as of the last business day of
the immediately preceding month; (iii) in the case of the IBC's Money Fund
Report First Tier Average, the rate of return corresponding to the 7-day
compounded yield for such Average, for the period ending on, or most recently
prior to, the last day of such month; (iv) in the case of the Prime Rate Option,
the rate of return corresponding to the Prime Rate for such month; and (v) in
the case of any other Earnings Crediting Option, the rate of return applicable
for such month, as determined by the Committee in its sole discretion.
(d) Each Participant for whom an Account was being maintained on May
15, 1996 shall make an initial election as to the Earnings Crediting Options
that are to apply with respect to the Interest Portion of his or her Account on
and after July 1, 1996. Such election shall be made in
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writing, on a form provided by the Committee for such purpose, and such form
shall be filed with the Committee by no later than June 14, 1996. In such
election form, the Participant shall specify, by percentages (which must be even
multiples of 5%) the respective parts of the balance of the Interest Portion
that are to be credited with Earnings under each of the Earnings Crediting
Options designated by the Participant in such form. If a Participant fails to
make such election by June 14, 1996, the Participant shall be deemed to have
selected the Prime Rate as the Earnings Crediting Option to apply to the entire
balance of the Interest Portion. The Earnings Crediting Options selected in the
initial election made by a Participant (or deemed to have been selected by a
Participant) pursuant to the preceding sentence shall remain in effect for the
Interest Portion of the Participant's Account until the Participant makes an
election in accordance with (e) below to change such Earnings Crediting Options.
(e) A Participant may change the Earnings Crediting Options that are to
apply with respect to the Interest Portion of his or her Account by making a new
election hereunder. Such new election shall be made in writing, on a form which
is provided by the Committee for this purpose and which the Participant files
with the Committee. In such form, the Participant shall specify, by percentages
(which must be even multiples of 5%), the respective parts of the balance of the
Interest Portion that are to be credited with Earnings under each of the
Earnings Crediting Options designated by the Participant in such form. The
Participant's new election shall become effective as of the first day of the
calendar month following the date on which such election is filed with the
Committee, provided that it is so filed at least 15 days prior to such first
day. The Earnings Crediting Options selected by the Participant in such new
election shall remain in effect until the Participant again changes his election
with respect to the Interest Portion of his or her Account in accordance with
this Section 4.4(e).
(f) The Interest Portion of a Participant's Account shall continue to
be credited with Earnings in accordance with the provisions of this Section 4.4
until all payments required to be made with respect to the Interest Portion
under Section 4.6 have been made. For this purpose, any payments made under
Section 4.6 with respect to the Interest Portion of the Participant's Account
will be deemed to have been made pro rata from the respective parts of the
balance of the Interest Portion that are subject to separate Earnings Crediting
Options.
4.5 CREDITS TO PSU PORTION
As of each Dividend Payment Date, the PSU Portion of each Participant's
Account shall be credited with additional PSU's the number of which shall be
determined by first (i) multiplying the number of PSU's standing to the
Participant's credit in the PSU Portion of the Participant's Account on the date
such dividend was declared by the per-share dollar amount of the dividend so
paid, and then (ii) dividing the resulting amount by the Average Market Value of
one Common Share on the Dividend Payment Date.
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4.6 PAYMENT OF DEFERRED AWARDS
In the case of any Participant whose employment with U.S. Trust
Corporation and its Affiliated Companies terminated prior to the Chase Merger
Closing Date, any amounts remaining to be paid with respect to such
Participant's Account as of such date shall be paid in accordance with the
applicable provisions of the Prior Plan and the Predecessor Plans in effect at
the time of such Participant's termination of employment. In the case of each
other Participant, payment with respect to the Participant's Account shall be
made in accordance with the following provisions:
(a) The balances of the Interest Portion and the PSU Portion of a
Participant's Account shall become payable upon the Participant's termination of
employment with the Corporation and its Affiliated Companies for any reason. For
this purpose, a Participant who ceases active employment by reason of disability
but who becomes entitled to receive benefit payments under the long-term
disability plan maintained by the Corporation or any of its Affiliated Companies
shall be treated as continuing to be employed with the Corporation and its
Affiliated Companies during all periods for which he or she continues to receive
benefit payments under such plan.
(b) Payment with respect to the Interest Portion and the PSU Portion of
a Participant's Account shall be made in the form of a series of 10 annual
installments. The first such installment payment shall be made on the last
business day of February of the calendar year following the year in which the
Participant's employment with the Corporation and its Affiliated Companies
terminates, and the remaining installment payments shall be made on the last
business day of February of each succeeding year.
(c) Each installment payment to be made with respect to the Interest
Portion of a Participant's Account shall be made in cash, in an amount
determined by dividing (i) the balance of the Interest Portion determined as of
the last day of the calendar year preceding the year in which such payment is to
be made, by (ii) the number of installment payments remaining to be made. The
last such installment payment shall include Earnings credited to the Interest
Portion for the month preceding the month in which such payment is made.
(d) Each installment payment to be made with respect to the PSU Portion
of a Participant's Account shall be made partly in Common Shares, and partly in
cash. The number of shares to be included in each such installment payment shall
be equal to the number of whole PSU's included in the quotient resulting from
dividing (i) the total number of PSU's included in the balance of the PSU
Portion of the Participant's Account as of the last day of the calendar year
preceding the year in which such payment is to be made, by (ii) the number of
installment payments remaining to be made; and the amount of cash to be included
in each such installment payment shall be determined by multiplying (iii) the
fractional part of a PSU included in the aforementioned quotient by (iv) the
Average Market Value of one Common Share on the business day immediately
preceding the date on which such installment payment is to be made. The last
such installment payment shall include a number of Common Shares equal to the
whole number of any additional PSU's that are credited to the PSU Portion of the
Participant's Account under Section 4.5 during the month preceding the
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month in which such payment is made, together with cash (in an amount determined
in the same manner as described in clause (iv) of the preceding sentence) for
any fractional part of a PSU that is so credited.
(e) If a Participant should die before receiving all payments required
to be made hereunder with respect to the Participant's Account, any payments
remaining to be made at the date of the Participant's death shall be made to the
Participant's Beneficiary in the same form, at the same times and in the same
amounts, as such payments would have been made to the Participant (i) if he or
she had not died, and (ii) if the Participant died while still employed, if the
Participant's employment had otherwise terminated on the date of his or her
death.
(f) Notwithstanding any other provision in this Section 4.6 to the
contrary, payment with respect to any part or all of the Participant's Account
balances may be made to the Participant or, if the Participant has died, to the
Participant's Beneficiary, on any date earlier than the date on which such
payment is to be made pursuant to such other provisions of this Section 4.6 if
(i) the Participant, or his or her Beneficiary, requests such early payment and
(ii) the Committee, in its sole discretion, determines that such early payment
is necessary to help the Participant, or his or her Beneficiary, meet an
"unforeseeable emergency" within the meaning of Section 1.457-2(h)(4) of the
federal Income Tax Regulations. The amount that may be so paid may not exceed
the amount necessary to meet such emergency.
4.7 CHANGE IN CONTROL
In the event of a Change in Control, the provisions of this Section 4.7
shall apply notwithstanding any other provision herein to the contrary (but
subject to the proviso contained in the definition of "Change in Control" in
Section 1.2). Upon the occurrence of a Change in Control, the balance of each
Participant's Account shall become immediately payable in full. Payment with
respect to each Participant's Account balance shall be made in the form of a
single cash lump sum payment. The amount so payable with respect to each
Participant's Account shall be equal to the sum of (i) the aggregate amount of
the balance of the Interest Portion of the Participant's Account, plus (ii) an
amount determined by multiplying the aggregate number of PSU's then included in
the balance of the PSU Portion of the Participant's Account by the Determined
Value of one Common Share.
If the Change in Control occurs prior to the end of any Open Cycle,
each Participant's Award for such cycle shall become immediately payable in
full. Payment with respect to each Participant's Award for such cycle shall be
made in the form of a single cash lump-sum payment. The amount so payable with
respect to a Participant's Award shall be equal to the sum of (x) an amount
determined by multiplying the aggregate number of PSU's then standing to the
Participant's credit under Sections 4.2(d) and 4.2(e)(iv) with respect to such
Award, by the Determined Value of one Common Share; (y) the amount that
otherwise was to be paid with respect to the Non-Deferred Portion of such Award
pursuant to Section 4.2(c); and (z) the amount that otherwise was to be credited
to the Interest Portion of the Participant's Account with respect to the
Deferred Portion of
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such Award pursuant to Section 4.2(e)(iii). The amounts referred to in clauses
(y) and (z) of the preceding sentence shall include interest credited as
provided in Sections 4.2(c) and 4.2(e)(iii) through the last day of the calendar
month preceding the month in which payment pursuant to this Section 4.7 is made.
All amounts payable to Participants pursuant to this Section 4.7,
reduced by any taxes withheld pursuant to Section 6.8, shall be paid to such
Participants as soon as practicable following the Change in Control.
SECTION 5. BENEFIT EQUALIZATION UNITS
5.1 ACCOUNTS FOR BENEFIT EQUALIZATION UNITS
As of the time this Plan is adopted by the Corporation, there shall be
established on the books and records of the Corporation, for bookkeeping
purposes only, an account ("BEU Account") for each Participant, to reflect the
Participant's interest in the Benefit Equalization Units awarded to the
Participant under the Prior Plan. Upon adoption of the Plan, each Participant's
BEU Account shall be credited with a number of Benefit Equalization Units equal
to the total number of Benefit Equalization Units standing to the Participant's
credit under Section 5 of the Prior Plan as of the close of business on the day
preceding the Chase Merger Closing Date.
As of the Effective Time, the number of Benefit Equalization Units so
credited to each Participant's BEU Account shall be adjusted so as to equal the
Adjusted Number of such Benefit Equalization Units.
A Participant's interest in his or her BEU Account shall be fully
vested and nonforfeitable at all times.
5.2 DIVIDEND EQUIVALENTS
As of each Dividend Payment Date, each Participant's BEU Account shall
be credited with additional Benefit Equalization Units, the number of which
shall be determined by first (i) multiplying the number of Benefit Equalization
Units standing to the Participant's credit in the Participant's BEU Account on
the date such dividend was declared by the per-share dollar amount of the
dividend so paid, and then (ii) dividing the resulting amount by the Average
Market Value of one Common Share on the Dividend Payment Date.
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5.3 PAYMENT OF BENEFIT EQUALIZATION UNITS
Payment with respect to a Participant's Benefit Equalization Units
shall be made as soon as practicable after the termination of the Participant's
employment with the Corporation and its Affiliated Companies, for any reason.
Payment shall be made in the form of (i) a number of Common Shares equal to the
number of whole Benefit Equalization Units included in the balance of the
Participant's BEU Account as of the last day of the month preceding the month in
which such payment is made, and (ii) a cash payment in an amount determined by
multiplying (A) the fractional part of the Benefit Equalization Unit included in
such balance as of such last day, by (B) the Average Market Value of one Common
Share on the business day immediately preceding the date on which such payment
is made.
5.4 CHANGE IN CONTROL
Notwithstanding any other provision herein to the contrary (but subject
to the proviso contained in the definition of "Change in Control" in Section
1.2), payment with respect to a Participant's Benefit Equalization Units shall
be made in accordance with the provisions of this Section 5.4 in the event of a
Change in Control. Upon the occurrence of a Change in Control, the balance of
each Participant's BEU Account shall become immediately payable in full. Payment
with respect to each Participant's BEU Account balance shall be made in the form
of a single cash lump sum payment. The amount so payable with respect to each
Participant's BEU Account shall be determined by multiplying the number of
Benefit Equalization Units then standing to the Participant's credit in his or
her BEU Account, by the Determined Value of one Common Share. All amounts
payable to Participants pursuant to this Section 5.4, reduced by taxes withheld
pursuant to Section 6.8, shall be paid to such Participants as soon as
practicable following the Change in Control.
SECTION 6. GENERAL PROVISIONS
6.1 CERTAIN ADJUSTMENTS TO PLAN SHARES
In the event of any change in the Common Shares occurring after the
Chase Merger Closing Date by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or any rights offering to purchase Common Shares at a price
substantially below fair market value, or any similar change affecting the
Common Shares, the number and kind of shares represented by Phantom Share Units
or Benefit Equalization Units and the number and kind of shares subject to
Restrictions shall be appropriately adjusted consistent with such change in such
manner as the Committee, in its sole discretion, may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
the Participants here under. The Committee shall give notice to each Participant
of any adjustment made pursuant to this Section and, upon such notice, such
adjustment shall be effective and binding for all purposes.
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6.2 SUCCESSOR CORPORATION
The obligations of the Corporation under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Corporation, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Corporation. The Corporation agrees that it will make
appropriate provision for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
6.3 NON-ALIENATION OF BENEFITS
A Participant's rights to payments under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors of the Participant or his
or her Beneficiary.
6.4 GENERAL CREDITOR STATUS
Participants shall have no right, title, or interest whatsoever in or
to any investments which the Corporation may make to aid it in meeting its
obligations under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Corporation and any
Participant, Beneficiary, or any other person. To the extent that any person
acquires a right to receive payments from the Corporation under the Plan, such
right shall be no greater than the right of a general unsecured creditor of the
Corporation. The Plan shall constitute a mere promise by the Corporation to make
payments in the future of the benefits provided for herein. It is intended that
the arrangements reflected in this Plan be treated as unfunded for tax purposes,
as well as for purposes of Title I of ERISA. All payments to be made hereunder
shall be paid from the general funds of the Corporation and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as expressly set forth in the Plan. In its
sole discretion, the Corporation may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Shares or pay cash; provided, however, that, unless the Committee otherwise
determines with the consent of the affected Participant, the existence of such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan.
6.5 NO RIGHT TO CONTINUED EMPLOYMENT
Neither the Plan nor any action taken thereunder shall be construed as
giving any employee any right to be retained in the employ of the Corporation or
any of its Affiliated Companies.
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6.6 AWARDS NOT TREATED AS COMPENSATION UNDER BENEFIT PLANS
No Award shall be considered as compensation under any employee benefit
plan of U.S. Trust Corporation, the Corporation, or any of their Affiliated
Companies, except as specifically provided in any such plan or as otherwise
determined by the Board of Directors.
6.7 LISTING AND QUALIFICATION OF COMMON SHARES
The Corporation, in its discretion, may postpone the issuance,
delivery, distribution or release of Common Shares pursuant to an Award of
Restricted Stock, Performance Share Units or Benefit Equalization Units until
completion of such stock exchange listing or other qualification of such shares
under any state or federal law, rule or regulation as the Corporation may
consider appropriate, and may require any Participant or Beneficiary to make
such representations and furnish such information as it may consider appropriate
in connection with the issuance or delivery of the shares in compliance with
applicable laws, rules and regulations.
6.8 TAXES
The Corporation or any of its Affiliated Companies may make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state and local taxes required by law to be withheld
with respect to amounts payable under the Plan including, but not limited to (i)
deducting the amount so required to be withheld from any other amount then or
thereafter payable to a Participant or Beneficiary, (ii) reducing the amount of
any Award of Performance Share Units otherwise required to be deferred pursuant
to a Participant's election under Section 4.4 of the Prior Plan, by the amount
so required to be withheld with respect to such deferred amount, and/or (iii)
requiring a Participant or Beneficiary to pay to the Corporation or any of its
Affiliated Companies the amount so required to be withheld as a condition of the
issuance, delivery, distribution or release of any Common Shares.
6.9 DESIGNATION AND CHANGE OF BENEFICIARY
Each Participant shall file with the Committee a written designation of
one or more persons as the Beneficiary who shall be entitled to receive any
amount, or any Common Shares, payable under the Plan upon his or her death. A
Participant may, from time to time, revoke or change his or her Beneficiary
designation without the consent of any previously designated Beneficiary by
filing a new designation with the Committee. The last such designation received
by the Committee shall be controlling; provided, however, that no designation,
or change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt. If at the date of a Participant's
death, there is no designation of a Beneficiary in effect for the Participant
pursuant to the provisions of this Section 6.9, or if no Beneficiary designated
by the Participant in accordance with the provisions hereof survives to receive
any amount or Common Shares that becomes payable under the Plan by reason
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of the Participant's death, the Participant's estate shall be treated as the
Participant's Beneficiary for purposes of the Plan.
6.10 PAYMENTS TO PERSONS OTHER THAN PARTICIPANT
If the Committee shall find that any Participant or Beneficiary to whom
any amount, or any Common Shares, is payable under the Plan is unable to care
for his or her affairs because of illness, accident or legal incapacity, then if
the Committee so directs, such amount, or such Common Shares, may be paid to
such Participant's or Beneficiary's spouse, child or other relative, an
institution maintaining or having custody of such person, or any other person
deemed by the Committee to be a proper recipient on behalf of such Participant
or Beneficiary, unless a prior claim therefor has been made by a duly appointed
legal representative of the Participant or Beneficiary. Any payment made under
this Section 6.10 shall be a complete discharge of the liability of the
Corporation with respect to such payment.
6.11 NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his or her behalf in
his or her capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Corporation shall indemnify and hold harmless each
member of the Committee, and each employee, officer, director or trustee of the
Corporation or any of its Affiliated Companies to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the Board
of Directors) arising out of any act or omission to act in connection with the
Plan unless arising out of such person's own fraud or bad faith.
6.12 AMENDMENT OR TERMINATION
Except as to matters that in the opinion of the Corporation's legal
counsel require shareholder approval, any provision of the Plan may be modified
as to a Participant by an individual agreement approved by the Board of
Directors. The Board of Directors may, with prospective or retroactive effect,
amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that (i) no amendment that would materially increase the cost
of the Plan to the Corporation may be made by the Board of Directors without the
approval of the shareholders of the Corporation and (ii) no amendment,
suspension or termination of the Plan shall deprive any Participant of any
rights under the Plan without his or her written consent. Any amendment that the
Board of Directors would be permitted to make pursuant to the preceding sentence
may also be made by the Committee where appropriate to facilitate the
administration of the Plan or to comply with applicable law or any applicable
rules and regulations of government authorities.
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6.13 GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of New York, without reference to the principles of conflicts of
law thereof.
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<PAGE> 1
Exhibit 10.12
BOARD MEMBERS' DEFERRED COMPENSATION PLAN
OF
U.S. TRUST CORPORATION
AS AMENDED AND RESTATED THROUGH JULY 1, 1996
-----
1. PURPOSE
The Plan hereinafter set forth represents a continuation of the Board
Members' Deferred Compensation Plan maintained by U.S. Trust Corporation before
its merger with The Chase Manhattan Corporation ("Chase") pursuant to the
Agreement and Plan of Merger dated as of November 18, 1994 between Chase and
U.S. Trust Corporation (the "Merger Agreement"). The Plan was amended and
restated effective as of September 1, 1995 (a) to reflect the transfer of the
Plan to and its adoption by the Corporation, and the Corporation's assumption of
and becoming solely responsible for all liabilities and obligations of U.S.
Trust Corporation under the Plan, effective immediately before the "New Holdings
Distribution", as defined in the Merger Agreement, and (b) to reflect the
"Distribution" and the "Merger", as defined in the Merger Agreement. The Plan
has been further amended to make certain changes in the Plan's Earnings
Crediting Options effective as of July 1, 1996.
The purpose of the Plan is to provide Eligible Board Members of the
Corporation and its Affiliated Companies with an opportunity to defer payment of
certain portions of their compensation, at their election, in accordance with
the provisions hereof.
2. DEFINITIONS
As used herein, the following terms shall have the following meanings:
"ACCOUNT" shall mean the Account established for a Participant pursuant
to Section 4.
"AVERAGE MARKET VALUE" shall mean, with respect to one Common Share as
of any date or with respect to any period, the average of the mean between the
per-share high and low prices for the Common Shares on such date, or on each
trading day during such period, as quoted on the NASDAQ National Market System,
or, if the Common Shares are not traded on such system, on such other securities
market or securities exchange on which such shares are traded as the Committee
shall determine.
<PAGE> 2
"BENEFICIARY" shall mean the person or persons designated by a
Participant in accordance with Section 9 to receive any amount, or any common
shares of the Corporation, payable under the Plan by reason of his or her death.
"BOARD" shall mean (i) the Board of Directors, (ii) with respect to
periods prior to the Chase Merger Closing Date, the Board of Trustees of United
States Trust Company of New York, and with respect to periods after the Chase
Merger Closing Date, the Board of Directors of New U.S. Trust Company of New
York, which will assume the name of "United States Trust Company of New York" as
of the time the New Holdings Distribution is effective, or (iii) the board of
directors of any other direct or indirect subsidiary of the Corporation (or, for
periods prior to the Chase Merger Closing Date, U.S. Trust Corporation), the
members of which board have been designated by the Board of Directors as being
eligible for participation in this Plan.
"BOARD OF DIRECTORS" shall mean (i) with respect to periods prior to
the Chase Merger Closing Date, the Board of Directors of U.S. Trust Corporation,
and (ii) with respect to periods after the Chase Merger Closing Date, the Board
of Directors of the Corporation.
"BUSINESS DAY" shall mean any day on which Common Shares are traded on
the NASDAQ National Market System or, if Common Shares are not traded on such
system, on such other securities market or securities exchange on which such
shares are traded as the Committee shall determine.
"CHASE MERGER CLOSING DATE" shall mean the "Closing Date", as defined
in Section 1.2 of the Merger Agreement.
"COMMITTEE" shall mean the persons appointed by the Board of Directors
to administer the Plan in accordance with Section 12.
"COMMON SHARES" shall mean (i) prior to the Chase Merger Closing Date,
the common shares ($1.00 par value per share) of U.S. Trust Corporation, and
(ii) after the Chase Merger Closing Date, the common shares ($1.00 par value per
share) of the Corporation.
"CORPORATION" shall mean New USTC Holdings Corporation, which will
assume the name of "U.S. Trust Corporation" as of the time the New Holdings
Distribution is effective.
"ELIGIBLE BOARD MEMBER" shall mean any individual who is a member of
any Board and who is entitled to receive compensation for services rendered in
such capacity.
"ELIGIBLE COMPENSATION" shall mean, with respect to any Eligible Board
Member for any Plan Year beginning on or after January 1, 1995, all fees payable
to such Board Member
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<PAGE> 3
during such year for attendance at meetings of any Board or committees thereof,
and all fees payable to such Board Member during such year by way of retainer
for service as a member or chairman of any Board or committees thereof
regardless of the number of meetings attended ("Retainer Fees"). Notwithstanding
the foregoing, the term "Eligible Compensation" shall not include any
compensation payable to an Eligible Board Member in a form other than cash.
"PARTICIPANT" shall mean any Eligible Board Member who has made an
election under Section 3 (or under the applicable provisions of the Prior Plan)
to defer any portion of his or her Eligible Compensation for any Plan Year.
"PHANTOM SHARE UNIT" or "PSU" shall mean a unit of measurement
equivalent to one Common Share, with none of the attendant rights of a holder of
such share, including, without limitation, the right to vote such share and the
right to receive dividends thereon, except to the extent otherwise specifically
provided herein.
"PLAN" shall mean the Board Members' Deferred Compensation Plan of U.S.
Trust Corporation, as set forth herein and as amended from time to time.
"PLAN YEAR" shall mean the calendar year.
"PRIOR PLAN" shall mean the Board Members' Deferred Compensation Plan
of U.S. Trust Corporation, as in effect from time to time prior to the Chase
Merger Closing Date.
3. DEFERRAL ELECTIONS
With respect to each Plan Year beginning on or after January 1, 1994,
an Eligible Board Member may elect to have payment of any part or all of his or
her Eligible Compensation for such year deferred, and to have payment of such
portion made under the terms of this Plan. Any such election shall be made in
accordance with the following rules:
(a) A deferral election shall be made in writing, on a form provided by
the Committee for such purpose.
(b) In the election form, the Eligible Board Member (i) shall specify,
by percentage (which must be an even multiple of 5%), the portion of his or her
Eligible Compensation the Eligible Board Member wishes to defer hereunder (the
amounts so deferred are hereinafter referred to as the Eligible Board Member's
"Deferred Amounts"), and (ii) shall specify, by percentage (which must be an
even multiple of 5%), the portions of the Eligible Board Member's Deferred
Amounts that he or she wishes to have allocated, respectively, to the PSU
Portion and to the Interest Portion of the Account established for the Eligible
Board Member pursuant to Section 4. At least 50% of the Eligible Board Member's
Deferred Amounts for each Plan Year must be allocated to the PSU Portion of such
Account.
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<PAGE> 4
(c) An Eligible Board Member's election to defer Eligible Compensation
for any Plan Year beginning on or after January 1, 1995 shall be filed with the
Committee by no later than June 30 of the preceding Plan Year.
(d) Notwithstanding the provisions of paragraph (b) above, a newly
elected Eligible Board Member may make an initial deferral election hereunder
with respect to Eligible Compensation for the Plan Year in which he or she is
first elected to serve as a member of any Board and, if so elected after June 30
of such year, for the next following Plan Year, by filing his or her election
form with the Committee by no later than 30 days after the date on which he or
she commences to serve as a member of such Board. Any deferral election so made
shall be effective only with respect to Eligible Compensation earned for
services performed after the date on which the Eligible Board Member's initial
deferral election has been filed with the Committee.
(e)Any deferral election made by an Eligible Board Member with respect
to his or her Eligible Compensation for a Plan Year, and any election made
hereunder as to the allocation of the Deferred Amounts for such year to the PSU
Portion and the Interest Portion of his or her Account, shall be irrevocable.
4. ACCOUNTS
For each Participant, there shall be established on the books and
records of the Corporation, for bookkeeping purposes only, a separate Account
for each Participant to reflect the Participant's interest under the Plan. The
Account so established for each Participant shall be maintained in accordance
with the following provisions:
(a) The Account established for each Participant shall consist of two
sub-accounts referred to herein, respectively, as the "PSU Portion" and the
"Interest Portion".
(b) As of the time this Plan is adopted by the Corporation, the
Interest Portion of each Participant's Account shall be credited with an amount
equal to the balance, determined as of the close of business on the day
preceding the Chase Merger Closing Date, of the Interest Portion of the Account
maintained for the Participant under the Prior Plan, and the PSU Portion of each
Participant's Account shall be credited with a number of PSU's equal to the
number of PSU's included in the balance, determined as of the close of business
on the day preceding the Chase Merger Closing Date, of the PSU Portion of the
Account maintained for the Participant under the Prior Plan.
(c) As of the Effective Time (as defined in Section 1.3 of the Merger
Agreement), the number of PSU's credited to the PSU Portion of a Participant's
Account hereunder pursuant to (b) above shall be adjusted so as to equal the
number of such PSU's determined by dividing (i) the product of (A) the number of
such PSU's multiplied by (B) the Average Market Value
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of one Common Share of U.S. Trust Corporation during the 30-day period ending
on the day immediately preceding the Chase Merger Closing Date, by (ii) the
amount representing the 10-day average of the daily average of the high bid
and low asked prices for one Common Share of the Corporation in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated on a "when-issued" basis on each of the 10 trading days immediately
preceding the Chase Merger Closing Date.
(d) The PSU Portion and the Interest Portion of each Participant's
Account shall be credited with amounts equal to the portions of the
Participant's Deferred Amounts for each Plan Year (but only for periods
subsequent to the Chase Merger Closing Date, in the case of Deferred Amounts for
the Plan Year beginning on January 1, 1995) that the Participant has elected
under Section 3 hereof (or under Section 3 of the Prior Plan) to have allocated
to such Portions. Such amounts shall be so credited as of the first day of the
calendar month following the month in which the amounts in question would have
been paid to the Participant had the Participant not elected to have payment of
such amounts deferred.
(e) The PSU Portion and the Interest Portion of a Participant's Account
shall be adjusted to reflect all additional PSU's, interest and Earnings (as
defined in paragraph (c) of Section 6) to be credited to such Portions pursuant
to Section 6, and all payments made with respect to such Portions pursuant to
Section 8.
(f) A Participant's interest in his or her Account shall be fully
vested and nonforfeitable at all times.
5. CONVERSION TO PSU'S
Amounts credited to the PSU Portion of a Participant's Account pursuant
to paragraph (d) of Section 4 (and any interest credited thereon pursuant to
paragraph (b) of Section 6) shall be converted into (and after such conversion
shall be reflected in such Portion as) a number of Phantom Share Units
("PSU's"). The conversion shall be made in accordance with the following rules.
(a) Amounts so credited shall be converted as of the following dates
(the date for the conversion of each such amount is hereinafter referred to as
the "Conversion Date"):
(i) In the case of any amount so credited with respect to a
Participant's Deferred Amounts for any Plan Year beginning on or after
January 1, 1995, the Conversion Date shall be the same date as the date
as of which such amount is so credited, except as provided in (ii)
below.
(ii) In the case of any amount so credited with respect to a
newly elected Eligible Board Member's Deferred Amounts for the Plan
Year in which he or she is first
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<PAGE> 6
elected to serve as a Member of any Board and, if so elected after June
30 of such year, for the next following Plan Year, the Conversion Date
shall be the later of (A) the date as of which such amount is so
credited, or (B) the first day of the month following the expiration of
six months from the date on which the Eligible Member's initial
deferral election was filed with the Committee pursuant to Section
3(d).
(b) The number of PSU's into which any amount credited to the PSU
Portion of a Participant's Account (and any interest credited thereon under
paragraph (b) of Section 6) is to be converted shall be determined by dividing
(i) the dollar value of such amount by (ii) the Average Market Value of one
Common Share on the Conversion Date for such amount or, if such Conversion Date
is not a Business Day, on the Business Day next preceding such Conversion Date.
6. CREDITING OF EARNINGS
Until payment with respect to a Participant's Account has been made in
full in accordance with Section 8, the PSU Portion of a Participant's Account
shall be credited with additional PSU's or interest, and the Interest Portion of
the Participant's Account shall be credited with Earnings, with respect to
periods beginning on and after July 1, 1996, in accordance with the following
provisions:
(a) As of each date on which the Corporation pays a dividend on its
Common Shares ("Dividend Payment Date") the PSU Portion of each Participant's
Account shall be credited with additional PSU's, the number of which shall be
determined by first (i) multiplying the number of PSU's standing to the
Participant's credit on the date such dividend was declared by the per-share
dollar amount of the dividend so paid, and then (ii) dividing the resulting
amount by the Average Market Value of one Common Share on the Dividend Payment
Date.
(b) If, as of the last day of any calendar month, any part of the
balance of the PSU Portion of a Participant's Account has not yet been converted
into PSU's in accordance with Section 5, such part of the balance shall be
credited, as of such last day, with interest computed at the Prime Rate (as
hereinafter defined).
(c) As of the last day of each calendar month, each part of the balance
of the Interest Portion of a Participant's Account for which a separate Earnings
Crediting Option (as hereinafter defined) is in effect pursuant to the
Participant's election hereunder shall be credited with an amount determined by
multiplying such part of the balance by a percentage corresponding to the
Applicable Rate of Return (as hereinafter defined) for such month under such
Earnings Crediting Option. The amount so credited (which may be positive or
negative depending on whether the Applicable Rate of Return for the month is
positive or negative) is referred to herein as "Earnings".
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<PAGE> 7
(d) For purposes of this Section 6, the term "Earnings Crediting
Option" shall mean, as of any date of reference on or after July 1, 1996, any
one of the following: the S&P 500 Index, the Lehman Bros. Government/Corporate
Bond Index, the IBC's Money Fund Report First Tier Average, and the UST Prime
Rate.
Notwithstanding the foregoing, the Committee may at any time, in its
sole discretion, determine (i) that any option referred to in the preceding
paragraph shall cease to constitute an Earnings Crediting Option for purposes of
the Plan, or (ii) that any other index or hypothetical investment fund or
referenced rate of return shall constitute an Earnings Crediting Option for
purposes of the Plan. Participants shall be notified in writing, at least 45
days in advance, of any change in the Plan's Earnings Crediting Options.
(e) The "Applicable Rate of Return" for any month shall mean (i) in the
case of the S&P 500 Index, the percentage, as determined by the Committee, by
which (A) the value of such Index as of the last business day of such month, as
adjusted to reflect all income earned for such month on the securities included
in such Index, exceeds, or is less than, (B) the value of such Index as of the
last business day of the immediately preceding month, determined without taking
such adjustment into account; (ii) in the case of the Lehman Bros.
Government/Corporate Bond Index, the percentage, as determined by the Committee,
by which the value of such Index as of the last Business Day of such month,
exceeds, or is less than, the value of such Index as of the last Business Day of
the immediately preceding month; (iii) in the case of the IBC's Money Fund
Report First Tier Average, the rate of return corresponding to the 7-day
compounded yield for such Average, for the period ending on, or most recently
prior to, the last day of such month; (iv) in the case of the UST Prime Rate
Option, the rate of return corresponding to the prime rate as quoted by United
States Trust Company of New York on the last Business Day of such month; and (v)
in the case of any other Earnings Crediting Option, the rate of return
applicable for such month, as determined by the Committee in its sole
discretion.
(f) A Participant may make elections with respect to the Earnings
Crediting Options that are to apply on and after July 1, 1996 with respect to
the Interest Portion of his or her Account, in accordance with the following
rules:
(i) a Participant may elect to have any part or all of the
balance of the Interest Portion credited with Earnings under any
Earnings Crediting Option available under the Plan at the time of his
or her election.
(ii) each Participant for whom an Account was being
maintained on May 15, 1996 shall make an initial election as to the
Earnings Crediting Options that are to apply with respect to the
Interest Portion of his or her Account on and after July 1, 1996. Such
election shall be made in writing, on a form provided by the Committee
for such purpose, and such form shall be filed with the Committee by no
later than June 14, 1996. In such election form, the Participant shall
specify, by percentages (which must be even
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multiples of 5%) the respective parts of the balance of the Interest
Portion that are to be credited with Earnings under each of the
Earnings Crediting Options designated by the Participant in such form.
If a Participant fails to make such election by June 14, 1996, the
Participant shall be deemed to have selected the UST Prime Rate as the
Earnings Crediting Option to apply to the entire balance of the
Interest Portion.
(iii) each Eligible Board Member who becomes a Participant
after May 15, 1996 shall make an initial election as to the Earnings
Crediting Options that are to apply with respect to the Interest
Portion at the time the Participant first elects under Section 3 to
have any part of the Participant's Deferred Amounts for any Plan Year
allocated to the Interest Portion of his or her Account. Such election
shall be made in the election form in which the Participant makes his
or her election under Section 3 to have such part of the Participant's
Deferred Amounts for such Plan Year allocated to the Interest Portion.
In such election form, the Participant shall specify, by percentages
(which must be even multiples of 5%) the respective parts of the
balance of the Interest Portion of his or her Account that are to be
credited with Earnings under each of the Earnings Crediting Options
designated by the Participant in such form.
(iv) The Earnings Crediting Options selected in the initial
election made by a Participant under clause (ii) or (iii) above (or
deemed to have been selected by a Participant under clause (ii) above)
shall remain in effect (and shall apply to all additional amounts
allocated to the Interest Portion pursuant to any deferral elections
made by the Participant under Section 3 with respect to any subsequent
Plan Years) until the Participant changes his or her election in
accordance with clause (v) below.
(v) A Participant may change the Earnings Crediting Options
that are to apply with respect to the Interest Portion of his or her
Account by making a new election hereunder. Such new election shall be
made in writing, on a form which is provided by the Committee for this
purpose and which the Participant files with the Committee. In such
form, the Participant shall specify, in the same manner as described in
clause (ii) above, the respective parts of the balance of the Interest
Portion that are to be credited with Earnings under each of the
Earnings Crediting Options designated by the Participant in such form.
The Participant's new election shall become effective as of the first
day of the calendar month following the date on which such election is
filed with the Committee, provided that it is so filed at least 15 days
prior to such first day. The Earnings Crediting Options selected by the
Participant in such new election shall remain in effect until the
Participant again changes his election with respect to the Interest
Portion of his or her Account in accordance with this clause (v).
(g) The Interest Portion of a Participant's Account shall continue to
be credited with Earnings in accordance with the provisions of this Section 6
until all payments required to be made with respect to the Interest Portion
under Section 8 have been made. For this purpose, any
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payments made under Section 8 with respect to the Interest Portion of the
Participant's Account will be deemed to have been made pro rata from the
respective parts of the balance of the Interest Portion that are subject to
separate Earnings Crediting Options.
7. ADJUSTMENT OF PSU'S
In the event of any change in the Common Shares occurring after the
Chase Merger Closing Date by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or any rights offering to purchase such shares at a price substantially
below fair market value, or any similar change affecting the Common Shares, the
number and kind of shares represented by Phantom Share Units shall be
appropriately adjusted consistent with such change in such manner as the
Committee, in its sole discretion, may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for, the
Participants hereunder. The Committee shall give notice to each Participant of
any adjustment made pursuant to this Section 7 and, upon such notice, such
adjustment shall be effective and binding for all purposes of the Plan.
8. PAYMENT OF ACCOUNT BALANCES
Payment with respect to a Participant's Account shall be made in
accordance with the following provisions:
(a) The balances of the PSU Portion and the Interest Portion of a
Participant's Account shall become payable upon the Participant's ceasing to be
a member of any Board, for any reason.
(b) Except as otherwise provided in paragraph (e) below, payment with
respect to the PSU Portion and the Interest Portion of a Participant's Account
shall be made in the form of a series of 10 annual installments. The first such
installment payment shall be made on the last Business Day of February of the
Plan Year following the year in which the Participant ceases to be a member of
any Board, and the remaining installment payments shall be made on the last
Business Day of February of each succeeding Plan Year.
(c) Each installment payment to be made with respect to the Interest
Portion of a Participant's Account shall be made in cash, in an amount
determined by dividing (i) the balance of the Interest Portion determined as of
the last day of the Plan Year preceding the year in which such payment is to be
made, by (ii) the number of installment payments remaining to be made. The last
such installment payment shall include Earnings credited to the Interest Portion
for the month preceding the month in which such payment is made.
(d) Each installment payment to be made with respect to the PSU Portion
of a Participant's Account shall be made partly in Common Shares, and partly in
cash. The number
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<PAGE> 10
of shares to be included in each such installment payment shall be equal to the
number of whole PSU's included in the quotient resulting from dividing (i) the
total number of PSU's included in the balance of the PSU Portion of the
Participant's Account as of the last day of the Plan Year preceding the year in
which such payment is to be made, by (ii) the number of installment payments
remaining to be made; and the amount of cash to be included in each such
installment payment shall be determined by multiplying (iii) the fractional part
of a PSU included in the aforementioned quotient by (iv) the Average Market
Value of one Common Share on the Business Day immediately preceding the date on
which such installment payment is to be made. The last such installment payment
shall include a number of Common Shares equal to the whole number of any
additional PSU's that are credited to the PSU Portion of the Participant's
Account under Section 6(a) during the month preceding the month in which such
payment is made, together with cash (in an amount determined in the same manner
as described in clause (iv) of the preceding sentence) for any fractional part
of a PSU that is so credited.
(e) If a Participant should die before receiving all payments required
to be made hereunder with respect to the Participant's Account, any payments
remaining to be made at the date of the Participant's death shall be made to the
Participant's Beneficiary as follows:
(i) Payment with resect to the Interest Portion of the
Participant's Account shall be made in the form of a single lump-sum
cash payment, in an amount equal to the balance of the Interest Portion
determined as of the last day of the month preceding the month in which
such payment is made.
