SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
January 12, 2000
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(Date of earliest event reported)
U.S. TRUST CORPORATION
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(Exact name of registrant as specified in its charter)
New York 1-14933 13-3818952
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(State or other jurisdiction of (Commission (I.R.S. Employer Identification
organization) File Number)
Number)
114 West 47th Street
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New York, New York 10036
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(Address of principal executive offices) (Zip Code)
(212)-852-1000
(Registrant's telephone number, including area code)
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Item 5. Other Events
On January 13, 2000, U.S. Trust Corporation (the "Company")
announced that it had entered into an Agreement and Plan of Merger dated as of
January 12, 2000 (the "Merger Agreement"), by and among The Charles Schwab
Corporation ("Schwab"), Patriot Merger Corporation ("Merger Sub") and the
Company. Under the terms of the Merger Agreement, the Company will become a
wholly owned subsidiary of Schwab through the merger of Merger Sub with and
into the Company (the "Merger").
Under the terms of the Merger Agreement, each common share of the
Company will be converted into the right to receive 3.427 shares of Schwab's
common stock. The Merger is subject to various conditions set forth in the
Merger Agreement, including the adoption of the Merger Agreement by the
shareholders of the Company, certain regulatory approvals and other customary
conditions.
In connection with the Merger Agreement, the Company and Schwab
entered into a Stock Option Agreement dated as of January 12, 2000 (the "Stock
Option Agreement"), under which Schwab has the right, under certain
circumstances, to purchase up to 19.9% of the Company's issued and outstanding
common shares.
On January 13, 2000, the Company and Schwab gave a presentation to
analysts regarding the Merger.
Copies of the Merger Agreement, the press release dated January 13,
2000, the Stock Option Agreement and the analyst presentation materials are
attached hereto as Exhibits 2.1, 99.1, 99.2 and 99.3, respectively, and
incorporated herein by reference in their entirety.
Exhibit 99.3 to this current report on Form 8-K contains
forward-looking statements that reflect management's goals, objectives and
expectations. These statements relate to, among other things, U.S. investor
demographics, benefits to be realized from the Merger and the pro forma
financial impact of the Merger. Achievement of the expressed goals, objectives
and expectations is subject to certain risks and uncertainties that could
cause actual results to differ materially from those goals, objectives or
expectations. Important factors that may cause such differences include, but
are not limited to: economic disruptions; a severe downturn in the securities
markets; changes in the growth rate of U.S. household assets; outcomes
significantly different than assumptions concerning feasibility, magnitude or
timing of expected benefits; intensified competition in the wealth management
arena; and changes in the legal and regulatory environment. Such
forward-looking statements speak only as of the date on which such statements
were made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which any such statement is made to reflect the occurrence of unanticipated
events. Additional discussions of the risks faced by the Company and Schwab
are contained in their Annual Reports and Quarterly Reports on Form 10-K and
Form 10-Q, respectively.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit Description
2.1 Agreement and Plan of Merger dated as of January 12, 2000, by and
among The Charles Schwab Corporation, Patriot Merger Corporation and
U.S. Trust Corporation.
99.1 Press release of The Charles Schwab Corporation and U.S. Trust
Corporation dated January 13, 2000, announcing the execution of the
definitive merger agreement.
99.2 Stock Option Agreement dated as of January 12, 2000, between The
Charles Schwab Corporation and U.S. Trust Corporation.
99.3 Analyst presentation materials dated January 13, 2000, regarding the
Merger.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
U.S. TRUST CORPORATION,
by: /s/ Richard B. Gross
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Name: Richard B. Gross
Title: Managing Director and
General Counsel
Date: January 14, 2000
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Exhibit Index
Exhibit Description
2.1 Agreement and Plan of Merger dated as of January 12, 2000, by
and among The Charles Schwab Corporation, Patriot Merger
Corporation and U.S. Trust Corporation.
99.1 Press release of The Charles Schwab Corporation and U.S. Trust
Corporation dated January 13, 2000, announcing the execution of
the definitive merger agreement.
99.2 Stock Option Agreement dated as of January 12, 2000, between
The Charles Schwab Corporation and U.S. Trust Corporation.
99.3 Analyst presentation materials dated January 13, 2000,
regarding the Merger.
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE CHARLES SCHWAB CORPORATION,
PATRIOT MERGER CORPORATION
AND
U.S. TRUST CORPORATION
Dated as of January 12, 2000
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 12, 2000, by and
among The Charles Schwab Corporation, a Delaware corporation ("SCHWAB"),
Patriot Merger Corporation, a New York corporation and a wholly-owned
subsidiary of SCHWAB ("MERGER SUB"), and U.S. Trust Corporation, a New York
corporation ("UST").
WHEREAS, the Boards of Directors of SCHWAB and UST have determined
that it is in the best interests of their respective companies and
shareholders to consummate the strategic business combination transaction
provided for herein in which MERGER SUB will merge (the "Merger") with and
into UST so that UST is the surviving corporation (hereinafter sometimes
called the "Surviving Corporation") in the Merger;
WHEREAS, as a condition to, and simultaneously with the execution
and delivery of this Agreement, SCHWAB and UST are entering into a stock
option agreement (the "UST Option Agreement") pursuant to which UST is
granting SCHWAB an option to purchase shares of UST Common Stock (as defined
in Section 1.4) on the terms and subject to the conditions set forth therein;
WHEREAS, as a condition to, and simultaneously with the execution
and delivery of this Agreement, certain key employees of UST are entering into
employment agreements to be effective at the closing of the Merger (the
"Employment Agreements"); and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to
be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, in accordance with New York Business Corporation Law (the "NYBCL"),
at the Effective Time (as defined in Section 1.2), MERGER SUB shall merge with
and into UST. UST shall be the Surviving Corporation in the Merger, and shall
continue its corporate existence under the laws of the State of New York. Upon
consummation of the Merger, the separate corporate existence of MERGER SUB
shall terminate.
1.2 Effective Time. The Merger shall become effective as set forth
in the certificate of merger relating to the Merger (the "New York Certificate
of Merger") which shall be filed with the Department of State of the State of
New York (the "New York Department") on
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or before the Closing Date (as defined in Section 9.1) in accordance with
Section 904 of the NYBCL. The date and time when the Merger becomes effective
shall be the Closing Date or such other date and time as is mutually agreed by
UST and SCHWAB and set forth in the New York Certificate of Merger (the
"Effective Time").
1.3 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in Section 906 of the NYBCL.
1.4 Conversion of UST Common Stock. At the Effective Time, in each
case, subject to Section 2.2(e), by virtue of the Merger and without any
action on the part of SCHWAB, UST or the holder of any of the following
securities:
(a) Each share of the common stock, par value $1.00 per share,
of UST (the "UST Common Stock") issued and outstanding immediately prior to
the Effective Time (other than shares of UST Common Stock held by SCHWAB,
MERGER SUB or UST (except for Trust Account Shares, as such term is defined in
Section 1.4(d))) shall be converted into the right to receive 3.427 shares
(the "Exchange Ratio") of common stock, par value $.01 per share, of SCHWAB
(the "SCHWAB Common Stock").
(b) All of the shares of UST Common Stock converted into SCHWAB
Common Stock pursuant to this Article I shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist as of the Effective
Time, and each certificate (each a "Common Certificate") previously
representing any such shares of UST Common Stock shall thereafter represent
the right to receive (i) a certificate representing the number of whole shares
of SCHWAB Common Stock, (ii) cash in lieu of fractional shares into which the
shares of UST Common Stock represented by such Common Certificate have been
converted pursuant to this Section 1.4 and Section 2.2(e) and (iii) any
dividends or distributions which the holder thereof has the right to receive
pursuant to Section 2.2(b). Common Certificates previously representing shares
of UST Common Stock shall be exchanged for certificates representing whole
shares of SCHWAB Common Stock, cash in lieu of fractional shares issued in
consideration therefor and any such dividends or distributions upon the
surrender of such Common Certificates in accordance with Section 2.2, without
any interest thereon.
(c) If, prior to the Effective Time, the outstanding shares of
SCHWAB Common Stock or UST Common Stock shall have been increased, decreased,
changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, issuance of securities pursuant to the UST
Rights Agreement (as defined below), stock split, reverse stock split, or
other similar change in capitalization, then an appropriate and proportionate
adjustment shall be made to the Exchange Ratio.
(d) At the Effective Time, all shares of UST Common Stock held
by SCHWAB, MERGER SUB or UST (other than shares of UST Common Stock held,
directly or indirectly, in trust accounts, managed accounts and the like or
otherwise held in a fiduciary or
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custodial capacity that are beneficially owned by third parties (any such
shares, and shares of SCHWAB Common Stock which are similarly held, whether
held directly or indirectly by SCHWAB, MERGER SUB or UST, as the case may be,
being referred to herein as "Trust Account Shares")), shall be cancelled and
shall cease to exist and no stock of SCHWAB or other consideration shall be
delivered in exchange therefor.
1.5 MERGER SUB Common Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of SCHWAB or UST, each share of the
common stock, $.01 par value, of MERGER SUB shall be converted into one share
of UST Common Stock (which shares of UST Common Stock shall not be deemed
outstanding immediately prior to the Effective Time for the purposes of this
Agreement).
1.6 SCHWAB Common Stock. At and after the Effective Time, each share
of SCHWAB Common Stock issued and outstanding immediately prior to the
Effective Time shall remain an issued and outstanding share of SCHWAB Common
Stock and shall not be affected by the Merger.
