<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: JUNE 30, 1999
Commission file number: 1-14933
U.S. TRUST CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3818952
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
114 West 47th Street, New York, New York 10036-1532
(Address of principal executive offices) (Zip Code)
(212) 852-1000
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
18,417,753 shares, Common Stock, $1 par value, as of July 31, 1999
<PAGE> 2
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page
<S> <C>
Condensed Consolidated Statement of Income:
For the Three Months Ended June 30, 1999 and 1998 3
For the Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statement of Condition as of June 30, 1999
and December 31, 1998 5
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1999 and 1998 6
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 7
Notes to the Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 12 - 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 - 25
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURE 32
</TABLE>
2
<PAGE> 3
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------
INCREASE (DECREASE)
-----------------------
1999 1998 $ %
---- ---- - -
<S> <C> <C> <C> <C>
Fee Revenue $105,095 $ 83,293 $ 21,802 26.2%
Net Interest Revenue (*) 29,008 24,704 4,304 17.4
-------- -------- -------- --------
TOTAL REVENUE 134,103 107,997 26,106 24.2
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 34,986 29,144 5,842 20.0
Performance Compensation 14,672 11,465 3,207 28.0
Sales Commissions and Incentives 6,955 4,962 1,993 40.2
Other Employee Benefits 8,324 7,183 1,141 15.9
-------- -------- -------- --------
Total Salaries, Performance
Compensation and Other Benefits 64,937 52,754 12,183 23.1
Net Occupancy 9,560 8,886 674 7.6
Other 27,306 21,287 6,019 28.3
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 101,803 82,927 18,876 22.8
-------- -------- -------- --------
Income Before Income Tax Expense 32,300 25,070 7,230 28.8
Income Tax Expense 12,759 9,777 2,982 30.5
-------- -------- -------- --------
NET INCOME $ 19,541 $ 15,293 $ 4,248 27.8%
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 1.05 $ 0.81 $ 0.24 29.6%
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.93 $ 0.73 $ 0.20 27.4%
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(*) Net Interest Revenue consists of interest income, net securities gains
(losses) less interest expense and the provision for credit losses.
3
<PAGE> 4
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------
INCREASE (DECREASE)
-----------------------
1999 1998 $ %
---- ---- - -
<S> <C> <C> <C> <C>
Fee Revenue $205,065 $161,913 $ 43,152 26.7%
Net Interest Revenue (*) 57,929 50,058 7,871 15.7
-------- -------- -------- --------
TOTAL REVENUE 262,994 211,971 51,023 24.1
-------- -------- -------- --------
OPERATING EXPENSES
Salaries 67,354 55,782 11,572 20.7
Performance Compensation 31,180 22,087 9,093 41.2
Sales Commissions and Incentives 13,383 9,016 4,367 48.4
Other Employee Benefits 16,597 14,769 1,828 12.4
-------- -------- -------- --------
Total Salaries, Performance
Compensation and Other Benefits 128,514 101,654 26,860 26.4
Net Occupancy 19,139 17,889 1,250 7.0
Other 52,717 43,268 9,449 21.8
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 200,370 162,811 37,559 23.1
-------- -------- -------- --------
Income Before Income Tax Expense 62,624 49,160 13,464 27.4
Income Tax Expense 24,736 19,172 5,564 29.0
-------- -------- -------- --------
NET INCOME $ 37,888 $ 29,988 $ 7,900 26.3%
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 2.04 $ 1.59 $ 0.45 28.3%
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 1.81 $ 1.43 $ 0.38 26.6%
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(*) Net Interest Revenue consists of interest income, net securities gains
(losses) less interest expense and the provision for credit losses.
4
<PAGE> 5
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CONDITION
(Dollars In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Cash and Due from Banks $ 248,430 $ 108,346
Interest Earning Securities 1,173,271 1,517,351
Loans, Net of Allowance for Credit Losses
($19,711 in 1999 and $19,414 in 1998) 2,457,266 2,171,393
Other Assets 370,170 345,772
---------- ----------
Total Assets $4,249,137 $4,142,862
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total Deposits $3,512,026 $3,414,791
Short and Long-Term Credit Facilities 215,369 208,698
Other Liabilities 265,430 274,738
---------- ----------
Total Liabilities 3,992,825 3,898,227
---------- ----------
Stockholders' Equity 256,312 244,635
---------- ----------
Total Liabilities and Stockholders' Equity $4,249,137 $4,142,862
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Capital Retained Treasury Loan to Comprehensive Stockholders'
Stock Surplus Earnings Stock ESOP Income Equity
----- ------- -------- ----- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 19,971 $ 18,902 $293,289 $ (87,768) $ (3,773) $ 4,014 $ 244,635
Net Income 37,888 37,888
Change in Net Unrealized (Loss) on
Securities Available for Sale (10,350) (10,350)
-------- -------- ---------
Total Comprehensive Income 37,888 (10,350) 27,538
Purchases of Treasury Stock (27,331) (27,331)
Principal Payment by ESOP 3,773 3,773
Cash Dividends Declared ($0.44 Per
Share) (8,159) (8,159)
Issuance of Shares for Acquisition 1,757 5,801 7,558
Capital Effect of Employee Benefit
Plans 76 1,738 18 6,466 8,298
-------- --------- -------- --------- -------- -------- ---------
BALANCE, JUNE 30, 1999 $ 20,047 $ 22,397 $323,036 $(102,832) $ - $ (6,336) $ 256,312
======== ========= ======== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Capital Retained Treasury Loan to Comprehensive Stockholders'
Stock Surplus Earnings Stock ESOP Income Equity
----- ------- -------- ----- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 19,895 $ 12,325 $244,980 $ (42,627) $ (7,254) $ 3,827 $ 231,146
Net Income 29,988 29,988
Change in Net Unrealized (Loss) on
Securities Available for Sale (70) (70)
-------- -------- ---------
Total Comprehensive Income 29,988 (70) 29,918
Purchases of Treasury Stock (28,210) (28,210)
Principal Payment by ESOP 3,481 3,481
Cash Dividends Declared ($0.36 Per
Share) (6,772) (6,772)
Issuance of Shares for Acquisition -
Capital Effect of Employee Benefit
Plans 37 1,230 55 3,644 4,966
-------- -------- -------- --------- -------- -------- ---------
BALANCE, JUNE 30, 1998 $ 19,932 $ 13,555 $268,251 $ (67,193) $ (3,773) $ 3,757 $ 234,529
======== ======== ======== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
U.S. TRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Net Cash Provided by Operating Activities $ 38,713 $ 48,349
--------- ---------
Cash Flows From Investing Activities:
Interest Earning Securities:
Purchases (286,698) (169,534)
Sales 10,019 1,315
Maturities, Calls and Mandatory Redemptions 600,602 437,814
Net Change in Loans (286,224) (93,832)
Other, Net (7,538) (10,985)
--------- ---------
Net Cash Provided by (Used in) Investing Activities 30,161 164,778
--------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits 44,234 (45,610)
Net Change in Interest Bearing Deposits 53,001 (85,257)
Net Change in Short-Term Credit Facilities 11,444 (16,787)
Repayments of Long-Term Debt (4,773) (4,481)
Purchases of Treasury Stock (27,331) (28,210)
Other, Net (5,365) (5,303)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 71,210 (185,648)
--------- ---------
Net Change in Cash and Cash Equivalents 140,084 27,479
Cash and Cash Equivalents at January 1 108,346 74,887
--------- ---------
Cash and Cash Equivalents at June 30 $ 248,430 $ 102,366
========= =========
Income Taxes Paid $ 22,095 $ 21,144
Interest Expense Paid 60,625 59,713
Noncash Item:
Issuance of stock for employee benefit plans $ 8,763 $ 4,733
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
U. S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
U.S. Trust Corporation (individually, the "Parent") and its wholly owned
subsidiaries (collectively, with the Parent, the "Corporation"). All material
intercompany accounts and transactions have been eliminated in consolidation.
The accounting and reporting policies of the Corporation conform with
generally accepted accounting principles and general practice within the
investment management and banking industries. The preparation of financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities (including, but not limited to the allowance for credit losses,
retirement and postretirement benefits and deferred income taxes) as of the
financial statement dates and the reported amounts of revenues and expenses
during the reporting periods. Since management's judgment involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results.
In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position and results of operations
for the interim periods have been made. Such adjustments, unless otherwise noted
in these Notes to the Condensed Consolidated Financial Statements and/or
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Part I - Item 2 of this report), are of a normal recurring nature.
These financial statements should be read in conjunction with the audited
financial statements included in the Corporation's annual report on Form 10-K
for the year ended December 31, 1998 as well as the Form 10-Q for the first
quarter of 1999.
2. ACCOUNTING CHANGES AND DEVELOPMENTS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("FAS 131") was issued in
June 1997, effective for interim and annual periods beginning with consolidated
financial statements for December 31, 1998. Comparative prior period information
is required. FAS 131 requires disclosure of financial and descriptive
information about the Corporation's reportable operating segments. The
Corporation has presented the financial disclosures and commentary prescribed by
FAS 131 in the "Businesses of U.S Trust" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations (Part I - Item 2 of
this report).
In March 1998, Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1")
was issued effective for financial statements issued in 1999. SOP 98-1 requires
the capitalization of eligible costs of specified activities related to computer
software developed or obtained for internal use. SOP 98-1 was adopted by the
Company on January 1, 1999. The adoption of SOP 98-1 has not had a material
effect on the Corporation's financial condition or results of operations.
8
<PAGE> 9
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING CHANGES AND DEVELOPMENTS (CONTINUED)
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("FAS 133") was
issued. FAS 133 establishes accounting and reporting standards for derivatives.
FAS 133 requires recognition of all derivatives as either assets or liabilities
in the statement of financial condition and measurement of those instruments at
fair value. Fair market valuation adjustments for derivatives meeting hedge
criteria will be recorded in either comprehensive income or earnings depending
on their classification. The Corporation's use of derivatives to date has been
limited to utilizing interest rate swaps as hedges to mitigate interest rate
exposure associated with short-term floating interest-rate deposits. As such
this use of interest rate swaps would be categorized as a cash flow hedge (as
defined by FAS 133) and the effective portion of the gain or loss on the
interest rate swaps would be recorded in comprehensive income. In June 1999,
Statement of Financial Accounting Standards No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No 133" ("FAS 137") was issued. FAS 137 delayed the effective date of
FAS 133 one year to fiscal years beginning after June 15, 2000. Management is
evaluating the impact of adopting FAS 133 and does not believe that it will have
a material impact on its financial condition or its results from operations.
3. ACQUISITIONS
On January 29, 1999, the Corporation acquired Radnor Capital
Management, Inc., an investment management company located in Wayne,
Pennsylvania with approximately $727 million in assets under management. Under
the terms of the acquisition, the Corporation made a $7.8 million initial
payment in the form of the Corporation's common shares (101,604 shares) and may
make additional payments in its own common shares based upon business retention
and other conditions. The acquisition was accounted for as a purchase and did
not have a material effect on the Corporation's financial statements.
On May 17, 1999, the Corporation announced that it had signed a
definitive agreement to acquire NCT Holdings, Inc. the parent of North Carolina
Trust Company, a non-deposit banking corporation headquartered in Greensboro,
North Carolina. North Carolina Trust Company primarily engages in the business
of investment management and fiduciary services and currently has approximately
$2.5 billion in assets under management. The acquisition, which is subject to
regulatory approval, is expected to close during the third quarter of 1999.
9
<PAGE> 10
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EARNINGS PER SHARE
The calculations of Basic Earnings per Share and Diluted Earnings per
Share for the three-month and six-month periods ended June 30, 1999 and June 30,
1998 are reflected in the following table.
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income for basic earnings per share $19,541 $15,293 $37,888 $29,988
Dividend equivalents on stock based benefit plans (after-tax) 218 177 394 322
------- ------- ------- -------
Net income for diluted earnings per share $19,759 $15,470 $38,282 $30,310
Weighted average shares outstanding for basic earnings per share 18,528 18,806 18,546 18,882
Dilutive effect of stock based benefit plans 2,656 2,369 2,551 2,269
------- ------- ------- -------
Total dilutive shares outstanding 21,184 21,175 21,097 21,151
======= ======= ======= =======
Basic earnings per share $ 1.05 $ 0.81 $ 2.04 $ 1.59
======= ======= ======= =======
Diluted earnings per share $ 0.93 $ 0.73 $ 1.81 $ 1.43
======= ======= ======= =======
</TABLE>
5. NET INTEREST REVENUE
The following is an analysis of the composition of net interest
revenue:
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
-------------------------------------- -----------------------------------------
Increase Increase
-------- --------
(In Thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- -------------------------------------- --------- --------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest revenue:
Loans $ 41,324 $ 36,651 12.7% 80,875 72,037 12.3%
Securities:
Taxable 14,120 14,904 (5.3) 28,203 30,809 (8.5)
Tax-exempt 1,146 937 22.3 2,243 1,814 23.6
Short-term investments and deposits
with banks 2,536 2,534 0.1 6,298 6,151 2.4
--------- --------- --------- --------- --------- ---------
Total interest revenue 59,126 55,026 7.5 117,619 110,811 6.1
--------- --------- --------- --------- --------- ---------
Interest expense:
Deposits 26,972 26,146 3.2 53,731 52,864 1.6
Short and long-term credit facilities 3,162 4,029 (21.5) 5,976 7,592 (21.3)
--------- --------- --------- --------- --------- ---------
Total interest expense 30,134 30,175 (0.1) 59,707 60,456 (1.2)
--------- --------- --------- --------- --------- ---------
Net interest income 28,992 24,851 16.7 57,912 50,355 15.0
Provision for credit losses -- (150) N/M -- (300) N/M
Securities gains, net 16 3 N/M 17 3 N/M
--------- --------- --------- --------- --------- ---------
Net interest revenue $ 29,008 $ 24,704 17.4% $ 57,929 $ 50,058 15.7%
========= ========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
U.S. TRUST CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PLEDGED ASSETS
Financial instruments carried at $228.5 million on June 30, 1999 and
$230.3 million on December 31, 1998 were pledged to secure public deposits as
collateral for borrowings, to qualify for fiduciary powers and for other
permitted purposes.