(ii) Payment with respect to the PSU Portion of the
Participant's Account shall be made in the form of (A) a number of
Common Shares equal to the number of whole PSU's included in the
balance of the PSU Portion as of the last day of the month preceding
the month in which such payment is made, and (b) a cash payment in an
amount determined by multiplying (x) the fractional part of a PSU
included in such balance as of such last day, by (y) the Average Market
Value of one Common Share on the Business Day immediately preceding the
date on which such payment is made.
(iii) The payments to be made hereunder to the Participant's
Beneficiary shall be made as soon as practicable after the date of the
Participant's death.
(f) Notwithstanding any other provision in this Section 8 to the
contrary, payment with respect to any part or all of the Participant's Account
balances may be made to the Participant on any date earlier than the date on
which such payment is to be made pursuant to such other provisions of this
Section 8 if (i) the Participant requests such early payment and (ii) the
Committee, in its sole discretion, determines that such early payment is
necessary to help the Participant meet an "unforeseeable emergency" within the
meaning of Section 1.457-2(h)(4) of the federal Income Tax Regulations. The
amount that may be so paid may not exceed the amount necessary to meet such
emergency.
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<PAGE> 11
(g) There shall be deducted from the amount of any payment otherwise
required to be made under the Plan all Federal, state and local taxes required
by law to be withheld with respect to such payment.
9. DESIGNATION AND CHANGE OF BENEFICIARY
Each Participant shall file with the Committee a written designation of
one or more persons as the Beneficiary who shall be entitled to receive any
amount, or any Common Shares, payable under the Plan by reason of his or her
death. A Participant may, from time to time, revoke or change his or her
Beneficiary designation without the consent of any previously designated
Beneficiary by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt. If at the date of a
Participant's death, there is no designation of a Beneficiary in effect for the
Participant pursuant to the provisions of this Section 9, or if no Beneficiary
designated by the Participant in accordance with the provisions hereof survives
to receive any amount payable under the Plan by reason of the Participant's
death, the Participant's estate shall be treated as the Participant's
Beneficiary for purposes of the Plan.
10. PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS
If the Committee shall find that any Participant or Beneficiary to whom
any amount, or any Common Shares, is payable under the Plan is unable to care
for his or her affairs because of illness, accident or legal incapacity, then,
if the Committee so directs, such amount, or such Common Shares, may be paid to
such Participant's or Beneficiary's spouse, child or other relative, an
institution maintaining or having custody of such person, or any person deemed
by the Committee to be a proper recipient on behalf of such Participant or
Beneficiary, unless a prior claim therefor has been made by a duly appointed
legal representative of the Participant or Beneficiary.
Any payment made under this Section 10 shall be a complete discharge of
the liability of the Corporation with respect to such payment.
11. RIGHTS OF PARTICIPANTS
A Participant's rights and interests under the Plan shall be subject to
the following provisions:
(a) A Participant shall have the status of a general unsecured creditor
of the Corporation with respect to his or her right to receive any payment under
the Plan. The Plan shall constitute a mere promise by the Corporation to make
payments in the future of the benefits provided for
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<PAGE> 12
herein. It is intended that the arrangements reflected in this Plan be treated
as unfunded for tax purposes.
(b) The Corporation may, but shall not be required to, purchase a life
insurance policy or policies, to assist it in funding any of its payment
obligations under the Plan. If any policy is so purchased, it shall, at all
times, remain subject to the claims of the Corporation's creditors. No
Participant or Beneficiary shall have any interest in, or rights with respect
to, such policy.
(c) A Participant's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or his or her Beneficiary.
12. ADMINISTRATION
The Plan shall be administered by a Committee composed of at least
three Board members who shall be appointed by the Board of Directors from among
Board members who are not Eligible Board Members. If at any time there are less
than three such Board members, additional members of the Committee shall be
appointed from among those Board members who have never participated in the Plan
or, in the absence of any such Board members, from among any senior officers of
the Corporation or any of its direct or indirect subsidiaries.
All decisions, actions or interpretations of the Committee under the
Plan shall be final, conclusive and binding upon all parties.
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his or her behalf in
his or her capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Corporation shall indemnify and hold harmless each
member of the Committee, and each employee, officer, director or trustee of the
Corporation or any of its direct or indirect subsidiaries to whom any duty or
power relating to the administration or interpretation of the Plan may be
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the Board
of Directors) arising out of any act or omission to act in connection with the
Plan unless arising out of such person's own fraud or bad faith.
13. AMENDMENT OR TERMINATION
The Board of Directors may, with prospective or retroactive effect,
amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that no amendment of the Plan shall deprive any Participant
of any rights to receive payment of any amounts due him or her under the terms
of the Plan as in effect prior to such amendment without his or her written
consent.
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<PAGE> 13
Any amendment that the Board of Directors would be permitted to make
pursuant to the preceding paragraph may also be made by the Committee where
appropriate to facilitate the administration of the Plan or to comply with
applicable law or any applicable rules and regulations of governing authorities
provided that the cost of the Plan to the Corporation is not materially
increased by such amendment.
14. SUCCESSOR CORPORATION
The obligations of the Corporation under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Corporation, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Corporation. The Corporation agrees that it will make
appropriate provision for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
15. GOVERNING LAW
The provisions of the Plan shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE> 1
Exhibit 10.15
1995 ANNUAL INCENTIVE PLAN OF
UNITED STATES TRUST COMPANY OF NEW YORK
AND
AFFILIATED COMPANIES
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996
1. PURPOSE
The purpose of the Plan is to encourage greater focus on performance
among officers and employees of United States Trust Company of New York and its
Affiliated Companies by relating a significant portion of their total
compensation to the achievement of annual financial and strategic objectives.
2. DEFINITIONS
As used herein, the following terms shall have the following meanings:
"AWARD" shall mean a payment to be earned in accordance with the
provisions of the Plan.
"BENEFICIARY" shall mean the person or person designated in accordance
with Section 9 to receive the amount, if any, payable under the Plan upon the
death of a Participant.
"BOARD OF DIRECTORS" shall mean the Board of Directors of United States
Trust Company of New York.
"CHANGE IN CONTROL" shall mean that any of the following events has
occurred:
(i) 20% or more of the common shares of the Corporation has
been acquired by any person (as defined by Section 3(a)(9) of the
Securities Exchange Act of 1934) other than directly from the
Corporation;
(ii) there has been a merger or equivalent combination after
which 49% or more of the voting shares of the surviving corporation is
held by persons other than former shareholders of the Corporation; or
(iii) 20% or more of the directors elected by shareholders to
the board of directors of the Corporation are persons who were not
nominated by such board or the
<PAGE> 2
executive committee of such board in the most recent proxy statement of
the Corporation;
provided, however, that notwithstanding anything in the Plan to the contrary, no
Change in Control shall be deemed to have occurred, and no rights arising upon a
Change in Control as provided in Section 7 shall exist, to the extent that the
Board of Directors so directs by resolution adopted prior to the Change in
Control, or not later than 45 days after the Change in Control if the percentage
of Common Shares acquired or directors elected under clause (i) or (iii) of the
foregoing definition of Change in Control shall be at least 20% but less than
25%. Any resolution of the Board of Directors adopted in accordance with the
provisions of this definition directing that a Change in Control shall be deemed
not to have occurred for purposes of this Plan and that Section 7 shall not
become effective, may be rescinded or countermanded at any time with or without
retroactive effect.
"COMMITTEE" shall mean the Management Committee of the Trust Company,
or any successor committee consisting of those senior officers of the Trust
Company who are responsible for determining business and strategic policies.
"CORPORATION" shall mean U.S. Trust Corporation.
"EMPLOYEE" shall mean any individual employed by the Trust Company.
"ESOP CONTRIBUTION" shall mean the ESOP Contribution as defined under
the 401(k) Plan.
"EXECUTIVE DEFERRED COMPENSATION PLAN" shall mean the Executive
Deferred Compensation Plan of U.S. Trust Corporation.
"401(k) PLAN" shall mean the 401(k) Plan and ESOP of United States
Trust Company of New York and Affiliated Companies.
"PARTICIPANT" shall mean any Employee who meets the requirements set
forth in Section 3 for eligibility to participate in the Plan.
"PLAN" shall mean the 1995 Annual Incentive Plan of United States Trust
Company of New York and Affiliated Companies, as set forth herein and as amended
from time to time.
"PLAN YEAR" shall mean, initially, the period beginning on September 1,
1995 and ending on December 31, 1995, and thereafter, each calendar year.
"TRUST COMPANY" shall mean United States Trust Company of New York and
its Affiliated Companies.
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<PAGE> 3
3. ELIGIBILITY FOR PARTICIPATION
Any individual shall be eligible to participate in the Plan if he or
she (a) is an Employee, (b) is not a Participant in the Executive Incentive Plan
of U.S. Trust Corporation, (c) is not compensated, in whole or in part, on a
commission basis, (d) is not eligible to receive any bonus or incentive payments
pursuant to any employment agreement between the Employee and the Corporation or
the Trust Company and (e), in the case of any Employee under the rank of Vice
President, has completed at least one "Year of Service" as defined in the 401(k)
Plan.
Notwithstanding the foregoing, an Employee described in clause (e) of
the preceding paragraph who has met the requirements set forth in clauses (c)
and (d) thereof shall, if the Committee so determines based on the
recommendation of such Employee's division manager, be treated as eligible to
participate in the Plan, commencing as of any date prior to the Eligible
Employee's completion of a Year of Service as the Committee shall specify in
such determination.
Any Employee who meets all of the foregoing requirements on the
Effective Date of the Plan, as set forth in Section 16, shall commence
participation in the Plan on such date. Any other Employee shall commence
participation in the Plan on the first day of the calendar month following the
date on which he or she meets all of the foregoing requirements for eligibility.
An Employee shall cease participation in the Plan as to the first date
on which he or she no longer meets all of the foregoing requirements for
eligibility.
4. AWARDS
Awards for any Plan Year shall be made in accordance with the following
provisions:
(a) At the start of the Plan Year, the Compensation Committee of the
Board of Directors (the "Compensation Committee") shall establish (i) the
corporate performance goals (the "Performance Goals") which will apply in
determining the Awards for such year, (ii) the aggregate amount that will be
available for Awards for such year if such Performance Goals are achieved (the
"Target Awards Pool"), and (iii) the percentages of the Target Awards Pool that
will in fact be available for Awards for the year based on the level of
achievement of such Performance Goals, which percentages may be greater than
100% if the Performance Goals are exceeded and less than 100% if the Performance
Goals have not been fully achieved (the "Actual Awards Pool").
(b) The Performance Goals established for the year shall be based upon
an annual growth in the earnings per share of the Corporation and/or upon such
other corporate objectives as the Compensation Committee shall determine. The
Compensation Committee shall have the authority at any time to adjust the
Performance Goals, or performance measurement standards,
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<PAGE> 4
for the Plan Year as it deems equitable in recognition of (i) extraordinary or
nonrecurring events experienced by the Corporation (or by any other corporation
whose performance is relevant to the determination of the amount of any Award
hereunder) during the Plan Year, (ii) changes in applicable accounting rules or
principles or changes in the Corporation's (or in any other such corporation's)
methods of accounting during the Plan Year, (iii) the occurrence of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in the
capital structure of the Corporation (or of any other such corporation), or (iv)
such other events, changes, occurrences, conditions or circumstances as in the
Compensation Committee's judgment, shall warrant such adjustment.
(c) The Compensation Committee shall determine the amount of the Target
Awards Pool as a percentage or percentages of the aggregate base salary earned
for the year while a Participant of all Participants, either individually or by
categories of Participants, provided that the Compensation Committee may, in its
sole discretion, also apply such percentage or percentages to other current or
deferred compensation and determine the year for which such deferred
compensation shall be counted.
(d) At the end of the Plan Year, the Compensation Committee shall
determine the extent to which the Performance Goals for the year have been met
and, based thereon, the amount of the Actual Awards Pool; and the Committee
shall determine the amount of the Award, if any, earned by each Participant for
the year, based on the level of the Participant's achievement of the goals and
objectives established for the Participant at the start of the Plan Year. The
individual goals for each Participant for each Plan Year shall be set, and the
Participant's performance relative to such goals shall be measured, by the
Committee based upon the recommendations of the Participant's division manager.
(e) The Committee may, in its discretion, make Awards to Participants
in an aggregate amount less than the amount of the Actual Awards Pool. The
Committee may also, in its discretion, allocate any portion of the Actual Awards
Pool for use in making Awards to one or more groups or categories of
Participants, or for use in making special additional Awards to particular
Participants.
5. PAYMENT OF AWARDS
The amount payable to a Participant with respect to an Award earned by
a Participant under the Plan for any Plan Year shall be the total amount of the
Award so earned, reduced by the amount of any ESOP Contribution to be made on
behalf of the Participant under the 401(k) Plan for the "Plan Year" (as defined
in the 401(k) Plan) corresponding to such Plan Year, with respect to the base
salary of such Participant that was taken into account in determining the Target
Awards Pool for that Plan Year.
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<PAGE> 5
The amount payable with respect to an Award earned under the Plan for
any Plan Year, as determined under the preceding paragraph, shall be paid to the
Participant in cash as soon as practicable after the end of such Plan Year,
except to the extent that the Participant (a) has elected, under the applicable
provisions of the 401(k) Plan, to have any portion of such Award reduced, and to
have an amount equal to such portion of the Award contributed to the 401(k) Plan
on the Participant's behalf and/or (b) has elected, under the applicable
provisions of the Executive Deferred Compensation Plan, to defer any portion of
such Award.
With respect to the portion of any Award that is subject to a
Participant's election under the 401(k) Plan, the Trust Company shall contribute
an amount equal to such portion of the Award to the 401(k) Plan on behalf of the
Participant; and thereupon, the Trust Company's obligation with respect to
payment of such portion of the Award shall be fully discharged. However, no such
contribution shall be made to the extent it would cause any limitation
applicable under the 401(k) Plan to be exceeded.
With respect to the portion of any Award that is subject to a
Participant's election under the Executive Deferred Compensation Plan, the Trust
Company's obligation under this Plan with respect to payment of such portion of
the Award shall be fully discharged upon the crediting of such portion of the
Award to the Participant's account under the Executive Deferred Compensation
Plan in accordance with the applicable provisions of such Plan.
Unless paid by Unites States Trust Company of New York, all liabilities
in respect of Participants who are employees of affiliates of such company shall
be discharged by the respective employing affiliates.
6. PARTIAL AWARDS
An Employee who is a Participant for less than a full Plan Year,
whether by reason of commencement or termination of employment or otherwise,
shall receive such portion of an Award, if any, for that year as the Committee
shall determine based on the recommendation of such Employee's division manager.
7. CHANGE IN CONTROL
Notwithstanding any other provision in the Plan to the contrary (but
subject to the proviso contained in the definition of "Change in Control" in
Section 2), upon the occurrence of a Change in Control, the following provisions
shall apply.
(a) All Performance Goals and individual goals and objectives with
respect to the Plan Year in which the Change in Control occurs (the "Year of
Change") shall be deemed to have been attained to the full and maximum extent,
and the Actual Awards Pool for the Year of Change shall be determined by
multiplying the Target Awards Pool for such year by the highest
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<PAGE> 6
percentage thereof established by the Compensation Committee under Section
4(a)(iii) for determining the amount of the Actual Awards Pool for such year.
(b) Unless another formula shall have been designated by the Committee
prior to the Change in Control, each Participant shall be allocated a portion of
the Actual Awards Pool for the Year of Change, as determined under (a) above,
equal to the amount of such Actual Awards Pool, multiplied by a fraction, the
numerator of which is the portion of the anticipated annual compensation of the
Participant which was taken into account by the Compensation Committee in
determining the Target Awards Pool for the Year of Change, and the denominator
of which is the sum of all such amounts.
(c) As soon as practicable following the Change in Control, all Awards
which are deemed to have been earned to the full and maximum extent upon the
occurrence of the Change in Control shall be payable in full in single cash lump
sums, reduced by any taxes withheld pursuant to Section 8 and by the amount of
any ESOP Contributions to be made on behalf of Participants under the 401(k)
Plan for the Year of the Change.
(d) No Awards payable in accordance with this Section shall be
forfeitable on account of a Participant's termination of employment upon or
following the Change in Control.
8. TAXES
The Trust Company shall deduct from all amounts otherwise payable under
the Plan all federal, state, local and other taxes required by law to be
withheld with respect to such amounts.
9. DESIGNATION AND CHANGE OF BENEFICIARY
Each Participant shall file with the Committee a written designation of
one or more persons as the Beneficiary who shall be entitled to receive the
amount, if any, payable under the Plan upon his or her death. A Participant may,
from time to time, revoke or change his or her Beneficiary designation without
the consent of any previously designated Beneficiary by filing a new designation
with the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt. If at the date of a Participant's death, there is no designation
of a Beneficiary in effect for the Participant pursuant to the provisions of
this Section 9, or if no Beneficiary designated by the Participant in accordance
with the provisions hereof survives to receive any amount payable under the Plan
by reason of the Participant's death, the Participant's estate shall be treated
as the Participant's Beneficiary for purposes of the Plan.
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<PAGE> 7
10. PAYMENTS TO PERSONS OTHER THAN PARTICIPANT
If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his or her affairs because of
illness, accident or legal incapacity, then, if the Committee so directs, any
payment due to such person may be paid to such person's spouse, child or other
relative, an institution maintaining or having custody of such person, or any
other person deemed by the Committee to be a proper recipient on behalf of such
person, unless a prior claim for payment of such amount has been made by a duly
appointed legal representative of such person. Any such payment shall be a
complete discharge of the liability of the Trust Company therefor.
11. RIGHTS OF PARTICIPANTS
A Participant's rights and interests under the Plan shall be subject to
the following provisions:
(a) A Participant shall have the status of a general unsecured creditor
of the Trust Company with respect to his or her right to receive any payment
under the Plan. The Plan shall constitute a mere promise by the Trust Company to
make payments in the future of the benefits provided for herein. It is intended
that the arrangements reflected in this Plan be treated as unfunded for tax
purposes, as well as for purposes of any applicable provisions of Title I of
ERISA.
(b) A Participant's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or his or her Beneficiary.
(c) Neither the Plan nor any action taken hereunder shall be construed
as giving any Participant any right to be retained in the employment of the
Trust Company.
(d) No Employee shall have the right, by virtue of being a Participant
in the Plan, to be automatically entitled to receive an Award for any Plan Year.
(e) No Award shall be considered as compensation under any employee
benefit plan of the Corporation or the Trust Company, except as specifically
provided in any such plan or as otherwise determined by the board of directors
of the Corporation or by the Board of Directors.
12. ADMINISTRATION
The Plan shall be administered by the Committee. A majority of the
members of the Committee shall constitute a quorum. The Committee may act at a
meeting, including a
-7-
<PAGE> 8
telephone meeting, by action of a majority of the members present, or without a
meeting by unanimous written consent. In addition to the responsibilities and
powers assigned to the Committee elsewhere in the Plan, the Committee shall have
the authority to establish from time to time guidelines or regulations for the
administration of the Plan, interpret the Plan, and make all determinations
considered necessary or advisable for the administration of the Plan. The
Committee may delegate any ministerial or nondiscretionary function pertaining
to the administration of the Plan to any one or more officers of the Trust
Company.
All decisions, actions or interpretations of the Committee under the
Plan shall be final, conclusive and binding upon all parties.
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his or her behalf in
his or her capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Trust Company shall indemnify and hold harmless each
member of the Committee, and each employee, officer or director of the
Corporation or the Trust Company to whom any duty or power relating to the
administration or interpretation of the Plan may be delegated, against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Board of Directors) arising out
of any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith.
13. AMENDMENT OR TERMINATION
The Board of Directors may, with prospective or retroactive effect,
amend, suspend or terminate the Plan or any portion thereof at any time,
provided, however, that no amendment, suspension or termination of the Plan
shall deprive any Participant of any rights to Awards previously made under the
Plan without his or her written consent. Any amendment that the Board of
Directors would be permitted to make pursuant to the preceding sentence may also
be made by the Committee where appropriate to facilitate the administration of
the Plan or to comply with applicable law or any applicable rules and
regulations of government authorities, provided that the cost of the Plan to the
Trust Company is not materially increased thereby.
14. SUCCESSOR CORPORATION
The obligations of the Trust Company under the Plan shall be binding
upon any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Trust Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and business of the Trust Company. The Trust Company agrees that it will
make appropriate provision for the preservation of Participants' rights under
the Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
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<PAGE> 9
15. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of New York.
16. EFFECTIVE DATE
The Plan shall be effective as of September 1, 1995.
-9-
<PAGE> 1
Exhibit 10.16
1990 CHANGE IN CONTROL AND SEVERANCE POLICY
FOR TOP TIER OFFICERS OF UNITED STATES TRUST COMPANY
OF NEW YORK AND AFFILIATED COMPANIES
AS AMENDED AND RESTATED
EFFECTIVE AS OF OCTOBER 22, 1996
1. PURPOSE
This document sets forth the 1990 Change in Control and Severance
Policy for Top Tier Officers of United States Trust Company of New York, as
amended and restated effective as of October 22, 1996.
The purpose of the Plan is to provide for payments to (and other
benefits for) certain officers of the United States Trust Company of New York
and designated affiliates thereof whose service is terminated under certain
circumstances following changes in the ownership or management of U.S. Trust
Corporation, and to provide for regular severance payments to certain of such
officers whose service is otherwise terminated.
2. DEFINITIONS
The following definitions are applicable to the Plan:
"ACT" means the Employee Retirement Income Security Act of 1974, as now
in effect or as hereafter amended.
"AFFILIATE" means any affiliate of the Trust Company that has been
designated by the Committee specifically for purposes of participation in the
Plan.
"AWARDS PLANS" means the 1990 Annual Incentive Plan of United States
Trust Company of New York and Affiliated Companies (the "AIP"), the Executive
Incentive Plan of U.S. Trust Corporation, the 1995 Annual Incentive Plan of
United States Trust Company of New York and Affiliated Companies, and any
successor plan of any of the foregoing.
"BASE SALARY" means, with respect to any Participant, the Participant's
base salary as in effect at the time his or her service is terminated; provided,
however, that if a Participant terminates his or her service following a
reduction in the Participant's base salary, then, for purposes of
<PAGE> 2
Section 5, the Participant's "Base Salary" shall mean his or her base salary as
in effect immediately prior to any such reduction.
"CHANGE IN CONTROL" has the meaning set forth in Section 5(f).
"CHANGE IN CONTROL BENEFIT" means any payment or other benefit that a
Participant may be entitled to receive under any Change in Control Plan upon a
change in control (as defined in such Plan) or upon the Participant's
involuntary termination (as defined in such Plan) following such change in
control.
"CHANGE IN CONTROL PLAN" means any plan (including this Plan), program,
policy, or agreement or resolution of the Board of Directors of the Corporation
or the Trust Company under which a Change in Control Benefit may be provided to
a Participant. All Change in Control Plans shall be listed in Schedule C hereto,
which shall be amended as necessary, from time to time, by the Committee.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation and Benefits Committee of the Board
of Directors of the Trust Company.
"CORPORATION" means U.S. Trust Corporation.
"FORMER MANAGEMENT COMMITTEE MEMBER" means any of the individuals
listed in Schedule B hereto.
"401(K) PLAN" means the 401(k) Plan and ESOP of United States Trust
Company of New York and Affiliated Companies.
"INVOLUNTARY TERMINATION" has the meaning set forth in Section 5(e).
"1987 POLICY" means the 1987 Change in Control Policy of United States
Trust Company of New York and Affiliated Companies, as set forth in and adopted
by resolutions of the Board of Directors of U.S. Trust Corporation at its
meeting on December 8, 1987. The 1987 Policy is reproduced in Schedule D hereto.
"PARTICIPANT" has the meaning set forth in Section 4.
"PAYMENT" means any and all payments to which a Participant is or may
become entitled in accordance with the provisions of the Plan.
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<PAGE> 3
"PLAN" means the 1990 Change in Control and Severance Policy for Top
Tier Officers of United States Trust Company of New York and Affiliated
Companies, as set forth herein and as amended from time to time.
"RETIREMENT PLAN" means the Employees' Retirement Plan of United States
Trust Company of New York and Affiliated Companies.
"STOCK PLAN" means the 1989 Stock Compensation Plan of U.S. Trust
Corporation, as in effect on any date prior to January 1, 1994.
"TRUST COMPANY" means United States Trust Company of New York.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have exclusive authority to determine all matters involving the administration,
operation and interpretation of the Plan, in its discretion. All decisions,
actions or interpretations of the Committee under the Plan shall be final,
conclusive and binding upon all parties. After a Change in Control, all powers
of the Committee under this Plan shall be exercised solely by the Committee as
it was constituted immediately prior to such Change in Control.
4. PARTICIPATION
(a) A "Participant" shall mean any officer of the Trust Company or an
Affiliate who (i) is a Participant in the Executive Incentive Plan of U.S. Trust
Corporation, or (ii) is included in the list of persons designated for
participation in the Plan set forth in Schedule A hereto, as the same may be
amended from time to time by the Committee, in its sole discretion.
(b) Notwithstanding any other provisions of the Plan, no Participant
who is otherwise eligible to receive a Payment under the Plan who is employed by
the Trust Company or an Affiliate under the terms of a written employment
contract shall be entitled to receive such Payment, except to the extent
otherwise provided in such contract.
5. CHANGE IN CONTROL
(a) SPECIAL SEVERANCE PAYMENT. Any Participant who experiences an
Involuntary Termination within two years following a Change in Control, and any
Participant who is a member of the Office of Chairman of the Trust Company and
who voluntarily terminates employment with the Trust Company and all of its
affiliates within six months following a Change in Control, shall be entitled to
receive a Payment in an amount equal to
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(i) the sum of:
(A) two times the Participant's annual Base Salary,
(B) two times the average of the highest three awards
the Participant earned under the Awards Plans for the five
years prior to the year during which the Change in Control
occurs, and
(C) in the case of a Participant who is a Former
Management Committee Member not entitled to a Payment under
Section 6, the amount of the Payment to which he would
otherwise be entitled under Section 6 if he were a Senior Vice
President,
(ii) reduced by the aggregate amount the Participant is
actually paid under all other severance or separation plans, policies
and arrangements maintained by the Trust Company or its Affiliates.
For purposes of computing amounts described in clause (i)(B) above, awards
earned under the Awards Plans for years preceding the year in which a Change in
Control occurs shall be deemed to have equalled the amount of such awards before
reduction on account of (x) any ESOP Contributions made on behalf of the
Participant under the 401(k) Plan, (y) any amount taken into account in
determining the number of Benefit Equalization Units (as defined in the Stock
Plan) credited to the Participant's account under the Stock Plan or (z) any
Supplemental ESOP Contribution amount credited to the Participant's account
under the Executive Deferred Compensation Plan of U.S. Trust Corporation. Except
as otherwise provided in Section 7(a), no Participant's Payment under the Plan
shall be less than the amount he would have received under the 1987 Policy.
(b) OTHER BENEFITS. Any Payment payable to a Participant under this
Section 5 shall be paid in addition to any payments or benefits the Participant
receives under Section 6 and under any other applicable plans, programs or
agreements.
(c) MEDICAL/LIFE INSURANCE CONTINUATION COVERAGE. A Participant who,
without regard to the limitation set forth in Section 4(b), is entitled a
Payment under this Section 5 shall also be entitled to the continuation (on the
same terms and conditions) of any medical and life insurance coverage to which
the Participant was entitled immediately prior to his or her termination of
employment for a period of two years following such termination.
Notwithstanding the above, to the extent that a Participant becomes
covered under the medical or life insurance arrangements of an employer other
than the Trust Company or an affiliate, the Trust Company shall no longer be
obligated to provide comparable benefits hereunder.
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<PAGE> 5
(d) METHOD OF PAYMENT. Any Payment payable to a Participant under this
Section 5 shall be paid in a lump sum cash payment as soon as practicable after
the termination of such Participant's employment.
(e) INVOLUNTARY TERMINATION. For purposes of this Section 5, an
"Involuntary Termination" shall mean the termination of a Participant's
employment with the Trust Company and all of its affiliates
(i) by the Trust Company or any Affiliate, or
(ii) by such Participant following any
(A) reduction in the Participant's Base Salary, or in
the Participant's opportunity to earn an annual bonus in an
amount at least equal to the percentage of the Participant's
annual base salary that was used to determine the target bonus
award for the year immediately preceding the year in which a
Change in Control occurs,
(B) change, without the Participant's consent, in the
location of his place of employment to a borough other than
Manhattan or, if such place of employment is not in Manhattan,
to a city other than the city in which his place of employment
is located,
(C) material diminishment of the Participant's
responsibilities with respect to the business of the Trust
Company or any Affiliate, or
(D) other material adverse change in the conditions of
his employment with the Trust Company or any Affiliate.
An Involuntary Termination pursuant to clause (ii) above shall be
deemed to occur within two years following a Change in Control if the event
described in subclause (A), (B), (C) or (D) that gives rise to such termination
occurs within two years following a Change in Control and such termination
occurs within six months after such event. In addition, if the Participant's
employment with the Trust Company and all of its affiliates is terminated by the
Trust Company or any affiliate at any time prior to a Change in Control and the
Participant reasonably demonstrates that such termination was at the request of
a third party who had indicated an intention or had taken steps reasonably
calculated to effect such Change in Control and who effectuated such Change in
Control, such termination of the Participant's employment shall be treated, for
purposes of this Plan, as an Involuntary Termination of the Participant's
employment occurring immediately after the Change in Control.
Notwithstanding any other provision herein, no payment shall be made to
a Participant pursuant to this Section 5 upon the Participant's termination of
employment unless such termination
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<PAGE> 6
of employment constitutes an "Involuntary Termination" as defined in this
Section 5(e), except as otherwise provided in Section 5(a) in the case of a
Participant who is a member of the Office of Chairman.
(f) CHANGE IN CONTROL. For purposes of this Section 5, a "Change in
Control" shall mean that any of the following events has occurred:
(i) 20% or more of the common shares of the Corporation has
been acquired by any person (as defined by Section 3(a)(9) of the
Securities Exchange Act of 1934) other than directly from the
Corporation,
(ii) there has been a merger or equivalent combination after
which 49% or more of the voting shares of the surviving corporation is
held by persons other than former shareholders of the Corporation, or
(iii) 20% or more of the directors elected by shareholders to
the Board of Directors of the Corporation are persons who were not
nominated by the Corporation's Board of Directors or by the Executive
Committee of the Corporation's Board of Directors in the most recent
proxy statement of the Corporation.
6. REGULAR SEVERANCE
(a) REGULAR SEVERANCE PAYMENT. Any Participant other than a Former
Management Committee Member who is an officer of the Trust Company at or above
the rank of Senior Vice President whose employment is terminated by the Trust
Company because of job discontinuance or inadequate job performance shall be
entitled to a Payment in an amount equal to 26 times his weekly Base Salary.
A Participant who is entitled to a Payment under this Section 6 shall
also be offered the services of a professional outplacement counseling firm,
such services to be paid for by the Trust Company. The duration, extent and cost
of such services will be determined by the Trust Company in its sole discretion.
Notwithstanding the foregoing, a Participant whose employment is
terminated by the Trust Company because of dishonesty or other malfeasance shall
not be entitled to any Payment or other benefit under this Section 6.
(b) METHOD OF PAYMENT. Any Payment payable under this Section 6 with
respect to a Participant's termination of employment shall be paid in a lump-sum
cash payment as soon as practicable following such Participant's termination of
employment.
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<PAGE> 7
7. PAYMENT LIMITATIONS
Notwithstanding any other provision of the Plan to the contrary, the
amount of the Payments that a Participant may otherwise be entitled to receive
hereunder shall be subject to the following limitations:
(a) LIMIT ON SECTION 5(a)(i)(A) AND (B) AMOUNTS. In the case of any
Participant whose employment with the Trust Company or an Affiliate is
terminated after he has attained age 63, the amounts that otherwise would be
taken into account under Section 5(a)(i)(A) and (B) in determining the Payment
to which the Participant is entitled under Section 5 shall be that percentage of
such amounts determined by dividing (x) the number of calendar months in the
period that begins on the first day of the month in which the Participant's
employment is terminated and that ends on the last day of the month in which the
Participant will attain age 65, by (y) 24.
(b) LIMIT ON SECTION 5(a)(i)(C) AND SECTION 6 AMOUNTS. In the case of
any Participant whose employment with the Trust Company is terminated at any
time within six months prior to the date on which the Participant will attain
age 65, the amount that otherwise would be taken into account under Section
5(a)(i)(C) in determining the Payment to which the Participant is entitled under
Section 5, or that otherwise would be taken into account in determining the
Payment to which the Participant is entitled under Section 6, shall be that
percentage of such amount determined by dividing (x) the number of calendar
months in the period that begins on the first day of the month in which the
Participant's employment is terminated and that ends on the last day of the
month in which the Participant will attain age 65, by (y) 6.
8. GROSS-UP PAYMENT
If any Change in Control Benefit payable to a Participant (a "Benefit
Payment") is or will be subject to the excise tax imposed with respect to
"excess parachute payments" under section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the "Excise Tax"),
the Participant shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Participant of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Participant
will retain an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon Benefit Payment. The Gross-Up Payment shall be payable to a Participant in
accordance with the following provisions:
(a)Whenever a Participant becomes entitled to receive any
Benefit Payment, the Trust Company's independent auditors as designated
by the Trust Company's Board of Directors prior to the occurrence of
the Change in Control giving rise to such Benefit Payment (the
"Accounting Firm") shall determine (i) whether such Benefit Payment is
or will be subject to Excise Tax; (ii) whether any Benefit Payments
previously made to the Participant ("Prior Benefit Payments") are or
will be subject to Excise Tax in an amount
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<PAGE> 8
exceeding the amount taken into account in calculating the Gross-Up
Payment, if any, that was made to the Participant in respect of such
prior Benefit Payments; (iii) the amount of the Excise Tax payable by
the Participant with respect to such Benefit Payment and all Prior
Benefit Payments; and (iv) the amount of the Gross-Up Payment payable
to the Participant hereunder with respect to such Benefit Payment and
all Prior Benefit Payments, less the amount of any Gross-Up Payment
previously made to the Participant.
(b) If the Accounting Firm determines that no Excise Tax is
payable by the Participant with respect to such Benefit Payment and all
Prior Benefit Payments, the Accounting Firm shall furnish the
Participant and the Trust Company with a written statement certifying
that the Accounting Firm has determined that no Excise Tax is payable,
setting forth the reasons for its determination, and stating that the
Participant has substantial authority not to report any Excise Tax on
his or her federal income tax return.
(c) If the Accounting Firm determines that a Gross-Up Payment
is payable to a Participant, it shall furnish the Participant and the
Trust Company with a written statement of its determination, and all
accompanying calculations and other material supporting its
determination. The amount of the Gross-Up Payment so determined by the
Accounting Firm to be payable to the Participant shall be paid to the
Participant as soon as practicable after the Accounting Firm's
determination has been furnished to the Participant and the Trust
Company.
(d) If in connection with any audit of a Participant's federal
income tax returns it is determined that the Participant is liable for
Excise Tax with respect to any Benefit Payments in an amount in excess
of the amount taken into account in any determination previously made
by the Accounting Firm under Section 8(a), the Participant may, by
written notice to the Trust Company, request that a Gross-Up Payment be
made to the Participant with respect to such additional Excise Tax
amount. Promptly after receipt of such notice, the Trust Company shall
cause the Accounting Firm to review the Participant's request and to
determine the amount, if any, of the Gross-Up Payment to which the
Participant is entitled with respect to such additional Excise Tax
amount. The Participant shall furnish the Accounting Firm with such
information and documents as the Accounting Firm may reasonably request
to enable it to make a determination as to the Participant's request.
The Accounting Firm shall furnish the Participant and the Trust Company
with a written statement of its determination as to the Participant's
request, and all accompanying calculations and other material
supporting its determination. The Gross-Up Payment, if any, determined
by the Accounting Firm to be payable to the Participant shall be paid
to the Participant as soon as practicable after the Accounting Firm has
made its determination.
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<PAGE> 9
9. PAYMENT OF LEGAL FEES
The Trust Company shall promptly pay, or reimburse each Participant
for, all reasonable legal fees and expenses incurred by the Participant in
seeking to obtain, or enforce or defend his or her right to receive, any Change
in Control Benefit provided under any Change in Control Plan.
10. AMENDMENT
Prior to a Change in Control, the Board of Directors of the Trust
Company may amend or terminate this Plan, in whole or in part, at any time.
Except as hereinafter provided, the Plan, and any Schedules attached to the
Plan, shall not be amended or terminated following a Change in Control. The
Board of Directors of the Trust Company may, however, at any time before a
Change in Control, or within 45 days following a Change in Control where the
percentage of the Corporation's common shares acquired or directors appointed
under clause (i) or (iii), respectively, of Section 5(f) is at least 20% but
less than 25%, direct by resolution that no Payments shall be made and no
benefits provided pursuant to Section 5, which resolution may be rescinded or
countermanded at any time with or without retroactive effect.
11. UNSECURED CREDITOR STATUS
A Participant shall have the status of a general unsecured creditor of
the Trust Company with respect to his or her right to receive any payment under
the Plan. The Plan shall constitute a mere promise by the Trust Company to make
payments in the future of the benefits provided for herein. It is intended that
the arrangements reflected in this Plan be treated as unfunded for tax purposes,
as well as for purposes of any applicable provisions of Title I of ERISA.
All payments to be made under the Plan shall be paid from the general
assets of the Trust Company and no special or separate fund shall be established
and no segregation of assets shall be made to assure payment of such amounts,
except that the Trust Company may establish and fund a "grantor trust" (as
defined in Sections 671, et seq., of the Code) to provide for any payments under
the Plan.
Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant any right to be retained in the employ of the Trust
Company or any affiliate thereof.
12. NONALIENATION OF PAYMENT
A Participant's rights to payments under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors of the Participant or his
or her beneficiary.
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13. TAXES
The Trust Company shall deduct from any Payment otherwise required to
be made under the Plan all Federal, state, local and other taxes required by law
to be withheld with respect to such Payment.
14. PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS
If the Committee shall find that any Participant to whom a Payment is
payable under the Plan is unable to care for his affairs because of illness,
accident or legal incapacity, then any Payment due to such Participant may, if
the Committee so directs the Trust Company, be paid to his or her spouse, child
or other relative, an institution maintaining or having custody of such person,
or any person deemed by the Committee to be a proper recipient on behalf of such
Participant, unless a prior claim therefor has been made by a duly appointed
legal representative. In the event that any Participant to whom any Payment is
payable under the Plan dies before he receives his or her Payment, such Payment
shall be paid to his or her estate.
Any payment made under this Section 14 shall be a complete discharge of
the liability of the Trust Company therefor.
15. NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made in
good faith, and the Trust Company shall indemnify and hold harmless each member
of the Committee, and each employee, officer or director of the Trust Company to
whom any duty or power relating to the administration or interpretation of the
Plan may be allocated or delegated, against any cost or expense (including
counsel fees) or liability (including any amount paid in settlement of a claim
with the approval of the Board of Directors of the Trust Company) arising out of
any act or omission in connection with the Plan unless arising out of such
person's own fraud or bad faith.