1.7 Options and Contingent Issuances.
(a) At the Effective Time, each award, option, or other right
to purchase or acquire shares of UST Common Stock pursuant to stock options
granted by UST under its stock option plans, each of which is identified in
Section 3.2 of the UST Disclosure Schedule (each, a "Stock Option Plan"), and
all other rights, obligations, commitments or agreements of any character,
whether fixed or contingent, calling for the purchase or issuance of any
shares of UST Common Stock or any other equity securities of UST or any
securities representing the right to purchase or otherwise receive any shares
of UST Common Stock (collectively with such Stock Option Plans, the "UST
Rights"), which are outstanding at the Effective Time, whether or not vested
or exercisable, unless otherwise vested or exercised at or prior to the
Effective Time in accordance with the terms then in effect of the applicable
UST Stock Plans (as defined in Section 6.10), shall automatically be converted
into and become options or other equivalent rights with respect to SCHWAB
Common Stock, and SCHWAB shall assume each UST Right, in accordance with the
same terms and conditions of the Stock Option Plan or other agreement by which
each respective UST Right is evidenced, except from and after the Effective
Time, (i) SCHWAB and its Board of Directors and Compensation Committee shall
be substituted for the Committee of UST's Board of Directors (including, if
applicable, the entire Board of Directors of UST) administering the respective
Stock Option Plans, (ii) each UST Right assumed by SCHWAB may be exercised
solely for shares of SCHWAB Common Stock, (iii) the number of shares of SCHWAB
Common Stock subject to such UST Right shall be equal to the number of shares
of UST Common Stock subject to such UST Right immediately prior to the
Effective Time multiplied by the Exchange Ratio, provided that any fractional
shares of SCHWAB Common Stock resulting from such multiplication shall be
rounded down to the nearest whole share and (iv) the per share exercise price
under each such UST Right shall be adjusted by dividing the per share exercise
price under each such UST Right by the Exchange Ratio and rounding to the
nearest whole cent. As to any UST Rights that are vested or that
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would vest by reason of the transactions contemplated hereby, UST shall take
the requisite action necessary, including amending any applicable plan
documents, to eliminate any cash payments in connection with such options or
rights and to provide for the conversion of such options or rights at the
Effective Time only into the number of shares of SCHWAB Common Stock
determined by dividing the net spread value of each such option or right
immediately prior to the Effective Time by the value of one share of UST
Common Stock as quoted on the New York Stock Exchange immediately prior to the
Effective Time and multiplying the resulting quotient by the Exchange Ratio,
and, as to any right to receive UST stock under any other contract, UST shall
take all action necessary to convert each such right into a right to receive
the number of shares of SCHWAB Common Stock determined by dividing the net
spread value of each such right immediately prior to the Effective Time by the
value of one share of UST Common Stock as quoted on the New York Stock
Exchange immediately prior to the Effective Time and multiplying the resulting
quotient by the Exchange Ratio. Notwithstanding the foregoing, each UST Right
which is an "incentive stock option" shall be adjusted as required by Section
424 of the Code so as not to constitute a modification, extension, or renewal
of the option, within the meaning of Section 424(h) of the Code. SCHWAB agrees
to take all reasonable steps that are necessary to effectuate the foregoing
provisions of this Section.
(b) Prior to the Effective Time, SCHWAB shall take all
corporate action necessary to reserve for issuance sufficient shares of SCHWAB
Common Stock for delivery upon exercise of UST Rights assumed by SCHWAB in
accordance with this Section.
(c) As soon as practicable after the Effective Time, SCHWAB
shall deliver to each holder of UST Rights appropriate notices setting forth
such holder's rights pursuant to the Stock Option Plans and the agreements
pursuant to which such options were issued, and the Stock Option Plans and the
agreements evidencing the grants of such UST Rights shall continue in effect
on the same terms and conditions (subject to the conversion required by this
Section 1.7 after giving effect to the Merger and the assumption by SCHWAB as
set forth above). To the extent necessary to effectuate the provisions of this
Section 1.7, UST and SCHWAB shall deliver new or amended agreements reflecting
the terms of this Agreement and of each UST Right assumed by SCHWAB and amend
the Stock Option Plans to reflect the terms hereof.
1.8 Certificate of Incorporation. Subject to the terms and
conditions of this Agreement, at the Effective Time, the Certificate of
Incorporation of UST shall be amended as stated in Exhibit A hereto, and, as
so amended, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.9 Bylaws. Subject to the terms and conditions of this Agreement,
at the Effective Time, the Bylaws of MERGER SUB shall be the Bylaws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.10 Directors and Officers of Surviving Corporation and
Subsidiaries.
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(a) At the Effective Time, the officers of UST and its
subsidiaries immediately prior to the Effective Time shall be the officers of
the Surviving Corporation and its subsidiaries following the Merger.
(b) Immediately prior to the Effective Time, the directors of
UST shall submit their resignations from the Board of Directors of UST. At the
Effective Time, SCHWAB shall take all necessary actions so that, at the
Effective Time, the persons listed on Section 1.10(b) of the UST Disclosure
Schedule shall be appointed to the Board of Directors of the Surviving
Corporation.
(c) Immediately prior to the Effective Time, the directors of
the subsidiaries of UST shall submit their resignations from the Board of
Directors of such subsidiaries. At the Effective Time, SCHWAB shall take all
action necessary so that, immediately following the Effective Time, the
Persons listed on Section 1.10(c) of the UST Disclosure Schedule shall be
appointed to the Board of Directors of the subsidiaries of the Surviving
Corporation.
(d) Prior to the Effective Time, UST shall take all corporate
actions necessary such that all directors of the Surviving Corporation and its
subsidiaries may be removed without cause following the Effective Time at the
discretion of the shareholder of each such corporation.
1.11 Representation on SCHWAB Board of Directors and Management
Committee.
(a) At the Effective Time, SCHWAB shall take all necessary
actions so that, immediately following the Effective Time, the persons listed
on Section 1.11(a) of the UST Disclosure Schedule shall be appointed to the
Board of Directors of SCHWAB.
(b) At the Effective Time, SCHWAB shall take all action
necessary so that, immediately following the Effective Time, the Persons
listed on Section 1.11(b) of the UST Disclosure Schedule shall be appointed to
the SCHWAB management committee.
ARTICLE II
EXCHANGE OF SHARES
2.1 SCHWAB to Make Shares Available. At or prior to the Effective
Time, SCHWAB shall deposit, or shall cause to be deposited, with a bank or
trust company selected by SCHWAB and reasonably acceptable to UST (the
"Exchange Agent"), for the benefit of the holders of Common Certificates, for
exchange in accordance with this Article II, certificates representing the
shares of SCHWAB Common Stock and cash in lieu of any fractional shares (such
cash and certificates for shares of SCHWAB Common Stock, together with any
dividends
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or distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to
Section 2.2(a) in exchange for outstanding shares of UST Common Stock.
2.2 Exchange of Shares.
(a) As soon as practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of one or more Common
Certificates a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Common Certificates shall pass,
only upon delivery of the Common Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Common Certificates in
exchange for certificates representing the shares of SCHWAB Common Stock, any
dividends or distributions which a holder of Common Certificates has a right
to receive pursuant to Section 2.2(b) and any cash in lieu of fractional
shares into which the shares of UST Common Stock represented by such Common
Certificate or Common Certificates shall have been converted pursuant to this
Agreement. Upon proper surrender of a Common Certificate for exchange and
cancellation to the Exchange Agent, together with such properly completed
letter of transmittal, duly executed, the holder of such Common Certificate
shall be entitled to receive in exchange therefor (i) a certificate
representing that number of whole shares of SCHWAB Common Stock to which such
holder of UST Common Stock shall have become entitled pursuant to the
provisions of Article I and (ii) a check representing the aggregate amount of
(x) any cash dividends or distributions which such holder has a right to
receive pursuant to Section 2.2(b) and (y) any cash (rounded to the nearest
whole cent) in lieu of fractional shares of SCHWAB Common Stock which such
holder has the right to receive in respect of the Common Certificate
surrendered pursuant to the provisions of this Article II, and the Common
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on any cash in lieu of fractional shares or on any unpaid
dividends or distributions payable to holders of Common Certificates.
(b) No dividends or other distributions declared after the
Effective Time with respect to SCHWAB Common Stock shall be paid to the holder
of any unsurrendered Common Certificate until the holder thereof shall
surrender such Common Certificate in accordance with this Article II. After
the surrender of a Common Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of SCHWAB Common Stock represented by such
Common Certificate. In addition, after the surrender of a Common Certificate
in accordance with this Article II, the record holder thereof shall be
entitled to receive any dividends or distributions, without interest thereon,
with a record date prior to the Effective Time which may have been declared or
made by UST with respect to shares of UST Common Stock represented by such
Common Certificate and which remain unpaid at the Effective Time.
(c) If any certificate representing shares of SCHWAB Common
Stock is to be issued in a name other than that in which the Common
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Common Certificate
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so surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer) and otherwise in proper form for transfer, and that
the person requesting such exchange shall pay to the Exchange Agent in advance
any transfer or other taxes required by reason of the issuance of a
certificate representing shares of SCHWAB Common Stock in any name other than
that of the registered holder of the Common Certificate surrendered, or
required for any other reason, or shall establish to the reasonable
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on
the stock transfer books of UST of the shares of UST Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Common Certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of SCHWAB Common Stock as provided in this
Article II.
(e) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of SCHWAB Common Stock
shall be issued upon the surrender for exchange of Common Certificates, no
dividend or distribution with respect to SCHWAB Common Stock shall be payable
on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights
of a shareholder of UST. In lieu of the issuance of any such fractional share,
SCHWAB shall pay to each former shareholder of UST who otherwise would be
entitled to receive such fractional share an amount in cash, rounded to the
nearest whole cent, determined by multiplying (i) the closing-sale price of
SCHWAB Common Stock on the NYSE as reported by The Wall Street Journal on the
last trading day prior to the Effective Time (the "Applicable Market Value Per
Share of SCHWAB Common Stock") by (ii) the fraction of a share (rounded to the
nearest thousandth of a share) of SCHWAB Common Stock which such holder would
otherwise be entitled to receive pursuant to Section 1.4.