7. CONTINGENCIES
There are various pending and threatened actions and claims against the
Corporation in which the Corporation has denied liability and which it will
vigorously contest. Although there can be no assurance as to the ultimate
outcome, management, after consultation with counsel and based on current
available information, is of the opinion that the ultimate resolution of such
matters, taken in the aggregate, is unlikely to have a material adverse effect
on the Corporation's financial position, results of operations or cash flows.
8. RECLASSIFICATIONS
Certain amounts presented in the prior period have been reclassified to
conform with the current year's presentation.
9. OPERATING SEGMENTS
The Corporation has presented the financial disclosures on its
operating segments in the "Businesses of U.S. Trust" section of Management's
Discussion and Analysis of Financial Condition and Results of Operations (Part I
- - Item 2 of this report).
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL REPORTING MATTERS
In this Form 10-Q we make certain forward-looking statements with
respect to the financial condition, results of operations and business of the
Corporation. These forward-looking statements may contain words such as
"believes," "expects," "anticipates," "estimates" or similar expressions.
We caution that these statements are not guarantees of future
performance. They involve a number of risks and uncertainties that are difficult
to predict. Factors that may cause actual results to differ materially from
those expressed or implied in the forward-looking statements, include but are
not limited to the following:
- - Competitive pressures in the investment or asset management, corporate
fiduciary or private banking industries may increase significantly.
- - General economic or business conditions, or volatility in the equity,
fixed income and real estate markets, may be unfavorable. Such economic
environments could result in, among other things, a reduced demand for
asset management or other financial services, or a decline in assets
under management over a short or an extended time period. Fee revenues
and net interest revenue could be negatively impacted by such events.
- - Legislative changes, including but not limited to legislation related
to income and estate tax matters, and regulatory changes in banking or
other businesses that the Corporation engages in, may adversely affect
its financial condition.
- - Technological changes, including changes required to address "Year
2000" data systems issues, may be more difficult or expensive to
implement than anticipated or year 2000 issues at other companies may
adversely affect operations.
You should not place undue reliance on these foward-looking statements, which
speak only as of the date of this document or the date of any document
incorporated by reference.
CONSOLIDATED RESULTS OF OPERATIONS
Net income for the second quarter of 1999 was $19.5 million, compared
to $15.3 million earned in the second quarter of 1998. On a diluted basis,
income per share was $0.93 in the second quarter of 1999, versus $0.73 in the
second quarter of 1998. The Corporation's annualized return on average
stockholders' equity was 30.5% for the second quarter of 1999, compared to 26.4%
for the second quarter of 1998. For the six month period, the Corporation's
annualized return on average stockholders' equity was 30.1% compared to 26.0%
for the 1998 period.
12
<PAGE> 13
FEE REVENUE
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------------------- -------------------------------------
June 30, June 30, Increase June 30, June 30, Increase
(In Thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- -------------------------- ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Personal wealth management $ 81,512 $ 62,483 30.5 % $160,229 $120,851 32.6 %
Institutional services 23,583 20,810 13.3 44,836 41,062 9.2
-------- -------- -------- -------- -------- --------
Fee revenue $105,095 $ 83,293 26.2 $205,065 $161,913 26.7
======== ======== ======== ======== ======== ========
Market related fees $ 86,998 $ 67,849 28.2 % 168,532 131,353 28.3 %
Transaction related fees 18,097 15,444 17.2 36,533 30,560 19.5
-------- -------- -------- -------- -------- --------
Fee revenue $105,095 $ 83,293 26.2 $205,065 $161,913 26.7
======== ======== ======== ======== ======== ========
</TABLE>
Fee revenue for the second quarter of 1999 increased approximately
$21.8 million to $105.1 million from $83.3 million in the second quarter of
1998. Market related fee revenue increased by $19.1 million to $87.0 million
from $67.8 million in the second quarter of 1998. The increase in fee revenue
during this period was attributable to strong new business, acquisitions and
appreciation in the equity markets.
Market related fee revenue is based primarily on the market value of
the assets in clients' investment management accounts. In general, fee revenue
is influenced by a variety of factors, including growth or decline of stock,
bond and real estate market levels, new business, acquisitions, changes in fee
rate schedules and added services. Fee revenue is negatively impacted by the
outflow of investment management assets due to terminating trusts, client
withdrawals, income and estate taxes and lost business. Fee revenue related to
market conditions is determined on a sliding scale so that as the value of a
client's portfolio grows in size, the Corporation earns a smaller percentage on
the increasing account value. Therefore, market value or other incremental
changes in a portfolio's size may not typically have a proportionate impact on
the level of fee revenue. In general, fee revenue is calculated quarterly based
upon the value of the prior quarters' assets under management. Another important
factor in the determination of fee revenues is the type of assets under
management. Depending on how assets under management are invested, fluctuations
in any one market will not necessarily have a proportionate impact on the
overall level of fee revenue. The following is a comparative analysis of the
composition of assets under management.
13
<PAGE> 14
<TABLE>
<CAPTION>
June 30, March 31, June 30,
1999 1999 1998
==========================================
<S> <C> <C> <C>
Equity securities 57 % 57 % 56 %
Fixed income securities 28 27 30
Short-term money management, real estate and other 15 16 14
-------------------------------------------
100 % 100 % 100 %
===========================================
</TABLE>
The following table delineates assets under management and administration as of
June 30, 1999, December 31, 1998 and June 30, 1998. This analysis is presented
on a consolidated and segment basis. Unless otherwise noted, asset values are
measured at their estimated fair value.
<TABLE>
<CAPTION>
June vs. June vs.
March June
June 30, March 31, June 30, Increase Increase
(In Billions) 1999 1999 1998 (Decrease) (Decrease)
- ------------------------------------ ---- ---- ---- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED ASSETS UNDER MANAGEMENT:
Investment management $ 65.1 $ 66.1 $ 54.2 (1.5)% 20.1%
Special fiduciary 13.0 13.4 14.0 (2.9) (7.0)
-------- -------- -------- ------- ------
Total assets under management 78.1 79.5 68.2 (1.7) 14.6
-------- -------- -------- ------- ------
Assets under administration:
Personal custody and other 22.4 20.3 22.4 10.4 0.1
Corporate and municipal trusteeships
and agency relationships, at par 315.5 310.6 279.7 1.6 12.8
-------- -------- -------- ------- ------
Total assets under administration 337.9 330.9 302.1 2.1 11.8
-------- -------- -------- ------- ------
Total assets under management and
administration $ 416.0 $ 410.4 $ 370.3 1.4% 12.3%
======== ======== ======== ======= ======
SEGMENT ASSETS UNDER MANAGEMENT AND
ADMINISTRATION:
Personal wealth management
Assets under management $ 53.1 $ 54.0 $ 42.4 (1.7)% 25.1%
Assets under administration 19.6 15.5 16.2 26.5 21.0
-------- -------- -------- ------- ------
Total 72.7 69.5 58.7 4.6 24.0
-------- -------- -------- ------- ------
Institutional
Assets under management 25.0 25.5 25.7 (1.9) (2.8)
Assets under administration 318.3 315.4 285.9 0.9 11.3
-------- -------- -------- ------- ------
Total 343.3 340.9 311.7 0.7 10.1
-------- -------- -------- ------- ------
Total assets under management and
administration $ 416.0 $ 410.4 $ 370.3 1.4% 12.3%
======== ======== ======== ======= ======
</TABLE>
14
<PAGE> 15
Investment management assets at June 30, 1999 were $65.1 billion
compared to $61.3 billion at December 31, 1998, and $54.2 billion at June 30,
1998. On January 29, 1999, the Corporation acquired Radnor Capital Management,
Inc., which managed approximately $727 million in assets (see Note 3 to Notes to
the Condensed Consolidated Financial Statements in Part I - Item 1 of this
report).
As of June 30, 1999, U.S. Trust's Campbell, Cowperthwait Division had
$3.1 billion of assets under management, compared with $2.9 billion as of June
30, 1998. As of March 31, 1999, the division had $5.9 billion of assets under
management. Management believes that the reduction in assets under management
was due to significant employee turnover in the division during the first
quarter of 1999, which has now ended. The estimated annualized fee revenue
related to assets withdrawn from U.S. Trust's Campbell, Cowperthwait Division
is approximately three percent of the corporation's estimated 1999 total fee
revenue.
Approximately $8.2 billion of assets under management were invested in
the Corporation's Excelsior Funds at June 30, 1999. At December 31, 1998 and
June 30, 1998, total assets under management invested in the Excelsior Funds
were $7.5 billion and $6.9 billion, respectively.
NET INTEREST REVENUE
Net interest revenue is affected by changes in the absolute levels of
interest rates and shifts in the term structure of interest rates, funding
strategies, and the impact of changes in the credit quality of the loan
portfolio. The net yield on interest earning assets for the quarter ended June
30, 1999 has increased moderately to 3.31% from 3.22% for the quarter ended June
30, 1998. Taxable equivalent net interest revenue for the second quarter of 1999
was $29.9 million an increase of $4.3 million from the comparable 1998 period.
Average interest earning assets increased by 13.4% to approximately $3.6 billion
as of June 30, 1999 compared to approximately $3.2 billion at June 30, 1998.
The loan portfolio is the largest component of average total assets.
Average loans for the second quarter of 1999 were $2.3 billion, a $401.8 million
or 20.9% increase over average loans for the second quarter of 1998. The
Corporation's loan portfolio is predominantly comprised of loans to private
banking customers. Approximately 73.7% and 72.1% of total loans are
collateralized by residential real estate mortgages at June 30, 1999 and June
30, 1998, respectively.
15
<PAGE> 16
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
--------------------------------------------- ------------------------------------------
(In Thousands) 1999 Rate 1998 Rate 1999 Rate 1998 Rate
- ----------------------------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Securities $ 1,281,922 5.84% $1,259,040 6.07% $1,333,865 5.79% $1,309,429 6.14%
Loans 2,323,151 7.13% 1,925,155 7.64% 2,251,599 7.24% 1,887,432 7.70%
----------- ----- ---------- ----- ---------- ----- ---------- -----
Total Interest Earning Assets $ 3,605,073 6.67% $3,184,195 7.02% $3,585,464 6.70% $3,196,861 7.06%
=========== ===== ========== ===== ========== ===== ========== =====
Interest Bearing Deposits 2,668,442 4.05% 2,234,269 4.69% 2,661,348 4.07% 2,261,871 4.71%
Short-Term Credit Facilities 162,426 4.65% 200,568 5.30% 148,095 4.59% 182,916 5.27%
Long-Term Credit Facilities 63,000 8.09% 68,058 8.06% 63,867 8.07% 69,029 8.04%
----------- ----- ---------- ----- ---------- ----- ---------- -----
Total Interest Bearing Liabilities $ 2,893,868 4.18% $2,502,895 4.84% $2,873,310 4.19% $2,513,816 4.85%
=========== ===== ========== ===== ========== ===== ========== =====
Net Free Funds* 711,205 681,300 712,154 683,045
----------- ---------- ---------- ----------
Total Interest Bearing Liabilities
And Net Free Funds $ 3,605,073 $3,184,195 $3,585,464 $3,196,861
=========== ========== ========== ==========
Net Yield 3.31 3.22 3.34 3.25
===== ===== ===== =====
Interest Spread 2.49 2.18 2.51 2.21
===== ===== ===== =====
</TABLE>
* Net free funds in the table above includes average stockholders' equity of
$256,930 and $232,392 at June 30, 1999 and June 30, 1998, respectively for the
quarters then ended and $254,158 and $232,602, respectively for the six month
periods then ended. Loans and Stockholders' Equity (included in Net Free Funds
above) includes the Loan to ESOP which had an average balance of $3.8 million
and $4.3 million for the quarter and six months ended June 30, 1998
respectively.
16
<PAGE> 17
OPERATING EXPENSES
The following table provides details of operating expenses for the second
quarters of 1999 and 1998.
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
----------------------------------- -----------------------------------
June 30, June 30, Increase June 30, June 30, Increase
(In Thousands) 1999 1998 (Decrease) 1999 1998 (Decrease)
- ------------------------------------ ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Salaries and other employee benefits $ 43,310 $ 36,327 19.2% $ 83,951 $ 70,551 19.0%
Performance compensation 14,672 11,465 28.0 31,180 22,087 41.2
Sales commissions and incentives 6,955 4,962 40.2 13,383 9,016 48.4
Occupancy 9,560 8,886 7.6 19,139 17,889 7.0
Other 27,306 21,287 28.3 52,717 43,268 21.8
-------- -------- ----- -------- -------- -----
Total operating expenses $101,803 $ 82,927 22.8% $200,370 $162,811 23.1%
======== ======== ===== ======== ======== =====
</TABLE>
Operating expenses increased by $18.9 million in the second quarter of
1999, compared to the second quarter of 1998. The Corporation's pre-tax margin
was 24.1% for the second quarter of 1999 and 23.2% for the second quarter of
1998.
