Registration No. 333-
As filed with the Securities and Exchange Commission on July 14, 1999
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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U.S. TRUST CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
NEW YORK 6712 13-3818952
(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of incorporation or Classification Code Number) identification number)
organization)
</TABLE>
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
(212) 852-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RICHARD B. GROSS
MANAGING DIRECTOR AND GENERAL COUNSEL
U.S. TRUST CORPORATION
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
(212) 852-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
with copies to:
MICHAEL M. WISEMAN MICHAEL R. ABEL
SULLIVAN & CROMWELL SCHELL BRAY AYCOCK ABEL & LIVINGSTON, P.L.L.C.
125 BROAD STREET 230 NORTH ELM STREET
NEW YORK, NEW YORK 10004 RENAISSANCE PLAZA, SUITE 1500
(212) 558-4000 GREENSBORO, NORTH CAROLINA 27401
(336) 370-8800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time of the merger of NCT Holdings, Inc. with and into a wholly owned
subsidiary of U.S. Trust Corporation as described in the Agreement and Plan of
Merger dated as of May 14, 1999.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SHARES TO BE REGISTERED (1) REGISTERED (2) PER UNIT PRICE (3) REGISTRATION FEE (4)
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<S> <C> <C> <C> <C>
Common Shares, par value
$1.00 per share (and
associated Rights to
Purchase Series A
Participating Cumulative
Preferred Shares) 900,000 N/A $6,938,329.56 $1,928.86
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<FN>
(1) The associated Rights are presently attached to, and transferable only
with, the Common Shares.
(2) Represents an estimate of the maximum number of Common Shares that the
shareholders of NCT Holdings may receive in connection with the merger
described in this Registration Statement.
(3) Determined in accordance with Rule 457(f)(2) under the Securities Act of
1933 based on the book value, as of March 31, 1999, of the NCT Holdings
common shares to be received by U.S. Trust in the merger.
(4) Pursuant to Rule 457(b) under the Securities Act, the amount of the
registration fee has been reduced by $1,387.67, the amount paid to the
Securities and Exchange Commission on June 18, 1999 with respect to this
transaction. The difference of $541.19 is being paid herewith.
</FN>
</TABLE>
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<PAGE>
MERGER PROPOSED -
YOUR VOTE IS VERY IMPORTANT
Dear Shareholders:
The board of directors of NCT Holdings, Inc. has approved a merger with a
subsidiary of U.S. Trust Corporation. We believe the merger will improve our
ability to serve our clients by giving NCT access to U.S. Trust's resources and
will allow you to participate in the combined companies as a shareholder of U.S.
Trust.
In the merger, each NCT common share will automatically be converted into
the right to receive up to seven installments of U.S. Trust common shares:
o one at the time of the merger
o two on February 14, 2001
o one on February 14th of the years 2002 through 2005
The amount of each installment is based on a formula and cannot be
determined today. The relevant factors in determining the amount of each
installment include:
o NCT's revenues before and after the merger
o the number and exercise price of NCT stock options
o any extraordinary withdrawals of assets by NCT's clients after the
merger
o any claims by U.S. Trust or third parties in connection with the merger
Depending on these factors, it is possible that one or more installments will
not be paid.
As an example, assume the merger occurred on July 9, 1999. The first
exchange ratio would have been 0.1877 U.S. Trust common shares for each NCT
common share you held. For each share issuable under a NCT option, optionholders
would have received cash equal to $17.58 minus the per-share option exercise
price.
We have called a shareholders meeting for August 19, 1999 so that you can
vote on:
o the plan of merger
o related compensation payments to employees
We cannot complete the merger unless our shareholders approve both the plan
of merger and the compensation payments. Whether or not you plan to attend the
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you attend the special meeting, you may vote in person
even if you have already returned your proxy card.
This document describes the special meeting, the plan of merger, the
compensation payments and other related matters. I encourage you to read this
entire document carefully.
Sincerely,
/s/ Stephen C. Hassenfelt
Stephen C. Hassenfelt
Chairman and Chief Executive Officer
READ CAREFULLY THE RISK FACTORS RELATING TO THE MERGER ON PAGE 21 OF THIS
DOCUMENT.
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Neither the SEC nor any state securities commission has approved of the
securities to be issued in the merger or determined if this document is accurate
or adequate. It is illegal for anyone to tell you otherwise.
The securities to be issued in the merger are not savings or deposit accounts
and are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency.
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This proxy statement/prospectus is dated July 14, 1999 and is first being mailed
to you on or about July 16, 1999.
<PAGE>
NCT HOLDINGS, INC.
301 NORTH ELM STREET
GREENSBORO, NORTH CAROLINA 27401
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on August 19, 1999
-----------
To the Shareholders of
NCT Holdings, Inc.:
A special meeting of shareholders of NCT Holdings, Inc. will be held on
August 19, 1999, at 3:00 p.m., local time, at North Carolina Trust Company, 301
North Elm Street, 9th Floor, Greensboro, North Carolina, to consider and vote
on:
1. A proposal to approve the Agreement and Plan of Merger, dated as of May
14, 1999, among NCT, U.S. Trust and NCT Holdings Acquisition Company, a
wholly owned subsidiary of U.S. Trust, and the merger of NCT into NCT
Holdings Acquisition Company.
2. A proposal to approve merger-related compensation payments to employees
of North Carolina Trust Company, a wholly owned subsidiary of NCT.
3. Such other business related to the foregoing proposals as may properly
come before the special meeting.
Only shareholders of record at the close of business on July 9, 1999 will
be entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements of it.
Although you will vote on the plan of merger and the related compensation
payments separately, approval of the payments is a condition to the merger.
Therefore, the merger will not be completed if the payments are not approved.
Similarly, completing the merger is a condition to making the compensation
payments, and we will not pay the related compensation unless the merger is
completed.
Your board of directors has unanimously adopted and approved the plan of
merger and the related compensation payments as in the best interests of NCT and
its shareholders and unanimously recommends that you vote "FOR" approval of both
the plan of merger and the merger-related compensation payments.
You are entitled to assert dissenters' rights under Article 13 of the North
Carolina Business Corporation Act, but must follow certain procedures strictly
in order to do so. A copy of Article 13, which sets forth these procedures, is
attached as Appendix B to this document.
This document provides you with detailed information about the plan of
merger and the related payments you are being asked to vote on, including a copy
of the plan of merger. You are encouraged to read this entire document
carefully.
By order of the board of directors,
/s/ Steven J. Frost
Steven J. Frost
Secretary
Greensboro, North Carolina
July 14, 1999
<PAGE>
ADDITIONAL INFORMATION ABOUT U.S. TRUST
This document incorporates important business and financial information
about U.S. Trust from other documents that are not included in or delivered with
this document. This information has been omitted pursuant to the rules and
regulations of the SEC. You may orally or by written request obtain this
information without charge. You can obtain documents incorporated by reference
in this document, other than some of the exhibits to those documents, by
requesting them in writing or by telephone from U.S. Trust at the following
address and number:
U.S. TRUST CORPORATION
Corporate Communications Department
114 West 47th Street
New York, New York 10036
(212) 852-1000
See "Where You Can Find More Information" (page 86) to learn about how you
can get additional information about U.S. Trust.
<PAGE>
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING................1
SUMMARY.......................................................................6
The Companies............................................................6
What You Will Receive in the Merger......................................6
The Special Meeting......................................................7
The Merger...............................................................8
Merger-Related Compensation Payments to Employees........................9
The Plan of Merger......................................................10
Voting Agreements.......................................................11
Principal U.S. Federal Income Tax Consequences of the Merger............11
Regulatory Approvals Required for the Merger............................12
Comparison of Shareholders' Rights......................................12
MARKET PRICE AND DIVIDEND INFORMATION........................................13
U.S. Trust..............................................................13
NCT.....................................................................13
Recent Closing Prices...................................................14
Number of Shareholders..................................................14
SELECTED COMPARATIVE PER SHARE INFORMATION...................................15
SELECTED HISTORICAL FINANCIAL DATA OF U.S. TRUST CORPORATION AND
SUBSIDIARIES...............................................................17
SELECTED HISTORICAL FINANCIAL DATA OF NCT HOLDINGS, INC. AND
SUBSIDIARIES...............................................................19
RISK FACTORS.................................................................21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS....................22
WHAT YOU WILL RECEIVE IN THE MERGER..........................................23
Merger Consideration....................................................23
First Installment.......................................................23
Second Installment......................................................25
Earnout Installments....................................................26
Reduction in the Earnout Exchange Ratios for Costs to U.S. Trust........28
Treatment of NCT Stock Options..........................................28
Fractional Shares.......................................................30
Exchange of NCT Shares for U.S. Trust Shares............................31
THE SPECIAL MEETING..........................................................31
Time, Place and Matters to Be Voted on..................................31
Recommendations to Shareholders.........................................31
Voting..................................................................32
Proxies.................................................................33
Special Procedures for the NCT Employee Stock Ownership Plan............34
THE MERGER...................................................................34
Background to the Merger................................................35
NCT's Reasons for the Merger............................................36
U.S. Trust's Reasons for the Merger.....................................37
Interests of Management and Directors in the Merger That May Differ
From Your Interests...................................................37
Resale of U.S. Trust Common Shares......................................38
MERGER-RELATED COMPENSATION PAYMENTS TO EMPLOYEES............................39
Relationship to the Merger..............................................39
Disqualified Individuals................................................39
Merger-Related Payments.................................................40
Requirements of Sections 280G and 4999..................................42
THE PLAN OF MERGER...........................................................44
Time of the Merger......................................................44
NCT Representative......................................................45
Conditions to the Merger................................................45
Representations and Warranties..........................................46
Conduct of NCT's Business Until the Merger..............................47
Actions by NCT and U.S. Trust...........................................49
Accounting Treatment....................................................49
Termination.............................................................50
Termination Fee.........................................................51
Amendment...............................................................51
Waiver..................................................................51
<PAGE>
PAGE
Right to Revise Structure...............................................51
NYSE Listing............................................................52
Expenses................................................................52
VOTING AGREEMENTS............................................................52
PRINCIPAL U.S.FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER..................52
REGULATORY APPROVALS REQUIRED FOR THE MERGER.................................54
Federal Reserve Board...................................................55
North Carolina Commissioner of Banks....................................56
DISSENTERS'RIGHTS............................................................56
What Are Dissenters' Rights?............................................56
How Do I Dissent?.......................................................56
THE COMPANIES................................................................58
U.S. Trust..............................................................58
NCT.....................................................................59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NCT HOLDINGS, INC.............................62
Certain Factors Affecting Results of Operations.........................62
Results of Operations for the Year Ended September 30, 1998
Compared with the Years ended September 30, 1997 and 1996.............62
Financial Condition as of September 30, 1998 Compared to 1997...........65
Year 2000 Issues........................................................66
Risk Management.........................................................67
Interim Financial Data..................................................68
Financial Condition as of March 31, 1999 Compared to
September 30, 1998....................................................68
Business Segments.......................................................68
SHARE OWNERSHIP OF NCT.......................................................70
By Management...........................................................70
By Five Percent Owners..................................................71
DESCRIPTION OF U.S. TRUST CAPITAL STOCK......................................72
Authorized Capital Stock................................................72
U.S. Trust Common Shares................................................73
U.S. Trust Preferred Shares.............................................73
Rights..................................................................73
Changes in Control......................................................74
COMPARISON OF SHAREHOLDERS' RIGHTS...........................................76
Comparison of Your Rights as NCT Shareholders and as
U.S. Trust Shareholders...............................................76
REGULATORY MATTERS RELATING TO U.S. TRUST....................................84
Payment of Dividends....................................................85
Capital Requirements....................................................85
Relationships with Affiliates...........................................85
Purpose of Regulation...................................................85
EXPERTS......................................................................86
SHAREHOLDER PROPOSALS........................................................86
WHERE YOU CAN FIND MORE INFORMATION..........................................86
VALIDITY OF SHARES...........................................................87
APPENDICES
A. Agreement and Plan of Merger
B. Dissenters' Rights
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: In the merger, each NCT common share will automatically be converted into
the right to receive up to seven installments of U.S. Trust common shares:
o at the time of the merger, an amount of U.S. Trust common shares equal
to the "first exchange ratio"
o on February 14, 2001, an amount of U.S. Trust common shares equal to
the "second exchange ratio"
o on February 14th of the years 2001, 2002, 2003, 2004 and 2005, an
amount of U.S. Trust common shares equal to the "earnout exchange
ratio" for the measuring period ending on the preceding December 31st
We refer to these installments as the "merger consideration."
The amount of each installment of the merger consideration is expressed as
a number of U.S. Trust common shares to be issued for each NCT common share. We
call this the "exchange ratio" for each installment.
The exchange ratio for each installment is based on a total amount that
U.S. Trust calculates for the installment. This amount generally represents the
total amount to be paid by U.S. Trust in the installment to both NCT
shareholders and holders of NCT stock options. In the first installment,
however, U.S. Trust will pay less than the total amount because U.S. Trust will
subtract the option exercise price from the amount NCT optionholders would
receive if they had exercised their options and paid the option exercise price
before the merger.
NCT shareholders will receive U.S. Trust common shares representing a
portion of the total amount actually paid by U.S. Trust in each installment, and
NCT optionholders will receive the remaining portion in cash.
<PAGE>
The following table describes the calculation:
<TABLE>
<CAPTION>
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INSTALLMENT TIMING TOTAL AMOUNT
- ------------------- ----------------- --------------------------------------------------------------------------
<S> <C> <C>
First At the time of 95% of:
the merger
o 2.75 times annualized fee revenues of NCT at the time of the merger
plus
o 2.75 times annualized fee revenues of certain clients that NCT has
referred to U.S. Trust less commissions to employees of U.S. Trust
for the referrals
plus
o amounts related to the exercise price of NCT stock options
minus
o any deficiency in the expected book value of NCT at the time of the
merger
- ------------------- ----------------- --------------------------------------------------------------------------
Second February 14, o 5% of the bullet points listed above in calculating the total
2001 amount for the first installment
minus
o 2.75 times annualized fee revenues at the time of the merger that
were attributable to assets that were withdrawn in "extraordinary
withdrawals" during the 12 months following the merger
plus
o interest on the above at a rate of 5% per year, without
compounding
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
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INSTALLMENT TIMING TOTAL AMOUNT
- ------------------- ----------------- --------------------------------------------------------------------------
<S> <C> <C>
Earnout February 14th o 0% to 40% of the annualized revenues of NCT during the measuring
(Third through of the years period ending on the preceding December 31st, depending on the
Seventh) 2001 - 2005 growth rate of NCT revenues in accordance with the table below:
Annualized Growth Rate Multiplier
13.5% or less 0%
Over 13.5% to 17.5% 20%
Over 17.5% to 22.5% 30%
More than 22.5% 40%
minus
o $250,000, for each installment after February 14, 2001
This amount is then reduced by:
o any amount by which the total amount for the second installment is
negative
o any costs of U.S. Trust or related persons as a result of breaches
of the plan of merger
o amounts related to changes in factors used to determine the book
value of NCT at the time of the merger
We will not, however, reduce the total amount for any period to less
than $0. If there is a reduction that is not made as a result of this
limit, we will reduce any total amount for later periods.
- ------------------- ----------------- --------------------------------------------------------------------------
</TABLE>
This total amount is then allocated among NCT shareholders and holders of NCT
stock options by dividing the amount by the number of NCT common shares that
are:
o outstanding at the time of the merger and
o issuable under NCT stock options at the time of the merger
This allocation produces what we call the "adjusted per share amount" of the
installment, because we have adjusted the total amount for shares issuable under
NCT options.
The exchange ratio for each installment is equal to the "adjusted per share
amount" divided by the average price per U.S. Trust common share reported by the
NYSE for the ten consecutive trading day period ending six business days before
the payment.
Example of the First Installment. As an example, assume the merger occurred
on July 9, 1999.
At that time:
-3-
<PAGE>
o the total amount of the first installment would have been about
$43,883,895, which includes a total option exercise price of about
$5,431,995 that will not actually be paid by U.S. Trust
o the amount of NCT common shares outstanding was 1,935,302 and the
amount of shares issuable under NCT stock options was 560,500
o dividing $43,883,895 by the total number of shares, which is 2,495,802,
the resulting "adjusted per share amount" would have been $17.58
o the average price of U.S. Trust common shares for the ten trading day
period ended June 30, 1999 was $93.66
As a result, the first exchange ratio would have been 0.1877 U.S. Trust
common shares for each NCT common share you held. For each share issuable
under a NCT option, optionholders would have received cash equal to $17.58
minus the per-share option exercise price.
Cautions. The plan of merger provides that the actual first exchange ratio
will not be known until very shortly before the merger and, therefore, after you
vote at the meeting. Thus, you cannot determine the exact number or the value of
the U.S. Trust common shares you will receive in the first installment. Also,
the amounts of the second exchange ratio and the five earnout exchange ratios
depend on NCT's performance after the merger and could equal 0. If that happens,
no merger consideration will be paid for each installment for which the exchange
ratio equals 0. The exchange ratio for an installment cannot, however, be less
than 0.
Q: WHAT DO I NEED TO DO NOW?
A: After you have read this document carefully, show your vote on the proxy
card, sign the card and mail it in the enclosed return envelope as soon as
possible. This will ensure that your shares may be represented at the
special meeting. Your vote is very important.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?
A: Yes. There are three ways to change your vote. First, you may give written
notice to NCT's Secretary that you would like to revoke your proxy. Second,
you may send in a later-dated, signed proxy card to NCT's Secretary before
the meeting. Third, you may attend the meeting and vote in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. When the merger is completed, U.S. Trust will send you written
instructions for exchanging your stock certificates.
-4-
<PAGE>
Q: WHAT IF I OBJECT TO THE MERGER?
A: After the merger, you may be entitled to dissenters' rights under North
Carolina law. Dissenters' rights are statutory rights that enable
shareholders who object to extraordinary matters, like mergers, to dissent
and to require the corporation to buy their shares at fair value. If you
want to exercise these rights, you must follow the procedures required by
North Carolina law. If you do not comply with the procedures required by
North Carolina law, you will lose your dissenters' rights. Therefore, if
you want these rights, you should carefully review the text and comply with
the requirements of Article 13 of the North Carolina Business Corporation
Act, and consult with an attorney. We have attached a copy of this Article
as Appendix B.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: Please call Stephen C. Hassenfelt at (336) 272-5100.
-5-
<PAGE>
SUMMARY
This summary and the introductory question and answer section highlight
selected information contained in this document and may not contain all of the
information that is important to you. We urge you to read carefully this entire
document, and the other documents to which this document refers, to understand
fully the merger and other related transactions. See "Where You Can Find More
Information" on page 86 to learn about how you can get the additional
information referenced in this document.
THE COMPANIES
U.S. TRUST CORPORATION (PAGE 58)
U.S. Trust Corporation is a bank holding company registered under federal
law and incorporated in New York. Through its subsidiaries, U.S. Trust engages
in two principal businesses:
o personal wealth management services
o institutional services
U.S. Trust's principal subsidiary is United States Trust Company of New
York, a state-chartered bank and trust company. As of March 31, 1999, U.S. Trust
had assets under management of about $79.5 billion.
U.S. Trust often looks at acquiring other companies. Any future acquisition
could be material, in terms of assets acquired or liabilities assumed, to U.S.
Trust's financial condition. It is possible that an acquisition may result in
dilution of book value and net income per U.S. Trust common share.
NCT HOLDINGS, INC. (PAGE 59)
NCT Holdings, Inc. is a North Carolina corporation. Through its
subsidiaries, NCT provides comprehensive wealth management and fiduciary
services to:
o high-net-worth individuals
o not-for-profit organizations
o employee benefit plans
NCT's principal subsidiary is North Carolina Trust Company, a
non-depository, state-chartered banking corporation. As of March 31, 1999, North
Carolina Trust had assets under management of about $2.4 billion.
WHAT YOU WILL RECEIVE IN THE MERGER
MERGER CONSIDERATION (PAGE 23)
In the merger, each NCT common share will automatically be converted into
the right to receive up to seven installments of U.S. Trust common shares. We
refer to these installments as the "merger consideration."
You cannot transfer your right to receive the second installment and the
earnout installments of the merger consideration.
REDUCTION IN THE EARNOUT EXCHANGE RATIOS FOR COSTS TO U.S. TRUST (PAGE 28)
The plan of merger provides that the total amount to be paid by U.S. Trust
in each of the third through seventh installments, which we refer to as the
"earnout installments", will be reduced by any costs to U.S. Trust and related
persons that result from:
o NCT's breach of a representation or warranty in the plan of merger
resulting in costs of more than $25,000
o the tax disqualification of NCT's employee stock ownership plan or 401(k)
plan
o NCT's breach of an agreement in the plan of merger
-6-
<PAGE>
There will be no reduction, however, for the first $250,000 of costs, if
any.
U.S. Trust also has the right to temporarily reduce the total amount for an
earnout installment period to satisfy costs that are not yet final. U.S. Trust
can exercise this right if it determines in good faith that the expected future
earnout total amounts will not be enough to satisfy the pending costs. If an
amount temporarily withheld is not used to satisfy costs by February 14, 2005,
the amount and interest on the amount will be included when we calculate the
final earnout exchange ratio.
Any reduction in the total earnout amount for a period will result in a
reduction in the earnout exchange ratio for that period and will reduce the
amount of the earnout installment you receive.
TREATMENT OF NCT STOCK OPTIONS (PAGE 28)
The plan of merger provides that each NCT stock option issued to NCT
employees, directors and advisory board members will automatically be converted
into the right to receive seven cash installments from U.S. Trust.
We will pay each of these installments at the time installments of the
merger consideration are payable to holders of NCT common shares in the merger,
subject to the continuation of these optionholders' existing noncompetition and
nonsolicitation agreements, which would otherwise terminate at the time of the
merger. The installments will be in the following amounts:
(1) The first installment payment for each NCT stock option will equal:
o the "adjusted per share amount" used in determining the first exchange
ratio
times
o the number of NCT common shares subject to the option at the time of
the merger
minus
o the total exercise price of the option at the time of the merger.
(2) The other installment payments for each NCT stock option will equal:
o the "adjusted per share amount" used in determining the relevant
exchange ratio
times
o the number of NCT common shares subject to the option at the time of
the merger.
Cash paid in exchange for NCT stock options will be treated as compensation
for all purposes, including taxation. An appropriate amount of taxes will be
withheld from all payments to holders of NCT stock options.
FRACTIONAL SHARES (PAGE 30)
U.S. Trust will not issue fractional U.S. Trust common shares to you in any
installment of the merger consideration. Instead, U.S. Trust will pay you cash
equal to the value of any fractional share that would otherwise have been
paid.
THE SPECIAL MEETING
TIME, PLACE AND MATTERS TO BE VOTED ON (PAGE 31)
We have scheduled the special meeting for August 19, 1999, at 3:00 p.m.,
local time, at North Carolina Trust Company, 301 North Elm Street, 9th Floor,
Greensboro, North Carolina.
At the special meeting you will be asked to consider and vote on:
o approval of the plan of merger
o approval of merger-related compensation
-7-
<PAGE>
payments to employees
o any other business related to these proposals that may properly come before
the special meeting
RECOMMENDATIONS TO SHAREHOLDERS (PAGE 31)
NCT's board of directors has unanimously approved, and recommends that NCT
shareholders vote "FOR" approval of:
o the plan of merger
o merger-related compensation payments
VOTES YOU HAVE AND VOTES REQUIRED (PAGE 32)
Votes You Have. You will have one vote at the special meeting for each NCT
common share that our records show you owned at the close of business on July 9,
1999.
A total of 1,201,147 NCT Class A common shares and 734,155 NCT Class B
common shares can vote at the special meeting.
Votes Required. We will hold the special meeting if holders of a majority
of each class of NCT common shares entitled to vote either attend the special
meeting in person or sign and return their proxy cards.
The approval of holders of a majority of each class of NCT common shares
entitled to vote is required for approval of the plan of merger.
The approval of holders of more than 75% of the NCT common shares held
by "disinterested" shareholders is required to approve the merger-related
compensation payments. A total of 936,224 NCT common shares that can vote at the
special meeting are held by disinterested shareholders.
THE MERGER
We propose to merge NCT with NCT Holdings Acquisition Company, a wholly
owned subsidiary of U.S. Trust. After the merger, NCT will no longer exist, but
the surviving company will change its name to "NCT Holdings, Inc." and will
continue NCT's business. When we refer to "NCT" after the merger, we mean the
surviving company in the merger.
North Carolina Trust will be a wholly owned subsidiary of the surviving
company and will continue as a state-chartered bank under North Carolina law.
INTERESTS OF MANAGEMENT AND DIRECTORS IN THE MERGER THAT MAY DIFFER FROM
YOUR INTERESTS (PAGE 37)
In considering the recommendations of NCT's board of directors, you should
be aware that the members of the board and of NCT's management may have
interests in the merger that are different from your interests as a shareholder
generally.
These interests include:
o In the merger, NCT stock options issued to employees, directors and
advisory board members will be converted into the right to receive cash
payments. These payments are similar to the installments of the merger
consideration to be paid to NCT's shareholders.
o U.S. Trust and North Carolina Trust Company have entered into employment
agreements with Stephen C. Hassenfelt, Sue W. Cole, John R. Rich, Robert E.
Mallernee, Suzanne G. Bledsoe and David S. Routh.
o The merger depends on the approval of merger-related compensation payments
to employees.
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<PAGE>
o The plan of merger includes a program to provide for retention payments to
some of the key employees of NCT after the merger. The total amount of the
retention program will not be more than $3,000,000.
o In connection with the merger, NCT's board of directors approved
supplemental payments to Stephen C. Hassenfelt, Sue W. Cole, Robert E.
Mallernee and David E. Webb.
o The plan of merger provides that the current board of directors and
management of NCT will serve as the board of directors and management of
NCT after the merger.
o NCT will indemnify and provide insurance for the officers and directors of
NCT for events occurring before the merger, including events that are
related to the board's adoption of the plan of merger.
The board of directors of NCT knew about these additional interests, and
considered them, when they approved the plan of merger.
MERGER-RELATED COMPENSATION PAYMENTS TO EMPLOYEES
Some of the payments to employees of North Carolina Trust relating to the
merger could result in "excess parachute payments" for federal income tax
purposes. Excess parachute payments to disqualified individuals are not
deductible for federal tax purposes by the paying company and are subject to an
extra 20% federal tax that must be paid by the employee. If the payments related
to the merger are approved at the special meeting, however, they will not be
parachute payments and will not be subject to unfavorable tax treatment.
RELATIONSHIP TO THE MERGER (PAGE 39)
Because approval of these payments is legally separate from the merger, we
are asking you to vote on them separately from your vote on the plan of merger.
However, the merger will not be completed if these payments are not approved and
these payments will not be made if the merger is not completed.
DISQUALIFIED INDIVIDUALS (PAGE 39)
We are asking for approval of payments to the following employees of North
Carolina Trust:
o Stephen C. Hassenfelt o Suzanne G. Bledsoe
o Sue W. Cole o David S. Routh
o John R. Rich o Elden J. LeGaux
o Robert E. Mallernee o Martha J. Stenhouse
o David E. Webb o David J. Cathcart
o Steven J. Frost
These are the employees that would likely be disqualified individuals for
federal tax purposes.
MERGER-RELATED PAYMENTS (PAGE 40)
A parachute payment can be any payment, regardless of form, that is in the
nature of compensation. We are seeking approval of each of the following
merger-related payments:
o payments with respect to NCT stock options held by the employees named
above, including those held by Mr. Webb after termination of his employment
with North Carolina Trust
o retention payments after the merger
o payments under the employment agreements, if the employee is terminated
"without cause" or resigns for a "good reason"
o other merger-related payments to Mr.
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<PAGE>
Hassenfelt, Ms. Cole, Mr. Mallernee and Mr. Webb totaling $578,537
THE PLAN OF MERGER
The plan of merger is attached as Appendix A. Please read the entire plan
of merger carefully. It is the legal document that governs the merger.
TIME OF THE MERGER (PAGE 44)
We expect that the merger will occur on the last business day of the month
in which all of the conditions to the merger have been satisfied or waived. We
currently expect that the merger will take place on August 31, 1999.
CONDITIONS TO THE MERGER (PAGE 45)
Completing the merger depends on a number of conditions. These conditions
include:
o the approval by NCT shareholders of the plan of merger
o the approval by NCT shareholders of merger-related compensation payments to
employees
o the receipt of the necessary approvals from governmental authorities and
third parties
o the continuous management at the time of the merger of at least 85% of the
assets managed by NCT on May 14, 1999
o the receipt by each of NCT and U.S. Trust of a legal opinion that the U.S.
federal income tax treatment of the merger to NCT and to NCT's shareholders
will be as we have described it in this document
o each of NCT and U.S. Trust's representations and warranties being true and
each having performed its obligations under the plan of merger
If the law permits, either NCT or U.S. Trust could choose to waive a
condition to complete the merger. We cannot be certain when, or if, the
conditions to the merger will be satisfied or waived, or that the merger will be
completed.
TERMINATION (PAGE 50)
NCT and U.S. Trust can terminate the plan of merger at any time before the
merger, even after the NCT shareholders have approved it, under a number of
circumstances. These include:
(1) by written agreement between NCT and U.S. Trust
(2) by either NCT or U.S. Trust, if:
o the other materially breaches its representations, warranties or
covenants
o any approval by a third party or NCT shareholders that is necessary to
complete the merger or approve the merger-related compensation payments
is denied
(3) by U.S. Trust if:
o NCT's board of directors withdraws or adversely modifies its
recommendation that NCT shareholders vote in favor of the plan of
merger
o NCT's board of directors participates in negotiations regarding any
acquisition proposal with a third party
o less than 85% of the assets under management by NCT or its subsidiaries
on May 14, 1999 remain under management
TERMINATION FEE (PAGE 51)
NCT has agreed to pay U.S. Trust a $5 million fee if it completes an
acquisition transaction with a third-party:
o before the plan of merger is terminated or
o within 18 months of the plan of merger
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<PAGE>
terminating after certain events involving a third party making merger or
similar proposals to NCT
This fee is intended to increase the likelihood that the merger with U.S.
Trust occurs and may discourage competing offers.
AMENDMENT (PAGE 51)
Because of the length of time over which installments of merger
consideration may be paid, we have provided the flexibility to amend the plan of
merger after the merger. After the merger, the plan of merger may be amended
only by a written agreement in writing among U.S. Trust and NCT shareholders
that owned greater than 50% of the outstanding NCT common shares immediately
before the merger was completed, counting the Class A and Class B shares
together.
However, no amendment may disproportionately and adversely affect the right
of any shareholder or optionholder to receive the payments to which the
shareholder or optionholder is entitled as result of the merger. In addition,
any amendment must be consistent with North Carolina law.
NYSE LISTING (PAGE 52)
U.S. Trust's common shares are listed on the NYSE. It is a condition to the
merger that the U.S. Trust common shares issued in the merger are approved for
listing on the NYSE. Before the merger, U.S. Trust will file an application for
this approval.
EXPENSES (PAGE 52)
Each company will pay its own expenses in connection with the plan of
merger, except that NCT will pay for an audit by U.S. Trust of the fee structure
of NCT's clients before the merger.
VOTING AGREEMENTS (PAGE 52)
The form of the voting agreements is attached as an annex to the plan of
merger, which is Appendix A to this document. You are urged to read the voting
agreement.
Before the plan of merger was signed, U.S. Trust entered into voting
agreements with Stephen C. Hassenfelt, Sue W. Cole and Pamela H. Hassenfelt.
They beneficially own or have power to vote about 60% of the Class A shares and
6% of the Class B shares that can vote in the special meeting. In the voting
agreements, they agreed to vote these shares in favor of approval of the plan of
merger.
PRINCIPAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 52)
In general, NCT shareholders will not recognize gain or loss from the
exchange of NCT common shares for U.S. Trust common shares pursuant to the
merger. However, a portion of the U.S. Trust common shares received by NCT
shareholders after the first installment of the merger consideration will
constitute taxable interest income to those shareholders. NCT shareholders may
also recognize taxable gain to the extent of any cash received in lieu of
fractional U.S. Trust common shares. Cash payments in exchange for options to
purchase NCT common shares, and any subsequent cash payments with respect to NCT
stock options, will generally be taxable as ordinary income.
This tax treatment may not apply to certain shareholders and may depend on
your specific situation and on variables not within our control. We urge you to
consult your own tax advisor for a full understanding of the tax consequences of
the merger.
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<PAGE>
REGULATORY APPROVALS REQUIRED FOR THE MERGER (PAGE 54)
We cannot complete the merger unless it is approved by both:
o the Board of Governors of the Federal Reserve System and
o the North Carolina Commissioner of Banks
U.S. Trust and NCT have filed all of the required applications or notices
with the Federal Reserve Board and the North Carolina Commissioner of Banks.
We have not yet received the required approvals, and we cannot be certain
when, or if, we will obtain them. However, we do not know of any reason why we
will not be able to obtain the necessary approvals in a timely manner.
COMPARISON OF SHAREHOLDERS' RIGHTS (PAGE 77)
Your rights as a NCT shareholder are currently governed by North Carolina
law and NCT's articles of incorporation and by-laws. After we complete the
merger, you will become a shareholder of U.S. Trust and your rights will be
governed by New York law and U.S. Trust's certificate of incorporation and
by-laws. As a result of these differing laws and organizational documents, you
will have different rights as a U.S. Trust shareholder than you have now as a
NCT shareholder.
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<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
U.S. TRUST
U.S. Trust common shares are listed on the NYSE under the symbol "UTC."
Until April 23, 1999, however, U.S. Trust's common shares traded on the Nasdaq
National Market under the symbol "USTC."
For each calendar quarter, this table shows:
o the high and low sales prices per U.S. Trust common share reported on
the Nasdaq National Market or the NYSE Composite Tape, depending on the
quarter
o the cash dividends declared per share of U.S. Trust common shares
We have adjusted the market price of U.S. Trust common shares to take into
account a two-for-one stock split in the form of a stock dividend distributed on
February 24, 1997.
U.S. TRUST
----------------------------------
CALENDAR QUARTER HIGH LOW DIVIDENDS
- ---------------- ---- --- ---------
1997
First Quarter......................... $47.88 $37.63 0.15
Second Quarter........................ 49.13 39.25 0.15
Third Quarter......................... 57.25 44.75 0.15
Fourth Quarter........................ 65.75 52.50 0.15
1998
First Quarter......................... 66.50 56.63 0.18
Second Quarter........................ 77.50 64.00 0.18
Third Quarter......................... 84.13 58.88 0.18
Fourth Quarter........................ 76.75 46.75 0.18
1999
First Quarter......................... 84.00 70.75 0.22
Second Quarter........................ 96.13 69.75 0.22
Third Quarter (through July 9, 1999).. 95.19 92.00 0.22
U.S. Trust's ability to pay dividends is subject to legal and regulatory limits,
which are described under the caption "Regulatory Matters Relating to U.S.
Trust" on page 84.
NCT
There is no public trading market for NCT common shares. No dividends have
ever been declared with respect to NCT common shares. In the plan of merger, NCT
has agreed not to pay any dividends until the merger is completed.
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<PAGE>
RECENT CLOSING PRICES
The following table shows the closing sales prices per share of U.S. Trust
common shares on the NYSE on May 14, 1999, the last trading day before the
merger was publicly announced, and on July 9, 1999. The second column represents
the closing sale price of U.S. Trust common shares on these dates multiplied by
0.1936 and 0.1877, respectively. 0.1936 is the first exchange ratio per NCT
common share that would have applied if the merger had occurred on May 14, 1999,
and 0.1877 is the first exchange ratio per NCT common share that would have
applied if the merger had occurred on July 9, 1999. No value was assigned to the
second installment or the earnout installments for this calculation.
U.S. TRUST NCT COMMON
COMMON SHARES SHARE EQUIVALENT
------------- ----------------
May 14, 1999................ $88.38 $17.11
July 9, 1999................ $92.50 $17.36
Of course, the market price of U.S. Trust common shares will fluctuate
before and after the merger. You should obtain current market quotations for
U.S. Trust common shares. We cannot predict the future prices or markets for
U.S. Trust common shares.
NUMBER OF SHAREHOLDERS
As of July 9, 1999, there were about 1,832 shareholders of record who held
U.S. Trust common shares, as shown on the records of U.S. Trust's transfer
agent.
As of July 9, 1999, there were 133 shareholders of record who held NCT
common shares, of which 93 are current or former employees, immediate family
members, directors and advisory board members, as shown on the stock transfer
books of NCT.
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<PAGE>
SELECTED COMPARATIVE PER SHARE INFORMATION
In the table on the next page, we provide you with information about:
o the income per share, cash dividends per share and book value per share
of both U.S. Trust and NCT
o similar information about the merger, which we refer to as "pro forma"
information
In presenting the pro forma information for certain time periods, we assumed
that U.S. Trust and NCT had been merged throughout those periods.
We computed the amounts listed in the "Combined Pro Forma" column as
follows:
o for the "Basic Earnings per Share" and the "Book Value per Share of
Common Stock," by combining U.S. Trust and NCT historic net income for
Basic Earnings per Share and total adjusted equity for Book Value per
Share of Common Stock and dividing each total by the sum of the
weighted average number of U.S. Trust common shares outstanding during
the period and an assumed number of common shares issued in the merger
o for the "Diluted Earnings per Share," by combining U.S. Trust and NCT
historic net income and dividing by the sum of the dilutive number of
U.S. Trust common shares outstanding during the period and an assumed
number of common shares issued in the merger
In assuming the number of common shares to be issued in the merger, we are
required to give effect to the first installment of the merger consideration. We
did this based on factors as of July 9, 1999, and used an exchange ratio of
0.1877 U.S. Trust common shares for each NCT common share. These factors,
however, have changed since July 9, 1999 and will change until the merger. Also,
we have not given effect to the second installment or any of the earnout
installments of the merger consideration. If we had assumed that some of these
installments had been paid, the amounts in this column would have been smaller.
We computed the amounts listed in the "Pro Forma Equivalent of One NCT
Share" column by:
o using the "combined pro forma" amounts and
o multiplying by an assumed first exchange ratio of 0.1877
We present this information to reflect the fact that you will receive some
multiple of a U.S. Trust common share for each NCT common share you hold. The
assumed first exchange ratio is based on factors as of July 9, 1999. The actual
first exchange ratio will not be known until shortly before the merger. Also, we
did not assign any value to the second installment or the earnout installments
for this calculation.
We expect that we will incur reorganization and integration expenses as
a result of the merger. We also anticipate that the merger will provide the
merged company with cost savings and the opportunity to earn more revenues. We
cannot, however, estimate these expenses and revenues at this time and therefore
have not included them in the pro forma information listed on the next page. In
listing this pro forma information, we are not attempting to predict or suggest
future results.
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<PAGE>
You should read the data below together with the historical financial
information of U.S. Trust, which has been presented in its prior SEC filings and
is incorporated by reference into this document, and of NCT, which is included
in this document beginning on page F-1.
<TABLE>
<CAPTION>
PRO FORMA
EQUIVALENT OF
HISTORICAL COMBINED ONE NCT HISTORICAL
U.S. TRUST PRO FORMA SHARE NCT
--------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Three Months Ended March 31, 1999 ....... 0.99 0.99 0.19 0.14
Six Months Ended March 31, 1999.......... - - - 0.20
Year Ended December 31, 1998............. 3.29 3.27 0.61 -
Year Ended September 30, 1998............ - - - 0.34
DILUTED EARNINGS PER SHARE:
Three Months Ended March 31, 1999........ 0.88 0.88 0.17 0.13
Six Months Ended March 31, 1999.......... - - - 0.18
Year Ended December 31, 1998............. 2.96 2.94 0.55 -
Year Ended September 30, 1998............ - - - 0.32
CASH DIVIDENDS:
Three Months Ended March 31, 1999........ 0.22 0.22 0.04 -
Year Ended December 31, 1998............. 0.72 0.72 0.14 -
BOOK VALUE PER SHARE OF COMMON
STOCK AS OF:
March 31, 1999........................... 14.18 16.03 3.01 2.78
December 31, 1998........................ 13.25 15.13 2.84 2.63
</TABLE>
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF
U.S. TRUST CORPORATION AND SUBSIDIARIES
In the table below, we provide you with selected historical financial
data of U.S. Trust. We prepared this data using the consolidated financial
statements of U.S. Trust. When you read this selected historical consolidated
financial data, it is important that you read the footnotes below the financial
data. You should also read the historical financial statements and accompanying
notes that U.S. Trust has included in its Annual Report on Form 10-K for the
year ended December 31, 1998 and its Quarterly Report on Form 10-Q for the
period ended March 31, 1999. You can obtain these reports by following the
instructions we provide in this document under "Where You Can Find More
Information" on page 86.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the actual financial results U.S. Trust will
achieve during the 1999 fiscal year.
<TABLE>
<CAPTION>
MARCH 31, YEARS ENDED DECEMBER 31, (1) (2) (3)
----------- ---------------------------------------------------------------
1999 1998 1997 1996 1995(4) 1994(4)
----------- ---------------------------------------------------------------
(UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Fee revenue.......................... $100.0 $339.6 $281.7 $244.2 $215.3 $197.5
Fee revenue - processing.............
business (4)...................... 0 -- -- -- 66.1 102.7
Net interest revenue and other
income............................ 28.9 102.0 91.1 78.5 103.4 118.5
------ ------ ------ ------ ------ ------
Total revenue........................ 128.9 441.6 372.8 322.7 384.8 418.7
Operating expenses................... 98.6 340.6 289.2 253.5 322.6 334.2
Restructuring costs (4).............. 0 -- -- -- 155.6 50.2
------ ------ ------ ------ ------ ------
Income (loss) before income taxes.... 30.3 101.1 83.7 69.3 (93.4) 34.4
Income taxes......................... 12.0 39.4 32.6 28.4 (42.9) 13.4
------ ------ ------ ------ ------ ------
Net income (loss).................... $ 18.3 $61.7 $51.0 $40.9 $ (50.5) $21.0
====== ====== ====== ====== ====== ======
Basic earnings (loss) per share...... .99 $3.29 $2.64 $2.09 $ (2.62) $1.12
Diluted earnings (loss) per share.... .88 2.96 2.39 1.95 (2.62) 1.06
Cash dividends declared per share.... .22 0.72 0.60 0.50 0.63 1.00
Dividend payout ratio................ 25.00% 24.32% 25.10% 25.64% (23.85)% 94.34%
At December 31:
Assets under management (3)
Investment management............. $ 66.1 $61.3 $47.3 $38.0 $33.5 $26.0(5)
Special fiduciary................. 13.9 13.7 13.9 15.3 13.9 5.1
Assets under administration (3)...... 330.9 326.5 268.7 232.3 203.8 167.8(5)
Total assets......................... 410.4 4,143.0 3,815.0 3,477.0 2,573.0 3,223.0
Trust preferred capital securities
and long-term debt................ 68.7 67.8 72.3 26.5 29.4 60.9
Return on average stockholders'
equity............................ 29.60% 26.20% 22.75% 20.99% (23.10)% 9.24%
Return on average total assets....... 1.84% 1.68% 1.49% 1.42% (1.52)% 0.53%
Average stockholders' equity as a
percentage of average total
assets............................ 6.23% 6.42% 6.54% 6.76% 6.60% 5.69%
</TABLE>
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<PAGE>
FOOTNOTES TO SELECTED HISTORICAL FINANCIAL DATA OF U.S. TRUST
CORPORATION AND SUBSIDIARIES
(1) Columns may not tally due to rounding.
(2) All earnings per share and common share disclosures have been adjusted for
a two-for-one stock split effected in the form of a stock dividend
distributed on February 21, 1997.
(3) Assets under management and assets under administration are expressed in
billions.
(4) The years ended December 31, 1995 and December 31, 1994 include revenues
and operating expenses generated by certain businesses sold on September 1,
1995 to The Chase Manhattan Corporation. These periods also include $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.
(5) Excludes $1.9 billion of investment management assets under management and
$223.4 billion of assets under administration as of December 31, 1994 due
to the sale on September 1, 1995 of certain businesses to The Chase
Manhattan Corporation.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF NCT HOLDINGS, INC. AND SUBSIDIARIES
In the table below, we provide you with selected historical financial
data of NCT. We prepared this data using the consolidated financial statements
of NCT. When you read this selected historical consolidated financial data, it
is important that you read the footnotes below the financial data. You should
also read the historical financial statements and accompanying notes of NCT
beginning on page F-1 of this document.
The results of operations for the six months ended March 31, 1999 are
not necessarily indicative of the actual financial results NCT will achieve
during the 1999 fiscal year.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, (1) (2)
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Fee revenue.................................... $12,903 $10,654 $8,240 $6,163 $5,110
------- ------- ------- ------- -------
Operating expenses............................. 11,729 9,076 7,512 6,087 4,870
Other income (expense)......................... 36 (90) (25) (53) (22)
------- ------- ------- ------- -------
Income before income taxes..................... 1,210 1,488 704 23 219
Income taxes................................... 558 640 279 (19) 66
------- ------- ------- ------- -------
Net income..................................... $652 $847 $425 $42 $152
======= ======= ======= ======= =======
Basic earnings per share....................... $0.34 $0.46 $0.23 $0.02 $0.09
Diluted earnings per share..................... 0.32 0.42 0.21 0.02 0.09
Cash dividends declared per share.............. -- -- -- -- --
Dividend payout ratio.......................... -- -- -- -- --
At September 30:
Assets under management (2).................... $2,184 $2,041 $1,517 $1,212 $905
Total assets................................... 6,807 5,702 4,781 3,587 2,893
Long-term debt................................. 222 528 831 915 1.073
Return on average stockholders' equity......... 15.85% 28.37% 19.86% 2.82% 12.76%
Return on average total assets................. 10.43% 16.16% 10.15% 1.29% 5.07%
Average stockholders' equity as a
percentage of average total assets.......... 65.78% 56.98% 51.11% 45.68% 39.76%
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Columns may not tally due to rounding.
(2) Assets under management are expressed in millions.
</FN>
</TABLE>
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
OF NCT HOLDINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, (1) MARCH 31, (1)
---------------------- ----------------------
1999 1998 1999 1998
---------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fee revenue.......................................... $3,394 $3,166 $6,800 $6,173
------- ------ ------ ------
Operating expenses................................... 2,944 2,793 6,124 5,669
Other income (expense)............................... 9 12 19 21
------- ------ ------ ------
Income before income taxes........................... 459 385 695 526
Income taxes......................................... 179 174 314 284
------- ------ ------ ------
Net income........................................... $280 $211 $380 $242
======= ====== ====== ======
Basic earnings per share............................. $0.14 $0.11 $0.20 $0.13
Diluted earnings per share........................... 0.13 0.10 0.18 0.12
Cash dividends declared per share.................... -- -- -- --
Dividend payout ratio................................ -- -- -- --
At March 31:
Assets under management (2)........................... $2,464 $2,294 $2,464 $2,294
Total assets.......................................... 6,893 6,152 6,893 6,152
Long-term debt........................................ 40 326 40 326
Return on average stockholders'
equity (annualized)................................ 21.45% 20.76% 15.20% 12.43%
Return on average total assets (annualized)........... 16.56% 14.32% 11.11% 8.16%
Average stockholders' equity as a percentage
of average total assets............................ 77.18% 68.99% 73.08% 65.67%
- ---------------------------------------------------------------------------------------------------------------
<FN>
(1) Columns may not tally due to rounding.
(2) Assets under management are expressed in millions.
</FN>
</TABLE>
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<PAGE>
RISK FACTORS
YOU CANNOT BE SURE OF THE NUMBER OR MARKET VALUE OF THE U.S. TRUST COMMON SHARES
YOU WILL RECEIVE IN THE FIRST INSTALLMENT.
You cannot determine the number or market value of the U.S. Trust common
shares you will receive in the first installment of the merger consideration.
The amount of the first exchange ratio depends on:
o NCT's revenues before the merger
o the number and exercise price of NCT stock options
o NCT's book value at the time of the merger
Each of these factors has changed since the plan of merger was signed and will
continue to change before the merger. As a result, it is likely that at the time
of the merger the first exchange ratio will be different than it would have been
when the plan of merger was signed or at the times presented in this document.
YOU CANNOT BE SURE THAT THERE WILL BE A SECOND INSTALLMENT OR ANY EARNOUT
INSTALLMENTS.
You may not receive a second installment or any earnout installments. The
amounts of the second exchange ratio and of the earnout exchange ratios depend
on:
o NCT's revenues after the merger
o any extraordinary withdrawals of assets by NCT's clients after the
merger
o factors determined after the merger regarding NCT's financial
condition at the time of the merger
o costs to U.S. Trust for any breaches and other circumstances described
in the plan of merger
None of these factors can be predicted before the merger.
After the merger, NCT will be operated as a subsidiary of U.S. Trust. U.S.
Trust is responsible for maximizing value for all U.S. Trust shareholders and
not only for those former shareholders of newly acquired companies entitled to
earnout-type consideration. Therefore, it is possible that U.S. Trust's
strategic decisions with respect to any newly acquired company, although
beneficial to U.S. Trust shareholders as a group, may not maximize the amount of
the earnout-type consideration.
Because of these factors, the amount of the second exchange ratio could be
0 and the amount of some or all of the earnout exchange ratios could be 0.
Accordingly, you cannot be sure that you will receive a second installment or
any earnout installments. If some or all of these payments are made, you also
cannot be sure of the number of U.S. Trust common shares that you will receive
or of the market value of the shares at the time of the installment.
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<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This document contains statements that anticipate or plan for the future.
These forward-looking statements include statements regarding the amount of the
merger consideration, statements about our future business plans and strategies
and other statements that are not historical. These statements may:
o be made directly in this document
o be "incorporated by reference" to other documents filed with the SEC by
U.S. Trust
o include statements for the period following the merger
You can find many of these statements by looking for words like "believes,"
"expects," "anticipates" and "estimates" and for similar expressions.
Because forward-looking statements involve assumptions and future risks and
uncertainties, there are factors that could cause the actual results to differ
materially from those expressed or implied. For example, a few uncertainties
that could affect the accuracy of forward-looking statements include:
o competitive pressures in the investment or asset management, corporate
fiduciary or private banking industries may increase significantly
o general economic or business conditions, both domestic and foreign, may
be less favorable than expected, resulting in lower than expected
revenues, among other things
o financial market performance, both domestic and foreign, may be less
favorable or more volatile than expected, resulting in lower than
expected revenues, among other things
o costs or difficulties related to the integration of the businesses of
U.S. Trust and NCT may be greater than expected
o legislative or regulatory changes may adversely affect the businesses
in which U.S. Trust and NCT are engaged
o necessary technological changes, including changes to address "Year
2000" data systems issues, may be more difficult or expensive to make
than anticipated or Year 2000 issues at other companies may adversely
affect operations
o adverse changes may occur in the securities markets
You should not place undue reliance on these forward-looking statements,
which speak only as of the date of this document or the date of any document
incorporated by reference.
If there are any subsequent written or oral forward-looking statements made
by either company or any person acting on our behalf, they are qualified in
total by the cautionary statements contained or referred to in this section.
Neither U.S. Trust nor NCT undertakes any obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events.
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WHAT YOU WILL RECEIVE IN THE MERGER
MERGER CONSIDERATION
In the merger, each NCT common share will automatically be converted into
the right to receive up to seven installments of U.S. Trust common shares:
o at the time of the merger, an amount of U.S. Trust common shares equal
to the first exchange ratio
o on February 14, 2001, an amount of U.S. Trust common shares equal to
the second exchange ratio
o on February 14th of the years 2001, 2002, 2003, 2004 and 2005, an
amount of U.S. Trust common shares equal to the earnout exchange ratio
for each measuring period ending on the preceding December 31st
We refer to these installments as the "merger consideration."
The amount of each installment of the merger consideration is expressed as
a number of U.S. Trust common shares to be issued for each NCT common share. We
call this the "exchange ratio" for each installment.
The exchange ratio for each installment is based on a total amount that
U.S. Trust calculates for the installment. This amount generally represents the
total amount to be paid by U.S. Trust in the installment to both NCT
shareholders and holders of NCT stock options. In the first installment,
however, U.S. Trust will pay less than the total amount because U.S. Trust will
subtract the option exercise price from the amount NCT optionholders would
receive if they had exercised their options and paid the option exercise price
before the merger.
NCT shareholders will receive U.S. Trust common shares representing a
portion of the total amount actually paid by U.S. Trust in each installment, and
NCT optionholders will receive the remaining portion in cash.
The amounts of the second exchange ratio and the five earnout exchange
ratios depend on NCT's performance after the merger and could equal 0. If that
happens, no merger consideration will be paid for that installment.
You cannot transfer your right to receive the second installment and the
earnout installments of the merger consideration, except upon death.
FIRST INSTALLMENT
We calculate the first exchange ratio based on the total amount to be paid
by U.S. Trust in the first installment, as follows:
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(1) The total amount to be paid by U.S. Trust in the first installment is equal
to 95% of the following amounts:
o 2.75 times annualized fee revenues of NCT at the time of the merger
plus
o 2.75 times annualized fee revenues of certain clients that NCT has
referred to U.S. Trust less commissions to employees of U.S. Trust for
the referrals
plus
o amounts related to the exercise price of NCT stock options
minus
o any deficiency in the expected book value of NCT at the time of the
merger
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(2) This total amount is then allocated among NCT shareholders and holders of
NCT stock options by dividing this amount by the number of NCT common
shares that are:
o outstanding at the time of the merger and
o issuable under NCT stock options at the time of the merger
We call this the "adjusted per share amount."
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(3) The first exchange ratio is equal to the adjusted per share amount divided
by the average price per share of U.S. Trust common shares reported by the
NYSE for the ten consecutive trading days ending six business days before
the day of the merger.