16. SUPERSEDING EFFECT
Except to the extent otherwise provided herein, the Plan supersedes the
1987 Policy. In addition, Section 9 supersedes the resolution adopted by the
Board of Trustees of United States Trust Company of New York (as then
constituted) at its meeting on January 26, 1988, regarding the payment of legal
fees and expenses.
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17. GOVERNING LAW
The provisions of the Plan shall be governed by and construed in
accordance with the applicable provisions of the Act and the laws of the State
of New York.
18. SUCCESSORS
The Plan shall inure to the benefit of the Participants and shall be
binding upon the Trust Company, the Corporation, and any assignee or successor
corporation or organization resulting from the merger, consolidation or other
reorganization thereof or succeeding to substantially all of the assets and
business thereof. The Trust Company and the Corporation agree that they will
make appropriate provision for the preservation of the Participants' rights
under the Plan in any agreement or plan that they may enter into or adopt to
effect any such merger, consolidation, reorganization or transfer of assets.
19. SEVERABILITY
If any provision of the Plan is determined to be invalid or
unenforceable, the remaining provisions of the Plan shall not for that reason
alone also be determined to be invalid or unenforceable.
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SCHEDULE A
James B. Cowperthwait
Richard E. Foley
W. Michael Funck
Norman Goldberg
Carl A. Harnish
Rosemary Sagar
Carol A. Strickland
Franklin E. Ulf
Charles E. Wert
Howard E.N. Wilson
<PAGE> 13
SCHEDULE B
H. Marshall Schwarz
Jeffrey S. Maurer
Frederick B. Taylor
<PAGE> 14
SCHEDULE C
Employees' Retirement Plan of United States Trust Company of New York and
Affiliated Companies
Benefit Equalization Plan of U.S. Trust Corporation
Supplemental Pension Agreements between U.S. Trust Corporation and Messrs.
Maurer, Schwarz and Taylor
1989 Stock Compensation Plan and Predecessor Plans of U.S. Trust Corporation
1995 Stock Option Plan of U.S. Trust Corporation
Executive Incentive Plan of U.S. Trust Corporation
Executive Deferred Compensation Plan of U.S. Trust Corporation
Deferred Restricted Unit Plan of U.S. Trust Corporation
1990 Change in Control and Severance Policy for Top Tier Officers of United
States Trust Company of New York and Affiliated Companies
<PAGE> 15
SCHEDULE D
1987 CHANGE IN CONTROL POLICY
Set forth below are the terms of the 1987 Change in Control Policy of
United States Trust Company of New York and Affiliated Companies:
In the event of an "involuntary termination" within two years following
a "change in control" of a senior officer who is a member of the
Management Committee of United States Trust Company of New York or such
entity as may succeed to substantially the same rights and
responsibilities of such committee (the "Management Committee") on the
date of such "change in control", such senior officer shall be paid in
a lump sum, promptly following such termination, the sum of (a) an
amount equal to such senior officer's then current annual base salary,
plus (b) an amount equal to the average of the highest three of the
prior five years' awards payable to such senior officer pursuant to the
Annual Incentive Plan of United States Trust Company of New York and
Affiliated Companies (the "Annual Plan"), such amounts to be in
addition to any other coverages, payments and distributions to which
such senior officer is entitled, except as may be specifically provided
in a written agreement entered into by United States Trust Company of
New York (the "Trust Company") and such senior officer.
<PAGE> 1
Exhibit 10.17
1990 CHANGE IN CONTROL AND SEVERANCE POLICY
FOR OFFICERS AND EMPLOYEES OF UNITED STATES TRUST COMPANY
OF NEW YORK AND AFFILIATED COMPANIES
AS AMENDED AND RESTATED
EFFECTIVE AS OF OCTOBER 22, 1996
1. PURPOSE
This document sets forth the 1990 Change in Control and Severance
Policy for Officers and Employees of United States Trust Company of New York, as
amended and restated effective as of October 22, 1996.
The purpose of the Plan is to provide for payments to (and other
benefits for) certain officers and other employees of United States Trust
Company of New York and designated affiliates thereof whose service is
terminated under certain circumstances following changes in the ownership or
management of U.S. Trust Corporation, and to provide for regular severance
payments to such officers and employees whose service is otherwise terminated.
2. DEFINITIONS
The following definitions are applicable to the Plan:
"ACT" means the Employee Retirement Income Security Act of 1974, as now
in effect or as hereafter amended.
"AFFILIATE" means any affiliate of the Trust Company that has been
designated by the Committee specifically for purposes of participation
in the Plan.
"AIP" means the 1995 Annual Incentive Plan of United States Trust
Company of New York and Affiliated Companies, and any successor plan.
"BASE SALARY" means, with respect to any Participant, the Participant's
base salary as in effect at the time his or her service is terminated; provided,
however, that if a Participant terminates his or her service following a
reduction in the Participant's base salary, then, for purposes of Section 5, the
Participant's "Base Salary" shall mean his or her base salary as in effect
immediately prior to any such reduction.
<PAGE> 2
"CHANGE IN CONTROL" has the meaning set forth in Section 5(g).
"CHANGE IN CONTROL BENEFIT" means any payment or other benefit that a
Participant may be entitled to receive under any Change in Control Plan upon a
change in control (as defined in such Plan) or upon the Participant's
involuntary termination (as defined in such Plan) following such change in
control.
"CHANGE IN CONTROL PLAN" means any plan (including this Plan), program,
policy, or agreement or resolution of the Board of Directors of the Corporation
or the Trust Company under which a Change in Control Benefit may be provided to
a Participant. All Change in Control Plans shall be listed in Schedule A hereto,
which shall be amended as necessary, from time to time, by the Committee.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation and Benefits Committee of the Board
of Directors of the Trust Company.
"CORPORATION" means U.S. Trust Corporation.
"EMPLOYEE" means any employee of the Trust Company or an Affiliate who
is not an officer.
"401(K) PLAN" means the 401(k) Plan and ESOP of United States Trust
Company of New York and Affiliated Companies.
"INVOLUNTARY TERMINATION" has the meaning set forth in Section 5(f).
"1988 POLICY" means the 1988 Change in Control Policy of United States
Trust Company of New York and Affiliated Companies, as set forth in and adopted
by resolutions of the Board of Directors of U.S. Trust Corporation at its
meeting on January 26, 1988. The 1988 Policy is reproduced in Schedule B hereto.
"OFFICER" means any officer of the Trust Company or an Affiliate who is
not eligible for participation in the 1990 Change in Control and Severance
Policy for Top Tier Officers of United States Trust Company of New York and
Affiliated Companies.
"PARTICIPANT" has the meaning set forth in Section 4.
"PAYMENT" means any and all payments to which a Participant is or may
become entitled in accordance with the provisions of the Plan.
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<PAGE> 3
"PLAN" means the 1990 Change in Control and Severance Policy for
Officers and Employees of United States Trust Company of New York and Affiliated
Companies, as set forth herein and as amended from time to time.
"RETIREMENT PLAN" means the Employees' Retirement Plan of United States
Trust Company of New York and Affiliated Companies.
"TRUST COMPANY" means United States Trust Company of New York.
"YEARS OF SERVICE" means, with respect to any Participant, the total
number of years (including fractions of a year) during which the Participant was
employed with the Trust Company, or with any Affiliate, determined by taking
into account all periods of such employment whether or not consecutive. For this
purpose, any period during which a Participant was employed with any affiliate
of the Trust Company or, with respect to periods prior to September 1, 1995,
with United States Trust Company of New York, as then constituted, or with any
of its affiliates, shall be treated as a period of employment with the Trust
Company or with an Affiliate.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have exclusive authority to determine all matters involving the administration,
operation and interpretation of the Plan, in its discretion. All decisions,
actions or interpretations of the Committee under the Plan shall be final,
conclusive and binding upon all parties. After a Change in Control, all powers
of the Committee under this Plan shall be exercised solely by the Committee as
it was constituted immediately prior to such Change in Control.
4. PARTICIPATION
(a) A "Participant" shall mean any Officer or Employee who is entitled
to receive a Payment or other benefits under Section 5 or 6.
(b) Notwithstanding any other provisions of the Plan, no Participant
who is otherwise eligible to receive a Payment under the Plan who is employed by
the Trust Company or an Affiliate under the terms of a written employment
contract shall be entitled to receive such Payment, except to the extent
otherwise provided in such contract.
5. CHANGE IN CONTROL
(a) SPECIAL SEVERANCE PAYMENT FOR OFFICERS. An Officer who experiences
an Involuntary Termination within two years following a Change in Control shall
be entitled to receive a Payment in an amount equal to the sum of:
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<PAGE> 4
(i) an amount determined by multiplying the Officer's
monthly Base Salary by the number of his or her Years of Service;
provided, however, that the amount determined hereunder shall not be
less than the Officer's annual Base Salary nor shall it be greater than
two times his or her annual Base Salary, and
(ii) in the case of an Officer who participates in the AIP,
an amount equal to the Officer's maximum award under the AIP for the
year during which the Change in Control occurs, determined as if all
goals had been met, or
(iii) in the case of an Officer who is a Vice President or
higher and does not participate in the AIP, an amount equal to the
aggregate commissions (excluding sales incentive commissions) the
Officer earned with respect to the year immediately prior to the year
in which his or her termination of employment occurs, or
(iv) in the case of an Officer who does not participate in
the AIP and whose compensation does not include commissions, an amount
equal to the sum of all regular cash bonuses (excluding bonuses related
to the acquisition of an affiliate of the Trust Company) the Officer
received for the year immediately prior to the year in which his or her
termination of employment occurs.
For purposes of computing amounts described in clause (ii) above, an Officer's
maximum AIP award for the year during which a Change in Control occurs shall not
be reduced on account of any ESOP Contribution to be made on behalf of the
Officer under the 401(k) Plan. Notwithstanding any other provisions of the Plan,
in no event shall an Officer's Payment under the Plan be less than the amount
the Officer would have received under the 1988 Policy.
(b) SPECIAL SEVERANCE PAYMENT FOR EMPLOYEES. An Employee who
experiences an Involuntary Termination within 2 years following a Change in
Control shall be entitled to a Payment in an amount determined on the basis of
his or her Years of Service, in accordance with the table set forth below:
<TABLE>
<CAPTION>
YEARS OF SERVICE PAYMENT AMOUNT
<S> <C>
Less than 1 2 times weekly Base Salary
1 or more but less than 10 2 times weekly Base Salary for
each Year of Service, but no
less than 3 times monthly Base
salary
10 or more (i) 20 times weekly Base Salary
plus (ii) 1 times monthly Base
Salary for each Year of Service
in excess of 10, but not to
exceed 18 times monthly Base
Salary)
</TABLE>
-4-
<PAGE> 5
(c) OTHER BENEFITS. Any Payment payable to a Participant under this
Section 5 shall be paid in addition to any payments or benefits the Participant
receives under Section 6 and under any other applicable plans, programs or
agreements.
(d) MEDICAL/LIFE INSURANCE CONTINUATION COVERAGE. An Officer or
Employee who is (or who, in the absence of the limitation set forth in Section
4(b), would be) entitled a Payment under this Section 5 shall also be entitled
to the continuation (on the same terms and conditions) of any medical and life
insurance coverage to which such Officer or Employee was entitled immediately
prior to his or her Involuntary Termination. Such coverage shall continue for a
period of one year, in the case of an Officer, and six months in the case of an
Employee, following such Officer's or Employee's Involuntary Termination.
Notwithstanding the above, to the extent that an Officer or Employee
becomes covered under the medical or life insurance arrangements of an employer
other than the Trust Company or an Affiliate, the Trust Company shall no longer
be obligated to provide comparable benefits hereunder.
(e) METHOD OF PAYMENT. Any Payment payable to a Participant under this
Section 5 shall be paid in a lump sum cash payment as soon as practicable after
the Involuntary Termination of such Participant.
(f) INVOLUNTARY TERMINATION. For purposes of this Section 5, an
"Involuntary Termination" shall mean the termination of a Participant's
employment with the Trust Company and all its affiliates.
(i) by the Trust Company or any Affiliate, or
(ii) by such Participant following any
(A) reduction in the Participant's Base Salary, or in
the Participant's opportunity to earn an annual bonus in an
amount at least equal to the percentage of the Participant's
annual base salary that was used to determine the
Participant's target bonus award for the year immediately
preceding the year in which a Change in Control occurs,
(B) change, without the Participant's consent, in the
location of his or her place of employment to a borough other
than Manhattan or, if such place of employment is not in
Manhattan, to a city other than the city in which his or her
place of employment is located,
(C) material diminishment of the Participant's
responsibilities with respect to the business of the Trust
Company or any Affiliate, or
-5-
<PAGE> 6
(D) other material adverse change in the conditions
of his employment with the Trust Company or any Affiliate.
An Involuntary Termination pursuant to clause (ii) above shall be
deemed to occur within two years following a Change in Control if the event
described in subclause (A), (B), (C) or (D) that gives rise to such termination
occurs within two years following a Change in Control and such termination
occurs within six months after such event.
Notwithstanding any other provision herein, no payment shall be made to
a Participant pursuant to this Section 5 upon the Participant's termination of
employment unless such termination of employment constitutes an "Involuntary
Termination", as defined in this Section 5(f).
(g) CHANGE IN CONTROL. For purposes of this Section 5, a "Change in
Control" shall mean that any of the following events has occurred:
(i) 20% or more of the common shares of the Corporation has
been acquired by any person (as defined by Section 3(a)(9) of the
Securities Exchange Act of 1934) other than directly from the
Corporation,
(ii) there has been a merger or equivalent combination after
which 49% or more of the voting shares of the surviving corporation is
held by persons other than former shareholders of the Corporation, or
(iii) 20% or more of the directors elected by shareholders to
the Board of Directors of the Corporation are persons who were not
nominated by the Corporation's Board of Directors or by the Executive
Committee of the Corporation's Board of Directors in the most recent
proxy statement of the Corporation.
6. REGULAR SEVERANCE
(a) REGULAR SEVERANCE PAYMENT. Any Participant whose employment is
terminated by the Trust Company because of job discontinuance or inadequate job
performance shall be entitle to a Payment in an amount determined in accordance
with the table set forth below:
<TABLE>
<CAPTION>
RANK Payment Amount
<S> <C>
Senior Vice President 26 times weekly Base Salary
Other Officer 13 times weekly Base Salary
Employee 1 times weekly Base Salary for each
Year of Service, but not less than 2
times nor more than 13 times weekly
Base Salary
</TABLE>
-6-
<PAGE> 7
(b) METHOD OF PAYMENT. Any Payment payable under this Section 6 with
respect to a Participant's termination of employment shall be paid in a lump-sum
cash payment as soon as practicable following such Participant's termination of
employment.
(c) OTHER BENEFIT. Any Officer who is entitled to a Payment under this
Section 6 shall also be offered the services of a professional outplacement
counseling firm, such services to be paid for by the Trust Company. The
duration, extent and cost of such services will be determined by the Trust
Company in its sole discretion.
(d) DISQUALIFICATION. Notwithstanding any other provision herein, a
Participant whose employment is terminated by the Trust Company because of
dishonesty or other malfeasance shall not be entitled to any Payment or other
benefit under this Section 6.
7. PAYMENT LIMITATION
Notwithstanding any other provision of the Plan to the contrary, the
amount of the Payments that a Participant may otherwise be entitled to receive
hereunder shall be subject to the following limitation: Whenever any Participant
becomes entitled to receive a Change in Control Benefit under any Change in
Control Plan, the Trust Company's independent auditors, as designated by the
Board of Directors of the Trust Company prior to the change in corporate
management or control giving rise to such entitlement, shall determine whether
any amount of the aggregate Change in Control Benefits that such Participant has
received, or is entitled to receive, under the Change in Control Plans will
constitute an "excess parachute payment" (as defined under Section 280G of the
Code, or any successor provision) and, if so, whether the Participant would
receive a greater after-tax benefit if such aggregate Change in Control Benefits
were reduced. In the event a greater after-tax benefit would result, such
reduction, as computed by such auditors, will be made, provided that the
Participant may choose which Change in Control Benefits shall be reduced.
8. PAYMENT OF LEGAL FEES
The Trust Company shall promptly pay, or reimburse each Participant
for, all reasonable legal fees and expenses incurred by the Participant in
seeking to obtain, or enforce or defend his or her right to receive, any Change
in Control Benefit provided under any Change in Control Plan.
9. AMENDMENT
Prior to a Change in Control, the Board of Directors of the Trust
Company may amend or terminate this Plan, in whole or in part, at any time.
Except as hereinafter provided, the Plan, and any Schedules attached to the
Plan, shall not be amended or terminated following a Change in Control. The
Board of Directors of the Trust Company may, however, at any time before a
Change in Control, or within 45 days following a Change in Control where the
percentage of the Corporation's common shares acquired or directors appointed
under clause (i) or (iii), respectively, of Section 5(g) is at least 20% but
less than 25%, direct by resolution that no Payments shall be
-7-
<PAGE> 8
made and no benefits provided pursuant to Section 5, which resolution may be
rescinded or countermanded at any time with or without retroactive effect.
10. UNSECURED CREDITOR STATUS
A Participant shall have the status of a general unsecured creditor of
the Trust Company with respect to his or her right to receive any payment under
the Plan. The Plan shall constitute a mere promise by the Trust Company to make
payments in the future of the benefits provided for herein. It is intended that
the arrangements reflected in this Plan be treated as unfunded for tax purposes,
as well as for purposes of any applicable provisions of Title I of ERISA.
All payments to be made under the Plan shall be paid from the general
assets of the Trust Company and no special or separate fund shall be established
and no segregation of assets shall be made to assure payment of such amounts,
except that the Trust Company may establish and fund a "grantor trust" (as
defined in Sections 671, et seq., of the Code) to provide for any payments under
the Plan.
Neither the Plan nor any action taken hereunder shall be construed as
giving any Participant any right to be retained in the employ of the Trust
Company or any affiliate thereof.
11. NONALIENATION OF PAYMENT
A Participant's rights to payments under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, or garnishment by creditors of the Participant or his
or her beneficiary.
12. TAXES
The Trust Company shall deduct from any Payment otherwise required to
be made under the Plan all Federal, state, local and other taxes required by law
to be withheld with respect to such Payment.
13. PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS
If the Committee shall find that any Participant to whom a Payment is
payable under the Plan is unable to care for his affairs because of illness,
accident or legal incapacity, then any Payment due to such Participant may, if
the Committee so directs the Trust Company, be paid to his or her spouse, child
or other relative, an institution maintaining or having custody of such person,
or any person deemed by the Committee to be a proper recipient on behalf of such
Participant, unless a prior claim therefor has been made by a duly appointed
legal representative. In the event that any Participant to whom any Payment is
payable under the Plan dies before he receives his or her Payment, such Payment
shall be paid to his or her estate.
-8-
<PAGE> 9
Any payment made under this Section 13 shall be a complete discharge of
the liability of the Trust Company therefor.
14. NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made in
good faith, and the Trust Company shall indemnify and hold harmless each member
of the Committee, and each employee, officer or director of the Trust Company to
whom any duty or power relating to the administration or interpretation of the
Plan may be allocated or delegated, against any cost or expense (including
counsel fees) or liability (including any amount paid in settlement of a claim
with the approval of the Board of Directors of the Trust Company) arising out of
any act or omission in connection with the Plan unless arising out of such
person's own fraud or bad faith.
15. SUPERSEDING EFFECT
Except to the extent otherwise provided herein, the Plan supersedes the
1988 Policy. In addition, Section 8 supersedes the resolution adopted by the
Board of Trustees of United States Trust Company of New York, as then
constituted, at its meeting on January 26, 1988, regarding the payment of legal
fees and expenses.
16. GOVERNING LAW
The provisions of the Plan shall be governed by and construed in
accordance with the applicable provisions of the Act and the laws of the State
of New York.
17. SUCCESSORS
The Plan shall inure to the benefit of the Participants and shall be
binding upon the Trust Company, the Corporation, and any assignee or successor
corporation or organization resulting from the merger, consolidation or other
reorganization thereof or succeeding to substantially all of the assets and
business thereof. The Trust Company and the Corporation agree that they will
make appropriate provision for the preservation of the Participants' rights
under the Plan in any agreement or plan that they may enter into or adopt to
effect any such merger, consolidation, reorganization or transfer of assets.
-9-
<PAGE> 10
18. SEVERABILITY
If any provision of the Plan is determined to be invalid or
unenforceable, the remaining provisions of the Plan shall not for that reason
alone also be determined to be invalid or unenforceable.
-10-
<PAGE> 11
SCHEDULE A
Employees' Retirement Plan of United States Trust Company of New York and
Affiliated Companies
Benefit Equalization Plan of U.S. Trust Corporation
1989 Stock Compensation Plan and Predecessor Plans of U.S. Trust Corporation
1995 Stock Option Plan of U.S. Trust Corporation
1995 Annual Incentive Plan of United States Trust Company and Affiliated
Companies
Executive Deferred Compensation Plan of U.S. Trust Corporation
Deferred Restricted Unit Plan of U.S. Trust Corporation
1990 Change in Control and Severance Policy for Officers and Employees of United
States Trust Company of New York and Affiliated Companies
<PAGE> 12
SCHEDULE B
1988 CHANGE IN CONTROL POLICY
Set forth below are the terms of the 1988 Change in Control Policy of
United States Trust Company of New York and Affiliated Companies:
1. In the event of an "involuntary termination" within two years
following a "change in control" of an employee who is a participant in th Annual
Plan (other than a senior officer who is a member of the Management Committee)
on the date of such "change in control", such employee shall be paid in a lump
sum, promptly following such termination, an amount equal to such employee's
then current annual base salary, such amount to be in addition to any other
coverages, payments and distributions to which such employee is otherwise
entitled.
2. In the event of an "involuntary termination" within two years
following a "change in control" of an employee who is a Vice President or above
of the Trust Company or certain affiliates designated for such purpose by the
Compensation and Benefits Committee of the Board of Trustees (an "Affiliate"),
who is such and who is neither a participant in the Annual Plan nor a senior
officer who is a member of the Management Committee on the date of such "change
in control", such officer shall be paid in a lump sum, promptly following such
termination, the sum of (a) an amount equal to such officer's then current
annual base salary, plus either (b) in the case of an officer whose total
compensation includes commissions (other than sales incentive commissions), an
amount equal to the aggregate commissions earned with respect to the preceding
year or (c) in the case of an officer who is not paid commissions, an amount
equal to the sum of any regular cash bonuses earned with respect to the
preceding year (other than any bonus, however described, which is related to the
acquisition of an Affiliate), all such amounts to be in addition to an other
coverages, payments an distributions to which such officer is otherwise
entitled.
<PAGE> 1
Exhibit 10.18
EXECUTIVE DEFERRED COMPENSATION PLAN
OF
U.S. TRUST CORPORATION
AS AMENDED AND RESTATED THROUGH NOVEMBER 1, 1996
-----
1. PURPOSE
The Plan hereinafter set forth represents a continuation of the
Executive Deferred Compensation Plan maintained by U.S. Trust Corporation before
its merger with The Chase Manhattan Corporation ("Chase") pursuant to the
Agreement and Plan of Merger dated as of November 18, 1994 between Chase and
U.S. Trust Corporation (the "Merger Agreement"). The Plan was amended and
restated effective as of September 1, 1995 (a) to reflect the transfer of the
Plan to and its adoption by the Corporation, and the Corporation's assumption of
and becoming solely responsible for all liabilities and obligations of U.S.
Trust Corporation under the Plan, effective immediately before the "New Holdings
Distribution", as defined in the Merger Agreement, (b) to reflect the
"Distribution" and the "Merger", as defined in the Merger Agreement, and (c) to
make certain other changes. The Plan has been further amended to make certain
changes in the Plan's Earnings Crediting Options effective as of July 1, 1996,
and to eliminate the crediting of Supplemental ESOP Contribution amounts under
Section 5 of the Plan effective for 401(k) Plan Years beginning on or after
January 1, 1996, to change the date by which deferral elections must be made
under Section 3 of the Plan effective for Plan Years beginning on or after
January 1, 1997, and to make certain other changes.
The purpose of the Plan is to provide Eligible Officers of the
Corporation with an opportunity to defer payment of certain portions of their
compensation, at their election, in accordance with the provisions herein set
forth.
The Plan is intended to constitute an unfunded plan of 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").
2. DEFINITIONS
As used herein, the following terms shall have the following meanings:
<PAGE> 2
"ACCOUNT" or "ACCOUNTS" shall mean the account or accounts established
for a Participant pursuant to Section 6.
"AFFILIATED COMPANIES" shall mean (i) with respect to U.S. Trust
Corporation, each of its direct or indirect subsidiaries, and (ii) with respect
to the Corporation, each of its direct or indirect subsidiaries.
"AIP CASHOUT PAYMENT" shall mean the payment which, in the absence of
an election by an Eligible Officer under Section 4, would be made to the
Eligible Officer upon the consummation of the Merger with respect to the unpaid
balance of his or her account under the Annual Incentive Plan of U.S. Trust
Corporation.
"AWARD" shall mean any award made to a Participant under the Executive
Incentive Plan of U.S. Trust Corporation or the 1995 Annual Incentive Plan of
U.S. Trust Corporation, and any award made to a Participant under the 1990
Annual Incentive Plan of United States Trust Company of New York and Affiliated
Companies.
"BENEFICIARY" shall mean the person or persons designated by a
Participant in accordance with Section 9 to receive any amount payable under the
Plan by reason of his or her death.
"BOARD OF DIRECTORS" shall mean (i) with respect to periods prior to
the Chase Merger Closing Date, the Board of Directors of U.S. Trust Corporation,
and (ii) with respect to periods after the Chase Merger Closing Date, the Board
of Directors of the Corporation.
"CHANGE IN CONTROL" shall mean that any of the following has occurred
after the Chase Merger Closing Date:
(i) 20% or more of the common shares of the Corporation has
been acquired by any person (as defined by Section 3(a)(9) of the
Securities Exchange Act of 1934) other than directly from the
Corporation;
(ii) there has been a merger or equivalent combination after
which 49% or more of the voting shares of the surviving corporation is
held by persons other than former shareholders of the Corporation; or
(iii) 20% or more of the directors elected by shareholders to
the Board of Directors are persons who were not nominated by the Board
of Directors or the Executive Committee of the Board of Directors in
the most recent proxy statement of the Corporation;
2
<PAGE> 3
provided, however, that notwithstanding anything in the Plan to the contrary no
Change in Control shall be deemed to have occurred, and no right to receive any
amount that becomes payable upon a Change in Control as provided in Section 8
shall exist, to the extent that the Board of Directors so directs by resolution
adopted prior to the Change in Control, or not later than 45 days after the
Change in Control if the percentage of the Corporation's common shares acquired
or directors elected under clauses (i) or (iii) of the foregoing definition of
Change in Control shall be at least 20% but less than 25%. Any resolution of the
Board of Directors adopted in accordance with the provisions of this definition
directing that a Change in Control shall be deemed not to have occurred for
purposes of this Plan may be rescinded or countermanded at any time with or
without retroactive effect.
"CHASE MERGER CLOSING DATE" shall mean the "Closing Date" as defined in
Section 1.2 of the Merger Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Compensation and Benefits Committee of the
Board of Directors.
"CORPORATION" shall mean New USTC Holdings Corporation, which will
assume the name of "U.S. Trust Corporation" as of the time the New Holdings
Distribution is effective.
"ELIGIBLE COMPENSATION" shall mean, with respect to any Eligible
Officer for any Plan Year beginning on or after January 1, 1997, (i) the portion
of any Award that becomes payable in cash to the Eligible Officer during such
year as reduced by the sum of (A) the amount of any ESOP Contribution to be
made to the 401(k) Plan on behalf of the Eligible Officer with respect to such
Award, and (B) any amount that is contributed to the 401(k) Plan on the Eligible
Officer's behalf with respect to such Award pursuant to the Eligible Officer's
election under the applicable provisions of the 401(k) Plan; (ii) the portion of
any commissions (including any "trail" commissions and any commission
"overrides") that is payable in cash to the Eligible Officer during such year
(but, in the case of any amount payable during such year with respect to
commissions that were earned prior to the start of such year, only to the extent
of such of those commissions as were earned after the date on which the Eligible
Officer filed his or her deferral election for such year under Section 3),
exclusive of (A) the amount of any such commissions that are included in the
Eligible Officer's base compensation for any Plan Year pursuant to the Eligible
Officer's election, and (B) the amount by which any such commissions are reduced
with respect to any ESOP Contribution made to the 401(k) Plan on behalf of the
Eligible Officer; and (iii) the portion of any bonus or incentive payments that
is payable in cash to the Eligible Officer pursuant to any employment agreement
between the Eligible Officer and the Corporation (or, for periods prior to the
Chase Merger Closing Date, U.S. Trust Corporation) or any of its Affiliated
Companies, to the extent earned during such year, regardless of the year in
which such bonus or incentive payments are payable.
3
<PAGE> 4
"ELIGIBLE OFFICER" shall mean any officer of the Corporation (or, for
periods prior to the Chase Merger Closing Date, of U.S. Trust Corporation) or
any of its Affiliated Companies at or above the rank of Vice President, who, for
the Plan Year immediately preceding (i) the Plan Year in which such officer
first makes a deferral election under Section 3 or 4 (or made a deferral
election under Section 3 of the Prior Plan), or (ii) the Plan Year in which a
Supplemental ESOP Contribution amount was first credited to such officer's
Account pursuant to Section 5, had total compensation in excess of $150,000. For
this purpose an officer's "total compensation" for any Plan Year shall mean the
sum of (i) the aggregate amount reported as the officer's compensation from the
Corporation (or, for periods prior to the Chase Merger Closing Date, from U.S.
Trust Corporation) and its Affiliated Companies in Form W-2 filed with respect
to the officer for such year, for Federal income tax purposes; (ii) the
aggregate amount of all 401(k) Contributions and ESOP Contributions made on
behalf of the officer for such year under the 401(k) Plan; and (iii) the
aggregate amount of all salary reduction contributions made on behalf of the
officer for such year under the Employees' Flexible Spending Plan of United
States Trust Company of New York and Affiliated Companies. For any Plan Year
beginning on or after January 1, 1995, the $150,000 amount referred to in the
second preceding sentence shall be adjusted to the extent necessary for such
amount to equal the amount of the limitation on annual compensation in effect
for such year under section 401(a)(17) of the Code. Notwithstanding the
foregoing, an officer's "total compensation" for the Plan Year beginning on
January 1, 1995 shall not include the amount of any AIP Cashout Payment, or the
amount of any Stock Option Cashout Payment, that becomes payable to the officer
during such Plan Year.
"ESOP CONTRIBUTION" shall mean, for any 401(k) Plan Year, the ESOP
Contribution to be made on behalf of a Participant under the provisions of the
401(k) Plan in effect for such Plan Year.
"401(K) PLAN" shall mean the 401(k) Plan and ESOP of United States
Trust Company of New York and Affiliated Companies.
"401(K) PLAN YEAR" shall mean the "Plan Year" as defined in the 401(k)
Plan.
"PARTICIPANT" shall mean any Eligible Officer (i) who has made an
election under Section 3 hereof (or under Section 3 of the Prior Plan) to defer
any portion of his or her Eligible Compensation for any Plan Year , (ii) who has
made an election under Section 4 hereof to defer any portion of his or her 1995
Cashout Payments (as defined in Section 4), or (iii) whose Account or Accounts
have been credited with a Supplemental ESOP Contribution amount for any 401(k)
Plan Year pursuant to Section 5 hereof.
"PLAN" shall mean the Executive Deferred Compensation Plan of U.S.
Trust Corporation, as set forth herein and as amended from time to time.
"PLAN YEAR" shall mean the calendar year.
4
<PAGE> 5
"PRIOR PLAN" shall mean the Executive Deferred Compensation Plan of
U.S. Trust Corporation, as in effect prior to the Chase Merger Closing Date.
"RETIREMENT" shall mean a Participant's termination of employment with
the Corporation (or, for periods prior to the Chase Merger Closing Date, with
U.S. Trust Corporation) and its Affiliated Companies for any reason other than
death if, as of the date of the Participant's termination of employment, (i) the
Participant has attained age 65 or (ii) the sum of Participant's age and the
number of his or her "Years of Service", as defined in the 401(k) Plan, is at
least equal to 80. In addition, in the case of any Participant who becomes
entitled to receive benefit payments under the long-term disability plan
maintained by the Corporation or any of its Affiliated Companies and who
continues to receive payments under such plan throughout the entire period
ending on the date on which the Participant first meets the age, or the age and
service, requirements set forth in clause (i) or (ii) above, such Participant
shall be treated, for purposes of the Plan, as having terminated employment with
the Corporation and its Affiliated Companies as a result of Retirement, on the
first day of the month following the date on which the Participant first meets
such requirements. In applying clause (ii) above for this purpose, the
Participant's "Years of Service" shall include the number of calendar years (or
part thereof) during which the Participant has received benefits payments under
such long-term disability plan.
"STATUTORY LIMITATIONS" shall mean, with respect to any 401(k) Plan
Year, the limitations imposed under sections 401(a)(17) and 415 of the Code with
respect to the amount of compensation that may be taken into account in
calculating contributions on behalf of any Member, and the amount of
contributions that may be allocated to a Member's account, under the 401(k) Plan
for such year.
"STOCK OPTION CASHOUT PAYMENT" shall mean the payment which, in the
absence of an election by an Eligible Officer under Section 4, would be made to
the Eligible Officer upon the consummation of the Merger with respect to the
shares subject to any unexercised stock option granted to the Eligible Officer
under the 1989 Stock Compensation Plan of U.S. Trust Corporation or under the
United States Trust Company of New York and Affiliated Companies 1986 Stock
Option Plan.
3. DEFERRAL OF ELIGIBLE COMPENSATION
With respect to each Plan Year beginning on or after January 1, 1994,
an Eligible Officer may elect to have payment of any part or all of his or her
Eligible Compensation for such year deferred, and to have payment of such
portion made under the terms of this Plan. Any such election shall be made in
accordance with the following rules:
5
<PAGE> 6
(a) A deferral election shall be made in writing, on a form provided by
the Committee for such purpose.
(b) In the election form, the Eligible Officer (i) shall specify, by
amount or percentage (which must be an even multiple of 5%), the portion of his
or her Eligible Compensation the Eligible Officer wishes to defer (the amounts
so deferred are hereinafter referred to as the Eligible Officer's "Deferred
Amounts"), and (ii) shall specify, by percentage (which must be an even multiple
of 5%), the portions of the Eligible Officer's Deferred Amounts that he or she
wishes to have allocated, respectively, to the Lump Sum Payment Account and to
the Installment Payment Account established for the Eligible Officer pursuant to
Section 6.
(c) Notwithstanding the provisions of (b) above, (i) in the case of any
Eligible Officer whose employment terminates during the Plan Year beginning on
January 1, 1995 (the "1995 Plan Year") as a result of Retirement, all of such
officer's Deferred Amounts with respect to his or her Eligible Compensation for
the 1995 Plan Year shall be allocated to such officer's Installment Payment
Account; (ii) in the case of any Eligible Officer whose employment terminates
during the 1995 Plan Year other than as a result of Retirement and who either is
a "Retained Employee" as defined in Section 5.8 of the Merger Agreement, or is
not a Retained Employee but whose employment terminates as a result of staff
reductions associated with the Distribution and the Merger, all of such
officer's Deferred Amounts with respect to his or her Eligible Compensation for
the 1995 Plan Year shall be allocated to the Special 1995 Deferral Account
established for such officer pursuant to Section 6; and (iii) in the case of any
Eligible Officer whose employment terminates as a result of Retirement during
the 1995 Plan Year or any later Plan Year, all of such officer's Deferred
Amounts with respect to his or her Eligible Compensation for the Plan Year
following the Plan Year in which such officer's employment so terminates shall
be allocated to such officer's Installment Payment Account or, if such officer
made an election under Section 8(e), to the Retiree Payment Account established
for such officer pursuant to Section 6(f).
(d) An Eligible Officer's election to defer Eligible Compensation for
any Plan Year beginning on or after January 1, 1995 but before January 1, 1997
shall be filed with the Committee by no later than November 15 of the preceding
Plan Year. An Eligible Officer's election to defer Eligible Compensation for any
Plan Year beginning on or after January 1, 1997, shall be filed with the
Committee by no later than December 15 of the preceding Plan Year, or by such
other date as the Committee may determine in its discretion, subject, however,
to the limitation in paragraph (f)(iii) below. Notwithstanding the foregoing, in
the case of any Eligible Officer described in Section 3(c)(i) or (ii) whose
employment terminates on or prior to the Chase Merger Closing Date, such
officer's election to defer Eligible Compensation for the 1995 Plan Year shall
be filed with the Committee by no later than March 17, 1995.
(e) Any deferral election made by an Eligible Officer with respect to
his or her Eligible Compensation for a Plan Year, and any election made by an
Eligible Officer as to the allocation
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of the Eligible Officer's Deferred Amounts for such year to his or her Accounts,
shall be irrevocable except as otherwise provided in Section 8(d) or (e).
(f) Notwithstanding any other provision herein to the contrary, a
deferral election otherwise permitted to be made hereunder shall be subject to
the following requirements:
(i) no amount may be deferred pursuant to an Eligible
Officer's election unless such amount equals or exceeds $1,000;
(ii) no portion of an Eligible Officer's Eligible Compensation
may be deferred hereunder to the extent that any tax is required to be
withheld from such portion pursuant to applicable federal, state or
local law;
(iii) no portion of an Eligible Officer's Eligible
Compensation may be deferred hereunder to the extent that such portion
has been earned prior to the date on which the Eligible Officer's
election to defer such portion has been filed with the Committee; and
(iv) no amount may be deferred pursuant to an Eligible
Officer's election hereunder for a period of 12 months following the
Eligible Officer's receipt of a hardship withdrawal under Section 10.1
of the 401(k) Plan.
4. DEFERRAL OF 1995 CASHOUT PAYMENTS
An Eligible Officer may elect to have any part or all of his or her AIP
Cashout Payment, and any part or all of his or her Stock Option Cashout Payment
(such payments are collectively referred to herein as an Eligible Officer's
"1995 Cashout Payments") deferred, and to have payment of such portions made
under the terms of this Plan. Any such election shall be made in accordance with
the following rules.
(a) A deferral election with respect to an Eligible Officer's 1995
Cashout Payments shall be made in writing, on a form provided by the Committee
for such purpose.
(b) In the election form, the Eligible Officer (i) shall specify, by
amount or percentage (which must be an even multiple of 5%), the portions of his
or her 1995 Cashout Payments the Eligible Officer wishes to defer, and (ii)
shall specify, by percentage (which must be an even multiple of 5%), the
portions of the amounts so deferred that the Eligible Officer wishes to have
allocated, respectively, to his or her Lump Sum Payment Account and to his or
her Installment Payment Account.
(c) Notwithstanding the provisions of (b) above, (i) in the case of any
Eligible Officer described in Section 3(c)(i), all amounts deferred with respect
to such officer's 1995 Cashout Payments shall be allocated to such officer's
Installment Payment Account, and (ii) in the case
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of any Eligible Officer described in Section 3(c)(ii), all amounts deferred with
respect to such officer's 1995 Cashout Payments shall be allocated to the
Special 1995 Deferral Account established for such officer pursuant to Section
6.