(f) Any portion of the Exchange Fund that remains unclaimed by
the shareholders of UST for 12 months after the Effective Time shall be paid
to SCHWAB. Any shareholders of UST who have not theretofore complied with this
Article II shall thereafter look only to SCHWAB for payment of the shares of
SCHWAB Common Stock or cash in lieu of any fractional shares and any unpaid
dividends and distributions on the SCHWAB Common Stock deliverable in respect
of each share of UST Common Stock such shareholder holds as determined
pursuant to this Agreement without any interest thereon. Notwithstanding the
foregoing, none of UST, SCHWAB, the Exchange Agent or any other person shall
be liable to any former holder of shares of UST Common Stock for any amount
delivered in good faith to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) In the event any Common Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Common Certificate to be lost, stolen or destroyed and,
if reasonably required by SCHWAB, the posting by such person of a bond in such
amount as SCHWAB may determine is reasonably necessary as
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indemnity against any claim that may be made against it with respect to such
Common Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Common Certificate the shares of SCHWAB Common Stock, any
cash in lieu of fractional shares deliverable in respect thereof pursuant to
this Agreement and any cash dividends or disbursements which such holder has a
right to receive pursuant to Section 2.2(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UST
Except as set forth in the disclosure schedule, dated the date
hereof, delivered by UST to SCHWAB, with reference to the specific section of
the Agreement to which each disclosure relates (the "UST Disclosure Schedule")
or as set forth in UST Reports (as defined in Section 3.12) filed since
January 1, 1997, UST hereby represents and warrants to SCHWAB as follows:
3.1 Corporate Organization.
(a) UST is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. UST has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a UST Material Adverse Effect. As used in this Agreement, the term "UST
Material Adverse Effect" means, with respect to UST, any effect that (i) is,
or would be reasonably likely to be, material and adverse to the business,
operations, financial condition or results of operations of UST and its
subsidiaries taken as a whole or (ii) does, or would be reasonably likely to,
prevent UST from consummating the Merger and the other transactions
contemplated hereby (including the UST Option Agreement and the transactions
contemplated thereby), other than (i) any effect resulting from events, facts
or circumstances relating to the economy in general, including market
fluctuations and changes in interest rates, or to UST's industry in general
and not specifically relating to UST or any UST Subsidiary and (ii) the loss
of customer business, in whole or in part, resulting from the announcement or
consummation of this Agreement or the transactions contemplated hereby. As
used in this Agreement, the word "Subsidiary" when used with respect to any
party means any bank, corporation, partnership, limited liability company or
other organization, whether an incorporated or unincorporated organization (a
"Corporate Entity"), which is consolidated with such party for financial
reporting purposes or which otherwise would be deemed to be a subsidiary of
such party within the meaning of the Bank Holding Company Act of 1956, as
amended (the "BHCA"). UST is duly registered as a bank holding company under
the BHCA. True and complete copies of the Certificate of Incorporation and
Bylaws of UST, as in effect as of the date of this Agreement, have previously
been delivered by UST to SCHWAB.
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(b) Section 3.1(b) of the UST Disclosure Schedule sets forth a
complete and correct list of all of UST's Subsidiaries (each a "UST
Subsidiary" and collectively the "UST Subsidiaries"); such list identifies
those UST Subsidiaries that have as their primary Federal bank regulatory
agency the Federal Reserve Board and those UST Subsidiaries that are not so
regulated. Section 3.1(b) of the UST Disclosure Schedule also sets forth a
list identifying the number (other than wholly-owned Subsidiaries) and owner
of all outstanding capital stock or other equity securities of each such
Subsidiary, options, warrants, stock appreciation rights, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, shares of any capital stock or other
equity securities of such Subsidiary, or contracts, commitments,
understandings or arrangements by which such Subsidiary may become bound to
issue additional shares of its capital stock or other equity securities, or
options, warrants, scrip, rights to subscribe, calls or commitments for any
shares of its capital stock or other equity securities and the identity of the
parties to any such agreements or arrangements. All of the outstanding shares
of capital stock or other securities evidencing ownership of the UST
Subsidiaries are validly issued, fully paid and nonassessable and such shares
or other securities are owned by UST or another of its Subsidiaries free and
clear of any lien, claim, charge, option, encumbrance, mortgage, pledge or
security interest (a "Lien") with respect thereto. Each UST Subsidiary (i) is
a duly organized and validly existing corporation, partnership or limited
liability company or other legal entity under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business and is in good standing in
all jurisdictions (whether federal, state, local or foreign) where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified (except for jurisdictions in which the failure to be so
qualified would not be reasonably likely to have a UST Material Adverse
Effect) and (iii) has all requisite corporate power and authority to own or
lease its properties and assets and to carry on its business as now conducted.
Except for its interests in the UST Subsidiaries, UST does not as of the date
of this Agreement own, directly or indirectly, any capital stock, membership
interest, partnership interest, joint venture interest or other equity
interest with a fair market value as of the date of this Agreement in excess
of $10 million in any person.
3.2 Capitalization. The authorized capital stock of UST consists of
70,000,000 shares of UST Common Stock, of which, as of January 6, 2000,
18,660,600 shares were issued and outstanding, and 4,000,000 shares of Series
A Participating Cumulative Preferred Shares, par value $1.00 per share (the
"UST Preferred Stock"), of which, as of January 6, 2000, none were issued and
outstanding. As of January 6, 2000, there were 22,118,743 shares of UST Common
Stock on a fully diluted basis determined in the manner described in Section
3.2 of the UST Disclosure Schedule. Except for 1,427,180 shares of UST Common
Stock that were held in treasury as of January 6, 2000, no shares of UST
Common Stock were held by UST or any of its Subsidiaries (except for Trust
Account Shares) as of January 6, 2000. All of the issued and outstanding
shares of UST Common Stock have been duly authorized and validly issued and
are fully paid, non-assessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except for the UST Option
Agreement and rights ("UST Preferred Rights") to purchase UST Preferred Stock
issued pursuant to the Rights Agreement (the "UST Rights Agreement") dated as
of September 1, 1995, between UST and First Chicago Trust Company of New York,
as Rights Agent, and except as provided below, UST does not have and is not
bound
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by any UST Rights. UST has previously provided SCHWAB with a list dated the
date of this Agreement of all holders, as of January 6, 2000, of UST Rights,
including the names of holders of such rights, the date of the grant or
issuance of such rights, the number of shares subject to such rights, the
expiration date of such rights, the vesting schedule of such rights and
whether such vesting schedule shall be accelerated as a result of UST's entry
into this Agreement or consummation of the transactions contemplated hereby,
and the price at which each such right may be exercised. Since December 31,
1999, UST has not (i) issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other
than shares of UST Common Stock issued upon the exercise or conversion of such
UST Rights outstanding as of December 31, 1999, as described in the
immediately preceding sentence and UST Preferred Rights associated with shares
of UST Common Stock or (ii) taken any actions which would cause an
antidilution adjustment under any outstanding UST Rights. Except as permitted
under Section 5.2, there are, and there will be, no outstanding contractual
obligations of UST or any of its Subsidiaries to repurchase, redeem or
otherwise acquire, or to register for sale, any shares of capital stock of UST
or any of its Subsidiaries. There are no outstanding contractual obligations
of UST or any of its Subsidiaries to vote or to dispose of any shares of the
capital stock of UST or any of its Subsidiaries. There are no shareholder
agreements, voting trusts or similar agreements relating to the UST Common
Stock to which UST is a party.
3.3 Authority; No Violation.
(a) UST has full corporate power and authority to execute and
deliver this Agreement and subject to receipt of UST Shareholder Approval (as
defined below) to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the UST Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly approved by the Board of Directors of UST. The Board of
Directors of UST has directed that this Agreement and the transactions
contemplated hereby be submitted to UST's shareholders for approval at a
meeting of such shareholders and, except for the adoption of this Agreement by
the affirmative vote of the holders of two-thirds of the votes of the
outstanding shares of UST Common Stock entitled to vote thereon (the "UST
Shareholder Approval"), no other corporate proceedings on the part of UST and
no other shareholder votes are necessary to approve this Agreement and the UST
Option Agreement and to consummate the transactions contemplated hereby and
thereby. This Agreement and the UST Option Agreement have been duly and
validly executed and delivered by UST. Assuming due authorization, execution
and delivery by SCHWAB and MERGER SUB, this Agreement and the UST Option
Agreement constitute valid and binding obligations of UST, enforceable against
UST in accordance with their terms, subject, in the case of this Agreement, to
the receipt of the UST Shareholder Approval.
(b) Neither the execution and delivery of this Agreement and
the UST Option Agreement by UST nor the consummation by UST of the
transactions contemplated hereby and thereby, nor compliance by UST with any
of the terms or provisions hereof and thereof, will (i) violate any provision
of the Certificates of Incorporation or Bylaws of UST or any of its
Subsidiaries or (ii) assuming that the consents and approvals referred to in
Section 3.4 are
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duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to UST or any of its
Subsidiaries or any of their respective properties or assets or (y) violate,
conflict with, result in a breach of any provision of or the loss of any
benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by or rights or obligations under, or result in the creation of any
Lien upon any of the respective properties or assets of UST or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement, contract,
or other instrument or obligation to which UST or any of its Subsidiaries is a
party, or by which they or any of their respective properties, assets or
business activities may be bound or affected, except (in the case of clause
(ii) above) for such violations, conflicts, breaches, defaults or the loss of
benefits which, either individually or in the aggregate, would not be
reasonably likely to result in a UST Material Adverse Effect.