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The plan of merger provides that the actual first exchange ratio will not
be known until very shortly before the merger and, therefore, after you vote at
the meeting. Thus, you cannot determine the exact number or the value of the
U.S. Trust common shares you will receive in the first installment.
Annualized Fee Revenues. NCT's fee revenues used in determining the first
exchange ratio include:
o investment management revenues
o trust, tax preparation, financial planning, executor, record keeping
and employee benefit revenues
These revenues are annualized in the following way:
o fee revenues that are based on a percentage of assets under management
are annualized on the basis of the managed assets as of the second
business day of the month in which they are to be determined
o fee revenues that are not asset-based are annualized on the basis of
the fee revenues paid to NCT during the twelve-month period ending the
month immediately before the month in which they are to be determined,
but are adjusted for changes in fee structures and new clients
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o fee revenues that are related to services as an executor are annualized
on the basis of the fees paid to NCT during the twelve-month period
ending the month immediately before the month in which they are to be
determined
o fee revenues related to investments in NCT Opportunities Equity
Partners, Limited Partnership, are annualized based on the total
capital of the fund as of the end of the month immediately preceding
the month in which they are to be determined
At July 9, 1999, NCT's annualized fees were about $15 million.
Example of the First Installment. As an example, assume the merger occurred
on July 9, 1999. At that time:
o the total amount of the first installment would have been about
$43,883,895, which includes a total option exercise price of about
$5,431,995 that will not actually be paid by U.S. Trust
o the amount of NCT common shares outstanding was 1,935,302 and the
amount of shares issuable under NCT stock options was 560,500
o dividing $43,883,895 by the total number of shares, which is 2,495,802,
the resulting "adjusted per share amount" would have been $17.58
o the average price of U.S. Trust common shares for the ten trading day
period ended June 30, 1999 was $93.66
As a result, the first exchange ratio would have been 0.1877 U.S. Trust common
shares for each NCT common share you held. For each share issuable under a NCT
option, optionholders would have received cash equal to $17.58 minus the
per-share option exercise price.
SECOND INSTALLMENT
The second installment of the merger consideration represents U.S. Trust
common shares you may be entitled to receive on February 14, 2001. We calculate
the second exchange ratio based on the total amount to be paid by U.S. Trust in
the second installment, as follows:
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(1) The total amount to be paid by U.S. Trust in the second installment is
equal to:
o 5% of the bullet points listed above in calculating the total amount to
be paid by U.S. Trust in the first installment
minus
o 2.75 times annualized fee revenues at the time of the merger that were
attributable to assets that were withdrawn in extraordinary withdrawals
during the 12 months following the merger
plus
o interest on the above at a rate of 5% per year, without compounding
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(2) An adjusted per share amount for this total amount is then calculated by
dividing the total amount by the total of the number of NCT common shares
that were:
o outstanding at the time of the merger and
o issuable under NCT stock options at the time of the merger
The adjusted per share amount, however, cannot be less than $0.
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(3) The second exchange ratio is equal to the adjusted per share amount divided
by the average price per share of U.S. Trust common shares reported by the
NYSE for the ten consecutive trading days ending six business days before
February 14, 2001.
Because the second exchange ratio depends on NCT's performance after the
merger, you cannot be sure what amount the second installment will be or if any
second installment will be paid at all.
Extraordinary Withdrawals. In determining the second exchange ratio, an
extraordinary withdrawal is a withdrawal by a client of at least 80% of its
assets managed by NCT. Extraordinary withdrawals do not, however, include
withdrawals resulting from a change-in-control, death or other similar
circumstances relating to the client.
Reduction of Earnout Exchange Ratios. If the total amount to be provided by
U.S. Trust in the second installment is negative, the second exchange ratio will
be 0 and no second installment will be paid. In addition, the total amounts to
be paid by U.S. Trust in the earnout installments will be reduced by this
negative amount.
EARNOUT INSTALLMENTS
The earnout installments of the merger consideration represent U.S. Trust
common shares you may be entitled to receive on February 14th of the years 2001,
2002, 2003, 2004 and 2005.
We will calculate an earnout exchange ratio for each of the following
measuring periods:
o the period from the merger until December 31, 2000
o the years 2001, 2002, 2003 and 2004
based on the total amount to be paid by U.S. Trust for each period, as follows:
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(1) The total amount to be paid by U.S. Trust for each earnout period is equal
to:
o 0% to 40%, depending on the growth rate of NCT revenues, of the
annualized revenues of NCT during the measuring period ending on the
preceding December 31st
minus
o $250,000, for each installment after February 14, 2001
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(2) We may reduce this total amount for any of the following:
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o After the merger, U.S. Trust will conduct a financial review of NCT. If
the book value of NCT at the time of the merger is less than that used
to determine the first exchange ratio, the total earnout amount will be
reduced by an amount necessary to compensate for any initial
overpayment.
o If the total amount to be provided by U.S. Trust in the second
installment is negative, the total earnout amount will be reduced by
this negative amount.
o If any deferred fees we used in determining the book value of NCT for
the first exchange ratio are lost or written off, the total
amount for the earnout period will be reduced by the
amount of the after-tax loss or write-off.
o If U.S. Trust or related persons have costs caused by certain breaches
of the plan of merger by NCT, the total amount for the earnout period
will be reduced by the amount of the costs.
We will not, however, reduce the total earnout amount for the period to less
than $0. If there is a reduction that is not made as a result of this limit, we
will reduce any total earnout amount for later periods.
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(3) An adjusted per share amount for the total amount is then calculated by
dividing the total amount by the total number of NCT common shares that
were:
o outstanding at the time of the merger and
o issuable under NCT stock options at the time of the merger
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(4) The earnout exchange ratio for a period is equal to the adjusted per share
amount for the period divided by the average price per share of U.S. Trust
common shares reported by the NYSE for the ten consecutive trading days
ending six business days before February 14th after the end of the period.
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Because the earnout exchange ratios depend on NCT's performance after the
merger, you cannot be sure of the amount of the earnout installments or if the
earnout installments will be paid at all.
Annualized Growth. As we have described above, the amount of the earnout
exchange ratio for any period depends on the growth rate of NCT revenues during
the period. The following table shows the multiplier applied to NCT's annualized
revenues for the relevant earnout period in determining the total earnout amount
for that period, based on this growth rate.
ANNUALIZED GROWTH RATE MULTIPLIER
---------------------- ----------
13.5% or less 0%
More than 13.5% 20%
through 17.5%
More than 17.5% 30%
through 22.5%
More than 22.5% 40%
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The growth rate for any period measures the increase in total revenues for
that period over the prior period on an annualized basis. Total revenues
includes revenues from:
o investment management services
o trust, tax preparation, financial planning, executor, record keeping
and employee benefit services
o private banking services
REDUCTION IN THE EARNOUT EXCHANGE RATIOS FOR COSTS TO U.S. TRUST
The plan of merger provides that the total amount to be paid by U.S. Trust
in each of the third through seventh installments, which we refer to as the
"earnout installments," will be reduced by any costs to U.S. Trust and related
persons that result from:
o NCT's breach of any representation or warranty in the plan of merger
resulting in costs of more than $25,000
o the tax disqualification of NCT's ESOP or 401(k) plan
o NCT's breach of an agreement in the plan of merger
There will be no reduction, however, for the first $250,000 of costs, if any.
If we reduce the total amount for any of the above costs, we will reduce
them in the following order:
o first, the total earnout amount for the current period will be reduced
o then, if that amount is not large enough to cover the costs, the costs
will be carried forward and future total earnout amounts will be
reduced
U.S. Trust also has the right to temporarily reduce the total amount for an
earnout installment period to satisfy costs that are not yet final. U.S. Trust
can exercise this right if it determines in good faith that the expected future
earnout total amounts will not be enough to satisfy the pending costs. If an
amount temporarily withheld is not used to satisfy costs by February 14, 2005,
the amount and interest on the amount will be included when we calculate the
final earnout exchange ratio.
Any reduction in the total earnout amount for a period will result in a
reduction in the earnout exchange ratio for that period and will reduce the
amount of the earnout installment you receive.
TREATMENT OF NCT STOCK OPTIONS
PAYMENTS FOR NCT STOCK OPTIONS
The plan of merger provides that each NCT stock option issued to NCT
employees, directors and advisory board members outstanding at the time of the
merger will automatically be converted into the right to receive seven cash
installments from U.S. Trust. This conversion is subject to the continuation of
these optionholders' existing noncompetition and nonsolicitation agreements,
which would
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otherwise terminate at the time of the merger. These installments
apply to both vested and unvested options.
We will pay each of these installments at the time installments of the
merger consideration are payable to holders of NCT common shares in the merger,
subject to the continuation of these optionholders' existing noncompetition and
nonsolicitation agreements, which would otherwise terminate at the time of the
merger. The installments will be in the following amounts:
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(1) The first installment payment for each NCT stock option will equal:
o the adjusted per share amount used in determining the first exchange
ratio
times
o the number of NCT common shares subject to the option at the time of
the merger
minus
o the total exercise price of the option at time of the merger
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(2) The other installment payments for each NCT stock option will equal:
o the adjusted per share amount used in determining the relevant exchange
ratio
times
o the number of NCT common shares subject to the option at the time of
the merger
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Cash paid in exchange for NCT stock options will be treated as compensation
for all purposes, including taxation. An appropriate amount of taxes will be
withheld from all payments to holders of NCT stock options.
OUTSTANDING NCT STOCK OPTIONS
As of July 9, 1999, NCT had outstanding stock options for a total of
560,500 of its Class A common shares, with exercise prices ranging from $2.40 to
$14.51 per share.
OPTIONS OUTSTANDING
RANGE OF EXERCISE PRICES NUMBER OF SHARES
- ------------------------ ----------------
$ 2.40 to 4.57 73,500
5.21 to 6.00 159,500
8.18 to 12.19 54,500
12.90 to 14.51 273,000
-------
560,500
These options were issued to employees, directors and advisory board members of
NCT and North Carolina Trust to reward them for their services and to encourage
them to continue with NCT and North Carolina Trust.
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Of these NCT stock options, options for 432,500 Class A common shares are
not currently exercisable. Options for 407,083 of these shares will vest and
become exercisable five years from their date of grant, unless the
optionholder's employment is terminated without cause. If an optionholder is
terminated without cause, his or her options become vested on the date of
termination at the rate of 20% per year from the date of grant and the vested
portion is exercisable within three months of termination. In addition, options
for 25,417 Class A common shares will vest, if at all, based on the business of
North Carolina Trust's Charlotte office on September 30, 2000.
REASONS FOR PAYMENTS FOR OPTIONS
NCT's stock options provide that they would terminate as a result of the
merger unless NCT's board of directors determined otherwise before the time of
the merger. In the judgment of NCT's board of directors, the holders of both
vested and unvested NCT stock options have earned the right to receive the full
value of their options. Accordingly, NCT's board of directors agreed to the
payments to optionholders described above, subject to the continuation of these
optionholders' existing noncompetition and nonsolicitation agreements, which
would otherwise terminate at the time of the merger.
Beginning in 1995, NCT stock options granted to employees generally
provided for five-year "cliff vesting." The board chose this vesting schedule to
encourage employees to make a long-term commitment to NCT as it:
o expanded its client base by opening new offices in Charlotte and
Raleigh
o explored alternatives for providing new products and services to its
clients
o reorganized its business around processes and a comprehensive
performance measurement system
o positioned itself for a business combination
In determining that optionholders should receive the full value of their
options, NCT's board of directors concluded that:
o the merger is the culmination of a plan that was designed and
implemented to serve the best interests of NCT's shareholders and
clients and
o the plan was driven by these optionholders
Accordingly, the board of directors determined that the optionholders should be
rewarded for the results achieved, notwithstanding the original vesting
schedule, but subject to the continuation of these optionholders' existing
noncompetition and nonsolicitation agreements.
FRACTIONAL SHARES
U.S. Trust will not issue fractional U.S. Trust common shares to you in any
installment of the merger consideration. Instead, U.S. Trust will pay you cash
equal to the value of any fractional shares that would otherwise have been paid.
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EXCHANGE OF NCT SHARES FOR U.S. TRUST SHARES
At or before the time of each installment, U.S. Trust will give its
exchange agent, U.S. Trust Company of New York, the number of U.S. Trust common
shares to be issued and any cash payable in the installment.
In order to receive any installment of the merger consideration, each NCT
shareholder must first give the exchange agent:
o properly completed transmittal materials
o the shareholder's NCT share certificates
In addition, before receiving any installment, each affiliate of NCT must agree
in writing to limitations on the sale, transfer or other disposition of U.S.
Trust common shares acquired in the merger. For more information about
restrictions on the sale of U.S. Trust common shares, see "The Merger--Resale of
U.S. Trust Common Shares" on page 38.
THE SPECIAL MEETING
TIME, PLACE AND MATTERS TO BE VOTED ON
NCT is giving you this document to solicit proxies for the special meeting
of shareholders to be held on August 19, 1999, at 3:00 p.m., local time, at
North Carolina Trust Company, 301 North Elm Street, 9th Floor, Greensboro, North
Carolina.
At the special meeting, you will be asked to consider and vote on:
o approval of the Agreement and Plan of Merger, dated as of May 14, 1999,
among NCT, U.S. Trust and NCT Holdings Acquisition Company, a wholly
owned subsidiary of U.S. Trust, and the merger of NCT into NCT Holdings
Acquisition Company
o approval of merger-related compensation payments to employees of North
Carolina Trust, a wholly owned subsidiary of NCT
o any other business related to these proposals that may properly come
before the special meeting
RECOMMENDATIONS TO SHAREHOLDERS
NCT's board of directors has unanimously approved, and recommends that NCT
shareholders vote "FOR" approval of:
o the plan of merger
o merger-related compensation payments
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VOTING
VOTES YOU HAVE
You will have one vote at the special meeting for each NCT common share
that our records show you owned at the close of business on July 9, 1999. NCT's
board of directors has set the close of business on July 9, 1999 as the record
date for determining shareholders who are entitled to vote at the special
meeting and any adjournments or postponements of it.
A total of 1,201,147 NCT Class A common shares and 734,155 NCT Class B
common shares can vote at the special meeting.
VOTES REQUIRED
We will hold the special meeting if holders of a majority of each class of
NCT common shares entitled to vote either attend the special meeting in person
or sign and return their proxy cards. For this purpose, we will include you as
attending the special meeting even if you abstain from voting.
The approval of holders of a majority of each class of NCT common shares
entitled to vote is required for approval of the plan of merger.
In addition, the approval of holders of more than 75% of the NCT common
shares held by disinterested shareholders is required to
approve the merger-related compensation payments. A total of 936,224 NCT common
shares that can vote at the special meeting are held by disinterested
shareholders or for the accounts of disinterested ESOP participants.
If you do not attend the special meeting in person or by proxy or if you
abstain from voting on approval of the plan of merger or approval of the
merger-related compensation payments, the effect will be the same as if you
voted against both the approval of the plan of merger and the merger-related
compensation payments.
VOTES BY DIRECTORS AND EXECUTIVE OFFICERS
NCT's directors and executive officers are entitled to vote the following
number of NCT common shares at the special meeting:
o 788,586 NCT Class A common shares, or about 66% of the Class A common
shares entitled to vote
o 142,269 NCT Class B common shares, or about 19% of the Class B common
shares entitled to vote
Of these shares, 259,588 are owned beneficially by directors who are
disinterested shareholders and their affiliates, or about 28% of the NCT common
shares entitled to vote on approval of the merger-related compensation payments.
Because executive officers are interested in the compensation payments, their
votes will not be counted in determining whether the payments are approved.
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The directors and executive officers have indicated that they intend to
vote their NCT common shares in favor of approval of the plan of merger and, in
the case of the disinterested directors, in favor of the merger-related
compensation payments. Also, U.S. Trust has entered into agreements with each of
Stephen C. Hassenfelt, Sue W. Cole and Pamela H. Hassenfelt to vote their shares
in favor of approval of the plan of merger. Ms. Hassenfelt is entitled to vote
146,500 Class A common shares and 9,250 Class B common shares.
None of U.S. Trust, its affiliates or their directors and executive
officers own any NCT common shares entitled to vote at the special meeting.
PROXIES
SUBMISSION OF PROXIES
A form of proxy for use at the special meeting has been included with each
copy of this document mailed to NCT shareholders. Unless subsequently revoked,
NCT common shares represented by a proxy submitted as described below and
received at or before the special meeting will be voted in accordance with the
instructions of the proxy.
To submit a written proxy by mail, you should complete, sign, date and mail
the proxy card in accordance with the instructions on the card. If a proxy card
is signed and returned without indicating any voting instructions, the NCT
common shares represented by the proxy will be voted "FOR" the approval of the
plan of merger and "FOR" the merger-related compensation payments to employees.
You should NOT send NCT common share certificates with your proxy card. If
the merger is completed, you will be mailed a transmittal form with instructions
on how to exchange your current share certificates for U.S. Trust common share
certificates representing the first installment of the merger consideration.
REVOCATION OF PROXIES
If you submit a proxy, you may revoke it any time before your shares are
voted by doing any of the following:
o giving written notice that the proxy is revoked to NCT's Secretary,
Steven J. Frost, at P.O. Box 1108, 301 North Elm Street, Greensboro,
North Carolina 27402-1108
o submitting a later-dated, signed proxy with voting instructions before
the special meeting
o voting in person at the special meeting
A proxy is not revoked by simply attending the special meeting.
OTHER MATTERS TO BE VOTED ON AT THE SPECIAL MEETING
Your board of directors is not currently aware of any business to be acted
on at the special meeting other than what we have described in this document.
If, however, other matters are properly brought before the special meeting, the
persons you choose as proxies will have discretion to vote or to act on these
matters according to their best judgment, unless you indicate otherwise on your
proxy.
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One of the other matters that could come before the special meeting is a
proposal to adjourn or postpone the meeting. Sometimes this proposal is made for
the purpose of soliciting additional proxies. The persons you choose as proxies
will have discretion to vote on adjournment of the special meeting. However,
shares represented by proxies voting against approval of the plan of merger will
be voted against a proposal to adjourn or postpone the special meeting for the
purpose of soliciting additional proxies.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
NCT may solicit proxies personally or by telephone, facsimile or other forms of
communication. None of them will be specifically compensated for these services.
SPECIAL PROCEDURES FOR THE NCT EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan, or ESOP, of NCT and North Carolina Trust
owns 170,512 NCT Class B common shares, or about 23.23% of the NCT Class B
common shares entitled to vote. All of these shares have been allocated to the
separate accounts of participants in the ESOP. In accordance with the terms of
the ESOP and the requirements of Section 409 of the Internal Revenue Code of
1986, each participant will have the right to vote the number of shares
allocated to his or her account.
THE MERGER
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This section discusses the material aspects of the merger. This information is
not complete and is subject to and qualified by reference to the plan of merger
and its annexes, each of which is incorporated in this document by reference. WE
URGE YOU TO READ THE ENTIRE PLAN OF MERGER CAREFULLY. WE HAVE ATTACHED THE PLAN
OF MERGER AS APPENDIX A TO THIS DOCUMENT.
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We propose to merge NCT with NCT Holdings Acquisition Company, a wholly
owned subsidiary of U.S. Trust. After the merger, NCT will no longer exist, but
the surviving company will change its name to "NCT Holdings, Inc." and will
continue NCT's business. North Carolina Trust will be a wholly owned subsidiary
of the surviving company and will continue as a state-chartered bank under North
Carolina law.
When we refer to "NCT" after the merger, we mean the surviving company in
the merger.
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BACKGROUND TO THE MERGER
In 1998, through its strategic planning process, NCT decided it needed to
provide additional products and services in order to reach its growth and
profitability goals and to better serve the changing needs of its clients. The
additional products and services identified by NCT included a broader array of
investment options and strategies, mutual funds, brokerage services and private
banking services. In addition, NCT identified a need to enhance its technology
resources.
Faced with a decision of whether to build, buy, rent or partner, NCT
decided to explore a business combination with a substantial financial
institution or a national trust company that could provide these services and
resources and at the same time to evaluate other alternatives, including raising
additional capital to fund, internally or by acquisition, new products, services
and technology and forming joint ventures with one or more strategic partners.
In September 1998, NCT retained Berkshire Capital Corporation to assist in
exploring a business combination with an in-state or out-of-state financial
institution and in evaluating other alternatives.
Thereafter, NCT and representatives of Berkshire Capital prepared materials
relating to NCT and its businesses for distribution to potential purchasers.
Five potential purchasers entered into confidentiality agreements with NCT and
received the materials.
After receiving indications of strong interest from two potential
purchasers in early 1999, including U.S. Trust, NCT provided these potential
purchasers with additional information and discussed pricing alternatives with
them and whether the purchase price would be paid in a lump sum at closing or in
installments based on NCT's revenues at the time of closing and on revenues
during an earnout period.
On March 3, 1999, NCT received a written proposal from U.S. Trust that
outlined the terms of a merger. On March 9, 1999, NCT's board of directors held
a special meeting and received a report from management on the U.S. Trust
proposal and on management's discussions with the other potential purchaser that
had indicated a strong interest. After the special meeting, NCT's board of
directors authorized management to negotiate exclusively with U.S. Trust. In
March and early April, Stephen C. Hassenfelt met with representatives of U.S.
Trust on several occasions and had numerous telephone conferences to discuss and
refine the major terms proposed by U.S. Trust in its written proposal. During
this period, U.S. Trust and its representatives conducted a due diligence
investigation of NCT.
U.S. Trust's executive committee of the board of directors reviewed the
terms of the proposed transaction at its meeting on March 10, 1999. Following
discussions, the executive committee voted to approve the merger and related
transactions.
Beginning in early April, 1999, representatives of NCT and U.S. Trust and
their legal counsel negotiated the terms of the merger agreement, the form of
the employment agreements and the retention program. The negotiations continued
until NCT and U.S. Trust signed the plan of merger on May 14, 1999 and U.S.
Trust issued a press release on May 17, 1999.
NCT's management kept the outside directors aware of the status of
negotiations throughout March, April and early May. A special meeting of NCT's
board of directors was held on May 13, 1999. At the meeting, NCT's board of
directors was provided with the merger agreement and the
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terms and conditions of the proposed transaction, including the merger-related
compensation payments. These documents were reviewed in detail by NCT
management, a representative of Berkshire Capital and legal counsel for NCT.
Discussion and questions from NCT's directors followed the presentations. After
considering the factors described below under "NCT's Reasons for the Merger,"
NCT's board of directors concluded that the proposed transaction was fair to,
and in the best interests of, NCT and its shareholders and unanimously adopted
and approved the merger agreement and the merger of NCT into a wholly owned
subsidiary of U.S. Trust.
NCT'S REASONS FOR THE MERGER
NCT's board of directors concluded that the merger was likely to further
the strategic plans of NCT and to increase shareholder value over what that
value would have been had NCT not agreed to the merger, and that the
opportunities created by the merger to increase shareholder value more than
offset the risks inherent in the merger.
In arriving at its determination and recommendation, NCT's board of
directors considered the following:
o Merger Consideration. The first installment of the merger
consideration, which will be paid at the time of the merger, is based
on a multiple of NCT revenues that NCT's board of directors believed to
be attractive. The plan of merger also provides NCT shareholders the
opportunity to receive substantial additional installments based on
NCT's revenues after the merger. In addition, NCT common shares are not
traded in any public market, and the merger provides NCT shareholders
with the opportunity to convert their investment in NCT into a
marketable, more liquid investment in a more diversified public company
that has historically paid cash dividends.
o Growth Opportunities. The merger will allow NCT and its subsidiaries
access to U.S. Trust's investment management resources, capital and
mutual funds.
o Complementary Businesses. NCT's businesses and those of U.S. Trust
complement each other.
o Client Benefits. The merger will provide benefits to NCT's clients. In
particular, the merger will increase NCT's ability to develop its
client base and offer new services to its clients and provide superior
value and integrated solutions to a broader range of clients.
o Tax Treatment. The merger is intended to qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code. For
more information regarding the tax consequences, see "Principal U.S.
Federal Income Tax Consequences of the Merger" on page 52.
o Regulatory Approvals. After consulting with its legal counsel, NCT's
board of directors concluded that the regulatory approvals necessary to
complete the merger could be obtained.
NCT's board of directors weighed these advantages and opportunities against
the potential negative aspects of the merger:
o Termination Fee. Under the circumstances set forth in the plan of
merger, NCT may be required to pay a termination fee of $5 million to
U.S. Trust. The termination fee is discussed in detail under the
caption "The Plan of Merger -- Termination Fee" on page 51.
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o Risk of Merger Not Closing. The merger might not be completed because
one or more of the closing conditions contained in the plan of merger
may not be satisfied or waived.
In addition, NCT's board of directors considered the financial condition,
results of operations and prospects of NCT and U.S. Trust, the changing
technical and competitive environment, the current and anticipated regulatory
environment and the judgment, advice and analyses of NCT's management and
Berkshire Capital.
NCT's board of directors also considered that some members of NCT's
management and board of directors may have interests in the merger that are
different from, or in addition to, the interests of NCT shareholders generally.
These interests are discussed in detail under the caption "The Merger --
Interests of Management and Directors in the Merger That May Differ From Your
Interests" below.
The discussion above summarizes the material factors that NCT's board of
directors considered. This discussion does not include all of the factors and
information that NCT's board of directors considered. NCT's board of directors
did not assign specific importance to the factors listed above and individual
directors may have given different importance to different factors.
U.S. TRUSTS REASONS FOR THE MERGER
U.S. Trust has been engaged in the personal wealth management business for
many years. More recently, U.S. Trust has expanded its presence beyond its New
York wealth management business and established a national wealth management
business with offices located in California, Connecticut, Florida, New Jersey,
Oregon, Pennsylvania, Texas and Washington, D.C. In 1998, U.S. Trust began
exploring additional acquisition opportunities. NCT's leadership in wealth
management and its similar culture and management style made NCT an ideal
acquisition candidate in the North Carolina area. U.S. Trust anticipates that
its national expansion will continue over the next several years.
INTERESTS OF MANAGEMENT AND DIRECTORS IN THE MERGER THAT MAY DIFFER
FROM YOUR INTERESTS
In considering the recommendations of NCT's board of directors, you should
be aware that the members of NCT's board of directors and of NCT's management
may have interests in the merger that are different from your interests as a
shareholder generally. These interests are outlined in this section.
NCT's board of directors knew about these additional interests, and
considered them, when they approved the plan of merger.
CONVERSION OF STOCK OPTIONS
In the merger, stock options issued to NCT employees, directors and
advisory board members will be converted into the right to receive cash
payments. The amount of the cash payments each optionholder will receive depends
on the number of NCT shares covered by options immediately before the merger and
the applicable option exercise price. These payments are similar to the
installments of the merger consideration to be paid to NCT shareholders. See
"What You Will
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Receive in the Merger -- Treatment of NCT Stock Options" on
page 28 for more details regarding these cash payments.
EMPLOYMENT AGREEMENTS, RETENTION PROGRAM AND OTHER PAYMENTS
In connection with the merger, U.S. Trust and North Carolina Trust Company
have entered into employment agreements with Stephen C. Hassenfelt, Sue W. Cole,
John R. Rich, Robert E. Mallernee, Suzanne G. Bledsoe and David S. Routh. In
addition, the plan of merger includes a program to provide for retention
payments to some of the key employees of NCT after the merger. The total amount
of the retention program will not be more than $3,000,000. NCT's board of
directors has also approved other payments to Stephen C. Hassenfelt, Sue W.
Cole, Robert E. Mallernee and David E. Webb. The retention program, the
employment agreements and these payments are described in detail under the
caption "Merger-Related Compensation Payments to Employees -- Merger-Related
Payments" on page 39.
APPROVAL OF MERGER-RELATED COMPENSATION PAYMENTS
Completing the merger depends on shareholder approval of merger-related
compensation payments to employees of North Carolina Trust. If these payments
are approved, they will not be "excess parachute payments" and will not be
subject to adverse federal income tax treatment. This is discussed in more
detail under the caption "Merger-Related Compensation Payments to Employees"
beginning on page 39.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER
The plan of merger provides that NCT's board of directors and management
immediately before the merger will be the board of directors and management of
the surviving corporation after the merger.
INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE
The plan of merger provides that the surviving corporation in the merger
must keep the provisions of NCT's articles of incorporation and by-laws before
the merger relating to indemnification of directors and officers of NCT for six
years after the merger.
The plan of merger also provides that the surviving corporation in the
merger must use reasonable best efforts to purchase, at U.S. Trust's expense,
continued officers' and directors' liability insurance.
RESALE OF U.S. TRUST COMMON SHARES
U.S. Trust common shares issued in the merger will be registered under the
Securities Act of 1933. These shares will be freely transferable except for
shares issued to any shareholder who is deemed an affiliate of NCT on August 19,
1999, the date of the special meeting. For purposes of the federal securities
laws, affiliates are generally persons who control, are controlled by, or are
under common control with, NCT at the time of the special meeting.
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Affiliates of NCT or certain of their family members or related interests
may not sell their U.S. Trust common shares acquired in the merger except as
provided for by Rule 145 under the Securities Act or another applicable
exemption from the registration requirements of the Securities Act.
In addition, pursuant to the plan of merger, NCT has delivered to U.S.
Trust a list of all persons who, to NCT's knowledge, are affiliates of NCT for
purposes of Rule 145 under the Securities Act. These shareholders will sign an
affiliate agreement in the form set forth as Annex 4 to the plan of merger. The
affiliate agreements restrict sales by affiliates of U.S. Trust securities after
the merger.
MERGER-RELATED COMPENSATION PAYMENTS TO EMPLOYEES
Some of the payments to employees of North Carolina Trust relating to
the merger could result in "excess parachute payments" for federal income tax
purposes. Sections 280G and 4999 of the Internal Revenue Code provide that any
"excess parachute payment" to a "disqualified individual" will not be deductible
to the company making the payment and will be subject to a 20% excise tax
payable by the employee receiving the payment. If the payments related to the
merger are approved at the special meeting, however, they will not be "parachute
payments" and will not be subject to unfavorable tax treatment. This section
describes the payments you are being asked to approve and describes in more
detail the requirements of the Internal Revenue Code.
RELATIONSHIP TO THE MERGER
Because approval of the merger-related payments is legally separate from
the merger, we are asking you to vote on them separately from your vote on the
plan of merger. However, the merger will not be completed if these payments are
not approved and these payments will not be made if the merger is not completed.
DISQUALIFIED INDIVIDUALS
We are asking for approval of payments to the following employees of North
Carolina Trust:
o Stephen C. Hassenfelt o Suzanne G. Bledsoe
o Sue W. Cole o David S. Routh
o John R. Rich o Elden J. LeGaux
o Robert E. Mallernee o Martha J. Stenhouse
o David E. Webb o David J. Cathcart
o Steven J. Frost
These are the employees that would likely be "disqualified individuals" under
the Internal Revenue Code and subject to Sections 280G and 4999 with respect to
merger-related compensation payments.
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<PAGE>
MERGER-RELATED PAYMENTS
In general, a "parachute payment" is a compensation payment that:
o is contingent on a change in control and
o has an aggregate present value in excess of three times the
recipient's "base amount," which is the average compensation during
the five years preceding the change in control or the shorter period
the recipient was employed
Although a payment is not a "parachute payment" unless it exceeds three times
the base amount, if the three times threshold is exceeded by even a single
dollar, all amounts in excess of the base amount are generally "excess parachute
payments."
A parachute payment can include any payment that is in the nature of
compensation, in whatever form it is made. It can include:
o payments of cash or other property
o fringe benefits
o severance payments
o the present value of compensatory rights, like stock options,
accelerated by the change in control
The amount and timing of various payments that will or may be made in connection
with the merger are subject to contingencies. As a result, it is impossible to
determine at this time whether they will constitute "parachute payments." The
merger-related payments that could be subject to Sections 280G and 4999 are
described below.
NCT STOCK OPTIONS
Stock options issued to NCT employees, directors and advisory board members
will be converted into the right to receive cash payments, subject to the
continuation of these optionholders' existing noncompetition and nonsolicitation
agreements, which would otherwise terminate at the time of the merger. The
amount of the cash payments each optionholder will receive depends on the number
of NCT common shares covered by options immediately before the merger and the
applicable option exercise price. See "What You Will Receive in the Merger --
Treatment of NCT Stock Options" on page 28 for more details regarding these cash
payments.
RETENTION PROGRAM
In connection with the merger and the potential for earnout installments,
NCT's board of directors concluded that it was in the best interests of NCT's
shareholders to assure the continued employment and dedication of key employees
of NCT before and after the merger. Accordingly, NCT's board of directors
approved the development of a program to provide for retention payments to key
employees of NCT. The retention program will remain in effect for three years
after the merger is completed. In connection with the retention program, U.S.
Trust will create a retention pool in an amount to be determined after the
merger is completed. Although the exact amount of the retention pool is
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uncertain, in no event will the retention pool be greater than $3,000,000.
Stephen C. Hassenfelt and Sue W. Cole will not participate in the retention
program.
Although the precise amount of the retention pool is subject to agreement
at the time of the merger, the incentive amounts are expected to range from
$12,500 to $225,000 per employee. These amounts will be payable over three years
at the rate of 20% after the first year, 20% after the second year and 60% after
the third year. For example, if the incentive amount for a employee is $75,000,
then the employee will be eligible to receive $15,000 one year after the merger,
$15,000 after two years and $45,000 after three years.
Each employee will forfeit the right to receive any further incentive
payments if he or she voluntarily terminates employment or if his or her
employment is terminated for cause. However, if employment is terminated without
cause, or if the employee leaves for good reason, then the incentive payments
will continue to be made in accordance with the terms of the retention program.
EMPLOYMENT AGREEMENTS
As a condition to the plan of merger, U.S. Trust and North Carolina Trust
entered into employment agreements with Stephen C. Hassenfelt, Sue W. Cole, John
R. Rich, Robert E. Mallernee, Suzanne G. Bledsoe and David S. Routh. These
employment agreements will take effect when the merger is completed. The
agreements with Messrs. Hassenfelt and Rich and Ms. Cole will last for five
years after the merger is completed. The agreements with Messrs. Mallernee and
Routh and Ms. Bledsoe will last for three years after the merger is completed.
Each employee who has signed an employment agreement will remain with North
Carolina Trust after the merger in the position, and with the compensation
package, set forth below:
<TABLE>
<CAPTION>
POSITION WITH NCT POSITION WITH U.S. BASE
EMPLOYEE BEFORE THE MERGER TRUST AFTER THE MERGER SALARY
- ------------ ----------------- ---------------------- ------
<S> <C> <C> <C>
Stephen C. Hassenfelt Chairman and Chief Managing Director $375,000
Executive Officer
Sue W. Cole President Managing Director $225,000
John R. Rich Chief Investment Managing Director $200,000
Officer
Robert E. Mallernee Executive Managing Senior Vice President $175,000
Director
Suzanne G. Bledsoe Senior Managing Senior Vice President $125,000
Director
Davis S. Routh Senior Vice Senior Vice President $115,000
President
</TABLE>
In addition, each employee is entitled to incentive or performance
compensation, except that Mr. Hassenfelt and Ms. Cole will not be eligible for
incentive or performance compensation until 2001. There is no guaranteed minimum
bonus.
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If an employee is terminated without cause or voluntarily resigns from
employment for good reason, the employee will receive the unpaid salary for the
entire term of the contract.
Each of the above employees has agreed, for a period of two years following
the end of employment with U.S. Trust, to refrain from:
o soliciting or accepting any business from clients of NCT that generate
revenues used in determining any earnout installment
o soliciting or accepting any business from clients or prospective
clients of U.S. Trust that the employee has dealt with during the
employment period
o soliciting any employees of U.S. Trust
o within defined geographic limitations, competing with U.S. Trust in any
business in which U.S. Trust is engaged and the employee was actively
involved
OTHER PAYMENTS
On June 3, 1999, a special committee of NCT's board of directors authorized
the payment of special bonuses to Stephen C. Hassenfelt and Sue W. Cole in the
amounts of $325,000 and $175,000, respectively. The bonuses are payable at the
effective time of the merger and were awarded in recognition of the
extraordinary efforts of Mr. Hassenfelt and Ms. Cole in developing and carrying
out the strategic plan that resulted in the plan of merger and in recognition of
the agreement by Mr. Hassenfelt and Ms. Cole that they would not participate in
the retention program or be eligible for incentive or performance compensation
until 2001.
In 1997, Robert E. Mallernee, an Executive Managing Director of North
Carolina Trust, agreed to move his residence to Raleigh, North Carolina and to
head up the new Raleigh office of North Carolina Trust. In connection with the
move, North Carolina Trust loaned Mr. Mallernee a total amount of $48,437, of
which $43,950 remains outstanding. Under the agreement with Mr. Mallernee, a
portion of these outstanding loans would have been forgiven over time. In
anticipation of the merger and in recognition of Mr. Mallernee's
responsibilities after the merger, North Carolina Trust agreed to forgive the
entire amount of the outstanding loans when the merger is completed.
Effective June 30, 1999, the employment of David E. Webb as a Senior
Managing Director of North Carolina Trust was terminated. In connection with the
termination, NCT agreed that in the merger Mr. Webb's outstanding unvested NCT
stock options would be treated in the same manner as the unvested options of
other employees. In addition, North Carolina Trust agreed to make severance
payments to Mr. Webb in the aggregate amount of $34,587 and to make him eligible
for additional payments under certain employee benefit plans.
REQUIREMENTS OF SECTIONS 280G AND 4999
Section 280G(b)(5) of the Internal Revenue Code provides that payments will
not be "parachute payments" if:
o the employer does not have any stock that is readily traded on an
established securities market,
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o the payments were approved by a vote of shareholders who owned,
immediately before the change in control, more than 75% of the voting
power of all the employer's outstanding stock and
o prior to the vote, the shareholders entitled to vote received adequate
disclosure of all material facts regarding the payments
Proposed regulations issued by the Internal Revenue Service provide that:
o the shareholder vote must be separate from any other vote of the
shareholders,
o the vote must determine the right of each disqualified individual to
receive the payments and
o any stock held, or deemed held, by a person who is a disqualified
individual and who will receive payments if the vote is favorable may
not be counted as outstanding for purposes of the more than 75%
approval requirement
In order to satisfy the shareholder approval requirements of Section 280G
of the Internal Revenue Code, NCT seeks shareholder approval of the following
merger-related payments:
o payments with respect to NCT stock options outstanding immediately
before the merger
o payments under the retention program
o payments under the employment agreements for a termination without
cause or a voluntary resignation for good reason
o payments described above under the caption "Other Payments"
The following table shows, for each of the persons who would likely be a
disqualified individual:
o the base amount for purposes of Section 280G
o base salary under any employment agreement
o outstanding option shares and weighted option price per share under
unvested NCT stock options
o any payments described above under the caption "Other Payments"
o estimated incentive amount under the retention program
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<PAGE>
<TABLE>
<CAPTION>
UNVESTED
OPTIONS/ ESTIMATED
BASE WEIGHTED RETENTION MINIMUM OTHER
AMOUNT AVERAGE PRICE AMOUNT(1) BASE SALARY PAYMENTS
-------- ------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Stephen C. Hassenfelt $404,410 70,000/ $0 $375,000 $325,000
$12.90 ($400,000 effective
2001)
Sue W. Cole $286,320 40,000/ $0 $225,000 $175,000
$13.705 ($250,000 effective
2001)
John R. Rich $141,556 22,500/ $225,000 $200,000 Not
$9.833 applicable
Robert E. Mallernee $135,109 65,000/ $150,000 $175,000 $43,950
$11.7523
David E. Webb $109,848 30,000/ $0 Not applicable $34,587(2)
$9.2383
Steven J. Frost $101,954 25,750/ $100,000 Not applicable Not
$11.9845 applicable
Suzanne G. Bledsoe $100,693(3) 12,500/ $150,000 $125,000 Not
$9.998 applicable
David S. Routh $121,225 (4) 8,500/ $75,000 $115,000 Not
$10.597 applicable
Elden J. LeGaux $ 91,955 35,000/ $90,000 Not applicable Not
$10.714 applicable
Martha J. Stenhouse $107,737 23,750/ $60,000 Not applicable Not
$6.00 applicable
David J. Cathcart $96,475 20,000/ $0 Not applicable Not
$6.00 applicable
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) Precise amounts to be agreed upon at the time of the merger
(2) Eligible for additional payments under certain employee
benefit plans
(3) Four-year average
(4) Three-year average
</FN>
</TABLE>
THE PLAN OF MERGER
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This section discusses the material terms of the plan of merger. This
information is not complete and is subject to and qualified by reference to the
plan of merger and its annexes, each of which is incorporated in this document
by reference. WE URGE YOU TO READ THE ENTIRE PLAN OF MERGER CAREFULLY. WE HAVE
ATTACHED THE PLAN OF MERGER AS APPENDIX A TO THIS DOCUMENT.
- -------------------------------------------------------------------------------
TIME OF THE MERGER
We have agreed to use reasonable efforts to cause the merger to occur on the
last business day of the month in which all of the conditions to the completion
of the merger have been satisfied or waived.
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We currently expect that the merger will take place on August 31, 1999, but we
cannot assure you that it will happen on this date or at all.
NCT REPRESENTATIVE
The plan of merger provides that the calculation of the first exchange
ratio, the second exchange ratio and the earnout exchange ratios will be made by
U.S. Trust after consultation in good faith with the NCT representative. This
NCT representative will also assist in determining the amount of any reductions
to the earnout exchange ratios. Any action, request, decision or resolution made
by the NCT representative will be binding on the rights of NCT's shareholders
and optionholders provided that it is in accordance with the terms of the plan
of merger.
NCT's board of directors has the authority to appoint the NCT
representative. After the merger, NCT's board of directors will make up a
committee with the authority to replace the NCT representative. NCT's board of
directors intends to appoint Stephen C. Hassenfelt as the first NCT
representative.
CONDITIONS TO THE MERGER
CONDITIONS TO OBLIGATIONS OF BOTH U.S. TRUST AND NCT
The completion of the merger by both U.S. Trust and NCT depends on a number
of conditions being satisfied. These include:
o the approval by NCT shareholders of the plan of merger
o the approval by NCT shareholders of the merger-related compensation
payments
o the receipt of the necessary approvals and authorizations from
governmental authorities and other third parties
o the absence of any legal restriction that prohibits completion of the
merger
o the Registration Statement on Form S-4, of which this document is a
part, has become effective under the Securities Act of 1933 and no stop
order has been issued or proceeding for a stop order initiated
o the necessary permits and other authorizations under the federal and
state securities laws are in full force and effect
o the approval for listing on the NYSE, subject to official notice of
issuance, of the U.S. Trust common shares issuable to NCT shareholders
pursuant to the merger
o the receipt by both companies of a legal opinion that the merger will
be treated as a "reorganization" under the Internal Revenue Code
If the law permits, either U.S. Trust or NCT could choose to waive a
condition to complete the merger even though that condition has not been
satisfied.
CONDITIONS TO OBLIGATIONS OF U.S. TRUST
In addition to the mutual conditions described above, the completion of the
merger by U.S. Trust depends on the following conditions being satisfied:
o NCT's representations and warranties in the plan of merger being true
o NCT having performed its obligations in the plan of merger in all
material respects
o the continuation of employment agreements between U.S. Trust, North
Carolina Trust and certain employees of NCT and its subsidiaries
o U.S. Trust not being required to take any action that would materially
impair the benefits to be derived from the merger in order to gain any
regulatory approval
o at least 85% of the assets managed by NCT or its subsidiaries on May
14, 1999 remain under management at the time of the merger
If the law permits, U.S. Trust could choose to waive a condition to complete
the merger even though that condition has not been satisfied.
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CONDITIONS TO OBLIGATIONS OF NCT
In addition to the mutual conditions described above, the completion of the
merger by NCT depends on the following conditions being satisfied:
o U.S. Trust's representations and warranties in the plan of merger being
true
o U.S. Trust having performed its obligations in the plan of merger in
all material respects
If the law permits, NCT could choose to waive a condition to complete the
merger even though that condition has not been satisfied.
We cannot be certain when, or if, the conditions to the merger will be
satisfied or waived, or that the merger will be completed.
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF NCT
The plan of merger contains various representations and warranties made by
NCT regarding the following:
o corporate existence and qualification
o capitalization and ownership of subsidiaries
o enforceability of the plan of merger
o receipt of regulatory consents and approvals
o absence of conflicts in the delivery and performance of the plan of
merger
o accuracy of financial statements
o absence of undisclosed liabilities and certain material adverse events,
changes or effects
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o ownership of properties and rights to use software
o absence of pending or threatened suits, actions or other proceedings
o compliance with laws and required licenses and permits
o material contracts
o absence of broker's or finder's fee, except for the fees payable by NCT
to Berkshire Capital
o employee benefit plans
o adequacy of insurance
o absence of effect of any takeover statute
o environmental, tax, labor and accounting matters
o investment advisory activities
o timely filing of regulatory reports
REPRESENTATIONS AND WARRANTIES OF U.S. TRUST
The plan of merger contains various representations and warranties made by
U.S. Trust regarding the following:
o corporate existence and good standing
o enforceability of the plan of merger
o receipt of regulatory consents and approvals
o absence of conflicts in the delivery and performance of the plan of
merger
o absence of certain material adverse events, changes or effects
o absence of any broker's or finder's fee
o accuracy of reports filed with the SEC
o due authorization and validity of the U.S. Trust common shares to be
issued in the merger
CONDUCT OF NCT'S BUSINESS UNTIL THE MERGER
NCT has agreed that, from May 14, 1999 until the merger, except as consented
to by U.S. Trust, each of it and its subsidiaries will:
o conduct its businesses in the ordinary and usual course
o use reasonable efforts to maintain and preserve in all material
respects its business organizations, key employees and advantageous
business relations
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NCT has agreed, from May 14, 1999 until the merger, except as consented to
by U.S. Trust, each of it and its subsidiaries will not:
o issue or sell any additional shares of its equity securities
o make, declare or pay any dividends or other distribution, other than
dividends by a wholly owned subsidiary to NCT
o change its accounting practices
o make any capital expenditures, other than limited exceptions
o enter into any type of business materially different from that
conducted by it as of May 14, 1999 or initiate any new business
activity that would be impermissible for a bank holding company under
federal law
o enter into any compensation, severance or employment contract other
than limited exceptions or enter into or modify any employee
compensation or benefit plan
o dispose of or discontinue any of its material assets, business or
properties or acquire all or any material portion of the assets,
business or properties of any other person
o amend its articles of incorporation, by-laws or other similar
organizational documents
o enter into, terminate or modify any material contract
o settle any claim, action or proceeding in excess of $50,000
o knowingly take any action intended or reasonably likely to result in
any of its representations or warranties set forth in the plan of
merger becoming untrue
o knowingly take any action intended or reasonably likely to prevent the
merger from qualifying as a "reorganization" under the Internal Revenue
Code
o knowingly take any action intended or reasonably likely to result in
any of the conditions to the merger not being satisfied
o knowingly take any action intended or reasonably likely to breach any
provision of the plan of merger
o knowingly take any action intended or reasonably likely to delay the
receipt of shareholder approval for the merger
o knowingly take any action intended or reasonably likely to adversely
affect the ability of any party to perform its obligations under the
plan of merger
o request that NCT Opportunities Equity Partners, Limited Partnership,
the investment fund operated by one of NCT's wholly owned
subsidiaries, take any action other than routine actions
o authorize, commit or agree to take any of the foregoing actions
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<PAGE>
ACTIONS BY NCT AND U.S. TRUST
REASONABLE EFFORTS
Each of U.S. Trust and NCT has agreed to use reasonable efforts to do the
things necessary to complete the merger in a timely manner. However, neither
U.S. Trust nor NCT is required to take any action or accept any condition that
would in its reasonable judgment materially damage the benefits to be derived by
it from the merger.
INFORMATION
Both companies have agreed to keep certain information about the other
confidential.
AGREEMENT NOT TO SOLICIT OTHER OFFERS
NCT has agreed that it will not, directly or indirectly, initiate or solicit
any inquiries or the making of any proposals, or participate in any discussions
or negotiations regarding acquisition proposals. However, NCT's board of
directors may provide information to, and engage in negotiations with, any other
person if:
o after consultation with outside counsel, NCT's board of directors has
determined in good faith that providing information or engaging in
negotiations is necessary to comply with the directors' fiduciary
duties under North Carolina law
o NCT advises U.S. Trust in writing of the terms of any proposals
o NCT keeps U.S. Trust fully informed of any proposals or inquiries
EMPLOYEE BENEFITS
U.S. Trust has agreed to establish and maintain an employee retention
program, the purpose of which is to provide for retention payments to key
employees of NCT and its subsidiaries in order to maximize profits and retain
employees of the merged entity following the merger. For more information
regarding the retention program, see "Merger-Related Compensation Payments to
Employees Merger-Related Payments" on page 39.
In addition, U.S. Trust has agreed to take all appropriate action to include
employees of North Carolina Trust in some of its benefits, medical and
retirement plans.
ACCOUNTING TREATMENT
U.S. Trust will account for the merger under the purchase method of
accounting in accordance with generally accepted accounting principles.
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TERMINATION
NCT and U.S. Trust can terminate the plan of merger at any time before the
merger, even after the NCT shareholders have approved it, under a number of
circumstances.
TERMINATION BY BOTH NCT AND U.S. TRUST
U.S. Trust and NCT can agree in writing at any time to terminate the plan
of merger before completing the merger.
TERMINATION BY EITHER NCT OR U.S. TRUST
Either U.S. Trust or NCT can, without the other's consent, terminate the
plan of merger if:
o the other party materially breaches its representations or warranties,
and the breach cannot be, or has not been, cured within 30 days
o the other party materially breaches any of its covenants, and the
breach cannot be, or has not been, cured
o any approval by a government authority that is necessary to complete
the merger is denied
o the NCT shareholders fail to approve the plan of merger or the
merger-related compensation payments to employees
o the merger is not completed by December 31, 1999 through no fault of
the party seeking to terminate
o any legal restriction permanently prohibits completion of the merger
TERMINATION BY U.S. TRUST
In addition, U.S. Trust can, without NCT's consent, terminate the plan of
merger if:
o NCT's board of directors withdraws or adversely modifies its
recommendation that NCT shareholders vote in favor of the plan of
merger
o NCT's board of directors participates in negotiations regarding any
acquisition proposal with a third party
o on the last business day of the month in which the other conditions to
closing the merger are satisfied, less than 85% of the assets under
management by NCT or its subsidiaries on May 14, 1999 remain under
management
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TERMINATION FEE
NCT has agreed to pay U.S. Trust a $5 million fee if it completes an
acquisition transaction with a third-party:
o before the plan of merger is terminated or
o within 18 months of the plan of merger terminating after the occurrence
of certain events involving a third party making merger or similar
proposals to NCT
This fee is intended to increase the likelihood that the merger with U.S.
Trust occurs and may discourage competing offers.
AMENDMENT
U.S. Trust and NCT can amend the plan of merger at any time before the
merger.
Because of the length of time over which installments of merger
consideration may be paid, we have also provided the flexibility to amend the
plan of merger after the merger. After the merger, the plan of merger may be
amended only by a written agreement among U.S. Trust and NCT shareholders that
owned greater than 50% of the outstanding NCT common shares immediately before
the completion of the merger, counting the Class A and Class B common shares
together.
However, no amendment may disproportionately and adversely affect the right
of any shareholder or optionholder to receive the payments to which the
shareholder or optionholder is entitled as a result of the merger. Any amendment
must be consistent with North Carolina law.
WAIVER
Any provision of the plan of merger may be waived in writing by the party
that would benefit from the provision.
RIGHT TO REVISE STRUCTURE
U.S. Trust has the option to restructure the merger so that:
o a wholly owned subsidiary of U.S. Trust is merged with and into NCT or
o NCT is merged with and into U.S. Trust or a wholly owned subsidiary of
U.S. Trust other than as provided for in the plan of merger
U.S. Trust may not, however, restructure the merger in any way that will alter
or change the amount or kind of consideration received by you in the merger or
adversely affect your tax treatment as a result of the merger.
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NYSE LISTING
U.S. Trust common shares are listed on the NYSE under the symbol "UTC." It
is a condition to the merger that U.S. Trust common shares issued to NCT
shareholders in the merger be approved for listing on the NYSE, subject to
official notice of issuance. Before the merger, U.S. Trust will file an
application for this approval.
EXPENSES
Each of NCT and U.S. Trust will pay its own expenses in connection with the
plan of merger, except that NCT will pay for an audit by U.S. Trust of the fee
structure of NCT clients to be conducted in connection with the determination of
the first installment of the merger consideration to NCT shareholders. NCT will
also pay any fees of Berkshire Capital.
VOTING AGREEMENTS
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The form of the voting agreements is attached as an annex to the plan of
merger, which is Appendix A to this document. You are urged to read the entire
voting agreement carefully.
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Immediately before the plan of merger was signed, U.S. Trust entered into
voting agreements with Stephen C. Hassenfelt, Sue W. Cole and Pamela H.
Hassenfelt. They beneficially own or have power to vote about 60% of the Class A
common shares and 6% of the Class B common shares that can vote in the special
meeting.
In the voting agreements these shareholders agreed to vote these shares
"for" approval of the plan of merger. These shareholders also agreed not to
transfer any interest in their shares until the merger is completed without U.S.
Trust's consent. The voting agreements will terminate when the plan of merger
terminates.
PRINCIPAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinion of Sullivan & Cromwell, the following summary discusses the
principal U.S. federal income tax consequences of the merger. The summary is
based on the Internal Revenue Code, applicable Treasury Regulations under the
Code and administrative rulings and judicial authority as of the date of this
document. All of this information may change, possibly with retroactive effect.
Any change could affect the continuing validity of this discussion. This
discussion and the opinions of Sullivan & Cromwell assume that NCT shareholders
hold their shares as capital assets within the meaning of Section 1221 of the
Internal Revenue Code.