(d) An Eligible Officer's election to defer his or her 1995 Cashout
Payments shall be filed with the Committee by no later than March 17, 1995.
(e) Any deferral election made by an Eligible Officer with respect to
his or her 1995 Cashout Payments, and any election made by an Eligible Officer
as to the portions of the amounts so deferred that are to be allocated to the
Eligible Officer's Accounts, shall be irrevocable except as otherwise provided
in Section 8(d) or (e).
(f) Notwithstanding any other provision herein to the contrary, no
portion of an Eligible Officer's 1995 Cashout Payments may be deferred hereunder
to the extent that any tax is required to be withheld from such portion pursuant
to applicable federal, state or local law.
5. DEFERRAL OF SUPPLEMENTAL ESOP CONTRIBUTION AMOUNTS
For each 401(k) Plan Year beginning on or after January 1, 1994 and
before January 1, 1996 for which any portion of the ESOP Contribution that
otherwise would have been made to the 401(k) Plan on behalf of an Eligible
Officer cannot be made, or cannot be allocated (or cannot result in the
allocation of ESOP Stock) to such officer's account under the 401(k) Plan,
because of the Statutory Limitations, there shall be credited to such Officer's
Account or Accounts hereunder an amount equal to the excess of (i) the amount of
the ESOP Contribution for such year that would have been made on the Eligible
Officer's behalf and that would have been allocated (or that would have resulted
in the allocation of ESOP Stock) to the Eligible Officer's account under the
401(k) Plan in the absence of the Statutory Limitations, over (ii) the amount of
the ESOP Contribution for such year that was made on the Eligible Officer's
behalf and that was allocated (or that resulted in the allocation of ESOP Stock)
to the Eligible Officer's account under the 401(k) Plan. The amount to be so
credited for any 401(k) Plan Year is hereinafter referred to as an Eligible
Officer's "Supplemental ESOP Contribution amount" for such year. Notwithstanding
the foregoing, the Supplemental ESOP Contribution amount otherwise to be
credited to the Eligible Officer's Account or Accounts for any 401(k) Plan Year
shall be reduced by the amount of any tax required to be withheld therefrom
pursuant to applicable federal, state or local law.
For each 401(k) Plan Year, each Eligible Officer may make an election
as to the portions of the Supplemental ESOP Contribution amount to be credited
to such officer for such year that are to be allocated, respectively, to the
Eligible Officer's Lump Sum Payment Account and to his or her Installment
Payment Account. Such election shall be made in writing, on a form provided by
the Committee for such purpose. The form shall be filed with the Committee by no
later than November 15 of such 401(k) Plan Year, or by such other date as the
Committee may
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<PAGE> 9
determine in its discretion. In the event that an Eligible Officer fails to make
a timely election as to the allocation of his or her Supplemental ESOP
Contribution amount for a 401(k) Plan Year, all of such Supplemental ESOP
Contribution amount shall be allocated to the Eligible Officer's Lump Sum
Payment Account.
Notwithstanding the foregoing, in the case of any Eligible Officer
whose employment terminates prior to the end of a 401(k) Plan Year as a result
of Retirement, all of the Supplemental ESOP Contribution amount to be credited
to such officer's Account hereunder for such year shall be allocated to the
officer's Installment Payment Account or, if he or she has made an election
under Section 8(e), to the Retiree Payment Account established for such officer
pursuant to Section 6(f).
6. ACCOUNTS
There shall be established and maintained on the books and records of
the Corporation, for bookkeeping purposes only, separate Accounts for each
Participant, to reflect the Participant's interest under the Plan. Such Accounts
shall be established and maintained in accordance with the following provisions:
(a) For each Participant, there shall be established a Lump Sum
Payment Account and an Installment Payment Account, and for each Participant
described in Section 3(c)(ii), there shall be established a Special 1995
Deferral Account.
(b) As of the time this Plan is adopted by the Corporation, each
Participant's Lump Sum Payment Account and Installment Account shall be
credited, respectively, with amounts equal to the balances of the Lump Sum
Payment Account and the Installment Payment Account maintained for the
Participant under the Prior Plan, determined as of the close of business on the
day preceding the Chase Merger Closing Date.
(c) A Participant's Lump Sum Payment Account, Installment Account,
Retiree Payment Account, and Special 1995 Deferral Account shall be credited
with amounts equal to that portion of the Participant's Deferred Amounts for
each Plan Year beginning on or after January 1, 1995 that the Participant has
elected under Section 3(b) to have allocated to each such Account, or that are
required to be allocated to such Account pursuant to Section 3(c). Such amounts
shall be so credited to the Participant's Account or Accounts as of the first
business day of the calendar month following the month in which the amounts in
question would have been paid to the Participant had the Participant not elected
under Section 3 to have payment of such amounts deferred under this Plan.
(d) A Participant's Lump Sum Payment Account, Installment Payment
Account and Special 1995 Deferral Account shall be credited with amounts equal
to that portion of the amounts deferred with respect to the Participant's 1995
Cashout Payments that the Participant
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<PAGE> 10
has elected under Section 4(b) to have allocated to each such Account, or that
are required to be allocated to such Account pursuant to Section 4(c). Such
amounts shall be so credited to the Participant's Account or Accounts as of the
Chase Merger Closing Date.
(e) A Participant's Lump Sum Payment Account and Installment Payment
Account, or the Participant's Retiree Payment Account, shall be credited with
amounts equal to that portion of the Participant's Supplemental ESOP
Contribution amount for each 401(k) Plan Year that the Participant has elected
to have allocated to each such Account, or which is required to be allocated to
such Account pursuant to Section 5. Such amounts shall be so credited as of the
first day of March following the 401(k) Plan Year for which such Supplemental
ESOP Contribution amount is to be credited.
(f) A Retiree Payment Account shall be established and maintained for
each Participant who elects under Section 8(e) to have payment with respect to
his or her Account or Accounts made in the manner therein provided.
(g) A Participant's Accounts shall be adjusted to reflect all Earnings
(as defined in paragraph (a) of Section 7) or interest to be credited to such
Accounts pursuant to Section 7, all transfers to or from such Accounts pursuant
to Section 8(d)(ii) or (e), and all payments made with respect to the
Participant's Account balances pursuant to Section 8.
(h) A Participant's interest in each of his or her Accounts shall be
fully vested and nonforfeitable at all times.
7. CREDITING OF EARNINGS
Until payment with respect to a Participant's Accounts has been made in
full, the Participant's Accounts shall be credited, with respect to periods
beginning on and after July 1, 1996, with Earnings or interest in accordance
with the following provisions:
(a) As of the last day of each calendar month, each part of the balance
of each of a Participant's Accounts for which a separate Earnings Crediting
Option (as hereinafter defined) is in effect pursuant to the Participant's
election hereunder shall be credited with an amount determined by multiplying
such part of the balance of the Participant's Account by a percentage
corresponding to the Applicable Rate of Return (as hereinafter defined) for such
month under such Earnings Crediting Option. The amount so credited (which may be
positive or negative depending on whether the Applicable Rate of Return for the
month is positive or negative) is referred to herein as "Earnings".
(b) For purposes of this Section 7, the term "Earnings Crediting
Option" shall mean, as of any date of reference on or after July 1, 1996, any
one of the following: the S&P 500 Index,
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the Lehman Bros. Government/Corporate Bond Index, and the IBC's Money Fund
Report First Tier Average.
Notwithstanding the foregoing, the Committee may at any time, in its
sole discretion, determine (i) that any option referred to in the preceding
paragraph shall cease to constitute an Earnings Crediting Option for purposes of
this Plan, or (ii) that any other index or hypothetical investment fund or
referenced rate of return shall constitute an Earnings Crediting Option for
purposes of this Plan. Participants shall be notified in writing, at least 45
days in advance, of any change in the Plan's Earnings Crediting Options.
(c) The "Applicable Rate of Return" for any month shall mean (i) in the
case of the S&P 500 Index, the percentage, as determined by the Committee, by
which (A) the value of such Index as of the last business day of such month, as
adjusted to reflect all income earned for such month on the securities included
in such Index, exceeds, or is less than, (B) the value of such Index as of the
last business day of the immediately preceding month, determined without taking
such adjustment into account; (ii) in the case of the Lehman Bros.
Government/Corporate Bond Index, the percentage, as determined by the Committee,
by which the value of such Index as of the last business day of such month,
exceeds, or is less than, the value of such Index as of the last business day of
the immediately preceding month; (iii) in the case of the IBC's Money Fund
Report First Tier Average, the rate of return corresponding to the 7-day
compounded yield for such Average, for the period ending on, or most recently
prior to, the last business day of such month; and (iv) in the case of any other
Earnings Crediting Option, the rate of return applicable for such month, as
determined by the Committee in its sole discretion.
(d) A Participant may make elections with respect to the Earnings
Crediting Options that are to apply on and after July 1, 1996 with respect to
his or her Accounts other than his or her Retiree Payment Account, in accordance
with the following rules:
(i) a Participant may elect to have any part or all of the
balance of any such Account credited with Earnings under any Earnings
Crediting Option available under the Plan at the time of his or her
election.
(ii) each Participant for whom any such Account was being
maintained on May 15, 1996 shall make an initial election as to the
Earnings Crediting Options that are to apply with respect to each such
Account on and after July 1, 1996. Such election shall be made in
writing, on a form provided by the Committee for such purpose, and such
form shall be filed with the Committee by no later than June 14, 1996.
In such election form, the Participant shall specify, by percentages
(which must be even multiples of 5%) the respective parts of the
balance of each such Account that are to be credited with Earnings
under each of the Earnings Crediting Options designated by the
Participant in such form. If a Participant fails to make such election
by June 14, 1996, the Participant shall be deemed to have selected the
IBC's Money Fund Report First Tier Average as the Earnings Crediting
Option to apply to the entire balance of each such Account.
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(iii) each Eligible Officer who becomes a Participant on or at
any time after May 15, 1996 shall make an initial election as to the
Earnings Crediting Options that are to apply with respect to an Account
at the time the Participant first elects under Section 3 or 5 to have
any amount allocated to that Account. Such election shall be made in
the election form in which the Participant makes his or her election
under Section 3 or 5 to have such amount allocated to that Account. In
such election form, the Participant shall specify, in the same manner
as described in clause (ii) above, the respective parts of the balance
of such Account that are to be credited with Earnings under each of the
Earnings Crediting Options designated by the Participant in such form.
If a Participant has failed to make a timely election as to the
Earnings Crediting Options that are to apply to any Account prior to
the date as of which an amount is first credited to such Account, the
Participant shall be deemed to have selected the IBC's Money Fund
Report First Tier Average as the Earnings Crediting Option to apply to
the entire balance of such Account.
(iv) The Earnings Crediting Options selected (or deemed to have
been selected) by a Participant with respect to an Account under clause
(ii) or (iii) above shall remain in effect for that Account (and shall
apply to all additional amounts allocated to such Account pursuant to
any elections made by the Participant under Section 3 or 5 with respect
to any subsequent Plan Years) until the Participant changes his or her
election as to the Earnings Crediting Options for that Account in
accordance with clause (v) below.
(v) A Participant may change the Earnings Crediting Options
that are to apply with respect to the balance of an Account, or with
respect to any Deferred Amounts to be credited to such Account for any
Plan Year pursuant to the Participant's election under Section 3, by
making a new election hereunder with respect to the balance of that
Account, or with respect to such Deferred Amounts. Any such new
election shall be made in writing, on a form which is provided by the
Committee for such purpose and which the Participant files with the
Committee. In such form, the Participant shall specify, in the same
manner as described in clause (ii) above, the respective parts of the
balance of such Account, or portions of such Deferred Amounts, that are
to be credited with Earnings under each of the Earnings Crediting
Options designated by the Participant in such form. Any new election
made by a Participant hereunder with respect to the balance of any
Account shall become effective as of the first day of the calendar
month following the date on which such election is filed with the
Committee, provided that it is so filed at least 15 days prior to such
first day. Any new election made by Participant hereunder with respect
to Deferred Amounts to be credited to such Account for any Plan Year
shall be effective as of the date such Deferred Amounts are credited to
such Account under Section 6(c). The Earnings Crediting Options
selected by the Participant in such new election shall remain in effect
with respect to the Participant's Account until the Participant again
changes his or her election with respect to that Account in accordance
with this clause (v).
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(e) As of the last day of each calendar month, the balance of a
Participant's Retiree Payment Account shall be credited with interest at a rate
equal to the monthly average constant maturity yield for a 10-year maturity on
U.S. Treasury securities, for the month preceding the month in which payments
with respect to the Participant's Retiree Payment Account commences.
(f) If payment with respect to any Account maintained for a Participant
is to be made in form of annual installments pursuant to Section 8(c)(ii),
8(d)(i) or 8(e), such Account shall continue to be credited with Earnings or
interest in accordance with the provisions of this Section 7 until all payments
required to be made with respect to such Account have been made. For this
purpose, any such payments with respect to any Account other than a
Participant's Retiree Payment Account shall be deemed to have been made pro rata
from the respective portions of the balance of such Account that are subject to
separate Earnings Crediting Options.
8. PAYMENT OF ACCOUNT BALANCES
Payment with respect to a Participant's Account balances shall be made
in accordance with the following provisions:
(a) A Participant's Account balances shall become payable upon the
earliest to occur of the following events (hereinafter referred to as "Payment
Events"): (i) the Participant's death, (ii) the Participant's Retirement, (iii)
the Participant's termination of employment with the Corporation (or, for
periods prior to the Chase Merger Closing Date, with U.S. Trust Corporation) and
its Affiliated Companies for any reason other than death or Retirement, and (iv)
the occurrence of a Change in Control.
(b) Unless a Participant otherwise elects under Section 8(d)(ii) or
8(e) with respect to his or her Lump Sum Payment Account, payment with respect
to such Account shall be made in the form of a single lump sum cash payment.
Such payment shall be made to the Participant or, if the Participant's Accounts
become payable by reason of his or her death, to the Participant's Beneficiary.
Payment shall be made as soon as practicable after the occurrence of any Payment
Event; provided, however, that if payment with respect to the Participant's
Installment Payment Account is required to be made in the form of annual
installments pursuant to Section 8(c)(ii), or if a Participant has made the
election provided in Section 8(e) with respect to his or her Installment Payment
Account but not with respect to his or her Lump Sum Payment Account, payment
with respect to the Participant's Lump Sum Payment Account shall be made on the
same date as the date on which the first annual installment payment is required
to be made under Section 8(c)(ii) or 8(e). The amount so payable shall be equal
to the balance of the Participant's Lump Sum Payment Account determined as of
the last day of the month preceding the month in which payment is made.
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(c) Unless a Participant otherwise elects under Section 8(d)(ii) or
8(e) with respect to his or her Installment Payment Account, payment with
respect to such Account shall be made in accordance with the following rules:
(i) except as provided in clause (ii) below, payment shall be
made to the Participant or, in the event of the Participant's death, to
his or her Beneficiary, in the same form, at the same time, and in an
amount determined in the same manner, as payment with respect to the
Participant's Lump Sum Payment Account is to be made, as provided in
paragraph (b) above.
(ii) if the Participant's Account balances become payable as a
result of the Participant's Retirement, or as a result of the
Participant's death while he or she is still employed with the
Corporation or any of its Affiliated Companies but after the
Participant has met the age, or the age and service, requirements for
eligibility for Retirement stated in the definition of such term
contained in Section 2, payment with respect to the Participant's
Installment Payment Account shall be made to the Participant or, in the
event of the Participant's death, to his or her Beneficiary, in the
form of a series of 10 annual installments. The first such installment
payment shall be made on the last business day of March of the Plan
Year following the year in which the Participant's Retirement or death
occurs, and the remaining installment payments shall be made on the
last business day of March of each succeeding Plan Year. The amount of
each such installment payment shall be determined by dividing (A) the
balance of the Participant's Installment Payment Account determined as
of the last day of the Plan Year preceding the year in which such
payment is to be made, by (B) the number of installment payments
remaining to be made. The last such installment payment shall include
Earnings credited to the Installment Payment Account for the month
preceding the month in which such payment is made.
(d) Payment with respect to a Participant's Special 1995 Deferral
Account shall be made in accordance with the following rules:
(i) Payment with respect to the Participant's Special 1995
Deferral Account shall be made to the Participant in the form of a
series of 10 annual installments. The first such installment payment
shall be made on the last business day of February, 1996, and the
remaining installment payments shall be made on the last business day
of February of each succeeding Plan Year. The amount of each such
installment payment shall be determined by dividing (A) the balance of
the Participant's Special 1995 Deferral Account determined as of the
last day of the Plan Year preceding the year in which such payment is
to be made, by (B) the number of installment payments remaining to be
made. The last such installment payment shall include Earnings credited
to the Special 1995 Deferral Account for the month preceding the month
in which such payment is made.
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(ii) If a Lump Sum Payment Account and/or an Installment
Payment Account is being maintained for a Participant described in
Section 3(c)(ii) in addition to the Special 1995 Deferral Account that
has been established for such Participant, the Participant may elect to
have payment with respect to either or both of such other Accounts made
in the same form, at the same times, and in amounts determined in the
same manner, as the payments to be made with respect to the
Participant's Special 1995 Deferral Account as provided in clause (i)
above. Any such election shall be made in writing, on a form which is
provided by the Committee for such purpose and which is filed by the
Participant with the Committee by no later than March 17, 1995. If a
Participant makes such an election, the balance of the Account or
Accounts specified by the Participant in such election shall be
transferred and credited to the Participant's 1995 Special Deferral
Account as of the last day of the month in which the Participant's
employment with the Corporation (or, for periods prior to the Chase
Merger Closing Date, with U.S. Trust Corporation) and its Affiliated
Companies terminates.
(e) Any Participant whose employment with the Corporation (or, for
periods prior to the Chase Merger Closing Date, with U.S. Trust Corporation) and
its Affiliated Companies terminates after March 31, 1995 as a result of
Retirement may elect to have the balance of the Participant's Installment
Payment Account, or the balances of that Account and the Participant's Lump Sum
Payment Account, transferred and credited to the Retiree Payment Account
established for the Participant pursuant to Section 6, and to have payment with
respect to the Participant's Retiree Payment Account made in the form of a
series of 15 annual installments, with interest credited on the unpaid balance
of such Account as provided in Section 7(e). Such Account balance or balances
shall be so transferred and credited as of the first day of the month in which
the first installment payment with respect to such Account is to be made.
Any such election shall be made in writing, on a form which is provided
by the Committee for this purpose and which is filed by the Participant with the
Committee at least 12 months prior to the date of the Participant's Retirement
or, in the case of any Participant who retires prior to March 31, 1996, by no
later than March 17, 1995.
In the case of a Participant who makes such election, the first
installment payment with respect to his or her Retiree Payment Account shall be
made on the last business day of March following the Plan Year in which the
Participant retires, and the remaining installment payments shall be made on the
last business day of March of each succeeding Plan Year. The amount of the first
installment shall be determined by dividing the balance of the Participant's
Retiree Payment Account on the day on which such payment is to be made (after
any amounts required to be credited to such Account on such day pursuant to
Section 6(c), 6(e) or 7 have been credited), by 15. The amount of each remaining
installment payment shall be determined by dividing (A) the balance of the
Participant's Retiree Payment Account determined as of the last day of the month
preceding the month in which such payment is to be made, by (B) the number of
installment payments remaining to be made.
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(f) In any case where payment with respect to any Account is to be made
in the form of annual installment payments, the following special rules shall
apply:
(i) if the Participant should die before receiving all
installment payments required to be made with respect to such Account,
any installment payments remaining to be made at the date of the
Participant's death shall be made to the Participant's Beneficiary in
the same form, at the same times, and in the same amounts, as such
payments would have been made to the Participant (A) if he or she had
not died, and (B), in the case of installment payments required to be
made to a Beneficiary under Section 8(c)(ii) due to the death of a
Participant occurring before the Participant had received any such
payments, if the Participant's employment had terminated as a result of
Retirement on the date of his or her death.
(ii) if a Change in Control should occur before all installment
payments required to be made with respect to the such Account have been
made, the balance of such Account shall become immediately due and
payable upon the occurrence of such Change in Control. Payment with
respect to such balance shall be made to the Participant or, if the
Participant has died, to his or her Beneficiary, in the form of a
single lump sum cash payment. Payment shall be made as soon as
practicable after the occurrence of such Change in Control. The amount
so payable shall be equal to the balance of the Participant's Account
determined as of the last day of the month preceding the month in which
payment is made.
(g) Notwithstanding any other provision in this Section 8 to the
contrary, payment with respect to any part or all of the Participant's Account
balances may be made to the Participant or, if applicable, the Participant's
Beneficiary, on any date earlier than the date on which such payment is to be
made pursuant to such other provisions of this Section 8 if (i) the Participant,
or his or her Beneficiary, requests such early payment and (ii) the Committee,
in its sole discretion, determines that such early payment is necessary to help
the Participant, or his or her Beneficiary, meet an "unforeseeable emergency"
within the meaning of Section 1.457-2(h)(4) of the federal income tax
regulations. The amount that may be so paid may not exceed the amount necessary
to meet such emergency.
(h) There shall be deducted from the amount of any payment otherwise
required to be made under the Plan all Federal, state and local taxes required
by law to be withheld with respect to such payment.
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9. DESIGNATION AND CHANGE OF BENEFICIARY
Each Participant shall file with the Committee a written designation of
one or more persons as the Beneficiary who shall be entitled to receive any
amount payable under the Plan by reason of his or her or her death. A
Participant may, from time to time, revoke or change his or her Beneficiary
designation without the consent of any previously designated Beneficiary by
filing a new designation with the Committee. The last such designation received
by the Committee shall be controlling; provided, however, that no designation,
or change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt. If at the date of a Participant's
death, there is no designation of a Beneficiary in effect for the Participant
pursuant to the provisions of this Section 9, or if no Beneficiary designated by
the Participant in accordance with the provisions hereof survives to receive any
amount payable under the Plan by reason of the Participant's death, the
Participant's estate shall be treated as the Participant's Beneficiary for
purposes of the Plan.
10. PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS
If the Committee shall find that any Participant or Beneficiary to whom
any amount is payable under the Plan is unable to care for his or her affairs
because of illness, accident or legal incapacity, then, if the Committee so
directs, such amount may be paid to such Participant's or Beneficiary's spouse,
child or other relative, an institution maintaining or having custody of such
person, or any person deemed by the Committee to be a proper recipient on behalf
of such Participant, unless a prior claim therefor has been made by a duly
appointed legal representative of the Participant or Beneficiary.
Any payment made under this Section 10 shall be a complete discharge of
the liability of the Corporation with respect to such payment.
11. RIGHTS OF PARTICIPANTS
A Participant's rights and interests under the Plan shall be subject to
the following provisions:
(a) A Participant shall have the status of a general unsecured creditor
of the Corporation with respect to his or her right to receive any payment under
the Plan. The Plan shall constitute a mere promise by the Corporation to make
payments in the future of the benefits provided for herein. It is intended that
the arrangements reflected in this Plan be treated as unfunded for tax purposes,
as well as for purposes of Title I of ERISA.
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(b) The Corporation may, but shall not be required to, purchase a life
insurance policy or policies, to assist it in funding any of its payment
obligations under the Plan. If any policy is so purchased, it shall, at all
times, remain subject to the claims of the Corporation's creditors. No
Participant or Beneficiary shall have any interest in, or rights with respect
to, such policy.
(c) A Participant's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or his or her Beneficiary.
(d) Neither the Plan nor any action taken hereunder shall be construed
as giving any Participant any right to be retained in the employment of the
Corporation or any of its Affiliated Companies.
12. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have exclusive authority to determine all matters involving the administration,
operation and interpretation of the Plan, in its discretion. All decisions,
actions or interpretations of the Committee under the Plan shall be final,
conclusive and binding upon all parties.
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his or her behalf in
his or her capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Corporation shall indemnify and hold harmless each
member of the Committee, and each employee, officer, director or trustee of the
Corporation or any of its Affiliated Companies to whom any duty or power
relating to the administration or interpretation of the Plan may be delegated,
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim with the approval of the Board of Directors)
arising out of any act or omission to act in connection with the Plan unless
arising out of such person's own fraud or bad faith.
13. AMENDMENT OR TERMINATION
The Board of Directors may, with prospective or retroactive effect,
amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that no amendment of the Plan shall deprive any Participant
of any rights to receive payment of any amounts due him or her under the terms
of the Plan as in effect prior to such amendment without his or her written
consent.
Any amendment that the Board of Directors would be permitted to make
pursuant to the preceding paragraph may also be made by the Committee where
appropriate to facilitate the administration of the Plan or to comply with
applicable law or any applicable rules and
18
<PAGE> 19
regulations of governing authorities provided that the cost of the Plan to the
Corporation is not materially increased by such amendment.
Notwithstanding any other provision in this Plan to the contrary, the
Committee may terminate any Participant's participation in the Plan, and direct
that an immediate payment be made with respect to the balances of the
Participant's Accounts, if the Committee, in its sole discretion, determines
that such termination of participation and payment are necessary in order to
preserve the Plan's status as a plan of deferred compensation for "a select
group of management or highly compensated employees" within the meaning of the
applicable provisions of ERISA.
14. SUCCESSOR CORPORATION
The obligations of the Corporation under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Corporation, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Corporation. The Corporation agrees that it will make
appropriate provision for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
15. GOVERNING LAW
The provisions of the Plan shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE> 1
Exhibit 10.20
1995 STOCK OPTION PLAN
OF
U.S. TRUST CORPORATION
AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 1, 1996
1. PURPOSE
The purpose of the 1995 Stock Option Plan of U.S. Trust Corporation is
to advance and promote the interests of U.S. Trust Corporation and its
Affiliated Companies by encouraging and enabling their officers to acquire
common shares of U.S. Trust Corporation. The Plan is intended as a means of
attracting and retaining outstanding management and promoting a close identity
of interest between management and U.S. Trust Corporation's shareholders.
2. DEFINITIONS
As used herein, the following terms shall have the following meanings:
"AFFILIATED COMPANIES" shall mean United States Trust Company of New
York, and each other direct or indirect subsidiary of the Corporation.
"BENEFICIARY" shall mean the person or persons designated by an
Eligible Employee in accordance with Section 9 to exercise any Option, or to
receive any amount payable, under the Plan upon the Eligible Employee's death.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Corporation.
"CHANGE IN CONTROL" shall mean that any of the following events has
occurred:
(i) 20% or more of the Common Shares has been acquired by any
person (as defined by Section 3(a)(9) of the Securities Exchange Act of
1934) other than directly from the Corporation;
(ii) there has been a merger or equivalent combination after
which 49% or more of the voting shares of the surviving corporation is
held by persons other than former shareholders of the Corporation; or
<PAGE> 2
(iii) 20% or more of the directors elected by shareholders to
the Board of Directors are persons who were not nominated by the Board
of Directors or the Executive Committee of the Board of Directors in
the most recent proxy statement of the Corporation;
provided, however, that notwithstanding anything in the Plan to the contrary, no
Change in Control shall be deemed to have occurred, and no rights arising upon a
Change in Control as provided in Sections 5(e)(v) or 5(i) shall exist, to the
extent that the Board of Directors so directs by resolution adopted prior to the
Change in Control, or not later than 45 days after the Change in Control if the
percentage of Common Shares acquired or directors elected under clause (i) or
(iii) of the foregoing definition of Change in Control shall be at least 20% but
less than 25%. Any resolution of the Board of Directors adopted in accordance
with the provisions of this definition directing that a Change in Control shall
be deemed not to have occurred for purposes of this Plan and that Sections
5(e)(v) or 5(i) or either of such Sections shall not become effective, may be
rescinded or countermanded at any time with or without retroactive effect.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITTEE" shall mean the Compensation and Benefits Committee of the
Board of Directors.
"COMMON SHARES" shall mean the common shares ($1.00 par value per
share) of the Corporation.
"CORPORATION" shall mean U.S. Trust Corporation.
"DETERMINED VALUE" shall mean (i) the highest price per Common Share
paid in connection with any Change in Control (including, without limitation,
prices paid in any subsequent merger or combination with any entity that
acquires control of the Corporation), or (ii) in the case of a Change in Control
occurring as a result of an event described in clause (iii) of the definition of
a Change in Control contained in this Section 2, the Average Market Value of a
Common Share during the 30-day period ending on the day preceding the occurrence
of such Change in Control. For this purpose, the "Average Market Value" of a
Common Share during such period shall mean the average of the mean between the
per-share high and low prices for the Corporation's Common Shares on each day
during such period, as quoted on the NASDAQ National Market System, or, if the
Corporation's Common Shares are not traded on such system, on such other
securities market or securities exchange on which such shares are traded as the
Committee shall determine.
"ELIGIBLE EMPLOYEE" shall mean any officer of the Corporation or any of
its Affiliated Companies at or above the rank of Vice President.
"INCENTIVE STOCK OPTION" shall mean an Option, or that portion of an
Option, that qualifies as an incentive stock option within the meaning of
section 422 of the Code.
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"NONQUALIFIED STOCK OPTION" shall mean an Option, or portion of an
Option, that does not qualify as an Incentive Stock Option.
"OPTION" shall mean an option to purchase Common Shares that is granted
to an Eligible Employee under the Plan.
"OPTION HOLDER shall mean (i) any Eligible Employee to whom an Option
has been granted, or (ii) with respect to any Option held by an Eligible
Employee at the date of his or her death, the Eligible Employee's Beneficiary,
or (iii) with respect to any Option or portion thereof transferred by an
Eligible Employee to a Permitted Transferee pursuant to Section 5(f), such
Permitted Transferee.
"PERMITTED TRANSFEREE" shall mean, with respect to any Eligible
Employee, (i) one or more members of his or her Immediate Family, (ii) a trust
solely for the benefit of the Eligible Employee and/or one or more members of
his or her Immediate Family, or (iii) a partnership or limited liability company
whose only partners or members are the Eligible Employee and/or one or more
members of his or her Immediate Family. For this purpose, members of an Eligible
Employee's "Immediate Family" shall include his or her spouse, children or
grandchildren (including adopted children and grandchildren and step-children
and step-grandchildren).
"PLAN" shall mean the 1995 Stock Option Plan of U.S. Trust Corporation,
as set forth herein and as amended from time to time.
"RETIREMENT" shall mean an Eligible Employee's termination of
employment with the Corporation and its Affiliated Companies for any reason
other than death if, as of the date of the Eligible Employee's termination of
employment, (i) the Eligible Employee has attained age 65 or (ii) (A) the sum of
Participant's age and the number of his or her "Years of Service", as defined in
the 401(k) Plan and ESOP of United States Trust Company of New York and
Affiliated Companies, is at least equal to 80, and (B) the Committee has
consented to treating such termination of employment as a "Retirement" for
purposes of the Plan.
"VESTED PORTION" and "NON-VESTED PORTION" shall mean, respectively,
with respect to any Option as of any date, the portion of such Option that is
exercisable on such date, and the portion of such Option that is not exercisable
on such date, under the terms of the Plan and the Option.
3. MAXIMUM NUMBER OF COMMON SHARES AVAILABLE FOR OPTIONS
Notwithstanding any other provision of the Plan, the aggregate number
of Common Shares that may be issued pursuant to Options granted under the Plan
after January 1, 1997 shall be limited to 750,000 Common Shares, plus that
number of Common Shares, out of the total number of Common Shares previously
approved by the Corporation's shareholders for the grant of Options hereunder,
that were not covered by Options granted prior to January 1, 1997. There shall
be added
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to the number of Common Shares available for the grant of Options under
the Plan, as determined under the preceding sentence, the following: (i) any
Common Shares delivered (or deemed to have been delivered) after January 1, 1997
by an Option Holder to the Corporation, pursuant to the Option Holder's exercise
of any Option (whenever granted), in payment or partial payment of the purchase
price of any Common Shares covered under such Option; (ii) any Common Shares
purchased by the Corporation after January 1, 1997 on the open market with
Option Proceeds (as defined below); and (iii) any Common Shares that become no
longer subject to an Option because such Option has expired, or because the
Non-Vested Portion of such Option has been be forfeited. In the event of a
cancellation of an Option as provided in Section 5(i), the number of Common
Shares as to which such Option was cancelled shall not again become available
for use under the Plan. The limitation provided under this Section 3 shall be
subject to adjustment as provided in Section 6.
For purposes of the preceding paragraph, "Option Proceeds" shall mean,
with respect to the exercise of any Option (whenever granted), the sum of (x)
the amount of cash received (or in the case of a cashless exercise, deemed
received) by the Corporation in payment or partial payment of the purchase price
of Common Shares pursuant to such exercise, and (y) the Tax Savings (as defined
below) realized by the Corporation attributable to such exercise. The "Tax
Savings" realized by the Corporation attributable to the exercise of any Option
shall be an amount equal to (1) the amount of the deduction allowable to the
Corporation or any of its Affiliated Companies under section 162 of the Code as
compensation attributable to the exercise of such Option, multiplied by (2) the
combined federal, state and local marginal income tax rate for the Eligible
Employee's employing company for the year of such exercise or, if such deduction
is allowable by reason of a disposition of any Common Shares acquired pursuant
to the exercise of an Incentive Stock Option that is made before the expiration
of the applicable holding periods under section 422(a) of the Code, for the year
of such disposition. Any Common Shares purchased by the Corporation on the open
market pursuant to a publicly-announced Common Share repurchase program, the
purpose of which is to acquire Common Shares for use in connection with the
Corporation's stock-based compensation plans, shall be treated as having been
purchased with Option Proceeds to the extent that (A) the Common Shares are so
purchased after the date or dates on which Option Proceeds are realized by the
Corporation and (B) the aggregate purchase price of the Common Shares so
purchased does not exceed the amount of the Option Proceeds so realized.
The Common Shares distributed under the Plan may be authorized and
unissued shares, shares held in the treasury of the Corporation, or shares
purchased on the open market by the Corporation at such time or times and in
such manner as it may determine.
4. GRANT OF OPTIONS
Subject to the provisions of the Plan, the Committee shall determine
and designate from time to time those Eligible Employees to whom Incentive Stock
Options, or Nonqualified Stock Options, or both, are to be granted and the
number of Common Shares that may be purchased under each Option so granted;
provided, however, that (i) the aggregate fair market value (determined at the
time the Option is granted) of the Common Shares with respect to which Incentive
Stock Options
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<PAGE> 5
are exercisable for the first time by any Eligible Employee during
any calendar year (under all incentive stock option plans of the Eligible
Employee's employer corporation and its parent and subsidiary corporations)
shall not exceed $100,000; and (ii) the total number of Common Shares with
respect to which Options may be granted to any Eligible Employee during any
calendar year shall not exceed 100,000 Common Shares.
No Incentive Stock Option may be granted under this Plan after the
expiration of 10 years from the Effective Date of the Plan specified in Section
16, unless the shareholders of the Corporation shall have approved an extension
of the period for granting Incentive Stock Options under this Plan beyond such
date.
5. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under the Plan shall be evidenced in writing in a
form approved by the Committee, and shall contain the following terms and
conditions, and such other terms and conditions as the Committee may deem
appropriate:
(a) OPTION TERM. Each Option shall specify the period during which the
Option may be exercised (the "Option Term"). The Option shall provide that the
Option shall expire at the end of the Option Term. The Committee may extend the
Option Term, provided, however, that in the case of any Option that the
Committee previously determined to constitute an Incentive Stock Option, no such
extension shall be made to the extent it would disqualify the Option as an
Incentive Stock Option. In no case shall the Option Term, including any such
extensions, end later than (i) ten years from the date of grant, or (ii) in the
case of Incentive Stock Options granted to an Eligible Employee who, at the time
the Incentive Stock Option is granted, owns shares possessing more than 10
percent of the total combined voting power of all classes of shares of his or
her employer corporation or of its parent or subsidiary corporation (a "Ten
Percent Shareholder"), five years from the date of grant.
(b) PURCHASE PRICE. The price per Common Share at which Common Shares
subject to any Option may be purchased shall be determined by the Committee at
the time any Option is granted, and shall be not less than (i) the fair market
value, or (ii) in the case of Incentive Stock Options granted to a Ten Percent
Shareholder, 110 percent of the fair market value (but in no event less than the
par value) of a Common Share on the date the Option is granted, as determined by
the Committee.
(c) EXERCISE OF OPTION. Except as otherwise provided under the Plan, no
part of any Option may be exercised until the Eligible Employee to whom the
Option was granted shall have remained in the employ of the Corporation or any
of its Affiliated Companies for such period after the date on which the Option
is granted as the Committee may specify in the Option, and the Option may
provide for exercisability in installments.
(d) PAYMENT OF PURCHASE PRICE UPON EXERCISE. Each Option shall provide
that the purchase price of the Common Shares as to which an Option shall be
exercised shall be paid to the
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<PAGE> 6
Corporation at the time of exercise either in cash or in such other
consideration as the Committee deems appropriate, including, but not limited to,
Common Shares already owned by the Option Holder having a total fair market
value, as determined by the Committee, equal to the purchase price, or a
combination of cash and Common Shares having a total fair market value, as so
determined, equal to the purchase price. The Committee in its sole discretion
may also provide that the purchase price may be paid by delivering a properly
executed exercise notice in a form approved by the Committee together with
irrevocable instructions to a broker to promptly deliver to the Corporation the
amount of the applicable sale or loan proceeds to pay the purchase price.
(e) EXERCISE IN THE EVENT OF TERMINATION OF EMPLOYMENT OR CHANGE IN
CONTROL. In the event an Eligible Employee's employment with the Corporation and
its Affiliated Companies should terminate, or if a Change in Control should
occur, Options granted to the Eligible Employee may be exercised in accordance
with the following provisions:
(i) If an Eligible Employee's employment terminates as a
result of Retirement, each Option held by the Eligible Employee, or by
a Permitted Transferee of the Eligible Employee, at the date of the
Eligible Employee's termination of employment may be exercised (A) with
respect to the Vested Portion of such Option, at any time or from time
to time during the Eligible Employee's Post-Termination Exercise Period
(as defined below) and (B) with respect to the Non-Vested Portion of
such Option, at any time or from time to time on or after the date or
dates during the Eligible Employee's Post-Termination Exercise Period
on which such portion of the Option becomes exercisable under the terms
of the Option. If such Eligible Employee should die prior to the end of
his or her Post-Termination Exercise Period, the Non-Vested Portion, if
any, of each Option held by the Eligible Employee, or by a Permitted
Transferee of the Eligible Employee, at the date of the Eligible
Employee's death shall cease to be exercisable, and shall be forfeited,
as of such date; and the Vested Portion of each such Option may be
exercised by the Eligible Employee's Beneficiary, or by such Permitted
Transferee, as the case may be, at any time or from time to time after
the Eligible Employee's death until the earlier of the second
anniversary of such date of death or the date on which the Option Term
for such Option expires.