Salaries and other employee benefits increased $7.0 million from the
second quarter of 1998. The number of full-time equivalent employees increased
10.7% to 1,834 at June 30, 1999, compared to 1,656 at June 30, 1998. The
increase in employees is attributable to acquisitions and internal growth
required to meet an expanding customer base.
Performance compensation is determined based upon the Corporation's
financial performance as measured by the Corporation's diluted earnings per
share, adjusted to offset the impact of extraordinary or nonrecurring events, or
other conditions or circumstances that warrant consideration. Performance
compensation increased $3.2 million in the second quarter of 1999 reflecting the
Corporation's strong financial performance and the increase in staffing levels.
Sales commissions and incentives increased $2.0 million in the second
quarter of 1999 compared to the second quarter of 1998. This increase reflects
the Corporation's strong emphasis on sales. The Corporation makes a substantial
commitment to sales, marketing and advertising. As of June 30, 1999,
approximately 147 employees were devoted to these functions compared to 129 as
of June 30, 1998. Direct expenses associated with these functions, including
salary and employee benefits, performance compensation and sales commissions and
incentives were $13.5 million for the second quarter of 1999, an increase of
34.2% from the $10.0 million incurred during the corresponding 1998 period. In
addition to the aforementioned expenses, occupancy expense directly allocable to
these functions amounted to approximately $649,000 for the second quarter of
1999 and $577,000 for the second quarter of 1998.
Other operating expenses increased $6.0 million in the second quarter
of 1999 as compared to the second quarter of 1998. This increase reflects the
impact
17
<PAGE> 18
of the Corporation's national expansion strategy as well as normal growth and
also includes an expense of $2.4.million reflecting a change in the
useful life of personal computers from four to three years.
Other operating expenses includes an outsourcing agreement with The
Chase Manhattan Bank ("Chase"). Pursuant to this agreement, Chase furnishes
necessary securities processing, custodial, data processing and other operations
support services to the Corporation. The initial term of this agreement expires
on August 31, 2000. The Corporation has notified Chase that it is exercising its
option to extend the term of the agreement for two additional years beyond
August 31, 2000. During the initial five-year term of the agreement, the
Corporation pays Chase an annual base fee of $10 million plus additional volume
charges. The base fee for the two additional option years will increase by 10%
of total charges (excluding certain items) incurred in the final year of the
initial term of the agreement.
Management is considering various possible alternatives for obtaining
the services currently provided under the agreement after its expiration on
August 31, 2002. These alternatives include seeking a further extension of the
Chase agreement, obtaining the services from other third-party providers or
providing all or a portion of such services itself. Although the costs of
obtaining or providing such services are expected to increase from the current
level, Management believes, at this time, that such an increase will not have a
material adverse effect on the Corporation's results of operations.
Other operating expenses also includes amortization of intangibles
resulting from acquisitions. Amortization of intangibles was $1.5 million in the
second quarter of 1999 and $0.9 million in the second quarter of 1998. For the
six month period ended June 30, 1999, amortization of intangibles was $2.7
million versus $1.8 million for the comparable 1998 period. Amortization of
intangibles does not require the use of cash and therefore, Management believes
it may be distinguished from other operating expenses. The impact on net income
after consideration of applicable income tax benefits of these non-cash charges
was approximately $1.1 million in the second quarter of 1999 and $818,000 in
the second quarter of 1998. Excluding the after-tax impact of amortization of
intangible assets, diluted earnings per share would have been $0.98 and $0.77
for the three-month periods ended June 30, 1999 and 1998, respectively and
$1.91 and $1.50 for the six month periods ended June 30, 1999 and 1998,
respectively.
THE BUSINESSES OF U.S. TRUST - SEGMENT INFORMATION
The Corporation has two principal businesses: Personal Wealth Management
Services and Institutional Services. Personal Wealth Management Services is
further delineated into two components - New York Wealth Management Services
("New York") and National Wealth Management Services ("National").
PERSONAL WEALTH MANAGEMENT SERVICES
The Corporation provides a complete array of financial services for affluent
individuals and families. These services, defined as Personal Wealth Management
Services, include investment management (domestic and international equity,
fixed income and alternative investments, such as venture capital and real
estate),
18
<PAGE> 19
investment consulting, trust, financial and estate planning and private banking.
Personal Wealth Management Services are provided through New York and National.
The Corporation has been well established in the New York Wealth Management
business for many years. More recently, the Corporation has expanded its
presence beyond New York through national expansion resulting in the
establishment of its National Wealth Management business. The Corporation
anticipates that its national expansion will continue over the next several
years.
The cornerstone of the Corporation's services to the personal market
in both its New York and National businesses is investment management. At June
30, 1999, personal assets under management were approximately $53.1 billion. A
major strategy for the growth of the Corporation's Personal Wealth Management
business has been national expansion. Personal Wealth Management clients usually
prefer services to be delivered locally. The Corporation has established
affiliates throughout the United States: California, Connecticut, Florida, New
Jersey, Oregon, Pennsylvania, Texas and Washington D.C.
INSTITUTIONAL SERVICES
Institutional Services includes investment management, corporate trust,
brokerage and special fiduciary services for corporations, endowments,
foundations, pension plans and other institutional clients.
The Corporation's institutional investment management business provides
a wide range of investment options for its clients, including balanced and
specialized domestic and international equity investment styles, structured
investments, alternative investments, fixed-income vehicles and short-term cash
management. At June 30, 1999, the Corporation managed approximately $25.0
billion for its institutional clients.
SEGMENT FINANCIAL RESULTS
The following analysis presents the Corporation's financial results for the
three month and six month periods ended June 30, 1999 and 1998, on a segment
basis. The Corporation's internal accounting policies credit or charge each
segment with revenues and expenses as incurred and on a consistent basis.
Presentation of financial information on a quarterly basis may and most likely
will result in non-recurring transactions (either revenue or expense) being
allocated to a segment which may result in short-term swings in a segment's
profit contribution. 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.
19
<PAGE> 20
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Personal Wealth Management
(Dollars In Thousands) ----------------------------------------- Total
New York National Total Institutional Corporation
-------- -------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
------------------
June 30, 1999
Fee revenue $ 54,761 $ 26,751 $ 81,512 $ 23,583 $105,095
Allocated net interest
Revenue 20,343 6,106 26,449 2,559 29,008
-------- -------- -------- -------- --------
Total revenue 75,104 32,857 107,961 26,142 134,103
Operating expense 53,926 29,631 83,557 18,246 101,803
-------- -------- -------- -------- --------
Income before taxes $ 21,178 $ 3,226 $ 24,404 $ 7,896 $ 32,300
======== ======== ======== ======== ========
Profit margin 28.2% 9.8% 22.6% 30.2% 24.1%
Percentage of income
before taxes 65.6% 10.0% 75.6% 24.4%
Assets Managed (1) $ 36,029 $ 17,065 $ 53,094 $ 25,018 $ 78,112
Assets Administered (1) $ 16,495 $ 3,118 $ 19,613 $318,253 $337,866
THREE MONTHS ENDED
------------------
June 30, 1998
Fee revenue $ 46,060 $ 16,423 $ 62,483 $ 20,810 $ 83,293
Allocated net interest
Revenue 16,946 5,273 22,219 2,485 24,704
-------- -------- -------- -------- --------
Total revenue 63,006 21,696 84,702 23,295 107,997
Operating expense 45,200 19,694 64,894 18,033 82,927
-------- -------- -------- -------- --------
Income before taxes $ 17,806 $ 2,002 $ 19,808 $ 5,262 $ 25,070
======== ======== ======== ======== ========
Profit margin 28.3% 9.2% 23.4% 22.6% 23.2%
Percentage of income
before taxes 71.0% 8.0% 79.0% 21.0%
Assets Managed (1) $ 30,666 $ 11,775 $ 42,441 $ 25,741 $ 68,182
Assets Administered (1) $ 13,544 $ 2,668 $ 16,212 $285,917 $302,129
</TABLE>
(1) $ in millions
20
<PAGE> 21
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Personal Wealth Management
(Dollars In Thousands) ---------------------------------------- Total
New York National Total Institutional Corporation
-------- -------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
----------------
June 30, 1999
Fee revenue $108,467 $ 51,762 $160,229 $ 44,836 $205,065
Allocated net interest
Revenue 40,678 11,868 52,546 5,383 57,929
-------- -------- -------- -------- --------
Total revenue 149,145 63,630 212,775 50,219 262,994
Operating expense 109,377 55,333 164,710 35,660 200,370
-------- -------- -------- -------- --------
Income before taxes $ 39,768 $ 8,297 $ 48,065 $ 14,559 $ 62,624
======== ======== ======== ======== ========
Profit margin 26.7% 13.0% 22.6% 29.0% 23.8%
Percentage of income
before taxes 63.5% 13.2% 76.8% 23.2%
SIX MONTHS ENDED
----------------
June 30, 1998
Fee revenue $ 89,404 $ 31,447 $120,851 $ 41,062 $161,913
Allocated net interest
Revenue 34,459 10,450 44,909 5,149 50,058
-------- -------- -------- -------- --------
Total revenue 123,863 41,897 165,760 46,211 211,971
Operating expense 89,552 37,409 126,961 35,850 162,811
-------- -------- -------- -------- --------
Income before taxes $ 34,311 $ 4,488 $ 38,799 $ 10,361 $ 49,160
======== ======== ======== ======== ========
Profit margin 27.7% 10.7% 23.4% 22.4% 23.2%
Percentage of income
before taxes 69.8% 9.1% 78.9% 21.1%
</TABLE>
Fee revenue for the Personal Wealth Management segment increased 30.5%
from the second quarter of 1998. Fee revenue for the New York component of the
Personal Wealth Management segment grew 18.9% from the second quarter of 1998
whereas the National component's fee revenue growth rate was 62.9%. Fee revenue
growth is attributable to new business, the overall strength in the financial
markets and acquisitions.
Allocated net interest revenue attributable to the Personal Wealth
Management segment increased 19.0% from the second quarter of 1998. New York and
National's growth rates were 20.0% and 15.8%, respectively. The increase in
allocated net interest revenue is principally attributable to the growth in
private banking activities in this segment.
The Personal Wealth Management Segment's profit margin decreased
modestly to 22.6% in the second quarter of 1999 from 23.4% in the second quarter
of 1998. New York's profit margin was 28.2% in the second quarter of 1999, and
21
<PAGE> 22
28.3% in the second quarter of 1998. National's profit margin was 9.8% and 9.2%
for the three-month periods ended June 30, 1999 and June 30, 1998,
respectively.
Institutional's fee revenue has grown by 13.3% from the second quarter
of 1998. Institutional's allocated net interest revenue has remained relatively
flat from June 30, 1998. Institutional receives interest revenue credit
principally from the customer deposits generated from its corporate trust
activities. Institutional's profit margin has increased from 22.6% in the second
quarter of 1998 to 30.2% in the second quarter of 1999. Institutional's assets
under management at June 30, 1999 are $0.7 billion less than the comparable
amount at June 30, 1998. The decline is primarily attributable to the
institutional assets withdrawn from the Campbell Cowperthwait division.
YEAR 2000 ISSUES - STATE OF READINESS
The following discussion relates to the Corporation's Year 2000 state
of readiness and the resulting external remediation costs. All of the external
remediation costs are recorded as other operating expenses.
In 1996, the Corporation established a Year 2000 Committee with the
responsibility for developing an effective plan for identifying, renovating,
testing and implementing simulated solutions for Year 2000 processing. The Plan
consists of the following five phases: (1) awareness of the problem and
commitment by senior management to dedicate the necessary resources to address
this problem; (2) a comprehensive inventory assessment of all hardware and
software, vendor interfaces and service providers to understand the magnitude of
the issue; (3) a systems code remediation schedule for all affected software
systems; (4) a comprehensive validation methodology to test all affected
applications; and (5) production implementation of the corrected software
systems.
The first two phases of the Plan were completed in June, 1997. The
remaining phases of the Plan, software code remediation and testing of critical
systems were substantially completed as of December 31, 1998. During these
phases the Corporation worked with Chase and Marshall & Illsley Data Services,
providers of the Corporation's most significant data processing systems
(collectively, the "Service Providers") to assure compliance with required
systems changes. The Service Providers are responsible for and bear the cost of
effecting all necessary changes to such systems.
As of June 30, 1999, all mission critical systems of the Corporation,
i.e., Asset Management, Banking and Corporate Trust were in full production. The
Corporation will run all of its corrected systems in a production environment
during the balance of 1999. Where appropriate, point-to-point street-wide
testing for connectivity and data exchange with regulatory and depository
agencies will also take place in 1999.