3.4 Consents and Approvals. Except for (i) the requisite filings
with, notices to and approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHCA and the Federal Reserve
Act, as amended, (ii) the filing of any required applications or notices with
the Federal Reserve Bank of New York, the Office of the Comptroller of the
Currency, the Department of Justice, the Federal Trade Commission, the New
York State Banking Department, the Department of Banking of the State of
Connecticut, the Florida Department of Banking and Finance, the New Jersey
Department of Banking and Insurance, the North Carolina Commissioner of Banks,
the Office of Thrift Supervision, the Federal Deposit Insurance Corporation,
the Pennsylvania Department of Banking, the Delaware State Banks Commissioner,
the District of Columbia Office of Banking and Financial Institutions, the
Cayman Islands Banking Commission, the National Association of Securities
Dealers and other applicable federal, state or foreign governmental agencies
or authorities as set forth in Schedule 3.4 of the UST Disclosure Schedule and
approval of such applications and notices, (iii) the filing with the SEC of a
proxy statement in definitive form relating to the meeting of UST's
shareholders to be held in connection with this Agreement and the transactions
contemplated hereby (the "Proxy Statement") which shall be included in the
SCHWAB registration statement on Form S-4 (the "S-4") and any other filings
required to be made with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (iv) the filing of the New York Certificate of
Merger with the New York Department pursuant to the NYBCL, (v) any consent,
authorizations, approvals, filings or exemptions in connection with compliance
with the applicable provisions of federal, state and foreign laws relating to
the regulation of broker-dealers, investment advisers (including the
Investment Advisers Act of 1940, as amended (the "Advisers Act")) and
insurance agencies and the rules of any domestic or foreign securities,
broker-dealer, investment adviser and insurance industry self-regulatory
organization ("SRO") with jurisdiction over UST or any of its Subsidiaries,
(vi) the consents, approvals and notices required or contemplated under the
Investment Company Act of 1940, as amended (the "1940 Act"), (vii) the UST
Shareholder Approval and (viii) such additional consents and approvals, the
failure of which to make or obtain would not be reasonably likely to have a
UST Material Adverse Effect, no consents or approvals of or filings or
registrations with any court, administrative
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agency or commission or other governmental or regulatory authority or
instrumentality (each a "Governmental Entity") or of or with any third party
are necessary in connection with (A) the execution and delivery by UST of this
Agreement and the UST Option Agreement and (B) the consummation by UST of the
Merger and the other transactions contemplated hereby. UST has no reason to
believe that any Requisite Regulatory Approvals (as defined in Section 7.1(c))
will not be obtained.
3.5 Reports. UST and each of its Subsidiaries have filed all
reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file since January
1, 1997 with (i) the SEC, (ii) any SRO, (iii) the Federal Reserve Board, (iv)
the Federal Deposit Insurance Corporation, (v) the Office of the Comptroller
of the Currency and (vi) any other federal, state or foreign governmental or
regulatory agency or authority (the agencies and authorities identified in
clauses (i) through (vi), inclusive, are, collectively, the "Regulatory
Agencies"), and all other reports and statements required to be filed by them
since January 1, 1997, including any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, any state, or
any Regulatory Agency and have paid all fees and assessments due and payable
in connection therewith, except where the failure to file such report,
registration or statement or to pay such fees and assessments, either
individually or in the aggregate, would not be reasonably likely to result in
a UST Material Adverse Effect. Except for normal examinations conducted by a
Regulatory Agency in the regular course of the business of UST and its
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the
best knowledge of UST, investigation into the business or operations of UST or
any of its Subsidiaries since January 1, 1997, except where any such
proceedings or investigations are not, individually or in the aggregate,
reasonably likely to result in a UST Material Adverse Effect. There are no
unresolved violations, criticisms, or exceptions by any Regulatory Agency with
respect to any report or statement relating to any examinations of UST or any
of its Subsidiaries, except where any such violations, criticisms or
exceptions are not, individually or in the aggregate, reasonably likely to
result in a UST Material Adverse Effect.
3.6 Financial Statements. UST has previously made available to
SCHWAB copies of (a) the consolidated balance sheets of UST and its
Subsidiaries as of December 31, for the fiscal years 1997 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1996 through 1998, inclusive, as reported in
UST's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "UST 1998 Form 10-K") filed with the SEC under the Exchange Act, in each
case accompanied by the audit report of PricewaterhouseCoopers, LLP,
independent public accountants, and (b) the unaudited consolidated balance
sheet of UST and its Subsidiaries as of September 30, 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the nine months ended September 30, 1999, as reported in UST's
Quarterly Report on Form 10- Q for the quarter ended September 30, 1999 ("UST
Form 10-Q"), filed with the SEC under the Exchange Act. The financial
statements referred to in this Section 3.6 do, and any financial statements
filed by UST with the SEC under the Exchange Act after the date of this
Agreement (including the related notes, where applicable) will, fairly present
in all material respects (including
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the related notes, where applicable) the consolidated financial position and
results of operations and changes in stockholders' equity and cash flows of
UST and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply or will comply with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto; and each of such statements (including the related
notes, where applicable) has been and will be prepared in accordance with
generally accepted accounting principles ("GAAP"), consistently applied during
the periods involved, except for the absence of certain footnotes and
schedules in the case of unaudited financial statements. The books and records
of UST and its Subsidiaries have been, and are being, maintained in accordance
with applicable legal and accounting requirements in all material respects.
3.7 Broker's Fees. Except for Credit Suisse First Boston Corporation
("CSFB"), neither UST nor any UST Subsidiary has employed any broker or finder
or incurred any liability for any broker's fees, commissions or finder's fees
in connection with the Merger or related transactions contemplated by this
Agreement.
3.8 Absence of Certain Changes or Events.
(a) Since September 30, 1999, (i) no event has occurred and no
fact or circumstance shall have come to exist or come to be known which,
directly or indirectly, individually or taken together with all other facts,
circumstances and events, has had, or is reasonably likely to have, a UST
Material Adverse Effect, (ii) UST and its Subsidiaries have, in all material
respects, carried on their respective businesses in the ordinary and usual
course consistent with their past practices and (iii) there has not been (w)
any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of UST's
Common Stock, (x) any split, combination or reclassification of any of UST's
Common Stock or the authorization of any issuance of other securities in
respect of, in lieu of or in substitution for shares of UST's Common Stock,
(y) any change in accounting methods, principles or practices by UST
materially affecting its assets, liabilities or businesses, except insofar as
have been required by a change in GAAP or (z) any Tax election that
individually or in the aggregate would be reasonably likely to have a UST
Material Adverse Effect or any settlement or compromise of any material Tax
liability.
(b) Except as permitted by this Agreement, since December 31,
1998, neither UST nor any of its Subsidiaries has (i) except for such actions
as are in the ordinary course of business consistent with past practice or as
required by applicable law (x) increased the wages, salaries, compensation,
pension, or other fringe benefits or perquisites payable to any executive
officer or director from the amount thereof in effect as of December 31, 1998,
(y) granted any severance or termination pay, entered into any contract to
make or grant any severance or termination pay, or paid any bonus other than
customary year-end bonuses for fiscal 1998 or fiscal 1999 or (z) granted any
stock appreciation rights or rights to acquire any shares of its capital stock
to any officer, director or employee, other than grants made in the ordinary
course of
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business pursuant to the Stock Option Plans or (ii) suffered any strike, work
stoppage, slowdown, or other material labor disturbance.
3.9 Legal Proceedings.
(a) Neither UST nor any of its Subsidiaries is a party to any,
and there are no pending or, to the best knowledge of UST, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against UST or any of its
Subsidiaries which are reasonably likely, individually or in the aggregate, to
result in a UST Material Adverse Effect, nor, to the best knowledge of UST, is
there any basis for any proceeding, claim or any action against UST or any of
its Subsidiaries that would be reasonably likely, individually or in the
aggregate, to result in a UST Material Adverse Effect; provided that, any
litigation challenging the validity or propriety of the transactions
contemplated by this Agreement or the UST Option Agreement shall not be deemed
a UST Material Adverse Effect for purposes of this Agreement.
(b) There is no injunction, order, judgment or decree imposed
upon UST, any of its Subsidiaries or the assets of UST or any of its
Subsidiaries which has resulted in, or is reasonably likely to result in, a
UST Material Adverse Effect.
3.10 Taxes and Tax Returns.
(a) UST and each of its Subsidiaries has duly filed or caused
to be filed all federal, state, foreign and, to the best knowledge of UST,
local Tax returns and reports required to be filed by it on or prior to the
date of this Agreement (all such returns and reports being accurate and
complete in all material respects) and has duly paid or caused to be paid on
their behalf all Taxes that are due and payable other than Taxes which are
being contested in good faith and are adequately reserved against or provided
for (in accordance with GAAP) on the applicable financial statements for such
company. Through the date hereof, UST and its Subsidiaries do not have any
liability for Taxes in excess of the amount reserved or provided for on their
financial statements (but excluding, for this purpose only, any liability
reflected thereon for deferred taxes to reflect timing differences between tax
and financial accounting methods).
(b) The consolidated federal income tax returns of UST and its
Subsidiaries for each taxable year through December 31, 1993, have been
examined by the Internal Revenue Service (the "IRS"). Section 3.10(b) of the
UST Disclosure Schedule identifies all pending audits or examinations with
respect to any Tax Returns of UST and its Subsidiaries.
(c) There are no disputes pending with respect to, or claims or
assessments asserted in writing for any material amount of Taxes upon UST or
any of its Subsidiaries, nor has UST or any of its Subsidiaries given or been
requested in writing to give any currently effective waivers extending the
statutory period of limitation applicable to any Tax return for any period.
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(d) Proper and accurate amounts have been withheld by UST and
its Subsidiaries from their employees, independent contractors, creditors,
stockholders or other third parties for all periods in compliance with the tax
withholding provisions of any applicable law.