Further, this discussion does not cover the tax consequences that may be
relevant to a particular shareholder subject to special treatment under certain
federal income tax laws. These shareholders include dealers in securities,
traders in securities that elect to use a mark-to-market method of accounting,
tax-exempt organizations, investors liable for alternative minimum tax, foreign
persons, persons that hold NCT common shares as part of a straddle, hedging or
conversion transaction and
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persons who acquired NCT common shares through the exercise of NCT stock options
or rights or otherwise as compensation or through a tax-qualified retirement
plan. This discussion does not address any consequences arising under the laws
of any state, locality or foreign jurisdiction. EACH NCT SHAREHOLDER IS URGED TO
CONSULT HIS OR HER TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE MERGER IN
LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES.
The merger is intended to qualify as a "reorganization" within the meaning
of Section 368(a) of the Code. The completion of the merger by NCT and U.S.
Trust is conditioned on the receipt by each of NCT and U.S. Trust of an opinion
of Sullivan & Cromwell, dated as of the closing date, to the effect that:
o the merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code
o each of NCT, U.S. Trust and NCT Holdings Acquisition Company, U.S.
Trust's wholly owned subsidiary that will survive the merger, will be a
party to that "reorganization" within the meaning of Section 368(b) of
the Code and
o NCT shareholders who receive U.S. Trust common shares in exchange for
NCT common shares will not recognize gain or loss, except with respect
to cash received in lieu of fractional U.S. Trust common shares and
interest income associated with payments made after the merger is
completed
These opinions will not be binding on the IRS and we cannot assure you that
the IRS will not contest the conclusions expressed in these opinions. The
opinions will be based in part on:
o the assumption that the merger will be effected in accordance with the
plan of merger and
o certain representations made by U.S. Trust, NCT and certain of their
shareholders, officers and directors
Assuming that the assumption and representations described above are true
and complete as of the time of the merger, the principal U.S. federal income tax
consequences of the merger to NCT shareholders will be as follows.
NCT shareholders will not recognize gain or loss as a result of the exchange
of NCT common shares for U.S. Trust common shares that NCT shareholders receive
as part of the first installment of the merger consideration.
NCT shareholders who receive cash in lieu of fractional U.S. Trust common
shares in any installment of the merger consideration or who exercise
dissenters' rights and receive cash for their NCT common shares will recognize
capital gain or loss in an amount equal to the difference between the amount of
the cash received and the adjusted tax basis of the NCT common shares
surrendered for such cash. The capital gain or loss will be long-term capital
gain or loss if the NCT shareholder's holding period in the surrendered NCT
common shares is longer than one year. Long-term capital gains of a
non-corporate taxpayer are generally subject to a maximum federal income tax
rate of 20%.
Installments of the merger consideration after the first installment will
be paid after the date of the merger. As a result, a portion of each installment
will be taxable, on receipt, as ordinary interest income to NCT shareholders
even though each installment will be paid in the form of U.S. Trust
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common shares. U.S. Trust intends to file tax information returns consistent
with this treatment. The exact amount of each installment that will constitute
taxable interest income cannot be determined until each such installment is
paid. The NCT shareholder's tax basis in U.S. Trust common shares which are the
payment of interest will be equal to the fair market value of the shares on the
date they are received. The NCT shareholder's holding period in the shares will
start the following day. Other than the receipt of U.S. Trust common shares
which constitute ordinary interest income, NCT shareholders will not recognize
gain or loss as a result of the exchange of NCT common shares for U.S. Trust
common shares received as part of the installments of the merger consideration
after the first installment.
The holding period of U.S. Trust common shares received by a NCT shareholder
in exchange for NCT common shares, whether as part of the first installment or
any subsequent installment, will include the NCT shareholder's holding period of
the NCT common shares surrendered in the merger. Each NCT shareholder's
aggregate tax basis in the U.S. Trust common shares received by the NCT
shareholder in exchange for NCT common shares will be equal to the NCT
shareholder's aggregate tax basis in the NCT common shares surrendered in the
installment.
If a former NCT shareholder disposes of U.S. Trust common shares received in
exchange for NCT common shares surrendered in the merger before the payment of
the final installment of the merger consideration, the former NCT shareholder
will have to determine how much, if any, of the tax basis attributable to the
NCT common shares should be allocated to the U.S. Trust common shares disposed
of in order to calculate the gain or loss recognized as a result of the
disposition. There is no authority which addresses how the tax basis should be
allocated. Therefore, holders of NCT common shares should consult their tax
advisors to determine their gain or loss in this situation.
Holders of options to acquire NCT common shares will receive cash in
exchange for the options pursuant to the merger. This cash, whether received as
part of the first installment or any subsequent installment of the merger
consideration, will be taxable as ordinary income paid as compensation for
services. U.S. Trust intends to file tax information returns consistent with
this treatment. These payments will be made net of any required withholding.
The discussion above is not a complete analysis or discussion of all
potential tax consequences relating to the merger. Thus, NCT shareholders are
urged to consult their own tax advisors as to the specific tax consequences to
them of the merger, including the tax consequences associated with the receipt
of NCT common shares pursuant to the exercise of NCT stock options or otherwise
as compensation, tax return reporting requirements, the applicability and effect
of federal, state, local, foreign and other tax laws and the effect of any
proposed changes in the tax laws.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
In the plan of merger, NCT and U.S. Trust agreed to use reasonable efforts
to make any regulatory filings and submissions necessary to complete the merger
and the related transactions. However, neither NCT nor U.S. Trust is required to
take any action or accept any condition that would, in its reasonable judgment,
materially damage the benefits of the merger.
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The following discussion describes the material regulatory approvals and
actions that are required to complete the merger. If any additional regulatory
approvals or actions are required to complete the merger, we will also seek
those approvals and take those actions.
As of the date of this document, we have not received the required
approvals. Although we do not know of any reason why we would not be able to
obtain the approvals required, we cannot assure you that we will obtain the
approvals or, if we obtain the approvals, that they will not include conditions
that could cause either company to abandon the merger.
FEDERAL RESERVE BOARD
The merger requires prior approval by the Federal Reserve Board under the
Bank Holding Company Act of 1956. The Bank Holding Company Act is the federal
statute that regulates entities like U.S. Trust. As an acquiring bank holding
company, U.S. Trust is required to file a notice with the Federal Reserve Board
that describes:
o the merger proposal and the proposed activities of the combined entity
o the effect of the proposal on competition among entities engaging in
the activities
o the identity of the parties involved in the transaction, including
their subsidiaries
o the public benefits expected from the proposal
o the terms of the transaction
o the source of funds for the transaction
o financial and managerial information
The information included in the notice and other requests for information
allow the Federal Reserve Board, when considering whether to approve the merger,
to weigh the financial and managerial resources and prospects of the existing
and proposed entity and the benefits expected from the merger. The Federal
Reserve Board will, among other things, evaluate the adequacy of the capital
levels of U.S. Trust both before and after the merger.
The Federal Reserve Board may deny the request for approval of the merger if
it determines that the merger would:
o result in anti-competitive effects or its effect in any section of the
country would be substantially to lessen competition or tend to create
a monopoly or
o it would in any other manner result in a restraint of trade
unless the Federal Reserve Board finds that the anti-competitive effects of the
merger are clearly outweighed by the beneficial effects of the merger to the
public.
Federal law provides for the publication of notice and public comment on
applications filed with the Federal Reserve Board.
We cannot complete the merger until after Federal Reserve Board approval is
obtained. U.S.
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Trust has filed the required notice with the Federal Reserve
Board for approval of the merger. U.S. Trust also filed a copy of this notice
with the Federal Trade Commission and the Department of Justice to exempt the
merger from the requirements of the Hart-Scott Rodino Antitrust Improvements Act
of 1976.
NORTH CAROLINA COMMISSIONER OF BANKS
NCT has filed the required application with the North Carolina Commissioner
of Banks for approval of the merger. Under the applicable statute, the
Commissioner is directed to approve the merger unless he finds that the merger
would not be in the public interest or could jeopardize North Carolina Trust's
financial stability.
DISSENTERS' RIGHTS
WHAT ARE DISSENTERS' RIGHTS?
Dissenters' rights are statutory rights that enable shareholders who object
to certain extraordinary matters, like mergers, to dissent and to require the
corporation to buy their shares for fair value.
HOW DO I DISSENT?
The following is a summary of your rights under North Carolina law if you
choose to dissent. If you intend to dissent from the merger, you should review
carefully the text and comply with the requirements of Article 13 of the North
Carolina Business Corporation Act, which is attached as Appendix B to this
document, and consult with an attorney. If you fail to comply with the
procedures prescribed under North Carolina law, you will lose your dissenters'
rights. Except as provided below, you will not be given any further notices
regarding your dissenters' rights, the time periods in which you must exercise
the rights or the procedures you must follow to effect the rights.
Your dissenters' rights may be summarized as follows:
WRITTEN NOTICE OF INTENT TO DISSENT
If you intend to dissent from the merger you must give NCT, and NCT must
actually receive, before the vote at the special meeting of shareholders,
written notice of your intent to demand payment for your shares if the merger is
completed. You should mail your dissenter's notice to NCT's Secretary, Steven J.
Frost, at:
P.O. Box 1108
301 North Elm Street
Greensboro, NC 27402-1108
A vote against approval of the plan of merger will not satisfy this notice
requirement.
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VOTE AGAINST OR ABSTAIN FROM VOTING
If you intend to dissent from the plan of merger you cannot vote your
dissenting shares in favor of the plan of merger. You must either vote against
the plan of merger or abstain from voting. Any dissenting shareholder who
returns a signed proxy but fails to provide instructions as to how the shares
are to be voted will be deemed to have voted "FOR" the plan of merger and will
not be entitled to assert dissenters' rights. Any NCT shareholder that dissents
must dissent with respect to all NCT common shares beneficially owned by the
shareholder.
DEMAND FOR PAYMENT
If you comply with the requirements described above with respect to giving
written notice of intent to dissent and voting against the merger or abstaining
from voting, then by the tenth day after the merger is approved by NCT
shareholders, NCT will send you:
o a written notice stating where you must send the payment demand and
where and when certificates for certificated dissenting shares must be
deposited
o a form for demanding payment
o the deadline by which NCT must receive the payment demand, which must
be 30-60 days after the date the notice is mailed
o a copy of Article 13 of the North Carolina Business Corporation Act
Once you receive the notice for payment, you must then demand payment and
deposit your certificates in accordance with the terms of the notice provided by
NCT. Dissenting shareholders who demand payment and deposit their share
certificates in accordance with North Carolina law will retain all other rights
as a NCT shareholder until these rights are canceled or modified by the merger.
PAYMENT FOR DISSENTING SHARES
When the merger is completed, or within 30 days after receipt of a payment
demand, if you have complied with the requirements of the statute, NCT will pay
you its estimate of the fair value of your dissenting shares, plus interest
accrued to the date of payment. NCT will also send you:
o NCT's balance sheet, income statement and statement of cash flows as
of, and for the period ending, September 30, 1998
o the latest available interim financial statements, if any
o an explanation of how NCT estimated the fair value of the dissenting
shares
o an explanation of how the interest was calculated
o a statement of the dissenter's rights to demand payment if dissatisfied
with the amount of NCT's payment
DEMAND FOR PAYMENT AND OBJECTING TO PAYMENTS MADE
If you believe
o the amount paid by NCT is less than the fair value of your dissenting
shares or
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the interest was incorrectly calculated or
o NCT failed to make payment as soon as the merger was effected or within
30 days of receipt of a payment demand
you may notify NCT in writing of your own estimate of the fair value of your
dissenting shares and the amount of interest due, and demand payment of the
amount you believe is owed to you. The notice must be given within 30 days after
NCT makes payment or fails to perform. If you fail to notify NCT in writing of
your demand for payment within the 30-day period you will lose your right to
dissent and demand payment.
SETTLING DEMANDS FOR PAYMENT
If your demand for payment remains unsettled, you may commence a legal
proceeding by filing a complaint with the Superior Court Division of the North
Carolina General Court of Justice to determine the fair value of your dissenting
shares and accrued interest. You must file the complaint within 60 days after
the earlier of the date payment is made by NCT or the date of your payment
demand as described in the immediately preceding paragraph. If you do not act
within the 60-day period you will lose your right to dissent and demand payment.
THE COMPANIES
U.S. TRUST
U.S. Trust is a bank holding company registered under federal law and
incorporated in New York. Through its subsidiaries, U.S. Trust engages in two
principal businesses:
1. Personal Wealth Management Services. U.S. Trust provides a complete
array of financial services for affluent individuals and families.
These services, which we refer to as "personal wealth management
services," include:
o investment management, including domestic and international
equities, fixed income securities and alternative investments,
like venture capital and real estate
o investment consulting
o trust and estate administration
o financial and estate planning
o private banking
U.S. Trust has been engaged in the personal wealth management business
since 1853. In 1982, U.S. Trust began expanding its presence beyond its New York
City headquarters. Today, U.S. Trust has offices in eight states and the
District of Columbia. U.S. Trust anticipates that its national expansion will
continue over the next several years.
The cornerstone of U.S. Trust's services to individuals and families is
investment management. At March 31, 1999, personal assets under management were
about $54.0 billion.
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2. Institutional Services. The "institutional services" that U.S. Trust
provides include:
o investment management
o corporate trust
o special fiduciary services
o brokerage services
These services are provided to:
o endowments
o foundations
o pension plans
o other institutional clients
U.S. Trust's institutional investment management business offers a wide
range of investment options for clients, including balanced portfolios,
specialized domestic and international equity investment styles, structured
investments, real estate, fixed-income vehicles and short-term cash management.
Institutional clients can also utilize U.S. Trust's Excelsior mutual fund
family, which offers all major asset classes. At March 31, 1999, U.S.
Trust managed about $25.5 billion for its institutional clients.
U.S. Trust's principal competitors are other investment management
companies, brokerage firms, mutual fund companies and banking institutions. No
one competitor or industry dominates the markets in which U.S.
Trust operates.
U.S. Trust's principal subsidiary is United States Trust Company of New
York, a state-chartered bank and trust company. U.S. Trust has other banking and
non-banking subsidiaries with offices located in California, Connecticut,
Florida, New Jersey, Oregon, Pennsylvania, Texas and Washington, D.C.
U.S. Trust often looks at acquiring other companies. Any future acquisition
could be material, in terms of assets acquired or liabilities assumed, to U.S.
Trust's financial condition. It is possible that an acquisition may result in
dilution of book value and net income per U.S. Trust common share.
U.S. Trust's principal executive offices are located at 114 West 47th
Street, New York, New York 10036, and its telephone number is (212) 852-1000.
NCT
NCT is a North Carolina corporation and the sole shareholder of the
following subsidiaries:
o North Carolina Trust
o NCT Opportunities, Inc.
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NORTH CAROLINA TRUST
North Carolina Trust is a North Carolina non-depository banking corporation
engaged primarily in the businesses of wealth management and fiduciary services.
North Carolina Trust organizes its client base into three primary groups:
o personal asset management
o not-for-profit organizations
o employee benefit plans
Personal asset management and not-for-profit clients comprise more than 80%
of total client relationships and 82% of total assets under management as of
March 31, 1999. As of March 31, 1999, North Carolina Trust had assets under
management of about $2.4 billion.
1. Personal Asset Management. North Carolina Trust delivers the following
Personal Asset Management services:
o investment planning
o investment management
o fiduciary and trustee services
o wealth transfer planning
o tax planning
o financial planning
2. Not-For-Profit Organizations. North Carolina Trust provides asset
management services to charitable organizations, private foundations
and trade associations. North Carolina Trust provides the following
not-for-profit services:
o investment planning
o investment management
o planned giving administration
o endowment management
o communication and reporting
o custody of assets
3. Employee Benefit Plans. North Carolina Trust provides the following
investment management and corporate trustee services to employee
benefit plans:
(a) Investment Management
o asset allocation
o individual management of stocks, bonds and guaranteed
investment contracts
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o management of common trust funds
o selection of specialty institutional mutual funds
o performance measurement services
(b) Corporate Trustee Services
o fiduciary support
o custodial services and securities settlement
o trust accounting reporting
o portfolio valuation
o plan reporting
o automated sweep of excess cash
o benefit payment processing
INVESTMENT PROCESS AND PROCEDURE
North Carolina Trust's investment processes are targeted toward adding
value and controlling risk in the three basic asset classes: cash reserves,
fixed income, and equities. While institutional mutual funds are employed for
managing client cash reserves, North Carolina Trust runs its own intermediate
investment-grade fixed income strategies, both taxable and non-taxable, as well
as its own core value-oriented mid/large company equity strategy. North Carolina
Trust has also traditionally augmented its core value-oriented equity strategy
with both small company and diversified international equity exposure through
the use of "best-in-class" third-party mutual funds selected using North
Carolina Trust's disciplined specialty funds selection process.
NCT OPPORTUNITIES EQUITY PARTNERS
NCT Opportunities Equity Partners, Limited Partnership, which we refer to
as "Equity Partners," is a North Carolina limited partnership formed for the
purpose of investing in hedge funds. These hedge funds in turn, invest, reinvest
and trade primarily in securities, other financial instruments, rights and
options. NCT Opportunities, Inc., a wholly owned subsidiary of NCT, is the
general partner of Equity Partners. Equity Partners began operations on January
2, 1995.
Equity Partners provides investors the opportunity to pool their assets and
diversify their investments in ways they could not individually. Through Equity
Partners, North Carolina Trust's clients gain access to highly regarded hedge
fund managers who employ alternative investment styles. Equity Partners'
objective is to preserve capital and grow its assets in a range of 12% to 18%
each year on a consistent basis, rather than seek aggressive returns with
high-risk investments.
As of March 31, 1999, Equity Partners had investments in seventeen limited
partnerships, and total invested assets of $48.1 million.
NCT's principal executive offices are located at 301 North Elm Street,
Greensboro, North Carolina 27401, and its telephone number is (336) 272-5100.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
of NCT Holdings, Inc.
This management's discussion and analysis of financial condition and
results of operations should be read with the consolidated financial statements,
accompanying footnotes and other financial information beginning on page F-1.
The financial information presented below has been prepared on a basis
consistent with the financial accounting policies described in NCT's
Consolidated Financial Statements beginning on page F-1.
CERTAIN FACTORS AFFECTING RESULTS OF OPERATIONS
Results of operations in the past have been, and in the future may continue
to be, materially affected by many factors including economic and market
conditions, the availability of capital, the level and volatility of equity
prices and interest rates, technological changes, investor sentiment, and
legislative and regulatory developments. These factors may have an impact on
NCT's ability to achieve its strategic objectives, including growth in assets
under management.
NCT's asset management business is subject to substantial positive and
negative fluctuations due to a variety of factors that cannot be predicted with
certainty, including variations in the fair market value of equity and fixed
income securities and the volatility and liquidity of trading markets.
NCT's results of operations also may be materially affected by competitive
factors. In addition to competition from firms traditionally engaged in
securities and asset management businesses, there has been increased competition
from other sources like commercial banks, insurance companies, mutual fund
groups, online service providers and other companies offering financial
services. Competitors offering a broad array of financial products and services
with many distribution channels may adversely affect NCT's ability to attract
and retain clients.
As a result of the factors listed above, net income and revenues in any
particular period may not be representative of full-year results and may vary
significantly from quarter to quarter and year to year. NCT intends to manage
its businesses for the long term, by emphasizing long-term client relationships
with asset-based fees that generate a continuing stream of revenues and by
managing the inherent risks associated with its asset management business. In
addition, trends in the financial services industry of consolidation and
technological change will require the implementation of effective strategic
initiatives in order for NCT to remain competitive.
RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH THE
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
NCT recorded consolidated net income of $652,000 for the year ended
September 30, 1998 compared to $847,000 for the year ended September 30, 1997
and $425,000 for the year ended September 30, 1996.
Net income for the year ended September 30, 1998 decreased approximately
23.0% to $652,000 compared to $847,000 for the year ended September 30, 1997.
Net income for the year ended September 30, 1997 of $847,000 represented an
increase of 99.3% from $425,000 of net income for
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the year ended September 30, 1996. The decrease in net income for the year ended
September 30, 1998 reflected higher staffing levels and other operating expenses
as NCT expanded its regional presence in its primary geographic market. In
addition, the equity markets suffered significant losses in the September 1998
quarter which resulted in lower asset-based fees for that quarter. The increases
in operating expenses were partially offset by revenue growth which expanded at
a compound growth rate of 25% for the three year period ending September 30,
1998.
REVENUE
Fee revenue for the year ended September 30, 1998 increased 21.1% over
September 30, 1997, and fee revenue for 1997 increased 29.3% over 1996. The
increase in fee revenue during these periods was attributable to strong new
business and the overall appreciation in the equity and bond markets.
The following table presents fee revenue for the three years ended
September 30.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------- COMPOUND GROWTH RATE
FEE REVENUE (IN THOUSANDS) 1998 1997 1996 96-98
- ------------------------------- ------------------------------------- --------------------
<S> <C> <C> <C> <C>
Investment management $11,382 $9,133 $7,068 26.9%
Consulting and compliance 744 733 713 2.2%
Estate administration 187 415 223 (8.4)%
General partner 590 373 236 58.1%
-------------------------------------
Total Fee Revenue $12,903 $10,654 $8,240 25.1%
=====================================
</TABLE>
Investment management fees. Investment management fees, representing 88% of
fee revenue for the year ended September 30, 1998, are generally based on the
market value of the client portfolio as of the end of each quarterly period.
They are sensitive to market changes in equity and fixed income financial
markets. As of September 30, 1998, North Carolina Trust had $2.137 billion in
assets under management, of which $838 million or 39.2% were invested in fixed
income securities and $999 million or 46.7% in equity securities.
Total assets under management and administration increased 34.0% from
$1.499 billion at September 30, 1996 to $2.008 billion September 30, 1997, and
6.4% to $2.137 billion at September 30, 1998.
Fee revenue, relative to market conditions, is determined on a sliding
scale so that as the value of a client's portfolio grows in size, the fee
charged is a smaller percentage on the increasing account value. As a result,
fee revenue is not impacted on a directly proportionate basis with changes in
market values of the equity and fixed income markets. Fee revenues can also grow
or decline based on new business or added services, client withdrawals or
terminations, and changes in fee structures.
Estate administration fees. Estate administration fees, which vary from
year to year depending on the number of estates being administered, are accrued
over the term of the services performed.
-63-
<PAGE>
General partner fees. General partner fees are derived from fee agreements,
based on partnership capital balances along with the general partner's
proportionate share of the income or loss of the partnership allocated on its
capital balance. The general partner also receives a one-time administrative fee
when a new limited partner is admitted to the partnership.
EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------- COMPOUND GROWTH RATE
OPERATING EXPENSES (IN THOUSANDS) 1998 1997 1996 96-98
- --------------------------------- ------------------------------------- --------------------
<S> <C> <C> <C> <C>
Salaries $ 5,567 $ 4,365 $ 3,741 22.0%
Performance based incentive
compensation 697 475 370 37.3%
Sales based incentive compensation 156 92 76 43.3%
Other benefits 1,223 901 747 28.0%
----------------------------------- -----
Salaries, incentive compensation
and other benefits 7,643 5,833 4,934 24.5%
Outside services 1,140 1,030 625 35.1%
Depreciation and amortization 436 356 272 26.6%
Occupancy 681 580 491 17.8%
Other 1,829 1,277 1,190 23.9%
----------------------------------- -----
Total Operating Expenses $11,729 $ 9,076 $ 7,512 25.0%
=================================== =====
</TABLE>
Operating expenses increased $2.7 million or 29.2% for the year ended
September 30, 1998 over 1997 and $1.6 million or 20.8% for the year ended
September 30, 1997 over 1996.
Total salaries, incentive compensation and benefits increased $1.8 million
or 31.0% for the year ended September 30, 1998 over 1997 and $900,000 or 18.2%
for the year ended September 30, 1997 over 1996. The increases reflect annual
salary merit increases, employee additions necessary to meet the growing client
base and start-up staffing in a regional office.
Performance compensation is based on financial performance. Earnings in
excess of minimum thresholds are shared with employees on a percentage basis
according to a formula determined annually by the board of directors.
The number of full time equivalent employees increased from 59 employees at
September 30, 1995 to 72 employees as of September 30, 1996, 83 employees as of
September 30, 1997 and 95 employees as of September 30, 1998. This 61.0%
increase in staffing over a three year period reflects NCT's efforts to provide
staff to support its growing client base along with the geographic expansion in
the North Carolina market, including opening a new full-service office in
Raleigh during 1998.
Outside services, which include outsourcing costs for client accounting and
custody services along with equipment maintenance, audit, consulting and other
professional fees, increased 10.6% and 64.8% for the years ended September 30,
1998 and 1997, respectively, reflecting the growth in new
-64-
<PAGE>
accounts and infrastructure enhancements. Significant one-time expenses were
incurred in 1997 and 1998 to implement process management throughout the
organization.
Other operating expenses primarily include employee recruiting, training
and travel, marketing, office services, insurance and corporate taxes. North
Carolina Trust opened its third office in Raleigh, which contributed
significantly to the increase in these expenses for the year ended September 30,
1998.
NCT's operating profit margin was 9.1% in 1998, down from 14.8% in 1997,
but up from 8.8% in 1996. The absolute levels and volatility in NCT's profit
margin are reflective of its expansion strategy, including staff and
infrastructure costs incurred to increase its North Carolina market presence.
During the year ended September 30, 1997, North Carolina Trust upgraded its
technology platform. The loss on disposal of the existing technology equipment
was approximately $81,000 and was included in Other Expenses.
The provision for income taxes was $558,000 for the year ended September
30, 1998 compared with $640,000 for 1997 and $279,000 for 1996. The effective
tax rate was 46.1% in 1998 compared with 43.0% in 1997 and 39.7% in 1996. The
higher effective tax rate reported for 1998 and 1997 reflects a non-deductible,
non-cash expense in pre-tax income related to shares allocated to the ESOP of
NCT in the amounts of $183,000 and $126,000, respectively. The effective tax
rates before these adjustments were 40.1% and 39.7% for 1998 and 1997,
respectively.
FINANCIAL CONDITION AS OF SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997
NCT's total assets increased $1.1 million or 19.4% for the year ended
September 30, 1998 over the year ended September 30, 1997, primarily reflecting
growth in facilities and infrastructure.
Receivables, consisting primarily of amounts due for asset-based investment
management fees, increased by 8.8% over September 30, 1997.
Fixed asset additions for the year ended September 30, 1998 amounted to
approximately $1.0 million, which included $400,000 in technology hardware and
software, $350,000 for furnishings and tenant improvements related to the
Greensboro office expansion, and $250,000 for office furnishings, equipment and
tenant improvements for the Raleigh office which opened May 1, 1998.
The additional investments in Equity Partners consists of a general partner
profit reallocation fee that was retained in the partnership.
NCT's total liabilities at September 30, 1998 remained relatively flat at
$2.2 million when compared to September 30, 1997.
The accrued liability for incentive payments increased by approximately
$200,000 year over year.
Total long-term debt was reduced by approximately $300,000 during the year,
including a $115,000 reduction of the leveraged ESOP debt. This principal
reduction of the ESOP debt also
-65-
<PAGE>
resulted in a reduction of the "Unearned ESOP Compensation" contra-equity
account, resulting in an increase in equity by the same amount.
Total shareholders' equity increased $1.057 million to $4.643 million at
September 30, 1998 with increases of $107,000 from the issuance of new shares
and $298,000 from shares allocated to the ESOP plan participants, and net income
of $652,000.
YEAR 2000 ISSUES
Many of the world's computer systems, including non-information technology
equipment and systems, currently utilize a two-digit format for calendar year
dates. If these computer systems are not modified to reflect a four-digit format
for calendar year dates, they may be unable to properly interpret dates beyond
the year 1999, which could lead to business disruptions in the U.S. and
internationally. This situation is commonly referred to as the "Year 2000
issue." The potential costs and uncertainties associated with the Year 2000
issue may depend on a number of factors, including software, hardware and the
nature of the industry in which a company operates. Additionally, companies must
coordinate with other entities with which they electronically interact.
In addressing the Year 2000 issue, NCT established several review phases.
In the first phase, NCT defined the Year 2000 issue and obtained executive
support and funding. In the second phase, NCT collected a comprehensive list of
items that could be affected by Year 2000 compliance issues. These items
included facilities and related non-information technology systems, computer
systems, hardware and services and products provided by third parties. In the
third phase, NCT evaluated the items identified in the second phase to determine
which items will function properly with the change to the new century and ranked
items which needed to be remediated based on their potential impact on NCT. The
fourth, or remediation, phase includes a detailed analysis of the items that are
affected by the Year 2000, the identification of problem areas and the repair of
non-compliant items.
The fifth, or testing phase, includes a thorough testing of all proposed
repairs. The sixth, or implementation phase, consists of placing all items that
have been remediated and successfully tested into production. The final, or
integration phase, includes operating business critical production systems in a
future time environment and testing with external entities.
The costs related to remediation of the Year 2000 issue have not been
significant to date and are not expected to be significant in the future. All
critical systems expected to be in use by NCT after December 31, 1999 are now
compliant.
There are many risks associated with the Year 2000 issue, including the
possibility of a failure of NCT's computer and non-information technology
systems. These failures could have a material adverse effect on NCT and may
cause system malfunctions, incorrect or incomplete transaction processing, the
inability to reconcile accounting books and records, and inaccurate information
to manage NCT's exposure to market risks. In addition, even if NCT successfully
remediates its Year 2000 issues, it can be materially and adversely affected by
failures of third parties to remediate their own Year 2000 issues.
-66-
<PAGE>
NCT is developing business continuity plans for its critical business
functions. NCT's expectations about future costs and the timely completion of
its Year 2000 modifications are subject to uncertainties that could cause actual
results to differ materially from what has been discussed above.
Contingency plans for the Year 2000 issue have been and will continue to be
developed and NCT will continue to review all contingency plans during 1999 and
modify them when necessary or appropriate.
RISK MANAGEMENT
In the normal course of business, NCT assumes various types of risk, the
most significant of which are liquidity and market risk. To manage these risks,
NCT has risk management processes designed to provide for risk identification,
measurement, monitoring and control.
LIQUIDITY RISK
Liquidity represents NCT's ability to obtain funds at reasonable rates to
support its cash flow requirements and to provide the necessary capital for
strategic initiatives. Because North Carolina Trust is a nondepository,
non-lending financial institution, the liquidity needs that are normally
associated with a commercial bank to satisfy commitments to borrowers and
demands of debt holders do not apply.
Liquidity risk management includes consideration of NCT's ability to raise
funds in the capital markets. The ability to raise funds depends on credit
ratings, market conditions, capital considerations, investor demand and other
factors.
Liquid assets consist of cash and cash equivalents. At September 30, 1998
cash and cash equivalents totaled $423,000. In addition, fees receivable
generally are collected from client accounts and become liquid within ten days
of the end of any reporting period. Fees receivable at September 30, 1998 were
$3,157,000. Cash flow from operations is generally sufficient to meet the
liquidity needs of NCT. Liquidity for NCT is also provided by the availability
of a $1.5 million stand-by line of credit that expires in January 2000. In
addition, Equity Partners has a $3 million revolving line of credit to manage
the temporary cash flow requirements of reallocating investments among fund
managers.
Management believes NCT has sufficient liquidity to meet its current
obligations and to support its operations and strategic initiatives.
MARKET RISK
NCT's trading activities are limited to trading for client accounts in
connection with providing asset management services for its clients. NCT is not
a party to off-balance sheet financial derivatives.
Asset-based fee revenue comprises 85% to 90% of NCT revenue. Although fee
revenue is not impacted on a directly proportionate basis with changes in market
value of client portfolios, NCT's revenue stream can be significantly impacted
by changes in market value of the equity and fixed income markets.
-67-
<PAGE>
NCT continuously reviews and assesses its risk management policies and
procedures in order to improve firm-wide risk management capabilities.
INTERIM FINANCIAL DATA
NCT recorded consolidated net income for the quarter ended March 31, 1999
of $280,000, up 32.7% from the net income of $211,000 earned for quarter ended
March 31, 1998. Diluted earnings per common share increased from $.10 per share
in 1998 to $.13 per share in 1999. The increase primarily reflected increased
fee revenues from higher levels of assets under management.
Consolidated net income for the six months ended March 31, 1999 of $380,000
compared to $242,000 in the six months ended March 31, 1998, represents a 57.3%
increase year over year. The increase in net income was primarily the result of
higher fee revenues from growth in assets under management. Diluted earnings per
common share increased 50% from $.12 per share to $.18 per share for the
respective periods.
Assets under management increased $284 million or 13.3% from $2.137 billion
at September 30, 1998 to $2.421 billion at March 31, 1999. Growth in assets
under management was achieved primarily through new business.
Fee revenue of $6,800,000 for the six months ended March 31, 1999
represented a $627,000 or a 10.1% increase over the same period for 1998. Total
compensation expense increased 7.8% while total operating expenses increased
8.0% year over year. The profit margin increased to 10.2% of revenue, up from
8.5% for the 1998 period.
FINANCIAL CONDITION AS OF MARCH 31, 1999 COMPARED TO SEPTEMBER 30, 1998
NCT's total assets at March 31, 1999 of $6.9 million were slightly higher
than the $6.8 million level at September 30, 1998, while total liabilities
decreased over the period from $2.2 million to $l.5 million.
NCT had a term loan agreement with a bank at September 30, 1998 with a
principal balance outstanding of $75,000. In addition, a promissory note payable
to a former officer related to the formation of NCT's ESOP plan had an
outstanding principal balance of $97,000. Both of these notes were paid in full
during the six months ended March 31, 1999.
The only remaining term debt is a promissory note with an outstanding
principal balance of $40,000 at March 31, 1999.
Total shareholder's equity increased $727,000 to $5.4 million, with
increases of $45,000 from new shares issued, $302,000 from shares allocated to
the ESOP plan participants, and $380,000 from net income.
BUSINESS SEGMENTS
The following table reflects the earning's contribution of NCT's business
segments for the three month and six month periods ending March 31, 1999 and
1998, respectively. NCT's segment results
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<PAGE>
have been determined on an internal management basis of accounting by legal
entity rather than generally accepted accounting principles used for
consolidated financial reporting. Segment results are subject to restatement
whenever changes in measurement or organizational changes are made. Accordingly,
while informative, quarterly segment disclosures may not be indicative of
long-term performance and should not necessarily be used as long-term
forecasting benchmarks.
The segments contributed to NCT's profitability as follows:
<TABLE>
<CAPTION>
NCT, Net of
NCT Intercompany Total
North Carolina Trust Opportunities Eliminations Company
-------------------- ------------- ------------ --------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
Fee revenue $3,318,844 $74,953 $0 $3,393,797
Operating expense 2,908,206 73,515 (38,003) 2,943,718
--------- --------- --------- ---------
Operating income 410,638 1,438 38,003 450,079
Other income (expense) (5,500) 156 14,013 8,669
--------- --------- --------- ---------
Income before taxes $405,138 $1,594 $52,016 $458,748
--------- --------- --------- ---------
Profit margin 12.2% 2.1% -- 13.5%
--------- --------- --------- ---------
Percentage of income before taxes 88.3% 0.3% 11.4% 100.0%
--------- --------- --------- ---------
Total assets $5,708,306 $1,062,377 $122,689 $6,893,372
--------- --------- --------- ---------
Assets under management (in thousands) $2,421,000 $43,993 $0 $2,464,993
--------- --------- --------- ---------
THREE MONTHS ENDED MARCH 31, 1998
Fee revenue $3,081,028 $85,419 $0 $3,166,447
Operating expense 2,827,815 53,344 (87,860) 2,793,299
--------- --------- --------- ---------
Operating income 253,213 32,075 87,860 373,148
Other income (expense) 7,015 (767) 6,088 12,336
--------- --------- --------- ---------
Income before taxes $260,228 $31,308 $93,948 $385,484
--------- --------- --------- ---------
Profit margin 8.4% 36.7% -- 12.2%
--------- --------- --------- ---------
Percentage of income before taxes 67.5% 8.1% 24.4% 100.0%
--------- --------- --------- ---------
Total assets $4,941,627 $820,710 $390,054 $6,152,391
--------- --------- --------- ---------
Assets under management (in thousands) $2,248,000 $ 45,632 $0 $2,293,632
--------- --------- --------- ---------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NCT, Net of
NCT Intercompany Total
North Carolina Trust Opportunities Eliminations Company
-------------------- ------------- ------------ --------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED MARCH 31, 1999
Fee revenue $6,689,639 $110,350 $0 $6,799,989
Operating expense 6,086,939 153,036 (115,704) 6,124,271
--------- --------- --------- ---------
Operating income 602,700 (42,686) 115,704 675,718
Other income (expense) (8,134) 515 26,589 18,970
--------- --------- --------- ---------
Income before taxes $594,566 ($42,171) $142,293 $694,688
--------- --------- --------- ---------
Profit margin 8.9% (38.2)% -- 10.2%
--------- --------- --------- ---------
Percentage of income before taxes 85.6% (6.1)% 20.5% 100.0%
--------- --------- --------- ---------
Total assets $5,708,306 $1,062,377 $122,689 $6,893,372
--------- --------- --------- ---------
Assets under management (in thousands) $2,421,000 $43,993 $0 $2,464,993
--------- --------- --------- ---------
SIX MONTHS ENDED MARCH 31, 1998
Fee revenue $6,017,406 $156,024 $0 $6,173,430
Operating expense 5,709,852 124,842 (165,341) 5,669,353
--------- --------- --------- ---------
Operating income 307,554 31,182 165,341 504,077
Other income (expense) 12,391 (571) 9,661 21,481
--------- --------- --------- ---------
Income before taxes $319,945 $30,611 $175,002 $525,558
--------- --------- --------- ---------
Profit margin 5.3% 19.6% -- 8.5%
--------- --------- --------- ---------
Percentage of income before taxes 60.9% 5.8% 33.3% 100.0%
--------- --------- --------- ---------
Total assets $4,941,627 $820,710 $390,054 $6,152,391
--------- --------- --------- ---------
Assets under management (in thousands) $2,248,000 $45,632 $0 $2,293,632
--------- --------- --------- ---------
</TABLE>
SHARE OWNERSHIP OF NCT
BY MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of NCT shares, as of July 9, 1999, by:
o each director of NCT
o the chief executive officer of NCT
o the directors and executive officers of NCT as a group.
o the four most highly compensated officers of NCT other than the chief
executive officer during the 1998 calendar year
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<PAGE>
Unless otherwise indicated, all NCT shares are owned of record by the
individuals named and the beneficial ownership consists of sole voting power and
sole investment power. The number of NCT shares beneficially owned by each of
the individuals listed includes NCT shares under presently exercisable options.
<TABLE>
<CAPTION>
CLASS A COMMON SHARES CLASS B COMMON SHARES
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT BENEFICIAL OWNERSHIP PERCENT
---- -------------------- ------- -------------------- -------
<S> <C> <C> <C> <C>
Stephen C. Hassenfelt 609,461(1) 50.7% 31,623(2) 4.3%
Sue W. Cole 214,716(3) 17.9% 14,973(4) 2.0%
John R. Rich 53,600(5) 4.4% 9,923(6) 1.4%
Robert E. Mallernee 17,626(7) 1.5% 4,901(8) 0.7%
David E. Webb 13,000(9) 1.1% 3,599(10) 0.5%
Charles A. Hayes 46,657(11) 3.9% 28,000 3.8%
Robert E. Long, Jr. 37,000(12) 3.1% 2,500 0.3%
Donald F. Orr 70,775(13) 5.9% 28,000 3.8%
James B. Powell 46,656(14) 3.9% 28,000 3.8%
All directors and executive 1,109,491 87.6% 151,485 20.6%
officers as a group
- ---------------------------------------------------------------------------------
<FN>
(1) For a detailed description of the nature of Mr. Hassenfelt's beneficial
ownership of Class A common shares, see "Share Ownership of NCT By Five
Percent Owners."
(2) Includes 22,373 Class B common shares allocated to Mr. Hassenfelt's account
under the ESOP of NCT Holdings, Inc. and North Carolina Trust Company (the
"ESOP"). Also includes 9,250 Class B common shares owned by Mr.
Hassenfelt's spouse as to which Mr. Hassenfelt denies beneficial ownership.
(3) For a detailed description of the nature of Ms. Cole's beneficial ownership
of Class A common shares, see "Share Ownership of NCT By Five Percent
Owners."
(4) Represents Class B common shares allocated to Ms. Cole's account under the
ESOP.
(5) Includes 15,000 Class A common shares Mr. Rich has the right to acquire
under presently exercisable options.
(6) Represents Class B common shares allocated to Mr. Rich's account under the
ESOP.
(7) Includes 1,900 Class A common shares owned by the individual retirement
account of Mr. Mallernee's spouse as to which he denies beneficial
ownership. Also includes 15,000 Class A common shares Mr. Mallernee has the
right to acquire under presently exercisable options.
(8) Represents Class B common shares allocated to Mr. Mallernee under the ESOP.
(9) Includes 7,500 Class A common shares Mr. Webb has the right to acquire
under presently exercisable options.
(10) Represents Class B common shares allocated to Mr. Webb under the ESOP.
(11) Includes 7,000 Class A common shares Mr. Hayes has the right to acquire
under presently exercisable options.
(12) Includes 30,000 Class A common shares owned by the Robert E. Long, Jr.
Family Limited Partnership of which Mr. Long is the General Partner and
7,000 Class A common shares that Mr. Long has the right to acquire under
presently exercisable options.
(13) Includes 7,000 Class A common shares Mr. Orr has the right to acquire under
presently exercisable options.
(14) Includes 7,000 Class A common shares Dr. Powell has the right to acquire
under presently exercisable options.
</FN>
</TABLE>
BY FIVE PERCENT OWNERS
The following are the only persons known to NCT who beneficially own more
than 5% of the outstanding NCT Class A common shares or NCT Class B common
shares as of July 9, 1999:
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<PAGE>
Name and Address Beneficial Ownership
- ---------------- --------------------
Class A
Common Shares(1) Percent
---------------- -------
Stephen C. Hassenfelt 609,461(2) 50.7%
NCT Holding, Inc.
301 North Elm Street
Greensboro, NC 27401
Sue W. Cole 214,716(3) 17.9%
NCT Holding, Inc.
301 North Elm Street
Greensboro, NC 27401
Class B
Common Shares Percent
---------------- -------
Employee Stock Ownership Plan of 170,512(4) 23.3%
NCT Holding, Inc. and North Carolina
Trust Company
c/o Elden J. LeGaux, Trustee
301 North Elm Street
Greensboro, NC 27401
- --------------------------------------------------------------------------------
(1) Unless otherwise indicated, all NCT Class A common shares are owned of
record by the person named and the beneficial ownership consists of sole
voting power and sole investment power.
(2) Includes 79,000 Class A common shares owned by Mr. Hassenfelt's spouse for
her own account and 112,500 Class A common shares held by Mr. Hassenfelt's
spouse as custodian for their children. Mr. Hassenfelt denies beneficial
ownership of shares owned, individually and as custodian, by his spouse.
(3) Includes 16,500 Class A common shares held by Ms. Cole as custodian for her
children, 3,500 Class A common shares owned by Ms. Cole's daughter and
20,948 Class A common shares owned by the individual retirement account of
Ms. Cole's spouse. Ms. Cole denies beneficial ownership of these shares.
Also includes 21,057 Class A common shares owned by Ms. Cole's individual
retirement account.
(4) All of these shares have been allocated to the separate account of
participants in the ESOP. In accordance with the terms of the ESOP and the
requirements of Section 409 of the Internal Revenue Code of 1986, each
participant will have the right to vote the number of shares allocated to
his or her account.
DESCRIPTION OF U.S. TRUST CAPITAL STOCK
- -------------------------------------------------------------------------------
The following description highlights the key features of U.S. Trust capital
stock. It is subject to and qualified by reference to U.S. Trust's certificate
of incorporation, which is filed as an exhibit to U.S. Trust's Registration
Statement on Form S-4, of which this document is a part.
- -------------------------------------------------------------------------------
AUTHORIZED CAPITAL STOCK
U.S. Trust's authorized capital stock consists of:
o 70 million common shares, par value $1.00 per share
o 5 million preferred shares, par value $1.00 per share
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<PAGE>
As of July 9, 1999, there were 18,433,136 common shares issued and outstanding
and an additional 1,614,058 shares issued and held in treasury. There are no
preferred shares outstanding.
U.S. TRUST COMMON SHARES
Each U.S. Trust common share is entitled to:
o one vote per share on all matters voted on by shareholders, including
the election of directors
o participate equally in dividends, when and as dividends may be declared
by the board of directors out of legally available funds
o if there is a liquidation, dissolution or winding-up of U.S. Trust, a
ratable portion of U.S. Trust's assets remaining after satisfaction in
full satisfaction of all liabilities and the liquidation preferences of
any outstanding shares of U.S. Trust preferred stock
Holders of U.S. Trust common shares have no conversion, redemption,
preemptive or cumulative voting rights. All outstanding U.S. Trust common shares
are validly issued, fully paid and non-assessable.
U.S. TRUST PREFERRED SHARES
U.S. Trust's board of directors may issue U.S. Trust preferred shares from
time to time. U.S. Trust preferred shares may be in one or more series. For each
series, the board of directors may establish:
o voting powers
o designations
o preferences
o relative, participating, optional or other special rights
o qualifications
o restrictions
Any series of U.S. Trust preferred shares may have dividend, dissolution and
other preferences over U.S. Trust common shares and may be convertible into U.S.
Trust common shares.
RIGHTS
On August 29, 1995, U.S. Trust's board of directors declared a dividend
granting shareholders one "right" for each outstanding U.S. Trust common share
they owned. U.S. Trust gave these rights to shareholders who owned shares on
September 1, 1995. In addition, U.S. Trust issued and will issue one right with
each common share issued after that date and before the distribution date and
with some common shares issued after the distribution date. The "distribution
date" is defined below.
ATTRIBUTES OF THE RIGHTS
If a right becomes exercisable, the owner has the option to purchase from
U.S. Trust 1/200th of a U.S. Trust preferred share, at an initial price of
$75.00. However, until the distribution date:
o the rights cannot be exercised
o U.S. Trust shareholders will not receive a separate certificate for the
rights
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<PAGE>
o the rights will be transferable only with U.S. Trust common shares
In addition, each right will entitle its holder to purchase for $75.00
common shares with a market value of $150.00 of any company that:
o owns or is controlled by any person who owns more than 20% of the
common shares of U.S. Trust and
o merges with U.S. Trust or purchases more than 50% of the assets of U.S.
Trust
The rights will expire on September 1, 2005, and U.S. Trust can redeem them
before that time.
THE DISTRIBUTION DATE
The "distribution date" is the earliest date on which either of the
following occurs:
o any person, other than persons related to U.S. Trust, or group
acquires, or obtains the rights to acquire, beneficial ownership of 20%
or more of U.S. Trust's common shares that are then outstanding
o in the case of a potential acquisition by any person, other than
certain persons related to U.S. Trust, of beneficial ownership of 25%
or more of U.S. Trust's outstanding common shares, the tenth day after
the earliest to occur of certain filings with U.S. Trust's regulators
that indicate a possible change in control
EFFECT OF THE RIGHTS
The rights will not prevent a takeover of U.S. Trust. They may, however,
make a takeover of U.S. Trust by another entity less likely. You can find a
complete description of the rights and the related preferred shares in U.S.
Trust's Registration Statement on Form 8-A, dated April 13, 1999, for the
registration of the rights. This document incorporates by reference the
information contained in the 8-A Registration Statement. We have only summarized
the rights in this document, therefore you should read the full description of
the rights to gain a complete understanding of their effect on U.S. Trust and
its shareholders. See "Where You Can Find More Information" on page 86 to learn
how you can get this additional information.
NCT does not have a rights agreement in place.
CHANGES IN CONTROL
Some of the provisions of U.S. Trust's certificate of incorporation and
by-laws may have the effect of preventing, discouraging or delaying any change
in control of U.S. Trust. The authority of U.S. Trust's board of directors to
issue U.S. Trust preferred stock with rights, including voting rights, as it may
deem appropriate may enable U.S. Trust's board of directors to prevent a change
in control despite a shift in ownership of U.S. Trust common shares. Also, U.S.
Trust's board of directors has the authority to issue additional shares of
common shares. This may help delay or deter a change in control by increasing
the number of shares needed to gain control. The following provisions also may
deter any change in control of U.S. Trust.
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<PAGE>
CLASSIFIED BOARD OF DIRECTORS
U.S. Trust's board of directors is divided into three classes. Each class
serves a three-year term, so that about one-third of the directors are elected
at each annual meeting. As a result, any person who seeks to elect its designees
to a majority of U.S. Trust's board will likely need to wait two years. This
could delay a change in control.
REMOVAL OF DIRECTORS
Under the New York Business Corporation Law, or "NYBCL," and U.S. Trust's
by-laws, a director of U.S. Trust may be removed only for cause and only by the
affirmative vote of holders of a majority of the outstanding voting shares or by
action of the board of directors.
BUSINESS COMBINATION STATUTE
The NYBCL prohibits any business combination, which includes mergers, sales
or dispositions of assets, issuances of stock, liquidations, reclassifications
and benefits from the corporation, including loans or guarantees, with,
involving or proposed by U.S. Trust and any "interested shareholder" for a
period of five years after the date on which the interested shareholder became
an interested shareholder. An "interested shareholder" is defined generally as
any person who, directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of U.S. Trust.
After this five-year period, a business combination between U.S. Trust and
the interested shareholder is prohibited unless:
o certain "fair price" provisions are complied with or
o the business combination is approved by a majority of the outstanding
voting stock not beneficially owned by the interested shareholder or
its affiliates and associates
These restrictions do not apply, however, to any business combination with an
interested shareholder if the business combination, or the purchase of stock by
the interested shareholder that caused the shareholder to become an interested
shareholder, was approved by U.S. Trust's board of directors prior to the date
on which the interested shareholder became an interested shareholder.
Under the NYBCL, U.S. Trust may amend its by-laws by shareholder vote to
elect not to be governed by this statute. At this time, U.S. Trust's by-laws
have not been amended in this way. Any amendment like this will require a
special vote of U.S. Trust shareholders and, if approved, will not be effective
for business combinations with any shareholder whose date of stock acquisition
was before the effective date of the amendment. The NYBCL also prevents U.S.
Trust from purchasing more than 10% of U.S. Trust voting stock for more than its
market value unless the purchase is approved by U.S. Trust's board of directors
and by a majority vote of all outstanding shares of U.S. Trust voting stock,
unless:
o the offer to purchase is extended to all U.S. Trust shareholders or
o the offer is for shares the holder has held for more than two years
-75-
<PAGE>
CONTROL ACQUISITIONS
The federal Change in Bank Control Act requires a person or group of
persons acquiring "control" of a bank holding company to give the Federal
Reserve Board 60 days prior written notice of the proposed acquisition. Within
that time period, the Federal Reserve Board may issue a notice disapproving the
proposed acquisition or a written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the Federal Reserve Board,
the acquisition of more than 10% of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange
Act, like U.S. Trust, would, under the circumstances set forth in the
presumption, constitute the acquisition of control.
In addition, the Bank Holding Company Act requires any company to obtain
the approval of the Federal Reserve Board before acquiring 25%, or 5% in the
case of an acquiror that is a bank holding company, or more of the outstanding
U.S. Trust common shares, or otherwise obtaining control over U.S. Trust.
Under New York law, a person, other than a bank holding company, is
prohibited from acquiring directly or indirectly, "control" of any bank or trust
company with its principal office located in New York unless the person has
received the prior approval of three-fifths of the New York State Banking Board.
Under a rebuttable presumption, "control" is presumed to exist if any person
controls, directly or indirectly, 10% or more of the voting stock of the New
York banking institution. In addition, under New York law, a bank holding
company is prohibited from acquiring, directly or indirectly, more than 5% of
the voting stock of a New York banking institution, and a person is prohibited
from becoming a bank holding company, unless, in each case, the bank holding
company or person, as the case may be, has received the prior approval of
three-fifths of the New York State Banking Board. For purposes of these
provisions of New York law, a "bank holding company" includes persons who,
directly or indirectly, control more than 10% of the voting stock of each of two
or more New York banking institutions.
COMPARISON OF SHAREHOLDERS' RIGHTS
Right now, your rights as a NCT shareholder are governed by North Carolina
law and NCT's articles of incorporation and by-laws. After we complete the
merger, you will become a U.S. Trust shareholder and your rights will be
governed by New York law and U.S. Trust's certificate of incorporation and
by-laws. As a result of these differing laws and organizational documents, you
will have different rights as a U.S. Trust shareholder than you have now as a
NCT shareholder.
COMPARISON OF YOUR RIGHTS AS NCT SHAREHOLDERS AND AS U.S. TRUST SHAREHOLDERS
This section summarizes the material differences between the rights of NCT
shareholders and the rights of U.S. Trust shareholders. This summary is subject
to and qualified by reference to each of our governing documents. U.S. Trust's
certificate of incorporation is filed as an exhibit to U.S. Trust's Registration
Statement on Form S-4, of which this document is a part and U.S. Trust's by-laws
are incorporated by reference in this document as an appendix to U.S. Trust's
Registration Statement on Form 10 dated February 9, 1995.
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
CAPITAL STOCK
- ---------------------------------------------------------------------------------------
NCT U.S. TRUST
- ---------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED CAPITAL 2 million Class A common 70 million common shares,
shares, no par value. par value $1.00 per share.
1,000,000 shares of Class B
common shares, no par value.
No preferred shares. 5 million preferred shares,
par value $1.00 per share.
- ---------------------------------------------------------------------------------------
Issued and As of July 9, 1999, there As of July 9, 1999, there were
Outstanding were 1,201,147 Class A 18,433,136 common shares
Shares common shares and 734,155 issued and outstanding and an
Class B common shares issued additional 1,614,058 common
and outstanding. shares issued and held in
treasury, and no preferred
shares issued and outstanding.