In addition, the Corporation has business relationships with vendors
and suppliers. The Corporation has contacted these entities to determine the
status of their Year 2000 efforts and to track the renovation and readiness of
their systems for the Year 2000. Where appropriate, testing will be conducted
between the
22
<PAGE> 23
Corporation and these vendors. In the event that the product or service provided
by the vendor is not Year 2000 ready, alternative providers will be employed. A
final follow-up regarding these entities' Year 2000 readiness is currently in
process with completion scheduled by the end of the third quarter of 1999.
As a result of its Plan, the Corporation expects to have dealt with
Year 2000 issues well in advance of the event.
YEAR 2000 ISSUES - THE COST
The Corporation has estimated the total cost of remediating its Year 2000 issues
will range from approximately $4 million to $5 million. These costs include the
costs of remediation, testing, third party assessment, and contingency planning.
To date the Corporation has spent approximately $3.8 million. This amount does
not include the cost associated with substantial managerial time that senior
officers and employees have dedicated on Year 2000 issues. Since the Service
Providers are responsible for and bear the cost of effecting all necessary
changes to the Corporation's most significant data processing systems, most of
the Corporation's costs were on testing. The Corporation expects remaining costs
in 1999 to not exceed $1.0 million most of which will be incurred on
infrastructure/equipment upgrades. While the Corporation has deferred certain
other projects as a result of efforts regarding Year 2000, we believe that these
deferrals will have no material impact on our operating results.
YEAR 2000 ISSUES - CONTINGENCY PLAN
The Corporation has developed a contingency plan to deal with Year 2000
issues, including (1) identifying likely contingencies; (2) developing
procedures to be followed in the event of each contingency; and (3) identifying
personnel responsible for each of the Corporation's businesses that may be
involved in any actual contingency. In the event of an operational disruption,
the Corporation has in place contingency plans for its mission critical
functions. Key area and command recovery personnel within each business sector
will have been identified and trained to initiate the necessary action steps in
maintaining overall control and business continuity. The Corporation's plan has
been completed, and approved by it's Board of Directors. In addition, the plan
has been reviewed by the Corporation's internal audit department.
YEAR 2000 ISSUES - RISK
Although it is not possible to predict accurately the consequences of a Year
2000 failure, the Corporation is confident that its efforts at remediation will
greatly reduce any disruption. While not anticipated, the most reasonable likely
worst case scenario would be a failure by either one of the Corporation's
mission critical systems or the Service Providers systems. In this case, the
Corporation would lose the ability to service its clients for a period of time.
If any of these failures were not
23
<PAGE> 24
corrected within a reasonable period of time, it could have a material negative
effect on the operations and financial condition of the Corporation.
The disclosure contained in this 10-Q as well as the information
previously filed by the Corporation regarding its Year 2000 readiness are
designated as Year 2000 readiness disclosure related to the Year 2000
Information and Readiness Disclosure Act.
MARKET RISK AND SENSITIVITY ANALYSIS
The objective of risk assessment and asset and liability management is
to maximize net interest revenue while maintaining acceptable levels of
interest rate sensitivity, high asset quality and adequate liquidity.
The Corporation does not trade financial instruments nor does the
Corporation invest in financial instruments denominated in foreign currencies.
The Corporation's principal risk is interest rate related. Interest rate risk
results from differences in the maturity and/or repricing of the Corporation's
interest earning assets (which consist primarily of mortgage loans, mortgage
backed securities and other fixed rate investments) and its interest bearing
liabilities, (predominately floating rate deposits). The Corporation uses
interest rate swaps ("Swaps") as hedging vehicles to mitigate interest rate
exposure associated with short-term floating interest-rate deposits.
The Corporation employs net interest income ("NII") simulation modeling
techniques to evaluate and manage the effect of changing interest rates. The
Corporation's simulation model includes all on-balance sheet and off-balance
sheet financial instruments and measures NII under various interest rate
scenarios. Key variables in the NII simulation include changes to the level and
term structure of interest rates, the repricing of financial instruments,
prepayment and reinvestment assumptions, loan and deposit pricing and volume
assumptions. These simulations involve assumptions that are inherently uncertain
and as a result, the simulation models cannot precisely estimate NII or
precisely predict the impact of changes in interest rates on NII. Actual results
may differ from simulated results due to the timing magnitude and frequency of
interest rate changes as well as changes in market conditions and management
strategies, including changes in asset and liability mix.
The Corporation's simulation model facilitates the evaluation of a
potential range of net interest revenue, under various interest rate scenarios.
The simulation model as of June 30, 1999 projects a decrease in net interest
revenue of $1.0 million to $2.0 million over the following three month period
for an immediate 50 to 100 basis points increase in rates. Conversely, if
interest rates immediately decreased by 50 to 100 basis points, the simulation
model projects a $0.9 to $1.9 million increase in net interest revenue. As of
June 30, 1998 the simulation model projected a decrease in net interest revenue
of $0.6 million to $1.2 million over the following three months for an immediate
50 to 100 basis points increase in rates. Conversely, if interest rates had
immediately decreased by 50 to 100 basis points as of June 30, 1998, the
simulation model projected a $0.6 million to $1.2 million increase in net
interest revenue for the subsequent three month period.
24
<PAGE> 25
Each of these simulations assumes that the asset and liability
structure of the balance sheet would not be changed as a result of the simulated
changes in interest rates. As the Corporation actively manages its balance sheet
and interest rate exposure, in all likelihood, the Corporation would take steps
to ameliorate any additional interest rate exposure that would result from the
simulated changes in the interest rate environment.
The following table provides details, as of June 30, 1999, of the notional
amounts of Swaps by maturity and the related average interest rates paid and
received. The Corporation is a fixed rate payor on all of its Swaps.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------
Within 1 1 to 5
(Dollars in Thousands) Year Years Total
- ------------------------- ---- ----- -----
<S> <C> <C> <C>
Fixed pay swaps $150,000 $ 595,000 $ 745,000
Average rate paid 6.89% 6.11% 6.27%
Average rate received (1) 5.09% 5.10% 5.10%
</TABLE>
(1) Represents the average variable rate that will be received by the
Corporation based upon the rate in effect at the latest variable rate reset
date of each Swap.
The impact of the Corporation's hedging activities upon net interest
revenue for the quarters ended June 30, 1999 and 1998, are detailed in the
following table.
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
-------------------------- --------------------------
(Dollars In Thousands) 1999 1998 1999 1998
- ---------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Interest revenue:
As reported $ 29,008 $ 24,704 $ 57,929 $ 50,058
Excluding hedging activities $ 31,252 $ 26,087 $ 62,135 $ 52,662
Net yield on interest earning assets:
As reported 3.31% 3.22% 3.34% 3.25%
Excluding hedging activities 3.58% 3.40% 3.60% 3.43%
</TABLE>
25
<PAGE> 26
The difference between results "As reported" and "Excluding hedging activities"
in each period reflects the cost of using swaps to hedge interest rate risk.
CAPITAL AND LIQUIDITY MANAGEMENT
<TABLE>
<CAPTION>
Minimum
Federal Well
Reserve Capitalized
Actual as of Actual as of Ratio For Under Prompt
June 30, 1999 June 30, 1998 Capital Corrective
(Dollars In Thousands) Amount Rate Amount Rate Adequacy Action
- ---------------------- ------ ---- ------ ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital:
Corporation $ 253,560 12.1% $ 256,902 14.0% 4.0% 6.0%
Trust Company 170,429 9.7% 153,123 9.9% 4.0% 6.0%
Total Capital:
Corporation 273,271 13.0% 275,939 15.1% 8.0% 10.0%
Trust Company 187,915 10.7% 169,831 11.0% 8.0% 10.0%
Tier 1 Leverage:
Corporation 253,560 6.3% 256,902 7.2% 3.0-5.0% 3.0-5.0%
Trust Company 170,429 5.4% 153,123 5.4% 3.0-5.0% 5.0%
</TABLE>
Regulatory capital amounts and ratios for the Parent and its
wholly owned subsidiary United States Trust Company of New York (the "Trust
Company") as of June 30, 1999 and 1998 are set forth in the above table. Minimum
ratio requirements and ratios required to be considered "well capitalized" by
the Board of Governors of the Federal Reserve Board are also presented.
The objective of liquidity management is to ensure the availability of
financial resources to meet the Corporation's cash flow requirements and to
capitalize on opportunities for business expansion. The Corporation monitors the
liquidity position of the Parent and each of its subsidiaries on an ongoing
basis to ensure that funds are available to meet loan and deposit cash flow
requirements. Liquidity management is also structured to ensure that the capital
needs of the Parent and its subsidiaries are met on a day to day basis.
The Parent's liquidity requirements consist mainly of dividend payments
to common stockholders, interest and principal payments to debt holders,
repurchases of its common stock and capital required for acquisitions or for
additions to its subsidiaries.
At the January 26, 1999, Parent's Board of Directors (the "Board")
meeting, the Board authorized the repurchase of an additional two million
shares of the Parent's common stock. The repurchased shares are available to
meet the Parent's obligations under its stock-based benefit plans and for
general capital management purposes. During the second quarter of 1999, 189,200
shares were repurchased at a weighted average purchase price of $89.29 per
share. As of June 30, 1999, the Parent could repurchase an additional 1,863,125
common shares. On January 26, 1999, the Parent announced a 22% increase in its
regular quarterly common
26
<PAGE> 27
stock dividend, indicating an annual dividend of $0.88 per share. Actual
dividends declared are subject to approval by the Board and regulatory capital
limitations.
The Parent's sources of liquidity are derived primarily from dividends
from its subsidiaries, issuances of common stock and issuances of long and
short-term debt instruments. As of June 30, 1999, the subsidiaries have the
ability to pay dividends of approximately $64.2 million without prior approval
of the regulatory authorities.
Also the Corporation has a $50.0 million committed credit facility
based on LIBOR or Prime maturing on March 31, 2002. At March 31, 1999 $12.5
million was outstanding under this facility. The Corporation has a second $30.0
million committed credit facility based on LIBOR or Prime maturing on March 31,
2002 under which $10.0 million was outstanding at June 30, 1999.
The Parent is authorized to issue up to 5 million, $1.00 par value,
preferred shares. As of June 30, 1999, no preferred shares have been issued.
In addition to traditional interest and non-interest bearing deposit
raising capabilities, the banking subsidiaries have established their own
external funding sources. Certain subsidiaries have established credit
facilities with the Federal Home Loan Bank ("FHLB") totaling approximately
$428.1 million. As of June 30, 1999, the amount under these credit facilities
was $13.0 million.
The subsidiaries also generate liquidity from the types of financial
instruments that they carry as investment securities. As of June 30, 1999
approximately $828.5 million or 81.3% of the investment securities portfolio is
comprised of U.S. Treasury or federal agency obligations. These securities are
readily marketable and may be sold or financed through repurchase agreements, as
appropriate. At June 30, 1999, securities sold under agreements to repurchase
aggregated $152.4 million. The subsidiaries may also pledge these securities to
secure public deposits, to qualify for fiduciary powers and to use as collateral
for FHLB and other borrowings. Pledged assets at June 30, 1999 totaled $228.5
million. The Corporation's assets are principally liquid and low risk.
Approximately 35% of total assets for the second quarter of 1999 consist of
short-term financial instruments and readily marketable securities.
Interest Earning Securities
Included in interest earning securities are $155.0 million and $204.0
million of interest bearing deposits with banks, and 1.018 billion and $1.058
billion of securities available for sale at June 30, 1999 and December 31,
1998, respectively. At December 31, 1998, Interest Earning Securities included
$255.0 million of federal funds sold and securities purchased under agreements
to resell.
The Corporation maintains a high quality securities portfolio with
approximately 81.3% comprised of U.S. Treasury obligations, obligations of the
Government National Mortgage Association ("GNMAs") and other federal agency
obligations as of June 30, 1999. The remaining portfolio is comprised of
variable rate collateralized mortgage obligations ("CMOs") and obligations of
states and municipalities. CMOs principally are collateralized by GNMAs.
The fair value of securities was $10.6 million less than their
amortized cost at June 30, 1999 but $7.2 million more than their amortized cost
at December 31,
27
<PAGE> 28
1998. The Corporation classified all of its securities portfolio as "available
for sale". While the Corporation does not trade its securities portfolio, it
needs to have the ability to sell securities as required to meet its
asset/liability objectives.
QUALITY OF LENDING ACTIVITIES
The Corporation's loan portfolio is predominantly comprised of loans to
private banking customers. At June 30, 1999, the loan portfolio totaled $2.5
billion of which approximately 74.0% were collateralized by residential real
estate mortgages.
An analysis of allowance for credit losses follows:
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended June 30, Ended June 30,
------------------------ -------------------------
(Dollars In Thousands) 1999 1998 1999 1998
- ----------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, Beginning of Period $ 19,329 $ 18,713 $ 19,414 $ 18,294
Provision for Credit Losses -- 150 -- 300
Recoveries 382 174 547 464
Charge-offs -- -- (250) (21)
-------- -------- -------- --------
Net (Charge-Offs) Recoveries 382 174 297 443
-------- -------- -------- --------
Balance, End of Period $ 19,711 $ 19,037 $ 19,711 $ 19,037
======== ======== ======== ========
</TABLE>
The level of the allowance for credit losses is based upon management's judgment
as to the current condition of the credit portfolio determined by a continuing
surveillance process. In assessing the adequacy of the allowance for credit
losses, management relies on its ongoing review of specific loans, past
experience, the present loan portfolio composition and general economic and
financial considerations.