(ii) If an Eligible Employee's employment terminates for any
reason other than Retirement, the Non-Vested Portion of each Option
held by the Eligible Employee, or by a Permitted Transferee of the
Eligible Employee, at the date of the Eligible Employee's termination
of employment shall cease to be exercisable, and shall be forfeited, as
of such date; and the Vested Portion of each such Option may be
exercised at any time and from time to time during the Eligible
Employee's Post-Termination Exercise Period. If an Eligible Employee
whose employment has terminated as a result of permanent disability
should die before the end of his or her Post-Termination Exercise
Period, the Vested Portion of each Option held by the Eligible
Employee, or by a Permitted Transferee of an Eligible Employee, at the
date of the Eligible Employee's death shall continue to be exercisable
by the Eligible Employee's Beneficiary, or by such Permitted
Transferee, as the case may be, at any time or from time to time after
the date of the Eligible Employee's death until the
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<PAGE> 7
earlier of the second anniversary of such date of death or the date on
which the Option Term for such Option expires.
(iii) Notwithstanding the foregoing, the Committee may, in its
sole discretion, determine that any part or all of the Non-Vested
Portion of any Option held by an Eligible Employee, or by a Permitted
Transferee of an Eligible Employee, at the date of the Eligible
Employee's termination of employment shall not be forfeited, and may
continue to be exercised by the Eligible Employee (or in the event of
his or her death by his or her Beneficiary), or by such Permitted
Transferee, as the case may be, for such period after such date of
termination of employment and prior to the expiration of the Option
Term for such Option, as the Committee shall specify in such
determination.
(iv) For purposes of the foregoing, an Eligible Employee's
Post-Termination Exercise Period shall mean the period beginning on the
date of his or her termination of employment and ending (A) on the
fifth anniversary of such date, if the Eligible Employee's employment
has terminated as a result of Retirement, (B) on the second anniversary
of such date, if the Eligible Employee's employment has terminated as a
result of his or her death, (C) on the first anniversary of such date,
if the Eligible Employee's employment has terminated as a result of his
or her permanent disability, (D) on the 90th day following such date,
if the Eligible Employee's employment has terminated for any reason
other than Retirement, death or permanent disability. Notwithstanding
the foregoing, an Eligible Employee's Post-Termination Exercise Period
with respect to any Option shall end no later than the date on which
the Option Term for such Option expires.
(v) Notwithstanding any other provision herein to the
contrary (but subject to the proviso contained in the definition of
"Change in Control" in Section 2), upon the occurrence of a Change in
Control, the Non-Vested Portion of any Option held by an Eligible
Employee, or by a Permitted Transferee of an Eligible Employee, who is
in the employ of the Corporation or any of its Affiliated Companies on
the date on which such Change in Control occurs, and the Non-Vested
Portion of any Option held on such date by any Eligible Employee, or by
a Permitted Transferee of an Eligible Employee, whose employment
terminated prior to such date as a result of Retirement, shall become
immediately and fully exercisable.
(f) NONTRANSFERABILITY OF OPTIONS. Any Option granted to an Eligible
Employee under the Plan shall be nontransferable and may be exercised during the
Eligible Employee's lifetime only by the Eligible Employee. Notwithstanding the
foregoing, any Eligible Employee may, at any time after November 1, 1996,
transfer any Nonqualified Stock Option or portion thereof to a Permitted
Transferee, subject to the following:
(i) such transfer shall be permitted only if the Eligible
Employee does not receive any consideration for the transfer;
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<PAGE> 8
(ii) such transfer shall not be effective unless and until the
Eligible Employee has furnished the Committee with written notice of
the transfer and copies of all documents evidencing the transfer;
(iii) any Option or portion thereof transferred by an Eligible
Employee to a Permitted Transferee may be exercised by the Permitted
Transferee to the same extent as the Eligible Employee would have been
entitled to exercise it, and shall remain subject to all of the terms
and conditions that would have applied to such Option under the
provisions thereof and this Plan, if the Eligible Employee had not
transferred the Option or portion thereof to the Permitted Transferee.
The terms of each Option granted prior to November 1, 1996 that
prohibited the transfer of such Option shall be deemed to be automatically
amended effective as of November 1, 1996 to permit the portion of such Option
that is treated as a Nonqualified Stock Option to be transferred in accordance
with the provisions set forth above.
(g) INVESTMENT REPRESENTATION. Each Option may provide that, upon
demand by the Committee for such a representation, the Option Holder shall
deliver to the Committee, at the time of any exercise of an Option or portion
thereof, a written representation that the shares to be acquired upon such
exercise are to be acquired for investment and not for resale or with a view to
the distribution thereof. Upon such demand, delivery of such representation
prior to the delivery of any Common Shares issued upon exercise of an Option
shall be a condition precedent to the right of the Option Holder to purchase any
Common Shares. In the event certificates are delivered for any Common Shares
with respect to which such an investment representation has been obtained, the
Committee may cause a legend or legends to be placed on such certificates to
make appropriate reference to such representation and to restrict transfer in
the absence of compliance with applicable federal or state securities laws.
(h) OTHER OPTION PROVISIONS. Each Option may contain such other
provisions, not inconsistent with the provisions of the Plan, as the Committee
may, from time to time, determine. Without limiting the foregoing, the Committee
may require an Eligible Employee to agree, as a condition to receiving an
Option, that part or all of any Options previously granted to such Eligible
Employee be terminated; and the Committee may include in any Option provisions
under which the Option (including the Vested Portion thereof) may be cancelled
by the Corporation at any time, and the right to exercise such Option will
thereupon be forfeited, in the event that the Committee determines that: (i) the
Eligible Employee has committed fraud, embezzlement or other act of dishonesty
involving the Corporation or any of its Affiliated Companies, (ii) the Eligible
Employee's employment has been terminated as a result of discharge for cause,
(iii) the Eligible Employee has at any time furnished or divulged to any other
person, corporation or business entity, or has himself or herself used, any
information of a proprietary nature owned by the Corporation or any of its
Affiliated Companies that is in the nature of confidential business information
or trade secrets, other than as required in the course of his or her employment
by the Corporation or any of its Affiliated Companies, (iv) the Eligible
Employee has at any time induced or attempted to induce
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<PAGE> 9
any officer of the Corporation or any of its Affiliated Companies to terminate
such officer's employment with the Corporation or any of its Affiliated
Companies; (v) the Eligible Employee has at any time induced or attempted to
induce any customer of, or any other person or entity having business relations
with the Corporation or any of its Affiliated Companies to terminate or curtail
such relationship with the Corporation or any of its Affiliated Companies; or
(vi) the Eligible Employee has at any time engaged in any other conduct directly
and materially detrimental to the business of the Corporation or any of its
Affiliated Companies. Each Option shall also specify that the Option granted
thereunder shall be subject to all applicable provisions of the Plan.
(i) CANCELLATION OF OPTIONS UPON A CHANGE IN CONTROL. Upon the
occurrence of a Change in Control, all Options that have not been fully
exercised, or that have not expired or that have not been forfeited, prior to
the date of such Change in Control shall be cancelled. In the event of any such
cancellation, the Corporation's obligation in respect of each such Option shall
be discharged by payment to the Option Holder of a single cash lump sum (reduced
by any taxes withheld pursuant to Section 8) in an amount equal to the excess,
if any, of the Determined Value of the Common Shares subject to the Option or
portion thereof so cancelled over the aggregate purchase price of such shares as
set forth in the Option. All such amounts shall be payable as soon as
practicable following the Change in Control. In the case of any such Option that
is to become exercisable in full upon the occurrence of a Change in Control
pursuant to Section 5(e)(v) above, the holder of such Option shall be provided
an opportunity to exercise such option at such time prior to the time the Change
in Control becomes effective, and in accordance with such procedures, as the
Committee shall determine in its discretion.
6. CERTAIN ADJUSTMENTS TO PLAN SHARES
In the event of any change in the Common Shares by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, or any rights offering to purchase Common
Shares at a price substantially below fair market value, or any similar change
affecting the Common Shares, the number and kind of shares available for the
grant of Options, and the number and kind of shares subject to outstanding
Options and the purchase price per share thereof shall be appropriately adjusted
consistent with such change in such manner as the Committee, in its sole
discretion, may deem equitable to prevent substantial dilution or enlargement of
the rights granted to, or available for, Option Holders hereunder. Any
adjustment of an Incentive Stock Option pursuant to this Section shall be made
only to the extent it would not constitute a "modification" of such Option
within the meaning of section 424(h)(3) of the Code. The Committee shall give
notice to each Option Holder of any adjustment made pursuant to this Section
and, upon such notice, such adjustment shall be effective and binding for all
purposes.
7. LISTING AND QUALIFICATION OF COMMON SHARES
The Corporation, in its discretion, may postpone the issuance,
delivery, distribution or release of Common Shares upon any exercise of an
Option until completion of such stock exchange listing or other qualification of
such shares under any state or federal law, rule or regulation as the
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Corporation may consider appropriate, and may require any Option Holder to make
such representations and furnish such information as it may consider appropriate
in connection with the issuance or delivery of the shares in compliance with
applicable laws, rules and regulations.
8. TAXES
The Corporation or any of its Affiliated Companies may make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state and local taxes required by law to be withheld
with respect to Options granted under the Plan and the exercise thereof
including, but not limited to (i) deducting the amount so required to be
withheld from any other amount then or thereafter payable to an Option Holder,
and/or (ii) requiring an Option Holder to pay to the Corporation or any of its
Affiliated Companies the amount so required to be withheld as a condition of the
issuance, delivery, distribution or release of any Common Shares.
9. DESIGNATION AND CHANGE OF BENEFICIARY
Each Eligible Employee to whom an Option has been granted shall file
with the Committee a written designation of one or more persons as the
Beneficiary who shall be entitled to exercise any Options, or to receive any
amount payable, under the Plan upon his or her death. An Eligible Employee may,
from time to time, revoke or change his or her Beneficiary designation without
the consent of any previously designated Beneficiary by filing a new designation
with the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Eligible Employee's death, and in no event shall it be effective as of a date
prior to such receipt. If at the date of an Eligible Employee's death, there is
no designation of a Beneficiary in effect for the Eligible Employee pursuant to
the provisions of this Section 9, or if no Beneficiary designated by the
Eligible Employee in accordance with the provisions hereof survives to exercise
any Options that become exercisable, or to receive any amount that becomes
payable, under the Plan by reason of the Eligible Employee's death, the Eligible
Employee's estate shall be treated as the Eligible Employee's Beneficiary for
all purposes.
10. PAYMENTS TO PERSONS OTHER THAN OPTION HOLDER
If the Committee shall find that any Option Holder to whom any amount,
or any Common Shares, is payable under the Plan is unable to care for his or her
affairs because of illness, accident or legal incapacity, then if the Committee
so directs, such amount, or such Common Shares, may be paid to such Option
Holder's spouse, child or other relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper recipient on behalf of such Option Holder, unless a prior claim therefor
has been made by a duly appointed legal representative of the Option Holder. Any
payment made under this Section 10 shall be a complete discharge of the
liability of the Corporation with respect to such payment.
-10-
<PAGE> 11
11. RIGHTS OF OPTION HOLDERS
An Option Holder's rights and interests under the Plan shall be subject
to the following provisions:
(a) An Option Holder shall have the status of a general unsecured
creditor of the Corporation with respect to his or her right to receive any
payment under the Plan. The Plan shall constitute a mere promise by the
Corporation to make payments in the future of the benefits provided for herein.
It is intended that the arrangements reflected in this Plan for the making of
any payment required to be made hereunder shall be treated as unfunded for tax
purposes, as well as for purposes of any applicable provisions of Title I of
ERISA.
(b) An Option Holder's rights to any payment under the Plan shall not
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Option Holder or his or her beneficiary.
(c) Neither the Plan nor any action taken hereunder shall be construed
as giving any Option Holder any right to be retained in the employment of the
Corporation or any of its Affiliated Companies.
(d) An Option Holder shall not have any rights as a shareholder with
respect to any Common Shares that are subject to any Option held by the Option
Holder prior to the date as of which such shares are issued to the Option Holder
pursuant to his or her exercise of such Option.
12. ADMINISTRATION
The Plan shall be administered by the Committee. A majority of the
members of the Committee shall constitute a quorum. The Committee may act at a
meeting, including a telephone meeting, by action of a majority of the members
present, or without a meeting by unanimous written consent. In addition to the
responsibilities and powers assigned to the Committee elsewhere in the Plan, the
Committee shall have the authority, in its discretion but subject to the
provisions of the Plan,:
(i) to select the Eligible Employees to whom Options are to be
granted;
(ii) to determine the number of shares to be covered by each
Option granted, the time or times when and the manner in which each
Option may be exercised, and the purchase price per share at which each
Option shall be exercised;
(iii) to determine whether an Option that is granted to an
Eligible Employee shall constitute a Nonqualified Stock Option or an
Incentive Stock Option;
(iv) to amend any Option, with the consent of the Option
Holder; and
-11-
<PAGE> 12
(v) establish from time to time guidelines or regulations for
the administration of the Plan, interpret the Plan, cause appropriate
records to be established, and make all determinations and take all
other actions considered necessary or advisable for the administration
of the Plan.
The Committee may delegate any ministerial or nondiscretionary function
pertaining to the administration of the Plan to any one or more officers of the
Corporation. All decisions, actions or interpretations of the Committee under
the Plan shall be final, conclusive and binding upon all parties.
No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his or her behalf in
his or her capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Corporation shall indemnify and hold harmless each
member of the Committee, and each employee, officer, director or trustee of the
Corporation or any of its Affiliated Companies to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the Board
of Directors) arising out of any act or omission to act in connection with the
Plan unless arising out of such person's own fraud or bad faith.
13. AMENDMENT OR TERMINATION
Except as to matters that in the opinion of the Corporation's legal
counsel require shareholder approval, any provision of the Plan may be modified
as to an Option Holder by an individual agreement approved by the Board of
Directors. The Board of Directors may, with prospective or retroactive effect,
amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that (i) no amendment that would materially increase the cost
of the Plan to the Corporation may be made by the Board of Directors without the
approval of the shareholders of the Corporation and (ii) no amendment,
suspension or termination of the Plan shall deprive any Option Holder of any
rights to Options previously granted under the Plan without his or her written
consent. Any amendment that the Board of Directors would be permitted to make
pursuant to the preceding sentence may also be made by the Committee where
appropriate to facilitate the administration of the Plan or to comply with
applicable law or any applicable rules and regulations of government
authorities.
14. SUCCESSOR CORPORATION
The obligations of the Corporation under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Corporation, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Corporation. The Corporation agrees that it will make
appropriate provision for the preservation of Option Holders' rights under the
Plan in any agreement or plan
-12-
<PAGE> 13
which it may enter into or adopt to effect any such merger, consolidation,
reorganization or transfer of assets.
15. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of New York, without reference to the principles of conflicts of
law thereof.
16. EFFECTIVE DATE
The Plan was adopted effective as of September 1, 1995. The amendments
to Section 3 reflected in this restatement of the Plan shall be effective as of
January 1, 1997, subject, however, to approval by the holders of a majority of
the outstanding Common Shares of the Corporation entitled to vote thereon at the
annual meeting of the Corporation's shareholders to be held on April 22, 1997.
The Committee may grant Options as provided herein prior to such shareholder
approval, subject to such approval being obtained at such meeting. All other
amendments reflected in this restatement of the Plan shall be effective as of
November 1, 1996.
-13-
<PAGE> 1
EXHIBIT 11
U.S. TRUST CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
<TABLE>
<CAPTION>
1996 1995 (2) 1994
----------- ------------ -----------
<S> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE:
Net Income (Loss) $40,904,000 $(50,521,000) $20,967,000
Plus Dividend Equivalent on Deferred Long-Term
Performance Plan Awards (After-Tax) 422,836 - 308,000
---------- ------------- -----------
Net Income (Loss) 41,326,836 (50,521,000) 21,275,000
========== ============ ===========
Weighted average number of common shares outstanding 19,537,994 19,275,600 18,762,066
Add average shares issuable under stock option and
variable stock award plans 1,719,852 - 1,277,118
---------- ------------ ----------
Total Common and Common Equivalent Shares 21,257,846 19,275,600 20,039,184
========== ============ ==========
Net Income (Loss) Per Share $ 1.94 $ (2.62) $ 1.06
========== ============ ==========
FULLY DILUTED NET INCOME (LOSS) PER SHARE:
Net Income (Loss) $40,904,000 $(50,521,000) $20,967,000
Plus Dividend Equivalent on Deferred Long-Term
Performance Plan Awards (After-Tax) 422,836 - 308,000
---------- ------------ ----------
Net Income (Loss) 41,326,836 (50,521,000) 21,275,000
========== ============ ==========
Weighted average number of common shares outstanding 19,537,994 19,275,600 18,762,066
Add maximum dilutive impact of average shares issuable
under stock option and variable stock award plans (3) 2,042,084 - 1,634,536
---------- ------------ ----------
Total Dilutive Shares 21,580,078 19,275,600 20,396,602
========== ============ ==========
Net Income (Loss) Per Share: $ 1.92 $ (2.62) $ 1.04
========== ============ ==========
</TABLE>
(1) The computation of net income (loss) per share has been adjusted to reflect
the effect of the two-for-one stock split.
(2) Dividend Equivalents and the number of shares issuable under stock options
and variable stock award plans have been excluded from the computation of
the 1995 loss per share because their inclusion would have had an
antidilutive effect on the result.
(3) Computed using the period-end market price of the Corporation's common
stock, if it is higher than the average market price used in calculating
primary net income per share.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------
FINANCIAL REPORTING MATTERS
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements. The financial information presented in
Management's Discussion and Analysis has been prepared on a basis consistent
with the financial accounting policies set forth in the Consolidated Financial
Statements.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies. Except for the historical
information contained herein, matters discussed in this report may be
forward-looking statements which involve risks and uncertainties and actual
results may differ materially from those set forth in any such forward-looking
statements. Further, such forward-looking statements speak only as of the date
on which such statements are made, and U.S. Trust Corporation (the "Corporation"
or "Parent") undertakes no obligation to update forward-looking statements to
reflect events or circumstances after the date on which such statements are made
or to reflect the occurrence of unanticipated events.
On November 18, 1994, the former U.S. Trust Corporation ("UST") and The
Chase Manhattan Corporation ("Chase") entered into an agreement under which
Chase acquired UST's institutional custody, mutual funds servicing and unit
trust businesses (the "Processing Business") and certain back office operations
(collectively, the "Chase Acquired Business") for $363.5 million in Chase common
stock. The transaction with Chase was consummated through two almost
simultaneous steps. On September 1, 1995, UST distributed to its shareholders
shares of common stock of a newly-formed entity which assumed the name U.S.
Trust Corporation on a share-for-share basis (the "Disposition"). The
Corporation and its subsidiaries included the assets and operations of UST's
asset management, private banking, special fiduciary and corporate trust
businesses (the "Core Businesses"). On September 2, 1995, UST, which consisted
of the assets and liabilities of the Chase Acquired Business, merged into Chase
(the "Merger").
Generally Accepted Accounting Principles ("GAAP") and the financial
reporting guidance promulgated by the Securities and Exchange Commission ("SEC")
consider the Corporation as the continuing reporting entity. That is, the
financial statements of the Corporation presented herein include the Processing
Business's results up to September 2, 1995. As a result, the comparability of
the Corporation's financial results for 1995 and 1994 to the current financial
and operating structure of the Corporation is limited. Accordingly, the
following discussion and analysis sets forth, where appropriate, relevant
information pertaining to the Chase Acquired Business or the Processing Business
and the Core Businesses.
On January 28, 1997, the Corporation announced a two-for-one stock split of
its common shares effected in the form of a stock dividend payable on February
21, 1997, to shareholders of record on February 7, 1997. The impact of the stock
split has been reflected in the 1996 Consolidated Statement of Condition and in
all earnings per share calculations.
- -------------------------------------------------------
FINANCIAL PERFORMANCE OBJECTIVES
The year ended December 31, 1996 marks the first full year of the Corporation as
a focused investment management firm with fiduciary and private banking powers.
The financial performance of the Corporation through December 31, 1996 has, in
management's opinion, confirmed its decision to focus on the Core Businesses
with their superior long-term growth opportunities. Management evaluates on a
continual basis the five Financial Performance Objectives.
The Financial Performance Objectives are not quarterly targets; rather,
they represent management's current assessment of the long-term capabilities of
the Corporation in the present environment. Interim period results may exceed or
fall short of meeting some or all of these Financial Performance Objectives.
Such results may not necessarily be indicative that a change should be made in
the Corporation's long-term Financial Performance Objectives, but more likely
would be indicative of specific transactions or events that occurred within a
given period. However, facts and circumstances, including changes in banking
regulations, may occur and require the Corporation to adjust its long-term
Financial Performance Objectives.
- -------------------------------------------------------
Total Revenues
The growth rate in total revenues is expected to be between 8% and 12% per year.
Management believes that total revenues should continue to grow at the upper end
of this range over the foreseeable future. There are several factors that either
will contribute to or impede the Corporation from meeting and maintaining this
Financial Performance Objective.
Fee revenue growth will be enhanced through direct sales efforts, additions
to existing customer relationships, expansion and further penetration in
selected geographic markets, targeted acquisitions and market appreciation. Fee
revenue growth will be adversely
32
<PAGE> 2
affected by distributions of funds from client accounts, lost business
relationships and market depreciation. Changes in personal, capital gains or
estate tax laws, regulations and other external factors will also affect the
rate of fee revenue growth.
The level of net interest revenue is dependent upon several factors, including,
loan demand, credit quality, regulatory capital requirements, federal and state
income tax policies and the Federal Reserve Board's interest rate setting
policies.
- -------------------------------------------------------
Pre-Tax Margin
During 1995, the Corporation set an objective to improve its pre-tax margin to
25% over the next several years. Management currently believes that the
Corporation will meet and exceed its 25% pre-tax margin financial objective
during this period. Further, management anticipates that achieving this
financial objective will constrain neither its internal expansion program nor
its selective acquisitions of investment advisors in strategic geographic
locations. The Corporation's ability to achieve this financial objective will be
based upon several factors, including the growth rate of total revenues and
continued control over recurring operating expenses.
- -------------------------------------------------------
Earnings Per Share
Management concludes that the operating leverage resulting from meeting its
revenue and pre-tax margin objectives will enable the Corporation to increase
earnings per share in a range of 15% to 20% annually. However, other factors,
including statutory changes in federal, state and local income tax rates, common
stock repurchases and the dilutive effect of stock options resulting from
changes in the Corporation's common stock price will affect this Financial
Performance Objective.
- -------------------------------------------------------
Return on Stockholders' Equity
Management has set the Return on Stockholders' Equity objective to reach and
exceed 25% over the next several years.
- -------------------------------------------------------
Dividend Pay Out Ratio
The Corporation's dividend pay out ratio is anticipated to range between 25% and
35% of annual net income. Retained capital will be available for acquisitions,
business expansion, stock buy back programs and other management initiatives.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The Corporation recorded net income of $40.9 million in 1996, compared to a net
loss of $50.5 million incurred in 1995 and net income of $21.0 million earned in
1994. On a fully diluted per share basis, net income was $1.92 in 1996, versus
the net loss for 1995 of $2.62 and net income per share of $1.04 in 1994. The
Corporation's 1995 and 1994 results include restructuring charges of $155.6
million ($86.9 million after taxes or $4.53 per share) and $50.2 million ($27.9
million after taxes or $1.37 per share), respectively. The Corporation's return
on average stockholders' equity was 21.0% for the year ended December 31, 1996.
- --------------------------------------------------------------------------------
FEE REVENUE
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
% Change
---------------
(Dollars in Millions) 1996 1995 1994 96-95 95-94
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Management and Related Services..... $220.0 $191.3 $175.9 15.0% 8.8%
Corporate Trust................................ 24.2 24.0 21.6 0.7 11.0
------ ------ ------
Total Core Businesses........................ 244.2 215.3 197.5 13.4 9.0
------ ------ ------
Processing Business............................ -- 66.1 102.7 -- (35.6)
------ ------ ------
Total Fee Revenue.............................. $244.2 $281.4 $300.2 (13.2)% (6.3)%
====== ====== ====== ====== =====
</TABLE>
The increase in Total Core Businesses fee revenue was attributable to a
combination of net new business and net market appreciation. Investment
Management and Related Services Fee Revenue is derived mainly from services to
individuals and institutions. Services to individuals include investment
portfolio management, estate and tax planning and personal custody. Services to
institutions include investment management, special fiduciary and brokerage
activities.
33
<PAGE> 3
The Corporation believes it is well positioned to increase Investment
Management and Related Services Fee Revenue due to favorable growth rates in the
overall affluent market; its ability to expand into new geographic markets
through establishing de novo offices or selective acquisitions; its ability to
develop new services; and its ability to attract new customers through business
development activities.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
% Change
---------------
(Dollars In Millions) 1996 1995 1994 96-95 95-94
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Related Fees.............................. $188.6 $160.0 $144.3 17.9% 10.9%
Transaction Related Fees......................... 55.6 55.3 53.2 0.5 3.9
------ ------ ------
Total Core Businesses Fee Revenue.............. $244.2 $215.3 $197.5 13.4% 9.0%
====== ====== ====== ==== ===
</TABLE>
Market Related Fee Revenue primarily is based on the market value of the assets
in clients' investment management accounts. In general, Market Related Fee
Revenue is influenced by a variety of factors, including growth or decline of
stock and bond market levels, new business, acquisitions, fee increases and
revenue from new services, but offset by the outflow of investment management
assets due to terminating trusts, disbursements and lost business. Most Market
Related Fee Revenue is determined on a declining incremental scale so that as
the value of a client's portfolio grows in size, the Corporation earns a smaller
percentage on the increasing value. Therefore, market value or other incremental
changes in a portfolio's size do not necessarily have a proportionate impact on
the level of Market Related Fee Revenue. The increase in Investment Management
Fee Revenue is primarily related to higher market values, new business and
acquisitions.
Another important factor in the determination of the level of Market
Related Fee Revenue is the composition of assets under management. At December
31, 1996, assets under management consisted of 46% equity securities, 39% fixed
income securities and 15% of short-term and other securities. As of December 31,
1995, the composition of assets under management was 47% equity securities, 40%
fixed income securities and 13% short-term and other securities. Fluctuations in
any one market will not necessarily have a proportionate, if any, impact on the
level of fee revenue derived from the underlying assets.
Transaction Related Fee Revenue, principally derived from corporate trust
and agency, estate settlement and brokerage activities, increased moderately in
1996 and 1995.
34
<PAGE> 4
- --------------------------------------------------------------------------------
Assets Under Management
The following table delineates assets under management and administration for
the last five years. Unless otherwise noted, asset values are measured at their
estimated fair value.
<TABLE>
<CAPTION>
Compound
December 31, Growth
---------------------------------------------- Rate
(Dollars in Billions) 1996 1995 1994 1993 1992 92-96
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets Under Management:
Investment Management.............. $ 38.0 $ 33.5 $ 26.0 $ 26.5 $ 21.1 15.84%
Special Fiduciary.................. 15.3 13.9 5.1 3.8 3.7 42.60
------ ------ ------ ------ ------
Total Core Businesses........... 53.3 47.4 31.1 30.3 24.8 21.08
------ ------ ------ ------ ------
Processing Business................ -- -- 1.9 1.9 1.7 (3)
------ ------ ------ ------ ------
Total Assets Under Management... 53.3 47.4 33.0 32.2 26.5 (3)
------ ------ ------ ------ ------
Assets Under Administration:
Personal Custody and Other......... 15.7 13.3 8.2 7.9 6.0 27.19
Corporate and Municipal
Trusteeships and Agency
Relationships(1)................ 216.6 190.5 159.6 152.2 134.6 12.63
------ ------ ------ ------ ------
Total Core Businesses........... 232.3 203.8 167.8 160.1 140.6 13.37
------ ------ ------ ------ ------
Processing Business(2)............. -- -- 223.4 200.9 184.7 (3)
------ ------ ------ ------ ------
Total Assets Under
Administration................ 232.3 203.8 391.2 361.0 325.3 (3)
------ ------ ------ ------ ------
Total Assets Under Management and
Administration..................... $285.6 $251.2 $424.2 $393.2 $351.8 (3)
====== ====== ====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes corporate trust and agency and bond immobilization assets at par
value.
(2) Includes unit investment trust assets at par value and mutual fund custody
assets at estimated fair value.
(3) Not informative as the result of the sale of the Processing Business on
September 2, 1995.
Investment Management assets as of December 31, 1996 increased by 13.6% from the
December 31, 1995 level. Special Fiduciary assets increased 9.5% from the
December 31, 1995 balance. Special Fiduciary assets more than doubled in 1995 as
the result of the approximately $7.1 billion of GM-E stock contributed by
General Motors Corporation to its defined benefit plan during the first quarter
of 1995 and managed by the Corporation until the GM-E stock is distributed into
the market via secondary offerings to the public.
- -------------------------------------------------------
Corporate Trust and Agency
Corporate Trust and Agency ("Corporate Trust") activities include the indenture
trustee business for corporate and municipal debt issues, as well as complex new
types of securities, and the bond immobilization business. The volume of
corporate and municipal trusteeships and agency relationships (measured by the
par value of the outstanding debt) increased 13.7% in 1996 and 19.4% in 1995.
- -------------------------------------------------------
NET INTEREST REVENUE
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars In --------------------------------
Thousands) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Interest Income $174,731 $188,815 $187,116
Interest Expense 95,861 90,339 79,004
------- ------- --------
Net Interest
Revenue 78,870 98,476 108,112
Provision for
Credit Losses 1,000 1,600 2,000
------- ------- --------
Net Interest
Revenue after
Provision for
Credit Losses $ 77,870 $ 96,876 $106,112
======== ======== ========
Percentage Increase
(Decrease) from
Prior Period (19.6)% (8.7)% (5.5)%
======== ======== ========
Average Rates
(Taxable
Equivalent
Basis):
Interest Earning
Assets 7.03% 7.06% 5.93%
Cost of Funding
Interest
Earning Assets 3.79 3.32 2.44
------- ------- --------
Net Yield on
Interest
Earning Assets 3.24% 3.74% 3.49%
======== ======== ========
</TABLE>
35
<PAGE> 5
Net interest revenue is affected by changes in interest rates, funding
strategies, and the relative proportion and composition of interest bearing and
non-interest bearing financial instruments. Net interest revenue of the
Corporation has been significantly influenced over the past three years by the
Disposition and Merger. The Processing Business generated approximately $1.0
billion of long-term average non-interest bearing deposits. As a result, of the
Merger, the Corporation has reduced the overall size of its balance sheet and
shortened the maturity structure of its security portfolio. These actions are
reflected in the reduction in both net interest revenue and the net yield on
interest earning assets from 1994 to 1996. See pages 68-73 for a detailed
analysis of the Corporation's net interest revenue.
- -------------------------------------------------------
SECURITIES TRANSACTIONS
Net securities gains in 1996 were $0.6 million compared to $4.2 million and $2.1
million in 1995 and 1994, respectively. The net securities gains in 1995 and
1994 do not include the securities losses that resulted from the rebalancing of
the Corporation's maturity structure in connection with the Disposition and
Merger. During 1995 and 1994, such security transactions resulted in losses of
$1.0 million and $44.2 million, respectively, and are included in restructuring
costs.
- -------------------------------------------------------
OTHER INCOME
Other income consists solely of activities related to the non-Core Businesses;
therefore, there is no other income in 1996. Other income was $2.3 million in
1995 and $10.3 million in 1994. Other income for 1994 includes $6.4 million
($3.4 million after taxes or $0.17 per fully diluted share) resulting from the
sale of the Corporation's partnership interest in Financial Technologies
International L.P. in the fourth quarter of 1994.
- -------------------------------------------------------
OPERATING EXPENSES
The following table provides details of operating expenses other than interest
expense and provision for credit losses for the last three years.
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars In ------------------------------
Thousands) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Salaries and
Benefits $147,278 $191,181 $207,483
Occupancy 34,214 38,248 40,030
Other 71,958 93,202 86,645
Restructuring Costs -- 155,589 50,177
-------- -------- --------
Total $253,450 $478,220 $384,335
======== ======== ========
Percentage Increase
(Decrease) From
Prior Period * (21.4)% (3.4)% 6.2%
======== ======== ========
</TABLE>
- -------------------------------------------------------
*The percentages have been calculated excluding the restructuring costs incurred
in connection with the Disposition and Merger.
Operating expenses amounted to $253.5 million in 1996, compared to $322.6
million in 1995 and $334.2 million in 1994 (excluding restructuring costs).
Operating expenses directly attributable to the Processing Business were $47.0
million and $69.4 million in 1995 and 1994, respectively. The Corporation's pre-
tax margin was 21.5% for the year ended December 31, 1996.
Salaries and benefits in 1996 decreased 23.0% from 1995 and decreased 7.9%
in 1995 from 1994. The decrease in 1996 and 1995 was due to a reduction in
employees related to the Disposition and Merger beginning in September 1995.
Performance compensation is determined based upon the Corporation's financial
performance as measured by the Corporation's earnings per share, adjusted to
offset the impact of extraordinary or nonrecurring events, or other changes,
conditions or circumstances that warrant adjustment. The employee benefit
expense typically is a function of staffing levels. The number of full-time
equivalent employees increased 5.0% to 1,453 at December 31, 1996, compared to
1,384 at December 31, 1995. The number of full-time equivalent employees at
December 31, 1994 was 2,676 which included 1,091 employees who became Chase
employees as a result of the Merger.
Occupancy charges decreased 10.5% in 1996 and 4.5% in 1995 from the prior
year. These decreases reflect the elimination of leased space which was part of
the Chase Acquired Business, offset to some extent by new offices in Boca Raton,
Florida; Greenwich
36
<PAGE> 6
and West Hartford, Connecticut; and Garden City Long Island.
Other expenses include third party contracted professional services, the
outsourcing agreement with Chase, equipment expenses and depreciation. Other
expenses decreased 22.8% in 1996 compared to 1995 and increased 7.6% in 1995
compared to 1994. The decrease in 1996 reflects a full year's impact of the
Services Agreement with Chase. Pursuant to the Services Agreement, Chase
furnishes necessary securities processing, custodial, data processing and other
services to the Corporation. The initial term of the Services Agreement is for
five years commencing on September 1, 1995, and may be extended for an
additional two to five years. During the initial term, the Corporation pays
Chase an annual base fee of $10 million, which is less than the Corporation's
estimate of the annual cost of providing such services itself. The Corporation
has established a task force to evaluate, coordinate and execute any systems
changes that may be required by the year 2000 date change. The Corporation is
working with Chase (provider of certain of the Corporation's data processing
systems) as well as other vendors to ensure compliance with required systems
changes.
The 1995 increase in other expenses includes $3.0 million related to the
revaluation of intangible assets, an approximate $3.0 million reserve for
receivables and a $1.0 million charge for funding the U.S. Trust Foundation for
charitable contributions. In addition, 1994 included a $3.7 million reduction of
operating expenses, primarily the result of the favorable impact of terminating
certain lease commitments.
- -------------------------------------------------------
FINANCIAL CONDITION
CAPITAL AND LIQUIDITY
The objective of liquidity management is to ensure that the Corporation can meet
its cash flow requirements and to capitalize on opportunities for the
Corporation's business expansion. Management monitors the liquidity position of
the Corporation's subsidiaries on an ongoing basis to ensure that funds are
available to meet loan and deposit cash flow requirements. The liquidity profile
is also structured to ensure that the capital needs of the Parent and its
subsidiaries (the "subsidiaries") are met on a day to day basis.
The Parent's liquidity requirements consist mainly of dividend payments to
common stockholders, interest and principal payments to debt holders and
purchases of its common stock. On January 28, 1997, the Corporation announced a
20% increase in the Corporation's regular quarterly dividend, indicating an
annual dividend rate of $0.60 per share. The actual dividends declared in 1997
will be subject to Board approval and regulatory capital considerations.
In July 1996, the Board of Directors authorized the repurchase of up to one
million shares of common stock. As of December 31, 1996, 124,000 shares had been
repurchased at a weighted average purchase price of $38.13 per share. In January
1997, the Board of Directors authorized the repurchase of up to an additional
one million shares of common stock. The repurchased shares will be used to meet
the Parent's obligations under its stock-based benefit plans and for general
corporate purposes.
The Parent's sources of liquidity are primarily derived from dividends from
its subsidiaries, issuances of common stock and issuances of long and short-term
debt instruments. During 1996, the Parent's subsidiaries remitted $30.5 million
in cash dividends. In addition, as of December 31, 1996, the subsidiaries have
the ability to pay dividends of approximately $31.4 million without approval of
the regulatory authorities.
The Parent has a $40.0 million unsecured revolving credit facility maturing
in 1999. As of December 31, 1996, the outstanding balance under this facility
was $17.0 million. Additionally, the Corporation may borrow, subject to certain
regulatory restrictions, on a fully collateralized basis from its subsidiaries.
The Parent is authorized to issue up to $5.0 million, $1.00 par value,
preferred shares. As of December 31, 1996, no preferred shares have been issued.
In January 1997, the Corporation issued $50.0 million of trust-preferred
securities which qualify as Tier 1 Capital. The proceeds from the issuance will
be used for general corporate purposes, including the acquisition of the
Parent's common stock.
Liquidity at each subsidiary is also critical to the Corporation. Along
with their traditional interest and non-interest bearing deposit capabilities,
the subsidiaries have established additional funding sources. The subsidiaries
have established credit facilities with the Federal Home Loan Bank ("FHLB")
totaling $91.5 million. As of December 31, 1996, the subsidiaries had borrowed
$16.0 million on these facilities from the FHLB. FHLB borrowings are secured by
the pledge of qualifying assets. In addition, the subsidiaries have established
uncommitted federal funds lines with various financial institutions totaling
$1.8 billion. During 1996, the average amount outstanding under these federal
fund lines was $151.9 million (including $121.9 million, on
37
<PAGE> 7
average, of overnight federal funds purchased). At December 31, 1996, $153
million of federal funds purchased were outstanding. In addition, borrowing from
the Federal Reserve Bank discount window is available, if required. At December
31, 1996 there were no borrowings with the Federal Reserve Bank. The
subsidiaries also have an uncommitted $75 million credit facility with a major
financial institution. The subsidiaries had no borrowings at December 31, 1996
under this credit facility.
Liquidity is also generated from the types of financial instruments that
the subsidiaries carry as investments. Approximately $870 million or 75% of the
investment portfolio is invested in U.S. Treasury obligations or securities
backed by the full faith and credit of the U.S. Government. These securities are
readily marketable and may be sold or financed through repurchase agreements, as
appropriate. At December 31, 1996, securities sold under agreements to
repurchase aggregated $70.5 million.
- -------------------------------------------------------
ASSET/LIABILITY MANAGEMENT
The objective of asset and liability management is to maximize net interest
revenue while maintaining a high level of asset quality, acceptable levels of
interest rate sensitivity and adequate liquidity.
Although the balance sheet is significantly smaller subsequent to the
Disposition and Merger, the Corporation's asset mix is still principally liquid
and low-risk.
<TABLE>
<CAPTION>
Balance Sheet Composition Years Ended
- ----------------------------- December 31,
Average Balances -----------------------
(Percentage) 1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
Short-Term Financial
Instruments 3.9% 16.6% 8.2%
Securities 31.1 24.2 39.6
------ ------ ------
Total Short-Term Financial
Instruments and Securities 35.0 40.8 47.8
Loans, Net of Allowance for
Credit Losses 51.8 40.4 32.4
Other Assets, including Due
from Banks 13.2 18.8 19.8
------ ------ ------
Total Assets 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
- -------------------------------------------------------
Approximately 35% of average total assets consist of short-term financial
instruments and readily marketable securities. The securities portfolio is
concentrated in investments in U.S. Government and Government agency securities
and investment securities backed by the full faith and credit of the U.S.