- ---------------------------------------------------------------------------------------
Classification of Holders of Class B common One class of common shares.
Common Shares shares have a dividend and
liquidation preference. The
board of directors may
declare a dividend on
Class B common shares without
declaring a dividend on Class A
common shares. In the event of
a liquidation, holders of
Class B common shares would
receive $0.66 per share before
any payments would be made to
holders of Class A shares.
- ---------------------------------------------------------------------------------------
</TABLE>
-77-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
BOARD OF DIRECTORS
- -------------------------------------------------------------------------------------
NCT U.S. TRUST
- -------------------------------------------------------------------------------------
<S> <C> <C>
CLASSIFICATION All directors are elected Directors are divided into
annually. three classes, with each class
serving a three-year term.
Only one class of directors is
up for election each year.
- -------------------------------------------------------------------------------------
NUMBER OF Between 5 and 9, as fixed by Not less than 9, as fixed by
DIRECTORS shareholders or the board of shareholders or the board of
directors from time to time. directors from time to time.
The board of directors may The current number of directors
not increase or decrease the is 18.
number of directors by more
than 30% in any 12 month
period. The current number of
directors is 7.
- -------------------------------------------------------------------------------------
REMOVAL Directors may be removed for Directors may be removed
cause or without cause by a for cause, either by a
vote of shareholders. vote of shareholders or by
a majority of the entire
board of directors.
- -------------------------------------------------------------------------------------
VACANCIES AND May be filled by the May be filled by a vote of
NEWLY CREATED shareholders or the vote of shareholders or a majority
DIRECTORSHIPS a majority of the remaining of the directors then in
directors or the sole office, even if less than a
remaining director. quorum exists.
- -------------------------------------------------------------------------------------
QUALIFICATIONS No specific qualifications. Each director must be at least
18 years of age. No person
above the age of 72 years is
eligible to be elected as a
director or qualified to remain
in office as a director. Any
director in office must retire
at the age of 72.
- -------------------------------------------------------------------------------------
COMMITTEES The board of directors may The board of directors may
create committees, each of create committees, each of which
which must contain at least must contain at least three
two members. members.
- --------------------------------------------------------------------------------------
SPECIAL MEETINGS May be called by the Chairman May be called by the Chairman
OF THE BOARD OF of the board of directors or of the board of directors, the
DIRECTORS by any two directors. President, a Vice Chairman of the
board of directors or by at least
one-third of the directors in
office.
- --------------------------------------------------------------------------------------
</TABLE>
-78-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SHAREHOLDERS
- ------------------------------------------------------------------------------------
NCT U.S. TRUST
- ------------------------------------------------------------------------------------
<S> <C> <C>
ACTION BY
WRITTEN CONSENT Permitted if all shareholders Permitted if all shareholders
give written consent to give written consent to taking
taking an action without a an action without a meeting.
meeting.
- -------------------------------------------------------------------------------------
SPECIAL MEETINGS Special meetings of Special meetings of shareholders
shareholders may be called may be called by the board of
at any time by the Chairman directors, the Chairman of the
of the board of directors, board of directors, the President
Secretary or the board of or a Vice Chairman of the board
directors or on the written of directors.
request of holders of at
least 10% of the votes
entitled to be cast on any
issue proposed to be considered
at the special meeting.
- -------------------------------------------------------------------------------------
VOTING Elections for the board of Elections for the board of
directors are decided by a directors are decided by a
plurality of the votes cast. plurality of the votes cast. All
All other proposals are other proposals are decided by a
decided by a majority of the majority of the votes cast by
votes cast, except as other- holders of shares entitled to
wise required by law, or as vote at a meeting, except as
otherwise provided in the otherwise required by law.
articles of incorporation or
by-laws.
- -------------------------------------------------------------------------------------
NOTICE OF Written notice of the meeting Written notice of the meeting
MEETINGS must be delivered 10-60 days must be delivered 10-50 days
before the date of the before the date of the meeting.
meeting. A shareholder must give notice
of director nominations or
proposals to the Secretary 90-
120 days before the anniversary
date of the immediately
preceding annual meeting of
shareholders.
- -------------------------------------------------------------------------------------
</TABLE>
-79-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NCT U.S. TRUST
- -----------------------------------------------------------------------------------------
<S> <C> <C>
AMENDMENT OF North Carolina law requires New York law requires that the
CHARTER the board of directors to board of directors authorize the
propose and recommend any amendment and that holders of a
amendment and holders of a majority of the outstanding shares
majority of each class of approve the amendment. U.S. Trust's
shares to approve the certificate of incorporation
amendment. provides that any amendment to the
business combination provisions in
its certificate of incorporation
must be approved by holders of at
least 80% of the shares entitled to
vote, and a majority of the shares
held by disinterested shareholders
who are not involved in the business
combination, unless the amendment is
recommended by a majority of the
continuing directors.
- ------------------------------------------------------------------------------------------
AMENDMENT OF By-laws may be amended by By-laws may be amended by a majority
BY-LAWS a majority vote of the of the board of directors. Except in
board of directors. Under the case of any particular provision
North Carolina law, share- at any time adopted by the
holders may also amend the shareholders and specified as not
by-laws. subject to amendment or repeal by the
board of directors, by-laws may also
be amended by holders of a majority
of shares entitled to vote at any
meeting.
- ------------------------------------------------------------------------------------------
</TABLE>
-80-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NCT U.S. TRUST
- -----------------------------------------------------------------------------------------
<S> <C> <C>
DISSENTERS' Shareholders of a North Shareholders of a New York
RIGHTS Carolina corporation corporation whose shares are not
generally have the right listed on a national securities
to dissent and receive exchange or designated as a
payment of the fair value national market system security
of their shares in the event on an interdealer quotation system
of certain business combina- by the National Association of
tions and other fundamental Securities Dealers, Inc. have the
changes in the corporation, right to dissent and receive payment
including: of the fair value of their shares
in the event of certain amendments
o mergers and share exchanges or changes to the certificate of
o a transfer of substantially incorporation adversely affecting
all of the property of the their shares, certain mergers or
corporation consolidations, certain sales,
o an amendment to the articles leases, exchanges or other
of incorporation that dispositions of all or substan-
materially and adversely tially all the corporation's
affects the rights of the assets and certain share
dissenter's shares exchanges. Holders of U.S. Trust
o any other circumstance to common shares currently do not
the extent the articles of have the right to dissent because
incorporation, the by- U.S. Trust shares are listed on
laws or a resolution of the a national securities exchange.
board of directors provide
for dissenters' rights
NCT's articles of incorporation
and by-laws contain no provi-
sions providing for dissenters'
rights, and NCT's board of
directors has adopted no
resolution providing for
dissenters' rights. For a
detailed description of the
procedures for exercising
dissenters' rights, see
"Dissenters' Rights" on
page 56.
- -----------------------------------------------------------------------------------------
</TABLE>
-81-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NCT U.S. TRUST
- -----------------------------------------------------------------------------------------
<S> <C> <C>
APPROVAL OF North Carolina law provides New York law provides that certain
BUSINESS that certain transactions transactions must be approved by
TRANSACTOPMS must be approved by a majority holders of two-thirds of the
of each class of shareholders outstanding shares entitled to
entitled to vote. These trans- vote, unless the corporation
actions include: expressly provides for majority
approval of the transaction in
o mergers, consolidations, its certificate of incorporation.
or share exchanges These transactions include:
o transfers of substantially o mergers, consolidations or
all of the assets of a share exchanges
corporation o sales, leases or exchanges
of substantially all of a
corporation's assets
o dissolutions or
liquidations U.S. Trust's certificate of
incorporation currently prohibits
business combinations with any
"interested shareholder," as
defined below, unless the
transaction is approved by
holders of 80% of all outstanding
shares entitled to vote and
holders of a majority of shares
not held by an "interested
shareholder" or one of its
affiliates. This supermajority
requirement does not apply if a
majority of U.S. Trust's board of
directors approves the
transaction or certain
shareholder fairness requirements
are met.
An "interested shareholder" is
any person that beneficially owns
10% or more of the outstanding
common shares of U.S. Trust.
- -----------------------------------------------------------------------------------------
</TABLE>
-82-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
ANTI-TAKEOVER STATUTES
- -----------------------------------------------------------------------------------------
NCT U.S. TRUST
- -----------------------------------------------------------------------------------------
<S> <C> <C>
APPROVAL OF North Carolina law contains New York law prohibits any
BUSINESS two anti-takeover business combination, defined to
TRANSACTIONS provisions, the North include mergers, sales or
(CONTINUED) Carolina Shareholder dispositions of assets, issuances
Protection Act and the North of stock, liquidations,
Carolina Control Share reclassifications and benefits
Acquisition Act, which from the corporation, including
restrict business loans or guarantees, with,
combinations with certain involving or proposed by any
related shareholders. As "interested shareholder" for a
permitted under North period of five years after the
Carolina law, NCT has opted date on which the interested
out of both statutes in its shareholder became an interested
articles of incorporation. shareholder. An "interested
shareholder" is defined generally
as any person who, directly or
indirectly, beneficially owns 20%
or more of the outstanding voting
stock of a New York corporation.
After this five-year period, a
business combination between a
New York corporation and the
interested shareholder is
prohibited unless:
o certain "fair price" provisions
are complied with or
o the business combination is
approved by a majority of the
outstanding voting stock not
beneficially owned by the
interested shareholder or its
affiliates and associates
These restrictions do not apply,
however, to any business
combination with an interested
shareholder if the business
combination, or the purchase of
stock by the interested
shareholder that caused the
shareholder to become an
interested shareholder, was
approved by the board of
directors of the New York
corporation prior to the date on
which the interested shareholder
became an interested shareholder.
- -----------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
REGULATORY MATTERS RELATING TO U.S. TRUST
Bank holding companies and banks are regulated extensively under federal
and state law. U.S. Trust is a bank holding company regulated under the Bank
Holding Company Act. As a bank holding company, U.S. Trust is required to file
reports with and is subject to examination by the Board of Governors of the
Federal Reserve System. U.S. Trust and its subsidiaries generally cannot engage
in nonbanking activities, as defined under federal law, and are limited as to
the amount of securities they may acquire of a company engaging in nonbanking
activities. In addition, federal law and Board of Governors' interpretations
limit the extent to which U.S. Trust may engage in certain aspects of the
securities business.
The Superintendent of Banks of the State of New York has the authority to
examine U.S. Trust's affairs for the purpose of determining the financial
condition of our subsidiary, United States Trust Company of New York, which we
call 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 not allowed to act as a fiduciary in a number of states,
and in many states where they may and do act as a fiduciary, their activities
are limited by state law and regulations.
The chart below summarizes the principal entities that regulate and examine
U.S. Trust and its bank subsidiaries:
U.S. TRUST ENTITY SUBJECT TO REGULATION BY
- --------------------------------------------------------------------------------
U.S. Trust o Board of Governors of the Federal Reserve
System
o Superintendent of Banks of the State of
New York
- --------------------------------------------------------------------------------
United States Trust Company of o Board of Governors of the Federal Reserve
New York System
o Superintendent of Banks of the State of
New York
- --------------------------------------------------------------------------------
U.S. Trust Company, N.A. o Office of the Comptroller of the Currency
(formerly U.S. Trust Company
of California, N.A.)
- --------------------------------------------------------------------------------
U.S. Trust Company of o Department of Banking of the State of
Connecticut Connecticut
o Federal Deposit Insurance Corporation
- --------------------------------------------------------------------------------
U.S. Trust Company of Florida o Office of the Comptroller of Florida
Savings Bank Department of Banking and Finance
o Office of Thrift Supervision
- --------------------------------------------------------------------------------
U.S. Trust Company of New o Banking Department of the State of New
Jersey Jersey
o Federal Deposit Insurance Corporation
- --------------------------------------------------------------------------------
U.S. Trust Company of Texas, o Office of the Comptroller of the Currency
N.A.
- --------------------------------------------------------------------------------
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<PAGE>
PAYMENT OF DIVIDENDS
U.S. Trust is a legal entity separate and distinct from its bank and
nonbank subsidiaries. U.S. Trust's principal source of cash flow, including cash
flow available for paying dividends on U.S. Trust common shares, is dividends
from its subsidiary banks. All of these dividends are limited by federal and
state laws and by regulations and policies adopted by federal and state
regulatory agencies. U.S. Trust's board of directors will determine payment of
future dividends based on an evaluation of U.S. Trust's liquidity, earnings,
financial condition and capital requirements, on statutory restraints applicable
to U.S. Trust and its subsidiaries and on other factors it may deem relevant.
Also, if, in the opinion of a federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice, the agency may require that the institution no
longer engage in this practice. The payment of dividends that would deplete a
depository institution's capital base to an inadequate level could be deemed an
unsafe and unsound practice.
CAPITAL REQUIREMENTS
U.S. Trust and its FDIC insured subsidiaries are subject to risk-based and
leverage capital guidelines issued by the federal bank regulators. These
regulatory agencies are required by law to take prompt action with respect to
institutions that do not meet minimum capital standards. In addition, these
regulatory agencies have defined five capital tiers, the highest of which is
"well capitalized." U.S. Trust and each of its bank subsidiaries were "well
capitalized" as of March 31, 1999.
RELATIONSHIPS WITH AFFILIATES
The Federal Reserve Act and the Federal Deposit Insurance Act impose
certain restrictions on loans between U.S. Trust and its bank subsidiaries. In
addition, U.S. Trust and its bank 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
provides for cross-guarantees of the liabilities of insured depository
institutions pursuant to which any bank subsidiary of U.S. Trust may be required
to reimburse the FDIC for any loss or anticipated loss to the FDIC that arises
from a default of any of U.S. Trust's other bank subsidiaries or assistance
provided to the institution in danger of default.
PURPOSE OF REGULATION
Regulation of financial institutions, like U.S. Trust, is intended
primarily for the protection of depositors, the deposit insurance funds of the
FDIC and the banking system as a whole. These regulations generally are not
intended to protect shareholders or other investors, and you should not rely on
them for this protection.
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<PAGE>
EXPERTS
The consolidated financial statements of U.S. Trust have been
incorporated by reference from U.S. Trust's Annual Report on Form 10-K for the
year ended December 31, 1998, in reliance of the report of
PricewaterhouseCoopers LLP, independent auditors, given on the authority of said
firm as experts in accounting and auditing. The consolidated financial
statements of NCT Holdings, Inc. and subsidiaries at September 30, 1998 and 1997
and for each of the three years in the period ended September 30, 1998 appearing
in the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
If the merger is completed, and you intend to present a proposal at the
April 25, 2000 U.S. Trust annual meeting of shareholders, U.S. Trust's Secretary
must receive the proposals by November 15, 1999 to include them in the proxy
materials for the meeting.
WHERE YOU CAN FIND MORE INFORMATION
U.S. Trust has filed with the SEC a Registration Statement under the
Securities Act of 1933 that registers the shares to be issued to NCT
shareholders in the merger. The Registration Statement, including the attached
exhibits and schedules, contains additional relevant information about U.S.
Trust common shares. The rules and regulations of the SEC allow us to omit
certain information included in the Registration Statement from this document.
In addition, U.S. Trust files reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy this information at the following locations of the SEC:
<TABLE>
<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Further information on the operation of the
SEC's Public Reference Room in Washington, D.C. can be obtained by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like U.S. Trust,
who file electronically with the SEC. The address of that site is
http://www.sec.gov.
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<PAGE>
You can also inspect reports, proxy statements and other information about
U.S. Trust at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The SEC allows us to "incorporate by reference" information into this
document, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in this document. This document
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about our
companies and their finances.
<TABLE>
<CAPTION>
U.S. TRUST COMMISSION FILINGS (FILE NO. 0-20469) PERIOD COVERED OR DATE FILED
- ------------------------------------------------ ----------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
The description of common shares set forth in Filed pursuant to Section 12 of the
the Registration Statement on Form 10 Securities Exchange Act of 1934 on
September 5, 1995, including any amendment
or report filed with the SEC for the
purpose of updating the description
The description of the Rights associated with Filed pursuant to Section 12 of the
U.S. Trust common shares set forth in the Securities Exchange Act of 1934 on
Registration Statement on Form 8-A April 13, 1999, including any amendment
or report filed with the SEC for the purpose
of updating the description
</TABLE>
U.S. Trust also incorporates by reference additional documents that it may
file with the SEC between the date of this document and the date of the special
meeting. These documents include periodic reports, like Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as
proxy statements.
U.S. Trust has supplied all information contained or incorporated by
reference in this document relating to U.S. Trust.
VALIDITY OF SHARES
The validity of the U.S. Trust common shares to be issued to NCT
shareholders pursuant to the merger will be passed on by Richard Gross, general
counsel of U.S. Trust. As of the date of this document, Mr. Gross owned less
than 1% of U.S. Trust's common shares including options representing certain
rights to purchase U.S. Trust common shares.
-87-
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998
AND 1997 AND FOR THE THREE YEARS IN THE PERIOD ENDED
SEPTEMBER 30, 1998 ....................................................F-1
Report of Independent Auditors .............................................F-2
Consolidated Balance Sheets ................................................F-3
Consolidated Statements of Income ..........................................F-4
Consolidated Statements of Shareholders' Equity ............................F-5
Consolidated Statements of Cash Flow .......................................F-6
Notes to Consolidated Financial Statements .................................F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1999
AND FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1999
AND 1998 .............................................................F-22
Consolidated Condensed Balance Sheets .....................................F-22
Consolidated Condensed Statements of Income ...............................F-23
Consolidated Condensed Statements of Cash Flow ............................F-25
Consolidated Statements of Changes in Shareholders' Equity ................F-26
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors,
NCT Holdings, Inc.
We have audited the accompanying consolidated balance sheets of NCT Holdings,
Inc., and subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flow for each
of the three years in the period ended September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NCT Holdings, Inc.
and subsidiaries at September 30, 1998 and 1997, and the consolidated results of
their operations and their cash flow for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young
Greensboro, North Carolina
October 29, 1998
except for Note 14, as to which the date is
May 14, 1999
F-2
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
--------------------------
1998 1997
--------- ---------
ASSETS
Cash and cash equivalents $423,190 $703,185
Receivables 3,157,421 2,901,194
Property and equipment, net 2,027,219 1,407,297
Investment in limited partnership 777,767 471,062
Deferred income taxes 210,506 133,573
Income taxes receivable 143,494 18,663
Prepaid expenses 61,680 54,803
Other 5,924 11,859
--------- ---------
Total assets $6,807,201 $5,701,636
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $615,477 $448,923
Accrued payroll, gainsharing distribution
and incentive cash bonus 906,802 714,606
Deferred income 342,618 212,843
Long-term debt 221,520 528,450
Deferred income taxes 78,256 210,986
--------- ---------
Total liabilities 2,164,673 2,115,808
========= =========
Shareholders' equity
Common stock, no par value:
Class A, 2,000,000 shares authorized,
shares issued and outstanding 1,183,832
in 1998 and 1,154,506 in 1997 397,745 290,879
Class B, 1,000,000 shares authorized, 734,155
shares issued and outstanding in 1998 and 1997 1,570,932 1,387,932
Unearned ESOP compensation (96,559) (211,201)
Retained earnings, substantially restricted 2,770,410 2,118,218
--------- ---------
Total shareholders' equity 4,642,528 3,585,828
--------- ---------
Total liabilities and shareholders' equity $6,807,201 $5,701,636
========= =========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
REVENUE: $12,903,164 $10,653,912 $8,240,194
OPERATING EXPENSES:
Salaries 5,567,020 4,364,525 3,741,348
Performance-based incentive compensation 697,465 474,825 369,682
Sales-based incentive compensation 155,535 92,221 75,821
Other benefits 1,223,078 901,564 747,013
----------- ----------- ----------
Total salaries, incentive compensation and
other benefits 7,643,098 5,833,135 4,933,864
Outside services 1,139,519 1,030,341 625,182
Depreciation and amortization 436,378 355,959 271,446
Occupancy 681,325 579,800 491,016
Other 1,828,375 1,276,556 1,190,316
----------- ----------- ----------
Total operating expenses 11,728,695 9,075,791 7,511,824
----------- ----------- ----------
Income from operations 1,174,469 1,578,121 728,370
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest revenue 71,365 59,752 53,840
Interest expense (35,801) (68,948) (71,579)
Gain (loss) on disposal of property and
equipment 300 (81,279) (6,829)
----------- ----------- ----------
35,864 (90,475) (24,568)
Income before income taxes 1,210,333 1,487,646 703,802
Income tax expense 558,141 640,418 279,138
----------- ----------- ----------
Net income $652,192 $847,228 $424,664
=========== =========== ==========
Basic earnings per share $ 0.34 $ 0.46 $ 0.23
====== ====== ======
Diluted earnings per share $ 0.32 $ 0.42 0.21
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED TOTAL
------------ ESOP RETAINED SHAREHOLDERS'
CLASS A CLASS B COMPENSATION EARNINGS EQUITY
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995 $264,498 $1,234,932 $(363,036) $753,327 $1,889,721
Options exercised on 13,750 shares 17,875 - - - 17,875
Allocation of ESOP shares - 27,000 28,151 - 55,151
Net income for 1996 - - - 424,664 424,664
-------- --------- --------- --------- ---------
Balance at September 30, 1996 282,373 1,261,932 (334,885) 1,177,991 2,387,411
Options exercised on 89,000 shares 8,506 - - 92,999 101,505
Allocation of ESOP shares - 126,000 123,684 - 249,684
Net income for 1997 - - - 847,228 847,228
-------- --------- --------- --------- ---------
Balance at September 30, 1997 290,879 1,387,932 (211,201) 2,118,218 3,585,828
Stock issued 42,006 - - - 42,006
Options exercised on 26,000 shares 64,860 - - - 64,860
Allocation of ESOP shares - 183,000 114,642 - 297,642
Net income for 1998 - - - 652,192 652,192
-------- --------- --------- --------- ---------
Balance at September 30, 1998 $397,745 $1,570,932 $(96,559) $2,770,410 $4,642,528
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $652,192 $847,228 $424,664
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 436,378 355,959 271,446
(Gain) loss on disposal of property and equipment (300) 81,279 6,829
Deferred income taxes (209,663) (214,438) (86,556)
ESOP compensation 297,642 249,684 55,151
Changes in assets and liabilities:
Receivables (256,227) (509,833) (572,009)
Income taxes receivable (124,831) (92,644) 181,248
Employee notes receivable - 109,174 (13,500)
Prepaid expenses (6,877) 11,210 (12,993)
Other assets - - (250)
Accounts payable and accrued liabilities 166,553 65,450 131,143
Deferred income 129,775 94,864 64,912
Accrued payroll, gainsharing distribution and
incentive cash bonus 192,196 109,944 506,022
---------- --------- --------
Net cash provided by operating activities 1,276,838 1,107,877 956,107
INVESTING ACTIVITIES:
Investment in property and equipment (1,050,364) (639,704) (650,148)
Proceeds from sale of property and equipment 300 5,580 -
Proceeds from sale of investments - - 100,000
Investment in limited partnership (306,705) (188,365) (227,141)
---------- --------- --------
Net cash used in investing activities (1,356,769) (822,489) (777,289)
FINANCING ACTIVITIES:
Proceeds from stock issuance 42,006 - -
Exercise of stock options 64,860 101,505 17,875
Proceeds from long-term debt - - 95,000
Payments of long-term debt (306,930) (302,298) (178,775)
---------- --------- --------
Net cash used in financing activities (200,064) (200,793) (65,900)
---------- --------- --------
Net (decrease) increase in cash and cash equivalents (279,995) 84,595 112,918
Cash and cash equivalents at beginning of year 703,185 618,590 505,672
---------- --------- --------
Cash and cash equivalents at end of year $423,190 $703,185 $618,590
========== ========= ========
Supplemental disclosure of cash flow data:
Cash paid during the year for:
Income taxes $888,000 $620,884 $189,494
Interest $37,341 $70,793 $71,965
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NCT Holdings, Inc. is the holding company of North Carolina Trust Company (the
"Trust Company") and NCT Opportunities, Inc. ("Opportunities") (collectively NCT
Holdings, Inc. and Subsidiaries, or the "Company"). The Company was incorporated
on November 20, 1992 and began operations March 12, 1993. The formation of the
Company was accomplished by a one-for-one exchange of Trust Company stock for
shares of the Company. The Trust Company is a nondepository, state-chartered
bank that provides investment management, fiduciary and other related services.
Opportunities is a wholly owned subsidiary of the Company and is the general
partner, with a 1.6% interest, of NCT Opportunities Equity Partners Limited
Partnership (see Note 2).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided on the straight-line method for furniture
and fixtures, computer equipment, office equipment, and software over an
estimated useful life of three to ten years and leasehold improvements are
amortized over the life of the lease.
REVENUE
Asset management fees are charged to client accounts based on the market value
of the assets administered. Such fees and executor fees are recognized as
revenue as earned by the Company. Fees for consulting and other related services
are recognized when billed. At September 30, 1998, 1997 and 1996, the amount of
unbilled services was not significant.
At September 30, 1998 and 1997, assets administered by the Trust Company, stated
at market value, were approximately $2.14 billion and $2.10 billion,
respectively.
F-7
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUES OF FINANCIAL INSTRUMENTS
At September 30, 1998 and 1997, the carrying amount of financial instruments
such as cash and cash equivalents, trade accounts receivable and payable, and
long-term debt approximated their fair values. Fair value is determined based on
expected future cash flows, discounted at market interest rates, and other
appropriate valuation methodologies.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee stock options, as allowed under FASB Statement
No. 123, Accounting for Stock-Based Compensation. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the fair value of the
stock at the date of grant over the amount an employee must pay to acquire the
stock. Because the Company's stock is not publicly traded, fair value of the
stock is determined using a formula approved by the Company's Board of
Directors.
ADVERTISING COSTS
The Company expenses advertising costs as they are incurred. Advertising expense
was approximately $345,000, $225,000 and $182,000 in 1998, 1997 and 1996,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the current year presentation. These reclassifications
had no effect on net income or shareholders' equity.
F-8
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENT IN LIMITED PARTNERSHIP AND DEFERRED INCOME
The investment in the limited partnership represents ownership in NCT
Opportunities Equity Partners Limited Partnership (the "Limited Partnership"),
which is accounted for under the equity method. The following table summarizes
the activity in the investment for the years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Investment - beginning of year $471,062 $282,697 $108,623
Equity in earnings of limited partnership 34,936 46,783 31,206
Reversal of deferred revenue at end of prior year (212,843) (117,979) (53,067)
Recognition of the special allocation 300,994 171,718 77,956
Accrual of deferred revenue at end of year 342,618 212,843 117,979
Capital withdrawal during year (159,000) (125,000) -
-------- -------- --------
Investment - end of year $777,767 $471,062 $282,697
======== ======== ========
</TABLE>
Equity in earnings of the Limited Partnership of $34,936, $46,783 and $31,206
were reflected in consolidated revenues for the years ended September 30, 1998,
1997 and 1996, respectively. In addition, the general partner receives a special
allocation of profits as of December 31 of each year (the end of the Limited
Partnership's reporting year) equal to 1% of the total Limited Partnership
capital accounts averaged by quarter throughout the year. Because this special
allocation is restricted to the amount of the Limited Partnership's income, if
any, during the year, the amount that would be due as of September 30 is
recorded as an increase in the investment, but recognition of that amount as
revenue is deferred until the Limited Partnership's year is complete. This
deferred revenue totaled $342,618, $212,843 and $117,979 at September 30, 1998,
1997 and 1996, respectively. Consolidated revenues for the year ended September
30, 1998 include $300,994 representing the special allocation from the Limited
Partnership for its year ended December 31, 1997. Consolidated revenues for the
year ended September 30, 1997 include $171,718 representing the special
allocation from the Limited Partnership for its year ended December 31, 1996.
Consolidated revenues for 1996 include $77,956 representing the special
allocation from the Limited Partnership for its year ended December 31, 1995.
Because the Company is the general partner, the equity in earnings and special
allocation from the Limited Partnership, including deferred income, is
considered to have been distributed and then reinvested for purposes of the
statement of cash flow.
As the general partner, a general and administrative fee is also received for
providing certain services to the Limited Partnership as well as an admission
fee from new limited partners. these fees, included in consolidated revenues,
totaled approximately $254,000, $154,000 and $127,000 in 1998, 1997 and 1996,
respectively.
F-9
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Furniture and fixtures $1,122,610 $870,303
Computer equipment, office equipment, and software 1,564,765 1,234,130
Leasehold improvements 1,011,363 549,917
---------- ---------
3,698,738 2,654,350
Less accumulated depreciation and amortization 1,671,519 1,247,053
---------- ---------
Property and equipment, net $2,027,219 $1,407,297
========== =========
</TABLE>
4. INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Temporary differences relate primarily to differences in depreciation methods
and certain revenues and expenses accounted for on the cash basis for income tax
purposes. The Company was required to adopt the accrual basis beginning with the
tax year ending September 30, 1996. The cumulative accrual to cash adjustment as
of September 30, 1995 is being recognized in taxable income ratably over a
four-year period.
Significant components of the Company's deferred tax assets and liabilities as
of September 30 are as follows:
1998 1997
---------- ---------
Deferred tax assets:
Gainsharing accrual $326,619 $239,993
Other, net - 16,527
---------- ---------
326,619 256,520
Deferred tax liabilities:
Accrual to cash adjustments 151,829 303,659
Depreciation 41,576 30,274
Other, net 964 -
---------- ---------
194,369 333,933
---------- ---------
Net deferred tax assets (liabilities) $132,250 $(77,413)
========== =========
F-10
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. INCOME TAXES (CONTINUED)
Significant components of income tax expense (benefit) are as follows:
1998 1997 1996
-------- -------- --------
Current:
Federal $599,933 $673,318 $302,495
State 167,871 181,538 63,199
-------- -------- --------
767,804 854,856 365,694
Deferred:
Federal (168,295) (161,494) (75,751)
State (41,368) (52,944) (10,805)
-------- -------- --------
(209,663) (214,438) (86,556)
-------- -------- --------
Income tax expense $558,141 $640,418 $279,138
======== ======== ========
The reconciliation of income tax computed at the U.S. Federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Tax at U.S. statutory rates $411,513 $505,800 $239,293
State income taxes, net of federal taxes 83,491 84,924 36,720
Nondeductible expenses 85,645 65,558 12,855
Tax-exempt interest income (22,508) (15,864) (16,950)
Tax credits and other items - - 7,220
-------- -------- --------
Income tax expense $558,141 $640,418 $279,138
======== ======== ========
</TABLE>
The Company realized a tax benefit in the year ended September 30, 1997 of
$92,999 from the exercise of stock options. The tax benefit was recorded in
retained earnings.
5. LONG-TERM DEBT AND LINE OF CREDIT
The Company has a term loan agreement with a bank, payable in quarterly
installments through March 31, 1999, with interest at a ninety day certificate
of deposit rate plus 2.75%. The collateral for the loan is the capital stock of
the Trust Company. The loan agreement includes, among other things, provisions
relative to tangible net worth, debt coverage and dividends. Dividends to
shareholders are prohibited. The balance of the loan at September 30, 1998 was
$74,961, with the entire balance classified as the current portion of long-term
debt.
F-11
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. LONG-TERM DEBT AND LINE OF CREDIT (CONTINUED)
The Company also has a promissory note payable to a former officer of the
Company related to formation of the employee stock ownership plan referred to in
Note 9. The note is payable in 40 quarterly installments through July 31, 2004,
with interest at a certain bank's prime rate as of the first business day of the
calendar year. The balance of the loan at September 30, 1998 was $96,559, with
$12,907 classified as the current portion of long-term debt.
In addition, the Company entered into a promissory note with a bank, payable in
quarterly installments through July 1, 2001, with interest at a ninety day
certificate of deposit rate plus 2.75%. The collateral for the loan is the
telephone equipment with a book value of $47,500. The balance of the loan at
September 30, 1998 was $50,000, with $20,000 classified as the current portion
of long-term debt.
Future maturities of long-term debt for the years ending September 30 are:
1999 $107,868
2000 34,041
2001 25,271
2002 16,612
2003 18,071
Thereafter 19,657
--------
Total $221,520
========
In 1998, the Company obtained a revolving line of credit to be used for
short-term liquidity needs. The line of credit is for $1,500,000, expires in
January 2000, and bears interest at an adjusted certificate of deposit rate. The
credit agreement includes, among other things, provisions relative to tangible
net worth, debt coverage and dividends. During the year ended September 30,
1998, there were no amounts borrowed under the line of credit.
6. SHAREHOLDERS' EQUITY
The Company has two classes of common stock, Class A and Class B. In the event
of a liquidation, dissolution or winding up of the Company, Class B common
shareholders receive a liquidation preference of $.66 per share. After meeting
these preferences, Class A common shareholders are entitled to receive a
liquidation preference of $.30 per share. Any remaining assets are distributed
among the shareholders without preference. Dividends may be declared on Class B
common stock without declaring dividends on Class A common stock.
F-12
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. STOCK OPTION PLANS
The Company has operated three stock options plans, approved by shareholders,
for certain employees and directors of the Company and its subsidiaries,
covering approximately 1,192,000 shares of Class A common stock. Under the terms
of the plans, the purchase price of the shares subject to each option will not
be less than 100% of their fair market value on the date of grant as determined
in good faith by the Board of Directors. The vast majority of options vest over
a period of five years and are exercisable for five years after vesting. A small
portion of the options granted are exercisable immediately or are contingent on
the achievement of certain performance goals. The aggregate number of options
remaining that may be granted under the plans is 175,500.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee stock options, as allowed under FASB Statement
No. 123, Accounting for Stock-Based Compensation. Under APB 25, if the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income is required by Statement 123,
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for grants in fiscal 1998 and 1996:
risk-free interest rate of 5.70% and 6.84%, respectively, and a weighted-average
expected life of the options of 9.65 years and 9.75 years, respectively. There
were no grants in fiscal 1997. No dividends have been assumed in the model. As
the Company's stock is not publicly traded, volatility is not an input to the
model and thus the Company's options are valued using a "minimum value" method.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
F-13
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. STOCK OPTION PLANS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effects of
applying the Statement for providing pro forma disclosure are not indicative of
future amounts until the new rules are applied to all outstanding, nonvested
awards. Pro forma net income and earnings per share for the years ending
September 30 were as follows:
1998 1997 1996
-------- -------- --------
Pro forma net income $451,245 $828,052 $413,102
Pro forma basic earnings per share $ 0.24 $ 0.45 $ 0.23
Pro forma diluted earnings per share $ 0.22 $ 0.41 $ 0.21
A summary of the Company's stock option activity, and related information for
the years ended September 30 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 302,000 $5.16 392,000 $4.39 379,250 $4.00
Granted 302,000 $13.27 - - 26,500 $8.29
Exercised (26,000) $2.49 (89,000) $1.76 (13,750) $1.30
Forfeited (1,000) $12.19 (1,000) $6.00 - -
-------- ------- -------
Outstanding - end of year 577,000 $9.51 302,000 $5.16 392,000 $4.39
======== ======= =======
Exercisable at end of year 151,500 $5.37 144,500 $3.97 199,000 $2.93
Weighted-average fair value of options
granted during the year - $6.46 - - $4.03 -
</TABLE>
F-14
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. STOCK OPTION PLANS (CONTINUED)
Exercise prices for options outstanding as of September 30, 1998 were as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- -------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF SHARES WEIGHTED AVERAGE
RANGE OF EXERCISE REMAINING EXERCISE EXERCISE
PRICES NUMBER OF SHARES CONTRACTUAL LIFE PRICE PRICE
- ------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.40 - $ 4.57 86,500 2.09 $3.55 86,500 $3.55
$ 5.21 - $ 6.00 163,000 6.21 $5.92 46,000 $5.73
$ 8.18 - $12.19 54,500 8.32 $10.29 3,000 $8.90
$ 12.90 - $14.51 273,000 9.26 $13.38 16,000 $13.49
------- -------
577,000 151,500
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases office space in Greensboro, Charlotte and Raleigh, North
Carolina, under operating leases expiring in May 2003, December 2000, and
November 2006, respectively. These leases contain renewal options. Also, the
Company leases three automobiles under operating leases expiring on various
dates in 2000. Certain office equipment is leased under operating leases
expiring on various dates through 2003.
Future rental payments under the leases for the years ended September 30 are as
follows:
1999 $861,352
2000 909,735
2001 825,067
2002 785,711
2003 582,437
Thereafter 319,728
---------
Total minimum lease payments $4,284,030
=========
Total lease expense for 1998, 1997 and 1996 was approximately $742,000, $631,000
and $531,000, respectively.
9. EMPLOYEE STOCK OWNERSHIP PLAN, 401(K) PLAN AND GAINSHARING PLAN
In 1994, the Company established the Employee Stock Ownership Plan of NCT
Holdings, Inc. and North Carolina Trust Company (the "ESOP") covering
substantially all employees of the Company. The ESOP
F-15
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. EMPLOYEE STOCK OWNERSHIP PLAN, 401(K) PLAN AND GAINSHARING PLAN (CONTINUED)
purchased 170,525 shares of Class B common stock with a $389,844 promissory note
and $445,729 in cash. The note is payable quarterly through July 31, 2004 and
bears interest at a certain bank's prime rate. Interest expense on ESOP debt was
$10,418 in 1998, $20,077 in 1997 and $29,673 in 1996. Future maturities of the
ESOP debt for the years ending September 30 are as follows:
1999 $12,907
2000 14,041
2001 15,271
2002 16,612
2003 18,071
Thereafter 19,657
------
Total $96,559
======
The loan obligation of the ESOP is considered unearned employee compensation
and, as such, is recorded as a reduction of shareholders' equity. Both the loan
obligation and the unearned compensation are reduced by the amount of principal
payments made by the ESOP. Common stock is allocated to the ESOP participants
based upon the principal and interest payments. Compensation expense related to
the plan is based upon the fair value of the shares allocated to participants
and amounted to $297,642, $249,684 and $55,151 in 1998, 1997 and 1996,
respectively. In each year presented, a discretionary payment on the ESOP note
was made in excess of the required debt service. The difference between the fair
value of the shares and the principal reduction is applied to common stock. The
ESOP shares as of September 30 were as follows:
1998 1997
------- -------
Allocated shares 149,695 128,473
Unallocated shares 20,830 42,052
------- -------
Total ESOP shares 170,525 170,525
======= =======
The fair value of unallocated shares was approximately $301,000 and $513,000 at
September 30, 1998 and 1997, respectively.
Fair value for the above purposes is fair value as determined by the Board of
Directors in administering the Company's stock option plans ("Board fair
value").
The Trustees of the ESOP engage an independent third party on an annual basis to
value ESOP shares for purposes of administering the ESOP plan. The mid-point of
the range of values last determined as of September 30, 1997 was approximately
93% of the Board fair value as of that date.
F-16
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. EMPLOYEE STOCK OWNERSHIP PLAN, 401(K) PLAN AND GAINSHARING PLAN (CONTINUED)
The Company sponsors a 401(k) retirement plan covering all eligible employees.
Employer contributions consist of a discretionary matching component.
In 1996, the Company established the Gainsharing Plan of North Carolina Trust
Company (the "Gainsharing Plan") which applies to substantially all employees of
the Company. Awards under the Plan are based upon a formula determined by the
Company's Board of Directors annually. Awards may be used to satisfy the debt
service requirements and discretionary contributions to the ESOP, to provide for
the Company's matching contribution and discretionary contributions to the North
Carolina Trust Company Profit Sharing Retirement Plan and to provide for
incentive cash bonuses.
In 1998, the ESOP debt service and additional payment on ESOP principal of
$121,672 and the 401(k) plan match of $125,039 were determined separate and
apart from the Gainsharing Plan. The entire Gainsharing Plan was used solely for
incentive compensation. In 1997 and 1996, a portion of the Gainsharing Plan was
allocated to fund ESOP debt service and an additional payment on ESOP debt
principal (totaling $123,684 and $128,150 in 1997 and 1996, respectively) and
the 401(k) plan match ($97,910 and 81,413 in 1997 and 1996, respectively). These
amounts were included in other benefits. The remainder was used for incentive
compensation.
10. TRANSACTIONS WITH RELATED PARTIES
The Trust Company performs services for certain directors and affiliated parties
of directors and officers. At September 30, 1998, 1997 and 1996, the cost basis
of the assets administered for directors and officers and their affiliates was
approximately $164,804,000, $148,679,000 and $141,866,000, respectively. Fees
earned on these accounts for the years ended September 30, 1998, 1997 and 1996
were approximately $653,000, $496,000 and $423,000, respectively.
F-17
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share and
diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income $652,192 $847,228 $424,664
========= ========= =========
Weighted-average shares outstanding 1,905,429 1,846,879 1,810,088
Effect of dilutive securities: Employee stock options 157,839 177,368 169,601
--------- --------- ---------
Adjusted weighted-average shares outstanding and
assumed conversions 2,063,268 2,024,247 1,979,689
========= ========= =========
Basic earnings per share $0.34 $0.46 $0.23
===== ===== =====
Diluted earnings per share $0.32 $0.42 $0.21
===== ===== =====
</TABLE>
12. REGULATORY CAPITAL REQUIREMENTS
The Company and the Trust Company are subject to various regulatory capital
requirements administered by the state banking agencies. Under the capital
adequacy guidelines, the Company and the Trust Company must meet specific
capital guidelines. These guidelines involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Failure to meet minimum capital requirements can initiate certain
mandatory, and possible discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements.
Due to the non-depository nature of the Trust Company's operations, the capital
levels required by statute have been reduced by the North Carolina Banking
Commissioner. At the date of the last regulatory examination, the Company and
Trust Company remained within regulatory capital requirements.
13. SEGMENT INFORMATION
The Company has adopted FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective beginning with the consolidated
financial statements for each of the years in the three year period ended
September 30, 1998.
F-18
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. SEGMENT INFORMATION (CONTINUED)
NCT Holdings is in the business of providing comprehensive wealth management and
fiduciary services to individuals and institutions. It operates two wholly owned
subsidiaries, Trust Company and Opportunities.
This corporate structure serves as the basis for segment analysis due to the
differences in the operations of the two subsidiaries.
Trust Company is a non-depository, state-chartered bank offering investment
management, investment consulting, financial and estate planning, and trust
administration services to its clients. Substantially all of Trust Company's
clients reside in the State of North Carolina. Substantially all fixed assets
are owned by Trust Company. The related depreciation and amortization expense is
included in its operating expenses.
Opportunities serves as the general partner and manager of NCT Opportunities
Equity Partners Limited Partnership ("Equity Partners"). Equity Partners is a
fund of funds that invests with highly regarded fund managers employing
alternative asset investment strategies. Opportunities, which receives a general
and administrative fee from Equity Partners based on partnership capital, is
responsible for paying all administrative costs of the partnership.
Opportunities reimburses Trust Company for a partial allocation of executive
costs. However, clerical and administrative support, sales and marketing, and
overhead costs provided by Trust Company are not allocated to Opportunities. As
a result, the following segment information, although prepared directly from
Holdings internal management reporting, is not indicative of Opportunities'
ability to operate on a "stand-alone" basis, separate and apart from Trust
Company.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
PARENT, NET OF
TRUST INTERCOMPANY TOTAL
COMPANY OPPORTUNITIES ELIMINATIONS COMPANY
---------- ------------- -------------- -------
<S> <C> <C> <C> <C>
Fee revenue 12,313,511 589,653 $ - 12,903,164
Operating expense 11,194,114 222,454 312,127 11,728,695
---------- --------- ---------- ----------
Operating income (expense) 1,119,397 367,199 (312,127) 1,174,469
Other income (expense) 42,968 (395) (6,709) 35,864
---------- --------- ---------- ----------
Income before taxes $1,162,365 $366,804 $ (318,836) $1,210,333
========== ========= ========== ==========
Profit margin 9.4% 62.2% 9.4%
========== ========= ========== ==========
Percentage of income before taxes 96.0% 30.3% (26.3)% 100.0%
========== ========= ========== ==========
Total assets $5,833,114 $866,366 $107,721 $6,807,201
========== ========= ========== ==========
Assets under management (in thousands) $2,137,000 $47,313 $ - $2,184,313
========== ========= ========== ==========
</TABLE>
F-19
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
PARENT, NET OF
TRUST INTERCOMPANY TOTAL
COMPANY OPPORTUNITIES ELIMINATIONS COMPANY
---------- ------------- -------------- -------
<S> <C> <C> <C> <C>
Fee revenue $10,281,069 $372,843 $ - $10,653,912
Operating expense 8,740,814 117,958 217,019 9,075,791
---------- --------- ---------- ----------
Operating income (expense) 1,540,255 254,885 (217,019) 1,578,121
Other income (expense) (60,071) (1,952) (28,452) (90,475)
---------- --------- ---------- ----------
Income before taxes $1,480,184 $252,933 $(245,471) $1,487,646
========== ========= ========== ==========
Profit margin 14.4% 67.8% - 14.0%
========== ========= ========== ==========
Percentage of income before taxes 99.5% 17.0% (16.5)% 100.0%
========== ========= ========== ==========
Total assets $4,828,787 $520,874 $351,975 $5,701,636
========== ========= ========== ==========
Assets under management (in thousands) $2,008,000 $32,831 $ - $2,040,831
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
<S> <C> <C> <C> <C>
Fee revenue $8,003,883 $236,311 $ - $8,240,194
Operating expense 7,339,293 66,492 106,039 7,511,824
---------- --------- ---------- ----------
Operating income (expense) 664,590 169,819 (106,039) 728,370
Other income (expense) 69,883 (4,161) (90,290) (24,568)
---------- --------- ---------- ----------
Income before taxes $734,473 $165,658 $(196,329) $703,802
========== ========= ========== ==========
Profit margin 9.2% 70.1% - 8.5%
========== ========= ========== ==========
Percentage of income before taxes 104.4% 23.5% (27.9)% 100.0%
========== ========= ========== ==========
Total assets $4,148,162 $365,727 $267,235 $4,781,124
========== ========= ========== ==========
Assets under management (in thousands) $1,499,000 $17,818 $ - $1,516,818
========== ========= ========== ==========
</TABLE>
F-20
<PAGE>
NCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. PROPOSED TRANSACTION
On May 14, 1999, U.S. Trust Corporation, a publicly held investment management
company, signed a definitive agreement to acquire the Company. The proposed
transaction is subject to approval by various regulators and the shareholders of
the Company.
F-21
<PAGE>
NCT Holdings, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
MARCH 31, 1999 SEPTEMBER 30, 1998
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 334,877 $ 423,190
Fees Receivable 3,528,931 3,157,421
Premises and Equipment, Net 1,849,036 2,027,219
Investment in Limited Partnership 965,930 777,767
Other Assets 214,598 421,604
---------- ----------
TOTAL ASSETS $ 6,893,372 $ 6,807,201
========== ==========
LIABILITIES:
Accounts Payable and Accrued Liabilities 951,108 1,600,535
Deferred Income 532,926 342,618
Long-Term Debt 40,000 221,520
---------- ----------
Total Liabilities 1,524,034 2,164,673
---------- ----------
SHAREHOLDERS' EQUITY:
Class A: 2,000,000 Shares Authorized 442,596 397,745
1,196,647 and 1,183,832 Issued and Outstanding
Class B: 1,000,000 Shares Authorized 1,775,931 1,570,932
734,155 Shares Issued and Outstanding
Unearned Compensation--ESOP (96,559)
Retained Earnings 3,150,811 2,770,410
---------- ----------
Total Shareholders' Equity 5,369,338 4,642,528
---------- ----------
Total Liabilities and Shareholders' Equity $ 6,893,372 $ 6,807,201
========== ==========
</TABLE>
F-22
<PAGE>
NCT HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (PAGE 1/2)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
BETTER (WORSE)
--------------
1999 1998 $ %
---------- ---------- -------- ------
<S> <C> <C> <C> <C>
Revenue
Fee Revenue $3,393,797 $3,166,447 227,350 7.2
---------- ---------- -------- ------
Operating Expenses
Salaries 1,452,769 1,298,809 153,960 11.9
Performance Compensation 105,399 171,728 (66,329) (38.6)
Sales Commissions and Incentives 23,601 38,272 (14,671) (38.3)
Other Employee Benefits 313,149 260,931 52,218 20.0
---------- ---------- -------- ------
Total Salaries, Performance
Compensation and Other Benefits 1,894,918 1,769,740 125,178 7.1
Occupancy 198,039 161,881 36,158 22.3
Other 850,761 861,678 (10,917) (1.3)
---------- ---------- -------- ------
Total Operating Expenses 2,943,718 2,793,299 150,419 5.4
---------- ---------- -------- ------
Operating Income 450,079 373,148 76,931 20.6
---------- ---------- -------- ------
Net Interest Income
Interest Revenue 8,669 18,368 (9,699) (52.8)
Interest Expense 0 (6,032) 6,032 (100.0)
---------- ---------- -------- ------
Net Interest Income 8,669 12,336 (3,667) (29.7)
Income Before Income Taxes 458,748 385,484 73,264 19.0
Income Taxes 178,985 174,631 4,354 2.5
---------- ---------- -------- ------
Net Income $279,763 $210,853 68,910 32.7
========== ========== ======== ======
Basic Earnings Per Share $0.14 $0.11 0.03 27.3
========== ========== ======== ======
Diluted Earnings Per Share $0.13 $0.10 0.03 30.0
========== ========== ======== ======
</TABLE>
F-23
<PAGE>
NCT HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (PAGE 2/2)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
BETTER (WORSE)
--------------
1999 1998 $ %
---------- ---------- -------- ------
<S> <C> <C> <C> <C>
Revenue
Fee Revenue $6,799,989 $6,173,430 626,559 10.1
---------- ---------- -------- ------
Operating Expenses
Salaries 2,930,767 2,648,173 282,594 10.7
Performance Compensation 241,846 317,288 (75,442) (23.8)
Sales Commissions and Incentives 54,154 70,712 (16,558) (23.4)
Other Employee Benefits 783,331 682,059 101,272 14.8
---------- ---------- -------- ------
Total Salaries, Performance
Compensation and Other Benefits 4,010,098 3,718,232 291,866 7.8
Occupancy 394,070 315,617 78,453 24.9
Other 1,720,103 1,635,504 84,599 5.2
---------- ---------- -------- ------
Total Operating Expenses 6,124,271 5,669,353 454,918 8.0
---------- ---------- -------- ------
Operating Income 675,718 504,077 171,641 34.1
---------- ---------- -------- ------
Net Interest Income
Interest Revenue 22,363 36,972 (14,609) (39.5)
Interest Expense (3,393) (15,491) 12,098 (78.1)
---------- ---------- -------- ------
Net Interest Income 18,970 21,481 (2,511) (11.7)
---------- ---------- -------- ------
Income Before Income Taxes 694,688 525,558 169,130 32.2
Income Taxes 314,287 283,735 30,552 10.8
---------- ---------- -------- ------
NET INCOME $380,401 $241,823 138,578 57.3
========== ========== ======== ======
Basic Earnings Per Share $0.20 $0.13 0.07 53.8
========== ========== ======== ======
Diluted Earnings Per Share $0.18 $0.12 0.06 50.0
========== ========== ======== ======
</TABLE>
F-24
<PAGE>
NCT HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $279,763 $210,853 $380,401 $241,823
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization of Premises
and Equipment and Other Assets 131,875 101,953 263,466 200,617
Deferred Income Taxes (93,729) (77,581) 96,254 22,507
Net Change in Fees Receivable (98,291) (384,341) (339,471) (294,001)
Net Change in Accounts Payable and Other
Liabilities 184,198 81,241 (628,040) (265,709)
Net Change in Deferred Income 78,274 111,751 190,308 199,902
ESOP Compensation in Excess of Cost 205,000 183,000
Other, Net 13,636 45,820 56,176 61,421
------- ------- ------- -------
Net Cash Provided by Operating Activities 495,726 89,696 224,094 349,560
------- ------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in Fixed Assets (19,167) (123,033) (84,135) (179,338)
Investment in Limited Partnership (98,389) (121,868) (188,163) (230,143)
------- ------- ------- -------
Total Cash Flow From Investing Activities (117,556) (244,901) (272,298) (409,481)
------- ------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of Long-Term Debt (5,000) (50,572) (181,519) (202,903)
Credit Line Advances (250,000) 0
Proceeds from Sale of Stock 26,612 60,490 44,851 79,690
Decrease in Unearned ESOP Compensation 0 2,935 96,559 108,584
------- ------- ------- -------
Total Cash Flow From Financing Activities (228,388) 12,853 (40,109) (14,629)
------- ------- ------- -------
TOTAL CASH FLOW 149,782 (142,352) (88,313) (74,550)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 185,095 770,987 423,190 703,185
------- ------- ------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $334,877 $628,635 $334,877 $628,635
======= ======= ======= =======
CASH PAID DURING THE PERIOD FOR:
Income Taxes $217,000 $117,000 $281,029 $143,009
Interest $864 $9,021 $6,478 $20,217
</TABLE>
F-25
<PAGE>
NCT HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON UNEARNED TOTAL
STOCK STOCK ESOP RETAINED SHAREHOLDERS'
CLASS A CLASS B COMPENSATION EARNINGS EQUITY
-------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1998 $397,745 $1,570,932 $(96,559) $2,770,410 $4,642,528
Options Exercised on 6,150 Shares 18,239 18,239
Allocation of ESOP Shares 204,999 96,559 301,558
Net Income for the Quarter 100,638 100,638
------------------------------------------------------------------------
Balance, December 31, 1998 415,984 1,775,931 0 2,871,048 5,062,963
Options Exercised on 6,665 Shares 26,612 26,612
Net Income for the Quarter 279,763 279,763
-------- ---------- ---------- ---------- ----------
Balance, March 31, 1999 $442,596 $1,775,931 $ - $3,150,811 $5,369,338
======== ========== ========== ========== ==========
Balance, October 1, 1997 $290,879 $1,387,932 $(211,201) $2,118,218 $3,585,828
Options Exercised on 8,000 Shares 19,200 19,200
Allocation of ESOP Shares 183,000 105,649 288,649
Net Income for the Quarter 30,970 30,970
-------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 310,079 1,570,932 (105,552) 2,149,188 3,924,647
Options Exercised on 11,900 Shares 60,490 60,490
Allocation of ESOP Shares 2,935 2,935
Net Income for the Quarter 210,853 210,853
-------- ---------- ---------- ---------- ----------
Balance, March 31, 1998 $370,569 $1,570,932 ($102,617) $2,360,041 $4,198,925
======== ========== ========== ========== ==========
</TABLE>
F-26
<PAGE>
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
between
U.S.TRUST CORPORATION
and
NCT HOLDINGS, INC.