As a percentage of average loans, annualized net loan recoveries were
seven basis points for the second quarter of 1999, compared to annualized net
loan recoveries of four basis points for the second quarter of 1998. The
allowance for credit losses at June 30, 1999, was 0.85% of average loans for the
quarter. This compares with 0.99% of average loans for the quarter ended June
30, 1998. Given the current market environment, management anticipates that the
allowance for credit losses as a percentage of loans will continue to decrease.
28
<PAGE> 29
Nonperforming assets, which include non-accrual ("impaired") loans and
real estate acquired through foreclosure or restructurings, for the most recent
five quarters are as follows:
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, Sept.30, June 30,
1999 1999 1998 1998 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Non-accrual loans $ 637 $ 583 $ 6,203 $ 7,616 $ 8,172
Real estate owned, net - - 534 534 -
----------------------------------------------------------------------------
Total Nonperforming $ 637 $ 583 $ 6,737 $ 8,150 $ 8,172
============================================================================
</TABLE>
29
<PAGE> 30
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders of the Parent was held April 27,
1999.
(b) Not required.
(c) (i) Election of six directors to hold office for a three year term
expiring in 2002, Mr. Denham for a two year term expiring in 2001 and Mr.
Pforzheimer for a one year term expiring in 2000 and, in each case, until their
successors have been elected and qualified.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Eleanor Baum Carl H. Pforzheimer III
For 16,489,351 For 16,528,200
Withhold Authority 154,313 Withhold Authority 115,464
Philippe De Montebello John H. Stookey
For 16,534,373 For 16,530,199
Withhold Authority 109,291 Withhold Authority 113,465
Robert E. Denham Frederick B. Taylor
For 16,529,145 For 16,486,400
Withhold Authority 114,519 Withhold Authority 157,264
Peter L. Malkin Robert N. Wilson
For 16,115,351 For 16,534,838
Withhold Authority 528,313 Withhold Authority 108,826
</TABLE>
(ii) Ratification of appointment of PricewaterhouseCoopers LLP as
independent auditors for the Corporation and its consolidated subsidiaries for
the year 1999.
For 16,528,941
Against 76,486
Abstain 38,237
(iii) Approval of Amendment to the Parent's Certificate of
Incorporation to Increase the number of authorized Common
Shares from 40 million to 70 million.
For 15,938,607
Against 614,411
Abstain 90,646
(iv) Approval of Employee Stock Purchase Plan.
For 16,434,556
Against 140,731
Abstain 68,377
30
<PAGE> 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation dated June 2, 1999.
3.2 Restated By-Laws of the Corporation dated April 27, 1999.
4 Note: The exhibits filed herewith do not include the instruments with
respect to long-term debt of the Corporation, inasmuch as the total
amount of debt authorized under any such instrument does not exceed 10%
of the total assets of the Corporation on a consolidated basis. The
Corporation agrees, pursuant to Item 601 (b)(4)(iii) of Regulation S-K,
that it will furnish a copy of any such instrument to the Securities
and Exchange Commission upon request.
27 Financial Data Schedule.
</TABLE>
(1) Incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
None during the quarter for which this report is filed.
31
<PAGE> 32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U. S. Trust Corporation
-----------------------
(Registrant)
Date: August 13, 1999 By: /s/ Richard E. Brinkmann
--------------- -------------------------------
Richard E. Brinkmann
Managing Director and
Comptroller
(Principal Accounting Officer)
------------------------------
32
<PAGE> 1
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;
(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;
<PAGE> 2
(g) the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation; and
(h) any other relative rights, preferences and limitations of such series.
2. All Preferred Shares shall be of equal rank with each other regardless of
series. In case the stated dividends and the amounts payable on liquidation are
not paid in full, the Preferred Shares of all series shall share ratably in the
payment of dividends including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full, and in any distribution of assets other than by way of dividends
in accordance with the sums which would be payable in such distribution if all
sums payable were discharged in full.
3. The Preferred Shares of any one series shall be identical with each other
in all respects except as to the dates from which cumulative dividends, if any,
thereon shall be cumulative.
4. Subject to the rights of the Preferred Shares, dividends may be paid upon
the Common Shares as and when declared by the Board of Directors out of any
funds legally available therefor.
5. Upon any liquidation, dissolution or winding up of the affairs of the
Corporation (which shall not be deemed to include a consolidation or merger of
the Corporation, or the sale of all or substantially all of the Corporation's
assets, into, with or to any other corporation or corporations), whether
voluntary or involuntary, and after the holders of the Preferred Shares shall
have been paid in full the amounts, if any, to which they respectively shall be
entitled or provision for such payment shall have been made, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Shares.
6. There is hereby established a series of the Corporation's authorized
Preferred Shares, to be designated as the Series A Participating Cumulative
Preferred Shares, par value $1 per share. The relative rights, preferences and
limitations of the Series A Preferred Shares, insofar as not already fixed by
any other provision of this Certificate of Incorporation shall, as fixed by the
Board of Directors of the Corporation in the exercise of authority conferred by
this Certificate of Incorporation, and as permitted by Section 502 of the
Business Corporation Law, be as follows:
(i) Designation and Number of Shares. The shares of such series shall be
designated as "Series A Participating Cumulative Preferred Shares" (the "Series
A Preferred Shares"). The par value of each share of the Series A Preferred
Shares shall be $1. The number of shares initially constituting the Series A
Preferred Shares shall be 300,000; provided, however, that the number of Series
A Preferred Shares may be increased, by an amendment of this paragraph (i) of
this Section 6, approved by the Board of Directors of the Corporation, if within
the authority of the Board of Directors of the Corporation under Article FOURTH
of the Certificate of Incorporation, to such greater number of Series A
Preferred Shares as are at any time issuable upon exercise of the Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of September 1, 1995,
between the Corporation and First Chicago Trust Company of New York, as Rights
Agent (the "Rights Agreement").
(ii) Dividends or Distributions.
(a) subject to the prior and superior rights of the holders of shares of any
other series of Preferred Shares or other class or series of capital stock of
the Corporation ranking prior and superior to the Series A Preferred Shares with
respect to dividends, the holders of shares of the Series A Preferred Shares
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor, (1)
quarterly dividends payable in cash on the first day of March, June, September
and 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 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
<PAGE> 3
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;
(b) the Corporation shall declare a dividend or distribution on the Series A
Preferred Shares as provided in paragraph (ii)(a) above immediately prior to or
at the same time it declares a dividend or distribution on the Common Shares
(other than a dividend or distribution solely in Common Shares); provided,
however, that, in the event no dividend or distribution (other than a dividend
or distribution in Common Shares) shall have been declared on the Common Shares
during the period between any Quarterly Dividend Payment Date and the next
Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A
Preferred Shares shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Shares entitled to
receive a dividend or distribution declared thereon, which record date shall be
the same as the record date for any corresponding dividend or distribution on
the Common Shares;
(c) dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Shares from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such Series A Preferred Shares;
provided, however, that dividends on Series A Preferred Shares which are
originally issued after the record date for the determination of holders of
Series A Preferred Shares entitled to receive a quarterly dividend and on or
prior to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on Series A Preferred Shares which are
originally issued prior to the record date for the first Quarterly Dividend
Payment, shall be calculated as if cumulative from and after the March 1, June
1, September 1 or December 1, as the case may be, next preceding the date of
original issuance of such Series A Preferred Shares. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Shares in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding;
(d) so long as any shares of the Series A Preferred Shares are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Shares unless, in each
case, the dividend required by this paragraph (ii) to be declared on the Series
A Preferred Shares shall have been declared and paid or set apart;
(e) the holders of the shares of Series A Preferred Shares shall not be
entitled to receive any dividends or other distributions except as provided
herein.
(iii) Voting Rights. The holders of shares of Series A Preferred Shares
shall have the following voting rights:
(a) each holder of Series A Preferred Shares shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of the
Series A Preferred Shares held of record on each matter on which holders of the
Common Shares or shareholders generally are entitled to vote, multiplied by the
number of votes per share which the holders of the Common Shares or shareholders
generally then have with respect to such matter;
(b) except as otherwise provided herein or by applicable law, the holders of
shares of Series A Preferred Shares and the holders of shares of Common Shares
shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of shareholders of the
Corporation;
(c) if at the time of any annual meeting of shareholders for the election of
directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Shares are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two, subject to any limitation set forth in
this Certificate of Incorporation on the maximum number of directors then
allowable. In addition to voting together with the holders of Common Shares for
the election of other directors of the Corporation, the holders of record of the
Series A Preferred Shares, voting separately as a class to the exclusion of the
holders of Common Shares, shall be entitled at said meeting of shareholders (and
at each subsequent annual meeting of shareholders), unless all dividends in
arrears have been paid or declared and set apart for payment prior thereto, to
vote for the election of such additional directors, if any, of the Corporation,
the holders of any Series A Preferred Shares being entitled to cast a number of
votes per share of the Series A Preferred Shares equal to the Formula Number.
Until the default in payments of all dividends which permitted the election of
said directors shall cease to exist any director who shall have been so elected
pursuant to the next preceding sentence may be removed at any time by, and be
removed without cause only by, the affirmative vote of the holders of the Series
A Preferred Shares at the time entitled to cast a majority of the votes entitled
to be cast for the election of any such director at a
<PAGE> 4
special meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders. If and when such default
shall cease to exist, the holders of the Series A Preferred Shares shall be
divested of the foregoing special voting rights, subject to revesting in the
event of each and every subsequent like default in payments of dividends. Upon
the termination of the foregoing special voting rights, the terms of office of
all persons who may have been elected director pursuant to said special voting
rights shall forthwith terminate, and the number of directors constituting the
Board of Directors shall be reduced by two or such other number of directors as
shall have been added pursuant to the provisions of this subsection (c). The
voting rights granted by this subsection (c) shall be in addition to any other
voting rights granted to the holders of the Series A Preferred Shares in this
paragraph (iii);
(d) except as provided herein, in paragraph (xi) or by applicable law,
holders of Series A Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for authorizing or
taking any corporate action.
(iv) Certain Restrictions.
(a) whenever quarterly dividends or other dividends or distributions payable
on the Series A Preferred Shares as provided in paragraph (ii) of this Section 6
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Shares
outstanding shall have been paid in full, the Corporation shall not
(1) declare or pay dividends on, make any other distributions on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Shares;
(2) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except dividends
paid ratably on the Series A Preferred Shares and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Shares; or
(4) purchase or otherwise acquire for consideration any shares of Series A
Preferred Shares, or any shares of stock ranking on a parity with the Series A
Preferred Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes;
(b) the Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (a) of this
paragraph (iv), purchase or otherwise acquire such shares at such time and in
such manner.
(v) Liquidation Rights. Upon the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution, or winding up) to the Series A Preferred Shares
unless, prior thereto, the holders of Series A Preferred Shares shall have
received an amount equal to the accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (x) $100 per share or (y) an aggregate amount per share
equal to the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Shares, or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except
distributions made ratably on the Series A Preferred Shares and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
(vi) Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the Common
Shares are exchanged for or changed into other stock or securities, cash or any
other property, then in any such case the then outstanding shares of Series A
Preferred Shares shall at the same time be similarly exchanged or changed in an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash or any other property (payable in kind), as
the case may be, into which or for which each Common Share is exchanged or
changed.
(vii) Redemption; No Sinking Fund.
<PAGE> 5
(a) the Series A Preferred Shares shall not be redeemable at the option of
the Corporation except as set forth in this paragraph (vii). The outstanding
Series A Preferred Shares may be redeemed at the option of the Board of
Directors as a whole, but not in part, at any time at which, in the good faith
determination of the Board of Directors no person beneficially owns more than
10% of the aggregate voting power represented by all the outstanding shares of
capital stock of the Corporation generally entitled to vote in the election of
Directors of the Corporation, at a cash price per share equal to (i) 125% of the
product of the Formula Number times the Market Value (as such term is
hereinafter defined) of the Common Shares, plus (ii) all dividends which on the
redemption date have accrued on the shares to be redeemed and have not been paid
or declared and a sum sufficient for the payment thereof set apart, without
interest. The "Market Value" on any date shall be deemed to be the average of
the daily closing prices, per share, of the Common Shares for the 30 consecutive
Trading Days immediately prior to the date in question. The closing price for
each Trading Day shall be the last sale price, regular way, or, in case no such
sale take place on such Trading Day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system if the Common Shares are listed or admitted to
trading on a national securities exchange or, if the Common Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or such other system then
in use, or, if on any such Trading Day the Common Shares are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Shares selected by
the Board of Directors of the Corporation. If on any such Trading Day no market
maker is making a market in the Common Shares, the closing price of such Common
Shares on such Trading Day shall be deemed to be the fair value of the Common
Shares as determined in good faith by the Board of Directors of the Corporation.
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Shares are listed or admitted to trading is open
for the transaction of business or, if the Common Shares are not listed or
admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in the Borough of Manhattan, The City of New York, are authorized or obligated
by law or executive order to close;
(b) the shares of Series A Preferred Shares shall not be subject to or
entitled to the operation of a retirement or sinking fund.
(viii) Ranking. The Series A Preferred Shares shall rank equally and on a
parity with all other series of Preferred Shares of the Corporation with respect
to the payment of dividends and distribution of assets upon the liquidation,
dissolution or winding up of the Corporation.