Government.
The loan portfolio is the largest component of average total assets.
Average loans for 1996 were $1.5 billion, a $156.6 million or 11.6% increase
over average loans for the year ended December 31, 1995. The Corporation's loan
portfolio is predominantly loans to private banking customers. At December 31,
1996, in excess of 64% of total loans are secured by residential real estate
mortgages. Loans secured by residential real estate mortgages increased 16.6%
from $937.9 million at December 31, 1995 to $1.1 billion at December 31, 1996.
- -------------------------------------------------------
Interest Rate Sensitivity
The Corporation is exposed to interest rate risk primarily through it's mortgage
lending activities and through it's investments in mortgage backed securities.
Net interest revenue may be generated from prudent asset/liability management
activities that may result in timing differences in the maturity and/or
repricing of assets, liabilities and off balance sheet positions. The result of
these timing differences is presented below in the interest sensitivity gap
analysis. Gap analysis has inherent limitations as an analytical tool because it
measures the Corporation's exposure to interest rate risk at a single point in
time. The Corporation also uses simulation analysis to monitor and control net
interest revenue at risk and the economic value of equity at risk under multiple
interest rate scenarios. To reflect anticipated payments, certain asset and
liability categories (including items with no stated maturity) are included in
the table based on estimated rather than contractual maturity or repricing
dates.
38
<PAGE> 8
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0-3 4-6 7-12 1-5 Over
(In Thousands) Months Months Months Years 5 Years Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Securities....... $ 863,737 $ 37,950 $144,946 $ 270,168 $ 135,068 $ 1,451,869
Loans, Net of Allowance for Credit
Losses.......................... 690,562 51,911 98,686 513,202 317,087 1,671,448
----------- --------- -------- --------- --------- -----------
Total Interest Earning Assets..... 1,554,299 89,861 243,632 783,370 452,155 3,123,317
----------- --------- -------- --------- --------- -----------
INTEREST BEARING LIABILITIES:
Interest Bearing Deposits......... (1,978,484) (4,696) (13,417) (79,250) -- (2,075,847)
Short-Term Credit Facilities...... (200,283) (40,000) -- -- -- (240,283)
Long-Term Debt.................... -- -- (1,000) (24,468) (1,000) (26,468)
----------- --------- -------- --------- --------- -----------
Total Interest Bearing
Liabilities..................... (2,178,767) (44,696) (14,417) (103,718) (1,000) (2,342,598)
----------- --------- -------- --------- --------- -----------
Asset/(Liability) Sensitivity
Gap............................. (624,468) 45,165 229,215 679,652 451,155 780,719
Interest Rate Swaps............... 628,750* (10,750) (1,500) (466,500) (150,000) --
----------- --------- -------- --------- --------- -----------
Interest Rate Sensitivity Gap..... 4,282 34,415 227,715 213,152 301,155 780,719
Net Non-Interest Earning Assets,
Non-Interest Bearing
Liabilities, and Stockholders'
Equity.......................... (263,802) -- -- (287,649) (229,268) (780,719)
----------- --------- -------- --------- --------- -----------
Maturity/Repricing Gap............ (259,520) 34,415 227,715 (74,497) 71,887 --
----------- --------- -------- --------- --------- -----------
Cumulative Gap.................... $ (259,520) $(225,105) $ 2,610 $ (71,887) $ -- $ --
=========== ========= ======== ========= ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
*Includes $649.5 million of total outstanding notional principal net of maturing
or amortizing interest rate swaps ("Swaps").
As part of its overall asset and liability management process, the Corporation
uses Swaps as hedges. Swaps mitigate the interest rate exposure created by
financing the residential real estate mortgage loans with short-term deposits.
The following table provides details, as of December 31, 1996, 1995 and 1994, of
the notional amounts of Swaps by maturity and the related average interest rates
paid and received. The Corporation is a fixed rate payor on all of its Swaps.
Since the Disposition and Merger, the Corporation's use of Swaps as an
asset/liability management tool has increased.
<TABLE>
<CAPTION>
Maturing
----------------------------------
(Dollars In Within 1 1 to 5 Over 5
Thousands) Year Years Years Total
- -------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
Fixed Pay Swaps $33,000 $466,500 $150,000 $649,500
Average Rate Paid 6.9340% 6.6906% 6.3050% 6.6139%
Average Rate Received* 5.5529% 5.5391% 5.5438% 5.5409%
December 31, 1995:
Fixed Pay Swaps $29,875 $314,500 -- $344,375
Average Rate Paid 7.8423% 6.8370% -- 6.9243%
Average Rate Received* 5.9482% 5.8887% -- 5.8939%
December 31, 1994:
Fixed Pay Swaps $42,000 $ 44,375 -- $ 86,375
Average Rate Paid 6.8486% 7.0047% -- 6.9288%
Average Rate Received* 5.7426% 6.0806% -- 5.9163%
</TABLE>
- -------------------------------------------------------
*Represents the average variable rate that will be received by the Corporation
based upon the rate in effect at the latest variable rate reset date of each
Swap.
The impact of the Corporation's hedging activities upon net interest
revenue for the years ended December 31, 1996, 1995 and 1994, are detailed in
the following table.
<TABLE>
<CAPTION>
For the Years Ended December 31,
(Dollars In --------------------------------
Thousands) 1996 1995 1994
- -----------------------------------------------------------
<S> <C> <C> <C>
Net Interest Revenue after
Provision for
Credit Losses:
As Reported $77,870 $96,876 $106,112
Excluding Hedging
Activities $83,731 $99,419 $109,353
Net Yield on Interest Earning
Assets:
As Reported 3.24% 3.74% 3.49%
Excluding Hedging
Activities 3.48% 3.85% 3.61%
</TABLE>
The difference between the results "As Reported" and "Excluding Hedging
Activities" in each year reflects the cost of utilizing swaps to hedge interest
rate risk.
- -------------------------------------------------------
Securities
The Corporation maintains a high quality securities portfolio with approximately
75% comprised of U.S. Treasury fixed rate obligations, obligations of the
Government National Mortgage Association ("GNMAs") and other securities backed
by the full faith and credit of the U.S. Government. The remaining portfolio is
comprised of variable rate collateralized mortgage obligations ("CMOs") and
obligations of states and municipalities. CMOs principally are collateralized by
GNMAs.
The market value of securities exceeded their amortized cost by $1.3
million and $3.0 million at December 31, 1996 and 1995, respectively. The
Corporation classifies all of its security portfolio as "available for sale".
39
<PAGE> 9
While the Corporation does not trade its securities portfolio, it needs to have
the ability to sell securities as required to meet its asset/liability
objectives.
- -------------------------------------------------------
ADOPTION OF NEW ACCOUNTING STANDARDS
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("FAS 123"), issued in October 1995, establishes financial
accounting and reporting standards for stock-based compensation plans. FAS 123
allows companies either to continue to account for stock-based employee
compensation plans under existing accounting standards or to adopt a fair value
based method of accounting as defined in FAS 123. The Corporation has elected to
continue accounting for its employee stock compensation plans under its current
method and has adopted, as of December 31, 1996, the disclosure requirements of
FAS 123. See "Notes to the Consolidated Financial Statements No. 19".
- -------------------------------------------------------
Accounting for the Impairment of a Long-Lived Asset
As of January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," ("FAS 121"). FAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill. FAS 121 requires review for impairment
of long-lived assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Impairment exists if the
sum of the undiscounted expected future cash flows is less than the carrying
amount of the asset. Impairment is measured as the amount by which the carrying
amount exceeds the fair value of the asset. No adjustments to the carrying
amount of long-lived assets were required as a result of adopting FAS 121.
- -------------------------------------------------------
Accounting for the Impairment of a Loan
As of January 1, 1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," ("FAS
114"), and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures, an
amendment of FAS 114," ("FAS 118"). FAS 114 requires that an impaired loan be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. FAS 118 amends the disclosure requirements of FAS 114 to
require information about the recorded investment in certain impaired loans and
amends the income recognition criteria of FAS 114. In accordance with FAS 114,
loans previously classified as in-substance foreclosures but for which the
Corporation has not taken possession of the collateral have been reclassified as
loans. The adoption of FAS 114 and FAS 118 had no impact on the financial
condition or results of operations of the Corporation.
- -------------------------------------------------------
Disclosure Requirements related to Derivative Financial Instruments
The Corporation adopted, as of December 31, 1994, Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments," ("FAS 119"). FAS 119 requires new
disclosures about derivative financial instruments and amends certain existing
disclosure requirements. Since FAS 119 is a disclosure requirement only, its
adoption did not have any effect on either the Corporation's financial condition
or its results of operations.
- -------------------------------------------------------
ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1996, Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," ("FAS 125") was issued, effective for transactions entered into
after December 31, 1996. FAS 125 establishes rules distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Management does not believe that the adoption of FAS 125 will have a significant
impact on the financial condition or results of operations of the Corporation.
In February 1997, the Securities and Exchange Commission released Financial
Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative
Financial Instruments and Derivative Commodity Instruments and Disclosure of
Quantitative and Qualitative Information About Market Risk Inherent in
Derivative Financial Instruments, other Financial Instruments and Derivative
Commodity Instruments," ("Release No. 48"). Release No. 48 is effective for
annual filings beginning December 31, 1997. Release No. 48 requires enhanced
disclosures about derivatives and amends certain existing disclosure
requirements. Since Release No. 48 is a disclosure requirement only, its
adoption will not have any effect on either the Corporation's financial
condition or its results of operations.
40
<PAGE> 10
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee Revenue....................................... $244,211 $281,426 $300,196
Interest Revenue.................................. 174,731 188,815 187,116
Interest Expense.................................. 95,861 90,339 79,004
-------- -------- --------
Net Interest Revenue.............................. 78,870 98,476 108,112
Provision for Credit Losses....................... 1,000 1,600 2,000
-------- -------- --------
Net Interest Revenue After Provision For Credit
Losses.......................................... 77,870 96,876 106,112
-------- -------- --------
Other Income...................................... -- 2,284 10,340
Securities Gains, Net............................. 642 4,222 2,059
-------- -------- --------
Total Revenue..................................... 322,723 384,808 418,707
-------- -------- --------
OPERATING EXPENSES
Salaries.......................................... 92,728 123,216 135,415
Employee Benefits and Performance Compensation.... 54,550 67,965 72,068
-------- -------- --------
Total Salaries and Benefits....................... 147,278 191,181 207,483
Occupancy......................................... 34,214 38,248 40,030
Other............................................. 71,958 93,202 86,645
Restructuring Costs............................... -- 155,589 50,177
-------- -------- --------
Total Operating Expenses.......................... 253,450 478,220 384,335
-------- -------- --------
Income (Loss) Before Income Taxes................. 69,273 (93,412) 34,372
Income Taxes (Benefits)........................... 28,369 (42,891) 13,405
-------- -------- --------
Net Income (Loss)................................. $ 40,904 $(50,521) $ 20,967
======== ======== ========
Fully Diluted Net Income (Loss) Per Share......... $ 1.92 $ (2.62) $ 1.04
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 11
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks........................................ $ 78,566 $ 96,785
Short-Term Investments......................................... 285,950 4,868
Securities..................................................... 1,165,919 760,032
Loans, Net of Allowance for Credit Losses ($16,693 in 1996 and
$16,086 in 1995)............................................. 1,671,448 1,443,609
Premises and Equipment......................................... 76,961 71,831
Other Assets................................................... 198,474 196,094
---------- ----------
Total Assets................................................... $3,477,318 $2,573,219
========== ==========
LIABILITIES
Deposits:
Non-Interest Bearing......................................... $ 687,942 $ 489,827
Interest Bearing............................................. 2,075,847 1,503,430
---------- ----------
Total Deposits................................................. 2,763,789 1,993,257
Short-Term Credit Facilities................................... 240,283 134,815
Accounts Payable and Accrued Liabilities....................... 232,680 233,870
Long-Term Debt................................................. 26,468 29,434
---------- ----------
Total Liabilities.............................................. 3,263,220 2,391,376
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY (Note 3)
Common Stock, Par Value $1.00; Authorized 40,000,000 Shares;
Issued 19,629,562 in 1996 and 9,739,144 in 1995.............. 19,630 9,739
Capital Surplus................................................ 3,575 125
Retained Earnings.............................................. 205,384 183,804
Treasury Stock, at Cost (124,000 Shares in 1996)............... (4,728) --
Loan to ESOP................................................... (10,468) (13,434)
Unrealized Gain, Net of Taxes, on Securities Available for
Sale......................................................... 705 1,609
---------- ----------
Total Stockholders' Equity..................................... 214,098 181,843
---------- ----------
Total Liabilities and Stockholders' Equity..................... $3,477,318 $2,573,219
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE> 12
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts) 1996(1) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance, Beginning of Year.................................. $ 9,739 $ 11,581 $ 11,436
Effect of Two-For-One Stock Split........................... 9,739 -- --
Issuance of Shares Under Employee Benefit Plans (80,016,
298,058 and 145,080 Shares)............................... 80 298 145
Issuance of Shares for Acquisitions (71,258 Shares in
1996)..................................................... 72 -- --
Retirement of Treasury Stock (2,140,287 Shares in 1995)..... -- (2,140) --
-------- -------- --------
Balance, End of Year........................................ $ 19,630 $ 9,739 $ 11,581
======== ======== ========
CAPITAL SURPLUS
Balance, Beginning of Year.................................. $ 125 $ 72,605 $ 67,898
Effect of Two-For-One Stock Split........................... (125) -- --
Employee Benefit Plans...................................... 1,117 11,776 4,707
Acquisitions................................................ 2,458 -- --
Retirement of Treasury Stock (2,140,287 Shares in 1995)..... -- (84,256) --
-------- -------- --------
Balance, End of Year........................................ $ 3,575 $ 125 $ 72,605
======== ======== ========
RETAINED EARNINGS
Balance, Beginning of Year.................................. $183,804 $244,639 $242,112
Effect of Two-For-One Stock Split........................... (9,690) -- --
Net Income (Loss)........................................... 40,904 (50,521) 20,967
Cash Dividends Declared ($0.50, $0.625 and $1.00 Per
Share).................................................... (9,778) (12,154) (18,750)
Retirement of Treasury Stock, (2,140,287 Shares in 1995).... -- (891) --
Tax Benefit on Stock Based Awards........................... 144 2,731 310
-------- -------- --------
Balance, End of Year........................................ $205,384 $183,804 $244,639
======== ======== =======
TREASURY STOCK
Balance, Beginning of Year.................................. $ -- $(86,139) $(82,857)
Purchases (124,000 Shares in
1996 and 90,000 Shares in 1994)........................... (4,728) -- (4,573)
Issuance (Tender) of Shares Under Employee Benefit Plans,
Net (10,839 in 1995 and 37,420 Shares in 1994)............ -- (1,148) 1,291
Retirement of Treasury Stock (2,140,287 Shares in 1995)..... -- 87,287 --
-------- -------- --------
Balance, End of Year........................................ $ (4,728) $ -- $(86,139)
======== ======== ========
LOAN TO ESOP
Balance, Beginning of Year.................................. $(13,434) $(16,171) $(18,697)
Principal Payment by ESOP................................... 2,966 2,737 2,526
-------- -------- --------
Balance, End of Year........................................ $(10,468) $(13,434) $(16,171)
======== ======== ========
UNREALIZED GAIN (LOSS), NET OF TAXES, ON SECURITIES
AVAILABLE FOR SALE
Balance, Beginning of Year.................................. $ 1,609 $ (3,192) $ 8,695
Net Change in Fair Value, After Taxes....................... (904) 4,801 (11,887)
-------- -------- --------
Balance, End of Year........................................ $ 705 $ 1,609 $ (3,192)
======== ======== ========
Total Stockholders' Equity.................................. $214,098 $181,843 $223,323
======== ======== ========
</TABLE>
(1) The 1996 consolidated statement of changes in stockholders' equity has been
adjusted to reflect the effect of the two-for-one stock split as if it took
place on January 1, 1996 except for cash dividends declared per share which
has been adjusted for each year presented.
The accompanying notes are an integral part of these financial statements.
43
<PAGE> 13
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss)......................... $ 40,904 $ (50,521) $ 20,967
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating
Activities:
Provision for Credit Losses............... 1,000 1,600 2,000
Depreciation and Amortization of Premises
and Equipment and Other Assets.......... 11,776 14,702 15,158
Net Amortization (Accretion) on Premium
(Discount) on Securities................ 9 (6,915) 4,637
Net Change in Accrued Interest and
Accounts Receivable..................... 5,606 3,619 (9,283)
Net Change in Deferred Taxes.............. 2,882 (35,337) (1,718)
Net Change in Accounts Payable and Other
Liabilities............................. (1,315) 88,898 1,397
Other, Net................................ 2,226 1,012 30,494
----------- ----------- ----------
Net Cash Provided by Operating
Activities.............................. 63,088 17,058 63,652
----------- ----------- ----------
Cash Flows From Investing Activities:
Net Change in Short-Term Investments...... (281,082) 136,656 156,952
Purchases of Securities:
Available for Sale...................... (1,505,453) (2,265,171) (1,283,359)
Held to Maturity........................ -- -- (402,502)
Proceeds from Sales of Securities:
Available for Sale...................... 268,280 880,491 578,777
Held to Maturity........................ -- -- 379,954
Proceeds from Maturities, Calls and
Mandatory Redemptions of Securities:
Available for Sale...................... 830,287 1,677,123 653,972
Held to Maturity........................ -- -- 46,229
Net Change in Loans....................... (228,493) 167,126 (228,175)
Purchases of Premises and Equipment....... (14,110) (4,011) (12,626)
Other, Net................................ (10,430) 20,695 7,492
----------- ----------- ----------
Net Cash Provided by (Used in) Investing
Activities.............................. (941,001) 612,909 (103,286)
----------- ----------- ----------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing
Deposits................................ 198,115 (541,711) (209,547)
Net Change in Interest Bearing Deposits... 572,416 94,597 163,304
Net Change in Short-Term Credit
Facilities.............................. 105,468 (215,700) 92,443
Purchases of Long-Term Debt............... -- 13,000 --
Repayment of Long-Term Debt............... (2,966) (44,490) (4,176)
Issuance of Common Stock.................. 1,157 10,926 6,143
Purchases of Treasury Stock............... (4,728) -- (4,573)
Dividends Paid............................ (9,768) (14,414) (18,467)
----------- ----------- ----------
Net Cash Provided by (Used in) Financing
Activities.............................. 859,694 (697,792) 25,127
----------- ----------- ----------
Net Change in Cash and Cash Equivalents... (18,219) (67,825) (14,507)
Cash and Cash Equivalents at Beginning of
Year.................................... 96,785 164,610 179,117
----------- ----------- ----------
Cash and Cash Equivalents at End of
Year.................................... $ 78,566 $ 96,785 $ 164,610
=========== =========== ===========
Income Taxes Paid......................... $ 18,017 $ 7,328 $ 27,551
Interest Expense Paid..................... 94,619 90,423 76,711
</TABLE>
44
<PAGE> 14
The Disposition and Merger had the impact of removing the following assets and
liabilities from the Corporation's 1995 consolidated statement of condition:
<TABLE>
<S> <C>
Short-Term Investments........................... $ 946,387
Securities....................................... 41,964
Short-Term Advances.............................. 165,615
Other Assets..................................... 64,837
----------
Total Assets..................................... $1,218,803
==========
Deposits......................................... $1,143,970
Long-Term Debt................................... 41,964
Accounts Payable and Other Liabilities........... 32,869
----------
Total Liabilities................................ $1,218,803
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE> 15
(Page Intentionally Left Blank)
46
<PAGE> 16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DISPOSITION AND MERGER TRANSACTION
On November 18, 1994, the former U.S. Trust Corporation ("UST") and The Chase
Manhattan Corporation ("Chase") entered into an agreement under which Chase
acquired UST's institutional custody, mutual funds servicing and unit trust
businesses (the "Processing Business") and certain back office operations
(collectively, the "Chase Acquired Business") for $363.5 million in Chase common
stock. On September 1, 1995, UST distributed to its shareholders shares of
common stock of a newly-formed entity which assumed the name U.S. Trust
Corporation (the "Corporation") on a share-for-share basis (the "Disposition").
The Corporation and its subsidiaries included the assets and operations of UST's
asset management, private banking, special fiduciary and corporate trust
businesses (the "Core Businesses"). On September 2, 1995, UST, which consisted
of the assets and liabilities of the Chase Acquired Business, merged into Chase
(the "Merger") and UST shareholders received 0.68 shares of Chase common stock
for each share of UST. For financial reporting purposes, the Corporation is a
successor registrant to UST and, as such, all historical financial information
of UST is the historical financial information of the Corporation.
At the date of the Merger, UST had $1.2 billion of assets and liabilities,
including approximately $946 million of overnight investments, $230 million of
other assets and $1.1 billion of deposits. Concurrent with the consummation of
the Disposition and Merger, UST satisfied and discharged $10.8 million of 8 1/2%
Capital Notes due 2001 and $30 million of 8% Notes due 1996.
Total restructuring costs associated with the Disposition and Merger were
$205.8 million ($114.9 million after taxes), including $155.6 million ($86.9
million after taxes or $4.53 per share) recorded in 1995 and $50.2 million
($27.9 million after taxes or $1.37 per share) recorded in 1994. The composition
of the restructuring charges are as follows:
<TABLE>
<CAPTION>
(In Thousands)
- -------------------------------------------------
<S> <C>
Severance and other termination-related
costs $ 83,400
Asset/liability and portfolio balancing 45,200
Disposition of facilities, premises and
equipment 28,200
Professional fees and other 49,000
--------
$205,800
========
</TABLE>
At December 31, 1996, approximately $29.5 million (pre-tax) remains to be paid.
2. ACCOUNTING POLICIES
The Corporation is an investment management company with fiduciary and banking
powers. Through its principal subsidiary, United States Trust Company of New
York (the "Trust Company"), the Corporation provides asset management and
private banking services as well as special fiduciary and corporate trust
services to affluent individuals and institutions located throughout the United
States.
The accounting and reporting policies of the Corporation and its
subsidiaries conform with generally accepted accounting principles and general
practice within the investment management and banking industries. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the financial statement
dates and the reported amounts of revenues and expenses during the reporting
periods. Since management's judgment involves making estimates concerning the
likelihood of future events, the actual results could differ from those
estimates which will have a positive or negative effect on future period
results.
The following is a summary of the significant financial accounting
policies:
(a) BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of the Corporation and its majority owned subsidiaries. Since the
Corporation is considered to be the continuing reporting entity after the
Disposition and Merger, the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements include both the Chase Acquired Business
through the date of the Disposition and Merger and the ongoing investment
management, private banking, special fiduciary and corporate trust activities.
All material intercompany accounts and transactions have been eliminated in
consolidation.
(b) TRUST ASSETS - Property (other than cash deposits) held by the Trust Company
or the Corporation's other bank subsidiaries in a fiduciary or agency capacity
for customers is not an asset of the Corporation and is not included in the
Consolidated Statement of Condition.
(c) INTEREST EARNING/BEARING FINANCIAL INSTRUMENTS - Interest income and expense
are accrued on interest earning/bearing financial instruments based upon the
contractual terms of the instruments. Premiums and discounts are amortized or
accreted, as applicable, on a basis that approximates the effective yield
method.
Securities that may be sold prior to maturity as part of asset/liability
management or in
47
<PAGE> 17
response to other factors are classified as securities available for sale and
carried at their estimated fair value with unrealized gains and losses reported
in a separate component of stockholders' equity, net of taxes. Realized gains
and losses from sales of securities are determined on a specific identification
cost basis.
(d) NONPERFORMING ASSETS - Nonperforming assets consist of non-accrual financial
instruments and other real estate owned. Interest accruals are discontinued when
principal or interest is contractually past due ninety days or more. In
addition, interest accruals may be discontinued when principal or interest is
contractually past due less than ninety days if, in the opinion of management,
the amount due is not likely to be paid in accordance with the terms of the
contractual agreement, even though the financial instruments are currently
performing. Any accrued but unpaid interest previously recorded on a non-accrual
financial instrument is reversed against interest income. Interest received on
non-accrual financial instruments are applied either to the outstanding
principal balance or recorded as interest income, depending on management's
assessment of the ultimate collectibility of principal. Non-accrual financial
instruments are generally returned to accrual status only when all delinquent
principal and interest payments are brought current and the collectibility of
future principal and interest on a timely basis is reasonably assured.
Other real estate owned ("ORE") acquired through foreclosure in
satisfaction of the loan is recorded in other assets at the lower of the
carrying amount of the loan or the ORE's estimated fair value less estimated
selling and disposition costs. After the acquisition date of the ORE, operating
expenses and revenue, additional writedowns, as appropriate, and gains and
losses on the ultimate disposition of ORE are reported in other expenses.
(e) ALLOWANCE FOR CREDIT LOSSES - The allowance for credit losses is established
through charges to income based on management's evaluation of the adequacy of
the allowance in meeting present and probable future losses in the existing
credit portfolio, which includes loans, commitments to extend credit and standby
letters of credit.
The adequacy of the allowance is reviewed continually by management, taking
into consideration current economic conditions, past loss experience, risks
inherent in the credit portfolio, including the value of impaired loans in
accordance with FAS 114 and FAS 118.
(f) PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of the assets.
(g) INTANGIBLE ASSETS - The fair value of intangible assets recorded as a result
of the acquisition of investment management enterprises is reported in other
assets on the Consolidated Statement of Condition and is amortized over the
estimated period benefited, not to exceed 25 years. An impairment review is
performed periodically on these assets.
(h) PERFORMANCE COMPENSATION - The Corporation's employee benefit plans provides
for performance compensation awards in the form of cash, stock options and
restricted stock units. Cash awards are accrued and paid annually. Restricted
Stock Units are awarded under the Executive Incentive Plan and are recorded as
compensation expense ratably over the vesting period of the award. The exercise
price of stock options awarded under the 1995 Stock Option Plan is not less than
the market value of a common share of the Corporation on the date of grant and
no compensation expense is recorded.
(i) INCOME TAXES - The Corporation files a consolidated Federal income tax
return. Deferred income taxes are provided for items that are recognized for
income tax purposes in years other than those in which they are recognized for
financial reporting purposes.
(j) DERIVATIVE FINANCIAL INSTRUMENTS - The Corporation employs interest rate
swap agreements ("Swaps") solely as hedging instruments. The differential to be
paid or received over the life of the Swap is recognized on an accrual basis as
an adjustment to interest expense.
(k) NET INCOME (LOSS) PER SHARE - Primary net income per share is computed by
dividing net income by the total weighted average common and common equivalent
shares outstanding. Common equivalent shares include the dilutive effect of
outstanding stock options and the assumed issuance of deferred stock awards
earned from incentive plans.
Fully diluted earnings per share is computed under the assumption that all
contingent increases in common stock have occurred to the extent that they have
a dilutive effect on net income per share. The maximum dilutive effect is
computed using the period-end market price of the Corporation's common stock, if
it is higher than the average market price used in calculating primary net
income per share.
Net loss per share on either a primary or fully diluted basis is calculated
by dividing the net loss by only the weighted average amount of common shares
outstanding.
(l) CASH AND CASH EQUIVALENTS - For purposes of the Consolidated Statement
of Cash Flows, the Corporation considers the
48
<PAGE> 18
Consolidated Statement of Condition caption cash and due from banks as cash and
cash equivalents. For purposes of the U.S. Trust Corporation (Parent Company
Only) (See "Notes to the Consolidated Financial Statements No. 20") Statement of
Cash Flows, the Corporation considers due from banks (which is included in the
Statement of Condition caption other assets) as cash and cash equivalents.
(m) SHORT-TERM INVESTMENTS - Included in Short-Term Investments are $202.0
million and $4.9 million of interest bearing deposits with banks at December 31,
1996 and 1995, respectively, and $84.0 million of federal funds sold at December
31, 1996.
(n) RECLASSIFICATIONS - Certain amounts presented in prior periods have
been reclassified to conform with the current year's presentation.
- -------------------------------------------------------
3. SUBSEQUENT EVENTS
On January 16, 1997, the Corporation acquired the assets and liabilities of
Florence Fearrington, Inc., a New York investment advisory firm that managed
approximately $400 million in assets for approximately $7.2 million of the
Corporation's common stock. The transaction was accounted for as a purchase.
On January 28, 1997, the Corporation announced a two-for-one stock split of
its common shares, effected in the form of a stock dividend payable on February
21, 1997, to shareholders of record on February 7, 1997. The impact of the stock
split has been reflected in the 1996 Consolidated Statement of Condition and all
earnings per share calculations.
On February 4, 1997, the Corporation issued $50.0 million of 8.414%
trust-preferred capital securities which qualify as Tier 1 Capital. The proceeds
from the issuance of capital securities will be used for general corporate
purposes, including the acquisition of common stock of the Corporation. The
stated maturity of the capital securities is February 1, 2027 but the capital
securities may be redeemed prior to the stated maturity at the option of the
Corporation after February 1, 2007 or at any time if specific changes in federal
tax laws occur. Interest payments by the Corporation may, at the option of the
Corporation, be deferred for five years but may not extend beyond the stated
maturity of the capital securities.
- -------------------------------------------------------
4. ACQUISITIONS
On April 28, 1995, the Corporation purchased the individual account business of
J. & W. Seligman & Co. Inc., and acquired J. & W. Seligman Trust Company
("Seligman"). The aggregate cost of the business was $16.0 million and was
accounted for as a purchase.
On December 31, 1996, the Corporation acquired Lilienthal Associates, a
California based investment advisory firm that managed approximately $270
million in assets for approximately $2.4 million of the Corporation's common
stock. The transaction was accounted for as a purchase.
- -------------------------------------------------------
5. CASH AND DUE FROM BANKS
The average non-interest earning balances held at the Federal Reserve Bank for
the years ended December 31, 1996 and 1995 were $34.1 million and $46.9 million,
respectively. These amounts represent reserve requirements which must be
maintained on deposits. There are no other restrictions on cash and due from
banks.
49
<PAGE> 19
- --------------------------------------------------------------------------------
6. SECURITIES
The amortized cost, estimated fair value and gross unrealized gains and losses
on securities available for sale as of December 31, 1996 and 1995, respectively,
are presented in the following table.
<TABLE>
<CAPTION>
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
(In Thousands) Cost Value Gains Losses
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury Securities............. $ 514,180 $ 514,514 $ 831 $ 497
U.S. Government Sponsored Agencies
and Corporations.................. 427,866 427,642 2,426 2,650
State and Municipal obligations...... 76,690 77,715 1,067 42
Collateralized mortgage obligations(1).. 25,666 25,859 193 --
All other............................ 120,208 120,189 24 43
---------- ---------- ------ ------
Total.................................. $ 1,164,610 $ 1,165,919 $ 4,541 $ 3,232
=========== =========== ======== ========
December 31, 1995:
U.S. Treasury Securities............. $ 481,607 $ 482,327 $ 743 $ 23
U.S. Government Sponsored Agencies
and Corporations.................. 108,813 109,629 944 128
State and Municipal obligations...... 49,351 50,718 1,393 26
Collateralized mortgage obligations(1).. 41,524 41,592 99 31
All other............................ 75,749 75,766 63 46
---------- ---------- ------ ------
Total.................................. $ 757,044 $ 760,032 $ 3,242 $ 254
=========== =========== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(1)Collateralized by either GNMA, Federal National Mortgage Association, or
Federal Home Loan Corporation obligations.
The amortized cost and estimated fair value of securities available for sale at
December 31, 1996, by the earlier of contractual maturity or call date, are
presented in the following table.
<TABLE>
<CAPTION>
December 31, 1996
-----------------------
Estimated
Amortized Fair
(In Thousands) Cost Value
- ----------------------------------------------------
<S> <C> <C>
Due in one year or less $ 530,832 $ 530,950
Due after one year through
two years 83,945 84,375
Due after two years through
five years 77,594 78,192
Due after five years through
ten years 5,394 5,569
Due after ten years 8,499 8,518
---------- ----------
Sub-Total 706,264 707,604
Collateralized mortgage
obligations, mortgage-
backed securities and
other securities(1) 453,532 453,501
---------- ----------
Sub-Total 1,159,796 1,161,105
Federal Reserve Bank and
Federal Home Loan Bank
stock 4,814 4,814
---------- ----------
Total $1,164,610 $1,165,919
========== ==========
</TABLE>
- -------------------------------------------------------
(1)At December 31, 1996, the weighted-average life of collateralized mortgage
obligations, mortgage-backed securities and other asset-backed securities was
5.5 years. Expected maturities for collateralized mortgage obligations,
mortgage-backed securities and other asset-backed securities may differ from
contractual maturities because borrowers have the right to prepay obligations
with or without prepayment penalties.
The components of net securities gains for the years ended December 31, 1996,
1995 and 1994 are presented in the following table.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
(In Thousands) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Gross realized gains from
sales, maturities,
calls, and mandatory
redemptions $1,857 $4,348 $2,145
Gross realized (losses)
from sales, maturities,
calls, and mandatory
redemptions (1,215) (126) (86)
------ ------ ------
Securities gains, net $ 642 $4,222 $2,059
====== ====== ======
</TABLE>
Net securities gains for the years ended December 31, 1995 and December 31, 1994
exclude securities losses of $1.0 million and $44.2 million, respectively,
incurred in connection with the restructuring of the Corporation's balance sheet
resulting from the Disposition and Merger. These losses have been classified as
part of restructuring costs in the Consolidated Statement of Income.
In December 1994, in connection with the Disposition and Merger, the
Corporation transferred $28.9 million (carrying amount) of securities classified
as held to maturity to the securities available for sale category. As a result
of this transfer, the unrealized loss ($503,000 before tax and $266,000 after
tax) was recorded in "Stockholders' Equity -- Unrealized
50
<PAGE> 20
Gain (Loss), Net of Taxes, on Securities Available for Sale".
At December 31, 1996 and 1995, financial instruments in the amount of
$154.2 million and $66.3 million, respectively, were pledged to secure public
deposits to qualify for fiduciary powers and for other purposes or as collateral
for borrowings.
- --------------------------------------------------------------------------------
7. LOANS
The following is an analysis of the composition of the loan portfolio.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
(In Thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private banking:
Residential real estate mortgages $1,093,107 $ 937,856 $ 851,074 $ 699,193 $ 612,142
Other 516,269 452,630 480,559 474,761 391,446
---------- ---------- ---------- ---------- ----------
Total private banking loans 1,609,376 1,390,486 1,331,633 1,173,954 1,003,588
---------- ---------- ---------- ---------- ----------
Short-term trust credit facilities* -- -- 154,988 153,902 187,516
Loans to financial institutions for
purchasing and carrying
securities 62,866 61,372 126,640 57,505 52,652
All other 15,899 7,837 13,637 13,362 16,705
---------- ---------- ---------- ---------- ----------
Total $1,688,141 $1,459,695 $1,626,898 $1,398,723 $1,260,461
========== ========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
*Historically, the Trust Company provided short-term credit facilities to
certain of its Processing Business trust customers in anticipation of receiving
interest and dividends due from investments under administration and custody
agreements.
An analysis of nonperforming assets is presented in the following table.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
(In Thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 8,882 $13,285 $ 6,371 $ 6,005 $ 8,601
Other real estate owned, net 727 9,586 11,884 11,542 13,677
------- ------- ------- ------- -------
Total Nonperforming Assets $ 9,609 $22,871 $18,255 $17,547 $22,278
======= ======= ======= ======= =======
Average non-accrual loans $12,261 $ 8,475 $ 5,965 $ 6,091 $13,593
======= ======= ======= ======= =======
</TABLE>
The decline in ORE is primarily due to the sale, in 1996, of approximately $6.8
million of real estate acquired through foreclosure, none of which related to
the Corporation's private banking loan portfolio.
The Corporation considers all non-accrual loans impaired (as defined in FAS
114). The impact of interest revenue which would have been earned on non-accrual
loans versus interest revenue recognized on these loans was negligible for the
years 1994 through 1996.
In accordance with FAS 114, loans previously classified as in-substance
foreclosures but for which the Corporation had not taken possession of the
collateral were reclassified as loans. At January 1, 1995, the aggregate amount
of these loans were $1,250,000.
The reserve for ORE was $477,000, $978,000 and $478,000 in 1996, 1995 and
1994, respectively. There was no provision for ORE in 1993 and 1992.
51
<PAGE> 21
- --------------------------------------------------------------------------------
8. ALLOWANCE FOR CREDIT LOSSES
An analysis of the allowance for credit losses is presented in the following
table.
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $16,086 $14,699 $13,393 $11,676 $ 8,661
------- ------- ------- ------- -------
Charge-Offs:
Private banking (658) (1,910) (1,349) (3,762) (2,856)
Other (517) (1,520) (150) (338) (710)
------- ------- ------- ------- -------
Total charge-offs (1,175) (3,430) (1,499) (4,100) (3,566)
------- ------- ------- ------- -------
Recoveries:
Private banking 702 2,844 611 612 465
Other 80 373 194 1,205 116
------- ------- ------- ------- -------
Total recoveries 782 3,217 805 1,817 581
------- ------- ------- ------- -------
Net charge-offs (393) (213) (694) (2,283) (2,985)
------- ------- ------- ------- -------
Provision charged to income 1,000 1,600 2,000 4,000 6,000
------- ------- ------- ------- -------
Balance, December 31 $16,693 $16,086 $14,699 $13,393 $11,676
======= ======= ======= ======= =======
</TABLE>
As of January 1, 1995, the Corporation adopted FAS 114 and FAS 118. The adoption
of FAS 114 and FAS 118 had no impact on the financial condition or results of
operations of the Corporation.
- -------------------------------------------------------
9. PREMISES AND EQUIPMENT
An analysis of premises and equipment is presented in the following table.
<TABLE>
<CAPTION>
December 31,
--------------------
(In Thousands) 1996 1995
- --------------------------------------------------
<S> <C> <C>
Land $ 1,675 $ 1,000
Building 13,388 12,145
Leasehold improvements 66,599 62,533
Furniture and equipment 44,340 37,871
-------- --------
126,002 113,549
Less accumulated amortization
and depreciation 49,041 41,718
-------- --------
Total $ 76,961 $ 71,831
======== ========
</TABLE>
Amortization and depreciation expense amounted to $9.0 million, $11.7 million
and $13.1 million for 1996, 1995 and 1994, respectively.
Included in Other Operating Expenses is approximately $7.7 million in 1996,
$15.0 million in 1995 and $18.4 million in 1994 of equipment expense.
- -------------------------------------------------------
10. SHORT-TERM CREDIT FACILITIES
An analysis of borrowings under short-term credit facilities is presented in the
following table.