(e) Since December 31, 1997, neither UST nor any of its
Subsidiaries has been required to include in income any material adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by UST or any of its Subsidiaries, and the IRS has
not initiated or proposed any such material adjustment or change in accounting
method (including any method for determining reserves for bad debts maintained
by UST or any Subsidiary).
(f) Neither UST nor any of its Subsidiaries (i) is a party to a
Tax allocation or Tax sharing agreement (other than an agreement solely among
members of a group the common parent of which is UST) or (ii) has any
liability for the Taxes of any person (other than any of UST or its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(g) UST is not aware of any fact or circumstance that could
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(h) The corporate spin-off transaction consummated by UST in
1995 (the "1995 Spin-Off") was consummated in accordance with the private
letter ruling issued by the Internal Revenue Service on August 31, 1995, and
all representations made to the IRS in connection with such ruling and any
related ruling requests were true, complete and accurate in all material
respects. Since consummation of the 1995 Spin-Off, UST has not taken any
action, and is not aware of the occurrence of any other event or action, that
would cause UST to lose the ability to rely on the IRS private letter ruling.
Other than the ruling identified above related to the 1995 Spin-Off, UST has
not sought any other rulings from the Internal Revenue Service regarding Taxes
since January 1, 1995.
(i) Other than its Common Stock, there exists no other
outstanding security (including, but not limited to, the UST Capital A
$50,000,000 8.414% Capital Securities) or instrument of any type (whether
issued, sponsored or guaranteed by UST or any Subsidiary of UST) that could be
treated as an equity interest in UST for any income tax purposes.
(j) None of UST and its Subsidiaries is a party to any
contract, agreement, plan or arrangement covering any person that is
reasonably likely to give rise to the payment of any amount (except for any
amount that will become payable solely as a result of the transactions
contemplated by this Agreement) that would not be deductible by reason of
Section 162(m) of the Code.
(k) As used in this Agreement, the term "Tax" or "Taxes" means
all federal, state, local, and foreign income, excise, gross receipts, gross
income, ad valorem, profits,
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gains, property, capital, sales, transfer, use, value-added, stamp,
documentation, payroll, employment, severance, withholding, duties,
intangibles, franchise, backup withholding, and other taxes, charges, levies
or like assessments together with all penalties and additions to tax and
interest thereon.
3.11 Employees.
(a) Section 3.11(a) of the UST Disclosure Schedule sets forth a
true and complete list as of the date hereof of each employee benefit plan,
arrangement or agreement that is maintained as of the date of this Agreement,
including all such plans, arrangements or agreements relating to directors,
executive officers, key employees and material consultants of UST and its
Subsidiaries (the "UST Benefit Plans"), by UST or any of its Subsidiaries or
by any trade or business, whether or not incorporated (a "UST ERISA
Affiliate"), all of which together with UST would be deemed a "single
employer" within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(b) UST has heretofore delivered to SCHWAB true and complete
copies of each of the UST Benefit Plans and certain related documents,
including (i) the actuarial report for each such UST Benefit Plan (if
applicable) for each of the last two years ended December 31, 1998 and (ii)
the most recent determination letter from the IRS (if applicable) for each
such Plan.
(c) (i) Each of the UST Benefit Plans has been operated and
administered in accordance with applicable laws, including ERISA and the Code,
except where such operation or administration is not, individually or in the
aggregate, reasonably likely to result in a UST Material Adverse Effect, (ii)
each of the UST Benefit Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and UST is not aware of any circumstances that
are reasonably likely to result in the revocation of such favorable
determination letter, (iii) no UST Benefit Plan provides benefits, including
death or medical benefits (whether or not insured), with respect to current or
former employees of UST, its Subsidiaries or any UST ERISA Affiliate beyond
their retirement or other termination of service, other than (w) coverage
mandated by applicable law, (x) death benefits or retirement benefits under
any "employee pension plan" (as such term is defined in Section 3(2) of
ERISA), (y) deferred compensation benefits accrued as liabilities on the books
of UST, its Subsidiaries or the UST ERISA Affiliates or (z) benefits the full
cost of which is borne by the current or former employee (or his beneficiary)
and other than benefits that would not be reasonably likely to have a UST
Material Adverse Effect, (iv) no liability under Title IV of ERISA has been
incurred by UST, its Subsidiaries or any UST ERISA Affiliate that has not been
satisfied in full, and, to the best knowledge of UST, no condition exists that
presents a risk to UST, its Subsidiaries or any UST ERISA Affiliate of
incurring a material liability thereunder other than liabilities that would
not be reasonably likely to have a UST Material Adverse Effect, (v) no UST
Benefit Plan is a "multiemployer pension plan" (as such term is defined in
Section 3(37) of ERISA), (vi) all contributions or other amounts payable by
UST or its Subsidiaries as of the Effective Time with respect to each UST
Benefit Plan in respect of
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current or prior plan years have been paid or accrued in accordance with GAAP
and Section 412 of the Code except for such contributions and other amounts
that would not be reasonably likely to have a UST Material Adverse Effect,
(vii) neither UST, its Subsidiaries nor any UST ERISA Affiliate has engaged in
a transaction in connection with which UST, its Subsidiaries or any UST ERISA
Affiliate reasonably could be expected to become subject to either a material
civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
material tax imposed pursuant to Section 4975 or 4976 of the Code except for
such penalties and Taxes as would not be reasonably likely to have a UST
Material Adverse Effect and (viii) there are no pending, or, to the best
knowledge of UST, threatened or anticipated claims (other than routine claims
for benefits) by, on behalf of or against any of the UST Benefit Plans or any
trusts related thereto which are reasonably likely to result in a UST Material
Adverse Effect.
(d) Except as set forth in a schedule previously delivered by
UST to SCHWAB, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
forgiveness of indebtedness or otherwise) becoming due to any director or any
key employee of UST or any of its affiliates from UST or any of its affiliates
under any UST Benefit Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any UST Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits to any
material extent.
(e) UST has amended those UST Benefit Plans which would have
otherwise provided for a cash payment or cash settlement at the Effective Time
in lieu of UST Common Stock, to provide for conversion into SCHWAB Common
Stock at the Effective Time in the manner described in Section 1.7 of this
Agreement.
(f) The Board of Directors (or appropriate committee thereof)
of UST and its Subsidiaries, as applicable, has adopted resolutions and/or has
taken such other action as is necessary to ensure that no benefit under any
UST Benefit Plan (other than the 1989 Stock Compensation Plan and Predecessor
Plans, the 1995 Stock Option Plan, the Deferred Restricted Unit Plan, the
equity portions of the Executive Incentive Plan relating to Awards for Plan
Year 1999 and prior years, and the equity portion of the Benefit Equalization
Plan) shall accelerate payment as a result of the Merger or the transactions
contemplated hereby, including, without limitation, the adoption of
resolutions that the Merger and the transactions contemplated hereby do not
constitute a "change in control" or "change of control," as such terms are
used in such UST Benefit Plans.
3.12 SEC Reports. UST has previously made available to
SCHWAB an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since
January 1, 1997, by UST with the SEC pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), or the Exchange Act (the "UST Reports") and
(b) communication mailed by UST to its shareholders since January 1, 1997. As
of the date of filing or mailing, as the case may be, no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained any untrue statement of a material
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fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading (except to the extent
corrected in a subsequent filed registration statement, prospectus, report,
schedule, proxy statement or communication). Since January 1, 1997, UST and
each UST Subsidiary has timely filed all reports and other documents required
to be filed by them under the Securities Act and the Exchange Act, and, as of
their respective dates, all such reports complied in all material respects
with the published rules and regulations of the SEC with respect thereto.
3.13 Compliance with Applicable Law.
(a) UST and each of its Subsidiaries and each of their
employees hold all licenses, registrations, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
and are in compliance with, and are not in violation of, under any applicable
law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to UST or any of its Subsidiaries, except in each
case where the failure to hold such license, registration, franchise, permit
or authorization or such noncompliance or violation is not, individually or in
the aggregate, reasonably likely to result in a UST Material Adverse Effect,
and neither UST nor any of its Subsidiaries knows of, or has received notice
of, any violations of any of the above, except for such violations which are
not, individually or in the aggregate, reasonably likely to result in a UST
Material Adverse Effect. The use by UST of the words "United States" as part
of the business or firm name does not violate 18 U.S.C. ss.709.
(b) Except as would not be reasonably likely to have a UST
Material Adverse Effect, UST and each UST Subsidiary have properly
administered all accounts for which UST or any UST Subsidiary acts as a
fiduciary, including accounts for which UST or any UST Subsidiary serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment adviser, in accordance with the terms of the governing documents,
applicable state and federal law and regulation and common law. None of UST or
any UST Subsidiary, or any director, officer or employee of UST or any UST
Subsidiary, has committed any breach of trust with respect to any such
fiduciary account that would be reasonably likely to have a UST Material
Adverse Effect, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect in all material
respects the assets of such fiduciary account.
(c) Each insured depository institution Subsidiary of UST is
"well- capitalized" (as that term is defined at 12 C.F.R. 208.43(b)(1) or the
relevant regulation of the institution's primary federal bank regulator), and
"well managed" (as that term is defined at 12 C.F.R. 225.2(s)), and the
institution's Community Reinvestment Act of 1997 rating is no less than
"satisfactory." Neither UST nor any UST Subsidiary has been informed that its
status as "well-capitalized," "well managed" or "satisfactory" for CRA
purposes will change within one year.