(ix) Fractional Shares. The Series A Preferred Shares shall be issuable upon
exercise of the Rights issued pursuant to the Rights Agreement in whole shares
or in any fraction of a share that is one one-hundredth (1/100th) of a share or
any integral multiple of such fraction which shall entitle the holder, in
proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Shares. The Corporation, prior to the
first issuance of a share or a fraction of a share of Series A Preferred Shares,
may elect (1) to issue certificates evidencing such authorized fraction of a
share of Series A Preferred Shares or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred Shares
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation, provided that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Shares.
(x) Reacquired Shares. Any Series A Preferred Shares purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Shares,
without designation as to series until such shares are once more designated as
part of a particular series by resolution of the Board of Directors.
(xi) Amendment. None of the powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Shares as provided
herein shall be amended in any manner which would alter or change the powers,
preferences, rights or privileges of the holders of Series A Preferred Shares so
as to affect them adversely without the affirmative vote of the holders of at
least 66 2/3% of the outstanding Series A Preferred Shares, voting as a separate
class; provided, however, that no such amendment approved by the holders of at
least 66 2/3% of the outstanding Series A Preferred Shares shall be deemed to
apply to the powers, preferences, rights or privileges of any holder of Series A
Preferred Shares originally issued upon exercise of the Rights after the time of
such approval without the approval of such holder.
FIFTH: No holder of shares of the Corporation of any class, now or hereafter
authorized, shall have any preferential, preemptive or other right to subscribe
for, purchase or receive any shares of the Corporation of 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.
<PAGE> 6
SIXTH: The Secretary of State is designated as agent of the Corporation upon
whom process against it may be served. The mail post office address to which the
Secretary of State shall mail a copy of any process against the Corporation
served upon him or her is 114 West 47th Street, New York, New York 10036.
SEVENTH: The accounting period which the Corporation intends to establish as
its first calendar or fiscal year for reporting the franchise tax imposed by
Article Nine-A of the Tax Law of the State of New York is the period ending
December 31, 1995.
EIGHTH: (A) Except as provided in paragraph (B), the affirmative vote, at a
meeting of the shareholders of the Corporation, of (i) the holders of at least
80% of the combined voting power of the then outstanding Voting Shares (as
hereinafter defined) of the Corporation and (ii) the holders of at least a
majority of the combined voting power of the then outstanding Voting Shares of
the Corporation held by Disinterested Shareholders (as hereinafter defined), in
each case voting together as a single class, shall be required prior to and as a
condition to the consummation of any Business Combination (as hereinafter
defined). Such vote shall be in addition to any shareholder vote required
without reference to this Article EIGHTH, and shall be required notwithstanding
that no vote may otherwise be required, or that some lesser percentage may be
specified, by law, by this certificate of incorporation, by the Corporation's
bylaws or otherwise.
(B) The provisions of paragraph (A) shall not apply to a particular Business
Combination, and such Business Combination shall require only such shareholder
vote or approval (if any) as would be required without reference to this Article
EIGHTH, if either (I) the Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined), whether such
approval is given before or after the transaction in which the Interested
Shareholder (as hereinafter defined) became an Interested Shareholder, or (II)
all the conditions set forth in subparagraphs (1) through (5) below are
satisfied.
(1) The transaction constituting the Business Combination shall provide that
the holders of Common Shares shall receive a consideration in exchange for their
Common Shares, and the aggregate amount of cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by holders
of Common Shares in such Business Combination shall be at least equal to the
highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner (as hereinafter defined) which were acquired (i) within the two-year
period immediately prior to the date of the first public announcement of the
proposed Business Combination (the "Announcement Date") or (ii) in the
transaction in which the Interested Shareholder became an Interested
Shareholder, whichever is higher;
(b) the Fair Market Value per Common Share on the Announcement Date or on
the date on which the Interested Shareholder became an Interested Shareholder,
whichever is higher; and
(c) (if applicable) the price per share equal to the Fair Market Value per
Common Share determined pursuant to clause (b) immediately preceding multiplied
by the ratio of (i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner which were acquired within the two-year period immediately prior to the
Announcement Date to (ii) the Fair Market Value per Common Share on the first
day in such two-year period on which the Interested Shareholder was the
Beneficial Owner of any Common Shares.
(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;
<PAGE> 7
(c) the Fair Market Value per share of such class of Voting Shares on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder, whichever is higher; and
(d) (if applicable) the price per share equal to the Fair Market Value per
share of such class of Voting Shares determined pursuant to clause (c)
immediately preceding multiplied by the ratio of (i) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class of Voting Shares of
which the Interested Shareholder is the Beneficial Owner which were acquired
within the two-year period immediately prior to the Announcement Date to (ii)
the Fair Market Value per share of such class of Voting Shares on the first day
in such two-year period on which the Interested Shareholder was the Beneficial
Owner of any shares of such class of Voting Shares.
(3) The consideration to be received in such Business Combination by holders
of a particular class of outstanding Voting Shares (including Common Shares)
shall be in cash or in the same form as was previously paid in order to acquire
shares of such class of Voting Shares of which the Interested Shareholder is the
Beneficial Owner and, if the Interested Shareholder is the Beneficial Owner of
shares of any class of Voting Shares which were acquired with varying forms of
consideration, the form of consideration to be received by holders of such class
of Voting Shares shall be either cash or the form used to acquire the largest
number of shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner.
(4) After such Interested Shareholder became an Interested Shareholder and
prior to the consummation of such Business Combination, (a) such Interested
Shareholder shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or tax credits provided by the Corporation or any
Subsidiary (as hereinafter defined), or made any major change in the
Corporation's business or equity capital structure or entered into any contract,
arrangement or understanding with the Corporation, except any such change,
contract, arrangement or understanding as may have been approved by a majority
of the Continuing Directors, (b) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividend (whether or not cumulative) on
any outstanding Preferred Shares or other shares of the Corporation entitled to
a preference over Common Shares as to dividends or upon liquidation; (c) there
shall have been (i) no reduction in the annual rate of dividends paid on the
Common Shares (except as necessary to reflect any subdivision of the Common
Shares), unless approved by a majority of the Continuing Directors, and (ii) an
increase in such annual rate of dividends (as necessary to prevent any such
reduction) in the event of any reclassification (including any reverse stock
split), recapitalization, reorganization or similar transaction which has the
effect of reducing the number of outstanding Common Shares, unless the failure
so to increase such annual rate is approved by a majority of the Continuing
Directors; (d) such Interested Shareholder shall not have become the Beneficial
Owner of any additional 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).
<PAGE> 8
(C) For the purposes of this Article EIGHTH:
(1) The term "Business Combination" means (i) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with an Interested
Shareholder (in a single transaction or a series of related transactions) of all
or a Substantial Part (as hereinafter defined) of the assets of the Corporation
(including without limitation any securities of a Subsidiary) or all or a
Substantial Part of the assets of a Subsidiary; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with the Corporation or to
or with a Subsidiary (in a single transaction or a series of related
transactions) of all or a Substantial Part of the assets of an Interested
Shareholder; (iii) any merger or consolidation of the Corporation or any
Subsidiary into or with an Interested Shareholder or into or with another
Corporation or company which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Shareholder, in each case
irrespective of which Corporation or company is the surviving entity in such
merger or consolidation; (iv) the issuance or transfer of any securities of the
Corporation or a Subsidiary by the Corporation or a Subsidiary to an Interested
Shareholder, with the exception of securities which, when aggregated with all
such securities so issued or transferred within the preceding five years to such
Interested Shareholder and the Affiliates and Associates (as hereinafter
defined) of such Interested Shareholder, or any of them, have a Fair Market
Value of less than $13 million, determined in each case as of the time of each
issuance or transfer in question and with the exception of an issuance of
securities upon conversion of convertible securities of the Corporation or of a
Subsidiary which were not acquired by the Interested Shareholder (or any such
Affiliate or Associate) from the Corporation or any Subsidiary; (v) any
reclassification of securities (including any reverse stock split or
consolidation of shares), recapitalization, reorganization, merger or
consolidation of the Corporation with any of its Subsidiaries, or any similar
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares or amount of any class of equity
security of the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Shareholder; (vi) any merger of the Corporation into a
Subsidiary, or any consolidation between the Corporation and a Subsidiary,
unless the surviving or consolidated corporation or company, as the case may be,
has a provision in its certificate of incorporation identical or substantially
similar to this Article EIGHTH; (vii) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed by or on behalf of
any Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or (viii) any agreement, contract or other arrangement providing
for any of the transactions hereinabove described in this definition of Business
Combination.
(2) "Interested Shareholder" at any particular time means, with respect to
any Business Combination, any Person (as hereinafter defined) (other than the
Corporation or any Subsidiary) who or which (i) is the Beneficial Owner of 10%
or more of the outstanding Voting Shares, (ii) is an Affiliate of the
Corporation and at any time within the preceding five years was the Beneficial
Owner of 10% or more of the then outstanding Voting Shares or (iii) is at such
time an assignee of or has otherwise succeeded to the beneficial ownership of
any Voting Shares of which any Interested Shareholder was the Beneficial Owner
at any time within the two-year period immediately prior to the date in
question, if such assignment or succession shall have occurred in the course of
a transaction or series of related transactions not involving any public
offering within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). "Person" means any individual, firm, corporation, company or
other entity.
(3) A Person shall be considered the "Beneficial Owner" of any Voting Shares
(i) which are owned beneficially (whether or not owned of record) by such Person
or by any Affiliate or Associate of such Person, (ii) which such Person or any
Affiliate or Associate of such Person has (a) the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (b) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
owned beneficially (whether or not owned of record) by any other Person with
which such first-mentioned Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding with respect to acquiring, holding,
voting or disposing of any Voting Shares or acquiring, holding or disposing of
all or a Substantial Part of the assets of the Corporation or a Subsidiary. For
the purpose only of determining whether a Person is the Beneficial Owner of 10%
or more of the outstanding Voting Shares, such outstanding shares shall be
deemed to include any Voting Shares which may be issuable pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants, options or otherwise and of which such Person
is deemed to be the Beneficial Owner pursuant to the foregoing provisions of
this subparagraph (3). In addition to such provisions, for all purposes of this
Article EIGHTH, a Person shall be deemed to be the Beneficial Owner of Voting
Shares if such Person is deemed the beneficial owner thereof pursuant to Rule
13d-3 under the Exchange Act.
(4) For the purpose of determining whether a Person is an Interested
Shareholder pursuant to subparagraph (2) of this paragraph (C), the number of
Voting Shares deemed to be outstanding shall include shares of which the
Interested Shareholder is deemed the Beneficial Owner through application of
subparagraph (3) of this paragraph (C) but shall not include any other Voting
Shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise.
<PAGE> 9
(5) "Disinterested Shareholder" means a shareholder of the Corporation who
is not an Interested Shareholder or an Affiliate or an Associate of an
Interested Shareholder.
(6) The term "Voting Shares" means shares of the Corporation entitled to
vote generally in the election of directors, considered for the purposes of this
Article EIGHTH as one class.
(7) The term "Substantial Part" as used with reference to the assets of the
Corporation, of any Subsidiary or of any Interested Shareholder means assets
having a value of more than 5% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most recent
fiscal year ended prior to the time the determination is being made.
(8) For purposes of paragraph (B) of this Article EIGHTH, in the event of a
Business Combination upon consummation of which the Corporation would be the
surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or dissolution
of the Corporation will be adopted or effected), the term "consideration other
than cash to be received" shall include (without limitation) Common Shares of
the Corporation retained by shareholders of the Corporation other than
Interested Shareholders who are parties to such Business Combination.
(9) "Continuing Director" means a member of the Board of Directors of the
Corporation who is not an Affiliate or an Associate of an Interested Shareholder
and not a representative or nominee of an Interested Shareholder and who either
(i) was first elected as a director prior to the date as of which an Interested
Shareholder who or which proposes to enter into or be a party to or involved in
a Business Combination became an Interested Shareholder or (ii) was designated
(before his initial election as a director) as a continuing Director by a
majority of the then Continuing Directors.
(10) "Affiliate" means a Person who directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, another Person and in addition means any "affiliate" as 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
<PAGE> 10
acquisition thereof by the Affiliate, Associate or other Person or (b) the
market price of the shares in question at the time when the Interested
Shareholder became the Beneficial Owner thereof.
(D) A majority of the Continuing Directors shall have the power to determine
for the purposes of this Article EIGHTH, on the basis of information known to
them, (i) whether a Person is an Interested Shareholder, (ii) the number of
Voting Shares of which any Person is the Beneficial Owner, (iii) whether a
Person is an Affiliate or Associate of another, (iv) whether a Person has an
agreement, arrangement or understanding with another as to the matters referred
to in subparagraph (3) of paragraph (C), (v) whether the assets subject to any
Business Combination constitute a "Substantial Part" as hereinabove defined,
(vi) whether two or more transactions constitute a "series of related
transactions" as hereinabove defined and (vii) any matters referred to in
subparagraph (15) of paragraph (C). Any such determination made in good faith
shall be binding and conclusive on all parties.
(E) Any amendment, change or repeal of this Article EIGHTH, or any other
amendment of this certificate of incorporation which would have the effect of
modifying or permitting circumvention of this 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.