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased:
Year-end balance $ 12,700 $ 1,800 $ 19,535
Daily average balance 121,929 56,092 313,765
Maximum end-of-month
balance 288,100 155,560 941,860
Weighted average
interest rate during
year 5.42% 6.01% 4.50%
Weighted average
interest rate at
year-end 6.10% 5.83% 5.96%
Securities sold under
agreements to
repurchase:
Year-end balance $ 70,516 $ 13,473 $204,280
Daily average balance 43,966 121,341 197,416
Maximum end-of-month
balance 120,053 212,101 368,750
Weighted average
interest rate during
year 5.08% 5.67% 3.87%
Weighted average
interest rate at
year-end 5.69% 5.53% 5.57%
Other borrowed funds:(*)
Year-end balance $157,067 $119,542 $126,700
Daily average balance 47,285 15,655 84,813
Maximum end-of-month
balance 157,066 62,004 311,511
Weighted average
interest rate during
year 5.43% 6.96% 5.01%
Weighted average
interest rate at
year-end 5.61% 6.41% 5.70%
</TABLE>
- -------------------------------------------------------
(*) The weighted average interest rate during the year and at year-end excludes
$99,516,000 at December 31, 1995 and $425,000 on an average daily basis of
an overdraft balance in the Corporation's clearing account with Chase.
52
<PAGE> 22
Federal funds purchased and securities sold under agreements to repurchase
generally are overnight borrowing transactions.
Included in other borrowed funds at December 31, 1996, is the utilization
of $17.0 million of the Corporation's $40.0 million unsecured revolving credit
facility. The interest rate on this facility which is based on LIBOR was 5.88%;
accumulated interest is payable at the maturity of the current draw down
(February 14, 1997). This credit facility expires on July 28, 1999. At December
31, 1995, $20.0 million at an interest rate of 6.33% was used under this credit
facility.
- -------------------------------------------------------
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
------------------
(In Thousands) 1996 1995
- --------------------------------------------------
<S> <C> <C>
8.35% Senior Unsecured ESOP
Notes due 1999 $10,468 $13,434
Federal Home Loan Bank 16,000 16,000
------- -------
Total $26,468 $29,434
======= =======
</TABLE>
The 8.35% Senior Unsecured ESOP Notes due 1999 ("ESOP Notes") are obligations of
the Corporation that require annual payments of principal and interest. The
Corporation loaned the proceeds from the ESOP Notes to the trust established to
administer the 401(k) Plan and ESOP of United States Trust Company of New York
and Affiliated Companies ("401(k) Plan") on the same terms. The 401(k) Plan used
the proceeds to purchase 1,380,996 shares of common stock from the Corporation's
treasury stock holdings for an Employee Stock Ownership Plan ("the ESOP"). (See
"Notes to the Consolidated Financial Statements No. 19.") The ESOP Notes call
for principal repayments amounting to $3.2 million, $3.5 million and $3.8
million, payable annually on February 1, 1997, through February 1, 1999,
respectively. Interest expense related to the ESOP Notes was approximately $0.9
million, $1.4 million and $1.6 million for the years 1996, 1995 and 1994,
respectively.
The Federal Home Loan Bank ("FHLB") borrowings have maturities ranging from
December 1997 to September 2002. The FHLB borrowings bear interest ranging
between 5.56% and 6.76% and are collateralized by the pledge of qualifying
assets.
In connection with the Disposition and Merger, UST satisfied and discharged
8.5% Capital Notes due 2001 and 8% Notes due in 1996 by placing $41.2 million
U.S. Government securities in an irrevocable trust for repayment of all
principal and interest. The Capital Notes were subordinated to deposits and
certain other liabilities. The 8% Notes were unsecured and unsubordinated
obligations. The Capital Notes were redeemed November 1995 and the 8% Notes
matured in 1996.
- -------------------------------------------------------
12. NET INTEREST REVENUE
The following is an analysis of the composition of net interest revenue:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
(In Thousands) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Interest Revenue:
Loans $117,459 $109,094 $ 94,525
Securities:
Taxable 48,046 43,475 74,980
Tax Exempt 3,244 3,966 5,038
Short-Term
Investments 4,192 29,723 9,027
Deposits with
Banks 1,790 2,557 3,546
-------- -------- --------
Total Interest
Revenue 174,731 188,815 187,116
-------- -------- --------
Interest Expense:
Deposits 82,551 75,268 47,928
Short-Term Credit
Facilities 11,374 11,308 25,992
Long-Term Debt 1,936 3,763 5,084
-------- -------- --------
Total Interest
Expense 95,861 90,339 79,004
-------- -------- --------
Net Interest
Revenue $ 78,870 $ 98,476 $108,112
======== ======== ========
</TABLE>
See the "Financial and Other Data Supplement" for an analysis of net interest
revenue, average balances, and related yields.
- -------------------------------------------------------
13. INCOME TAXES
The current and deferred portions of income tax expense (benefit) included in
the Consolidated Statement of Income are presented in the following table.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
(In Thousands) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $21,409 $ 497 $11,347
State and local 5,985 (2,216) 2,897
------- -------- -------
Total current
income taxes 27,394 (1,719) 14,244
------- -------- -------
Deferred:
Federal 238 (25,850) (687)
State and local 737 (15,322) (152)
------- -------- -------
Total deferred
income taxes 975 (41,172) (839)
------- -------- -------
Total $28,369 $(42,891) $13,405
======= ======== =======
</TABLE>
53
<PAGE> 23
A reconciliation of the Federal statutory income tax rate with the Corporation's
effective income tax rate is presented in the following table.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
(Dollars in Thousands) 1996 1996 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax Expense (Benefit) at U.S. Federal income tax
rate............................................ $24,246 35.0% $(32,694) (35.0)% $12,030 35.0%
Increase (decrease) in effective rate resulting
from:
Tax-exempt interest revenue..................... (1,059) (1.5) (1,286) (1.4) (1,668) (4.9)
State and local taxes, net of Federal income tax
expense (benefit)............................. 4,369 6.3 (11,400) (12.2) 1,784 5.2
Miscellaneous items............................. 813 1.2 2,489 2.7 1,259 3.7
------- ---- -------- ----- ------- ----
Total Tax Expense (Benefit) and effective rate.... $28,369 41.0% $(42,891) (45.9)% $13,405 39.0%
======= ==== ======== ===== ======= ====
</TABLE>
The components of total income tax expense (benefit) for the years ended
December 31, 1996, 1995 and 1994 that are applicable to operations and
stockholders' equity are presented in the following table.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In Thousands) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Income taxes
applicable to:
Operations $28,369 $(42,891) $ 13,405
Stockholders'
equity:
Change in fair
value of
securities
available for
sale (774) 3,964 (10,399)
Tax benefit on
stock-based
awards -- (2,548) --
Tax benefit on
dividends paid
to the ESOP on
unallocated
shares (144) (183) (310)
------- -------- --------
Total $27,451 $(41,658) $ 2,696
======= ======== ========
</TABLE>
Deferred tax assets are attributable to temporary differences primarily
generated from expenses recognized for financial reporting purposes that are not
yet deductible on the tax return. The Corporation believes that it will generate
sufficient taxable income in future periods to absorb these items as they are
recognized as deductions on the tax return.
The income tax effect of securities gains (losses) net was $298,000,
$1,497,000 and $(19,898,000) in 1996, 1995 and 1994, respectively.
The net deferred tax asset is included in "other assets" in the
Consolidated Statement of Condition. Deferred tax (assets) liabilities as of
December 31, 1996 and 1995 resulted from the items listed in the following
table.
<TABLE>
<CAPTION>
December 31,
-------------------
(In Thousands) 1996 1995
- --------------------------------------------------
<S> <C> <C>
Deferred tax (assets):
Employee benefits $(39,463) $(36,563)
Trust and fiduciary
activities (11,965) (13,062)
Leasing (9,609) (11,465)
Allowance for credit losses (7,426) (7,246)
Other (6,054) (7,565)
-------- --------
(74,517) (75,901)
Deferred tax liabilities:
Premises and equipment 9,978 9,490
Other 6,739 7,636
-------- --------
16,717 17,126
-------- --------
Net deferred tax (asset) $(57,800) $(58,775)
======== ========
</TABLE>
- -------------------------------------------------------
14. REGULATORY CAPITAL
The Board of Governors of the Federal Reserve System (the "Board"), the
Corporation's and the Trust Company's primary regulator, establishes capital
requirements. Failure to meet minimum capital requirements, as defined, can
initiate certain mandatory and discretionary actions by the Board, that if
undertaken, could have a direct material effect on the Corporation's and the
Trust Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and the Trust
Company must meet specific capital guidelines that involve quantitative measures
of the Corporation's and the Trust Company's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Corporation's and the Trust Company's capital amounts and classifications are
also subject to qualitative judgments by the Board about components, risk
weightings, and other factors.
54
<PAGE> 24
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Trust Company to maintain minimum amounts and
ratios of Total and Tier 1 Capital to risk-weighted assets (as defined by the
Board) and Tier 1 Leverage (as defined by the Board). The following table sets
forth the Corporation's and the Trust Company's actual regulatory capital and
ratios and the capital amounts and ratios required to be considered well
capitalized by the Board as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Minimum Federal
Reserve Ratio For
Actual Capital Adequacy Well Capitalized
----------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Tier 1 Capital to Risk Weighted Assets:
Corporation $178,459 11.5% $ 61,903 4% $ 92,854 6%
Trust Company 141,893 10.7% 52,873 4% 79,309 6%
Total Capital to Risk Weighted Assets:
Corporation 195,152 12.6% 123,805 8% 154,756 10%
Trust Company 155,061 11.7% 105,745 8% 132,182 10%
Tier 1 Leverage:
Corporation 178,459 5.7% 94,321 3% 157,201 5%
Trust Company 141,893 5.4% 78,595 3% 130,992 5%
At December 31, 1995:
Tier 1 Capital to Risk Weighted Assets:
Corporation $128,413 9.2% $ 55,613 4% $ 83,420 6%
Trust Company 131,347 11.2% 46,890 4% 70,335 6%
Total Capital to Risk Weighted Assets:
Corporation 144,499 10.4% 111,226 8% 139,033 10%
Trust Company 144,601 12.3% 93,780 8% 117,225 10%
Tier 1 Leverage:
Corporation 128,413 5.2% 73,924 3% 123,207 5%
Trust Company 131,347 6.1% 64,894 3% 108,157 5%
</TABLE>
In management's opinion, the Corporation and the Trust Company have met all the
capital adequacy requirements to which they are subject as of December 31, 1996.
The most recent notification from the Board categorized the Corporation and the
Trust Company as well capitalized. There have been no conditions or events since
that notification that management believes have changed this categorization.
- -------------------------------------------------------
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation enters into various
transactions involving off-balance sheet financial instruments to meet the needs
of its customers and to reduce its own exposure to interest rate risk. These
transactions may also be subject to varying degrees of credit risk. As
compensation for the risks assumed, these instruments generate interest or fee
revenue or expense. The controls used to monitor the credit and market risks of
off-balance sheet financial instruments are consistent with those associated
with the Corporation's on-balance sheet activities.
- -------------------------------------------------------
Credit-Related Financial Instruments
Credit-related financial instruments include firm commitments to extend credit
("commitments") and standby letters of credit ("standbys"). The credit risk
associated with these instruments varies depending on the creditworthiness of
the customer and the value of any collateral held. Collateral requirements vary
by type of instrument. The contractual amounts of these instruments represent
the amounts at risk should the contract be fully drawn upon, the client default,
and the value of any existing collateral become worthless.
Commitments are legally binding agreements to lend to a customer that
generally have fixed expiration dates or other termination clauses, may require
payment of a fee and are not secured by collateral until funds are advanced. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis
prior to approving a commitment or advancing funds under a commitment and
determining the related collateral requirement. Collateral held includes
marketable securities, real estate mortgages or other assets. The majority of
the Corporation's commitments are related to mortgage lending to private banking
clients and backup lines of credit for various financial institutions. The
mortgage lending commitments are generally expected to be utilized,
55
<PAGE> 25
while the backup lines of credit typically expire unused. Commitments totaled
$160.1 million and $133.7 million at December 31, 1996 and 1995, respectively.
Standbys are conditional commitments issued by the Corporation to guarantee
the performance of a customer to a third party. For example, standbys are issued
to satisfy margin requirements incurred by investment banking and broker/dealer
financial institutions for their activities conducted on organized exchanges, or
in other situations standbys guarantee performance under lease and other
agreements by professional business corporations and for other purposes. The
credit risk involved in issuing standbys is essentially the same as that
involved in extending loans. Standbys outstanding at December 31, 1996 and 1995
amounted to $68.7 million and $112.5 million, respectively. Collateral to the
extent appropriate is obtained based on management's credit assessment of the
customer. At December 31, 1996, $52.4 million of the standbys outstanding were
partially or fully collateralized by cash, marketable equity securities,
marketable debt securities (including corporate and U.S. Treasury debt
securities) and other assets, compared with $103.3 million at December 31, 1995.
Approximately 73% of the standbys outstanding at December 31, 1996 expire within
one year compared with approximately 80% at December 31, 1995.
- -------------------------------------------------------
Derivative Financial Instruments
As part of its overall asset and liability management process, the Corporation
utilizes Swaps as hedges. Swaps are used to mitigate interest rate exposure
created by financing the residential real estate mortgage loans with short-term
deposits. The Corporation enters into Swaps with counterparties as a principal.
The market values of Swaps can vary depending on movements in interest
rates. The measurement of the market risks associated with Swaps is meaningful
only when all related and offsetting transactions are identified. The notional
or contractual amounts of Swaps are indications of the volume of transactions
and do not represent amounts at risk. The amounts at risk upon default are
generally limited to the unrealized market value gains of the Swaps, if any, and
will vary based on changes in interest rates. The risk of default depends on the
creditworthiness of the counterparty. The Corporation evaluates the
creditworthiness of its counterparties as part of its normal credit review
procedures.
At December 31, 1996 and 1995, the Corporation was a counterparty to Swaps
with a total notional principal amount of $649.5 million and $344.4 million,
respectively. Swaps involve the exchange of fixed and floating rate interest
payment obligations computed on notional principal amounts. Outstanding Swaps
had a weighted average maturity of approximately forty-three months at December
31, 1996 and forty-four months at December 31, 1995.
- -------------------------------------------------------
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," ("FAS 107") requires the disclosure of the
estimated fair values of financial instruments. Substantially all of the
Corporation's assets, liabilities and off-balance sheet products are considered
financial instruments as defined by FAS 107. Fair value is defined as the price
at which a financial instrument could be liquidated in an orderly manner over a
reasonable time period under present market conditions.
FAS 107 requires that the fair value of financial instruments be estimated
using various valuation methodologies. Quoted market prices, when available, are
used as the measure of fair value. Where quoted market prices are not available,
fair values have been estimated using primarily discounted cash flow analyses
and other valuation techniques. These derived fair values are significantly
affected by assumptions used, principally the timing of future cash flows and
the discount rate. Because assumptions are inherently subjective, the estimated
fair values may not be substantiated by comparison to third party evidence and
may not be indicative of the value that could be realized in a sale or
settlement of the financial instrument.
A discussion of the fair value estimation methodologies used for material
financial instruments follows.
- -------------------------------------------------------
Loans
The estimated fair value of the Corporation's performing fixed rate loans
(primarily residential real estate mortgages) was calculated by discounting
contractual cash flows adjusted for current prepayment estimates. The discount
rates were based on the interest rates charged to current customers for
comparable loans. The Corporation's performing adjustable rate loans reprice
frequently at current market rates. Therefore, the fair value of these loans has
been estimated to be approximately equal to their carrying amount. Estimated
fair value for nonperforming loans was based upon a discounted estimated cash
flow method and, for residential real estate mortgage loans, current appraisals.
The discount rate used was commensurate with the risk associated with the
estimated cash flows.
56
<PAGE> 26
- -------------------------------------------------------
Securities
The estimated fair value of securities is based upon quoted bid market prices,
where available, or fair value quotes obtained from third party pricing
services. Securities are reported in the Consolidated Statement of Condition at
estimated fair value.
- -------------------------------------------------------
Long-Term Debt
The estimated fair value of long-term debt was calculated using a discounted
cash flow method, where the estimated cash flows considered contractual
principal and interest payments. The discount rate used consisted of two
components. The credit risk spread was determined, (the spread that the
Corporation paid over the comparable risk-free rate at the date of issuance)
then, the credit risk spread was added to the current risk-free market interest
rate for the comparable remaining maturity.
A comparison of the fair value and carrying amounts of the Corporation's
loan portfolio and long-term debt follows.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1995
------------------ ------------------
(In Carrying Fair Carrying Fair
Millions) Amount Value Amount Value
- ---------------------------------------------------
<S> <C> <C> <C> <C>
Loans* $1,671 $1,669 $1,444 $1,466
Long-term
debt 26 26 29 29
- ---------------------------------------------------
</TABLE>
* Net of allowance for credit losses.
- -------------------------------------------------------
Interest Rate Swap Agreements
The Corporation is the net fixed rate payor under all of its Swaps and at
December 31, 1996 and 1995 had a net payable of $928,000 and $554,000,
respectively. The estimated fair value of Swaps are obtained from dealer quotes.
These values represent the estimated amount that the Corporation would have to
pay or receive to terminate the Swaps, taking into account current interest
rates and, when appropriate, the current creditworthiness of the counterparties.
A comparison of the fair value and notional amounts of Swaps is presented
in the following table.
<TABLE>
<CAPTION>
December 31,
-----------------------------------
Fair Value
Unrealized
Notional Appreciation
Amount (Depreciation)
---------------- ---------------
(In Millions) 1996 1995 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate
swap
agreements $649.5 $344.4 $(6.6) $(14.3)
</TABLE>
- -------------------------------------------------------
Other Financial Instruments
The Corporation's other financial instruments are generally short-term in nature
and contain negligible credit risk. These instruments consist of cash and due
from banks, short-term investments, accrued interest receivable and accounts
receivable, demand deposit liabilities, time deposit liabilities, short-term
credit facilities and accrued interest payable and accounts payable.
Consequently, carrying amounts of these assets and liabilities approximate their
estimated fair value.
- -------------------------------------------------------
17. RENTAL COMMITMENTS ON PREMISES AND EQUIPMENT
Substantially all of the Corporation's operations are conducted from premises
that are leased. The initial lease periods expire between 1997 and 2016. The
lease for the Corporation's headquarters building expires in 2014 and is
renewable at the Corporation's option for two successive terms of ten years each
at the then current market rate.
Rent expense on operating leases for the years 1996, 1995 and 1994 was
$26.1 million, $32.7 million and $35.3 million, respectively. Operating lease
rent expense includes rent escalation adjustments of $5.0 million in 1996, $3.7
million in 1995 and $2.7 million in 1994 for increases in certain operating
expenses of the landlords as defined in the lease agreements.
Minimum rental commitments, including the current level of escalation
costs, on non-cancelable leases as of December 31, 1996 follows.
<TABLE>
<CAPTION>
Minimum
(In Thousands) Rentals
- -------------------------------------------------
<S> <C>
Year Ending December 31:
1997 $17,845
1998 18,422
1999 18,605
2000 18,075
2001 17,248
Later years 191,547
--------
Total minimum payments required $281,742
========
</TABLE>
- -------------------------------------------------------
18. CONTINGENCIES
There are various pending and threatened actions and claims against the
Corporation and its subsidiaries in which the Corporation has denied liability
and which it will vigorously contest. Management, after consultation with
counsel, is of the opinion that the ultimate resolution of such matters is
unlikely to have any future material effect on the Corporation's financial
position, results of operations or cash flows.
57
<PAGE> 27
- -------------------------------------------------------
19. EMPLOYEE BENEFIT PLANS
Cash-Based Performance Compensation
The Corporation's present and predecessor cash-based performance compensation
award plans provide for annual cash performance awards to eligible employees.
The overall size of the cash-based performance compensation award is determined
by the Corporation achieving certain financial objectives established by the
Board of Directors at the beginning of each year. Eligible employee awards are
determined on an individual basis based upon an employee's contribution to the
overall success of the Corporation. Total cash-based performance compensation
was $22.2 million, $26.6 million and $26.8 million in 1996, 1995 and 1994,
respectively.
- -------------------------------------------------------
Stock-Based Compensation
EXECUTIVE INCENTIVE PLAN
The Corporation adopted, effective September 1, 1995, the Executive Incentive
Plan (the "EIP"). The EIP is authorized to grant up to 240,000 Restricted Stock
Units ("RSUs") to key employees. RSUs accrue dividend credits and vest after a
five year period at which time they may be converted into shares of the
Corporation's common stock. For the year ended December 31, 1996, 33,536 RSUs
were granted with a weighted average fair value per unit of $23.63. At December
31, 1996, the Corporation had 206,464 RSUs available for issuance. The fair
value of a RSU is equal to the average of the high and low prices of a share of
common stock of the Corporation on the date of grant. The value of the grant is
recorded as a component of compensation expense ratably over the vesting period.
Total stock-based compensation expense recorded in 1996 related to the EIP was
$158,000. No RSUs were issued in 1995.
1995 STOCK OPTION PLAN
As of January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation", ("FAS 123"). FAS
123 allows companies either to continue to account for stock-based employee
compensation plans under existing accounting standards or to adopt a fair value
based method of accounting as defined in FAS 123. The Corporation has elected to
follow existing accounting standards for these plans; and as such, FAS 123
requires pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting for stock-based awards had been applied.
The Corporation adopted, effective September 1, 1995, the 1995 Stock Option
Plan (the "Option Plan"). The Option Plan provides for the granting of stock
options to eligible employees. The Option Plan authorizes the issuance of a
maximum of 1,700,000 common shares of stock. At December 31, 1996, the
Corporation had 214,376 shares of common stock available for issuance. Under the
Option Plan, the Corporation awards either incentive stock options or
non-qualified stock options. The options expire ten years from the date of grant
and their exercise price is not less than the fair value of a common share of
stock on the date of grant. Awards issued in 1996 and 1995 will vest either
after five years or in four equal annual installments.
Options granted in 1996 were issued with the exercise price equal to the
market price of a common share of the Corporation. In 1995, a grant was made
with the exercise price equal to the market price of the Corporation's stock on
grant date (the "Regular Grant") and a grant was made with the exercise price in
excess of the market price of the Corporation's stock on the grant date (the
"Special Grant").
Prior to September 1, 1995, the Corporation's stock-based compensation
plans included a Restricted Stock Plan, the 1989 Stock Compensation Plan and
Long-Term Plan (collectively, the "Predecessor Plans"). In connection with the
Disposition and Merger, all outstanding options became vested. Upon vesting,
option holders were required to either exercise their options or to receive a
cash payment equal to the difference between the market value and the exercise
price of the option. From January 1, 1995 through September 1, 1995, 587,704
options were exercised into UST common stock and 2,029,014 options were cashed
out for approximately $38.4 million under the cash provision of the plan.
58
<PAGE> 28
The following is a combined summary of option transactions which occurred
under the Predecessor Plans and the Option Plan for the three-year period ended
December 31, 1996.
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
Under Option Price Per
Option Per Share Share
- --------------------------------------------------------
<S> <C> <C> <C>
PREDECESSOR PLANS
Balance, January
1,
1994 2,574,346 $9.50 -- $26.94
Granted 410,000 25.63 -- 25.80
Exercised (290,160) 9.50 -- 26.94
Canceled (54,168) 9.50 -- 26.94
--------- ---------------
Balance, December
31, 1994 2,640,018 13.88 -- 26.94
Cash Payout (2,029,014) 13.88 -- 26.94
Exercised (587,704) 13.88 -- 29.64
Canceled (23,300) 19.00 -- 26.94
--------- ---------------
1995 STOCK OPTION PLAN
Balance,
September 1,
1995 -0-
Regular Grant 554,800 20.69 $20.69
Special Grant 440,000 24.83 24.83
Canceled (6,000) 20.69 20.69
--------- --------------- ------
Balance, December
31, 1995 988,800 20.69 -- 24.83 22.53
Granted 503,100 23.63 -- 27.63 23.72
Exercised (2,048) 20.69 20.69
Canceled (6,276) 20.69 -- 23.63 22.84
--------- --------------- ------
Balance, December
31, 1996 1,483,576 $20.69 -- $27.63 $22.93
========= ================ ======
</TABLE>
There were 134,788 options exercisable at December 31, 1996 with a weighted
average exercise price of $20.69 per share. There were no options exercisable at
December 31, 1995 and 1,624,610 options exercisable at December 31, 1994. The
remaining weighted average life of the 1,483,576 options outstanding at December
31, 1996, is approximately 8.9 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The weighted average assumptions used
for grants made in 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
Grants Grants
- --------------------------------------------------
<S> <C> <C>
Dividend Yield 2.1% 2.4%
Expected Volatility 24.4% 24.4%
Risk-Free Interest Rate 5.8% 6.1%
Expected Option Life 5 Years 5 Years
</TABLE>
The weighted average fair value of options granted in 1996 was $6.17 per option.
The weighted average fair value of options granted in 1995 was $4.67. Had
compensation cost for the Corporation's stock-based compensation plan been
recorded based on the fair value at the grant dates for awards under these
plans, the impact on the Corporation's net income and income per share would
have been as follows:
<TABLE>
<CAPTION>
As Pro
(Dollars In Thousands) Reported Forma
- --------------------------------------------------
<S> <C> <C>
For the year ended December
31, 1996:
Net Income $40,904 $ 39,185
Net Income per share $ 1.92 $ 1.84
For the year ended December
31, 1995:
Net Income (Loss) $(50,521) $(50,838)
Net Income (Loss) per share $ (2.62) $ (2.64)
</TABLE>
- -------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation sponsors a 401(k) Plan and ESOP (the "401(k) Plan") covering all
employees who satisfy a one year service requirement. The Plan provides that,
depending upon the Corporation satisfying certain profitability criteria and
other factors, eligible employees receive annual awards calculated as a
percentage of such employees' compensation. Awards are comprised of an ESOP
award, which is mandatorily contributed to the 401(k) Plan, and an elective
award, which may be taken in cash or, subject to certain limitations, deferred
and contributed to the 401(k) Plan.
As of December 31, 1996, the ESOP held a total of 1,930,172 shares of the
Corporation's common stock with 1,149,410 shares allocated to participant
accounts and 780,762 unallocated. Unallocated ESOP shares are pledged as
collateral for its debt. As the debt is repaid, shares are released from
collateral and allocated to active employees. On February 1, 1997, 260,254
shares were allocated to eligible participants upon the Corporation making the
scheduled debt service payment. Dividends on ESOP shares used for debt repayment
were $1.0 million, $1.2 million and $1.3 million in 1996, 1995 and 1994,
respectively. The Corporation has no obligation to repurchase any shares of its
common stock from the ESOP.
Dividends declared on allocated and unallocated ESOP shares are recorded as
deductions from retained earnings. The Corporation receives a tax benefit for
dividends paid on allocated shares. These tax benefits are recorded in the
Consolidated Statement of Income as a reduction of income tax expense.
59
<PAGE> 29
The tax benefits for dividends paid on unallocated shares are recorded in the
Consolidated Statement of Condition as an increase in retained earnings.
The external borrowings related to the ESOP are included in the
Consolidated Statement of Condition under the caption "long-term debt." The
original cost of the ESOP shares has been recorded in the Consolidated Statement
of Condition caption stockholders' equity -- loan to ESOP. As annual debt
service payments are made, the balances in long-term debt and loan to ESOP are
reduced. For earnings per share purposes, shares held by the ESOP, both
allocated and unallocated, are considered to be outstanding.
- -------------------------------------------------------
Health Care and Life Insurance Benefits
The Corporation provides certain health care and life insurance benefits for all
employees, certain qualifying retired employees and their dependents.
Postretirement benefits other than pensions are accrued during the years
that the employee renders service to reflect the expected cost of providing
health care and life insurance and other benefits to an employee upon
retirement. In connection with the Disposition and Merger, the Corporation
recognized a one-time net curtailment and settlement charge in 1995 of $3.6
million for the health care and the life insurance plans. These charges were
included in total restructuring costs.
The following tables detail the components of expense for the Corporation's
unfunded postretirement health care and life insurance plans and the composition
of the accumulated postretirement benefit obligation.
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------
1996 1995 1994
------- ------- -------
Health Health Health
(Dollars In Thousands) & Life & Life & Life
- ----------------------------------------------------
<S> <C> <C> <C>
Components of
postretirement
benefit expense:
Service cost $ 307 $ 435 $ 526
Interest cost 1,865 1,868 1,535
Amortization of prior
service cost (391) (672) (812)
Amortization of loss 519 236 251
------- ------- -------
Net postretirement
benefit
expense(1) $ 2,300 $ 1,867 $ 1,500
======= ======= =======
Assumptions:(2)
Discount rate 7.50% 7.00% 8.25%
Health care cost
trend rate 11.9% 12.4% 12.9%
Composition of
accumulated
postretirement
benefit obligation:
Retirees (including
covered dependents) $18,233 $22,492 $ 8,461
Fully eligible active
employees 3,427 2,748 4,263
Other active
employees 5,000 5,675 7,627
------- ------- -------
Total
obligation 26,660 30,915 20,351
Unrecognized prior
service cost
amendment 2,756 3,146 7,354
Unrecognized net
(loss) (1,155) (6,163) (2,198)
------- ------- -------
Accrued liability $28,261 $27,898 $25,507
======= ======= =======
</TABLE>
- -------------------------------------------------------
(1) Does not include curtailment and settlement charges in 1995.
(2) The postretirement benefit expense is determined using the assumptions as of
the beginning of the year. The accumulated postretirement benefit obligation
is determined using the assumptions as of the end of the year.
The assumed rate of future increases in per capita cost of health care benefits
(the health care cost trend rate) is 11.9% in 1997, decreasing gradually to 6%
in the year 2009. An increase in the health care cost trend rate by 1% will
increase the annual net postretirement benefit expense by approximately $71,000
and the accumulated postretirement benefit obligation by approximately $809,000.
At December 31, 1995 and December 31, 1994, a 1% increase in the health care
cost trend rate would increase the annual net postretirement benefit expense by
approximately $94,000 and $66,000, and the accumulated postretirement benefit
obligation by $818,000 and $621,000, respectively.
60
<PAGE> 30
- -------------------------------------------------------
Retirement Plan
In connection with the Disposition and Merger, the retirement plan was amended
and restated as of July 25, 1995 and the Corporation recognized a one-time net
curtailment and settlement charge of $1.2 million on the qualified plan and $2.3
million on the non-qualified retirement plan. These charges were included in
total restructuring costs. The amended retirement plan represents a continuation
of UST's retirement plan.
The retirement plan is a trusteed, noncontributory, qualified defined
benefit retirement plan that provides retirement benefits to substantially all
employees. Benefits are based upon years of service, average compensation over
the final years of service and the social security covered compensation. The
Corporation's funding policy is consistent with the funding requirements of
Federal laws and regulations. Investment of the retirement plan's assets is
managed by the Trust Company. Prior to May 31, 1996, retirement plan assets were
invested primarily in listed stocks and commingled debt and international and
domestic equity pension trust funds. Since May 31, 1996, retirement plan assets
have been invested in shares of various domestic and international equity, fixed
income and money market portfolios of the Excelsior Series of mutual funds. The
Trust Company is the investment advisor of the Excelsior funds.
The Corporation also maintains an unfunded, non-trusteed, noncontributory,
non-qualified retirement plan ("BEP") for participants whose retirement benefit
payments under the qualified plan are expected to exceed the limits imposed by
Federal tax law. Effective as of January 1, 1997, the BEP was amended to change
the Plan from a "defined benefit" to a "defined contribution" type of plan, and
to permit each active participant to elect whether or not to continue to
participate in the Plan. For those who elect continued participation, their
accrued benefits at December 31, 1996 will be converted into
actuarially-determined single sum amounts that will be credited to their
individual accounts under the amended plan; and beginning in 1997, they will be
entitled to have additional amounts credited to their accounts each year under
the BEP's new benefit formula. For those who elect not to continue
participation, their accrued benefits at December 31, 1996 will be paid to them
upon retirement in accordance with the plan's pre-amendment provisions, but no
further benefits will accrue for them under the BEP after December 31, 1996. The
curtailment charge recognized for this plan amendment was negligible. At
December 31, 1996, the accrued balance for participants electing to continue
participation in the BEP was $7.7 million.
61
<PAGE> 31
The following table summarizes the components of pension expense (credit)
and the funded status of the Corporation's qualified and non-qualified
retirement plans and the major assumptions used to determine these amounts.
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan
-------------------------------- -------------------------------
(In Thousands) 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of pension expense (credit):
Service cost......................... $ 5,565 $ 5,202 $ 5,615 $ 921 $ 803 $ 838
Interest cost........................ 12,042 10,991 9,534 1,008 849 658
Actual return on plan assets......... (19,594) (35,179) 14,854 -- -- --
Net amortization and deferral........ (646) 15,966 (33,447) 278 281 339
-------- -------- -------- -------- -------- -------
Net pension expense (credit)*...... $ (2,633) $ (3,020) $ (3,444) $ 2,207 $ 1,933 $ 1,835
======== ======== ======== ======== ======== =======
Funded status of retirement plans:
Plan assets, at market value......... $216,070 $204,915 $174,915 $ -- $ -- $ --
Actuarial present value of benefit
obligations:
Accumulated benefit obligations:
Vested........................... 148,565 144,927 98,956 3,655 8,007 4,361
Non-vested....................... 6,547 6,063 7,360 -- 509 507
-------- -------- -------- -------- -------- -------
Total.............................. 155,112 150,990 106,316 3,655 8,516 4,868
Provision for future salary........ 14,933 14,667 15,503 -- 5,029 3,609
-------- -------- -------- -------- -------- -------
Projected benefit obligations...... 170,045 165,657 121,819 3,655 13,545 8,477
-------- -------- -------- -------- -------- -------
Excess of plan assets over projected
benefit obligations................ 46,025 39,258 53,096 (3,655) (13,545) (8,477)
Unrecognized cumulative net (gains)
losses............................. (6,848) (329) (13,446) -- 3,162 995
Prior service benefit not yet in
periodic pension costs............. (246) (232) (396) -- 1,118 2,212
Unrecognized net liability (asset) at
date of initial application........ (11,993) (14,392) (16,791) -- 172 362
Accrual balance for continuing
participants....................... -- -- -- (7,716) -- --
-------- -------- -------- -------- -------- -------
Prepaid (accrued) pension cost..... $ 26,938 $ 24,305 $ 22,463 $(11,371) $ (9,093) $(4,908)
======== ======== ======== ======== ======== =======
- -------------------------------------------------------------------------------------------------------------
* Does not include curtailment and settlement charges.
Major assumptions at year-end(1):
Discount rate 7.50% 7.00% 8.25% 7.50% 7.00% 8.25%
Rate of increase in compensation 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
Expected rate of return on plan 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
</TABLE>
- --------------------------------------------------------------------------------
(1) The pension expense (credit) is determined using the assumptions as of the
beginning of the year. The funded status is determined using the assumptions
as of the end of the year.
The increase in the actuarial present value of benefit obligations in 1995 is
due to a number of factors the most significant of which are the decrease in the
discount rate from 8.25% in 1994 to 7.00% in 1995, the adoption of more current
mortality assumptions and the impact of early retirement offered to certain
employees as a result of the Disposition and Merger.
The Corporation uses the projected unit credit cost method to compute the
vested benefit obligation, where the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled based on
the employee's expected date of separation or retirement.
62
<PAGE> 32
- --------------------------------------------------------------------------------
20. PARENT COMPANY ONLY
The Parent's banking subsidiaries are subject to limitations on the amount of
dividends they can pay to the Parent without prior approval of the bank
regulatory authorities. As of December 31, 1996, the Parent's banking
subsidiaries can declare, in aggregate, dividends of approximately $22.2 million
without prior regulatory approval.
Condensed statements of income, condition and cash flows for U.S. Trust
Corporation (Parent Company Only) follow:
U. S. TRUST CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Equity in Net Income (Loss) of Subsidiaries:
Banks.......................................... $42,838 $(18,493) $21,607
Non-Bank....................................... 766 (1,825) 8,386
Interest Revenue.................................. 1,245 2,608 2,740
Securities Gains.................................. -- 310 --
------- -------- -------
Total Income (Loss)................................. 44,849 (17,400) 32,733
------- -------- -------
Expenses:
Interest Expense.................................. 1,745 3,387 3,779
Other Operating Expenses.......................... 3,773 7,583 11,257
Restructuring Costs............................... -- 42,004 3,100
------- -------- -------
Total Expenses...................................... 5,518 52,974 18,136
------- -------- -------
Income (Loss) Before Income Taxes................... 39,331 (70,374) 14,597
Income Taxes (Benefits)............................. (1,573) (19,853) (6,370)
------- -------- -------
Net Income (Loss)................................... $40,904 $(50,521) $20,967
======= ======== =======
</TABLE>
63
<PAGE> 33
U. S. TRUST CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
(In Thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Equity Investments in Subsidiaries:
Banks........................................................... $231,436 $217,057
Non-Bank........................................................ 21,389 19,074
-------- --------
Total Equity Investments in Subsidiaries.......................... 252,825 236,131
Short-Term Investments............................................ 10,730 --
Securities........................................................ 1,661 6,971
Other Assets(1)................................................... 58,652 47,582
-------- --------
Total Assets...................................................... $323,868 $290,684
======== ========
LIABILITIES
Short-Term Credit Facilities...................................... $ 17,000 $ 20,000
Other Liabilities................................................. 82,302 75,407
Long-Term Debt.................................................... 10,468 13,434
-------- --------
Total Liabilities................................................. 109,770 108,841
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................................ 214,098 181,843
-------- --------
Total Liabilities and Stockholders' Equity........................ $323,868 $290,684
======== ========
</TABLE>
- --------------------------------------------------------------------------------
(1)Includes $316,000 of cash and cash equivalents at December 31, 1995.
64
<PAGE> 34
U.S. TRUST CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)................................. $ 40,904 $(50,521) $ 20,967
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Equity in Net (Income) Loss of Subsidiaries..... (43,604) 20,318 (29,993)
Dividends Received from Subsidiaries............ 30,500 10,000 11,810
Deferred Income Taxes........................... (3,576) (6,372) (2,281)
Net Change in Other Assets...................... (7,809) (21,217) (11,493)
Net Change in Other Liabilities *............... 6,885 25,488 37,326
Other, Net...................................... 143 2,261 310
--------- --------- ---------
Net Cash Provided by (Used in) Operating
Activities...................................... 23,443 (20,043) 26,646
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Subsidiaries....................... (2,000) 12,197 (3,800)
Net Change in Short-Term Investments.............. (10,730) -- --
Securities:*
Proceeds from Sales............................. 5,310 16,420 8,554
Proceeds from Maturities, Calls and Mandatory
Redemptions.................................. -- 41,896 1,601
Purchases....................................... -- (37,584) (13,969)
Principal Payment from ESOP....................... 2,966 2,737 2,526
--------- --------- ---------
Net Cash Provided by (Used in) Investing
Activities...................................... (4,454) 35,666 (5,088)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Loans from Subsidiaries............. -- -- (1,500)
Net Change in Short-Term Credit Facilities........ (3,000) 20,000 --
Repayment of Long-Term Debt....................... (2,966) (32,687) (2,526)
Issuance of Common Stock.......................... 1,157 10,926 6,143
Purchases of Treasury Stock....................... (4,728) -- (4,573)
Dividends Paid.................................... (9,768) (14,414) (18,467)
--------- --------- ---------
Net Cash (Used in) Financing Activities........... (19,305) (16,175) (20,923)
--------- --------- ---------
Net Change in Cash and Cash Equivalents........... (316) (552) 635
Cash and Cash Equivalents at January 1............ 316 868 233
--------- --------- ---------
Cash and Cash Equivalents at December 31.......... $ -- $ 316 $ 868
========= ========= =========
Income Taxes Paid................................. $ 16,281 $ 242 $ 4,475
Interest Expense Paid............................. 2,223 3,798 3,972
</TABLE>
- --------------------------------------------------------------------------------
*In connection with the Disposition and Merger, approximately $7.6 million of
Securities and $18.0 million of Other Liabilities were transferred to Chase in
1995.