3.14 Certain Contracts. Neither UST nor any of its Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding
(i) with respect to the employment of any directors or executive officers,
(ii) which as of the date hereof is a "material
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contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC) that has not been filed or incorporated by reference in the UST 1998 Form
10-K or UST Form 10-Q, (iii) which contains any non-compete or exclusivity
provisions with respect to any business or geographic area in which business
is conducted with respect to UST or any of its Subsidiaries or which restricts
the conduct of any business by UST or any of its Subsidiaries or any
geographic area in which UST or any of its Subsidiaries may conduct business
or requires exclusive referrals of any business, in each case in any material
respect, (iv) with or to a labor union or guild (including any collective
bargaining agreement) or (v) the loss of which would be reasonably likely to
have a UST Material Adverse Effect. UST has previously delivered to SCHWAB
true and correct copies of all written employment and deferred compensation
agreements with executive officers to which UST or any of its Subsidiaries is
a party. Each contract, arrangement, commitment or understanding of the type
described in this Section 3.14, whether or not set forth in Section 3.14 of
the UST Disclosure Schedule (and including any material contract that has been
filed or incorporated by reference in the UST 1999 Form 10-K or UST Form
10-Q), is referred to herein as a "UST Contract." Neither UST nor any of its
Subsidiaries is, or as a result of this Agreement will be, in violation of any
UST Contract, nor has there occurred any event which with the giving of notice
or passage of time will result in any such violation and neither UST nor any
of its Subsidiaries knows of, or has received notice of, any violation of the
above by any of the other parties thereto (except in any of such cases for
violations which, individually or in the aggregate, are not reasonably likely
to result in a UST Material Adverse Effect).
3.15 Agreements with Regulatory Agencies. Neither UST nor any of its
Subsidiaries is subject to any cease-and-desist or other order or enforcement
action issued by, or is a party to any written agreement, consent agreement or
memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or has
been ordered to pay any civil penalty by, or is a recipient of any supervisory
letter from, or has adopted any board resolutions at the request or suggestion
of any Regulatory Agency or other Governmental Entity that restricts the
conduct of its business or that relates to its capital adequacy, its ability
to pay dividends, its credit or risk management policies, its management or
its business (each, whether or not set forth in the UST Disclosure Schedule, a
"UST Regulatory Agreement"), nor has UST or any of its Subsidiaries been
advised since January 1, 1997 by any Regulatory Agency or other Governmental
Entity that it is considering issuing or requesting any such UST Regulatory
Agreement nor does UST or any of its Subsidiaries have knowledge of any
pending or threatened regulatory investigation. Neither UST nor any of its
affiliated persons, as defined in Section 2(a)(3) of the 1940 Act, has been
convicted within the past 10 years of any felony or misdemeanor described in
Section 9(a)(1) of the 1940 Act, or is, by reason of any misconduct,
permanently or temporarily enjoined from acting in the capacities, or engaging
in the activities, described in Section 9(a)(2) of the 1940 Act.
3.16 Investment Securities. Each of UST and its Subsidiaries has
good and marketable title to all securities held by it (except securities sold
under repurchase agreements or held in any fiduciary or agency capacity free
and clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent business practices to
secure obligations of UST or any of its Subsidiaries and except for such
defects in title or Liens
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that would not be reasonably likely to have a UST Material Adverse Effect.
Such securities are valued on the books of UST in accordance with GAAP. Since
September 30, 1999 to the date hereof, neither UST nor any Subsidiary has
incurred any material and unusual or extraordinary losses in its investment
portfolio, and, except for matters of general application to the banking
industry (including changes in laws or regulations or GAAP) or for events
relating to the business environment in general, including market fluctuations
and changes in interest rates, UST is not aware of any events which are
reasonably certain to occur in the future and which would be reasonably likely
to result in any material adverse change in the quality or performance of
UST's and its Subsidiaries' investment portfolio on a consolidated basis.
3.17 Derivative Instruments. Any and all swaps, caps, floors,
futures, forward contracts, option agreements and other derivative financial
instruments, contracts or arrangements, whether entered into for the account
of UST or one of its Subsidiaries or for the account of a customer of UST or
one of its Subsidiaries, were entered into in the ordinary course of business
and, to UST's best knowledge, in accordance with prudent business practice and
applicable laws, rules, regulations and policies of all applicable Regulatory
Agencies and with counterparties believed to be financially responsible at the
time. UST and each of its Subsidiaries have duly performed in all respects all
of their obligations thereunder to the extent that such obligations to perform
have accrued, and, to UST's best knowledge, there are no breaches, violations
or defaults or allegations or assertions of such by any party thereunder,
except as, individually or in the aggregate, otherwise would not be reasonably
likely to have a UST Material Adverse Effect.
3.18 Loan Losses. Since September 30, 1999, UST and its Subsidiaries
have not incurred any loan losses which are material to UST and its
Subsidiaries on a consolidated basis; to the best knowledge of UST and in
light of its historical loan loss experience and its management's analysis of
the quality and performance of its loan portfolio, as of September 30, 1999,
its reserve for loan losses was, in the opinion of UST, adequate to absorb
inherent loan losses determined on the basis of management's continuing review
and evaluation of the loan portfolio and its judgment as to the impact of
economic conditions on the portfolio.
3.19 Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of UST
included in the UST Form 10-Q (or disclosed in the notes thereto), and for
liabilities incurred in the ordinary course of business consistent with past
practice, since September 30, 1999, neither UST nor any of its Subsidiaries
has incurred any liability of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether due or to become due) except for
liabilities which, individually or in the aggregate, have not resulted in and
are not reasonably likely to result in a UST Material Adverse Effect.
3.20 Environmental Liability. There are no legal, administrative,
arbitral or other proceedings, claims or actions or any private environmental
investigations or remediation activities or governmental investigations of any
nature that would be reasonably likely to result in the imposition, on UST or
any of its Subsidiaries, of any liability or obligation arising under
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common law or under any local, state or federal environmental statute,
regulation or ordinance, including the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), pending or
threatened against UST or any of its Subsidiaries, which liability or
obligation is reasonably likely to result in a UST Material Adverse Effect. To
the best knowledge of UST, there is no reasonable basis for any such
proceeding, claim, action or investigation that would impose any liability or
obligation that is reasonably likely to result in a UST Material Adverse
Effect. UST is not subject to any agreement, order, judgment or decree by or
with any court, governmental authority, regulatory agency or third party
imposing any liability or obligation with respect to the foregoing that is
reasonably likely to have, either individually or in the aggregate, a UST
Material Adverse Effect.
3.21 State Takeover Laws; UST Rights Plan.
(a) The Board of Directors of UST has approved the transactions
contemplated by this Agreement and the UST Option Agreement as required under
Section 912 of the NYBCL in a manner such that Section 912 of the NYBCL will
not apply to this Agreement or the UST Option Agreement or any of the
transactions contemplated hereby or thereby. To UST's best knowledge, no other
state takeover statute or similar statute or regulation applies or purports to
apply to UST with respect to this Agreement and the UST Option Agreement, the
Merger or any other transaction contemplated hereby or thereby.
(b) UST has taken all action necessary or appropriate so that
the entering into of this Agreement and the UST Option Agreement, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not result in the ability of any person to exercise any rights under the
UST Rights Agreement or enable or require the rights provided under the UST
Rights Agreement to separate from the shares of UST Common Stock to which they
were attached or to be triggered or to become exercisable. No "Distribution
Date," as such term is defined in the UST Rights Agreement, has occurred by
reason of the entry into this Agreement, nor will the consummation of the
transactions contemplated hereby cause a Distribution Date to occur. UST will
take all necessary action with respect to all the outstanding UST Preferred
Rights so that, as of the Effective Time, (i) neither UST nor SCHWAB will have
any obligations under the UST Preferred Rights or the UST Rights Agreement and
(ii) the holders of the UST Preferred Rights will have no rights under the UST
Preferred Rights or the UST Rights Agreement.
3.22 Insurance. UST has in full force and effect the insurance
coverage with respect to its business set forth in Section 3.22 of the
Disclosure Schedule.
3.23 Pooling of Interests. Neither UST nor, to UST's best knowledge,
any of its affiliates has taken or agreed to take any action that would
prevent SCHWAB from accounting for the transactions to be effected pursuant to
this Agreement as a "pooling of interests" in accordance with GAAP and
applicable SEC regulations. As of the date of this Agreement, UST has no
reason to believe that the Merger will not qualify as a "pooling of interests"
for accounting purposes.
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3.24 Title to Properties.
(a) Each of UST and its Subsidiaries has good and marketable
title to, or valid leasehold interests in, all its properties and assets
except for such as are no longer used or useful in the conduct of its
businesses or as have been disposed of in the ordinary course of business and
except for defects in title, easements, restrictive covenants and similar
encumbrances that individually or in the aggregate would not be reasonably
likely to have a UST Material Adverse Effect. All such assets and properties,
other than assets and properties in which UST or any of its Subsidiaries has a
leasehold interest, are free and clear of all Liens (other than Liens for
current Taxes not yet due and payable), except for Liens that individually or
in the aggregate would not be reasonably likely to have a UST Material Adverse
Effect.
(b) Each of UST and its Subsidiaries has complied in all
material respects with the terms of all leases to which it is a party, and all
such leases are in full force and effect, except for such noncompliance or
failure to be in full force and effect that individually or in the aggregate
is not reasonably likely to have a UST Material Adverse Effect. Each of UST
and its Subsidiaries enjoys peaceful and undisturbed possession under all such
leases, except for failures to do so that individually or in the aggregate are
not reasonably likely to have a UST Material Adverse Effect.
3.25 Intellectual Property.
(a) UST and its Subsidiaries own or validly license all
trademarks, service marks and trade names (collectively, the "UST Intellectual
Property") currently used in or necessary to carry on their businesses
substantially as currently conducted, except for such UST Intellectual
Property the failure of which to own or validly license individually or in the
aggregate would not be reasonably likely to have a UST Material Adverse
Effect. Section 3.25(a) of the UST Disclosure Schedule lists, as of the date
hereof, all registered UST Intellectual Property. Neither UST nor any of its
Subsidiaries has received any express or implied notice of infringement of or
conflict with, and to UST's best knowledge, there are no infringements of or
conflicts with, the rights of others with respect to the use of any UST
Intellectual Property that individually or in the aggregate, in either such
case, would be reasonably likely to have a UST Material Adverse Effect.