<PAGE> 1
Exhibit 3.2
RESTATED
BY-LAWS
OF
U.S. TRUST CORPORATION
(AS AMENDED THROUGH APRIL 27, 1999)
ARTICLE I
SHAREHOLDERS
SECTION 1.01. Annual Meeting. The annual meeting of the shareholders of U.S.
Trust Corporation (the "Corporation") for the election of directors and the
transaction of such other business as may properly come before the meeting shall
be held on a date which is no later than six months after the close of the
Corporation's preceding fiscal year (but in no event later than 13 months after
the last annual meeting) and at such place within or without the State of New
York as shall be fixed by the Board of Directors.
SECTION 1.02. Special Meetings. Except as otherwise provided by law, a
special meeting of the shareholders may be called by the Board of Directors, by
the Chairman of the Board, by the President or by a Vice Chairman of the Board.
Any such call or request shall state the purpose or purposes of the proposed
meeting, and the business transacted at such meeting shall be confined to the
purpose or purposes stated in the call. Special meetings shall be held at such
place within or without the State of New York and on such date as may be
specified in the call thereof, but any special meeting may be called and held in
conjunction with an annual meeting of the shareholders.
SECTION 1.03. Record Date for Meetings and Other Purposes. For the purpose
of determining the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix
in advance a date as the record date for any such determination of shareholders.
Such date shall not be more than sixty (60) nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any other
action.
If no record date is so fixed by the Board of Directors, (a) the record date
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given or, if no notice is given, the day on
which the meeting is held, and (b) the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
resolution of the Board of Directors relating thereto is adopted.
A determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders made in accordance with this Section shall apply
to any adjournment thereof, unless the Board of Directors fixes a new record
date under this Section for the adjourned meeting.
SECTION 1.04. Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, unless it is the annual meeting,
indicating that it is being issued by or at the direction of the person or
persons calling the meeting. Notice of a special meeting shall also state the
purpose or purposes for which the meeting is called. If at any meeting action is
proposed which would if taken entitle shareholders fulfilling the requirements
of Section 623 of the New York Business Corporation Law to receive payment for
their shares, the notice of such meeting shall include a statement of that
purpose and to that effect. A copy of the notice of any meeting shall be given
personally or by mail not less than 10 nor more than 50 days before the date of
the meeting to each shareholder entitled to vote at such meeting. If mailed,
such notice is given when deposited in the United States mail with postage
thereon prepaid directed to the shareholder at his address as it appears on the
record of shareholders, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under this
Section.
SECTION 1.05. Waivers of Notice. Notice of any meeting of shareholders need
not be given to any shareholder who submits a signed waiver of notice, in person
or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in
<PAGE> 2
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting shall constitute a waiver of notice by him.
SECTION 1.06. List of Shareholders at Meetings. A list of shareholders as of
the record date, certified by the Secretary or transfer agent of the
Corporation, shall be produced at any meeting of shareholders upon the request
thereat or prior thereto of any shareholder. If the right to vote at any meeting
is challenged, the inspectors of election, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
SECTION 1.07. Quorum at Meetings. Except as otherwise provided by law, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum at any meeting of shareholders for the transaction of any business, but
the shareholder present may adjourn the meeting despite the absence of a quorum.
When a quorum is once present to organize a meeting it shall not be broken by
the subsequent withdrawal of any shareholders.
SECTION 1.08. Presiding Officer and Secretary. At any meeting of the
shareholders, if neither the Chairman of the Board, the President, a Vice
Chairman of the Board nor a person designated by the Board of Directors to
preside at the meeting shall be present, the shareholders shall appoint a
presiding officer for the meeting. If neither the Secretary nor an Assistant
Secretary be present, the appointee of the person presiding at the meeting shall
act as secretary of the meeting.
SECTION 1.09. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in this Section 1.09 shall be eligible
for election as directors at any meeting of shareholders held for the election
of directors (an "Election Meeting"). Nominations of persons for election to the
Board of Directors of the Corporation may be made at an Election Meeting by or
at the direction of the Board of Directors or by a shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this Section 1.09, who is entitled to vote for the election of
directors at such Election Meeting and who complies with the notice procedures
set forth in this Section 1.09. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal office of
the Corporation, in the case of an annual meeting of shareholders, not less than
90 days nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within 30 days before
or after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or public disclosure of the date of the annual meeting was made,
whichever first occurs; and in the case of a special meeting of shareholders
called for the purpose of electing directors, not later than the close of
business on the 10th day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs. Notwithstanding anything in the
foregoing sentences to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation at such Election
Meeting is increased or there is a vacancy to be filled at such Election Meeting
in a class of directors whose terms do not expire at such Election Meeting and
there is no public announcement at least 10 days prior to the date notice is
otherwise required to be given herewith naming all of the nominees for director
or specifying the size of the enlarged Board of Directors or the number of
directors to be elected, a shareholder's notice required by this Section 1.09
shall also be considered timely, but only with respect to nominees for any
positions created by such increase or vacancy, if it shall be delivered to or
mailed and received at the principal office of the Corporation not later than
the close of business on the 10th day following the date on which such public
announcement is first made by the Corporation.
Such shareholder's notice to the Secretary of the Corporation shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Corporation which are
owned beneficially by such person and (iv) any other information concerning such
person that is required to be disclosed in connection with the solicitation of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including without limitation such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); and (b) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address
of such shareholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and by such
beneficial owner. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to such nominee.
<PAGE> 3
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
1.09. In the event that a person is validly designated as a nominee in
accordance with the foregoing and shall thereafter become unable or unwilling to
stand for election to the Board of Directors, the Board of Directors or the
shareholder who proposed such nominee, as the case may be, may designate a
substitute nominee. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the provisions of this Section 1.09 and if the presiding officer
should so determine, he or she shall declare to the meeting that the defective
nomination shall be disregarded. In addition to the provisions of this Section
1.09, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein.
SECTION 1.10. Public Announcement. For purposes of this Article I, "public
announcement" shall mean disclosure in a communication sent by first class mail
to shareholders, in a press release reported by the Dow Jones News Service,
Reuters Information Services, Inc., Associated Press or a comparable national
news service or in a document filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 1.11. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy shall be signed
by the shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided by law. Proxies shall be delivered to
the Secretary of the Corporation or, if inspectors are appointed to act at a
meeting, to the inspectors.
SECTION 1.12. Inspectors. The Board of Directors in advance of any meeting
of shareholders may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding at
the meeting may, and on the request of any shareholder entitled to vote thereat
shall, appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them.
SECTION 1.13. Voting. Whenever directors are to be elected by the
shareholders, they shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election. Whenever any corporate action other than the election of directors is
to be taken by vote of the shareholders, it shall, except as otherwise required
by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holder of shares entitled to vote thereon.
Except as otherwise may be provided in the certificate of incorporation of
the Corporation, every shareholder of record shall be entitled at every meeting
of shareholders to one vote for every share standing in his name on the record
of shareholders. Upon the demand of any shareholder, the vote at any election of
directors or upon any other question shall be by ballot, but otherwise the
method of voting shall be discretionary with the person presiding at the
meeting.
SECTION 1.14. Written Consent of Shareholders Without a Meeting. Whenever
shareholders are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent setting forth the action so
taken and signed by the holders of all outstanding shares entitled to vote
thereon. The provisions of this Section shall not be construed to alter or
modify any provision of law or of the certificate of incorporation of the
Corporation under which the written consent of the holders of less than all
outstanding shares is sufficient for corporate action.
SECTION 1.15. Other Business. To be properly brought before the meeting,
business must be either (a) specified in the notice of meetings (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or mailed
and received at the principal office of the Corporation, not less than 90 days
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in the event
that the annual meeting is called for a date that is not within 30 days before
or after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of
<PAGE> 4
the annual meeting was mailed or public disclosure of the date of the annual
meeting was made, whichever first occurs. A shareholder's notice to the
Secretary shall set forth with respect to each matter the shareholder proposes
to bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
Notwithstanding anything in the By-laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 1.15; provided, however, that nothing in this Section 1.15
shall be deemed to preclude discussion by any shareholder of any business
properly brought before the annual meeting.
The presiding officer of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 1.15, and
if the presiding officer should so determine, he or she shall so declare to the
meeting, and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Number and Qualification of Directors. The business of the
Corporation shall be managed under the direction of a Board of Directors,
consisting of such number of directors, not less than nine, as shall be fixed
from time to time by resolution adopted by a majority of the entire Board or at
any annual or special meeting of the shareholders entitled to vote for the
election of directors; provided that no decrease in the number of directors
shall shorten the term of any incumbent director. Each director shall be at
least 18 years of age. No person shall be eligible for election or qualified to
remain in office as a director who shall have attained the age of 72 years, and
any director in office shall retire as such upon attaining the age of 72 years.
SECTION 2.02. Classification and Term of Directors. The directors shall be
elected for terms of three years and shall be divided into three classes, as
nearly equal in number as possible, with the terms of office of one class
expiring each year on the date of the annual meeting of shareholders. At each
annual meeting of shareholders, directors to replace those whose terms expire at
such annual meeting shall be elected to hold office until the third succeeding
annual meeting thereafter, but each director, of whatever class, shall hold
office until a successor shall have been elected and qualify. Any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible. When the number of
directors is increased by the Board and any newly created directorships are
filled by the Board, there shall be no classification of the additional
directors until the next annual meeting of shareholders.
SECTION 2.03. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason may be filled either by vote of
the shareholders or by vote of a majority of the directors then in office,
although less than a quorum exists. A director elected to fill a vacancy, or to
fill a newly created directorship, shall be elected to hold office until the
next meeting of shareholders at which the election of directors is in the
regular order of business, and until a successor has been elected and qualified.
SECTION 2.04. Resignations. Any director may resign from office at any time
by delivering a resignation in writing to the Chairman of the Board, the
President, a Vice Chairman of the Board or the Secretary of the Corporation, and
the acceptance of such resignation, unless required by the terms thereof, shall
not be necessary to make such resignation effective.
SECTION 2.05. Removal of Directors. Any director may be removed for cause
either by vote of the shareholders or by a majority of the entire Board.
SECTION 2.06. Meetings. Meetings of the Board, regular or special, may be
held at any place within or without the State of New York as the Board from time
to time may fix or as shall be specified in the respective notice or waivers of
notice thereof. Within 15 days following each annual meeting of shareholders for
the election of directors, and annual meeting of the Board for the appointment
of officers and the transaction of such other business as may properly come
before the meeting shall be held. Such annual meeting of the Board shall be the
regular meeting of the Board next following the annual meeting of shareholders,
unless a special meeting of the Board shall in the meantime have been duly
called and held for such purposes. The Board may fix times and places for
regular meetings of the Board, and no notice of such meetings need be given.
Special meetings of the Board shall be held whenever called by the Chairman of
the Board, the President, a Vice Chairman of the Board or by at least one-third
of the directors at the time in office. Notice of the time and place of each
such meeting shall be given by the Secretary or by a person calling the meeting
to each director by mailing the same not later than the second day before the
meeting or personally or by telegraphing, cabling or telephoning the same not
<PAGE> 5
later than the day before the meeting. A notice or waiver of notice need not
specify the purpose or purposes of any regular or special meeting of the Board.
Notice of a meeting need not be given to any director who submits a signed
waiver of notice whether before or after the meeting, or who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. Notice of any adjournment of
a meeting of the Board shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place are announced at the
meeting, to the other directors.
SECTION 2.07. Quorum and Voting. One-third of the entire Board shall
constitute a quorum for the transaction of any business. Except as otherwise
provided by law or by these By-laws, the vote of a majority of the directors
present at a meeting at the time of the vote, if a quorum is present at such
time, shall be the act of the Board.
SECTION 2.08. Written Consents and Meetings by Telephone. Any action
required or permitted to be taken by the Board or any committee thereof may be
taken without a meeting if all members of the Board or the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or committee shall
be filed with the minutes of the proceedings of the Board or committee. Any one
or more members of the Board or any committee thereof may participate in a
meeting of such Board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
SECTION 2.09. Compensation of Directors. Directors who are not officers of
the Corporation shall be entitled to receive such compensation for services to
the Corporation in their capacities as such or otherwise in such amounts as may
be fixed from time to time by the Board. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 2.10. Entire Board. As used in these By-laws, the term "entire
Board" means the total number of directors which the Corporation would have if
there were no vacancies.
ARTICLE III
COMMITTEES
SECTION 3.01. Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may appoint an Executive Committee, consisting of
three or more directors including the Chairman of the Board and President, which
shall have all the authority of the Board when the Board is not in session,
except as may be otherwise provided by law or limited by resolution of the
Board. Minutes of each meeting of the Executive Committee shall be kept and
shall be submitted to the first regular meeting of the Board following the
meeting of the Executive Committee. The Executive Committee may adopt its own
rules of procedure and shall fix the time and place, within or without the State
of New York, of its meetings. No notice of any regular meetings of the Executive
Committee shall be required. The Executive Committee shall serve at the pleasure
of the Board.
SECTION 3.02. Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may designate from among its members one or more
other committees, each consisting of three or more directors, and each of which,
to the extent provided in the resolution, shall have all the authority of the
Board except as otherwise limited by law. The Board may authorize the Chief
Executive Officer to appoint, from time to time, such other committees
consisting of directors, officers, or other persons and having such powers,
duties and functions as the Board may determine. Each such committee and each
member thereof shall serve at the pleasure of the Board, or in the case of any
committee appointed by the Chief Executive Officer, at the pleasure of the Chief
Executive Officer. A majority of the members of any such committee shall
determine its rules of procedure and the time and place of its meetings, unless
the Board, or in the case of any committee appointed by the Chief Executive
Officer, the Chief Executive Officer, shall otherwise provide.