65
<PAGE> 35
21. QUARTERLY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -----------------------------------------
(In Thousands, Except Fourth Third Second First Fourth Third Second(1) First(1)
Per Share Amounts) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee Revenue:
Core Businesses.......... $63,596 $62,234 $60,382 $57,999 $56,587 $ 55,301 $ 53,562 $ 49,823
Processing Business...... -- -- -- -- -- 16,627 24,467 25,059
------- ------- ------- ------- ------- --------- -------- --------
Net Interest Revenue After
Provision for Credit
Losses................... 20,179 19,412 19,063 19,216 17,307 26,549 24,752 28,268
Other Income and Net
Securities Gains......... 432 4 (2) 208 34 4,603 1,020 849
------- ------- ------- ------- ------- --------- -------- --------
Total Revenue.............. 84,207 81,650 79,443 77,423 73,928 103,080 103,801 103,999
Operating Expenses:
Restructuring Costs...... -- -- -- -- -- 146,695 7,446 1,448
Other Operating
Expenses............... 65,779 64,341 62,454 60,876 57,882 89,168 87,410 88,171
------- ------- ------- ------- ------- --------- -------- --------
Income (Loss) Before Income
Taxes.................... 18,428 17,309 16,989 16,547 16,046 (132,783) 8,945 14,380
Income Taxes (Benefits).... 7,187 7,097 7,135 6,950 6,900 (59,121) 3,578 5,752
------- ------- ------- ------- ------- --------- -------- --------
Net Income (Loss).......... $11,241 $10,212 $ 9,854 $ 9,597 $ 9,146 $ (73,662) $ 5,367 $ 8,628
======= ======= ======= ======= ======= ========= ======== ========
Net Income (Loss) Per
Share:(2)
Primary.................. $ 0.53 $ 0.49 $ 0.47 $ 0.46 $ 0.45 $ (3.80) $ 0.27 $ 0.43
======= ======= ======= ======= ======= ========= ======== ========
Fully Diluted............ $ 0.53 $ 0.49 $ 0.47 $ 0.46 $ 0.45 $ (3.80) $ 0.26 $ 0.43
======= ======= ======= ======= ======= ========= ======== ========
Stock Price High(2)........ $ 40.38 $ 29.00 $ 28.00 $ 26.50 $ 25.38 $ 23.25 $ 36.00 $ 34.88
Stock Price Low(2)......... 29.13 23.88 25.25 23.00 22.50 19.38 33.75 31.50
Cash Dividends
Declared(2).............. 0.125 0.125 0.125 0.125 0.375 -- -- 0.250
</TABLE>
- --------------------------------------------------------------------------------
(1) Stock Prices for the first and second quarter of 1995 are before the effect
of the Disposition and Merger.
(2) Net Income (Loss) per share, stock prices and cash dividends declared,
reflect the two-for-one stock split effective on February 21, 1997 for
Shareholders of record as of February 7, 1997.
- --------------------------------------------------------------------------------
The common shares of the Corporation are traded in the over-the-counter market.
Market prices shown above are based on NASDAQ national market prices. As of
January 1, 1997, there were approximately 1,791 record holders of the
Corporation's common shares.
As of December 31, 1996, the Corporation exchanged 71,258 of its common
shares for all of the outstanding shares of Lilienthal Associates, a California
corporation owned by three shareholders (John G. Lilienthal, Bruce J. Mcgregor
and Randall B. Matthews). This exchange was not registered under the Securities
Act of 1933 by virtue of the exemption contained in Section 4(2) thereof. All of
the shareholders of Lilienthal Associates were accredited investors in
accordance with Regulation D under the Securities Act of 1933.
66
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of U.S. Trust Corporation:
We have audited the accompanying consolidated statements of condition of
U.S. Trust Corporation and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Trust
Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 21, 1997
67
<PAGE> 37
FINANCIAL AND OTHER DATA SUPPLEMENT
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Millions, ---------------------------------------------------
Except Per Share Amounts)(1)(3) 1996 1995(2) 1994(2) 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee Revenue:
Core Businesses............................ $244.2 $ 215.3 $197.5 $175.4 $152.3
Processing Business........................ -- 66.1 102.7 92.9 87.7
Net Interest Revenue after Provision for
Credit Losses and Other Income............. 78.5 103.4 118.5 118.8 108.0
------ ------- ------ ------ ------
Total Revenue................................ 322.7 384.8 418.7 387.2 348.0
Operating Expenses:
Other Operating Expenses................... 253.5 322.6 334.2 314.5 289.1
Restructuring Costs........................ -- 155.6 50.2 -- --
------ ------- ------ ------ ------
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes.... 69.3 (93.4) 34.4 72.7 58.9
Income Taxes (Benefits)...................... 28.4 (42.9) 13.4 30.4 22.4
------ ------- ------ ------ ------
Income (Loss) Before Cumulative Effect of
Accounting Changes......................... 40.9 (50.5) 21.0 42.3 36.5
Cumulative Effect of Changes in Accounting
for Postretirement Benefits and Income
Taxes...................................... -- -- -- -- (7.8)
------ ------- ------ ------ ------
Net Income (Loss)............................ $ 40.9 $ (50.5) $ 21.0 $ 42.3 $ 28.8
====== ======= ====== ====== ======
Income (Loss) Per Share Before Cumulative
Effect of Accounting Changes............... $ 1.92 $ (2.62) $ 1.04 $ 2.13 $ 1.87
Per Share Cumulative Effect of Changes in
Accounting for Postretirement Benefits and
Income Taxes............................... -- -- -- -- (0.40)
------ ------- ------ ------ ------
Net Income (Loss) Per Share.................. $ 1.92 $ (2.62) $ 1.04 $ 2.13 $ 1.47
====== ======= ====== ====== ======
Cash Dividends Declared Per Share............ $ 0.50 $ 0.63 $ 1.00 $ 0.94 $ 0.86
Dividend Payout Ratio........................ 26.11% (23.85)% 95.69% 44.24% 58.50%
- --------------------------------------------------------------------------------------------------
At December 31:
Assets Under Management -- Core
Businesses(4)
Investment Management................... $ 38.0 $ 33.5 $ 26.0 $ 26.5 $ 21.1
Special Fiduciary....................... 15.3 13.9 5.1 3.8 3.7
Assets Under Administration -- Core
Businesses(4)........................... 232.3 203.8 167.8 160.1 140.6
Total Assets............................... 3,477 2,573 3,223 3,186 2,951
Long-Term Debt............................. 26 29 61 65 65
Return on Average Stockholders' Equity....... 20.99% (23.10)% 9.24% 20.47% 15.28%
Return on Average Total Assets............... 1.42% (1.52)% 0.53% 1.11% 0.83%
Average Stockholders' Equity as a Percentage
of Average Total Assets.................... 6.76% 6.60% 5.69% 5.43% 5.43%
</TABLE>
- --------------------------------------------------------------------------------
(1)Columns may not tally due to rounding.
(2)Net income includes $86.9 million (after taxes) and $27.9 million (after
taxes) of restructuring charges for the years ended December 31, 1995 and
December 31, 1994, respectively. See Notes to the Consolidated Financial
Statements No. 1 for further information.
(3)On January 28, 1997, the Corporation announced a two-for-one stock split of
its commons shares. All earnings per share and common stock disclosures in
this report reflect this change.
(4)Dollars in Billions.
68
<PAGE> 38
=======================================================
ANALYSIS OF CHANGE IN NET INTEREST REVENUE FOR THE YEARS ENDED DECEMBER 31,
The following table, on a taxable equivalent basis, is an analysis of the
year-to-year changes in the categories of interest revenue and interest expense
resulting from changes in volume and rate.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due to Increase (Decrease) Due to
Change in: Change in:
----------------------------- -----------------------------
Average Average Average Average
(In Thousands) Balance Rate Total Balance Rate Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Short-Term Investments........................ $(23,565) $(2,733) $(26,298) $ 11,046 $ 8,661 $ 19,707
Loans(1) (2).................................. 12,243 (3,878) 8,365 3,248 11,297 14,545
Securities(3):
U.S. Government Obligations................. 1,699 1,065 2,764 (18,720) 7,574 (11,146)
Federal Agency Obligations.................. 7,391 (3,081) 4,310 (29,442) 6,833 (22,609)
State and Municipal Obligations............. (697) (462) (1,159) (1,398) (346) (1,744)
Collateralized Mortgage Obligations......... (977) (207) (1,184) (1,903) 1,578 (325)
Other Securities............................ (765) (273) (1,038) 654 1,138 1,792
-------- ------- -------- -------- ------- --------
Total Securities.............................. 6,651 (2,958) 3,693 (50,809) 16,777 (34,032)
-------- ------- -------- -------- ------- --------
Total Interest Earning Assets................. (4,671) (9,569) (14,240) (36,515) 36,735 220
-------- ------- -------- -------- ------- --------
Interest Bearing Sources of Funds:
Interest Bearing Deposits..................... 12,393 (5,110) 7,283 4,414 22,926 27,340
Short-Term Credit Facilities.................. 1,177 (1,111) 66 (23,596) 8,912 (14,684)
Long-Term Debt................................ (1,475) (352) (1,827) (1,279) (42) (1,321)
-------- ------- -------- -------- ------- --------
Total Sources on Which Interest is Paid....... 12,095 (6,573) 5,522 (20,461) 31,796 11,335
-------- ------- -------- -------- ------- --------
Change in Net Interest Revenue- Taxable
Equivalent Basis............................ $(16,766) $(2,996) $(19,762) $(16,054) $ 4,939 $(11,115)
======== ======= ======== =======
Tax Equivalent Adjustment..................... 156 1,479
-------- --------
Change in Net Interest Revenue................ $(19,606) $ (9,636)
======== ========
</TABLE>
- --------------------------------------------------------------------------------
Changes that are not due solely to volume or rate have been allocated ratably to
their respective categories.
(1)The average principal balances of non-accrual and reduced rate loans are
included in the above figures.
(2)Loans include the Loan to ESOP, which had an average balance of $10.7 million
in 1996, $13.7 million in 1995 and $16.4 million in 1994.
(3)The average balance and average rate for securities available for sale has
been calculated using their amortized cost.
69
<PAGE> 39
THREE-YEAR NET INTEREST REVENUE (TAX EQUIVALENT BASIS) AND AVERAGE BALANCES
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996
-----------------------------------
Average Average
(Dollars in Thousands) Balance Interest Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Short-Term Investments..................................... $ 112,010 $ 5,982 5.34%
---------- --------
Securities(1):
U.S. Government Obligations.............................. 458,569 26,336 5.74
Federal Agency Obligations............................... 291,577 17,895 6.14
State and Municipal Obligations(2)....................... 58,908 5,165 8.77
Collaterized Mortgage Obligations(3)..................... 33,991 2,024 5.95
Other Securities......................................... 52,919 2,889 5.46
---------- --------
Total Securities........................................... 895,964 54,309 6.06
---------- --------
Loans(2)(4)(5)............................................. 1,522,246 117,459 7.72
---------- --------
Total Interest Earning Assets.............................. 2,530,220 177,750 7.03
---------- --------
Allowance for Credit Losses................................ (16,400)
Cash and Due From Banks.................................... 75,369
Other Assets............................................... 305,716
----------
Total Assets............................................... $2,894,905
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits.................................. $1,736,970 82,551 4.75
Short-Term Credit Facilities............................... 213,180 11,374 5.34
Long-Term Debt............................................. 26,719 1,936 7.25
---------- --------
Total Sources on Which Interest is Paid.................... 1,976,869 95,861 4.85
---------- --------
Total Non-Interest Bearing Deposits........................ 474,146
Other Liabilities.......................................... 238,291
Stockholders' Equity(5).................................... 205,599
----------
Total Liabilities and Stockholders' Equity................. $2,894,905
==========
Net Interest Revenue (Tax Equivalent Basis)................ $ 81,889
========
Net Yield on Interest Earning Assets....................... 3.24
</TABLE>
- --------------------------------------------------------------------------------
(1)Includes securities classified as available for sale in 1996 and 1995 and
securities classified as available for sale and held to maturity in 1994. The
average balance and average rate for securities available for sale has been
calculated using their amortized cost.
(2)Yields on state and municipal obligations are stated on a taxable equivalent
basis, employing the Federal statutory income tax rate adjusted for the
effect of state and local taxes, resulting in an effective tax rate of
approximately 47% for 1996, 1995 and 1994.
(3)Primarily comprised of variable rate collateralized mortgage obligations.
(4)The average principal balances of non-accrual and reduced rate loans are
included in the above figures.
(5)Loans and Stockholders' equity include the Loan to ESOP, which had an average
balance of $10.7 million in 1996, $13.7 million in 1995 and $16.4 million in
1994.
70
<PAGE> 40
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-Term Investments.......................... $ 548,655 $ 32,280 5.88% $ 326,576 $ 12,573 3.85%
---------- -------- ---------- --------
Securities(1):
U.S. Government Obligations................... 428,495 23,572 5.50 768,798 34,718 4.52
Federal Agency Obligations.................... 188,839 13,585 7.19 598,097 36,194 6.05
State and Municipal Obligations(2)............ 66,605 6,324 9.49 81,189 8,068 9.94
Collaterized Mortgage Obligations(3).......... 50,191 3,208 6.39 79,972 3,533 4.42
Other Securities.............................. 66,631 3,927 5.89 52,774 2,135 4.05
---------- -------- ---------- --------
Total Securities................................ 800,761 50,616 6.32 1,580,830 84,648 5.35
---------- -------- ---------- --------
Loans(2)(4)(5).................................. 1,368,641 109,094 7.97 1,324,285 94,549 7.14
---------- -------- ---------- --------
Total Interest Earning Assets................... 2,718,057 191,990 7.06 3,231,691 191,770 5.93
---------- -------- ---------- --------
Allowance for Credit Losses..................... (16,174) (14,093)
Cash and Due From Banks......................... 223,860 321,549
Other Assets.................................... 401,697 465,752
---------- ----------
Total Assets.................................... $3,327,440 $4,004,899
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Deposits....................... $1,491,412 75,268 5.05 $1,373,421 47,928 3.49
Short-Term Credit Facilities.................... 193,088 11,308 5.86 595,994 25,992 4.36
Long-Term Debt.................................. 46,653 3,763 8.07 62,513 5,084 8.13
---------- -------- ---------- --------
Total Sources on Which Interest is Paid......... 1,731,153 90,339 5.22 2,031,928 79,004 3.89
---------- -------- ---------- --------
Total Non-Interest Bearing Deposits............. 1,186,473 1,565,158
Other Liabilities............................... 177,452 164,443
Stockholders' Equity(5)......................... 232,362 243,370
---------- ----------
Total Liabilities and Stockholders' Equity...... $3,327,440 $4,004,899
========== ==========
Net Interest Revenue (Tax Equivalent Basis)..... $101,651 $112,766
======== ========
Net Yield on Interest Earning Assets............ 3.74 3.49
</TABLE>
- --------------------------------------------------------------------------------
71
<PAGE> 41
ASSET QUALITY ANALYSIS
SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities (Carrying Amount at Year End)(1):
U.S. Government Obligations......................................... $ 514 $482 $ 601
Federal Agency Obligations.......................................... 428 110 240
State and Municipal Obligations..................................... 78 51 76
Collateralized Mortgage Obligations................................. 26 41 59
Other Securities.................................................... 120 76 58
------ ---- ------
Total............................................................. $1,166 $760 $1,034
====== ==== ======
</TABLE>
(1)Amounts are comprised of securities available for sale, that are carried at
their estimated fair value.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5-10 Years Over 10 Years
---------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
(Dollars in Millions) Amount Yield(2) Amount Yield(2) Amount Yield(2) Amount Yield(2) Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity Schedule of Securities
Based on Amortized Cost at
December 31, 1996:(3)
U.S. Government Obligations.... $408 5.37% $106 6.34% $-- --% $-- --% $514
Federal Agency Obligations..... 11 6.32 215 6.41 147 7.05 55 5.99 428
State and Municipal
Obligations.................. 8 9.57 55 8.06 5 7.96 9 8.52 77
Collateralized Mortgage
Obligations.................. -- -- -- -- -- -- 26 6.13 26
Other Securities............... 115 6.07 -- -- -- -- -- -- 115
---- ---- ---- --- ------
Total........................ $542 $376 $152 $90 $1,160
==== ==== ==== === ======
</TABLE>
(2)Yields have been computed by dividing annualized interest revenue, on a
taxable equivalent basis, by the amortized cost of the respective securities.
(3)Excludes Federal Reserve Bank and Federal Home Loan Bank stock of
approximately $5 million; Excludes unrealized gains of $1 million related to
securities available for sale.
LOANS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands) Within 1 Year 1-5 Years Over 5 Years Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Schedule of Loans at December 31, 1996:
Private banking:
Residential real estate mortgages(4).............. $ 113,597 $193,121 $786,389 $1,093,107
Other............................................. 496,635 12,840 6,794 516,269
-------- -------- -------- ----------
Total private banking loans......................... 610,232 205,961 793,183 1,609,376
-------- -------- -------- ----------
Loans to financial institutions for purchasing and
carrying securities............................... 62,866 -- -- 62,866
All other........................................... 12,822 572 2,505 15,899
-------- -------- -------- ----------
Total........................................... $ 685,920 $206,533 $795,688 $1,688,141
========= ======== ======== ==========
Interest Sensitivity of Loans at December 31, 1996:
Loans with predetermined interest rates............. $149,951 $531,634 $ 681,585
Loans with floating or adjustable interest rates.... 56,582 264,054 320,636
-------- ----------- ----------
Total $206,533 $795,688 $1,002,221
======== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(4)Maturities are based upon the contractual terms of the loans.
72
<PAGE> 42
SUMMARY OF CREDIT LOSS EXPERIENCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Total Loans.................................. $1,511,527 $1,354,975 $1,307,900
Allowance to Average Loans........................... 1.10% 1.19% 1.12%
Allowance to Nonperforming Loans..................... 187.94% 121.08% 230.72%
Net Charge-offs to Average Loans..................... 0.03% 0.02% 0.05%
Nonperforming Assets to Average Loans and Real Estate
Owned.............................................. 0.64% 1.68% 1.38%
</TABLE>
- --------------------------------------------------------------------------------
The Corporation maintains the allowance for credit losses at a level deemed to
be adequate. The level of the allowance is based on management's judgment as to
the current condition of the credit portfolio, which includes loans, commitments
to extend credit and standby letters of credit, determined by a continuous
surveillance process.
On a quarterly basis, management determines which credits, if any, are to
be charged off partially or in full. This is based on a review of all
underperforming credits highlighted in the surveillance process. Loan officers
are expected to be the first to identify potential credit problems. In addition,
experienced credit review professionals provide independent internal oversight
of these credits. Credit reviews by the Federal Reserve and New York State Bank
Examiners, as well as our certified public accounting firm, as part of the
regular bank examination and audit processes, are also considered in the credit
surveillance process.
Since substantially all of the Corporation's loan portfolio relates to
private banking accounts, the Corporation does not allocate the allowance among
specific credit categories.
At December 31, 1996, the loan portfolio included loans to individuals
involved in the financial services industry of approximately $394 million. The
Corporation's credit loss experience with these loans has been excellent. Net
charge-offs from loans to individuals involved in the financial services
industry amounted to $471,000 in 1996, $353,000 in 1995 and $438,000 in 1994.
Such net charge-offs as a percentage of average total loans amounted to three
basis points in 1996, 1995 and 1994.
DEPOSITS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
(Dollars in Millions) Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Analysis of Average Daily Deposits:
Non-Interest Bearing Deposits....... $ 474 $1,186 $1,565
Certificates of Deposits of $100,000
or more.......................... 102 5.55% 60 4.91% 33 4.18%
Money Market and Other Savings
Deposits......................... 1,635 4.49% 1,432 5.17% 1,341 3.45%
------ ------ ------
Total Deposits................... $2,211 $2,678 $2,939
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Certificates Other
(In Millions) of Deposit Deposits
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Maturity Distribution of Interest Bearing Deposits in Amounts of
$100,000 or more at December 31, 1996:
Three months or less............................................... $ 78 $ 1,420
Three through six months........................................... 3 --
Six through twelve months.......................................... 1 --
Over twelve months................................................. 3 --
--- ---------
Total........................................................... $ 85 $ 1,420
=== =========
- ---------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE> 43
- --------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
U.S. Trust Corporation (the "Corporation") was incorporated in New York in 1977
and became a bank holding company in 1978. United States Trust Company of New
York, a New York bank and trust company (the "Trust Company"), the Corporation's
principal subsidiary, was created as a trust company by Special Act of the New
York Legislature in 1853. The Corporation, through the Trust Company and its
other subsidiaries, provides investment management, fiduciary and private
banking services to individuals and institutions. At December 31, 1996, the
Corporation and its consolidated subsidiaries had assets under management of
$53.3 billion (including $15.3 billion of special fiduciary assets) and $232.3
billion of assets under administration. At year-end, the Corporation had 1,453
full-time employees.
The Corporation's principal executive office is located at 114 West 47th
Street, New York, New York 10036 and its telephone number at such office is
(212) 852-1000.
- -------------------------------------------------------
Personal Investment Management and Other Wealth Management Services
The Corporation provides investment management, fiduciary and private banking
services to affluent individuals and families. This is its principal line of
business.
The foundation of the Corporation's services to the personal market is
investment management. At December 31, 1996, personal investment assets under
management were approximately $30.0 billion. The Corporation believes that it
differentiates itself from its competitors through its ability to provide, in
addition to investment management, investment consulting, trust, financial
planning and private banking services.
The Corporation views the personal investment market as a three-tiered
market and has tailored its products and service delivery to each.
The Corporation's primary market consists of individuals with $2 million to
$50 million in financial assets. Investment portfolios for this market segment
are generally individually managed. The Corporation provides both balanced
accounts and specialized investment management services for these clients. These
clients generally utilize the Corporation's other wealth management services as
well. The Corporation recently established a Private Equity Investors Fund,
which offers clients venture capital and private investment opportunities, and a
separate value-investing pooled fund. In 1996, the Corporation established a new
Global Investment Division, bringing the management of its international pooled
and mutual funds in-house, rather than continuing to use a European sub-advisor.
For the second segment of the Corporation's personal market -- those
clients with $250,000 to $2 million in financial assets -- the Corporation
offers an asset allocation account, an investment advisory service that utilizes
the Excelsior family of mutual funds. The Corporation's asset allocation account
assets now total $1.2 billion. The Excelsior Funds had $4.8 billion in assets at
December 31, 1996.
The third segment of the Corporation's personal market includes families
with over $50 million in assets whose financial needs are particularly complex.
In addition to investment management, the Corporation offers an enhanced master
custody product for this market and specialized fiduciary, financial planning
and philanthropic consulting services. The Corporation's CTC Consulting group
provides counseling to high-net-worth families regarding the development of
tax-intelligent investment policies and the selection and monitoring of
investment managers.
The Corporation provides private banking services through four offices in
New York City and most of its regional affiliates in order to meet the full
spectrum of its clients' financial needs. Private banking is also an important
gateway into the Corporation for new clients.
A major strategy for the growth of the Corporation's personal investment
management business for over a decade has been national expansion. Personal
investment management clients usually require services to be provided at the
local level. Expanding beyond its New York City headquarters to meet these
demands, the Corporation has established offices throughout the U.S. in areas
where wealth is concentrated: California, Connecticut, Florida, New Jersey,
Oregon and Texas. The Corporation's current priorities include broadening its
presence in those regions where it is already established, while selectively
pursuing opportunities to enter new areas of wealth concentration. In 1997, the
corporation expects to open new offices in San Francisco, California;
Morristown, New Jersey; and Houston, Texas.
The Corporation has placed increased emphasis on the sales effort
supporting the personal investment management business, including in recent
years a three-fold increase in the size of its sales force and the introduction
a decade ago of a generous sales incentive program for all employees.
- -------------------------------------------------------
Institutional Investment Management
The Corporation's institutional investment management business provides a wide
range of services directly to institutional clients,
74
<PAGE> 44
including balanced portfolios, as well as specialized investment styles, such as
a high quality growth stock strategy, structured investments, alternative
investments, fixed income vehicles, cash management and international equities.
A special focus of the Corporation is endowments, foundations and other
non-profit organizations. At December 31, 1996, the Corporation managed
approximately $8.0 billion for these institutions.
The Corporation's new Global Investment Division will be an important asset
for institutional clients. The Corporation currently has over $700 million under
management in nine international equity funds, and expects that amount to
increase going forward.
Institutional clients can also invest via the Corporation's $4.8 billion
Excelsior mutual fund family, which offers all major asset classes and both
active and passive management styles. An objective going forward is to increase
the sale of the Corporation's mutual funds through third parties, such as
regional banks, bank trust departments, insurance companies and large mutual
fund companies.
The Corporation provides brokerage services to institutional clients
through UST Securities, its broker/dealer subsidiary. In 1996, the Corporation
also began making these services available to individual clients. The firm
offers the advantages of an independent trader with competitive pricing and
quality execution.
- -------------------------------------------------------
Special Fiduciary Services
The Corporation provides investment, fiduciary and consulting services to
employee benefit plans that invest in major blocks of employer stocks. The
Corporation specializes in providing these services to large, complex plans and
believes it is a leading provider of such services to this segment of the
market. The use of employer securities in retirement plans, including employee
stock ownerships plans (ESOPs), has increased in the past decade. Special
fiduciary assets under management exceeded $15 billion at December 31, 1996.
- -------------------------------------------------------
Corporate Trust
The Corporation is one of the nation's leading corporate trustees providing
trust, agency and related services to public and private corporations,
municipalities and financial institutions. The Corporation has built numerous
long-term relationships which generate a considerable amount of recurring
business. Corporate trust assets currently total over $216 billion, and the
Corporation ranks among the top 10 trustees in the nation.
In the tax-exempt market in 1996, the Corporation was the leading trustee
in New York State and among the top three nationally for new municipal long-term
debt issues for the sixth year in a row. Providing support for complex new types
of securities, such as derivatives and securitized transactions, continues to be
the fastest growing segment of the corporate trust business. Growth has also
been steady in the Corporation's bond immobilization services with the par value
of accounts exceeding $40.0 billion as of December 31, 1996.
Although most of the Corporation's corporate trust business emanates from
its office in New York, the California and Texas offices have made increasingly
important contributions to the growth of the business in recent years.
- -------------------------------------------------------
LEGAL PROCEEDINGS
Various actions and claims are pending or are threatened against the Trust
Company or the Corporation in which liability has been denied and which will be
vigorously contested. Management, after consultation with counsel, is of the
opinion that the ultimate resolution of such matters is unlikely to have any
future material effect on the Corporation's financial position or results of
operations.
- -------------------------------------------------------
SUBSIDIARIES
The Corporation is an investment management company that also provides fiduciary
and private banking services. The Trust Company is a member bank of the Federal
Reserve System, an insured bank of the Federal Deposit Insurance Corporation and
a member of the New York Clearing House Association. The Trust Company had total
assets of approximately $2.9 billion, total deposits of approximately $2.3
billion and shareholder's equity of approximately $157 million at December 31,
1996. At year-end, the Trust Company had 1,082 full-time employees.
The Corporation's other subsidiaries, some of which provide banking
services, are U.S. Trust Company of California, N.A. ("California"), U.S. Trust
Company of Florida Savings Bank ("Florida") and U.S. Trust Company of Texas,
N.A. ("Texas"). Each of these subsidiaries has full banking and trust powers
within their respective states and provides essentially comparable services to
those offered by the Trust Company. U.S. Trust Company of New Jersey ("New
Jersey") and U.S. Trust Company of Connecticut ("Connecticut") are
limited-purpose trust companies. New Jersey and Connecticut have applied to
become full service banking organizations, approval for which is anticipated
during 1997. U.S. Trust Company of the Pacific Northwest ("Pacific Northwest")
and CTC Consulting Inc., ("CTC") are Oregon-based. Pacific Northwest is a
limited-purpose trust company and CTC is a registered
75
<PAGE> 45
investment advisor. UST Securities Corp. is a registered broker/dealer.
- -------------------------------------------------------
GOVERNMENT MONETARY POLICIES
Monetary authorities have a significant impact on the operating results of the
Corporation and other financial service institutions. The decisions of the Board
of Governors of the Federal Reserve System (the "Board") affect the supply of
money and member bank reserves through open market operations in U.S. Government
securities or by changes in the discount rate or reserve requirements. The
Boards' actions have an important influence on the growth of bank loans and
investments and the level of interest charged for loans and paid on deposits.
Because of changing conditions in the money markets, as a result of actions by
the Board and other regulatory authorities, interest rates, credit availability,
deposit levels and bond and stock prices may change materially due to
circumstances beyond the control of the Corporation.
- -------------------------------------------------------
REGULATION AND SUPERVISION
The Corporation is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act"). As such, the Corporation is required to file
certain reports with the Board, is subject to examination by the Board and is
restricted in its acquisitions. The Act generally precludes the Corporation and
its subsidiaries from engaging in nonbanking activities, or from acquiring more
than 5% of voting shares of any company engaging in such activities, unless the
Board has determined that such proposed activities are closely related to
banking. Federal law and Board interpretations limit the extent to which the
Corporation can engage in certain aspects of the securities business.
Under Board policy, the Corporation is expected to act as a source of
financial strength to each subsidiary bank and to commit resources to support
such subsidiary bank, even in circumstances where the Corporation might not be
in a financial position to do so.
- -------------------------------------------------------
Other Federal and State Banking Regulation
The Superintendent of Banks of the State of New York has the discretion to
examine the affairs of the Corporation for the purpose of determining the
financial condition of the Trust Company. The Trust Company and its operations
are subject to federal and New York State laws applicable to commercial banks
and trust companies and to regulation and examination by both federal and New
York state banking authorities.
New York banks are barred from acting as a fiduciary in a number of states,
and in a number of other states where they may and do act as a fiduciary, their
activities are limited by state law and regulations.
The Corporation through its ownership of Florida is a savings bank holding
company. Accordingly, the Corporation and Florida are subject to regulation and
examination by the Office of Thrift Supervision. California and Texas are
subject to regulation and examination by the Office of the Comptroller of the
Currency. New Jersey is subject to regulation and examination by the Banking
Department of the State of New Jersey. Connecticut is subject to regulation and
examination by the Department of Banking of the State of Connecticut. U.S. Trust
Company of the Pacific Northwest is subject to regulation and examination by the
Division of Finance and Corporate Securities of the State of Oregon.
The Federal Reserve Act and the Federal Deposit Insurance Act impose
certain restrictions on loans by the bank subsidiaries to the Corporation and
each other. In addition, the Corporation and its subsidiaries are subject to
restrictions imposed by the Glass-Steagall Act with respect to engaging in
certain aspects of the securities business.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides for cross-guarantees of the liabilities of insured
depository institutions pursuant to which any bank subsidiary of the Corporation
may be required to reimburse the Federal Deposit Insurance Corporation ("FDIC")
for any loss or anticipated loss to the FDIC that arises from a default of any
of the Corporation's other bank subsidiaries or assistance provided to such an
institution in danger of default.
The Corporation and its FDIC insured subsidiaries are subject to risk-based
capital and leverage guidelines issued by the federal regulators. The regulatory
agencies are required by law to take specific prompt actions with respect to
institutions that do not meet minimum capital standards and have defined five
capital tiers, the highest of which is "well-capitalized". As of December 31,
1996, the Corporation and each of its bank subsidiaries were well capitalized,
as defined. See footnote 14 "Regulatory Capital" in the Notes to the
Consolidated Financial Statements.
- -------------------------------------------------------
Dividend and Other Restrictions: Subsidiaries
The Corporation's banking subsidiaries are subject to limitations on the amount
of dividends they can pay to the Corporation without prior approval of the bank
regulatory authorities. The Trust Company has received approval from bank
regulatory authorities to pay dividends to the Corporation out of current
76
<PAGE> 46
earnings beginning September 1, 1995. As of December 31, 1996, the Corporation's
banking subsidiaries can declare, in aggregate, dividends of approximately $22.2
million without prior regulatory approval.
There are various statutory and regulatory limitations on the extent to
which banking subsidiaries of the Corporation can finance or otherwise transfer
funds to the Corporation or its nonbanking subsidiaries. These "covered
transactions" are limited to 20% of capital and surplus, as defined, and covered
transactions with any one such affiliate are limited to 10% of capital and
surplus. Covered transactions are defined to include, among other things, loans
and extensions of credit to such affiliate, purchases of assets from such
affiliate, and guarantees, acceptances, and letters of credit issued on behalf
of such an affiliate. Such covered transactions must be collateralized by
qualifying collateral, as defined.
- -------------------------------------------------------
PROPERTIES
The Trust Company rents approximately 520,000 square feet of office space in New
York City. The Trust Company and certain subsidiaries occupy approximately
403,000 square feet of a 25-story bank and office building at 114 West 47th
Street (the Trust Company's statutory principal office) under a lease expiring
in 2014. Certain of the Trust Company's departments occupy approximately 62,600
square feet of space at 770 Broadway under a sub-lease with Chase expiring in
2000. The Corporation owns a 5-story building at 9-11 West 54th Street and
leases adjoining property for the operation of a branch office. The Corporation
also owns a building in Boca Raton, Florida. The Trust Company also operates
branch offices in leased premises at 100 Park Avenue and 111 Broadway.
Certain subsidiaries of the Corporation occupy leased office space in New
York City; Costa Mesa, California; Los Angeles, California; Stamford, Greenwich
and West Hartford Connecticut; Washington, D.C.; Naples, Florida; Palm Beach,
Florida; Princeton, New Jersey; Garden City, Long Island; Portland, Oregon, and
Dallas, Texas.
- -------------------------------------------------------
COMPETITION
The Corporation's personal investment management business is intensely
competitive. The competition is highly fragmented with a wide variety of
institutions vying for this business. Principle among them are other investment
management companies. Brokerage firms, mutual fund companies and banking
institutions are also competition for this business. No one competitor dominates
this market. In the personal trust business, the Corporation competes primarily
with bank trust departments as well brokerage and investment management firms
with trust powers. In private banking, the Corporation competes with other
banks, both as to service and price, in those markets where it offers private
banking services.
Competition in the Corporation's special fiduciary services business, as
well as the corporate trust business, comes primarily from bank trust
departments and other trust companies.
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Executive Officers Age Title
- ------------------------------ --- -----------------------------------------------------------
<S> <C> <C>
H. Marshall Schwarz........... 60 Chairman of the Board and Chief Executive Officer (since
February 1990)
Jeffrey S. Maurer............. 49 President (since February 1990) and Chief Operating Officer
(since December 1994)
Frederick B. Taylor........... 55 Vice Chairman and Chief Investment Officer (since February
1990)
John M. Deignan............... 53 Executive Vice President (since May 1991)
John C. Hover II.............. 53 Executive Vice President (since May 1991)
Paul K. Napoli................ 51 Executive Vice President (since May 1991)
Kenneth G. Walsh.............. 48 Executive Vice President (since May 1991)
John L. Kirby................. 49 Executive Vice President (since February 1997), Treasurer
and Chief Financial Officer (since August 1995)
</TABLE>
77
<PAGE> 1
EXHIBIT 21
U.S. Trust Corporation
List of Subsidiaries
<TABLE>
<CAPTION>
State or Other Jurisdiction Office Percent
of Incorporation Owned
---------------------------------- ------------
<S> <C> <C>
United States Trust Company of New York New York 100.0%
United States Trust Company International Corporation United States 100.0
United States Trust Company of New York (Grand Cayman) Ltd. Cayman Islands 100.0
UST Overseas Corporation Delaware 100.0
Foreign & Colonial Asset Management London, England 50.0
UST Property Company, Inc. New York 100.0
UST Financial Services Corp. New York 100.0
US Trust Mortgage Service Company Florida 100.0
U.S. Trust Company of California, N.A. California 100.0
UST Fiduciary Services Ltd. Delaware 100.0
UST - Los Angeles, Inc. California 100.0
U.S. Trust Company of Connecticut Connecticut 100.0
U.S. Trust Company of Florida Savings Bank Florida 100.0
U.S. Trust Company of New Jersey New Jersey 100.0
UST Securities Corporation New Jersey 100.0
U.S.T. L.P.O. Corp. Delaware 100.0
U.S. Trust Company of Texas, N.A. Texas 100.0
CTMC Holding Company Oregon 100.0
CTC Consulting, Inc. Oregon 100.0
U.S. Trust Company of the Pacific Northwest Oregon 100.0
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (i) the Registration
Statement on Form S-8 of U.S. Trust Corporation (Registration No. 33-63899)
pertaining to the 1995 Stock Option Plan of U.S. Trust Corporation, (ii) the
Registration Statement on Form S-8 of U.S. Trust Corporation (Registration No.
33-62371) pertaining to the 401(k) Plan and ESOP of United States Trust Company
of New York and Affiliated Companies and (iii) the Registration Statement on
Form S-3 of U.S. Trust Corporation (Registration No. 333-16607) pertaining to
the resale of 35,629 shares by certain selling shareholders, of our report
dated February 21, 1997, on our audits of the consolidated financial statements
of U.S. Trust Corporation and Subsidiaries as of December 31, 1996 and 1995 and,
for each of the three years in the period ended December 31, 1996, which report
is included in this Report on Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
March 11, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 78,566
<INT-BEARING-DEPOSITS> 201,950
<FED-FUNDS-SOLD> 84,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,165,919
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,688,141
<ALLOWANCE> 16,693
<TOTAL-ASSETS> 3,477,318
<DEPOSITS> 2,763,789
<SHORT-TERM> 240,283
<LIABILITIES-OTHER> 232,680
<LONG-TERM> 26,468
0
0
<COMMON> 19,630
<OTHER-SE> 194,468
<TOTAL-LIABILITIES-AND-EQUITY> 3,477,318
<INTEREST-LOAN> 117,459
<INTEREST-INVEST> 51,290
<INTEREST-OTHER> 5,982
<INTEREST-TOTAL> 174,731
<INTEREST-DEPOSIT> 82,551
<INTEREST-EXPENSE> 95,861
<INTEREST-INCOME-NET> 78,870
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 642
<EXPENSE-OTHER> 253,450
<INCOME-PRETAX> 69,273
<INCOME-PRE-EXTRAORDINARY> 40,904
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,904
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.92
<YIELD-ACTUAL> 3.24
<LOANS-NON> 8,882
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,086
<CHARGE-OFFS> 1,175
<RECOVERIES> 782
<ALLOWANCE-CLOSE> 16,693
<ALLOWANCE-DOMESTIC> 16,693
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,693
</TABLE>