(b) The consummation of the Merger and the other transactions
contemplated by this Agreement will not result in the loss by UST of any
rights to use computer and telecommunications software, including source and
object code and documentation and any other media (including manuals, journals
and reference books) necessary to carry on its business substantially as
currently conducted and the loss of which, individually or in the aggregate,
would be reasonably likely to have a UST Material Adverse Effect.
3.26 Year 2000. The systems and facilities operated by or on behalf
of UST and/or its Subsidiaries in the conduct of their respective businesses
are capable of providing uninterrupted and error-free recordation, storage,
processing, output and presentation of data,
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including calendar dates falling before, on or after January 1, 2000, except
as would not be reasonably likely to have a UST Material Adverse Effect and/or
its Subsidiaries, respectively. None of UST or any of its Subsidiaries has
received, or reasonably expects to receive, a "Year 2000 Deficiency
Notification Letter" (as such term is employed in the Federal Reserve's
Supervision and Regulation Letter No. SR 98-3 (SUP), dated March 4, 1998). Any
subsidiary of UST that is registered as a broker-dealer under the Exchange Act
has filed form BD-Y2K and any amendments required by Rule 17a-5 under the
Exchange Act, and any subsidiary of UST that is registered as an investment
adviser under the Advisers Act has filed Form ADV-Y2K and any amendments
required by Rule 204-5 under the Advisers Act.
3.27 No Excess Parachute Payments. Except as previously set forth in
a letter dated the date hereof and delivered to SCHWAB by UST, (i) no amount
that will be received by (whether in cash or property or the vesting of
property), or benefit provided to, any officer, director or employee of UST or
any of its Affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Benefit Plan currently in effect will be an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code) solely as a result of
the transactions contemplated by this Agreement and (ii) no such Person is
entitled to receive any additional payment from UST, SCHWAB, the Surviving
Corporation or any of their Subsidiaries (a "Parachute Gross Up Payment") in
the event that the excise tax of Section 4999(a) of the Code is imposed on
such Person. Since December 31, 1998, the Board of Directors of UST has not
granted to any officer, director or employee of UST or any of its Subsidiaries
any right to receive any Parachute Gross Up Payment.
3.28 Opinion. Prior to the execution of this Agreement, UST has
received an opinion from CSFB to the effect that as of the date thereof and
based upon and subject to the matters set forth therein, the Exchange Ratio is
fair to the shareholders of UST from a financial point of view. Such opinion
has not been amended or rescinded as of the date hereof.
3.29 UST Information. None of the information to be supplied by UST
for inclusion or incorporation by reference in (i) the registration statement
on Form S-4 to be filed with the SEC by SCHWAB in connection with the issuance
of SCHWAB Common Stock in the Merger (the "Form S-4") will, at the time the
Form S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, (ii) the Proxy
Statement will, at the date it is first mailed to UST's shareholders and at
the time of the meeting of UST shareholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or (iii) any other
document filed with any other regulatory agency in connection herewith will,
at the time such document is filed, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to
form in all material respects with the requirements of the
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Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by UST with respect to statements made or
incorporated by reference therein based on information supplied by SCHWAB or
MERGER SUB for inclusion or incorporation by reference in the Proxy Statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SCHWAB AND MERGER SUB
Except as set forth in the disclosure schedule, dated the date
hereof, delivered by SCHWAB to UST with reference to the specific section of
the Agreement to which each disclosure relates (the "SCHWAB Disclosure
Schedule") or as set forth in the SCHWAB Reports (as defined in Section 4.9)
filed since January 1, 1997, SCHWAB and, with respect to Sections 4.1(b) and
4.3, MERGER SUB, hereby represent and warrant to UST as follows:
4.1 Corporate Organization.
(a) SCHWAB is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. SCHWAB has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a SCHWAB Material Adverse Effect. As used in this Agreement, the term
"SCHWAB Material Adverse Effect" means, with respect to SCHWAB, any effect
that (i) is, or would be reasonably likely to be, material and adverse to the
business, operations, financial condition or results of operations of SCHWAB
and its Subsidiaries taken as a whole or (ii) does, or would be reasonably
likely to, prevent SCHWAB from consummating the Merger and the other
transactions contemplated hereby (including the UST Option Agreement and the
transactions contemplated thereby), other than (i) any effect resulting from
events, facts or circumstances relating to the economy in general, including
market fluctuations and changes in interest rates, or to SCHWAB's industry in
general and not specifically relating to, as applicable, SCHWAB or any SCHWAB
Subsidiary and (ii) the loss of customer business, in whole or in part,
resulting from the announcement of the Agreement or consummation of the
transactions contemplated hereby. True and complete copies of the Certificate
of Incorporation and Bylaws of SCHWAB and MERGER SUB, as in effect as of the
date of this Agreement, have previously been delivered by SCHWAB to UST.
(b) Each SCHWAB Subsidiary (i) is a duly organized and validly
existing corporation, partnership or limited liability company or other legal
entity under the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and is in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property
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or the conduct of its business requires it to be so qualified (except for
jurisdictions in which the failure to be so qualified would not be reasonably
likely to have a SCHWAB Material Adverse Effect) and (iii) has all requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted.
4.2 Capitalization. The authorized capital stock of SCHWAB consists
of 2,000,000,000 shares of SCHWAB Common Stock, $.01 par value per share, of
which, as of January 6, 2000, 822,308,635 shares were issued and outstanding
and 9,940,000 shares of Preferred Stock, $.01 par value per share (the "SCHWAB
Preferred Stock"), of which, as of January 6, 2000, none were issued and
outstanding. On January 6, 2000, no shares of SCHWAB Common Stock or SCHWAB
Preferred Stock were reserved for issuance, except for up to 75,000,000 shares
of SCHWAB Common Stock reserved for issuance in connection with SCHWAB's
Executive Officer Stock Option Plan, 1987 Stock Option Plan, Profit Sharing
and Employee Stock Ownership Plan and 1992 Stock Incentive Plan (the "SCHWAB
Stock Plans"). All of the issued and outstanding shares of SCHWAB Common Stock
have been duly authorized and validly issued and are fully paid,
non-assessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. At the Effective Time, the shares of
SCHWAB Common Stock to be issued in the Merger will be duly authorized, fully
paid, non-assessable, validly issued and free of preemptive rights, with no
personal liability attaching to ownership thereof. There are no outstanding
contractual obligations of SCHWAB or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of SCHWAB or any of
its Subsidiaries. There are no outstanding contractual obligations of SCHWAB
or any of its Subsidiaries to vote or to dispose of any shares of the capital
stock of SCHWAB or any of its Subsidiaries.
4.3 Authority; No Violation.
(a) Each of SCHWAB and MERGER SUB has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
and validly approved by the Boards of Directors of SCHWAB and MERGER SUB. No
other corporate proceedings (including any approvals of SCHWAB stockholders)
on the part of SCHWAB or MERGER SUB are necessary to approve this Agreement
and to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by SCHWAB and MERGER SUB and
(assuming due authorization, execution and delivery by UST) constitutes a
valid and binding obligation of SCHWAB and MERGER SUB, enforceable against
SCHWAB and MERGER SUB in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
SCHWAB nor MERGER SUB, nor the consummation by SCHWAB or MERGER SUB of the
transactions contemplated hereby, nor compliance by SCHWAB or MERGER SUB with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of SCHWAB or MERGER SUB or (ii)
assuming that the consents and approvals referred to in
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Section 4.4 are duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to SCHWAB
or any of its Subsidiaries or any of their respective properties or assets or
(y) violate, conflict with, result in a breach of any provision of or the loss
of any benefit under, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by or rights or obligations under, or result in the
creation of any Lien upon any of the respective properties or assets of SCHWAB
or any of its Subsidiaries under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement, contract, or other instrument or obligation to which SCHWAB or any
of its Subsidiaries is a party, or by which they or any of their respective
properties, assets or business activities may be bound or affected, except (in
the case of clause (ii) above) for such violations, conflicts, breaches,
defaults or the loss of benefits which, either individually or in the
aggregate, would not be reasonably likely to result in a SCHWAB Material
Adverse Effect.
4.4 Consents and Approvals. Except for (i) the Requisite Regulatory
Approvals, (ii) the filing with the SEC of the S-4 and any filings required to
be made with the SEC under the Exchange Act, (iii) the filing of the New York
Certificate of Merger with the New York Department pursuant to the NYBCL and
(iv) such additional consents and approvals, the failure of which to make or
obtain would not be reasonably likely to have a SCHWAB Material Adverse
Effect, no consents or approvals of or filings or registrations with any
Governmental Entity or, of or with any third party, are necessary in
connection with (A) the execution and delivery by SCHWAB of this Agreement and
(B) the consummation by SCHWAB of the Merger and the other transactions
contemplated hereby. SCHWAB has no reason to believe that any Requisite
Regulatory Approvals (as defined in Section 7.1(c)) will not be obtained.
4.5 Broker's Fees. Except for Goldman, Sachs & Co. ("Goldman,
Sachs"), neither SCHWAB nor any of its Subsidiaries has employed any broker or
finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with the Merger or related transactions
contemplated by this Agreement.
4.6 Absence of Certain Changes or Events. Since September 30, 1999,
(i) no event has occurred and no fact or circumstance shall have come to exist
or come to be known which, directly or indirectly, individually or taken
together with all other facts, circumstances and events, has had, or is
reasonably likely to have, a SCHWAB Material Adverse Effect and (ii) there has
not been (y) any change in accounting methods, principles or practices by
SCHWAB materially affecting its assets, liabilities or business, except
insofar as have been required by a change in GAAP or (z) any Tax election that
individually or in the aggregate would be reasonably likely to have a SCHWAB
Material Adverse Effect or any settlement or compromise of any material Tax
liability.