SECTION 3.03. Quorum and Voting. A majority of the members of a committee
shall constitute a quorum for the transaction of business, and the vote of a
majority of the members present at the time of the vote, if a quorum is present
at such time, shall be the act of the committee.
SECTION 3.04. Committee Membership. The Board, or in the case of any
committee appointed by the Chief Executive Officer, the Chief Executive Officer,
may fill any vacancy in a committee and may designate one or more persons as
alternate members of a committee who may replace any absent member or members at
any meeting of such committee.
<PAGE> 6
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
SECTION 4.01. General Provisions. The officers of the Corporation shall
include a Chairman of the Board, a President, one or more Vice Chairmen of the
Board, a Secretary, a Treasurer, one or more Vice Presidents (any one or more of
whom may be designated Executive Vice President, Senior Vice President or by
some other special designation), a Comptroller, and an Auditor, and such other
officers, including but not by way of limitation one or more Assistant
Secretaries, Assistant Treasurers and Assistant Comptrollers, as may be elected
or appointed in accordance with the provisions of these By-laws.
The Chairman of the Board, the President, the Vice Chairmen of the Board,
Executive Vice Presidents (each of the foregoing officers being referred to
hereinafter as an "Executive Officer"), one or more other Vice Presidents, the
Secretary, the Treasurer and such other officers, if any, as the Board may
determine, shall be elected by the Board at the annual meeting of the Board
following each annual meeting of shareholders. Each such officer shall hold
office until the next annual election of officers and until a successor is
elected and shall have qualified. Any two or more offices other than the office
of President and Secretary may be held by the same person.
The Board from time to time may appoint the other officers provided for in
these By-laws and such other officers as it shall deem fit. The Chairman of the
Board, or in his absence the President, may appoint such further officers below
the rank of Vice President with such titles and duties as may be specified upon
appointment.
All officers of the Corporation may be removed or their authority suspended
by the Board, and officers appointed by the Chairman of the Board or the
President may also be removed or their authority suspended by the Chairman of
the Board, or in his absence the President, in any such case, at any time, with
or without cause. Such removal without cause shall be without prejudice to such
person's contract rights, if any, but the appointment of any person as an
officer of the Corporation shall not of itself create contract rights. A vacancy
in any office may be filled in the manner prescribed in these By-laws for
election or appointment to such office.
The compensation of officers shall be fixed by the Board; provided that this
power may be delegated to any officer as to persons under his direction or
control.
All other agents and employees of the Corporation shall be appointed, their
duties prescribed and their compensation fixed, by the Chairman of the Board or
the President, or any officer authorized to do so by either of them.
The Board may require any officer, agent or employee to give security for
the faithful performance of his duties.
SECTION 4.02. Powers and Duties of the Chairman of the Board and the
President. The Chairman of the Board and the President shall be elected from
among the members of the Board, and one of them shall be designated by the Board
as Chief Executive Officer. The Chief Executive Officer shall have general
supervision of the business and affairs of the Corporation which shall in every
case be subject to the direction and control of the Board. The Chairman of the
Board, or in his absence the President, shall preside at all meetings of the
shareholders and of the Board.
SECTION 4.03. Duties of Other Officers. The officers of the Corporation
other than the Chief Executive Officer shall participate in the management of
the business and affairs of the Corporation as directed, and in the order of
seniority as determined, by the Board. They shall perform such duties as may be
assigned to them by the Board, the Chief Executive Officer or any officer
authorized by the Board or the Chief Executive Officer to do so, or as may be
prescribed by law or by these By-laws.
SECTION 4.04. Secretary. The Secretary shall keep the minutes of all
meetings of the Board and of the Executive Committee, shall have custody of the
corporate seal, shall give notices of meetings required by these By-laws, shall
perform such other duties as may be assigned to him from time to time by the
Board or the Chief Executive Officer and, in general, shall perform those duties
incident to the office of Secretary. In the absence of the Secretary, an
Assistant Secretary shall have the authority to perform the duties of the
Secretary.
SECTION 4.05. Treasurer. The Treasurer shall have responsibility for the
care and custody of all moneys, funds and other property of the Corporation
which may come into his hands, shall perform such other duties as may be
assigned to him from time to time by the Board or the Chief Executive Officer
and, in general, shall perform those duties incident to the office of Treasurer.
In the absence of the Treasurer, an Assistant Treasurer shall have the authority
to perform the duties of the Treasurer.
SECTION 4.06. Comptroller. The Comptroller shall exercise general
supervision over all accounting functions of the Corporation, including
preparation of its required tax returns and reports to supervisory authorities.
He shall be responsible to the Chief Executive
<PAGE> 7
Officer and may report directly to the Board or to the Executive Committee on
such matters as in his judgment should be brought to their attention. In the
absence of the Comptroller, an Assistant Comptroller shall have the authority to
perform the duties of the Comptroller.
SECTION 4.07. Auditor. The Auditor shall exercise supervision over the
Auditing Department, and he shall review and evaluate all existing controls and
procedures and be responsible for reporting on the adequacy of controls, systems
and protective procedures and devices to insure the accuracy of records and the
safety of assets owned or managed by the Corporation. He shall be responsible to
the Chief Executive Officer and to the Board and shall report directly to the
Board, the Executive Committee or an Audit Committee of the Board on such
matters as in his judgment should be brought to their attention.
SECTION 4.08. Delegation of Duties. In case of the absence of any officer of
the Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being any of the authority and
duties of such officer upon any other officer or upon any director.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify any person made or threatened to be made a
party to any action or proceeding, whether civil or criminal, and whether or not
by or in the right of the Corporation or of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, by reason of the fact that such person, his
testator or intestate, is or was a director or officer of the Corporation or
served any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at the request of the Corporation, against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein; provided that (a) no indemnification may be made to or on
behalf of any person if a judgment or other final adjudication adverse to such
person establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled, (b) no indemnification shall be
required in connection with the settlement of any pending or threatened action
or proceeding, or any other disposition thereof except a final adjudication,
unless the Corporation has consented to such settlement or other disposition and
(c) the Corporation shall not be obligated to indemnify any person by reason of
the adoption of this Article V if and to the extent such person is entitled to
be indemnified under a policy of insurance as such policy would apply in the
absence of the adoption of this Article V.
Reasonable expenses, including attorneys' fees, incurred in defending any
action or proceeding, whether threatened or pending, shall be paid or reimbursed
by the Corporation in advance of the final disposition thereof upon receipt of
an undertaking by or on behalf of the person seeking indemnification to repay
such amount to the Corporation to the extent, if any, such person is ultimately
found not to be entitled to indemnification.
Notwithstanding any other provision hereof, no repeal of this Article V, or
amendment hereof or any other corporate action or agreement which prohibits or
otherwise limits the right of any person to indemnification or advancement or
reimbursement of expenses hereunder, shall be effective as to any person until
the 60th day following notice to such person of such action, and no such repeal
or amendment or other corporate action or agreement shall deprive any person of
any right hereunder arising out of any alleged or actual act or omission
occurring prior to such 60th day.
The Corporation is hereby authorized, but shall not be required, to enter
into agreements with any of its directors, officers or employees providing for
rights to indemnification and advancement and reimbursement of reasonable
expenses, including attorneys' fees, to the extent permitted by law, but the
Corporation's failure to do so shall not in any manner affect or limit the
rights provided for by this Article V or otherwise.
For purposes of this Article V, the term "Corporation" shall include any
legal successor to the Corporation, including any corporation which acquires all
or substantially all of the assets of the Corporation in one or more
transactions. For purposes of this Article V, the Corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his duties to the Corporation or any subsidiary thereof also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan, and excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable law shall be
considered fines.
<PAGE> 8
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.
ARTICLE VI
SHARES OF THE CORPORATION
SECTION 6.01. Certificates for Shares. The shares of the Corporation shall
be represented by certificates in such form as shall be determined by the Board
of Directors, signed by the Chairman of the Board, the President, a Vice
Chairman of the Board or a Vice President and the Secretary or an Assistant
Secretary or the Treasurer or Assistant Treasurers of the Corporation. Such
certificates shall be sealed with the seal of the Corporation or a facsimile
thereof and shall contain such information as is required by law to be stated
thereon. The signatures of the officers upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent or registered by a
registrar other than the Corporation itself or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the time of issue. All certificates for shares shall be consecutively numbered
or otherwise identified. All certificates exchanged or surrendered to the
Corporation for transfer shall be canceled.
SECTION 6.02. Record of Shareholders. The Corporation shall keep at the
office of the Corporation in the State of New York a record containing the names
and addresses of all shareholders, the number and class of shares held by each
and the dates when they respectively became the owners of record thereof. The
Corporation shall be entitled to treat the persons in whose names shares stand
on the record of shareholders as the owners thereof for all purposes.
SECTION 6.03. Transfer of Shares. Transfers of shares on the record of
shareholders of the Corporation shall be made only upon surrender to the
Corporation of the certificate or certificates for such shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
SECTION 6.04. Lost, Stolen or Destroyed Certificates. The Board of
Directors, in its discretion, may require the owner (or his legal
representatives) of any certificate representing shares of the Corporation
alleged to have been lost, stolen, or destroyed to give the Corporation a bond
in such sum as the Board may direct sufficient to indemnify the Corporation
against any liability or expense which it may incur by reason of the original
certificate remaining outstanding, as a condition of the issuance of a new
certificate for shares in the place of any certificate alleged to have been
lost, stolen or destroyed. Proper and legal evidence of such loss, theft or
destruction shall be procured for the Board if required. The Board in its
discretion may refuse to issue such new certificate save upon the order of a
court having jurisdiction in such matters.
ARTICLE VII
SEAL
The Board shall provide a seal for the Corporation which the Corporation may
use by causing it or a facsimile to be affixed or impressed or reproduced in any
other manner. Any officer of the Corporation shall have the power to use and
attest the corporate seal.
ARTICLE VIII
CONTRACTS, CHECKS, DRAFTS, ETC.
SECTION 8.01. Contracts, Etc. Except as otherwise provided in these By-laws
or by law, all checks, orders, contracts, leases, notes, drafts and other
documents and instruments in connection with the business of the Corporation may
be signed by any Executive Officer of the Corporation or by such other officer,
employee or agent thereunto authorized by resolution of the Board of Directors,
or in writing by the Chief Executive Officer, or by an officer or officers
designated by him subject to such restrictions as the Chief Executive Officer
shall prescribe.
SECTION 8.02. Auditor. Notwithstanding the foregoing, the Auditor shall have
no power to sign checks, vouchers, agreements or other documents or instruments
on behalf of the Corporation, except that the Auditor is authorized to certify
in the name of, or on behalf of, the Corporation, in its own right or in a
fiduciary or representative capacity, as to the accuracy and completeness of any
<PAGE> 9
account, schedule of assets, or other document, instrument or paper requiring
such certification and to sign in the name of, or behalf of, the Corporation
reports and responses to any regulatory authority.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE X
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted (a)
by vote of the holders of the shares at the time entitled to vote in the
election of directors at any annual meeting of the shareholders or at any
special meeting of the shareholders called for that purpose, or (b) by the Board
of Directors at any meeting of the Board, except in the case of any particular
provision at any time adopted by the shareholders and specified as not subject
to amendment or repeal by the Board. If any By-law regulating an impending
election of directors is adopted, amended or repealed by the Board, there shall
be set forth in the notice of the next meeting of shareholders for the election
of directors the By-law so adopted, amended or repealed, together with a concise
statement of the changes made.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Condition at June 30, 1999 and the Condensed
Consolidated Statement of Income for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such condensed consolidated financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 248,430
<INT-BEARING-DEPOSITS> 154,523
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,018,748
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,476,977
<ALLOWANCE> 19,711
<TOTAL-ASSETS> 4,249,137
<DEPOSITS> 3,512,026
<SHORT-TERM> 152,369
<LIABILITIES-OTHER> 265,430
<LONG-TERM> 63,000
0
0
<COMMON> 20,047
<OTHER-SE> 236,265
<TOTAL-LIABILITIES-AND-EQUITY> 4,249,197
<INTEREST-LOAN> 80,875
<INTEREST-INVEST> 30,446
<INTEREST-OTHER> 6,298
<INTEREST-TOTAL> 117,619
<INTEREST-DEPOSIT> 53,791
<INTEREST-EXPENSE> 59,707
<INTEREST-INCOME-NET> 57,912
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 200,370
<INCOME-PRETAX> 62,624
<INCOME-PRE-EXTRAORDINARY> 62,624
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,888
<EPS-BASIC> 2.04<F1>
<EPS-DILUTED> 1.81<F1>
<YIELD-ACTUAL> 3.34
<LOANS-NON> 637
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,414
<CHARGE-OFFS> 250
<RECOVERIES> 547
<ALLOWANCE-CLOSE> 19,711
<ALLOWANCE-DOMESTIC> 19,711
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 19,711
<FN>
<F1>Represents the Corporation's basic and diluted income per share calculated
in accordance with Statement of Financial Accounting Standards No. 128 "Earnings
Per Share"
</FN>
</TABLE>