Dated as of May 14, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS
Recital A. The Company and the Trust Company................................1
Recital B. The Acquiror.....................................................1
Recital C. The Merger.......................................................1
Recital D. Voting Agreements and Employment Contracts.......................1
Recital E. Retention Program................................................1
Recital F. Approvals........................................................1
ARTICLE I
DEFINITIONS
Section 1.1 Definitions of Certain Terms.....................................2
Section 1.2 Interpretation..................................................17
ARTICLE II
THE MERGER; EFFECTIVE TIME; CLOSING
Section 2.1 The Merger......................................................18
(a) Structure and Effects of the Merger....................18
(b) Articles of Incorporation..............................18
(c) By-laws................................................18
(d) Directors..............................................18
(e) Officers...............................................18
Section 2.2 Effective Time..................................................18
Section 2.3 Closing.........................................................19
Section 2.4 Organization of Merger Sub......................................19
Section 2.5 Reservation of Right to Revise Structure........................19
Section 2.6 Company Representative..........................................19
ARTICLE III
CONSIDERATION; EXCHANGE
Section 3.1 Effect of the Merger on Shares and Options......................20
(a) Outstanding Company Stock..............................20
(b) Outstanding Company Options............................20
(c) Outstanding Merger Sub Stock...........................21
(d) Treasury Shares........................................21
(e) Effect on Rights as Shareholders; No Transfers.........21
(f) Effect on Company Options..............................21
Section 3.2 Retained Amount.................................................22
(a) Retention..............................................22
(b) Calculation of Reduction Amount........................22
(c) Release................................................22
<PAGE>
(d) [Intentionally Omitted]................................22
(e) Allocation of Released Shares and Released Cash........22
(f) Right to Vote and to Income............................22
Section 3.3 Earnout Consideration...........................................22
(a) Payment in Respect of Company Stock and Company
Options................................................22
(b) Calculation of Earnout Total Amount....................22
(c) Earnout Per Share Amount and Earnout Per Share
Stock Consideration....................................23
(d) Issuance...............................................23
Section 3.4 Exchange Procedures.............................................23
(a) Initial Consideration..................................23
(b) Released Shares and Released Cash......................24
(c) Per Share Earnout Consideration........................24
(d) Registration of Acquiror Stock; No Assignment..........25
(e) No Interest............................................25
(f) No Rights Until Surrender............................. 25
(g) Return of Exchange Fund and Earnout Consideration
Funds..................................................26
Section 3.5 Limitations.....................................................26
Section 3.6 Dissenting Shareholders.........................................27
Section 3.7 Options.........................................................27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Standard........................................................27
Section 4.2 Representations and Warranties of the Company...................27
(a) Existence; Qualification; Authority....................28
(b) Capital Stock..........................................28
(c) Subsidiaries...........................................28
(d) Authorization and Validity.............................29
(e) Regulatory Consents....................................29
(f) No Conflicts.......................................... 29
(g) Financial Reports......................................30
(h) Absence of Undisclosed Liabilities.....................30
(i) Absence of Certain Events..............................30
(j) Properties; Hardware and Software......................31
(k) Litigation; Regulatory Action..........................32
(l) Compliance with Laws...................................33
(m) Material Contracts.....................................34
(n) Reports................................................35
(o) No Brokers or Finders..................................35
(p) Employee Benefit Plans.................................35
(q) Labor Matters..........................................37
A-ii
<PAGE>
(r) Insurance..............................................37
(s) Takeover Laws..........................................38
(t) Environmental Matters..................................38
(u) Taxes..................................................38
(v) Accounting Controls....................................40
(w) Investment Advisory Activities.........................40
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
Section 5.1 Standards.......................................................43
Section 5.2 Representations and Warranties of the Acquiror..................43
(a) Existence and Good Standing............................43
(b) Authorization and Validity.............................43
(c) Regulatory Consents....................................43
(d) No Conflicts...........................................44
(e) Absence of Material Adverse Effect.....................44
(f) Litigation; Regulatory Action..........................44
(g) No Brokers or Finders..................................44
(h) Acquiror Reports.......................................45
(i) Acquiror Stock.........................................45
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business.............................................45
Section 6.2 Reasonable Efforts..............................................48
Section 6.3 Access and Current Information..................................48
Section 6.4 Confidentiality.................................................49
Section 6.5 Effect of Investigations........................................50
Section 6.6 Acquisition Proposals...........................................50
Section 6.7 Registration Statement..........................................50
Section 6.8 Shareholder Approvals...........................................51
Section 6.9 Affiliate Agreements............................................51
Section 6.10 Retention Program...............................................52
Section 6.11 Certain Employee Benefits.......................................52
Section 6.12 Takeover Laws...................................................53
Section 6.13 No Rights Triggered.............................................53
Section 6.14 Press Releases, Etc.............................................54
Section 6.15 NYSE Listing....................................................54
Section 6.16 Indemnification; Directors'and Officers'Insurance...............54
A-iii
<PAGE>
ARTICLE VII
CONDITIONS
Section 7.1 Mutual Conditions to the Obligation to Effect the Merger........54
(a) Shareholder Approval...................................54
(b) Governmental and Regulatory Approvals..................54
(c) Third-Party Consents...................................54
(d) No Injunction..........................................55
(e) Registration Statement.................................55
(f) Blue Sky Approvals.....................................55
(g) Listing................................................55
(h) Tax Opinion............................................55
Section 7.2 Conditions to Obligations of the Acquiror and Merger Sub........55
(a) Representations and Warranties.........................55
(b) Performance of Obligations.............................55
(c) Employment Contracts...................................55
(d) No Onerous Condition...................................56
(e) Closing Percentage.....................................56
Section 7.3 Conditions to Obligations of the Company........................56
(a) Representations and Warranties.........................56
(b) Performance of Obligations.............................56
ARTICLE VIII
SURVIVAL; POST-CLOSING ADJUSTMENTS
Section 8.1 Survival........................................................56
Section 8.2 Scope...........................................................56
Section 8.3 Satisfaction of Covered Claims..................................57
Section 8.4 Procedures......................................................58
Section 8.5 Calculation of Costs; Remittance of Benefits....................58
Section 8.6 Tax Treatment...................................................58
ARTICLE IX
TERMINATION
Section 9.1 Termination.....................................................58
Section 9.2 Effect of Termination...........................................60
Section 9.3 Termination Fee.................................................60
ARTICLE X
OTHER MATTERS
Section 10.1 Waiver; Amendment...............................................61
Section 10.2 Calculations; Dispute Resolution................................61
Section 10.3 Counterparts....................................................61
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Section 10.4 Governing Law...................................................61
Section 10.5 Waiver of Jury Trial............................................61
Section 10.6 Expenses........................................................62
Section 10.7 Notices.........................................................62
Section 10.8 Entire Understanding; No Third Party Beneficiaries..............63
Section 10.9 Assignment......................................................63
ANNEXES
Annex 1 Form of Voting Agreement
Annex 2 Certain Employees
Annex 3 Form of Supplement
Annex 4 Form of Company Affiliate Agreement
Annex 5 Retention Program
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AGREEMENT AND PLAN OF MERGER, dated as of May 14, 1999 (this
"Agreement"), between U.S. TRUST CORPORATION (the "Acquiror") and NCT HOLDINGS,
INC. (the "Company").
RECITALS
A. The Company and the Trust Company. The Company is a North Carolina
corporation having its principal executive offices located in Greensboro, North
Carolina. The Company is the sole shareholder of North Carolina Trust Company, a
North Carolina non-depository banking corporation (the "Trust Company"), and the
sole shareholder of NCT Opportunities, Inc., a North Carolina corporation and
the general partner of NCT Opportunities Equity Partners Limited Partnership.
B. The Acquiror. The Acquiror is a New York corporation having its
principal executive offices located in New York, New York.
C. The Merger. At the Effective Time (as defined in Section 2.2), the
Company and the Acquiror intend to effect the merger (the "Merger") of the
Company with and into a wholly owned subsidiary of the Acquiror ("Merger Sub"),
with Merger Sub surviving the Merger. It is the intention of the parties that
the Merger qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986 (the "Code") and any analogous provision of state
or local law.
D. Voting Agreements and Employment Contracts. As an inducement and
condition to the Acquiror's willingness to enter into this Agreement, (1)
certain shareholders of the Company have entered into voting agreements with the
Acquiror substantially in the form of Annex 1 (each, a "Voting Agreement") and
(2) each of the employees listed on Annex 2, as a shareholder of the Company and
an employee of the Trust Company, will enter into an employment contract with
the Trust Company and the Acquiror in the exact form Previously Disclosed by the
Acquiror (each, an "Employment Contract").
E. Retention Program. The Acquiror and the Company have agreed to
establish a retention program on substantially the terms described herein, the
purpose of which is to retain the services of certain employees of the Trust
Company following the Merger.
F. Approvals. The Board of Directors of the Company (at a meeting duly
called and held) has determined that this Agreement, the Merger and the other
transactions contemplated hereby are in the best interests of the Company and
its shareholders and has adopted, and recommended that its shareholders approve,
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements contained in this Agreement, the
Company and the Acquiror agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.1 Definitions of Certain Terms. As used in this Agreement
(and the Schedules and Annexes) the following terms have the meanings indicated:
"Acquiror" has the meaning set forth in the Preamble (on page 1).
"Acquiror Person" has the meaning set forth in Section 9.3(b) (on page
60).
"Acquiror Reports" has the meaning set forth in Section 5.2(h) (on page
45).
"Acquiror Stock" means the common stock, par value $1.00 per share, of
the Acquiror; provided that, if after the Effective Time the shares of
Acquiror Stock issued and outstanding are changed into or exchanged for a
different kind of securities, cash or other property through a merger,
consolidation, reorganization, recapitalization, reclassification or other
similar change in the capitalization of the Acquiror, the term "Acquiror
Stock" will from and after such change, for all purposes of this Agreement,
refer to such different kind of securities, cash or other property (and, to
the extent appropriate, adjustments will be made to the other terms of this
Agreement by the Acquiror, acting in its reasonable discretion).
"Acquiror's 401(k) Plan" has the meaning set forth in Section 6.11(a)
(on page 52).
"Acquiror's Pension Plan" has the meaning set forth in Section 6.11(a)
(on page 52).
"Acquisition Proposal" has the meaning set forth in Section 6.6 (on
page 50).
"Acquisition Transaction" means (a) a merger or consolidation, or any
similar transaction, involving the Company or any material Subsidiary of it,
(b) a purchase, lease or other acquisition of all or any substantial part of
the assets of the Company or any material Subsidiary of it, (c) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 35% or more of the voting
power (or rights to profits or assets on dissolution) of the Company or any
material Subsidiary of it or (d) an assignment of all or any significant
portion of any investment advisory, sub-advisory, trust, administrative or
distribution Contracts with the Company or any Subsidiary of it; provided
that neither the ownership by any person of the shares of Company Stock
owned by it at the date of this Agreement nor the acquisition of additional
shares pursuant to the terms of Company Options owned by it as of the date
of this Agreement are Acquisition Transactions.
"Agreement" has the meaning set forth in the Preamble (on page 1).
"Annualized Fees" means, for any Client as of any date of
determination, the annualized amount of the Fee Revenues of the Company and
its Subsidiaries attributable to the Client, determined:
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(a) To the extent the Fee Revenues are asset-based, on the basis
of the Managed Assets as of the second Business Day of the month in
which the date of determination occurs;
(b) To the extent the Fee Revenues are not asset-based, on the
basis of the Fee Revenues paid to the Company and its Subsidiaries
during the twelve-month period ending the month immediately preceding
the month in which the date of determination occurs; provided that:
(1) If the fee structure has been reduced or increased in
any respect during the twelve-month period, the Fee Revenues will
be calculated using the reduced or increased fee structure; and
(2) In the case of any Client that has not been a Client for
the entire twelve-month period, the Fee Revenues paid during the
applicable portion of the period will be annualized.
(c) To the extent the Fee Revenues are related to services as an
executor, on the basis of the Fee Revenues paid to the Company and its
Subsidiaries during the twelve-month period ending the month
immediately preceding the month in which the date of determination
occurs; and
(d) To the extent the Fee Revenues are related to investments in
the Fund, on the basis of 1% of the limited partner's capital and 0.5%
of the total capital of the Fund as of the end of the month immediately
preceding the date of determination.
"Applicable Laws" means, for any person at any time of determination,
any law, rule or regulation or any judgment, decree, order, governmental
permit, license, certificate of authority, order or governmental approval
(including any of a self-regulatory organization) to which such person or
any of its properties is subject at such time.
"Average Price" means, as of any date, the average of the daily last
sale prices per share of Acquiror Stock as reported on the NYSE Composite
Transactions Reporting System for the ten consecutive NYSE full trading days
(in which such shares are traded on the NYSE) ending immediately before (and
not including) the fifth Business Day preceding such date, rounded to the
nearest cent and adjusted appropriately for stock splits, stock dividends,
reclassifications, recapitalizations, combinations and similar capital
adjustments. The Average Price will be calculated based on prices published
in The Wall Street Journal or, if not published therein, in another
authoritative source reasonably selected by the Acquiror.
"BHC Act" means the Bank Holding Company Act of 1956.
"Base Total Revenues" means:
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(a) For the first Calculation Period, the difference between the
Closing Fees and the Reduction Amount; and
(b) For any other Calculation Period, Total Revenues for the
immediately preceding Calculation Period (annualized, to the extent
necessary);
"Board of Directors" means, for any person, the board of directors of
the person or any equivalent entity or group performing similar functions
with respect to the person under the laws of the person's jurisdiction of
organization or Constituent Documents.
"Book Value" means the excess (if any) of the consolidated assets of
the Company over the consolidated liabilities of the Company, determined in
accordance with GAAP; provided that Book Value will include the after-Tax
value of fees related to the Fund that have previously been (and continue to
be) deferred by the Company or its Subsidiaries but will exclude the Tax
benefit associated with the conversion of the Company Options pursuant to
Section 3.1(b).
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banks located in New York, New York or Greensboro, North Carolina
generally are authorized or required by law or regulation to close.
"Calculation Period" means (a) the period beginning on the first day of
the month following the month in which the Effective Time occurs and ending
on December 31, 2000 and (b) each of the four sequential one-year periods
commencing on January 1 thereafter.
"Clients" means, collectively as of any date, the persons to which the
Company or any of its Subsidiaries provides investment management,
investment advisory, sub-advisory or trust services on such date (either
directly or through the Fund).
"Closing" has the meaning set forth in Section 2.3 (on page 20).
"Closing Fees" means the sum of (a) the aggregate Annualized Fees as of
the Effective Time of the Clients as of the Effective Time and (b) Referred
Fees.
"Closing Percentage" means the ratio of (a) the aggregate Annualized
Fees as of the Effective Time of the Clients as of the Effective Time to (b)
the aggregate Annualized Fees as of the date of this Agreement of the
Clients as of the date of this Agreement; provided that for purposes of
calculating the Closing Percentage no effect will be given to any decrease
in the value of Managed Assets resulting from changes in market prices.
"Code" has the meaning set forth in Recital B (on page 1).
"Commissioner" means the Commissioner of Banks of the State of North
Carolina.
"Company" has the meaning set forth in the Preamble (on page 1).
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"Company Affiliate" has the meaning set forth in Section 6.9 (on page
51).
"Company Meeting" has the meaning set forth in Section 6.8 (on page
51).
"Company Option" means each option to purchase shares of Company Stock
under the Company Option Plans.
"Company Option Plans" means the stock option plans of the Company
Previously Disclosed with respect to this definition.
"Company Representative" has the meaning set forth in Section 2.6(a)
(on page 19).
"Company Representative Committee" has the meaning set forth in Section
2.6(b) (on page 19).
"Company Stock" means the Class A common stock, no par value per share,
of the Company and the Class B common stock, no par value per share, of the
Company.
"Company Tax Returns" has the meaning set forth in Section 4.2(u)(1)
(on page 38).
"Company's ESOP" has the meaning set forth in Section 6.11(f) (on page
52).
"Company's 401(k) Plan" has the meaning set forth in Section 6.11(e)
(on page 52).
"Compensation and Benefit Plans" has the meaning set forth in Section
4.2(p)(1) (on page 35).
"Constituent Documents" means the charter and by-laws of a corporation,
the partnership agreement of a partnership, the trust agreement of a trust
and the comparable documents of other entities.
"Continuing Employees" has the meaning set forth in Section 6.11(a) (on
page 52).
"Contract" means, with respect to any person, any agreement, indenture,
undertaking, debt instrument, contract, lease or other commitment to which
such person or any of its Subsidiaries is a party or by which any of them is
bound or to which any of their properties is subject.
"Costs" has the meaning set forth in Section 8.2(a) (on page 57).
"Covered Claim" has the meaning set forth in Section 8.2(c)(1) (on page
57).
"Determination Date" means, with respect to each Calculation Period,
the 45th day following the last day of the Calculation Period.
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"Disclosure Schedule" means, with respect to the Company or the
Acquiror, a schedule delivered by it to the other (on or before the date of
this Agreement) setting forth, among other things, items the disclosure of
which is required under this Agreement either in response to an express
disclosure requirement contained in a provision of this Agreement or as an
exception to one or more of the representations and warranties or covenants
contained in this Agreement; provided that:
(a) No item is required to be set forth in a Disclosure Schedule
as an exception to a representation or warranty if its absence would
not result in the related representation or warranty being deemed
untrue or incorrect under the standards established under Section 4.1
or 5.1, respectively; and
(b) The mere inclusion of an item in a Disclosure Schedule as an
exception to a representation or warranty will not be an admission by
the disclosing party that such item (or any non-disclosed item or
information of comparable or greater significance) represents a
material exception or fact, event or circumstance or that such item is
reasonably likely to result in a Material Adverse Effect with respect
to the disclosing party.
"Dissenters' Shares" means shares of Company Stock with respect to
which dissenters' rights have been perfected in accordance with Sections
55-13-20 to 55-13-28 of the NCBCA.
"Earnout Consideration Fund" has the meaning set forth in Section
3.4(c) (on page 24).
"Earnout Option Consideration" has the meaning set forth in Section
3.3(c) (on page 23).
"Earnout Per Share Amount" has the meaning set forth in Section 3.3(c)
(on page 23).
"Earnout Per Share Stock Consideration" has the meaning set forth in
Section 3.3(c) (on page 23).
"Earnout Total Amount" means, for each Calculation Period, the product
of (a) the Total Revenues for the Calculation Period and (b) a multiplier
determined on the basis of the Growth Rate for the Calculation Period as
follows:
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Growth Rate Multiplier
for the Calculation Period for the Calculation Period
13.5% or less 0.00
More than 13.5% 0.20
through 17.5%
More than 17.5% 0.30
through 22.5%
More than 22.5% 0.40
provided that:
(1) The Acquiror will be entitled to conduct (during the first
Calculation Period) a review of the financial condition of the Company
and its Subsidiaries as of the Effective Time. If the Acquiror
reasonably determines as a result of the review that the Book Value as
of the Effective Time was less than the amount used to determine the
Initial Total Amount, the Earnout Total Amount for the first
Calculation Period will be reduced by the amount (if any) that the
Initial Total Amount would have been reduced if the Book Value as of
the Effective Time had been calculated correctly.
(2) If the Reduction Amount exceeds the Retained Amount, the
Earnout Total Amount for each Calculation Period will be reduced (but
not to less than $0) until the amount reduced, when taken together with
any other reduction in the Earnout Total Amount for prior Calculation
Periods in accordance with this clause (2), equals the amount of the
excess.
(3) If during a Calculation Period any deferred fees included in
the calculation of Book Value as of the Effective Time (pursuant to the
proviso to the definition of Book Value) are lost or written off, the
Earnout Total Amount for the Calculation Period will be reduced by the
amount of the after-Tax loss or write-off (but not to less than $0);
provided that to the extent the Earnout Total Amount (after adjustment
as provided for in clauses (1) and (2) of this proviso) is less than
the amount of the loss or write-off, the amount of any deficiency will
be carried forward and applied to reduce the Earnout Total Amount for
future Calculation Periods.
(4) The Earnout Total Amount for each of the second through fifth
Calculation Periods will be reduced by $250,000 (but not to less than
$0); provided that to the extent the Earnout Total Amount (after
adjustment as provided for in clauses (1) - (3) of this proviso) is
less than $250,000, the amount of any deficiency will be carried
forward and applied to reduce the Earnout Total Amount for future
Calculation Periods.
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(5) The Earnout Total Amount for any Calculation Period may be
reduced or increased pursuant to Section 8.3.
(6) It is understood that, to the extent any deficiency remains
after the calculation of the Earnout Total Amount for the final
Calculation Period, the deficiency will not be recovered.
"Effective Time" has the meaning set forth in Section 2.2 (on page 18).
"Employment Contracts" has the meaning set forth in Recital D (on page
1).
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, common law or order or requirement of any
Governmental Authority relating to (a) the protection of the environment,
(b) human health or safety or (c) the use, handling, release or disposal of
hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" has the meaning set forth in Section 4.2(p)(3) (on
page 36).
"ERISA Plans" has the meaning set forth in Section 4.2(p)(2) (on page
36).
"ESOP Determination Letter" has the meaning set forth in Section
6.11(f) (on page 52).
"Exception Shares" means Treasury Shares and Dissenters' Shares.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Agent" has the meaning set forth in Section 3.4(a) (on page
23).
"Extraordinary Withdrawal" means, with respect to any Client, a
withdrawal of at least 80% of the Managed Assets of the Client from the
Effective Time through the first anniversary of the Effective Time; provided
that:
(a) For purposes of this definition, each withdrawal and deposit
of Managed Assets will be calculated as a percentage of the Managed
Assets at the time (in order to remove the effect of changes in the
market value of Managed Assets on the calculation); and
(b) Withdrawals resulting from a change-in-control, death or
other circumstance relating to the Client that the Acquiror in its good
faith judgment determines is not related to the relationship of the
Client with, or the investment or other performance of, the Company
and/or its Subsidiaries will not be Extraordinary Withdrawals.
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"Family Sick Leave Bank" has the meaning set forth in Section 6.11(h)
(on page 53).
"Fee" has the meaning set forth in Section 9.3(a) (on page 60).
"Fee Revenues" means fee revenues of the Company and its Subsidiaries
(prior to the Effective Time) or the Surviving Corporation and its
Subsidiaries (after the Effective Time) derived from:
(a) Investment management services (including as general partner
of the Fund);
(b) Trust, tax preparation, financial planning, executor, record
keeping or employee benefit revenues;
(c) For dates after the Effective Time, investment management
services provided to open-end investment companies and other Investment
Vehicles sponsored and advised by the Acquiror or its Subsidiaries
(provided that Fee Revenues will be based on the generally applicable,
contract stated rates for such services as in effect from time to time,
the current schedule of which has been Previously Disclosed by the
Acquiror, and any client-specific reduction in, or waiver of, fees by
the Acquiror or its Subsidiaries will not be given effect); and
(d) Private banking services.
"Fund" means NCT Opportunities Equity Partners, L.P.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied throughout a relevant period.
"Governmental Authority" means any domestic or foreign governmental or
regulatory authority, agency, court, commission or other governmental or
regulatory entity (including any self-regulatory organization).
"Growth Rate" means:
(a) For any yearly period, (1) the difference between the Total
Revenues and Base Total Revenues for the period divided by (2) Base
Total Revenues for the period, rounded to the nearest ten-thousandth;
and
(b) For any period other than a yearly period, an annualized
amount (without compounding) calculated in a manner consistent with
clause (a) of this definition.
(It is understood that the Growth Rate may be negative.)
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"Hazardous Substance" means any substance listed, defined, designated
or classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type, concentration or by
quantity, including asbestos capable of becoming friable, petroleum, lead
and polychlorinated biphenyls.
"Indemnified Parties" means the Acquiror and its directors, officers,
affiliates (including, after the Merger, the Surviving Corporation and the
Trust Company) and agents, and any successors to any of the preceding.
"Information" has the meaning set forth in Section 6.4 (on page 49).
"Initial Consideration Fund" has the meaning set forth in Section
3.4(a) (on page 23).
"Initial Option Consideration" has the meaning set forth in Section
3.1(b) (on page 21).
"Initial Per Share Amount" means:
(a) The difference between the Initial Total Amount and the
Retained Amount; divided by
(b) The sum of the Outstanding Amount and the Optioned Amount.
"Initial Per Share Stock Consideration" has the meaning set forth in
Section 3.1(a)(1) (on page 20).
"Initial Total Amount" means (a) 2.75 times Closing Fees plus (b) the
aggregate exercise price paid as a result of the exercise of Company Options
from December 31, 1998 until ten Business Days before the Effective Time
plus (c) the aggregate exercise price payable for the Optioned Amount under
the Company Options immediately before the Effective Time minus (d) Referral
Commissions; provided that, if the Book Value of the Company as of the
Effective Date is less than the sum of (1) $5,000,000 and (2) the aggregate
exercise price referred to in clause (b) of this definition, the Initial
Total Amount will be reduced by the amount of any deficit.
"Investment Advisers Act" means the Investment Advisers Act of 1940.
"Investment Company Act" means the Investment Company Act of 1940.
"Investment Contracts" means each Contract relating to the Company's
(or any of its Subsidiary's) rendering of investment advisory or management
services (including all sub-advisory services), trust services or
administration or distribution services (including to any Client or the
Fund).
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"Investment Vehicle" means an investment company or business
development company registered or required to be registered under the
Investment Company Act, a company that would be an "investment company" as
defined in the Investment Company Act but for Section 3(c)(1) or Section
3(c)(7) of the Act or a direct participation program as defined in the rules
of the National Association of Securities Dealers, Inc.
"IRS" means the Internal Revenue Service.
"Knowledge" means, when used with respect to the Company or the
Acquiror, the knowledge after due investigation of any of the persons
Previously Disclosed by it to be persons with knowledge for purposes of this
definition.
"Lien" means any mortgage, pledge, hypothecation, right of others,
claim, security interest, encumbrance, title defect, title retention
agreement, voting trust agreement, interest, option, lien, charge or other
condition, restriction or limitation of any nature whatsoever.
"Managed Assets" means, as of any date for any Client, the aggregate
asset value of the Client's assets with respect to which the Company or any
of its Subsidiaries provides investment advisory or trust services (either
directly or through the Fund).
"Material Adverse Effect" means, with respect to the Company or the
Acquiror, any effect (whether taken individually or in the aggregate) that:
(a) Is materially adverse to the financial condition, business,
results of operations, properties or prospects of it and its
Subsidiaries, taken as a whole; or
(b) Would prevent or materially delay the consummation of the
transactions contemplated by this Agreement;
provided that a Material Adverse Effect will not include (1) events or
conditions generally affecting the financial services industry, (2) effects
resulting from general economic conditions (including changes in interest
levels or prices of securities), or (3) changes in generally accepted
accounting principles, in each case so long as such events, conditions or
changes do not, individually or in the aggregate, have an effect on such
party and its Subsidiaries, taken as a whole, that is materially more
adverse than that experienced by financial services companies generally.
"Merger" has the meaning set forth in Recital C (on page 1).
"Merger Sub" has the meaning set forth in Recital C (on page 1).
"Multiemployer Plans" means multiemployer plans within the meaning of
Section 3(37) of ERISA.
"NCBCA" means the North Carolina Business Corporation Act, as amended.
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"Net Banking Revenues" means, for any period, the amount of interest
revenue generated from private banking loans during such period (based on
the average outstanding principal amount of loans during the period), less
the sum of imputed interest expense (on the same average balance) and a
provisionary charge for credit losses, where:
(a) Imputed interest expense for (1) each fixed-rate loan will be
based on the difference between the interest rate per annum earned and
1.25% and (2) each variable-rate loan will be based on the respective
rates of interest (calculated at monthly intervals during the term of
the loan) at which U.S. dollar deposits are offered by leading banks in
the London interbank deposit market for one-month terms (calculated in
a manner consistent with the Acquiror's other profit centers); provided
that the Acquiror may, in its discretion, change the interest rates
credited or imputed interest expenses charged (as a result of changes
in the interest rate environment) so long as such changes are
consistent with changes for all of the Acquiror's profit centers; and
(b) The provisionary charge for any period will equal 0.25% of
any increase in the aggregate average principal amount of such loans
over the period; provided that (1) if the Acquiror determines that
extraordinary (i.e., above normal) credit losses exist with respect to
such loans, the Acquiror may increase the amount of the charge as it
deems appropriate (in its reasonable discretion) consistent with
standards applied to the Acquiror's other profit centers and (2) the
provisionary charge will not be less than $0.
"Net Tax Liability" means, with respect to any Costs of an Indemnified
Party, the amount, if any, by which (a) the sum of all federal, state and
local Taxes, if any, required to be paid by the Indemnified Party in respect
of the receipt or accrual of any payments in respect of such Costs under
Article VIII exceeds (b) the present value of any reduction in taxes of such
Indemnified Party by reason of deductions, credits or allowances in respect
of the payment or accrual of the Costs recognized by such Indemnified Party.
"NYSE" means the New York Stock Exchange, Inc.
"Old Certificates" has the meaning in Section 3.4(a) (on page 23).
"Onerous Condition" has the meaning set forth in Section 6.2(a) (on
page 48).
"Option Exercise Amount" means, with respect to each Company Option,
the aggregate number of shares of Company Stock subject to the Company
Option immediately before the Effective Time.
"Optioned Amount" means the aggregate Option Exercise Amount for all
Company Options outstanding immediately before the Effective Time.
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"Outstanding Amount" means the aggregate number of shares of Company
Stock issued and outstanding immediately before the Effective Time
(excluding Exception Shares).
"Participation Percentage" means, for each Record-Stockholder, a ratio
equal to the number of shares of Company Stock (other than Exception Shares)
held by the Record-Stockholder immediately before the Effective Time divided
by the Outstanding Amount.
"Pension Plan" has the meaning set forth in Section 4.2(p)(2) (on page
36).
"Plans" has the meaning set forth in Section 6.11(a) (on page 52).
"Preliminary Event" has the meaning set forth in Section 9.3(b) (on
page 60).
"Previously Disclosed" means, with respect to the Company or the
Acquiror, information set forth in its Disclosure Schedule, whether in
response to an express informational requirement or as an exception to one
or more representations or warranties or covenants, in each case, that is
contained in a correspondingly enumerated portion of such Disclosure
Schedule.
"Proxy Statement" has the meaning set forth in Section 6.7 (on page
50).
"Record-Optionholder" means each record holder of Company Options
immediately before the Effective Time.
"Record-Stockholder" means each record holder of Company Stock (other
than Exception Shares) immediately before the Effective Time.
"Reduction Amount" means 2.75 times the aggregate of:
(a) For each Client at the Effective Time that is not a Client on
the first anniversary of the Effective Time, the Annualized Fees as of
the Effective Time of the Client, excluding terminations resulting from
a change-in-control, death or other circumstance relating to the Client
that the Acquiror in its good faith judgment determines is not related
to the relationship of the Client with, or the investment or other
performance of, the Company and/or its Subsidiaries; and
(b) For each Client that has an Extraordinary Withdrawal (but
continues to be a Client on the first anniversary of the Effective
Time), the product of the percentage amount of the Extraordinary
Withdrawal and the Annualized Fees as of the Effective Time of the
Client.
"Referral Commissions" means any commissions related to any Referred
Client that are earned or accrued by employees of the Acquiror or any of its
Subsidiaries (which will be
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equal to 15% of the annualized fees of the Referred Client at the time of
becoming a Referred Client).
"Referred Client" means each person who, as of the fifth Business Day
preceding the Effective Time:
(a) Has been referred by the Company or its Subsidiaries to the
Acquiror or one its Subsidiaries for the provision of investment
management, investment advisory or sub-advisory or trust services; and
(b) Has entered into a Contract with, and delivered the relevant
assets to, the Acquiror or one if its Subsidiaries for the performance
of such services;
provided that no person will be a "Referred Client" unless the referral by
the Company or its Subsidiaries of the person would qualify for the payment
of referral fees under the Referral Agreement, dated April 29, 1999, between
the Acquiror and the Trust Company, if the Effective Time did not occur.
"Referred Fees" means the aggregate Annualized Fees as of the Effective
Time of the Referred Clients. (For purposes of calculating Annualized Fees
of Referred Clients, the terms "Acquiror" and "Referred Client" will be
substituted for "Company" and "Client", respectively.)
"Registration Statement" has the meaning set forth in Section 6.7(a)
(on page 50).
"Regulatory Reports" has the meaning set forth in Section 4.2(n) (on
page 35).
"Released Cash" means an amount in cash (rounded to the nearest cent)
equal to:
(a) The excess (if any) of the Retained Amount over the Reduction
Amount; multiplied by
(b) A fraction, the numerator of which is the Optioned Amount and
the denominator of which is the sum of the Outstanding Amount and the
Optioned Amount; plus
(c) Interest on such product at a rate of 5% per annum (without
compounding) for the period from the Effective Time through the
Determination Date for the first Calculation Period.
"Released Consideration Fund" has the meaning set forth in Section
3.4(b)(1) (on page 24).
"Released Shares" means the number of whole shares of Acquiror Stock
equal to:
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(a) The excess (if any) of the Retained Amount over the Reduction
Amount; multiplied by
(b) A fraction, the numerator of which is the Outstanding Amount
and the denominator of which is the sum of the Outstanding Amount and
the Optioned Amount; plus
(c) Interest on such product at a rate of 5% per annum (without
compounding) for the period from the Effective Time through the
Determination Date for the first Calculation Period; such aggregate
amount divided by
(d) The Average Price as of the Determination Date for the first
Calculation Period.
"Retained Amount" means 5% of the Initial Total Amount.
"Rights" means, with respect to any capital stock, securities or
obligations convertible into or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls, commitments or
obligations of any character (including those relating to issuance,
purchase, redemption, conversion, exchange, redemption or transfer) relating
to, shares of such capital stock.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"Subsidiary" means, for any person, any other person of which the
initial person directly or indirectly owns more than 25% of the voting stock
or other voting equity interest or which is required to be consolidated with
the initial person under GAAP. (For the avoidance of doubt, the Fund will be
deemed a Subsidiary of the Company for purposes of this Agreement.)
"Surviving Corporation" means Merger Sub, as the surviving corporation
in the Merger.
"Takeover Laws" has the meaning set forth in Section 4.2(s) (on page
38).
"Taxes" means all federal, state, local or foreign taxes or other
governmental charges, fees, levies and assessments of whatever kind or
nature, including all federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, premium, recording, documentary,
transfer, back-up withholding or similar taxes, together with any interest,
additions, or penalties with respect thereto and any interest in respect of
such additions or penalties.
"Third-Party Claim" has the meaning set forth in Section 8.4(a) (on
page 58).
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"Total Revenues" means, for any Calculation Period, the sum of Fee
Revenues and Net Banking Revenues earned by the Surviving Corporation and
its Subsidiaries during the period; provided that, after the Effective Time:
(a) Total Revenues will include Fee Revenues and Net Banking
Revenues that are earned by the Acquiror and any Subsidiary of it and
that are attributable to any client whose relationship is managed by
the Surviving Corporation (or any of its Subsidiaries) or who was
introduced to the Acquiror or any other Subsidiary of it by the
Surviving Corporation or any Subsidiary of it;
(b) If the business currently conducted by the Trust Company is
transferred (in whole or in part) to the Acquiror or any other
Subsidiary of it, Total Revenues will include Fee Revenues and Net
Banking Revenues attributable to such business;
(c) If the business of any other person is transferred (in whole
or in part) to the Surviving Corporation or any of its Subsidiaries,
Total Revenues will not include Fee Revenues and Net Banking Revenues
attributable to such other business;
(d) If any client whose relationship is not managed by the
Surviving Corporation (or any of its Subsidiaries) and who was not
introduced to the Acquiror or any other Subsidiary of it by the
Surviving Corporation (or any of its Subsidiaries) invests in the Fund,
Total Revenues will be based on a rate of 0.75% of net asset value
attributable to the client;
(e) If the Acquiror or any of its Subsidiaries (including the
Surviving Corporation and its Subsidiaries) sponsors and provides
investment management services to an Investment Vehicle that is based
on a substantially similar investment strategy as the Fund, Total
Revenues will include:
(1) 100% of generally applicable rates with respect to any
client investing therein whose relationship is managed by the
Surviving Corporation (or any of its Subsidiaries) or who was
introduced to the Acquiror or any other Subsidiary of it by the
Surviving Corporation (or any of its Subsidiaries); and
(2) 50% of such rates with respect to other clients
investing.
(For the avoidance of doubt, the current generally applicable
rate is 1.5%.)
(f) Total Revenues will exclude any income generated from
securities held in the Surviving Corporation's or any of its
Subsidiaries' proprietary portfolio to the extent contributed by, or
otherwise attributable to, the Acquiror and its affiliates.
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It is understood that "Total Revenues" will include Fee Revenues and Net
Banking Revenues attributable to Referred Clients (without reductions for
Referral Commissions).
"Treasury Shares" means shares of Company Stock owned, other than in a
bona fide fiduciary capacity or in satisfaction of a debt previously
contracted in good faith, by the Company or any Subsidiary of it.
"Y2K Compliant" means, with respect to any computer software or
hardware, that the hardware or software is able to accurately process date
and time data (including calculating, comparing, and sequencing) from, into
and between the twentieth and twenty-first centuries, and the years 1999 and
2000 and leap year calculations, and will not generate erroneous data or
cause a system to fail because of a date of the year 1999 or later.
"Y2K Plan" has the meaning set forth in Section 4.2(j)(6) (on page 32).
Section 1.2 Interpretation. (a) As used in this Agreement, references
to the following terms will have the meanings indicated:
(1) To the Preamble or to the Recitals, Sections, Annexes or Schedules
are to the Preamble or a Recital or Section of, or Annex or Schedule to,
this Agreement unless otherwise indicated.
(2) To any Contract (including this Agreement) are to the Contract as
amended, modified, supplemented or replaced from time to time.
(3) To any statute or regulation are to the statute or regulation as
amended, modified supplemented or replaced from time to time (and, in the
case of statutes, include any rules and regulations promulgated thereunder)
and to any section of any statute or regulation include any successor to the
section.
(4) To "individually or in the aggregate" (or phrases of similar
import) in or with respect to Articles IV, V or VI include all events,
occurrences and circumstances described in any Section of those Articles and
is not limited to any specific Section.
(5) To any "person" include any individual, corporation, business
trust, partnership, association, limited liability company or similar
organization, or any governmental or regulatory authority or body.
(b) Whenever this Agreement requires a party to take an action, the
requirement constitutes an undertaking by the party to cause its Subsidiaries,
and to use its best efforts to cause its other affiliates, to take appropriate
action in connection therewith.
(c) The Table of Contents of this Agreement, the various headings
contained herein and the page number references in Section 1.1 are for reference
purposes only and do not limit or otherwise affect any of the provisions of this
Agreement.
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(d) Whenever the words "include," "includes" or "including" are used in
this Agreement, they will be deemed to be followed by the words "without
limitation." Any singular term in this Agreement will be deemed to include the
plural, and any plural term the singular. All pronouns and variations thereof
will be deemed to refer to the feminine, masculine or neuter, singular or
plural, as the identity of the person referred to may require.
(e) It is the intention of the parties that this Agreement not be
construed more strictly with regard to one party than with regard to the other
party.
ARTICLE II
THE MERGER; EFFECTIVE TIME; CLOSING
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time:
(a) Structure and Effects of the Merger. The Company will merge with
and into Merger Sub, and the separate corporate existence of the Company
will cease. The Merger will have the effects specified in the NCBCA.
(b) Articles of Incorporation. Until duly amended, the articles of
incorporation of the Surviving Corporation will be the articles of
incorporation of Merger Sub as in effect immediately before the Effective
Time, except that Article I thereof will be amended to read "The name of the
corporation is NCT Holdings, Inc."
(c) By-laws. Until duly amended, the by-laws of the Surviving
Corporation will be the by-laws of Merger Sub as in effect immediately
before the Effective Time.
(d) Directors. The directors of the Surviving Corporation will be the
directors of the Company immediately before the Effective Time, and such
directors, together with any additional directors as may thereafter be
elected, will hold such office until their successors are duly elected and
qualified.
(e) Officers. The officers of the Surviving Corporation will be the
officers of the Company immediately before the Effective Time, and such
officers, together with any additional officers as may be agreed upon prior
thereto by the Acquiror and the Company or as may be appointed thereafter,
will serve in accordance with the terms of the Constituent Documents of the
Surviving Corporation.
Section 2.2 Effective Time. (a) The Merger will become effective on the
filing with the office of the Secretary of State of North Carolina of articles
of merger in accordance with Section 55-11-05 of the NCBCA or at such later date
and time as may be set forth in the articles. The date and time when the Merger
becomes effective is sometimes referred to in this Agreement as the "Effective
Time."
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(b) Subject to the terms and conditions of this Agreement, the Company
and the Acquiror will use reasonable efforts to cause the Merger to become
effective on the last Business Day of the month in which the last of the
conditions set forth in Article VII (other than conditions relating solely to
the delivery of documents dated the date of the Effective Time or to the Closing
Percentage) has been satisfied or waived in accordance with the terms of this
Agreement or on such other date as the Acquiror and the Company may mutually
designate in writing (consistent with the provisions of Applicable Law).
Section 2.3 Closing. The closing of the Merger (the "Closing") will
take place at such place as the Company and the Acquiror mutually agree in good
faith on the date when the Effective Time is to occur.
Section 2.4 Organization of Merger Sub. Before the Effective Time, the
Acquiror (a) will organize Merger Sub as a North Carolina corporation and (b)
cause Merger Sub to become a party to this Agreement, to be evidenced by the
execution by Merger Sub of a Supplement to this Agreement, in substantially the
form of Annex 3, and delivery thereof to the Company and the Acquiror.
Section 2.5 Reservation of Right to Revise Structure. At the Acquiror's
election, the Merger may alternatively be structured so that (a) a wholly owned
subsidiary of the Acquiror is merged with and into the Company or (b) the
Company is merged with and into the Acquiror or a wholly owned subsidiary of the
Acquiror other than Merger Sub; provided that no such change will (1) alter or
change the amount or kind of the consideration to be received by the
Record-Stockholders in connection with the Merger or (2) adversely affect the
tax treatment to the Record-Stockholders as a result of receiving such
consideration. The parties agree to execute an appropriate amendment to this
Agreement in order to reflect any such election.
Section 2.6 Company Representative. (a) Certain actions are required
by this Agreement to be taken after the Effective Time through a single
representative of the Company (the "Company Representative"). The Company
Representative will be elected by a majority of the members of the Company
Representative Committee and will enter into an agreement with the Acquiror (in
form and substance reasonably acceptable to the Acquiror) to the effect that he
or she will perform, in accordance with their terms, the duties and obligations
provided for in this Agreement with respect to the Company Representative. The
name of the initial Company Representative will be disclosed in writing to the
Acquiror by the Company Representative Committee at or before the Effective
Time. The Company Representative may be replaced at any time by the Company
Representative Committee on five days written notice to the Acquiror signed by a
majority of the members of the Company Representative Committee; provided that
the Company Representative will at all times be a person who has entered into an
agreement with the Acquiror of the type referred to in the preceding sentence.
(b) The Board of Directors of the Company, as constituted immediately
prior to the Effective Time, will serve as the initial "Company Representative
Committee" and will continue to act as such until there are no further duties
required to be performed by the Company Representative Committee under this
Agreement. If any person serving on the Company
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Representative Committee for any reason ceases to serve, the remaining members
of the Company Representative Committee (by majority vote) will appoint a
successor (who, subject to the last sentence of this Section 2.6(b), will
thereafter be a member of the Company Representative Committee for all purposes
of this Agreement). If all members of the Company Representative Committee cease
to serve, the Company Representative Committee will be reconstituted by the
Record-Stockholders, acting in the manner by which the Company last elected its
directors prior to the Effective Time. Except as contemplated by the preceding
sentence, no change in the composition of the Company Representative Committee
will be effective until the Company Representative Committee has given five days
written notice thereof to the Acquiror.
(c) Any action, request, decision or resolution made by the Company
Representative in accordance with the terms of this Agreement will be binding on
the rights of Record-Stockholders and Record-Optionholders.
Article III
Consideration; Exchange
Section 3.1 Effect of the Merger on Shares and Options. At the
Effective Time, automatically by virtue of the Merger and without any action on
the part of any holder of Company Stock or Company Options:
(a) Outstanding Company Stock. Subject to Sections 3.4 and 3.5, each
share of Company Stock issued and outstanding immediately before the
Effective Time (other than Exception Shares) will be converted into the
right to receive:
(1) At the Effective Time, a number of shares of Acquiror Stock
equal to (A) the Initial Per Share Amount divided by (B) the Average
Price as of the Effective Time (such shares, the "Initial Per Share
Stock Consideration");
(2) At the times and subject to the terms and conditions set
forth in Section 3.2, a number of shares of Acquiror Stock equal to the
number of Released Shares divided by the Outstanding Amount; and
(3) At the times and subject to the terms and conditions set
forth in Section 3.3, the Earnout Per Share Stock Consideration for
each Calculation Period;
provided that any number of shares of Acquiror Stock provided for in this
Section 3.1(a) will be rounded to the nearest ten-thousandth.
(b) Outstanding Company Options. Subject to Sections 3.4 and 3.5, each
Company Option issued and outstanding immediately before the Effective Time
will be converted into the right to receive from the Acquiror:
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(1) At the Effective Time, an amount in cash equal to the
difference between:
(A) The product of (i) the Initial Per Share Amount and (ii)
the Option Exercise Amount of the Company Option; and
(B) The aggregate exercise price payable for the Option
Exercise Amount under the Company Option (such amount, the
"Initial Option Consideration").
(2) At the times and subject to the terms and conditions set
forth in Section 3.2, an amount in cash equal to (A) the product of any
Released Cash and the Option Exercise Amount of the Company Option
divided by (B) the Optioned Amount; and
(3) At the times and subject to the terms and conditions set
forth in Section 3.3, an amount in cash equal to the product of (A) the
Earnout Per Share Amount for each Calculation Period and (B) the Option
Exercise Amount of the Company Option;
provided that any amount in cash provided for in this Section 3.1(b) will be
rounded to the nearest cent.
(c) Outstanding Merger Sub Stock. Each share of common stock of Merger
Sub issued and outstanding immediately before the Effective Time will be
converted into a share of common stock of the Surviving Corporation having
the same par value and denomination, and such shares will thereafter
constitute all of the issued and outstanding shares of capital stock of the
Surviving Corporation.
(d) Treasury Shares. All Treasury Shares will be canceled and retired
at the Effective Time, and no consideration will be issued in exchange
therefor.
(e) Effect on Rights as Shareholders; No Transfers. Holders of Company
Stock will cease to be, and will have no rights as, shareholders of the
Company or the Surviving Corporation, other than the right to receive (1)
any dividend or other distribution with respect to Company Stock with a
record date before the Effective Time and (2) the consideration provided for
in this Section 3.1. After the Effective Time, there will be no transfers on
the stock transfer books of the Company or the Surviving Corporation of
shares of Company Stock.
(f) Effect on Company Options. Holders of Company Options will cease
to have rights as such, other than the right to receive the consideration
provided for in this Section 3.1. After the Effective Time, Company Options
will no longer be exercisable and there will be no transfers of Company
Options.
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Section 3.2 Retained Amount. (a) Retention. Although included as part
of the Initial Total Amount, at the Effective Time the Retained Amount will (1)
be retained by the Acquiror, (2) not be used in determining the Initial Per
Share Amount and (3) be distributed (in the form of Released Shares and Released
Cash) only in accordance with this Section 3.2 and Sections 3.4 and 3.5.
(b) Calculation of Reduction Amount. The Reduction Amount will be
calculated by the Acquiror before the Determination Date for the first
Calculation Period.
(c) Release. If the Reduction Amount is less than the Retained Amount,
the Acquiror will release the Released Shares and the Released Cash into the
Released Consideration Fund on or before the Determination Date for the first
Calculation Period.
(d) [Intentionally Omitted.]
(e) Allocation of Released Shares and Released Cash. On the release of
the Released Shares and the Released Cash in accordance with Section 3.2(c),
subject to the terms and conditions of Sections 3.4 and 3.5, there will be
allocated and delivered:
(1) In respect of each share of Company Stock issued and outstanding
immediately before the Effective Time (other than Exception Shares), the
amount of Released Shares provided for in Section 3.1(a)(2); and
(2) In respect of each Company Option issued and outstanding
immediately before the Effective Time, the amount of Released Cash provided
for in Section 3.1(b)(2).
(f) Right to Vote and to Income. Until a Released Share is released in
accordance with Section 3.2(c), no Record-Stockholder will have any rights with
respect to it (including the right to vote or receive distributions).
Section 3.3 (a) Earnout Consideration. Payment in Respect of Company
Stock and Company Options. After the Effective Time, at the times and subject
to the terms and conditions set forth in this Section 3.3 and Sections 3.4 and
3.5:
(1) The Earnout Per Share Stock Consideration for each Calculation
Period will be delivered in respect of each share of Company Stock issued
and outstanding immediately before the Effective Time (other than Exception
Shares).
(2) An amount in cash for each Calculation Period equal to the product
of (A) the Earnout Per Share Amount for each Calculation Period and (B) the
Option Exercise Amount of the Company Option (rounded to the nearest cent)
will be delivered in respect of each Company Option issued and outstanding
immediately before the Effective Time.
(b) Calculation of Earnout Total Amount. The Earnout Total Amount for
each Calculation Period will be calculated by the Acquiror before the
Determination Date for the
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Calculation Period. It is understood that there will be no Earnout Total Amount
for any Calculation Period for which the Growth Rate does not exceed 13.5%.
(c) Earnout Per Share Amount and Earnout Per Share Stock Consideration.
The "Earnout Per Share Amount" for each Calculation Period will be (1) the
Earnout Total Amount for the Calculation Period divided by (2) the sum of the
Outstanding Amount and the Optioned Amount. The "Earnout Per Share Stock
Consideration" for each Calculation Period will equal a number of shares,
rounded to the nearest ten-thousandth, equal to (1) the Earnout Per Share Amount
for the Calculation Period divided by (2) the Average Price as of the
Determination Date for the Calculation Period.
(d) Issuance. On or before the Determination Date for each Calculation
Period, the Acquiror will cause to be deposited in accordance with Section
3.4(c) certificates representing the shares of Acquiror Stock to be issued, and
an estimated amount of cash to be paid, as Earnout Per Share Consideration and
Earnout Option Consideration for the Calculation Period.
Section 3.4 Exchange Procedures. (a) Initial Consideration. The
Acquiror will:
(1) At or prior to the Effective Time, cause to be deposited with U.S.
Trust Company of New York as exchange agent (in such capacity and including
any successor that may from time to time be appointed by the Acquiror, the
"Exchange Agent"), for the benefit of the Record-Stockholders and
Record-Optionholders, certificates representing the shares of Acquiror Stock
to be issued, and an estimated amount of cash to be paid, as Initial Per
Share Stock Consideration and Initial Option Consideration. These
certificates, together with any dividends or distributions with a record
date occurring after the Effective Time with respect thereto, and cash are
sometimes referred to as the "Initial Consideration Fund".
(2) Promptly after the Effective Time, cause to be delivered (1) to
each Record-Stockholder transmittal materials for use in exchanging the
certificates representing the shares of Company Stock held by the
Record-Stockholder immediately before the Effective Time ("Old
Certificates") for the Initial Per Share Stock Consideration and (2) to each
Record-Optionholder any necessary or appropriate transmittal materials (if
any) for use in paying the Initial Option Consideration to the
Record-Optionholder.
(3) On delivery by a Record-Stockholder to the Exchange Agent of Old
Certificates (or indemnity satisfactory to the Acquiror and Exchange Agent,
if any Old Certificates are lost, stolen or destroyed) together with
properly completed transmittal materials, cause the Exchange Agent to
deliver to the Record-Stockholder certificates representing the Initial Per
Share Stock Consideration into which the shares of Company Stock represented
by Old Certificates have been converted (and/or any check in respect of
fractional share interests, dividends or distributions to which the
Record-Stockholder is entitled); provided that certificates representing
Acquiror Stock and/or such check will not be issued to any Company Affiliate
until the Company Affiliate has delivered an agreement pursuant to Section
6.9.
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(4) Cause the Exchange Agent to deliver promptly thereafter to each
Record-Optionholder a check in respect of Initial Option Consideration to
which the Record-Optionholder is entitled under this Article III; provided
that no check will be issued to any Record-Optionholder until the
Record-Optionholder has properly completed and returned any transmittal
materials delivered by the Acquiror pursuant to Section 3.4(a)(2).
(b) Released Shares and Released Cash. If any Released Shares and
Released Cash are to be released pursuant to Section 3.2(c), the Acquiror will:
(1) On or before the Determination Date for the first Calculation
Period, cause to be deposited with the Exchange Agent, for the benefit of
the Record-Stockholders and Record-Optionholders, certificates representing
the Released Shares (together with any dividend or distribution paid with
respect thereto with a record date after the Determination Date) and an
estimated amount of cash to be paid as Released Cash (or in lieu of
fractional Released Shares). These certificates, together with any dividends
or distributions with a record date occurring after the Determination Date
with respect thereto, and cash are sometimes referred to as the "Released
Consideration Fund".
(2) Cause the Exchange Agent to deliver promptly after the
Determination Date to each Record-Stockholder certificates representing the
Released Shares to which the Record-Stockholder is entitled under this
Article III; provided that (A) certificates will not be delivered to any
Record-Stockholder until the Record-Stockholder who has delivered Old
Certificates (or indemnity) and transmittal materials in accordance with
Section 3.4(a) and (B) certificates and/or such check will not be issued to
any Company Affiliate until the Company Affiliate has delivered an agreement
pursuant to Section 6.9.
(3) Cause the Exchange Agent to deliver promptly to each
Record-Optionholder a check in respect of any amount of Released Cash to
which the Record-Optionholder is entitled under this Article III; provided
that no check will be issued to any Record-Optionholder until the
Record-Optionholder has properly completed any transmittal materials
delivered by the Acquiror pursuant to Section 3.4(a)(2).
(c) Per Share Earnout Consideration. Subject to Section 8.5, if there
is any Earnout Total Amount for a Calculation Period under Section 3.3(b), the
Acquiror will:
(1) On or before the Determination Date for the Calculation Period,
cause to be deposited with the Exchange Agent, for the benefit of the
Record-Stockholders and Record-Optionholders, certificates representing the
shares of Acquiror Stock to be issued, and an estimated amount of cash to be
paid, as Earnout Per Share Consideration and Earnout Option Consideration
for the Calculation Period. These certificates, together with any dividends
or distributions with a record date occurring after the Determination Date
with respect thereto, and cash are sometimes referred to as an "Earnout
Consideration Fund".
(2) Within five Business Days following the Determination Date for the
Calculation Period, cause to be delivered (A) to each Record-Stockholder any
necessary or
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appropriate transmittal materials (if any) for use in issuing to the
Record-Stockholder the Earnout Per Share Stock Consideration and (B) to each
Record-Optionholder any necessary or appropriate transmittal materials (if
any) for use in paying the Earnout Option Consideration to the
Record-Optionholder.
(3) Cause the Exchange Agent to deliver promptly thereafter to each
Record-Stockholder certificates representing any Earnout Per Share Stock
Consideration for the Calculation Period to which the Record-Stockholder is
entitled under this Article III (and/or any check in respect of fractional
share interests, dividends or distributions to which the Record-Stockholder
is entitled); provided that (A) certificates and/or such check will not be
delivered to any Record-Stockholder until the Record-Stockholder has
delivered Old Certificates (or indemnity) and transmittal materials in
accordance with Section 3.4(a) and properly completed and returned any
transmittal materials delivered by the Acquiror pursuant to Section
3.4(c)(2) and (B) certificates will not be issued to any Company Affiliate
until the Company Affiliate has delivered an agreement pursuant to Section
6.9.
(4) Cause the Exchange Agent to deliver promptly thereafter to each
Record-Optionholder a check in respect of Earnout Option Consideration for
the Calculation Period to which the Record-Optionholder is entitled under
this Article III; provided that no check will be issued to any
Record-Optionholder until the Record-Optionholder has properly completed and
returned any transmittal materials delivered by the Acquiror pursuant to
Section 3.4(c)(2).
(d) Registration of Acquiror Stock; No Assignment. All Acquiror Stock
to be delivered to a Record-Stockholder will be registered in the name of the
Record-Stockholder and all checks to be issued to a Record-Optionholder will be
made out in the name of the Record-Optionholder. The right to receive any
Earnout Per Share Stock Consideration, Earnout Option Consideration, Released
Shares or Released Cash will not be transferable or assignable by any
Record-Stockholder or Record-Optionholder (except on death in accordance with
the applicable laws of descent and distribution), and any purported transfer or
assignment in contravention of this Section 3.4(d) will be void.
(e) No Interest. No interest will be paid on any consideration provided
for in this Article III, including the Initial Per Share Stock Consideration,
Initial Option Consideration, Earnout Per Share Stock Consideration, Earnout
Option Consideration, Released Shares, Released Cash or dividends or
distributions on any of the preceding. (This Section 3.4(e) does not in any way
limit the interest provided for in the definition of the "Released Shares" or
the "Released Cash.")
(f) No Rights Until Surrender. No dividends or other distributions on
Acquiror Stock will be paid in respect of any Acquiror Stock deliverable to a
Record-Stockholder as a result of the Merger until the Record-Stockholder is
properly entitled to receive certificates representing such Acquiror Stock in
accordance with Section 3.4, and no Record-Stockholder will be eligible to vote
such Acquiror Stock until the holder becomes so entitled. After becoming
entitled to receive certificates in accordance with Section 3.4, the
Record-Stockholder will also be entitled to receive
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the following dividends or distributions that have become payable on the
Acquiror Stock represented thereby, without interest:
(1) In the case of shares consisting of Initial Per Share Stock
Consideration, dividends and distributions with a record date after the
Effective Time;
(2) In the case of shares consisting of Released Shares, dividends and
distributions with a record date after the date of the release contemplated
by Section 3.2(c); and
(3) In the case of shares consisting of Earnout Per Share Stock
Consideration, dividends and distributions with a record date after the
relevant Determination Date.
(g) Return of Exchange Fund and Earnout Consideration Funds. The
following will be returned to the Acquiror at the times indicated:
(1) Any portion of the Initial Consideration Fund that remains
unclaimed by the Record-Stockholders and Record-Optionholders for six months
after the Effective Time;
(2) Any portion of the Released Consideration Fund that remains
unclaimed by the Record-Stockholders and Record-Optionholders for six months
after the Determination Date for the first Calculation Period; and
(3) Any portion of an Earnout Consideration Fund with respect to a
Calculation Period that remains unclaimed by the Record-Stockholders and
Record-Optionholders for six months after the relevant Determination Date.
Any Record-Stockholders and Record-Optionholders who have not complied with the
requirements stated in this Article III with respect to the Initial Per Share
Stock Consideration, Initial Option Consideration, Released Shares, Released
Cash, Earnout Per Share Stock Consideration or the Earnout Option Consideration
before the return of the Initial Consideration Fund, the Released Consideration
Fund or any Earnout Consideration Fund, as applicable, will be entitled to look
only to the Acquiror for payment of the shares of Acquiror Stock and/or cash
deliverable in respect of each share of Company Stock and/or Company Option of
such holder as a result of the Merger, in each case as determined pursuant to
this Agreement and without any interest thereon.
Section 3.5 Limitations. Notwithstanding any other provision in this
Agreement:
(a) No fractional shares of Acquiror Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in
connection with the Merger, and instead the Acquiror will pay to each
Record-Stockholder who would otherwise be entitled to a fractional share of
Acquiror Stock (after taking into account all Old Certificates delivered by
the Record-Stockholder) an amount in cash (without interest) determined by
multiplying the fraction by the Average Price (1) as of the Effective Time
in the case of Initial Per Share Stock Consideration, (2) as of the
Determination Date for the first Calculation Period in
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the case of Released Shares and (3) as of the relevant Determination Date
in the case of Earnout Per Share Stock Consideration for any Calculation
Period; and
(b) The parties agree to treat all amounts paid in respect of Company
Options in the Merger as compensation for services and not to take any
position inconsistent with this treatment on any Tax return or before any
Taxing authority. Accordingly, the Acquiror may withhold from these amounts
any Federal, state, local or foreign taxes that are required to be withheld
pursuant to any Applicable Law.
(c) None of the Exchange Agent or any party hereto will be liable to
any Record-Stockholder, Record-Optionholder or any other person for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(d) The conversion of any outstanding Company Option in accordance with
Section 3.1(b) is subject to the applicable Record-Optionholder's agreement
to continue in effect his or her existing noncompetition and nonsolicitation
agreement with the Trust Company (which would otherwise terminate at the
time of the Merger). Absent such agreement by a Record-Optionholder, his or
her Company Options will terminate in accordance with their terms at the
Effective Time.
Section 3.6 Dissenting Shareholders. Dissenters' Shares will be
purchased and paid for in accordance with Section 55-13-02 of the NCBCA.
Section 3.7 Options. At or prior to the Effective Time, the Company
will take all action necessary with respect to the Company Option Plans to
permit the conversion of Company Options into the right to receive cash pursuant
to this Article III. The Company shall take all action necessary, including
obtaining any required consents from optionees, to provide that following the
Effective Time no participant in the Company Option Plans or the other plans,
programs or arrangements of the Company will have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
subsidiary thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Standard. No representation or warranty contained in
Section 4.2 will be untrue or incorrect (including for purposes of Article VII),
and the Company will not have breached any such representation or warranty, as a
consequence of the existence of any fact, circumstance or event that should have
been disclosed as an exception to such representation or warranty, unless the
fact, event or circumstance (individually or in the aggregate) has had or would
be reasonably likely to have a Material Adverse Effect on the Company.
Section 4.2 Representations and Warranties of the Company. Except as
Previously Disclosed, the Company represents and warrants to the Acquiror as
follows:
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(a) Existence; Qualification; Authority. The Company is a corporation
duly organized and validly existing under the laws of the State of North
Carolina and is duly qualified to do business and is in good standing in the
States of the United States and other jurisdictions (if any) where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. It and each of its Subsidiaries has the
corporate, partnership or other similar power and authority necessary to
carry on their respective businesses as they are now being conducted and to
own all their respective properties and assets. Before the date of this
Agreement, the Company has made available to the Acquiror a complete and
correct copy of the Constituent Documents of it and each of its
Subsidiaries, each as amended to such date, and such Constituent Documents
are in full force and effect.
(b) Capital Stock. (1) As of the date of this Agreement, the authorized
capital stock of the Company consists solely of 2,000,000 shares of Class A
common stock, no par value per share, of which 1,196,647 shares are
outstanding, and 1,000,000 shares of Class B common stock, no par value per
share, of which 734,155 shares are outstanding. The outstanding shares of
Company Stock are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any subscriptive or preemptive rights).
(2) Except as Previously Disclosed, there are no shares of Company
Stock authorized or reserved for issuance, there are no Rights issued or
outstanding with respect to the Company's capital stock, and the Company has
no commitments or obligations to authorize, issue, sell or grant any shares
of its capital stock, or Rights with respect thereto.
(3) The Company has Previously Disclosed the number of shares of
Company Stock issuable upon the exercise of the Company Options as of the
date of this Agreement and the exercise price and other material terms with
respect to each Company Option.
(c) Subsidiaries. The Company has Previously Disclosed a list of each
of its Subsidiaries, including the jurisdiction in which each is organized,
a brief description of its activities and, for any not wholly owned
(directly or indirectly) by the Company, the percentage owned by the Company
and the percentage ownership by any other person.
(2) There are no equity securities authorized or reserved for issuance
by any Subsidiary of the Company except as Previously Disclosed, there are
no Rights issued or outstanding with respect to any equity securities of any
Subsidiary other than held by the Company, and there are no commitments or
obligations to authorize, issue, sell or grant any such equity securities,
or Rights with respect thereto, except to the Company or a wholly owned
Subsidiary of it. All of the outstanding shares of capital stock of each of
the Company's Subsidiaries are validly issued and outstanding, fully paid
and nonassessable and subject to no preemptive rights (and were not issued
in violation of any subscriptive or preemptive rights) and, except as
Previously Disclosed, are owned by the Company or a wholly owned subsidiary
of it free and clear of any Liens.
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(3)Each of the Company's Subsidiaries is duly organized and validly
existing under the laws of the jurisdiction in which it is organized and is
duly qualified to do business and is in good standing in the States of the
United States and other jurisdictions (if any) where its ownership or
leasing of property or assets or the conduct of its business requires it to
be so qualified.
(d) Authorization and Validity. (1) The Company has the requisite
corporate power and authority, and has taken all corporate action necessary,
in order to (A) authorize the execution and delivery of, and the performance
of its obligations under, this Agreement and (B) subject only to the
approval of the Merger by the holders of a majority of each class the voting
interests in the Company in accordance with Section 55-11-03 of the NCBCA,
to consummate the Merger and the other transactions contemplated hereby.
This Agreement is the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms (subject, as to
enforcement, to bankruptcy, insolvency, moratorium, reorganization,
fraudulent transfer and other laws affecting creditors' rights generally and
to general equitable principles).
(2) The Board of Directors of the Company has by requisite vote
adopted, and recommended that the shareholders of the Company approve, this
Agreement and the Merger and the other transactions contemplated hereby.
(e) Regulatory Consents. Except for the approval of the Commissioner
under Section 53-42.1 of the General Statutes of North Carolina, no notices,
reports or other filings are required to be made by the Company with, nor
are any consents, registrations, approvals, permits or authorizations
required to be obtained by it from, any Governmental Authority in connection
with the execution, delivery and performance of this Agreement by the
Company and the consummation by it of the Merger and the other transactions
contemplated hereby. To the Company's Knowledge, as of the date hereof,
there is no reason why the regulatory approvals and consents referred to in
this Section 4.2(e) or in Section 5.2(c) will not be received without the
imposition of an Onerous Condition.
(f) No Conflicts. The execution, delivery and performance of this
Agreement by the Company do not and will not, and (upon the receipt of the
approvals referred to in Sections 4.2(d)(1)(B) and 4.2(e)) the consummation
of the Merger and the other transactions contemplated hereby will not, with
or without the giving of notice, the lapse of time or both:
(1) Violate or conflict with its Constituent Documents or those
of any of its Subsidiaries;
(2) Breach or violate, or result in a default under, any
Applicable Law with respect to it or any of its Subsidiaries or permit
or result in the revocation, cancellation, suspension or adverse
modification of any permit, license, certificate of authority, order or
approval of any Governmental Authority to which it, any of its
Subsidiaries or any of their respective properties or assets is
subject;
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(3) Breach or result in a default under, permit the termination
of, or permit the acceleration of the performance required by, any
Contract of, or binding on, it or any of its Subsidiaries, or to which
it or any of its Subsidiaries (or their respective properties or
assets) is subject or result in the creation or imposition, pursuant to
any of the foregoing, of any Lien on the properties or assets of it or
any of its Subsidiaries.
(g) Financial Reports. The Company's audited consolidated financial
statements for the fiscal years ended September 30, 1996, 1997 and 1998 and
unaudited consolidated financial statements for the quarters ended
subsequent to September 30, 1998 have been made available to the Acquiror
(or, in the case of unaudited financial statements for quarters ending after
the date of this Agreement and before the Effective Time, will be made
available as soon as they are available to the Company). Each of the balance
sheets contained therein (including the related notes and schedules thereto)
fairly presented (or in the case of any financial statements made available
after the date of this Agreement, will fairly present) the consolidated
financial position of the Company and its Subsidiaries as of the date of
such balance sheet, and each of the statements of earnings, changes in
stockholders' equity and cash flows or equivalent statements contained
therein (including any related notes and schedules thereto) fairly presented
(or in the case of any financial statements made available after the date of
this Agreement, will fairly present) the consolidated earnings, changes in
stockholders' equity, and cash flows, as the case may be, of the Company and
its Subsidiaries for the periods set forth therein, in accordance with GAAP
consistently applied, except in each case as may be noted therein, subject
to normal year-end audit adjustments in the case of interim unaudited
statements.
(h) Absence of Undisclosed Liabilities. There are no liabilities of the
Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances known to the Company
which could reasonably be expected to result in such a liability, except (1)
as reflected in the financial statements referred to in Section 4.2(g), (2)
for commitments and obligations made, or liabilities incurred, in the
ordinary course of its business consistent with past practices subsequent to
the date of such financial statements or (3) as Previously Disclosed.
(i) Absence of Certain Events. Since September 30, 1998, except as
Previously Disclosed, the business of the Company and its Subsidiaries has
been conducted in the ordinary and usual course of such business, consistent
with past practice, and there has not been:
(1) Any event or development that has had or could reasonably be
expected to have a Material Adverse Effect on the Company;
(2) Any amendment of any term of any outstanding security of the
Company or any of its Subsidiaries or to the Company's or any of its
Subsidiaries' Constituent Documents;
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(3) Any incurrence of any indebtedness by the Company or any of
its Subsidiaries, or any assumption, guarantee or endorsement by the
Company of any obligations of any other person, in each case other than
in the ordinary and usual course of business consistent with past
practice;
(4) Any creation or assumption by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the
ordinary and usual course of business consistent with past practice;
(5) Any making of any loan, advance or capital contributions to,
or investment in, any person, in each case, other than in the ordinary
and usual course of business consistent with past practice;
(6) Any change in any accounting policies or practices by the
Company or any of its Subsidiaries (except as may have been made after
the date of this Agreement in accordance with Section 6.1(b)(3)); or
(7) Any (A) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer, consultant, partner or employee of the Company or any of its
Subsidiaries (or any amendment to any such existing agreement), (B)
grant of any severance or termination pay to any director, officer,
consultant, partner or employee of the Company or any of its
Subsidiaries, or (C) change in compensation or other benefits payable
to any director, officer, consultant, partner or employee of the
Company or any of its Subsidiaries, in each case except for (i) the
Employment Contracts, (ii) as may have been made prior to the date of
this Agreement in the ordinary and usual course of business consistent
with past practice and (iii) as may have been made after the date of
this Agreement in accordance with Section 6.1(b)(6).
(j) Properties; Hardware and Software. (1) Except as reflected in the
financial statements referred to in Section 4.2(g), the Company and its
Subsidiaries have good and valid title to all of the properties and assets,
tangible and intangible, reflected in such financial statements as being
owned by the Company and its Subsidiaries as of the dates thereof (except
those sold or otherwise disposed of in the ordinary and usual course of
business consistent with past practice subsequent to the date of such
financial statements) free and clear of all Liens. All buildings and all
fixtures, equipment, and other property and assets that are held under
leases or subleases by it or its Subsidiaries are held under valid leases or
subleases enforceable in accordance with their respective terms (subject, as
to enforcement, to bankruptcy, insolvency, moratorium, reorganization,
fraudulent transfer and other laws affecting creditors' rights generally and
to general equitable principles). The Company has Previously Disclosed a
list of all real property owned (as of the date of this Agreement) by it or
any of its Subsidiaries.
(2) Each of the Company and its Subsidiaries owns all securities and
securities entitlements held by it (except with respect to securities sold
under repurchase agreements or
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held in any fiduciary or agency capacity), free and clear of any Lien,
except to the extent such securities are pledged in the ordinary and usual
course of business consistent with prudent business practice to secure
obligations of each of the Company or any of its Subsidiaries. Such
securities are valued on the books of the Company or its Subsidiaries in
accordance with GAAP.
(3) The Company has Previously Disclosed, as of the date hereof, a list
of all equity securities it or any of its Subsidiaries holds for its own
account involving, in the aggregate, ownership or control of 5% or more of
any class of the issuer's voting securities or 25% or more of the issuer's
equity (treating subordinated debt as equity) and, as of the Effective Time,
no additional persons will need to be included on such a list. The Company
has Previously Disclosed a list, as of the date hereof, of all partnerships,
limited liability companies, joint ventures or similar entities, in which it
is a general partner, manager, managing member or holds some other similar
position or owns or controls any interest, directly or indirectly, of 5% or
more and the nature and amount of each such interest and, as of the
Effective Time, no additional persons will need to be included on such a
list.
(4) The Company and each of its Subsidiaries have the right to use, and
after consummation of the Merger will have the right to use, free and clear
of any claims of others, all patents, patent applications, trademarks,
service marks (whether registered or unregistered), trademark applications,
service mark applications, trade names, copyrights and other proprietary
rights necessary to own and operate their respective properties and assets
and to carry on their respective businesses as currently conducted. Without
limiting the generality of the preceding sentence, the Company and/or its
Subsidiaries has a valid federal servicemark registered in the name "North
Carolina Trust" and will have filed to federally register the name "NCT
Opportunities" as a servicemark before the Effective Time.
(5) Each of the Company and its Subsidiaries owns or licenses all
computer software and hardware developed or currently used by it and, to its
Knowledge, has the right to use such software and hardware without
infringing upon the intellectual property rights (including trade secrets
rights) of any third party.
(6) The Company has adopted a plan of reprogramming and testing for the
purpose of assuring that all computer software and hardware developed or
currently used by it or its Subsidiaries will be Y2K Compliant (the "Y2K
Plan"). A true and complete copy of the Y2K Plan has been made available to
the Acquiror, and the Company and its Subsidiaries are in the process of
effecting the Y2K Plan in accordance with the schedule provided for therein.
To the Knowledge of the Company, all such software and hardware will be
reprogrammed and tested and will be Y2K Compliant within the times provided
for in the Y2K Plan and incurring the costs to implement the Y2K Plan is not
reasonably likely to have a Material Adverse Effect on the Company.
(k) Litigation; Regulatory Action. There is no litigation, proceeding,
investigation or controversy pending (or, to the Company's Knowledge,
threatened) against
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the Company or any of its Subsidiaries, or to which any of the preceding or
their properties or assets are subject, before any Governmental Authority
or arbitrator.
(l) Compliance with Laws. Each of the Company and its Subsidiaries:
(1) Is in compliance with all Applicable Laws;
(2) Has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to own or lease their properties and assets and to conduct their
businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and are current and, to the Company's Knowledge, no suspension
or cancellation of any of them is threatened or reasonably likely;
(3) Is in good standing with all relevant Governmental
Authorities;
(4) Has not received, since October 1, 1995, any notification or
written communication (or, to the Company's Knowledge, any other
communication) from any Governmental Authority (A) asserting
non-compliance with any of the statutes, regulations, rules or
ordinances that such Governmental Authority, (B) threatening to revoke
any license, franchise, seat on any exchange, permit, or governmental
authorization (nor, to the Company's Knowledge, do any grounds for any
of the foregoing exist), (C) requiring any of them (including, to the
Company's Knowledge, any of the Company's or any of its Subsidiaries'
directors or controlling persons) to enter into a cease and desist
order, agreement, or memorandum of understanding (or requiring the
Board of Directors thereof to adopt any resolution or policy), or (D)
restricting or disqualifying their activities (except for restrictions
generally imposed by rule, regulation or administrative policy on
banking institutions or their affiliates generally);
(5) Is not the subject of any pending or, to the Company's
Knowledge, threatened investigation or disciplinary proceedings by any
Governmental Authority;
(6) Except as Previously Disclosed, is not required to be
registered as a broker-dealer, investment advisor, investment company,
commodity trading advisor, commodity pool operator, futures commission
merchant, introducing broker, insurance agent, or transfer agent under
any Applicable Law;
(7) In the conduct of its business with respect to employee
benefit plans subject to Title I of ERISA, has not (A) breached any
applicable fiduciary duty under Part 4 of Title I of ERISA which would
subject it to liability under Sections 405 or 409 of ERISA or (B)
engaged in a "prohibited transaction" within the meaning of Section 406
of ERISA or Section 4975(c) of the Code that would subject it to
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liability or Taxes under Sections 409 or 502(i) of ERISA or Section
4975(a) of the Code; and
(8) Is not subject to any cease-and-desist or other order issued
by, or a party to any written agreement, consent agreement or
memorandum of understanding with, or a party to any commitment letter
or similar undertaking with, or subject to any order or directive by,
or a recipient of any supervisory letter from, or has adopted any board
resolutions at the request of, any Governmental Authority.
(m) Material Contracts. (1) The Company has Previously Disclosed each
of the following Contracts (other than Investment Contracts) to which either
the Company or any of its Subsidiaries is a party, or by which any of them
is bound or to which any of their properties or assets is subject:
(A) Any Contract providing for annual payments in excess of
$50,000 or aggregate payments in excess of $100,000;
(B) Any lease of real property;
(C) Any partnership, joint venture or similar Contract, or any
Rights to acquire from any person any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or
voting securities of such person;
(D) Any executory Contract relating to the acquisition or
disposition of any business (whether by merger, sale of stock, sale of
assets or otherwise);
(E) Any outstanding indenture, mortgage, promissory note, loan
agreement, guarantee or other Contract or commitment for the borrowing
of money by the Company or any of its Subsidiaries or the deferred
purchase price of property in excess of $50,000 (in either case,
whether incurred, assumed, guaranteed or secured by any asset);
(F) Any license, franchise or similar Contract material to the
Company or any of its Subsidiaries or any agreement relating to any
trade name or intellectual property right that is material to the
Company or any of its Subsidiaries;
(G) Any exclusive dealing Contract or any Contract that
materially limits the freedom of the Company or any of its Subsidiaries
to compete in any line of business or with any person or in any area or
that would so limit their freedom (or the freedom of Acquiror or any of
its affiliates) after the Effective Time; and
(H) Any other Contract that is material to the Company; provided
that any such contract made in the ordinary course of business need not
be Previously Disclosed under this Section 4.2(m)(1)(H) unless it is of
the type specified in Item 601(b)(10)(ii) of the SEC's Regulation S-K.
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A copy of each such Contract has been supplied or made available to the
Acquiror.
(2) None of the Company or any of its Subsidiaries is in default under
any Contract required to be Previously Disclosed under Section 4.2(m)(1),
and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default by it. Each such
Contract is the legal, valid and binding obligation of the Company and/or
any Subsidiary of it that is a party thereto (and, to the Company's
Knowledge, of any other party to any such Contract), enforceable against it
(and, to the Company's Knowledge, against each other party thereto) in
accordance with its terms, (subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization, fraudulent transfer and other laws
affecting creditors' rights generally and to general equitable principles).
(n) Reports. Each of it and its Subsidiaries has timely filed all
reports, registrations, statements and other filings, together with any
amendments required to be made with respect thereto, that were required to
be filed since October 1, 1995, with (1) the Commissioner and (2) any other
applicable federal, state or foreign banking, securities or other regulatory
authority (all such reports and statements being collectively referred to
herein as the "Regulatory Reports") and has paid fees and assessments due or
payable in connection with the Regulatory Reports. As of their respective
dates, the Regulatory Reports complied in all material respects with the
statutes, rules, regulations and orders enforced or promulgated by the
Governmental Authority with which they were filed.
(o) No Brokers or Finders. Neither it nor any of its Subsidiaries or
shareholders has employed any broker or finder or incurred any liability for
any financial advisory fees, brokerage fees, commissions or finder's fees,
and no broker or finder has acted directly or indirectly for it or its
shareholders, in each case in connection with this Agreement or the
transactions contemplated hereby other than Berkshire Capital Corporation.
The fee arrangement with Berkshire Capital Corporation has been Previously
Disclosed.
(p) Employee Benefit Plans. (1) The Company has Previously Disclosed a
complete list of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option plans, all employment or
severance Contracts, all medical, dental, health and life insurance plans,
all other employee benefit plans, Contracts or arrangements and any
applicable "change of control" or similar provisions in any plan, contract
or arrangement maintained or contributed to by the Company or any of its
Subsidiaries for the benefit of its employees, former employees, directors,
former directors or their beneficiaries (the "Compensation and Benefit
Plans"). True and complete copies of all Compensation and Benefit Plans,
including any trust instruments and/or insurance contracts, if any, forming
a part thereof, and all amendments thereto have been supplied or made
available to the Acquiror.
(2) All "employee benefit plans" within the meaning of Section 3(3) of
ERISA covering employees or former employees of the Company or any of its
Subsidiaries (other
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than Multiemployer Plans, the "ERISA Plans"), to the extent subject to
ERISA, are in substantial compliance with ERISA. Each ERISA Plan that is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
(each, a "Pension Plan") and which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
IRS with respect to "TRA" (as defined in Section 1 of IRS Rev. Proc. 93-39),
and to the Company's Knowledge there are no circumstances reasonably likely
to result in the revocation or denial of any such favorable determination
letter or the inability to receive such a favorable determination letter.
There is no pending or, to the Company's Knowledge, threatened litigation
relating to the Compensation and Benefit Plans. Neither the Company nor any
of its Subsidiaries has engaged in a transaction with respect to any ERISA
Plan that could subject the Company or any of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of
ERISA.
(3) No liability under Subtitle C or D of Title IV of ERISA has been or
is expected to be incurred by the Company or any of its Subsidiaries with
respect to any ongoing, frozen or terminated "single-employer plan", within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any person that is
considered one employer with the Company under Section 4001(a)(15) of ERISA
or Section 414 of the Code (an "ERISA Affiliate"). Neither the Company nor
any of its Subsidiaries presently contributes to a Multiemployer Plan, nor
has it contributed to such a plan within the past five calendar years. No
notice of a "reportable event", within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plan or by any ERISA Affiliate within
the past 12-month period or will be required to be filed in connection with
the transactions contemplated by this Agreement.
(4) All contributions required to be made under the terms of any ERISA
Plan have been timely made. Neither any Pension Plan nor any single-employer
plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether
or not waived) within the meaning of Section 412 of the Code or Section 302
of ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither
the Company nor any of its Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(5) Under each Pension Plan that is a single-employer plan, as of the
last day of the most recent plan year, the actuarially determined present
value of all "benefit liabilities", within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the plan's most recent actuarial valuation) did not
exceed the then current value of the assets of such plan, and there has been
no material change in the financial condition of such plan since the last
day of the most recent plan year.
(6) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any plan, except under Sections
601-606 of ERISA and as Previously Disclosed. There are no restrictions on
the rights of the Company or any of its
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Subsidiaries to amend or terminate any such plan without, to the Company's
Knowledge, incurring any liability thereunder.
(7) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
severance payment becoming due to any director or any employee of the
Company or any of its Subsidiaries, (B) increase the amount of any benefits
or compensation otherwise payable under any Compensation and Benefit Plan or
(C) result in any acceleration of the time of payment or vesting of, or
triggering of any payment of, any such benefit or compensation.
(8) The Company will provide to the Acquiror a true and complete copy
of each of the Employment Contracts, when executed, and none of the
Employment Contracts will be amended or modified, and no waiver or approval
will be granted by the Company thereunder without the prior written consent
of the Acquiror.
(q) Labor Matters. (1) Each of the Company and its Subsidiaries is in
compliance with all Applicable Laws relating to employment and employment
practices, terms and conditions of employment and wages and hours, including
the Immigration Reform and Control Act, the Worker Adjustment and Retraining
Notification Act, any such laws respecting employment discrimination,
disability rights or benefits, equal opportunity, plant closure issues,
affirmative action, workers' compensation, employee benefits, severance
payments, labor relations, employee leave issues, wage and hour standards,
occupational safety and health requirements and unemployment insurance and
related matters. None of the Company nor any of its Subsidiaries are engaged
in any unfair labor practice and there is no unfair labor practice complaint
pending or threatened against the Company or any of its Subsidiaries before
the National Labor Relations Board.
(2) Neither the Company nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, Contract or other agreement
or understanding with any labor union or labor organization, nor has it
agreed to recognize any union or other collective bargaining unit nor has
any union or other collective bargaining unit been certified as representing
any of the employees of any of the Company or its Subsidiaries. There are no
pending or, to the Company's Knowledge, threatened charges or complaints
alleging sexual or other harassment or other discrimination by the Company,
any of its Subsidiaries or any of its or their respective employees, agents
or representatives.
(r) Insurance. (1) The Company has Previously Disclosed a list of all
insurance policies, binders or bonds maintained by the Company or its
Subsidiaries. (Correct and complete copies of each have been supplied or
made available to the Acquiror.) The Company and its Subsidiaries are
insured with reputable insurers against such risks and in such amounts as
the management of the Company reasonably has determined to be prudent in
accordance with industry practices. All of the policies, binders and bonds
are in full force and effect; the Company and its Subsidiaries are not in
material default thereunder; all claims thereunder have been filed in due
and timely fashion; and none of them has received any
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written or oral notice of cancellation or termination with respect to any
such policy, binder or bond.
(2) Without limiting the generality of Section 4.2(r)(1), the Company
has previously supplied to the Acquiror a correct and complete copy of any
key man insurance policies it or any of its Subsidiaries maintains with
respect to its or their directors, officers or employees.
(s) Takeover Laws. It has taken all necessary action to exempt this
Agreement and the transactions contemplated hereby from, and this Agreement
and the transactions contemplated hereby are exempt from, (1) any
"moratorium", "control share", "fair price" or other antitakeover laws and
regulations of any state (collectively, "Takeover Laws") and (2) any similar
provisions of its Constituent Documents.
(t) Environmental Matters. (1) It and its Subsidiaries have complied
with all applicable, and are not subject to any claim or liability under
any, Environmental Laws, (2) no real property currently or, to the Company's
Knowledge, formerly owned or operated by it or any of its Subsidiaries is
contaminated with any Hazardous Substance and (3) there are no other
circumstances involving it or any of its Subsidiaries that could be
reasonably expected to result in any claims, liabilities, costs or
restrictions on the ownership, use or transfer of any of its property in
connection with any Environmental Law.
(u) Taxes. Except as Previously Disclosed:
(1) All reports and returns with respect to Taxes and Tax-related
information reporting requirements that are required to be filed by or
with respect to the Company or its Subsidiaries, including consolidated
federal income tax returns of the Company (collectively, the "Company
Tax Returns"), have been duly filed, or requests for extensions have
been timely filed and have not expired, and such Company Tax Returns
were true, complete and accurate.
(2) All Taxes shown to be due on the Company Tax Returns have
been or will be paid in full when due.
(3) Adequate reserves have been established or other adequate
provision has been made for the payment of Taxes for which the Company
or any of its Subsidiaries may be liable for the periods through the
Effective Time that are not yet due and payable and such reserves or
provisions are (or, in the case of any financial statements made
available after this Agreement, will be) reflected on the financial
statements of the Company that have been (or, in the case of any
financial statements made available after this Agreement, will be) made
available to Acquiror pursuant to Section 4.2(g).
(4) The Company Tax Returns have been examined by the IRS or the
appropriate state, local or foreign taxing authority or the period for
assessment of
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Taxes in respect of which such Company Tax Returns were required to be
filed has expired without such returns having been examined.
(5) All Taxes due with respect to completed and settled
examinations have been paid in full.
(6) No issues have been raised by the relevant taxing authority
in connection with the examination of any of the Company Tax Returns.
(7) There have not been any waivers of statutes of limitations
with respect to any Taxes of the Company or any of its Subsidiaries.
(8) None of the Company, the Acquiror or any direct or indirect
subsidiary of either of them, as a consequence of the actions of the
Company or any of its Subsidiaries prior to the Effective Time, will be
obligated to make a payment to an individual that would be a "parachute
payment" to a "disqualified individual" as those terms are defined in
Section 280G of the Code without regard to whether such payment is
reasonable compensation for personal services performed or to be
performed in the future.
(9) None of the Company or any of its Subsidiaries will be
required, as a result of (A) a change in accounting method for a period
beginning on or before the Effective Time, to include any adjustment
under Section 481(c) of the Code (or any similar provision of state,
local or foreign law) in taxable income for any period beginning on or
after the Effective Time, or (B) any "closing agreement" as described
in Section 7121 of the Code (or any similar provision of state, local
or foreign law), to include any item of income in or exclude any item
of deduction or credit from any period beginning on or after the
Effective Time.
(10) There are no liens on any of the assets of the Company or
any of its Subsidiaries that arose in connection with a failure (or
alleged failure) to pay any Taxes.
(11) No closing agreements, private letter rulings, technical
advance memoranda or similar agreement or rulings have been entered
into or issued by any taxing authority with respect to the Company or
any of its Subsidiaries.
(12) None of the Company's shareholders, the Company or any of
its Subsidiaries has made a consent with respect to the Company, any of
its Subsidiaries, or any predecessor under Section 341 of the Code.
(13) No tax is required to be withheld pursuant to Section 1445
of the Code as a result of the transfer contemplated by this Agreement.
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(14) None of the Company or any of its Subsidiaries has ever been
a member of an affiliated, combined, consolidated or unitary Tax group
for purposes of filing any Tax return, other than, for purposes of
filing consolidated U.S. federal income tax returns, the current
consolidated group of which the Company serves as the common parent.
(v) Accounting Controls. The Company and its Subsidiaries have devised
and maintained systems of internal accounting controls sufficient to provide
reasonable assurances that (1) all material transactions are executed in
accordance with management's general or specific authorization; (2) all
material transactions are recorded as necessary to permit the preparation of
financial statements in conformity with GAAP, and to maintain proper
accountability for items; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Investment Advisory Activities.
(1) Investment Advisory Funds. Other than the Fund, the Company
does not provide investment management, investment advisory,
sub-advisory, administration, distribution or other services to, or
hold a partnership or other equity interest in, any Investment Vehicle.
(2) Investment Contracts and Clients. (A) The Company has
Previously Disclosed a correct and complete listing of each Client as
of the date of this Agreement. Before the third Business Day preceding
the Effective Time, the Company will have delivered to the Acquiror a
correct and complete listing of (i) each Client as of the fifth
Business Day preceding the Effective Time, (ii) the amount of Managed
Assets of each Client as of such date and (iii) the amount of
Annualized Fees of each Client as of the Effective Time.
(B) The Company has previously made available to the Acquiror a
correct and complete copy of each Investment Contract (including all
amendments and modifications thereto and a current fee schedule) in
effect on the date hereof, and each such Investment Contract has not
been subsequently amended or modified and is in full force and effect.
Each Investment Contract entered into after the date of this Agreement
and before the Effective Time will also be in full force and effect.
Each Investment Contract and any subsequent renewal has been duly
authorized, executed and delivered by any of the Company or its
Subsidiaries that is a party thereto and, to the Company's Knowledge,
each other party thereto, in compliance with any Applicable Law, and is
a valid and binding agreement of any such of the Company and its
Subsidiaries, as the case may be, and, to the Company's Knowledge, each
other party thereto, enforceable in accordance with its terms (subject,
as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization, fraudulent
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transfer and other laws affecting creditors' rights generally and to
general equitable principles).
(C) Each of the Company and its Subsidiaries and, to the
Company's Knowledge, each of the Clients is in compliance with the
terms of each Investment Contract to which it is a party, and is not
currently in default under any of the terms of any such Investment
Contract and, to the Company's Knowledge, no event has occurred or
condition exists that with notice or the passage of time or both would
constitute such a default. None of the Investment Contracts, or any
other arrangements or understandings relating to the Company's and its
Subsidiaries' rendering of investment advisory or management services
(including all sub-advisory services), trust services or administration
or distribution services to any Client or any other person, contains
any undertaking by the Company or any Subsidiary of it to cap fees or
to reimburse any or all fees thereunder.
(D) The Company has Previously Disclosed a correct and complete
list of each Client as of the date hereof that is subject to ERISA, and
the accounts of each such Client have been managed by the Company and
its Subsidiaries in compliance in all material respects with the
applicable requirements of ERISA.
(E) The Fund and the Managed Assets of each Client have been, are
being and will be invested in compliance in all material respects with
the investment objectives or policies (if any) of the Client and the
Fund, as the case may be.
(F) To the Company's Knowledge, no basis exists upon which the
Company or any of its Subsidiaries would have any liability to the Fund
or any Client (including upon consummation of the Merger).
(G) There exists no irreconcilable or unsupported "out of
balance", "out of proof" or similar condition with respect to any
account maintained by the Company or any of its Subsidiaries on behalf
of any Client or the Fund.
(H) As of the Effective Time, the Company will have supplied or
made available all identification and basic background information in
its possession with respect to Clients, including any information
describing the person's source of wealth and line of business or
regarding references, referrals or potential "red-flags" or suspicious
transactions.
(I) Neither the Company nor any other person "associated" (as
defined under the Investment Advisers Act) with the Company, has for
the five-year period prior to the date hereof, been convicted of any
crime or is or has been subject to any disqualification that would be a
basis for denial, suspension or revocation of registration of an
investment adviser under Section 203(e) of the Investment Advisers Act
or Rule 206(4)-4(b) thereunder or for disqualification as an investment
adviser for any Investment Company pursuant to Section 9(a) of the
Investment Company
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Act, and there is no reasonable basis for, or (to the Company's
Knowledge) proceeding or investigation, whether formal or
informal, or whether preliminary or otherwise, that is reasonably
likely to result in, any such disqualification, denial, suspension or
revocation.
(3) The Fund. The Fund has operated, for a period of six years
prior to the date hereof (or since inception, if such period is
shorter), and currently operates in a manner such that it was not and
is not subject to taxation on a net income basis under the Code and no
action has been taken by the Company or any of its Subsidiaries that
would be inconsistent with such status.
(B) The Fund is not required to register as an investment company
under the Investment Company Act. All sales of interests in the Fund
have been made in compliance with all Applicable Laws. No marketing
document relating to the Fund contained, as of its date, any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading or is subject to any stop order or similar order
restricting its use. The Fund has operated and is operating in
compliance in all material respects with all Applicable Laws with
respect to it.
(C) Correct and complete copies of the marketing material
relating to the Fund have been supplied or made available to the
Acquiror.
(D) The reports delivered to investors in the Fund did not, as of
their respective dates, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each of
the annual financial statements contained in or incorporated by
reference into such reports (including the related notes and schedules
thereto) fairly presents in all material respects the financial
position of the entity or entities to which it relates as of its date,
in accordance with GAAP, except in each case as may be noted therein,
subject to normal year-end audit adjustments in the case of interim
unaudited statements.
(E) The Fund does not have any obligation or liability
(contingent or otherwise) except as reflected in the reports delivered
to its investors prior to the date of this Agreement.
(F) No exemptive orders have been obtained, nor are any requests
pending therefor, with respect to the Fund under the Exchange Act, the
Securities Act, the Investment Company Act or the Investment Advisers
Act, other than any such orders which are no longer in effect or
applicable to the current operation of the Fund.
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(G) Except as Previously Disclosed, no action by the Fund or its
investors is required in connection with the transactions contemplated
by this Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
Section 5.1 Standards. (a) No representation or warranty of the
Acquiror contained in Section 5.2 will be untrue or incorrect (including for
purposes of Article VII), and the Acquiror will not have breached any such
representation or warranty, as a consequence of the existence of any
circumstance, fact or event that should have been disclosed as an exception to
such representation or warranty, unless the circumstance, fact or event
(individually or in the aggregate) has had or would be reasonably likely to have
a Material Adverse Effect on the Acquiror.
(b) No representation or warranty of the Acquiror contained in Section
5.2 will be made with respect or relating to Merger Sub until the execution and
delivery of the Supplement to this Agreement contemplated by Section 2.4.
Section 5.2 Representations and Warranties of the Acquiror. Except as
Previously Disclosed, the Acquiror represents and warrants to the Company as
follows:
(a) Existence and Good Standing. Each of the Acquiror and Merger Sub is
a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and is duly qualified to do
business and is in good standing in the States of the United States and
other jurisdictions where its ownership or leasing of property or assets or
the conduct of its business requires it to be so qualified. The Acquiror and
each of its Subsidiaries has the corporate power and authority necessary to
carry on its respective business as it is now being conducted and to own all
their respective properties and assets. The Acquiror has made available to
the Company a complete and correct copy of Merger Sub's Constituent
Documents, each as amended to the date of delivery, and such Constituent
Documents are in full force and effect.
(b) Authorization and Validity. The Acquiror has the requisite
corporate power and authority, and has taken all corporate action necessary,
in order to authorize the execution and delivery of, and the performance of
its obligations under, this Agreement and to consummate the Merger and the
other transactions contemplated hereby. This Agreement is the legal, valid
and binding obligation of the Acquiror, enforceable against it in accordance
with its terms (subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization, fraudulent transfer and other laws affecting
creditors' rights generally and to general equitable principles).
(c) Regulatory Consents. Except for (1) the prior approval of the Board
of Governors of the Federal Reserve System under the BHC Act, (2) the
approval of the Commissioner under Section 53-42.1 of the General Statutes
of North Carolina and (3) as required under the Securities Act, the Exchange
Act, state securities and "Blue Sky" laws
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and under the rules of any exchange or market (including the NYSE) on which
shares of Acquiror Stock may be listed, no notices, reports or other filings
are required to be made by the Acquiror or Merger Sub with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by the Acquiror or Merger Sub from, any Governmental Authority in
connection with the execution, delivery and performance of this Agreement by
it and the consummation by it of the Merger and the other transactions
contemplated hereby. To the Acquiror's Knowledge, as of the date hereof,
there is no reason why the regulatory approvals and consents referred to in
this Section 5.2(c) or Section 4.2(e) will not be received without the
imposition of an Onerous Condition.
(d) No Conflicts. The execution, delivery and performance of this
Agreement by the Acquiror and Merger Sub do not and will not, and (upon the
receipt of the approvals and the making of the filings referred to in
Section 5.2(c)) the consummation of the Merger and the other transactions
contemplated hereby will not, with or without the giving of notice, the
lapse of time or both:
(1) Violate or conflict with the Acquiror's Constituent Documents
or those of any of its Subsidiaries (including Merger Sub);
(2) Breach or violate, or result in a default under, any
Applicable Law with respect to Acquiror or any of its Subsidiaries
(including Merger Sub) or permit or result in the revocation,
cancellation, suspension or adverse modification of any permit,
license, certificate of authority, order or approval of any
Governmental Authority to which it, any of its Subsidiaries (including
Merger Sub) or any of their respective properties or assets is subject;
or
(3) Breach or result in a default under, permit the termination
of, or permit the acceleration of the performance required by, any
Contract of, or binding on, the Acquiror or any of its Subsidiaries
(including Merger Sub), or to which it or any of its Subsidiaries (or
their respective properties or assets) is subject or result in the
creation or imposition, pursuant to any of the foregoing, of any Lien
on the properties or assets of it or any of its Subsidiaries (including
Merger Sub).
(e) Absence of Material Adverse Effect. Since December 31, 1998, no
event or development has occurred that, individually or in the aggregate,
has had or is reasonably likely to have a Material Adverse Effect on the
Acquiror.
(f) Litigation; Regulatory Action. There is no litigation, proceeding,
investigation or controversy pending (or, to the Acquiror's Knowledge,
threatened) against the Acquiror or any of its Subsidiaries (including
Merger Sub), or to which any of the preceding or their properties or assets
are subject, before any Governmental Authority or arbitrator.
(g) No Brokers or Finders. The Acquiror has not employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or
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finder's fees, and no broker or finder has acted directly or indirectly for
it in connection with this Agreement or the transactions contemplated
hereby.
(h) Acquiror Reports. The Acquiror's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, and all other documents, as amended
prior to the date of this Agreement, filed subsequent to December 31, 1998
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form
filed with the SEC (in each such case, the "Acquiror Reports"), did not, and
the Acquiror Reports filed after the date hereof will not, as of their
respective dates contain (without giving effect to any amendment thereto
filed after the date hereof) any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading; and each of the consolidated balance sheets
contained in or incorporated by reference into the Acquiror Reports
(including the related notes and schedules thereto) fairly presents the
consolidated financial position of the Acquiror as of its date and each of
the consolidated statements of income and changes in shareholders' equity
and cash flows or equivalent statements in the Acquiror Reports (including
any related notes and schedules thereto) fairly presents the consolidated
results of operations, consolidated changes in shareholders' equity and
consolidated changes in cash flows, as the case may be, of the Acquiror for
the periods set forth therein, in each case in accordance with GAAP
consistently applied to banks and bank holding companies during the periods
involved, except as may be noted therein, subject to normal and recurring
year-end audit adjustments in the case of interim unaudited statements.
(i) Acquiror Stock. The shares of Acquiror Stock to be issued
hereunder have been duly authorized for issuance and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable, free of preemptive rights and Liens and not subject to any
restrictions on transfer (other than restrictions imposed by applicable
securities laws) or voting.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business. (a) The Company agrees that, from and
after the date of this Agreement until the Effective Time, it and its
Subsidiaries will conduct their respective businesses in the ordinary and usual
course consistent with past practice and will use reasonable efforts to maintain
and preserve in all material respects their respective business organizations,
key employees and advantageous business relationships.
(b) Without limiting Section 6.1(a) and except as Previously Disclosed,
the Company agrees that, from and after the date of this Agreement until the
Effective Time, it will not, and will not cause or permit any of its
Subsidiaries to (without the prior written consent of the Acquiror, which will
not be unreasonably withheld or delayed):
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(1) Issue, sell, repurchase or otherwise permit to become outstanding
any additional shares of its equity securities, or any Rights therefor;
(2) Make, declare or pay any dividend on or in respect of, or declare
or make any distribution on, or directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, any of its equity securities;
provided that wholly owned Subsidiaries of the Company may pay dividends to
the Company or another wholly owned Subsidiary of the Company having record
and payment dates consistent with past practice;
(3) Implement or adopt any change in its accounting or Tax principles,
practices or methods (including making any Tax elections), other than as may
be required by GAAP or Applicable Law;
(4) Incur or commit to incur any capital expenditures, other than as
reasonably necessary to maintain existing assets in good repair in the
ordinary course of business consistent with past practice in amounts not
exceeding $50,000 in the aggregate;
(5) Enter into any type of business materially different from that
conducted by it as of the date hereof or initiate any new business activity
that to its Knowledge would be impermissible for a "bank holding company"
under the BHC Act;
(6) Enter into or amend any compensation, employment, severance or
similar Contract with or on behalf of any of its directors, officers,
employees, agents or consultants, or grant any salary or wage increase, or
increase any employee benefit (including incentive or bonus payments),
except (A) the hiring of non-executive employees in the ordinary course of
business at annual salary levels not in excess of $50,000 or (B) other
changes as may be required by Applicable Law or to satisfy Previously
Disclosed contractual obligations existing as of the date hereof; provided
that:
(i) The Company will not agree to any modification or amendment
of, or waiver or approval under, any Employment Contract without the
prior written consent of the Acquiror; and
(ii) The Company will consult with the Acquiror prior to hiring
any employees.
(7) Other than as contemplated by this Agreement, enter into or modify
(except as may be required by Applicable Law or to maintain qualification
pursuant to the Code) any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of
its shareholders, directors, officers or other employees, including taking
any action that accelerates the vesting or exercise of any benefits
thereunder;
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(8) Dispose of or discontinue any of its assets, business or properties
that are material to it, or merge or consolidate with, or acquire all or any
material portion of the assets, business or property of, any other person;
(9) Amend any of its Constituent Documents;
(10) Enter into, terminate or make any change in any material Contract,
except in the ordinary and usual course of business consistent with past
practice with respect to Contracts that are terminable by it without penalty
on not more than 60 days' prior written notice;
(11) Settle any claim, action or proceeding involving any liability for
money damages in excess of $50,000 or any restrictions upon any of its
operations or that, to its Knowledge, may be precedential with respect to
other claims, actions or proceeds that may involve such damages or
restrictions;
(12) Knowingly take any action intended or reasonably likely to (A)
prevent or impede the Merger from qualifying as a tax-free reorganization
within the meaning of Section 368 of the Code, (B) result in any of its
representations and warranties set forth in this Agreement or any
certificate delivered in connection with the Closing being or becoming
untrue in any material respect at any time at or prior to the Effective
Time, (C) result in any of the conditions to the Merger set forth in Article
VII not being satisfied, (D) materially breach any provision of this
Agreement, (E) materially impede or delay the receipt of any consent or
approval referred to in Section 6.2 without the imposition of an Onerous
Condition or (F) adversely affect the ability of any party to perform its
obligations under this Agreement;
(13) Request that any action be taken by the Fund, other than routine
definitive actions that are not reasonably likely to have a Material Adverse
Effect; or
(14) Authorize, commit or enter into any agreement to take any of the
actions referred to in this Section 6.1(b).
(c) Except as Previously Disclosed, the Acquiror agrees that, from and
after the date of this Agreement until the Effective Time, it will not (without
the prior written consent of the Company, which will not be unreasonably
withheld or delayed) knowingly take any action intended or reasonably likely to
(1) prevent or impede the Merger from qualifying as a tax-free reorganization
within the meaning of Section 368 of the Code, (2) result in any of its
representations and warranties set forth in this Agreement or any certificate
delivered in connection with the Closing being or becoming untrue in any
material respect at any time at or prior to the Effective Time, (3) result in
any of the conditions to the Merger set forth in Article VII not being
satisfied, (4) materially breach any provision of this Agreement, (5) materially
impede or delay the receipt of any consent or approval referred to in Section
6.2 without the imposition of an Onerous Condition or (6) adversely affect the
ability of any party to perform its obligations under this Agreement.
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Section 6.2 Reasonable Efforts. (a) Subject to the terms and conditions
of this Agreement, each of the Acquiror and the Company will use its reasonable
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
Applicable Laws, so as to permit consummation of the Merger as promptly as
reasonably practicable and otherwise to enable consummation of the transactions
contemplated hereby and will cooperate fully with the other party to that end;
provided that the Acquiror will not be required to take any action or accept any
condition in order to obtain regulatory approval for the Merger that would in
its reasonable judgment materially impair the benefit to be derived by it from
the Merger or impair the conduct of the business of the Acquiror (any such
action or condition being referred to as an "Onerous Condition").
(b) Without limiting Section 6.2(a):
(1) Each of the Company and the Acquiror agrees that it will use
reasonable efforts to prepare all documentation, to effect all filings and
to obtain all permits, consents, approvals and authorizations of all
Governmental Authorities necessary to consummate the Merger and the other
transactions contemplated by this Agreement (including the approvals
referred to in Section 7.1(b)). Each of the Acquiror and the Company will
have the right to review in advance, and to the extent practicable each will
consult with the other, in each case subject to Applicable Laws relating to
the exchange of information, with respect to all material written
information submitted to any Governmental Authority in connection with the
transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties agrees to act reasonably and as promptly as
practicable. Each of the Company and the Acquiror agrees that it will
consult with the other with respect to the obtaining of all material
permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and will keep the other appraised of the
status of material matters relating to completion of the transactions
contemplated hereby. Nothing herein requires the Acquiror to accept an
Onerous Condition.
(2) To the extent that the rights of the Company or any Subsidiary of
it under any Contract, including any Investment Contract, would be impaired
upon the consummation of the Merger without the consent or approval of any
other party thereto, the Company will use all commercially reasonable
efforts to obtain such consent or approval and to cause such party not to
thereafter reduce or limit its consent or approval.
(c) To the extent requested by the Acquiror and at the Acquiror's sole
cost and expense, the Company will use reasonable efforts to cause the Trust
Company to become an insured depository (as defined in the Federal Deposit
Insurance Act) on, or as promptly as practicable after, the Effective Time. The
Acquiror agrees to cooperate fully with the Company in such undertaking.
Section 6.3 Access and Current Information. (a) The Company will upon
reasonable notice (including a reasonable itemization of the books, records and
properties to be inspected) afford to the Acquiror and its representatives
(including officers and employees of the Acquiror and counsel, accountants and
other professionals retained by it) such access (including the right to copy)
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during normal business hours throughout the period prior to the Effective Time
to its and its Subsidiaries' books, records (including tax returns and
appropriate work papers of independent auditors) and properties and to such
other information as the Acquiror may reasonably request.
(b) During the period from the date of this Agreement to the Effective
Time, the Company and the Acquiror will cause one or more of their
representatives to confer on a regular and frequent basis with respect to the
status of the ongoing operations of the Company and its Subsidiaries. The
Company will promptly notify the Acquiror of any material change in the ordinary
and usual course of the business of it or any of its Subsidiaries or of any
complaints from a Governmental Authority, investigations or hearings (or
communications indicating that the same may be contemplated), or the institution
or the threat of any litigation that comes to its attention, and the Company
will keep the Acquiror fully informed with respect to such events. The Company
will also notify the Acquiror of the status of regulatory applications and third
party consents required to be obtained by the Company related to the
transactions contemplated hereby. The Acquiror will notify the Company of the
status of its regulatory applications and third-party consents required to be
obtained by it related to the transactions contemplated hereby.
(c) Each of the Company and the Acquiror will give prompt notice to the
other of any fact, event or circumstance known to it that (1) is reasonably
likely, individually or taken together with all other facts, events and
circumstances known to it, to result in any Material Adverse Effect to it or (2)
would be reasonably likely to cause any of its or any other's representations or
warranties contained in this Agreement to be untrue or to cause or constitute a
material breach of any of its or any other party's covenants or agreements
contained herein.
(d) Before the Effective Time, the Acquiror will engage
PricewaterhouseCoopers LLC to perform an audit of the fee structure of all
Clients having Annualized Fees as of the date of this Agreement above $25,000
and a sampling of other Clients. The Company agrees to cooperate with the audit
and sampling (including as provided in Section 6.3(a)), and the results of the
audit and sampling will be used in determining the Initial Total Amount.
Section 6.4 Confidentiality. Each of the Company and the Acquiror
agrees that it will not use for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement and will use reasonable efforts to
hold, and to cause its Subsidiaries and its directors, officers, employees,
agents, consultants and advisors (including its counsel and auditors) to hold,
confidential all non-public records, books, contracts, instruments, computer
data and other data and information (collectively, the "Information") concerning
the other, its Subsidiaries or their respective clients furnished to it pursuant
to this Agreement (except to the extent that Information is (1) previously known
by such party on a non-confidential basis, (2) in the public domain through no
fault or action of the party or (3) obtained by the party from a third party not
known by it to be under an obligation to refrain from making such disclosure),
except that each party may disclose such information (A) to its auditors,
attorneys, financial advisors, other consultants and advisors, (B) to a bank
regulatory authority to the extent that disclosure is, in the party's good faith
judgment, required and (C) if it is compelled to disclose by judicial or
administrative process or by other requirement of Applicable Law. If this
Agreement is terminated, each party will return or destroy all Information
furnished to it and its representatives and all analyses, compilations, data,
studies and
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other documents prepared by it or its representatives containing or
based in whole or in part on any such furnished Information.
Section 6.5 Effect of Investigations. No investigation by either of the
parties before or after the date of this Agreement, or the provision of any
documents, whether pursuant to this Agreement or otherwise (including any action
taken by or Information provided to the Acquiror pursuant to the provisions of
Sections 6.3 and 6.4) will affect the representations and warranties of the
parties in this Agreement or in any certificate delivered in connection with the
Closing.
Section 6.6 Acquisition Proposals. Until the termination of this
Agreement, the Company agrees that none of it, its Subsidiaries or their
respective officers, directors, employees, agents or representatives (including
any investment banker, attorney or accountant retained by any of them) will
initiate or solicit, directly or indirectly, any inquiries or the making of any
proposal or offer with respect to an Acquisition Transaction (any such inquiry,
proposal or offer, an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential Information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal,
except that, if the Company is not otherwise in violation of this Section 6.6,
the Board of Directors of the Company may provide information to, and may engage
in such negotiations or discussions with, a person, directly or through
representatives, if the Board of Directors, after having consulted with and
considered the written advice of outside counsel, has determined in good faith
that the provision of such information or the engaging in such negotiations or
discussions is required in order to discharge properly the directors' fiduciary
duties in accordance with the NCBCA. The Company will promptly advise the
Acquiror orally and in writing of the receipt by it (or any of the other
persons) of any Acquisition Proposal, or any inquiry with respect to an
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person making such Acquisition
Proposal or inquiry. The Company will keep the Acquiror fully informed of the
status and details of any such Acquisition Proposal or inquiry. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted before the date of this
Agreement with respect to any Acquisition Proposal.
Section 6.7 Registration Statement. (a) The Acquiror agrees to prepare
a registration statement on Form S-4 in connection with the issuance of Acquiror
Stock in the Merger (the "Registration Statement"), including the proxy
statement and prospectus and other proxy solicitation materials of the Company
constituting a part thereof (the "Proxy Statement") and all related documents.
It is understood that the Acquiror will cause the Registration Statement to
include the sale of the Released Shares and shares representing Earnout Per
Share Stock Consideration and the resale of shares of Acquiror Stock issued to
Company Affiliates in the Merger or otherwise to take reasonable efforts to
register such sale and resale in a manner consistent with this Section 6.7. The
Company agrees to cooperate with the Acquiror, its counsel and its accountants,
in preparation of the Registration Statement and the Proxy Statement. Each of
the Company and the Acquiror agrees to use all reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof with the SEC. The
Acquiror also agrees to use reasonable efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions
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contemplated by this Agreement. The Company agrees to furnish to the Acquiror
all information concerning the Company, its officers, directors and
shareholders as may be reasonably requested in connection with the foregoing.
(b) Each of the Company and the Acquiror agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (1) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (2) the
Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to shareholders and at the time of the Company Meeting, contain any
untrue statement which, at the time and in the light of the circumstances under
which such statement is made, will be false or misleading with respect to any
material fact, or will omit to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier statement in the Proxy Statement or any amendment or
supplement thereto. Each of the Company and the Acquiror further agrees that if
it shall become aware after the Effective Time of any information furnished by
it that would cause any of the statements in the Proxy Statement to be false or
misleading with respect to any material fact, or to omit to state any material
fact necessary to make the statements therein not false or misleading, it shall
promptly inform the other thereof and to take the necessary steps to correct the
Proxy Statement.
(c) The Acquiror agrees to advise the Company, promptly after the
Acquiror receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the
Acquiror Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
Section 6.8 Shareholder Approvals. The Company agrees to take, in
accordance with Applicable Law and its Constituent Documents, all action
necessary to convene an appropriate meeting of its shareholders to consider and
vote on the approval of this Agreement and any other matters required to be
approved by the Company's shareholders for consummation of the Merger (including
any adjournment or postponement, the "Company Meeting") as promptly as
practicable after the Registration Statement is declared effective. Unless the
Board of Directors of the Company, after having consulted with and considered
the written advice of outside counsel, has determined in good faith that it is
otherwise required in order to discharge properly the directors' fiduciary
duties in accordance with the NCBCA, the Board of Directors will recommend such
approval and the Company will take all reasonable, lawful action to solicit such
approval by its shareholders.
Section 6.9 Affiliate Agreements. Not later than the 15th day prior to
the mailing of the Proxy Statement, the Company will deliver to the Acquiror a
schedule of each person that, to the Company's knowledge, is or could reasonably
be expected to be, as of the date of the Company Meeting, deemed to be an
"affiliate" of it (each, a "Company Affiliate") as that term is used in Rule
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145 under the Securities Act or SEC Accounting Series Releases 130 and 135. The
Company agrees to use its reasonable efforts to cause each person who may be
deemed to be a Company Affiliate to execute and deliver to the Company and the
Acquiror on or before the date of mailing of the Proxy Statement an agreement in
the form of Annex 4.
Section 6.10 Retention Program. The Acquiror agrees that it will
establish and maintain a retention program on the terms described in Annex 5.
Section 6.11 Certain Employee Benefits. (a) The Acquiror will take or
cause to be taken any reasonable actions necessary in order to permit the
employees of the Company who continue employment with the Company after the
Effective Time (the "Continuing Employees") to be eligible to participate in the
employee's Retirement Plan of United States Trust Company of New York and
Affiliated Companies (the "Acquiror's Pension Plan") and the 401(k) Plan and
ESOP of the United States Trust Company of New York and Affiliated Companies
(the "Acquiror's 401(k) Plan") (together, "the Plans") as soon as practicable
after the Effective Time.
(b) The Continuing Employees will not receive credit for prior service
with the Company for benefit accrual or vesting purposes under the Acquiror's
Pension Plan or under the Acquiror's Retiree Medical Plan.
(c) Continuing Employees will receive credit for prior service with the
Company for vesting purposes under the Acquiror's 401(k) Plan. However, all
elective payroll contributions and matching contributions made on behalf of
Continuing Employees shall be determined only with respect to Compensation (as
defined in the Acquiror's 401(k) Plan) earned in the period in which such
employees are Members of the Acquiror's 401(k) Plan.
(d) Notwithstanding any provision herein to the contrary, the Acquiror
will not be required to take any action that could adversely affect the
continuing qualification of the Plans under Section 401(a) of the Code.
(e) The Company will take all appropriate action to terminate, prior to
the Effective Time the 401(k) Plan maintained by the Company (the "Company's
401(k) Plan") including requesting a favorable determination letter from the IRS
with respect to the tax qualification upon termination of the Company's 401(k)
Plan. The assets of the Company's 401(K) Plan will not be distributed until such
time as such favorable determination letter has been issued.
(f) The Company will take all appropriate action to terminate the
Company's ESOP prior to the Effective Time, including requesting a favorable
determination letter with respect to the qualification upon termination of the
Company's ESOP from the IRS (the "ESOP Determination Letter"). The Company's
ESOP will be maintained as a stand-alone plan and the assets of the Company's
ESOP will not be distributed until such time as such favorable determination
letter is received. Acquiror will amend its 401(K) plan to authorize Continuing
Employees to rollover the stock (and any other interest) distributed from the
Company's ESOP in connection with the termination of the Company's ESOP.
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(g) The Company will take all appropriate action to terminate, as of
the later of December 31, 1999 or the Effective Time, the dental and life
insurance plans maintained for the benefit of current and former employees of
the Company. The Acquiror will take all appropriate action to make Continuing
Employees and their eligible dependents eligible to participate in any dental,
life, disability insurance and other welfare benefit plans or policies that are
available from time to time to other similarly situated employees of the
Acquiror on the later of January 1, 2000 or the Effective Time. The Acquiror
agrees to maintain the Company's current medical plan through December 31, 1999.
Notwithstanding the foregoing, liability for claims incurred under plans
maintained by the Company after the Effective Time will remain with such plans.
(h) With respect to any severance and vacation benefits and service
award and sales commission and incentive programs of the Acquiror that may apply
to Continuing Employees after the Effective Time, the prior service with the
Company of each Continuing Employee will be credited for all purposes. One-half
of accrued sick leave of the Continuing Employees with the Company, as
Previously Disclosed by the Company with respect to this Section 6.11(h) but not
in excess of 30 days, will be honored by the Acquiror through the third
anniversary of the Effective Time (the "Family Sick Leave Bank"). Continuing
Employees will be credited with prior service with the Company for purposes of
Acquiror's short-term disability salary continuation program. For each day a
Continuing Employee is absent by reason of family illness, one day shall be
deducted from (1) the Family Sick Leave Bank and (2) the number of days for
which a Continuing Employee receives payment for sick leave pursuant to
Acquiror's short-term disability continuation plan. Acquiror will continue to
provide employee parking benefits substantially similar to those provided by the
Company.
(i) After the Effective Time, the Acquiror will take all appropriate
action to make all Continuing Employees eligible to participate in sales
commission and incentive programs that are consistent with the Acquiror's
corporate philosophy throughout the country (allowing for proper local
considerations).
(j) For purposes of this Section 6.11, the term Company includes the
Company, the Surviving Corporation and their respective Subsidiaries, as
appropriate.
Section 6.12 Takeover Laws. The Company will not take any action that
would cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and will take all necessary steps
within its control to exempt (or ensure the continued exemption of) the
transactions contemplated by this Agreement from, or if necessary challenge the
validity or applicability of, any applicable Takeover Law, as now or hereafter
in effect.
Section 6.13 No Rights Triggered. The Company will take all reasonable
steps necessary to ensure that the entering into of this Agreement and the
consummation of the transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any Rights to any person (a) under the
Company's Constituent Documents or (b) under any Contract to which it is a party
(except as expressly contemplated by the mandatory provisions under the Company
Option Plans).
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Section 6.14 Press Releases, Etc. The Acquiror and the Company will
consult with each other as to the form, substance and timing of any press
release or other public disclosure of matters related to this Agreement, or any
of the transactions contemplated hereby and no such press release or other
public disclosure will be made by the one without the consent of the other,
which will not be unreasonably withheld or delayed; provided that each party may
make such disclosures as are required by Applicable Law after making reasonable
efforts under the circumstances to consult in advance with the other.
Section 6.15 NYSE Listing. The Acquiror will use its reasonable efforts
to list before the Effective Time on the NYSE, subject to official notice of
issuance, the shares of Acquiror Stock to be issued to Record-Stockholders in
the Merger.
Section 6.16 Indemnification; Directors' and Officers' Insurance. The
Surviving Corporation shall cause to be maintained in effect (a) for a period of
six years after the Effective Time, the current provisions regarding
indemnification of officers and directors contained in the Constituent Documents
of the Company and its Subsidiaries (or substitute provisions no less
advantageous to officers and directors) and (b) use reasonable best efforts to
purchase (at the expense of the Acquiror) run-off insurance with respect to the
current policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by the Company.
ARTICLE VII
CONDITIONS
Section 7.1 Mutual Conditions to the Obligation to Effect the Merger.
The respective obligations of the Company, the Acquiror and Merger Sub to effect
the Merger are subject to the fulfillment or written waiver, at or prior to the
Effective Time, of the following conditions:
(a) Shareholder Approval. Holders of shares of each class of Company
Stock approve the Merger, and related payments, in accordance with Section
55-11-03 of the NCBCA, other Applicable Law and the Company's Constituent
Documents.
(b) Governmental and Regulatory Approvals. All approvals and
authorizations of, filings and registrations with, and notifications to, all
Governmental Authorities required to effect the Merger have been obtained or
made and are in full force and effect and all waiting periods required by
law shall have expired.
(c) Third-Party Consents. All consents or approvals of all persons,
other than Governmental Authorities, required for or in connection with the
execution, delivery and performance of this Agreement (including the
consummation of the Merger) have been obtained and are in full force and
effect, unless the failure to obtain any such consent or approval is not
reasonably likely to have a Material Adverse Effect on the Company.
(d) No Injunction. No Governmental Authority of competent jurisdiction
has enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment,
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decree, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and prohibits consummation of the Merger.
(e) Registration Statement. The Registration Statement has become
effective under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement has been issued or proceedings
for that purpose have been initiated or threatened by the SEC.
(f) Blue Sky Approvals. All permits and other authorizations under the
federal and state securities laws (other than that referred to in Section
6.7(a)) necessary to consummate the transactions contemplated hereby and to
issue the shares of Acquiror Common Stock to be issued in the Merger have
been received and are in full force and effect.
(g) Listing. The shares of Acquiror Stock to be issued in the Merger
have been approved for listing on the NYSE, subject to official notice of
issuance.
(h) Tax Opinion. The Acquiror and the Company have received the opinion
of Sullivan & Cromwell, counsel to the Acquiror, dated as of the Effective
Time, to the effect that (1) the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, (2) each of the Acquiror, Merger Sub and the Company will be a party
to that reorganization within the meaning of Section 368(b) of the Code and
(3) no gain or loss will be recognized by shareholders of the Company who
receive shares of Acquiror Stock in exchange for shares of Company Stock,
except with respect to cash received in lieu of fractional shares of
Acquiror Stock and with respect to stated and imputed interest income
associated with payments made after the day of the Effective Time.
Section 7.2 Conditions to Obligations of the Acquiror and Merger Sub.
The obligations of the Acquiror and Merger Sub to effect the Merger are subject
to the fulfillment or written waiver, at or prior to the Effective Time, of the
following additional conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement are true and correct as of the
date of this Agreement and at the Effective Time with the same effect as
though all such representations and warranties had been made at the
Effective Time (except that representations and warranties that by their
terms speak as of the date of this Agreement or some other date need be true
and correct only as of such date), and the Acquiror has received a signed
certificate of the Chief Executive Officer and Controller of the Company to
such effect.
(b) Performance of Obligations. The Company has performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and the Acquiror has received a
signed certificate of the Chief Executive Officer and Controller of the
Company to such effect.
(c) Employment Contracts. Each of the Employment Contracts are in full
force and effect and have not been amended or modified without the prior
written consent of the
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Acquiror (not to be unreasonably withheld or delayed) and no event, with or
without the giving of notice, the lapse of time or both, constituting
"Cause" or "Good Reason" thereunder has occurred.
(d) No Onerous Condition. No approval or authorization described in
Section 7.1(b) is subject to an Onerous Condition.
(e) Closing Percentage. The Closing Percentage is at least 85%.
Section 7.3 Conditions to Obligations of the Company. The obligations
of the Company to effect the Merger are subject to the fulfillment or waiver in
writing, at or prior to the Effective Time, of the following additional
conditions:
(a) Representations and Warranties. The representations and warranties
of the Acquiror set forth in this Agreement shall be true and correct as of
the date of this Agreement and at the Effective Time with the same effect as
though all such representations and warranties had been made at the
Effective Time (except that representations and warranties that by their
terms speak as of the date of this Agreement or some other date shall be
true and correct only as of such date), and the Company shall have received
a signed certificate of a senior officer of the Acquiror to such effect.
(b) Performance of Obligations. Each of the Acquiror and Merger Sub
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time, and
the Company shall have received a signed certificate of a senior officer of
the Acquiror to such effect.
ARTICLE VIII
SURVIVAL; POST-CLOSING ADJUSTMENTS
Section 8.1 Survival. (a) The representations and warranties of the
Company contained in this Agreement will survive the Effective Time for a period
ending on December 31, 2000, except for the representations set forth in Section
4.2(u), which will survive until the expiration of the relevant statute of
limitations (including any extensions thereof). Notice for any Covered Claim
based on a breach of a representation or warranty must be made as contemplated
by proviso (1) to Section 8.2 before the expiration of the survival period for
the representation or warranty or the Covered Claim will lapse.
(b) Except as set forth in Section 8.1(a), no representation, warranty,
agreement or covenant in this Agreement will survive the Effective Time, other
than agreements set forth in Article III, this Article VIII or Article X.
Section 8.2 Scope. To the extent set forth in this Article VIII, from
and after the Effective Time, each of the Indemnified Parties will be
indemnified against, and held harmless from,
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all costs, expenses, losses, damages or liabilities (including reasonable
attorneys' fees in connection with any action, suit or proceeding, regardless of
the parties, and costs of collection) incurred by or on behalf of them
(collectively, "Costs") as a result of or arising out of:
(a) The breach of any representation or warranty made by the Company in
this Agreement (without regard to any "materiality" or "Material Adverse
Effect" exception contained therein) that results in Costs in excess of
$25,000 as if such representation or warranty were made by the Company as of
the Effective Time (except that any representation and warranty that by its
terms speaks as of the date of this Agreement or some other date will be
deemed made only as of such date);
(b) The tax qualification within the meaning of Section 401(a) of the
Code of the Company's 401(k) Plan or the Company's ESOP; or
(c) The breach of any covenant or agreement made or to be performed by
the Company pursuant to this Agreement;
provided that:
(1) Notice of any such Costs or the potential therefor has been
delivered to the Company Representative (any such Costs, a "Covered Claim").
(2) No Covered Claim will be satisfied until the aggregate amount of
Covered Claims exceeds $250,000 and then only to the extent of such excess.
Section 8.3 Satisfaction of Covered Claims. (a) Covered Claims will be
satisfied only in the following manner and order of priority:
First, through the application of any Earnout Total Amount temporarily
reduced in accordance with Section 8.3(c);
Second, through the reduction of the Earnout Total Amount (if any) for
the Calculation Period in which the Covered Claim is made (or, if the
Determination Date for the prior Calculation Period has not then occurred,
through the reduction of the Earnout Total Amount, if any, for the prior
Calculation Period), in each case after giving effect to proviso (2) to the
definition of Earnout Total Amount; and
Third, through the reduction of the Earnout Total Amount (if any) for
any subsequent Calculation Period.
(It is understood that the Earnout Total Amount for any Calculation Period will
not be reduced to less than $0.)
(b) To the extent the Covered Claims exceed the Earnout Total Amounts
available for reduction as set forth in Section 8.3(a), the Covered Claims will
not be satisfied.
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(c) If, on any Determination Date, the amount of one or more pending
Covered Claims has not been determined but the Acquiror (in its good faith
judgment) determines that the amount required to satisfy the pending Covered
Claims is reasonably likely to exceed the aggregate Earnout Total Amount for
future Calculation Periods, then the Acquiror may temporarily reduce the Earnout
Total Amount for the Calculation Period relating to the Determination Date by an
amount sufficient (in its good faith judgment) to satisfy the pending Covered
Claims. To the extent any Earnout Total Amount so reduced is not applied to
satisfy Covered Claims in accordance with Section 8.3(a) by the Determination
Date for the final Calculation Period, the amount (plus interest thereon
calculated in a manner consistent with clause (a)(2) of the definition of "Net
Banking Revenues") will be added to the Earnout Total Amount for such
Calculation Period.
Section 8.4 Procedures. (a) Any Indemnified Party seeking
indemnification under Section 8.2 will promptly notify the Company
Representative of the existence of the Covered Claim, setting forth in
reasonable detail the facts and circumstances pertaining thereto and the basis
for the Indemnified Party's right to indemnification. If any third party
notifies an Indemnified Party of a claim against the Indemnified Party that may
give rise to a Covered Claim (a "Third-Party Claim"), then the Indemnified Party
will promptly notify the Company Representative thereof. It is agreed that any
delay by an Indemnified Party in notifying the Company Representative of a
Covered Claim (including any Third-Party Claim) will not affect the rights and
obligations provided for in this Article VIII unless (and then solely to the
extent that) the Company Representative demonstrates that the defense of the
Covered Claim is materially prejudiced by the delay.
(b) No Indemnified Party will settle a Third-Party Claim without the
prior written consent of the Company Representative (such consent not to be
unreasonably withheld or delayed). The Company Representative and the Company
Representative Committee will cooperate with each Indemnified Party in the
defense of any Third-Party Claim and may participate in the defense or handling
thereof.
Section 8.5 Calculation of Costs; Remittance of Benefits. In
calculating the amount of any Costs of an Indemnified Party under this Article
VIII, there shall be (1) subtracted the amount of any insurance proceeds the
Indemnified Party actually receives with respect thereto and the amount of any
third-party payments actually received by the Indemnified Party and (2) added
the amount of the Net Tax Liability.
Section 8.6 Tax Treatment. The Acquiror and the Company agree to treat
all indemnity payments made pursuant to this Article VIII as adjustments to the
aggregate Merger consideration for all Tax purposes, to the extent permitted by
Applicable Law.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time:
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(a) By the mutual written consent of the Acquiror and the Company;
(b) By either the Acquiror or the Company, in the event of (1) a
material breach by the other of any representation or warranty contained
herein, which breach cannot be, or has not been, cured within 30 days of its
occurrence or (2) a material breach by the other of any of the covenants or
agreements contained herein, which breach cannot be, or has not been, cured;
(c) By either the Acquiror or the Company, if any approval of a
Governmental Authority, the lack of which would result in the failure to
satisfy the condition to closing set forth in Section 7.1(b), shall have
been denied by such Governmental Authority or such Governmental Authority
shall have requested the withdrawal of any application therefor or indicated
an intention to deny, or impose (or has imposed) an Onerous Condition with
respect to, such approval;
(d) By either the Acquiror or the Company, if any shareholder approval
required by Section 6.8 is not obtained at the Company Meeting;
(e) By the Acquiror, if (1) at any time before the conclusion of the
Company Meeting the Board of Directors of the Company has failed to make its
recommendation referred to in Section 6.8, withdrawn the recommendation or
modified the recommendation in a manner adverse to the interests of the
Acquiror (whether in accordance with Section 6.8 or otherwise) or (2) the
Board of Directors of the Company participates in (or authorizes
participation in) negotiations regarding an Acquisition Proposal;
(f) By either the Acquiror or the Company, in the event that the Merger
is not consummated by December 31, 1999 through no fault of the party
seeking to terminate or its affiliated parties;
(g) By either the Acquiror or the Company, if any permanent injunction
or action by any court or other governmental agency or body of competent
jurisdiction enjoining, denying approval of or otherwise prohibiting
consummation of any of the transactions contemplated by this Agreement shall
become final and nonappealable.
(h) By the Acquiror if, on the last Business Day of the month in which
the last of the conditions set forth in Article VII (other than conditions
relating solely to the delivery of documents dated the date of the Effective
Time or to the Closing Percentage) has been satisfied or waived in
accordance with the terms of this Agreement, the Closing Percentage is less
than 85% (treating the Business Day as the Effective Time for purposes of
this Section 9.1(h)).
(i) By the Acquiror at any time after the 10th Business Day after the
date of this Agreement, if any of the Employment Contracts has not been
executed in The City of New York in accordance with this Agreement.
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<PAGE>
Section 9.2 Effect of Termination. In the event of termination of this
Agreement pursuant to this Article IX, no party hereto (or any of its directors,
officers, representatives or agents) will have any liability or further
obligation to any other party to this Agreement, except (1) as set forth in
Sections 6.4, 9.3 and Article X and (2) that termination will not relieve a
breaching party for any willful breach (in accordance with the standards set
forth in Sections 4.1 and 5.1) of this Agreement prior to such termination.
Section 9.3 Termination Fee. (a) The Company hereby agrees to pay to
the Acquiror, and the Acquiror shall be entitled to payment of, a cash fee of
$5,000,000 (the "Fee") following the occurrence of an Acquisition Transaction
with a person other than an Acquiror Person; provided that the Acquiror's right
to receive the Fee will be discontinued if any of the following occurs before
the Acquisition Transaction:
(1) The Effective Time;
(2) Termination of this Agreement in accordance with its terms, if the
termination occurs before a Preliminary Event; or
(3) The lapse of eighteen months after termination of this Agreement,
if the termination occurs after or at the same time as a Preliminary Event.
(b) The term "Preliminary Event" means any of the following events or
transactions occurring on or after the date of this Agreement:
(1) The Company has entered into an agreement to engage in an
Acquisition Transaction with any person (the term "person" is used in this
Section 9.3 with the meaning assigned to it in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act) other than the Acquiror or any of its Subsidiaries
(each an "Acquiror Person");
(2) Any person other than an Acquiror Person has (publicly or
otherwise) made, or indicated an intention to make, a bona fide Acquisition
Proposal to the Company or any of its executive officers or shareholders to
engage in an Acquisition Transaction or the Company or any executive officer
of the Company has made, or indicated an intention to make, an Acquisition
Proposal to any person other than an Acquiror Person;
(3) Any person, other than an Acquiror Person, has acquired beneficial
ownership or the right to acquire beneficial ownership of 15% or more of the
outstanding shares of Company Common Stock (the term "beneficial ownership"
is used in this Section 9.3 with the meaning assigned to it in Section 13(d)
of the Exchange Act); provided that this Section 9.3(b)(3) does not apply to
the ownership by any person of the shares of Company Stock owned by it at
the date of this Agreement, and the acquisition of additional shares
pursuant to the terms of Company Options owned by it as of the date of this
Agreement; or
(4) The Board of Directors of the Company fails to make its
recommendation referred to in Section 6.8, withdraws the recommendation or
modifies the recommendation in
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a manner adverse to the interests of the Acquiror (whether in accordance
with Section 6.8 or otherwise).
(c) The Company will notify the Acquiror promptly in writing of its
knowledge of the occurrence of a Preliminary Event or Acquisition Transaction;
provided that the giving of notice will not be a condition to the right of the
Acquiror to the Fee.
(d) The Fee will be payable, without setoff, by wire transfer in
immediately available funds, to an account specified by the Acquiror, not later
than three Business Days following the first occurrence of a Acquisition
Transaction.
ARTICLE X
OTHER MATTERS
Section 10.1 Waiver; Amendment. Any provision of this Agreement may be
(a) waived in writing by the party benefitted by the provision, or (b) amended
or modified at any time (including after the Effective Time to the extent of
provisions surviving the Effective Time) only by an agreement in writing between
the parties hereto; provided that after the Effective Time, this Agreement may
be amended (as to provisions surviving the Effective Time) by an agreement in
writing among the Acquiror and Record-Stockholders representing an aggregate
Participation Percentage greater than 50% (so long as such amendment does not
disproportionately and adversely affect the right of any individual
Record-Stockholder or Record-Optionholder to receive the payments provided for
herein without such Record-Stockholder's or Record-Optionholder's consent).
Section 10.2 Calculations; Dispute Resolution. All calculations in
connection with this Agreement (including all calculations of the Closing Fees,
Initial Total Amount, Retained Amount, Reduction Amount, Growth Rate, Earnout
Total Amounts and Costs) will be made by the Comptroller of the Acquiror (or any
successor position) in his or her good faith discretion after consultation in
good faith with the Company Representative. All such calculations will be final
and binding on the Record-Stockholders and Record-Optionholders in the absence
of manifest error.
Section 10.3 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
Section 10.4 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of North Carolina
applicable to agreements made and to be performed entirely within such State.
Section 10.5 Waiver of Jury Trial. To the fullest extent permitted by
law, each party hereto waives any and all rights such party may have to a jury
trial with respect to any dispute arising hereunder or in connection herewith.
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Section 10.6 Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby; except that the Company will bear the expense of the audit
and sampling referred to in Section 6.3(d).
Section 10.7 Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed to have been given
(a) on the Business Day sent, when delivered by hand or telecopied (with
confirmation), (b) on the Business Day following the Business Day of sending, if
delivered by nationally recognized overnight courier, or (c) on the third
Business Day following the Business Day of sending, if mailed by registered or
certified mail, return receipt requested, in each case to such party at its
address (or number) set forth below or such other address (or number) as the
party may specify by notice.
If to the Acquiror or Merger Sub to:
U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
Attn: Maribeth Rahe
Vice Chairman
(Fax No. (212) 852-3783)
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attn: Michael M. Wiseman, Esq.
(Fax No. (212) 558-3350)
If to the Company:
NCT Holdings, Inc.
North Carolina Trust Center
301 Elm Street
Greensboro, NC 27401
Attn: Stephen C. Hassenfelt
(Fax No. (336) 378-4436)
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<PAGE>
with a copy to:
Schell, Bray, Aycock, Abel & Livingston
230 North Elm Street
Renaissance Plaza, Suite 1500
Greensboro, NC 27401
Attn: Michael R. Abel, Esq.
(Fax No. (336) 370-8830)
Section 10.8 Entire Understanding; No Third Party Beneficiaries. This
Agreement represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
Section 10.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other, and any purported assignment in violation of this Section
10.9 will be void; provided that this Agreement (including the rights, interests
and obligations hereunder) may be assigned by the Acquiror (1) to any affiliate
of the Acquiror or (2) by operation of any consolidation or merger of the
Acquiror. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in counterparts, all as of the day and year first above written.
U.S. TRUST CORPORATION
By: /s/ Maribeth S. Rahe
---------------------------------------
Name: Maribeth S. Rahe
Title: Vice Chairman
NCT HOLDINGS, INC.
By: /s/ Stephen C. Hassenfelt
---------------------------------------
Name: Stephen C. Hassenfelt
Title: Chairman
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<PAGE>
SUPPLEMENT, dated as of [MONTH] [DAY], 1999 (this "Supplement"), to the
Agreement and Plan of Merger, dated as of May 14, 1999 (the "Merger Agreement"),
between U.S. TRUST CORPORATION (the "Acquiror") and NCT HOLDINGS, INC. (the
"Company").
WHEREAS, pursuant to Section 2.4 of the Merger Agreement, the Acquiror
and the Company have agreed to have the undersigned become a party to the Merger
Agreement.
NOW, THEREFORE, by its execution of this Supplement, as of the date
hereof the undersigned adopts and becomes a party to the Merger Agreement, as
required by Section 2.4 thereof, and agrees to perform all obligations and
agreements of it set forth therein.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed, all as of the day and year first above written.
NCT HOLDINGS ACQUISITION COMPANY
By:
-----------------------------------
Name:
Title:
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<PAGE>
ANNEX 1
FORM OF VOTING AGREEMENT
May [DAY], 1999
NCT Holdings, Inc.,
North Carolina Trust Center,
301 Elm Street,
Greensboro, NC 27401
Re: Agreement and Plan of Merger between
U.S. Trust Corporation and NCT Holdings, Inc.
---------------------------------------------
Ladies and Gentlemen:
The undersigned understands that NCT Holdings, Inc. (the "Company") is
considering entering into an Agreement and Plan of Merger, to be dated as of the
date hereof (as entered into and as it may be amended or replaced from time to
time, the "Merger Agreement"), with U.S. Trust Corporation (the "Acquiror") and
certain shareholders of the Company, providing for the merger of the Company
with and into a wholly owned subsidiary of the Acquiror (the "Merger"). In
consideration of the substantial expenses and other obligations the Acquiror
will incur in connection with the transactions contemplated by the Merger
Agreement and in order to induce Acquiror to execute the Merger Agreement and to
proceed to incur such expenses, the undersigned agrees and undertakes as
follows:
1. The undersigned represents and warrants that [he][she] is the
beneficial owner of [NUMBER] shares (the "Shares") of common stock, [no] par
value per share (the "Common Stock"), of the Company.
2. The undersigned will vote or cause to be voted for approval of the
Merger all Shares that, on the record date therefor, are beneficially owned
by the undersigned or with respect to which the undersigned has the power to
vote.
3. The undersigned agrees not to, directly or indirectly, sell,
transfer, pledge, assign or otherwise dispose of, or enter into any
contract, option, commitment or other arrangement or understanding with
respect to the sale, transfer, pledge, assignment or other disposition of,
any of the Shares (including as part of a transaction involving the sale of
the Company). In the case of any transfer by operation of law, this letter
agreement shall be binding upon and inure to the transferee. Any transfer or
other disposition in violation of the terms of this paragraph 3 shall be
null and void.
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4. In [his][her] capacity as a stockholder of the Company, the
undersigned shall cooperate with the Acquiror and the Company in (a)
preparing and filing documentation, (b) effecting applications, notices,
petitions, filings and other documents and (c) obtaining permits, consents,
orders, approvals and authorizations necessary to make effective the Merger
and the other transactions contemplated by the Merger Agreement and, except
as otherwise permitted under this letter agreement or the Merger Agreement,
shall not willfully take, or cause to be taken, any action that could
significantly impair the prospects of completing the Merger in accordance
with the Merger Agreement.
5. This letter agreement shall terminate at the time of the termination
of the Merger Agreement, except that any such termination shall be without
prejudice to your rights arising out of any breach of any agreement or
representation contained herein.
This letter agreement constitutes the complete understanding between
the undersigned and the Acquiror concerning the subject matter hereof. THIS
LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
Very truly yours,
-------------------------------------
Name:
Accepted:
U.S. TRUST CORPORATION
By:
-----------------------------
Name:
Title:
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<PAGE>
ANNEX 2
CERTAIN EMPLOYEES
Suzanne G. Bledsoe
Susan W. Cole
Stephen C. Hassenfelt
Robert E. Mallernee
John R. Rich
David S. Routh
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<PAGE>
ANNEX 3
FORM OF SUPPLEMENT
SUPPLEMENT, dated as of [MONTH] [DAY], 1999 (this "Supplement"), to the
Agreement and Plan of Merger, dated as of [DATE] (the "Merger Agreement"),
between U.S. TRUST CORPORATION (the "Acquiror") and NCT HOLDINGS, INC. (the
"Company").
WHEREAS, pursuant to Section 2.4 of the Merger Agreement, the Acquiror
and the Company have agreed to have the undersigned become a party to the Merger
Agreement.
NOW, THEREFORE, by its execution of this Supplement, as of the date
hereof the undersigned adopts and becomes a party to the Merger Agreement, as
required by Section 2.4 thereof, and agrees to perform all obligations and
agreements of it set forth therein.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed, all as of the day and year first above written.
[MERGER SUB]
By:
-------------------------------------
Name:
Title:
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<PAGE>
ANNEX 4
FORM OF COMPANY AFFILIATE AGREEMENT
[DATE], 1999
U.S. Trust Corporation,
114 West 47th Street,
New York, New York 10036-1532.
NCT Holdings, Inc.,
North Carolina Trust Center,
301 Elm Street,
Greensboro, North Carolina 27401.
Ladies and Gentlemen:
I have been advised that I may be deemed to be an "affiliate" of a NCT
Holdings, Inc., a North Carolina corporation (the "Company"), as that term is
defined in Rule 145 promulgated by the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"). I
understand that pursuant to the terms of the Agreement and Plan of Merger, dated
as of May [DAY], 1999 (as amended from time to time and including the exhibits
thereto, the "Agreement"), between the Company and U.S. Trust Corporation, a New
York corporation (the "Acquiror"), the Company plans to merge with and into a
wholly owned subsidiary of the Acquiror (the "Merger").
I further understand that as a result of the Merger, I may receive
shares of common stock, par value $1.00 per share, of the Acquiror ("Acquiror
Stock") in exchange for shares of common stock, [no] par value per share, of the
Company ("Company Common Stock").
I have carefully read this letter and reviewed the Agreement and
discussed their requirements and other applicable limitations upon my ability to
sell, transfer, or otherwise dispose of Acquiror Stock and Company Stock, to the
extent I felt necessary, with my counsel or counsel for the Company.
I represent, warrant and covenant with and to the Acquiror that in the
event I receive any Acquiror Stock as a result of the Merger:
1. I shall not make any sale, transfer, or other disposition of such
Acquiror Stock unless (a) such sale, transfer or other disposition has been
registered under the Securities Act, (b) such sale, transfer or other
disposition is made in conformity with the provisions of Rule 145 under the
Securities Act (as such rule may be amended from time to time), or (c) in
the opinion of counsel in form and substance reasonably satisfactory to the
Acquiror, or under a "no-action" letter obtained by me from the staff of the
SEC, such sale,
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transfer or other disposition will not violate or is otherwise exempt from
registration under the Securities Act.
2. I understand that stop transfer instructions will be given to the
Acquiror's transfer agent with respect to the shares of Acquiror Common
Stock issued to me as a result of the Merger and that there will be placed
on the certificates for such shares, or any substitutions therefor, a legend
stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares represented by this certificate
may be transferred only in accordance with the terms of a letter
agreement between the registered holder hereof and U.S. Trust
Corporation, a copy of which agreement is on file at the
principal offices of U.S. Trust Corporation."
3. I understand that, unless transfer by me of the Acquiror Stock
issued to me as a result of the Merger has been registered under the
Securities Act or such transfer is made in conformity with the
provisions of Rule 145(d) under the Securities Act, the Acquiror
reserves the right, in its sole discretion, to place the following
legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 under the Securities Act of 1933 applies. The shares
have been acquired by the holder not with a view to, or for
resale in connection with, any distribution thereof within the
meaning of the Securities Act of 1933 and may not be offered,
sold, pledged or otherwise transferred except in accordance with
an exemption from the registration requirements of the Securities
Act of 1933."
It is understood and agreed that the legends set forth in paragraphs
(2) and (3) above shall be removed by delivery of substitute certificates
without such legend if I shall have delivered to the Acquiror (a) a copy of a
"no action" letter from the staff of the SEC, or an opinion of counsel in form
and substance reasonably satisfactory to the Acquiror, to the effect that such
legend is not required for purposes of the Securities Act, or (b) evidence or
representations satisfactory to the Acquiror that the Acquiror Common Stock
represented by such certificates is being or has been sold in conformity with
the provisions of Rule 145(d).
I further understand and agree that this letter agreement shall apply
to all shares of Company Stock and Acquiror Stock that I am deemed to
beneficially own pursuant to applicable federal securities laws and I further
represent, warrant and covenant with and to the Acquiror that I will have, and
will cause each of the other parties whose shares are deemed to be beneficially
owned by me to have, all shares of Company Common Stock or Acquiror Common Stock
owned by me or
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such parties registered in my name or the name of such parties, as applicable,
prior to the effective date of the Merger and not in the name of any bank,
broker or dealer, nominee or clearing house.
Very truly yours,
-----------------------------------
Name:
Accepted:
NCT HOLDINGS, INC.
By:
-------------------------------
Name:
Title:
U.S. TRUST CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE>
ANNEX 5
RETENTION PROGRAM
1. Background. Pursuant to the Agreement and Plan of Merger between
U.S. Trust Corporation ("USTC") and NCT Holdings, Inc. ("NCT"), dated as of May
[DAY], 1999 (the "Merger Agreement"), NCT was merged with and into a wholly
owned subsidiary of USTC ("Merger Sub"), with Merger Sub as the surviving
corporation (the "Merger"). Pursuant to Section 6.10 of the Merger Agreement,
USTC agreed to create and maintain this incentive plan for key former employees
of NCT Holdings, Inc. (the "Plan").
2. Purpose of the Plan. The Plan covers key individuals formerly
employed, directly or indirectly, by NCT (the "Designated Employees") who are
now employed by USTC in connection with the business acquired by USTC pursuant
to the Merger Agreement (the "Business"). The names of the Designated Employees
are set forth on Exhibit A. The purpose of the Plan is to provide the Designated
Employees with an incentive to use their best efforts to maximize the profits of
the Business and to remain employed by USTC in connection with the Business from
the Effective Time (as such term is defined in the Merger Agreement) until the
third anniversary of the Effective Time (the "Termination Date"). This
three-year period is sometimes referred to as the "Term" of the Plan, and each
one-year period ending on the anniversary of the Effective Time is referred to
as a "Yearly Period" of the Plan.
3. Eligibility. Except in the case of a termination without cause or a
resignation with good reason (related to USTC), as determined in good faith by
[STEPHEN C. HASSENFELT] or his successor, Incentive Amounts (as defined in
Section 4) shall be paid only to Designated Employees who (i) have been
employed, directly or indirectly, by USTC in connection with the Business
throughout the Yearly Period to which such Incentive Amounts
<PAGE>
relate, (ii) are so employed as of the end of such Yearly Period and (iii) are
not in breach of any agreement with USTC or any of its affiliates ("Eligible
Employees").
4. Incentive Amounts.
(a) USTC shall create a bonus pool of no more than [$3,701,375]. On or
prior to the Effective Time, NCT and USTC shall agree to the precise amount of
the bonus pool (as agreed, the "Aggregate Incentive Amount").
(b) After the Aggregate Incentive Amount has been fixed, the amount
payable over the Term of the Plan to each Designated Employee, as determined by
[STEPHEN C. HASSENFELT], will be set forth on Exhibit B (each such amount, an
"Incentive Amount"). Notwithstanding the assignment of a specific amount to a
Designated Employee on Exhibit B, no Designated Employee shall have any right,
title or interest to any amounts payable under the Plan until such amounts are
actually distributed to such individual pursuant to the Plan.
(c) In the event that a Designated Employee ceases to be employed,
directly or indirectly, by USTC in connection with the Business or otherwise
fails to remain an Eligible Employee, any unpaid Incentive Amount initially
assigned to such Designated Employee shall be forfeited if, in the good faith
judgment of [STEPHEN C. HASSENFELT] or his successor, such Designated Employee
was terminated for cause or such Designated Employee resigned without good
reason (related to USTC). In the event that any Incentive Amount is forfeited
under the immediately preceding sentence, [STEPHEN C. HASSENFELT], or his
successor, shall, at the end of each Yearly Period, complete a schedule
specifying how such forfeited Incentive Amounts attributable to such Yearly
Period shall be reallocated to the other Eligible Employees and shall forward
such schedule to the Plan Administrator (as defined in
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Section 15) for USTC's review and approval. If the schedule is unacceptable to
USTC, USTC and [MR. HASSENFELT], or his successor, shall negotiate in good faith
and produce a schedule specifying the amount to be distributed to each Eligible
Employee which is mutually acceptable. In the event that the parties are unable
to negotiate mutually satisfactory revisions to the proposed schedule before 30
days after the end of such Yearly Period, the schedule shall be deemed to
specify an amount for each Eligible Employee equal to the aggregate forfeited
Incentive Amount for such Yearly Period divided by the number of Eligible
Employees. The amount specified (or deemed specified) by such schedule for each
Eligible Employee is referred to as a "Reallocated Incentive Amount." In no
event shall the sum of all Reallocated Incentive Amounts for such Yearly Period
exceed the aggregate forfeited Incentive Amounts for such Yearly Period.
5. Payment of Incentive Amounts. As promptly as possible after each
Yearly Period, USTC shall pay to each Eligible Employee the "applicable
percentage" of the amount designated for such Eligible Employee on Exhibit B
plus, if applicable, such Eligible Employee's Reallocated Incentive Amount for
such Yearly Period as determined pursuant to Section 4(c), subject to
withholding pursuant to Section 12. "Applicable percentage" means 20% for each
of the first and second Yearly Periods and 60% for the third Yearly Period.
6. Tax Treatment. All Incentive Amounts and Reallocated Incentive
Amounts, if any, paid pursuant to the Plan shall constitute compensation for
employment and shall be deductible as such by USTC or, if such amounts are paid
by an affiliate of USTC, such affiliate, for all tax purposes and shall be
reported as compensation on the IRS Form W-2 (or any successor form) of each
recipient.
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7. Employment Status. This Plan shall not alter the status of any
Designated Employee as an employee at will or terminate, amend, modify or
otherwise affect any employment agreement to which such employee may be subject.
8. Alienation. No Designated Employee shall have any right to pledge,
hypothecate, anticipate or in any way create a lien upon the benefits provided
under the Plan, and such benefits shall not be assignable in anticipation of
payment wither by voluntary or involuntary acts, or by operation of law.
9. Non-Disclosure. No Designated Employee shall disclosure the terms of
the Plan prior to the Termination Date to any person other than the Designated
Employee's immediate family and the Designated Employee's attorneys, accountants
and other professional advisors, except as required by law.
10. Termination. The Plan shall terminate when all payments under the
Plan have been made.
11. Unfunded Obligations. All Incentive Amounts and Reallocated
Incentive Amounts, if any, payable under the Plan are unfunded and unsecured and
are payable out of the general funds of USTC.
12. Withholding. USTC may withhold from any amounts payable under the
Plan to any Eligible Employee any taxes required to be withheld under applicable
federal, state or local tax laws or regulations or any amounts owed to USTC by
such Eligible Employee.
13. Separability. If any provision of the Plan is found, held or deemed
to be void, unlawful, or unenforceable under any applicable statute or other
controlling law, the remainder of the Plan shall continue in full force and
effect.
A-76
<PAGE>
14. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
15. Administration. The Plan shall be administered by [NAME OF
ADMINISTRATOR] or such other person as may be appointed by the an authorized
officer of USTC (the "Plan Administrator"). The Plan Administrator shall be
authorized to interpret the Plan and to determine all questions arising in the
administration, construction and application of the Plan. The decisions of the
Plan Administrator upon all matters within the scope of the Plan Administrator's
authority shall be conclusive and binding.
IN WITNESS WHEREOF, U.S. Trust Corporation has caused this Plan to be
adopted and executed by its duly authorized officers, this [DAY] day of May
1999.
U.S. TRUST CORPORATION
BY:
-------------------------------
Name:
Title:
ATTEST:
-----------------------
SECRETARY
A-77
<PAGE>
Exhibit A
DESIGNATED EMPLOYEES
A-78
<PAGE>
Exhibit B
INCENTIVE AMOUNTS
A-79
<PAGE>
APPENDIX B
NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13.
DISSENTERS' RIGHTS
PART 1. RIGHTS TO DISSENT AND OBTAIN PAYMENT FOR SHARES
55-13-01 DEFINITIONS.-- In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under
all the circumstances, giving due consideration to the rate currently paid
by the corporation on its principal bank loans, if any, but not less than
the rate provided by G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
55-13-02 RIGHT TO DISSENT. -- (a) In addition to any rights granted
under Article 9, a shareholder is entitled to dissent from, and obtain payment
of the fair value of his shares in the event of, any of the following corporate
actions:
<PAGE>
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party unless
(i) approval by the shareholders of that corporation is not required under
G.S. 55-11-03(g) or (ii) such shares are then redeemable by the corporation
at a price not greater than the cash to be received in exchange for such
shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the shareholders
within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a provision
respecting a sinking fund for the redemption or repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (iv) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes; (v) reduces the number
of shares owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash under G.S. 55-6-04;
or (vi) changes the corporation into a nonprofit corporation or cooperative
organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for this
shares under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or property, unless the action is unlawful or fraudulent with respect
to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be
no right of dissent in favor of holders of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at the meeting at which the plan of merger or share
exchange or the sale or exchange of property is to be acted on, were (i) listed
on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
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(1) The articles of incorporation of the corporation issuing the shares
provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or share exchange
to accept for the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation which,
at the record date fixed to determine the shareholders entitled to
receive notice of and vote at the meeting at which the plan of merger
or share exchange is to be acted on, were either listed subject to
notice of issuance on a national securities exchange or held of record
by at least 2,000 record shareholders; or
c. A combination of cash and shares as set forth in
sub-subdivisions a. and b. of this subdivision.
55-13-03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
55-13-20 NOTICE OF DISSENTERS' RIGHTS. -- (a) If proposed corporate
action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at
a shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this Article and be
accompanied by a copy of this Article.
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<PAGE>
(b) If corporate action creating dissenters' rights under G.S. 55-13-02
is taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
55-13-21 NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If proposed
corporate action creating dissenters' rights under G.S. 55-13-02 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his shares under this Article.
55-13-22 DISSENTERS' NOTICE. -- (a) If proposed corporate action
creating dissenters' rights under G.S. 55-13-02 is authorized at a shareholders'
meeting, the corporation shall mail by registered or certified mail, return
receipt requested, a written dissenters' notice to all shareholders who
satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after the
approval of the board of directors, of the corporate action creating dissenters'
rights under G.S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 or more than 60 days after the
date the subsection (a) notice is mailed; and
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<PAGE>
(5) Be accompanied by a copy of this Article.
55-13-23 DUTY TO DEMAND PAYMENT. -- (a) A shareholder sent a
dissenters' notice described in G.S. 55-13-22 must demand payment and deposit
his share certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
55-13-24 SHARE RESTRICTIONS. -- (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
55-13-25 PAYMENT. --(a) As soon as the proposed corporate action is
taken, or within 30 days after receipt of a payment demand, the corporation
shall pay each dissenter who complied with G.S. 55-13-23 the amount the
corporation estimates to be the fair value of his shares, plus interest accrued
to the date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of payment,
an income statement for that year, a statement of cash flows for that year,
and the latest available interim financial statements, if any;
(2) An explanation of how the corporation estimated the fair value of
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
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<PAGE>
55-13-26 FAILURE TO TAKE ACTION. -- (a) If the corporation does not
take the proposed action within 60 days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
55-13-28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S
PAYMENT OR FAILURE TO PERFORM. -- (a) A dissenter may notify the corporation in
writing of his own estimate of the fair value of his shares and amount of
interest due, and demand payment of the amount in excess of the payment by the
corporation under G.S. 55-13-25 for the fair value of his shares and interest
due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment of his
shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.
PART 3. JUDICIAL APPRAISAL OF SHARES
55-13-30 COURT ACTION. -- (a) If a demand for payment under G.S.
55-13-28 remains unsettled, the dissenter may commence a proceeding within 60
days after the earlier of (i) the date payment is made under G.S. 55-13-25, or
(ii) the date of the dissenter's payment demand under G.S. 55-13-28 by filing a
complaint with the Superior Court Division of the General Court of Justice to
determine the fair value of the shares and accrued interest. A dissenter who
takes no action within the 60-day period shall be deemed to have withdrawn his
dissent and demand for payment.
(b) The court shall have the discretion to make all dissenters (whether
or not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the complaint.
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<PAGE>
Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(c) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The parties are entitled to
the same discovery rights as parties in other civil proceedings. The proceeding
shall be tried as in other civil actions. However, in a proceeding by a
dissenter in a corporation that was a public corporation immediately prior to
consummation of the corporate action giving rise to the right of dissent under
G.S. 55-13-02, there is no right to to trial by jury.
(d) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation.
55-13-31 COURT COSTS AND COUNSEL FEES. -- (a) The court in an appraisal
proceeding commenced under G.S. 55-13-30 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, and shall assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through G.S. 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the By-laws of the Registrant provides as follows:
The Corporation shall indemnify any person made or threatened to be made a
party to any action or proceeding, whether civil or criminal, and whether
or not by or in the right of the Corporation or of any other corporation of
any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, by reason of the fact
that such person, his testator or intestate, is or was a director or
officer of the Corporation or served any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the request of
the Corporation, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred as a result of such action or proceeding, or any appeal therein;
provided that (a) no indemnification may be made to or on behalf of any
person if a judgment or other final adjudication adverse to such person
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action
so adjudicated, or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled, (b) no
indemnification shall be required in connection with the settlement of any
pending or threatened action or proceeding, or any other disposition
thereof except a final adjudication, unless the Corporation has consented
to such settlement or other disposition and (c) the Corporation shall not
be obligated to indemnify any person by reason of the adoption of this
Article V if and to the extent such person is entitled to be indemnified
under a policy of insurance as such policy would apply in the absence of
the adoption of this Article V.
Reasonable expenses, including attorneys' fees, incurred in defending any
action or proceeding, whether threatened or pending, shall be paid or
reimbursed by the Corporation in advance of the final disposition thereof
upon receipt of any undertaking by or on behalf of the person seeking
indemnification to repay such amount to the Corporation to the extent, if
any, such person is ultimately found not to be entitled to indemnification.
Notwithstanding any other provision hereof, no repeal of this Article V, or
amendment hereof or any other corporate action or agreement which prohibits
or otherwise limits the right of any person to indemnification or
advancement or reimbursement of expenses hereunder, shall be effective as
to any person until the 60th day following notice to such person of such
action, and no such repeal or amendment or other corporate action or
agreement shall deprive any person of any right hereunder arising out of
any alleged or actual act or omission occurring prior to such 60th day.
The Corporation is hereby authorized, but shall not be required, to enter
into agreements with any of its directors, officers or employees providing
for rights to indemnification and advancement and reimbursement of
reasonable expenses, including attorneys' fees, to the extent permitted by
law, but the Corporation's failure to do so shall not in any manner affect
or limit the rights provided for by this Article V or otherwise.
For purposes of this Article V, the term "Corporation" shall include any
legal successor to the Corporation, including any corporation which
acquires all or substantially all of the assets of the Corporation in one
or more transactions. For purposes of this Article V, the Corporation shall
be deemed to have requested a person to serve an employee benefit plan
where the performance by such person of his duties to the Corporation or
any subsidiary thereof also imposes duties on, or otherwise involves
services by such person to the plan or participants or beneficiaries of the
plan, and excise taxes assessed on a person with respect to an employee
benefit plan pursuant to applicable law shall be considered fines.
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<PAGE>
The rights granted pursuant to or provided by the foregoing provisions of
this Article V shall be in addition to and shall not be exclusive of any
other rights to indemnification and expenses to which any person may
otherwise be entitled under any statute, rule, regulation, certificate of
incorporation, bylaw, agreement or otherwise.
The Registrant, as a New York corporation, is subject to the New York
Business Corporation Law (the "B.C.L."). Section 721 of the B.C.L. provides
that no indemnification may be made to or on behalf of any director or
officer of a corporation if "a judgment or other final adjudication adverse
to the director or officer establishes that his acts were committed in bad
faith or were the result of active and deliberate dishonesty and were
material to the cause of action so adjudicated, or that he personally
gained in fact a financial profit or other advantage to which he was not
legally entitled." Article V of the Registrant's By-laws includes the
foregoing statutory language.
The rights granted under Article V of the By-laws are in addition to, and
are not exclusive of, any other rights to indemnification and expense to
which any director or officer may otherwise be entitled. Under the B.C.L.,
a New York corporation may indemnify any director or officer who is made or
threatened to be made a party to an action by or in the right of such
corporation against "amounts paid in settlement and reasonable expenses,
including attorneys' fees," actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in connection
with an appeal therein, if such director or officer acted, in good faith,
for a purpose which he reasonably believed to be in the best interests of
the corporation, except that no indemnification shall be made in respect of
(1) a threatened action, or a pending action which is settled or otherwise
disposed of, or (2) any claim, issue or matter as to which such director or
officer shall have been adjudged liable to the corporation, unless and only
to the extent that a court determines that the director or officer is
fairly and reasonably entitled to indemnity (B.C.L. Section 722(c)). A
corporation may also indemnify directors and officers who are parties to
their actions or proceedings (including actions or proceedings by or in the
right of any other corporation or other enterprise which the director or
officer served at the request of the corporation) against "judgments,
fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees," actually or necessarily incurred as a result of such
action or proceedings, or any appeal therein, provided the director or
officer acted, in good faith, for a purpose which he reasonably believed to
be in the best interests of the corporation (or in the case of service to
another corporation or other enterprise at the request of such corporation,
not opposed to the best interests of such corporation) and, in criminal
cases, that he also had no reasonable cause to believe that his conduct was
unlawful (B.C.L. Section 722(a)). Any indemnification under Section 722 may
be made only if authorized in the specific case by disinterested directors,
or by the board of directors upon the opinion in writing of independent
legal counsel that indemnification is proper, or by the shareholders
(B.C.L. Section 723(b)), but even without such authorization, a court may
order indemnification in certain circumstances (B.C.L. Section 724).
Further, any director or officer who is "successful, on the merits or
otherwise," in the defense of an action or proceeding is entitled to
indemnification as a matter of right (B.C.L. Section 723(a)).
A New York corporation may generally purchase insurance, consistent with
the limitations of New York insurance law and regulatory supervision, to
indemnify the corporation for any obligation which it incurs as a result of
the indemnification of directors and officers under the provisions of the
B.C.L., so long as no final adjudication has established that the
directors' or officers' acts of active and deliberate dishonesty were
material to the cause of action so adjudicated or that the directors or
officers personally gained in fact a financial profit or other advantage to
which they were not legally entitled (B.C.L. Section 726). The Registrant
has purchased insurance covering expenditures by it and its subsidiaries
which might arise in connection with the lawful indemnification of
directors and officers for certain liabilities and expenses, and insurance
insuring directors and officers of the Registrant and its subsidiaries
against certain other liabilities and expenses.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of May 14, 1999,
between U.S. Trust Corporation and NCT Holdings, Inc.
(included as Appendix A to the Proxy Statement/Prospectus
contained in this Registration Statement).
3.1 Restated Certificate of Incorporation of U.S. Trust.
3.2 Restated By-laws of U.S. Trust (incorporated by reference to
Appendix II to U.S. Trust's Registration Statement on Form
10 dated February 9, 1995).
4.1 Rights Agreement, dated as of September 1, 1995, between
U.S. Trust and First Chicago Trust Company of New York, as
Rights Agent (incorporated by reference to Exhibit 1 to U.S.
Trust's Registration Statement on Form 8-A filed on
September 5, 1995 for the registration under Section 12(g)
of the Securities Exchange Act of 1934 of Rights to Purchase
U.S. Trust's Series A Participating Cumulative Preferred
Shares (the "8-A")).
4.2 Specimen certificate representing Rights to Purchase U.S.
Trust's Series A Participating Cumulative Preferred Shares
(incorporated by reference to Exhibit A to Exhibit 1 to the
8-A, filed on September 5, 1995).
5.1 Opinion of Richard B. Gross, Esq.
8.1 Opinion of Sullivan & Cromwell regarding certain federal
income tax consequences relating to the merger.
21.1 Subsidiaries of U.S. Trust (incorporated by reference to
U.S. Trust's Annual Report on Form 10-K for the year ended
December 31, 1998).
23.1 Consent of PricewaterhouseCoopers LLP (formerly Coopers &
Lybrand LLP).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Richard B. Gross, Esq. (included in Exhibit 5.1).
23.4 Consent of Sullivan & Cromwell (included in Exhibit 8.1).
24.1 Powers of Attorney (included in the signature pages of this
Registration Statement).
99.1 Form of Proxy to be used by NCT Holdings, Inc.
99.2 Form of Proxy to be used by NCT Holdings, Inc. with respect
to shares allocated to the Employee Stock Ownership Plan of
NCT Holdings, Inc. and North Carolina Trust Company
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(1) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
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the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(d) For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) That prior to any public reoffering of the securities registered
hereunder through use of a Prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
Prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(f) That every Prospectus (1) that is filed pursuant to paragraph (e)
immediately preceding, or (2) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(g) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions (See Item 20), or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(h) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in
II-4
<PAGE>
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(i) To supply by means of a post-effective amendment all information
concerning a transaction, and the Company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, in the City of New York, State of New York, on July 14, 1999.
U.S. Trust Corporation
By: /s/ Richard E. Brinkmann
----------------------------------------
Richard E. Brinkmann
Comptroller and Chief Planning Officer
POWERS OF ATTORNEY
The undersigned do hereby make, constitute and appoint H. Marshall Schwarz, John
L. Kirby and Richard E. Brinkmann, and each of them acting individually, his
true and lawful attorneys-in-fact with full power to act without the other, to
execute, deliver and file, for and on his behalf, and in his name and in his
capacity as aforesaid, a Registration Statement on Form S-4 and any and all
amendments (including post-effective amendments) to such registration statement
for filing with the Securities and Exchange Commission (the "SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act"), and any
other documents in support thereof, with respect to the Common Shares of the
Corporation, hereby granting to said attorneys-in-fact and each of them full
power and authority to do and perform each and every act and thing whatsoever as
said attorney-in-fact or attorneys-in-fact may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or could do
personally or in the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys may do or cause
to be done by virtue of these presents.
Pursuant to the requirements of the Securities Act, this Registration Statement
on Form S-4 has been signed by the following persons in the capacities and on
the date indicated.
SIGNATURE TITLE
--------- ------
/s/ H. Marshall Schwarz Chairman of the Board and Director
- -------------------------------- (Principal Executive Officer)
H. Marshall Schwarz
/s/ John L. Kirby Treasurer and Chief Financial Officer
- --------------------------------
John L. Kirby
/s/ Richard E. Brinkmann Comptroller and Chief Planning Officer
- --------------------------------
Richard E. Brinkmann
- -------------------------------- Director
Eleanor Baum
II-6
<PAGE>
/s/ Samuel C. Butler Director
- --------------------------------
Samuel C. Butler
- -------------------------------- Director
Peter O. Crisp
/s/ Philippe de Montebello Director
- --------------------------------
Philippe de Montebello
- -------------------------------- Director
Robert E. Denham
/s/ Antonia M. Grumbach Director
- --------------------------------
Antonia M. Grumbach
- -------------------------------- Director
Frederic C. Hamilton
/s/ Peter L. Malken Director
- --------------------------------
Peter L. Malkin
/s/ Jeffrey S. Maurer President, Chief Operating Officer and
- -------------------------------- Director
Jeffrey S. Maurer
/s/ David A. Olsen Director
- --------------------------------
David A. Olsen
II-7
<PAGE>
/s/ Carl H. Pforzheimer, III Director
- --------------------------------
Carl H. Pforzheimer, III
/s/ Maribeth S. Rahe Vice Chairman of the Board and Director
- --------------------------------
Maribeth S. Rahe
- -------------------------------- Director
Philip L. Smith
- -------------------------------- Director
John Hoyt Stookey
/s/ Frederick B. Taylor Vice Chairman of the Board, Chief
- -------------------------------- Investment Officer and Director
Frederick B. Taylor
- -------------------------------- Director
Robert N. Wilson
- -------------------------------- Director
Ruth A. Wooden
Dated: July 14,1999
II-8
Exhibit (3.1)
CERTIFICATE OF INCORPORATION
OF
U.S. TRUST CORPORATION
AS AMENDED THROUGH June 2, 1999
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
FIRST: The name of the Corporation is U.S. TRUST CORPORATION.
SECOND: The purpose or purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the Business Corporation Law, to engage in the business of a bank holding
company under the Federal Bank Holding Company Act of 1956, as heretofore
amended and as the same may hereafter be amended (the "Bank Holding Company
Act"), and to engage in any lawful act or activity which is or hereafter may be
permitted to be performed by a bank holding company under the Bank Holding
Company Act; provided that the Corporation is not formed to engage in any
activity requiring the consent or approval of any state official, department,
board, agency or other body without such consent or approval first being
obtained.
THIRD: The office of the Corporation in the State of New York is to be
located in the City and County of New York.
FOURTH: The aggregate number of shares of all classes which the Corporation
shall have the authority to issue is 75,000,000 shares consisting of 70,000,000
Common Shares, par value $1 per share, and 5,000,000 Preferred Shares, par value
$1 per share.
The designations and the relative rights, preferences and limitations of
the shares of each class, and the authority hereby vested in the Board of
Directors of the Corporation to establish and to fix the numbers, designations
and relative rights, preferences and limitations of each series of Preferred
Shares, are as follows:
1. The Preferred Shares may be issued from time to time by the Board of
Directors in one or more series and, subject only to the provisions of this
Article FOURTH and the limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance, in the resolution or resolutions
providing for the issue of, or providing for a change in the number of, shares
of any particular series, and by filing a certificate of amendment of the
Certificate of Incorporation of the Corporation pursuant to the Business
Corporation Law, to establish or change the number of shares to be included in
each such series and to fix the designation and relative voting, dividend,
liquidation and other rights, preferences and limitations of the shares of each
such series. The authority of the Board of Directors with respect to each series
shall include, but shall not be limited to, determination of the following:
a. the distinctive serial designation of such series and the number of
shares constituting such series (provided that the aggregate number of shares
constituting all series of Preferred Shares shall not exceed the aggregate
number of Preferred Shares authorized above);
b. the times at which and the conditions under which dividends shall be
payable on shares of such series, the annual dividend rate thereon, whether
dividends shall be cumulative and, if so, from which date or dates, and the
status of such dividends as participating or non-participating;
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<PAGE>
c. whether the shares of such series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or dates upon and
after which such shares shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
d. the obligation, if any, of the Corporation to retire shares of such
series pursuant to a sinking fund or redemption or purchase account;
e. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or shares of any series
of any class, and, if so, the terms and conditions of such conversion or
exchange including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment thereof, if any;
f. whether the shares of such series shall have voting rights, in addition
to the voting rights otherwise provided by law, and, if so, the terms of such
voting rights;
g. the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation; and
h. any other relative rights, preferences and limitations of such series.
2. All Preferred Shares shall be of equal rank with each other regardless
of series. In case the stated dividends and the amounts payable on liquidation
are not paid in full, the Preferred Shares of all series shall share ratably in
the payment of dividends including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full, and in any distribution of assets other than by way of dividends
in accordance with the sums which would be payable in such distribution if all
sums payable were discharged in full.
3. The Preferred Shares of any one series shall be identical with each
other in all respects except as to the dates from which cumulative dividends, if
any, thereon shall be cumulative.
4. Subject to the rights of the Preferred Shares, dividends may be paid
upon the Common Shares as and when declared by the Board of Directors out of any
funds legally available therefor.
5. Upon any liquidation, dissolution or winding up of the affairs of the
Corporation (which shall not be deemed to include a consolidation or merger of
the Corporation, or the sale of all or substantially all of the Corporation s
assets, into, with or to any other corporation or corporations), whether
voluntary or involuntary, and after the holders of the Preferred Shares shall
have been paid in full the amounts, if any, to which they respectively shall be
entitled or provision for such payment shall have been made, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Shares.
6. There is hereby established a series of the Corporation s authorized
Preferred Shares, to be designated as the Series A Participating Cumulative
Preferred Shares, par value $1 per share. The relative rights, preferences and
limitations of the Series A Preferred Shares, insofar as not already fixed by
any other provision of this Certificate of Incorporation shall, as fixed by the
Board of Directors of the Corporation in the exercise of authority conferred by
this Certificate of Incorporation, and as permitted by Section 502 of the
Business Corporation Law, be as follows:
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<PAGE>
i. Designation and Number of Shares. The shares of such series shall be
designated as "Series A Participating Cumulative Preferred Shares" (the "Series
A Preferred Shares"). The par value of each share of the Series A Preferred
Shares shall be $1. The number of shares initially constituting the Series A
Preferred Shares shall be 300,000; provided, however, that the number of Series
A Preferred Shares may be increased, by an amendment of this paragraph (i) of
this Section 6, approved by the Board of Directors of the Corporation, if within
the authority of the Board of Directors of the Corporation under Article FOURTH
of the Certificate of Incorporation, to such greater number of Series A
Preferred Shares as are at any time issuable upon exercise of the Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of September 1, 1995,
between the Corporation and First Chicago Trust Company of New York, as Rights
Agent (the "Rights Agreement").
ii. Dividends or Distributions.
(1) subject to the prior and superior rights of the holders of shares of
any other series of Preferred Shares or other class or series of capital stock
of the Corporation ranking prior and superior to the Series A Preferred Shares
with respect to dividends, the holders of shares of the Series A Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor, (2)
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or a fraction of a share of the
Series A Preferred Shares, in the amount of $25 per whole share (rounded to the
nearest cent) less the amount of all cash dividends declared on the Series A
Preferred Shares pursuant to the following clause (2) since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of the Series A Preferred Shares, and (3) dividends payable
in cash on the payment date for each cash dividend declared on the Common Shares
in an amount per whole share (rounded to the nearest cent) equal to the Formula
Number then in effect times the cash dividends then to be paid on each Common
Share. In addition, if the Corporation shall pay any dividend or make any
distribution on the Common Shares payable in assets, securities or other forms
of noncash consideration (other than dividends or distributions solely in Common
Shares), then, in each such case, the Corporation shall simultaneously pay or
make on each outstanding whole share of the Series A Preferred Shares a dividend
or distribution in like kind equal to the Formula Number then in effect times
such dividend or distribution on each Common Share. As used in this Section 6,
the "Formula Number" shall be 100; provided, however, that if at any time after
the Record Date (as defined in the Rights Agreement), the Corporation shall (i)
declare or pay any dividend on the Common Shares payable in Common Shares or
make any distribution on the Common Shares in Common Shares, (ii) subdivide (by
a stock split or otherwise) the outstanding Common Shares into a larger number
of Common Shares or (iii) combine (by a reverse stock split or otherwise) the
outstanding Common Shares into a smaller number of Common Shares, then in each
such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of Common Shares that are
outstanding immediately after such event and the denominator of which is the
number of Common Shares that are outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided, further,
that if at any time after the Record Date, the Corporation shall issue any
shares of its capital stock in a reclassification or change of the outstanding
Common Shares (including any such reclassification or change in connection with
a merger in which the Corporation is the surviving corporation), then in each
such event the Formula Number shall be appropriately adjusted to reflect such
reclassification or change;
-3-
<PAGE>
(2) the Corporation shall declare a dividend or distribution on the Series
A Preferred Shares as provided in paragraph (ii)(a) above immediately prior to
or at the same time it declares a dividend or distribution on the Common Shares
(other than a dividend or distribution solely in Common Shares); provided,
however, that, in the event no dividend or distribution (other than a dividend
or distribution in Common Shares) shall have been declared on the Common Shares
during the period between any Quarterly Dividend Payment Date and the next
Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A
Preferred Shares shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Shares entitled to
receive a dividend or distribution declared thereon, which record date shall be
the same as the record date for any corresponding dividend or distribution on
the Common Shares;
(3) dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Shares from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such Series A Preferred Shares;
provided, however, that dividends on Series A Preferred Shares which are
originally issued after the record date for the determination of holders of
Series A Preferred Shares entitled to receive a quarterly dividend and on or
prior to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on Series A Preferred Shares which are
originally issued prior to the record date for the first Quarterly Dividend
Payment, shall be calculated as if cumulative from and after the March 1, June
1, September 1 or December 1, as the case may be, next preceding the date of
original issuance of such Series A Preferred Shares. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Shares in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding;
(4) so long as any shares of the Series A Preferred Shares are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Shares unless, in each
case, the dividend required by this paragraph (ii) to be declared on the Series
A Preferred Shares shall have been declared and paid or set apart;
(5) the holders of the shares of Series A Preferred Shares shall not be
entitled to receive any dividends or other distributions except as provided
herein.
iii. Voting Rights. The holders of shares of Series A Preferred Shares
shall have the following voting rights:
(1) each holder of Series A Preferred Shares shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of the
Series A Preferred Shares held of record on each matter on which holders of the
Common Shares or shareholders generally are entitled to vote, multiplied by the
number of votes per share which the holders of the Common Shares or shareholders
generally then have with respect to such matter;
(2) except as otherwise provided herein or by applicable law, the holders
of shares of Series A Preferred Shares and the holders of shares of Common
Shares shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of shareholders of the
Corporation;
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<PAGE>
(3) if at the time of any annual meeting of shareholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Shares are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two, subject to any limitation set forth in
this Certificate of Incorporation on the maximum number of directors then
allowable. In addition to voting together with the holders of Common Shares for
the election of other directors of the Corporation, the holders of record of the
Series A Preferred Shares, voting separately as a class to the exclusion of the
holders of Common Shares, shall be entitled at said meeting of shareholders (and
at each subsequent annual meeting of shareholders), unless all dividends in
arrears have been paid or declared and set apart for payment prior thereto, to
vote for the election of such additional directors, if any, of the Corporation,
the holders of any Series A Preferred Shares being entitled to cast a number of
votes per share of the Series A Preferred Shares equal to the Formula Number.
Until the default in payments of all dividends which permitted the election of
said directors shall cease to exist any director who shall have been so elected
pursuant to the next preceding sentence may be removed at any time by, and be
removed without cause only by, the affirmative vote of the holders of the Series
A Preferred Shares at the time entitled to cast a majority of the votes entitled
to be cast for the election of any such director at a special meeting of such
holders called for that purpose, and any vacancy thereby created may be filled
by the vote of such holders. If and when such default shall cease to exist, the
holders of the Series A Preferred Shares shall be divested of the foregoing
special voting rights, subject to revesting in the event of each and every
subsequent like default in payments of dividends. Upon the termination of the
foregoing special voting rights, the terms of office of all persons who may have
been elected director pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of Directors shall
be reduced by two or such other number of directors as shall have been added
pursuant to the provisions of this subsection (c). The voting rights granted by
this subsection (c) shall be in addition to any other voting rights granted to
the holders of the Series A Preferred Shares in this paragraph (iii);
(4) except as provided herein, in paragraph (xi) or by applicable law,
holders of Series A Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for authorizing or
taking any corporate action.
iv. Certain Restrictions.
(1) whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Shares as provided in paragraph (ii) of this
Section 6 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
Shares outstanding shall have been paid in full, the Corporation shall not
(a) declare or pay dividends on, make any other distributions on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Shares;
(b) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except dividends
paid ratably on the Series A Preferred Shares and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
-5-
<PAGE>
(c) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Shares; or
(d) purchase or otherwise acquire for consideration any shares of Series A
Preferred Shares, or any shares of stock ranking on a parity with the Series A
Preferred Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes;
(2) the Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (a) of this
paragraph (iv), purchase or otherwise acquire such shares at such time and in
such manner.
v. Liquidation Rights. Upon the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution, or winding up) to the Series A Preferred Shares
unless, prior thereto, the holders of Series A Preferred Shares shall have
received an amount equal to the accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (x) $100 per share or (y) an aggregate amount per share
equal to the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Shares, or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except
distributions made ratably on the Series A Preferred Shares and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
vi. Consolidation. Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the Common
Shares are exchanged for or changed into other stock or securities, cash or any
other property, then in any such case the then outstanding shares of Series A
Preferred Shares shall at the same time be similarly exchanged or changed in an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash or any other property (payable in kind), as
the case may be, into which or for which each Common Share is exchanged or
changed.
vii. Redemption; No Sinking Fund.
(1) the Series A Preferred Shares shall not be redeemable at the option of
the Corporation except as set forth in this paragraph (vii). The outstanding
Series A Preferred Shares may be redeemed at the option of the Board of
Directors as a whole, but not in part, at any time at which, in the good faith
determination of the Board of Directors no person beneficially owns more than
10% of the aggregate voting power represented by all the outstanding shares of
capital stock of the Corporation generally entitled to vote in the election of
Directors of the Corporation, at a cash price per share equal to (i) 125% of the
product of the Formula Number times the Market Value (as such term is
hereinafter defined) of the Common Shares, plus (ii) all dividends which on the
redemption date have accrued on the shares to be
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<PAGE>
redeemed and have not been paid or declared and a sum sufficient for the payment
thereof set apart, without interest. The "Market Value" on any date shall be
deemed to be the average of the daily closing prices, per share, of the Common
Shares for the 30 consecutive Trading Days immediately prior to the date in
question. The closing price for each Trading Day shall be the last sale price,
regular way, or, in case no such sale take place on such Trading Day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system if the
Common Shares are listed or admitted to trading on a national securities
exchange or, if the Common Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use, or, if on any such Trading
Day the Common Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Shares selected by the Board of Directors of the
Corporation. If on any such Trading Day no market maker is making a market in
the Common Shares, the closing price of such Common Shares on such Trading Day
shall be deemed to be the fair value of the Common Shares as determined in good
faith by the Board of Directors of the Corporation. "Trading Day" shall mean a
day on which the principal national securities exchange on which the Common
Shares are listed or admitted to trading is open for the transaction of business
or, if the Common Shares are not listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday which is
not a day on which banking institutions in the Borough of Manhattan, The City of
New York, are authorized or obligated by law or executive order to close;
(2) the shares of Series A Preferred Shares shall not be subject to or
entitled to the operation of a retirement or sinking fund.
viii. Ranking. The Series A Preferred Shares shall rank equally and on a
parity with all other series of Preferred Shares of the Corporation with respect
to the payment of dividends and distribution of assets upon the liquidation,
dissolution or winding up of the Corporation.
ix. Fractional Shares. The Series A Preferred Shares shall be issuable upon
exercise of the Rights issued pursuant to the Rights Agreement in whole shares
or in any fraction of a share that is one one-hundredth (1/100th) of a share or
any integral multiple of such fraction which shall entitle the holder, in
proportion to such holder s fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Shares. The Corporation, prior to the
first issuance of a share or a fraction of a share of Series A Preferred Shares,
may elect (1) to issue certificates evidencing such authorized fraction of a
share of Series A Preferred Shares or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred Shares
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation, provided that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Shares.
x. Reacquired Shares. Any Series A Preferred Shares purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Shares,
without designation as to series until such shares are once more designated as
part of a particular series by resolution of the Board of Directors.
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<PAGE>
xi. Amendment. None of the powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Shares as provided
herein shall be amended in any manner which would alter or change the powers,
preferences, rights or privileges of the holders of Series A Preferred Shares so
as to affect them adversely without the affirmative vote of the holders of at
least 66 2/3% of the outstanding Series A Preferred Shares, voting as a separate
class; provided, however, that no such amendment approved by the holders of at
least 66 2/3% of the outstanding Series A Preferred Shares shall be deemed to
apply to the powers, preferences, rights or privileges of any holder of Series A
Preferred Shares originally issued upon exercise of the Rights after the time of
such approval without the approval of such holder.
FIFTH: No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential, preemptive or other right to
subscribe for, purchase or receive any shares of the Corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights, to subscribe to or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation other than as the Board of Directors in its
discretion may from time to time determine on such terms and conditions as the
Board of Directors may from time to time fix.
SIXTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The mail post office address to
which the Secretary of State shall mail a copy of any process against the
Corporation served upon him or her is 114 West 47th Street, New York, New York
10036.
SEVENTH: The accounting period which the Corporation intends to establish
as its first calendar or fiscal year for reporting the franchise tax imposed by
Article Nine-A of the Tax Law of the State of New York is the period ending
December 31, 1995.
EIGHTH: (A) Except as provided in paragraph (B), the affirmative vote, at a
meeting of the shareholders of the Corporation, of (i) the holders of at least
80% of the combined voting power of the then outstanding Voting Shares (as
hereinafter defined) of the Corporation and (ii) the holders of at least a
majority of the combined voting power of the then outstanding Voting Shares of
the Corporation held by Disinterested Shareholders (as hereinafter defined), in
each case voting together as a single class, shall be required prior to and as a
condition to the consummation of any Business Combination (as hereinafter
defined). Such vote shall be in addition to any shareholder vote required
without reference to this Article EIGHTH, and shall be required notwithstanding
that no vote may otherwise be required, or that some lesser percentage may be
specified, by law, by this certificate of incorporation, by the Corporation's
bylaws or otherwise.
(B) The provisions of paragraph (A) shall not apply to a particular
Business Combination, and such Business Combination shall require only such
shareholder vote or approval (if any) as would be required without reference to
this Article EIGHTH, if either (I) the Business Combination shall have been
approved by a majority of the Continuing Directors (as hereinafter defined),
whether such approval is given before or after the transaction in which the
Interested Shareholder (as hereinafter defined) became an Interested
Shareholder, or (II) all the conditions set forth in subparagraphs (1) through
(5) below are satisfied.
(1) The transaction constituting the Business Combination shall provide
that the holders of Common Shares shall receive a consideration in exchange for
their Common Shares, and the aggregate amount of cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the
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<PAGE>
Business Combination of consideration other than cash to be received per share
by holders of Common Shares in such Business Combination shall be at least equal
to the highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner (as hereinafter defined) which were acquired (i) within the two-year
period immediately prior to the date of the first public announcement of the
proposed Business Combination (the "Announcement Date") or (ii) in the
transaction in which the Interested Shareholder became an Interested
Shareholder, whichever is higher;
(b) the Fair Market Value per Common Share on the Announcement Date or on
the date on which the Interested Shareholder became an Interested Shareholder,
whichever is higher; and
(c) (if applicable) the price per share equal to the Fair Market Value per
Common Share determined pursuant to clause (b) immediately preceding multiplied
by the ratio of (i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner which were acquired within the two-year period immediately prior to the
Announcement Date to (ii) the Fair Market Value per Common Share on the first
day in such two-year period on which the Interested Shareholder was the
Beneficial Owner of any Common Shares.
(2) If the transaction constituting the Business Combination shall provide
that the holders of any class of outstanding Voting Shares other than Common
Shares shall receive a consideration in exchange for their shares, the aggregate
amount of cash and the Fair Market Value as of the date of the consummation of
the Business Combination of consideration other than cash to be received per
share by holders of such Voting Shares shall be at least equal to the highest of
the following (it being intended that the requirements of this subparagraph
(B)(2) shall be met with respect to every class of outstanding Voting Shares
other than Common Shares, whether or not the Interested Shareholder is the
Beneficial Owner of any shares of a particular class of such Voting Shares):
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner which were acquired (i) within the two-year
period immediately prior to the Announcement Date or (ii) in the transaction in
which the Interested Shareholder became an Interested Shareholder, whichever is
higher;
(b) (if applicable) the highest preferential amount per share to which the
holders of shares of such class of Voting Shares are entitled in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(c) the Fair Market Value per share of such class of Voting Shares on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder, whichever is higher; and
(d) (if applicable) the price per share equal to the Fair Market Value per
share of such class of Voting Shares determined pursuant to clause (c)
immediately preceding multiplied by the ratio of (i) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class of Voting Shares of
which the Interested Shareholder is the Beneficial Owner which were acquired
within the two-year period immediately prior to the
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<PAGE>
Announcement Date to (ii) the Fair Market Value per share of such class of
Voting Shares on the first day in such two-year period on which the Interested
Shareholder was the Beneficial Owner of any shares of such class of Voting
Shares.
(3) The consideration to be received in such Business Combination by
holders of a particular class of outstanding Voting Shares (including Common
Shares) shall be in cash or in the same form as was previously paid in order to
acquire shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner and, if the Interested Shareholder is the
Beneficial Owner of shares of any class of Voting Shares which were acquired
with varying forms of consideration, the form of consideration to be received by
holders of such class of Voting Shares shall be either cash or the form used to
acquire the largest number of shares of such class of Voting Shares of which the
Interested Shareholder is the Beneficial Owner.
(4) After such Interested Shareholder became an Interested Shareholder and
prior to the consummation of such Business Combination, (a) such Interested
Shareholder shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or tax credits provided by the Corporation or any
Subsidiary (as hereinafter defined), or made any major change in the
Corporation's business or equity capital structure or entered into any contract,
arrangement or understanding with the Corporation, except any such change,
contract, arrangement or understanding as may have been approved by a majority
of the Continuing Directors, (b) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividend (whether or not cumulative) on
any outstanding Preferred Shares or other shares of the Corporation entitled to
a preference over Common Shares as to dividends or upon liquidation; (c) there
shall have been (i) no reduction in the annual rate of dividends paid on the
Common Shares (except as necessary to reflect any subdivision of the Common
Shares), unless approved by a majority of the Continuing Directors, and (ii) an
increase in such annual rate of dividends (as necessary to prevent any such
reduction) in the event of any reclassification (including any reverse stock
split), recapitalization, reorganization or similar transaction which has the
effect of reducing the number of outstanding Common Shares, unless the failure
so to increase such annual rate is approved by a majority of the Continuing
Directors; (d) such Interested Shareholder shall not have become the Beneficial
Owner of any additional Voting Shares subsequent to the transaction in which it
became an Interested Shareholder; and (e) there shall have always been at least
three Continuing Directors on the Board of Directors of the Corporation.
(5) Whether or not required by law, a proxy or information statement
complying with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") shall have been mailed to all holders of Voting
Shares for the purpose of soliciting shareholder approval of such Business
Combination at least 30 days prior to the consummation thereof. Such proxy or
information statement shall contain at the front thereof, in a prominent place,
any recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have furnished
to the Corporation in writing and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment banking firm as to
the fairness (or lack of fairness) of the terms of such Business Combination
from the point of view of the Disinterested Shareholders (such investment
banking firm to be selected by a majority of the Continuing Directors, to be
furnished with all information it reasonably requests and to be paid a
reasonable fee by the Corporation for its services following the receipt by the
Corporation of such opinion).
(C) For the purposes of this Article EIGHTH:
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<PAGE>
(1) The term "Business Combination" means (i) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with an Interested
Shareholder (in a single transaction or a series of related transactions) of all
or a Substantial Part (as hereinafter defined) of the assets of the Corporation
(including without limitation any securities of a Subsidiary) or all or a
Substantial Part of the assets of a Subsidiary; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with the Corporation or to
or with a Subsidiary (in a single transaction or a series of related
transactions) of all or a Substantial Part of the assets of an Interested
Shareholder; (iii) any merger or consolidation of the Corporation or any
Subsidiary into or with an Interested Shareholder or into or with another
Corporation or company which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Shareholder, in each case
irrespective of which Corporation or company is the surviving entity in such
merger or consolidation; (iv) the issuance or transfer of any securities of the
Corporation or a Subsidiary by the Corporation or a Subsidiary to an Interested
Shareholder, with the exception of securities which, when aggregated with all
such securities so issued or transferred within the preceding five years to such
Interested Shareholder and the Affiliates and Associates (as hereinafter
defined) of such Interested Shareholder, or any of them, have a Fair Market
Value of less than $13 million, determined in each case as of the time of each
issuance or transfer in question and with the exception of an issuance of
securities upon conversion of convertible securities of the Corporation or of a
Subsidiary which were not acquired by the Interested Shareholder (or any such
Affiliate or Associate) from the Corporation or any Subsidiary; (v) any
reclassification of securities (including any reverse stock split or
consolidation of shares), recapitalization, reorganization, merger or
consolidation of the Corporation with any of its Subsidiaries, or any similar
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares or amount of any class of equity
security of the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Shareholder; (vi) any merger of the Corporation into a
Subsidiary, or any consolidation between the Corporation and a Subsidiary,
unless the surviving or consolidated corporation or company, as the case may be,
has a provision in its certificate of incorporation identical or substantially
similar to this Article EIGHTH; (vii) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed by or on behalf of
any Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or (viii) any agreement, contract or other arrangement providing
for any of the transactions hereinabove described in this definition of Business
Combination.
(2) "Interested Shareholder" at any particular time means, with respect to
any Business Combination, any Person (as hereinafter defined) (other than the
Corporation or any Subsidiary) who or which (i) is the Beneficial Owner of 10%
or more of the outstanding Voting Shares, (ii) is an Affiliate of the
Corporation and at any time within the preceding five years was the Beneficial
Owner of 10% or more of the then outstanding Voting Shares or (iii) is at such
time an assignee of or has otherwise succeeded to the beneficial ownership of
any Voting Shares of which any Interested Shareholder was the Beneficial Owner
at any time within the two-year period immediately prior to the date in
question, if such assignment or succession shall have occurred in the course of
a transaction or series of related transactions not involving any public
offering within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). "Person" means any individual, firm, corporation, company or
other entity.
(3) A Person shall be considered the "Beneficial Owner" of any Voting
Shares (i) which are owned beneficially (whether or not owned of record) by such
Person or by any Affiliate or Associate of such Person, (ii) which such Person
or any Affiliate or Associate of such Person has (a) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights,
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<PAGE>
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding, or (iii) which are owned beneficially
(whether or not owned of record) by any other Person with which such
first-mentioned Person or any of its Affiliates or Associates has any agreement,
arrangement or understanding with respect to acquiring, holding, voting or
disposing of any Voting Shares or acquiring, holding or disposing of all or a
Substantial Part of the assets of the Corporation or a Subsidiary. For the
purpose only of determining whether a Person is the Beneficial Owner of 10% or
more of the outstanding Voting Shares, such outstanding shares shall be deemed
to include any Voting Shares which may be issuable pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants, options or otherwise and of which such Person is deemed to be
the Beneficial Owner pursuant to the foregoing provisions of this subparagraph
(3). In addition to such provisions, for all purposes of this Article EIGHTH, a
Person shall be deemed to be the Beneficial Owner of Voting Shares if such
Person is deemed the beneficial owner thereof pursuant to Rule 13d-3 under the
Exchange Act.
(4) For the purpose of determining whether a Person is an Interested
Shareholder pursuant to subparagraph (2) of this paragraph (C), the number of
Voting Shares deemed to be outstanding shall include shares of which the
Interested Shareholder is deemed the Beneficial Owner through application of
subparagraph (3) of this paragraph (C) but shall not include any other Voting
Shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise.
(5) "Disinterested Shareholder" means a shareholder of the Corporation who
is not an Interested Shareholder or an Affiliate or an Associate of an
Interested Shareholder.
(6) The term "Voting Shares" means shares of the Corporation entitled to
vote generally in the election of directors, considered for the purposes of this
Article EIGHTH as one class.
(7) The term "Substantial Part" as used with reference to the assets of the
Corporation, of any Subsidiary or of any Interested Shareholder means assets
having a value of more than 5% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most recent
fiscal year ended prior to the time the determination is being made.
(8) For purposes of paragraph (B) of this Article EIGHTH, in the event of a
Business Combination upon consummation of which the Corporation would be the
surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or dissolution
of the Corporation will be adopted or effected), the term "consideration other
than cash to be received" shall include (without limitation) Common Shares of
the Corporation retained by shareholders of the Corporation other than
Interested Shareholders who are parties to such Business Combination.
(9) "Continuing Director" means a member of the Board of Directors of the
Corporation who is not an Affiliate or an Associate of an Interested Shareholder
and not a representative or nominee of an Interested Shareholder and who either
(i) was first elected as a director prior to the date as of which an Interested
Shareholder who or which proposes to enter into or be a party to or involved in
a Business Combination became an Interested Shareholder or (ii) was designated
(before his initial election as a director) as a continuing Director by a
majority of the then Continuing Directors.
(10) "Affiliate" means a Person who directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, another Person and in addition means any
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<PAGE>
"affiliate" as that term is defined in Rule 12b-2 under the Exchange Act (the
term "registrant" in such Rule 12b-2 meaning in this case the Corporation).
(11) "Associate" means (i) any corporation, company or organization of
which a Person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of 5% or more of any class (or series thereof) of equity
securities, (ii) any trust or other estate in which a Person has a 5% or larger
beneficial interest of any nature or as to which a Person serves as trustee or
in a similar fiduciary capacity, (iii) any spouse of a Person, (iv) any relative
of a Person, or any relative of a spouse of a Person, who has the same residence
as such Person or spouse, and (v) any "associate" as that term is defined in
such Rule 12b-2 (the term "registrant" in such Rule 12b-2 meaning in this case
the Corporation).
(12) "Subsidiary" means any corporation or company of which a majority of
any class (or series thereof) of equity security (as defined in Rule 3a11-1
under the Exchange Act) is owned, directly, or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Shareholder set forth in subparagraph (2) of this paragraph (C), the term
"Subsidiary" shall mean only a corporation or company of which a majority of
each class (or series thereof) of equity security is owned, directly or
indirectly, by the Corporation.
(13) "Fair Market Value" means: (1) in the case of shares, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such class of shares is not quoted on the Composite Tape, on the
New York Stock Exchange, or if such class is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange Act on
which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sale price (or highest closing bid quotation if
such closing sale price is not reported) with respect to such shares during the
30-day period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotation System or any system then in use,
or if no such quotations are available, the fair market value on the date in
question of a share as determined by a majority of the Continuing Directors in
good faith; and (2) in the case of property other than cash or shares, the fair
market value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
(14) As used in the definition of Business Combination, a "series of
related transactions" shall be deemed to include not only a series of
transactions with the same Interested Shareholder but also a series of separate
transactions with an Interested Shareholder and any Affiliate or Associate of
such Interested Shareholder.
(15) An Interested Shareholder shall be deemed to have acquired a share of
the Corporation at the time when such Interested Shareholder became the
Beneficial Owner thereof. With respect to shares owned by Affiliates, Associates
or other Persons whose ownership is attributed to an Interested Shareholder
under the foregoing definition of Beneficial Owner, if the price paid by such
Interested Shareholder for such shares is not determinable, the price so paid
shall be deemed to be the higher of (a) the price paid upon acquisition thereof
by the Affiliate, Associate or other Person or (b) the market price of the
shares in question at the time when the Interested Shareholder became the
Beneficial Owner thereof.
(D) A majority of the Continuing Directors shall have the power to
determine for the purposes of this Article EIGHTH, on the basis of information
known to them, (i) whether a Person is an Interested Shareholder, (ii) the
number of Voting Shares of which any Person is the Beneficial Owner, (iii)
whether a Person is an Affiliate or Associate of another, (iv) whether a Person
has an agreement, arrangement or
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<PAGE>
understanding with another as to the matters referred to in subparagraph (3) of
paragraph (C), (v) whether the assets subject to any Business Combination
constitute a "Substantial Part" as hereinabove defined, (vi) whether two or more
transactions constitute a "series of related transactions" as hereinabove
defined and (vii) any matters referred to in subparagraph (15) of paragraph (C).
Any such determination made in good faith shall be binding and conclusive on all
parties.
(E) Any amendment, change or repeal of this Article EIGHTH, or any other
amendment of this certificate of incorporation which would have the effect of
modifying or permitting circumvention of this Article EIGHTH, shall require the
affirmative vote, at a meeting of shareholders of the Corporation, of (i) the
holders of at least 80% of the combined voting power of the then outstanding
Voting Shares and (ii) the holders of at least a majority of the combined voting
power of the then outstanding Voting Shares held by Disinterested Shareholders,
in each case voting together as a single class; provided, however, that this
paragraph (E) shall not apply to, and such 80% vote and such majority vote shall
not be required for, any such amendment, change or repeal recommended to
shareholders by a majority of the Continuing Directors and any such amendment,
change or repeal so recommended shall require only the vote, if any, required
under the applicable provisions of the New York Business Corporation Law. For
purposes of this paragraph (E) only, if at the time when any such amendment,
change or repeal is under consideration there is no proposed Business
Combination (in which event clause (i) of the definition of Continuing Director
in subparagraph (C)(9) above would be inapplicable), the "Continuing Directors"
shall be deemed to be those persons who were members of the Board of Directors
of the Corporation at the time when the amendment of this certificate of
incorporation to add this Article EIGHTH was approved by shareholders plus those
persons who are Continuing Directors pursuant to clause (ii) of subparagraph
(C)(9).
(F) Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
(G) The fact that any Business Combination complies with the provisions of
this Article EIGHTH shall not be construed to impose any fiduciary obligation on
the Board of Directors, or any member thereof, to approve such Business
Combination or to recommend its adoption or approval by the shareholders of the
Corporation.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders or any of them for damages for any breach of
duty in such capacity, except as may otherwise be required by applicable law.
Any repeal or modification of this Article NINTH shall not adversely affect any
right or protection of a director of the Corporation with respect to any act or
omission occurring prior to, or at the time of, such repeal or modification.
-14-
EXHIBIT (5.1)
[LETTERHEAD OF U.S. TRUST CORPORATION]
July 14, 1999
The Board of Directors
NCT Holdings, Inc.
301 North Elm Street
Greensboro, North Carolina 27401
Ladies and Gentlemen:
I am the duly elected Managing Director and General Counsel of U.S. Trust
Corporation, a New York corporation (the "Corporation"). I am delivering this
opinion to you in connection with a registration statement (the "Registration
Statement") to be filed by the Corporation with the Securities and Exchange
Commission (the "Commission") on or about July 14, 1999, under the Securities
Act of 1933, as amended (the "Act"). The Registration Statement relates to the
registration of 900,000 common shares of the Corporation, par value $1.00 per
share (the "Securities"), and related share purchase rights (the "Rights"),
which will be acquired by shareholders (the "NCT Shareholders") of NCT Holdings,
Inc., a North Carolina corporation ("NCT"), pursuant to the Agreement and Plan
of Merger, dated as of May 14, 1999, among NCT, the Corporation and NCT Holdings
Acquisition Company, a wholly owned subsidiary of the Corporation (the
"Agreement").
For the purposes of this opinion, I have examined such corporate records,
certificates and other documents, and such questions of law, as I have
considered necessary or appropriate. I have relied as to certain matters upon
oral or written statements and representations of officers and other
representatives of the Corporation and others whom I believe to be responsible.
Based on and subject to the foregoing, and to the other qualifications and
limitations set forth herein, I am of the opinion that:
(1) The Securities, when issued and transferred to the NCT Shareholders as
contemplated by the Agreement and the Registration Statement, will be
validly issued, fully paid and nonassessable.
(2) Assuming that the rights agreement relating to the Rights has been duly
authorized, executed and delivered by the rights agent thereunder, the
Rights attributable to the Securities will be validly issued, fully
paid and nonassessable.
In connection with the opinion set forth in paragraph (2) above, I note that the
question of whether the Board of Directors of the Corporation might be required
to redeem the Rights at some future time will depend upon the facts and
circumstances existing at that time and, accordingly, is beyond the scope of my
opinion.
<PAGE>
The Board of Directors
NCT Holdings, Inc. -2-
The foregoing opinion is limited to the law of the State of New York. I express
no opinion as to the effect of the laws of any other jurisdiction.
I hereby consent to the use of my name under the heading "Validity of Shares" in
the prospectus which forms a part of the Registration Statement, and to the
filing of this opinion with the Commission as an exhibit to the Registration
Statement. In giving this consent, I do not thereby admit that I am within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission promulgated thereunder.
This opinion is expressed as of the date hereof, and I disclaim any undertaking
to advise you of any subsequent changes in the facts stated or assumed herein or
of any subsequent changes in applicable law.
Very truly yours,
/s/ Richard B. Gross
Richard B. Gross
Managing Director and General Counsel
U.S. Trust Corporation
EXHIBIT (8.1)
<TABLE>
<S> <C>
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK __________
FACSIMILE: (212) 558-3588 (125 Broad Street)
1701 PENNSYLVANIA AVE, N.W., WASHINGTON, D.C. 20006-5805
1888 CENTURY PARK EAST, LOS ANGELES 90067-1725
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO 100
NINE QUEEN'S ROAD, CENTRAL, HONG KONG
OBERLINDAU 54-56, 60323 FRANKFURT AM MAIN
</TABLE>
July 14, 1999
U.S. Trust Corporation,
114 West 47th Street,
New York, NY,
10036.
Re: Form S-4 Registration Statement
Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration
Statement on Form S-4 filed on July 14, 1999 with the Securities and Exchange
Commission (the "Registration Statement") and hereby confirm to you that, in our
opinion, the discussion under the heading "Principal U.S. Federal Income Tax
Consequences of the Merger" in the Registration Statement accurately describes
the United States federal income tax consequences of the merger applicable to
U.S. Trust, NCT, NCT Holdings Acquisition Company, and the holders of NCT
common shares, subject to the assumptions and limitations set forth under such
heading.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Registration Statement.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Registration Statement and all
amendments thereto. In giving such consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/SULLIVAN & CROMWELL
EXHIBIT (23.1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of U.S. Trust Corporation of our report, dated January 20,
1999, on our audits of the consolidated financial statements of U.S. Trust
Corporation and its subsidiaries as of December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, which report is
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
July 12, 1999
EXHIBIT (23.2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use in the Registration Statement on Form S-4 of U.S. Trust Corporation of our
report dated October 29, 1998 (except for Note 14, as to which the date is May
14, 1999) with respect to the consolidated financial statements of NCT Holdings,
Inc. and its subsidiaries as of September 30, 1998 and 1997, and for each of the
three years in the period ended September 30, 1998.
/s/ Ernst & Young LLP
Ernst & Young LLP
Greensboro, North Carolina
July 12, 1999
EXHIBIT (99.1)
NCT HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 19, 1999
The undersigned, having received the Notice of Special Meeting of
Shareholders and Proxy Statement/Prospectus dated July 14, 1999 (the "Proxy
Statement") of NCT Holdings, Inc. (the "Company"), hereby appoints Stephen C.
Hassenfelt and Sue W. Cole, and each of them, proxies of the undersigned, with
full power of substitution, to represent the undersigned at the Special Meeting
of Shareholders of the Company to be held on August 19, 1999, and at any
adjournments or postponements thereof (the "Special Meeting") and to vote all
shares of Common Stock which the undersigned would be entitled to vote if
personally present at the Special Meeting in the manner the undersigned
specifies in this Proxy Card (or, if the undersigned does not specify how to
vote, to vote all such shares "FOR" all Proposals referred to in this Proxy Card
and to vote in the discretion of the proxies as to any other matters coming
before the Special Meeting).
Please promptly mark this Proxy Card to specify how you would like your
shares voted and date, sign and mail it in the enclosed envelope. No postage is
required. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE
PROPOSALS REFERRED TO IN THIS PROXY CARD.
Proposal (1) Proposal to approve the Agreement and Plan of Merger,
dated as of May 14, 1999, among NCT Holdings, Inc.,
U.S. Trust Corporation and NCT Holdings Acquisition
Company, a wholly owned subsidiary of U.S. Trust
Corporation, and the merger of NCT Holdings, Inc.
into NCT Holdings Acquisition Company.
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal (2) Proposal to approve certain merger-related
compensation payments to employees of North Carolina
Trust Company.
[_] FOR [_] AGAINST [_] ABSTAIN
As explained in the Proxy Statement, the plan of merger and the related
compensation payments will be voted on separately, but approval of the payments
is a condition to the merger. Therefore, the merger will not be completed if the
payments are not approved. Similarly, completing the merger is a condition to
making the compen- sation payments, and the compensation will not be paid unless
the merger is completed.
In addition, the undersigned authorizes such proxies to vote such shares in
their discretion as to any other matters coming before the Special Meeting.
IF YOU EXECUTE AND RETURN THIS PROXY CARD BUT DO NOT SPECIFY THE MANNER IN
WHICH THE PROXIES SHOULD VOTE YOUR SHARES, THE PROXIES WILL VOTE YOUR SHARES
"FOR" ALL OF THE FOREGOING PROPOSALS AND IN THEIR DISCRETION AS TO ANY OTHER
MATTERS COMING BEFORE THE MEETING.
___________________________________________
(Signature)
___________________________________________
(Signature if held jointly)
Dated: ______________________________, 1999
Please date this Proxy Card and sign your
name exactly as it appears hereon. Where
there is more than one owner, each should
sign. When signing as an attorney,
administrator, executor, guardian or
trustee, please add your title as such. If
executed by a corporation, this Proxy Card
should be signed by a duly authorized
officer. If executed by a partnership,
please sign in partnership name by
authorized persons.
Exhibit (99.2)
NCT HOLDINGS, INC.
PASS-THROUGH VOTING PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 19, 1999
The undersigned, having received the Notice of Special Meeting of
Shareholders and Proxy Statement/Prospectus dated July 14, 1999 (the "Proxy
Statement") of NCT Holdings, Inc. (the "Company"), hereby appoints Sharon C.
Daniel, D. Kenneth Dimock and Elden J. LeGaux, and each of them, proxies of the
undersigned, with full power of substitution, to represent the undersigned at
the Special Meeting of Shareholders of the Company to be held on August 19,
1999, and at any adjournments or postponements thereof (the "Special Meeting")
and to vote all shares of Common Stock allocated to the account of the
undersigned under the Employee Stock Ownership Plan of NCT Holdings, Inc. and
North Carolina Trust Company in the manner the undersigned specifies in this
Proxy Card (or, if the undersigned does not specify how to vote, to vote all
such shares "FOR" all Proposals referred to in this Proxy Card).
Please promptly mark this Proxy Card to specify how you would like your
shares voted and date, sign and mail it in the enclosed envelope. No postage is
required. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE
PROPOSALS REFERRED TO IN THIS PROXY CARD.
Proposal (1) Proposal to approve the Agreement and Plan of
Merger, dated as of May 14, 1999, among NCT Holdings,
Inc., U.S. Trust Corporation and NCT Holdings
Acquisition Company, a wholly owned subsidiary of U.S.
Trust Corporation, and the merger of NCT Holdings, Inc.
into NCT Holdings Acquisition Company.
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal (2) Proposal to approve certain merger-related
compensation payments to employees of North Carolina
Trust Company.
[_] FOR [_] AGAINST [_] ABSTAIN
As explained in the Proxy Statement, the plan of merger and the related
compensation payments will be voted on separately, but approval of the payments
is a condition to the merger. Therefore, the merger will not be completed if the
payments are not approved. Similarly, completing the merger is a condition to
making the compen- sation payments, and the compensation will not be paid unless
the merger is completed.
IF YOU EXECUTE AND RETURN THIS PROXY CARD BUT DO NOT SPECIFY THE MANNER IN
WHICH THE PROXIES SHOULD VOTE YOUR SHARES, THE PROXIES WILL VOTE YOUR SHARES
"FOR" ALL OF THE FOREGOING PROPOSALS. IF YOU DO NOT EXECUTE AND RETURN THIS
PROXY CARD, YOUR SHARES WILL NOT BE VOTED.
___________________________________________
(Signature)
___________________________________________
(Signature if held jointly)
Dated:_______________________________, 1999
Please date this Proxy Card and sign your
name exactly as it appears hereon.