4.7 Legal Proceedings.
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(a) Neither SCHWAB nor any of its Subsidiaries is a party to
any, and there are no pending or, to the best knowledge of SCHWAB, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against SCHWAB or any
of its Subsidiaries which are reasonably likely, individually or in the
aggregate, to result in a SCHWAB Material Adverse Effect, nor, to the best
knowledge of SCHWAB, is there any basis for any proceeding, claim or any
action against SCHWAB or any of its Subsidiaries that would be reasonably
likely, individually or in the aggregate, to result in a SCHWAB Material
Adverse Effect; provided that, any litigation challenging the validity or
propriety of the transactions contemplated by this Agreement or the UST Option
Agreement shall not be deemed a SCHWAB Material Adverse Effect for purposes of
this Agreement.
(b) There is no injunction, order, judgment or decree imposed
upon SCHWAB, any of its Subsidiaries or the assets of SCHWAB or any of its
Subsidiaries which has resulted in, or is reasonably likely to result in, a
SCHWAB Material Adverse Effect.
4.8 Taxes and Tax Returns.
(a) SCHWAB and each of its Subsidiaries has duly filed or
caused to be filed all federal, state, foreign and, to the best knowledge of
SCHWAB, local Tax returns and reports required to be filed by it on or prior
to the date of this Agreement (all such returns and reports being accurate and
complete in all material respects) and has duly paid or caused to be paid on
their behalf all Taxes that are due and payable, other than Taxes which are
being contested in good faith and are adequately reserved against or provided
for (in accordance with GAAP) on the applicable financial statements for such
company. Through the date hereof, SCHWAB and its Subsidiaries do not have any
liability for Taxes in excess of the amount reserved or provided for on their
financial statements (but excluding, for this purpose only, any liability
reflected thereon for deferred taxes to reflect timing differences between tax
and financial accounting methods).
(b) There are no Tax liens upon any property or assets of
SCHWAB or its Subsidiaries except liens for current taxes not yet due and
payable.
(c) SCHWAB is not aware of any fact or circumstance that could
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
4.9 SEC Reports. SCHWAB has previously made available to UST
accurate and complete copies of the SCHWAB Annual Reports on Form 10-K for the
fiscal years ended December 31, 1997 and December 31, 1998 (the "SCHWAB Form
10-K's") filed with the SEC under the Exchange Act and the SCHWAB Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999 ("SCHWAB Form
10-Q"), filed with the SEC under the Exchange Act (collectively, the "SCHWAB
Reports"). Since January 1, 1997, SCHWAB and each SCHWAB Subsidiary has timely
filed all reports and other documents required to be filed by them under the
Securities Act and the Exchange Act, and, as of their respective dates, all
such reports complied
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in all material respects with the published rules and regulations of the SEC
with respect thereto. The consolidated balance sheets of SCHWAB and its
Subsidiaries as of December 31, 1997 and December 31, 1998, inclusive, as
reported in the Form 10-K's, accompanied by the audit report of Deloitte &
Touche LLP, independent public accountants with respect to SCHWAB, and the
unaudited consolidated balance sheet of SCHWAB and its Subsidiaries as of
September 30, 1999, and the related unaudited consolidated statements of
income, changes in stockholders' equity and cash flows for the nine months
ended September 30, 1999, as reported in the SCHWAB Form 10- Q do, and any
financial statements filed by SCHWAB with the SEC under the Exchange Act after
the date of this Agreement (including the related notes, where applicable)
will, fairly present in all material respects (including the related notes,
where applicable) the consolidated financial position and results of
operations and changes in stockholders' equity and cash flows of SCHWAB and
its Subsidiaries for the respective fiscal periods or as of the respective
dates therein set forth; each of such statements (including the related notes,
where applicable) comply or will comply with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes,
where applicable) has been and will be prepared in accordance with GAAP
consistently applied during the periods involved, except in the case of
unaudited financial statements for the absence of certain footnotes and
schedules. The books and records of SCHWAB and its Subsidiaries have been, and
are being, maintained in accordance with applicable legal and accounting
requirements in all material respects. As of the date of filing or mailing, as
the case may be, no SCHWAB Report contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading (except to the extent
corrected in a subsequent filed registration statement, prospectus, report,
schedule, proxy statement or communication).
4.10 Compliance with Applicable Law. SCHWAB and each of its
Subsidiaries hold all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses, and have
complied with and are not in default, under any applicable law, statute,
order, rule, regulation, policy and/or guideline of any Governmental Entity
relating to SCHWAB or any of its Subsidiaries, except in each case where the
failure to hold such license, franchise, permit or authorization or such
noncompliance or default is not, individually or in the aggregate, reasonably
likely to result in a SCHWAB Material Adverse Effect, and neither SCHWAB nor
any of its Subsidiaries knows of, or has received notice of, any violations of
any of the above, except for such violations which are not, individually or in
the aggregate, reasonably likely to result in a SCHWAB Material Adverse
Effect.
4.11 Agreements with Regulatory Agencies. Neither SCHWAB nor any of
its Subsidiaries is subject to any cease-and-desist or other order or
enforcement action issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by,
or has been ordered to pay any civil penalty by, or is a recipient of any
supervisory letter from, or has adopted any board resolutions at the request
or suggestion of any Regulatory Agency or other Governmental Entity that
materially restricts the conduct of its business or that in any material
manner relates to its capital adequacy, its ability to pay dividends, its
credit or risk
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management policies, its management or its business (each, whether or not set
forth in the SCHWAB Disclosure Schedule, a "SCHWAB Regulatory Agreement"), nor
has SCHWAB or any of its Subsidiaries been advised since January 1, 1997 by
any Regulatory Agency or other Governmental Entity that it is considering
issuing or requesting any such SCHWAB Regulatory Agreement nor does SCHWAB or
any of its Subsidiaries have knowledge of any pending or threatened regulatory
investigation.
4.12 Undisclosed Liabilities. Except for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of
SCHWAB included in the SCHWAB Form 10-Q (or disclosed in the notes thereto),
and for liabilities incurred in the ordinary course of business consistent
with past practice, since September 30, 1999, neither SCHWAB nor any of its
Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
except for liabilities which, individually or in the aggregate, have not
resulted in and are not reasonably likely to result in a SCHWAB Material
Adverse Effect
4.13 Pooling of Interests. Neither SCHWAB nor, to SCHWAB's best
knowledge, any of its affiliates has taken or agreed to take any action that
would prevent SCHWAB from accounting for the transactions to be effected
pursuant to this Agreement as a "pooling of interests" in accordance with GAAP
and applicable SEC regulations. As of the date of this Agreement, SCHWAB has
no reason to believe that the Merger will not qualify as a "pooling of
interests" for accounting purposes.
4.14 Year 2000. The systems and facilities operated by or on behalf
of SCHWAB and/or its Subsidiaries in the conduct of their respective
businesses are capable of providing uninterrupted and error-free recordation,
storage, processing, output and presentation of data, including calendar dates
falling before, on or after January 1, 2000, except as would not be reasonably
likely to have a SCHWAB Material Adverse Effect. Any subsidiary of SCHWAB that
is registered as a broker-dealer under the Exchange Act has filed form BD-Y2K
and any amendments required by Rule 17a-5 under the Exchange Act, and any
subsidiary of SCHWAB that is registered as an investment adviser under the
Advisers Act has filed Form ADV-Y2K and any amendments required by Rule 204-5
under the Advisers Act.
4.15 Opinion. Prior to the execution of this Agreement, SCHWAB has
received an opinion from Goldman, Sachs to the effect that as of the date
thereof and based upon and subject to the matters set forth therein, the
Exchange Ratio is fair to SCHWAB from a financial point of view. Such opinion
has not been amended or rescinded as of the date hereof.
4.16 SCHWAB Information. None of the information to be supplied by
SCHWAB for inclusion or incorporation by reference in (i) the S-4 will, at the
time the S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, (ii) the Proxy
Statement will, at the date it is first mailed to UST's shareholders and at
the time of the UST
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Shareholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading or (iii) any other document filed with any other
regulatory agency in connection herewith will, at the time such other document
is filed, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made,
not misleading, except that no representation or warranty is made by SCHWAB or
MERGER SUB with respect to statements made or incorporated by reference
therein based on information supplied by UST for inclusion or incorporation by
reference in the Proxy Statement or S-4.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of UST Business Prior to the Effective Time. During the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement, UST shall, and shall
cause each of its Subsidiaries to, (a) conduct its business in the usual,
regular and ordinary course consistent with past practice, (b) use
commercially reasonable efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its key officers and key employees and (c) take no action which
would adversely affect or delay in any material respect the ability of either
SCHWAB or UST to obtain any necessary approvals of any Regulatory Agency or
other governmental authority required for the transactions contemplated hereby
or to perform its covenants and agreements under this Agreement or the UST
Option Agreement.
5.2 Forbearances of UST. During the period from the date of this
Agreement to the Effective Time, except as set forth in Section 5.2 of the UST
Disclosure Schedule or as expressly permitted by this Agreement or the UST
Option Agreement, UST shall not, and shall not permit any of its Subsidiaries
to, without the prior written consent of SCHWAB:
(a) other than in the ordinary course of business consistent
with past practice, (i) incur any indebtedness for borrowed money (other than
short-term indebtedness incurred to refinance existing indebtedness, and
indebtedness of UST or any of its Subsidiaries to UST or any of its
Subsidiaries, and indebtedness under existing lines of credit), assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, or make any
loan or advance (except to the extent committed to prior to the date hereof)
in an aggregate amount in excess of $10 million or (ii) incur any capital
expenditures (other than capital expenditures incurred pursuant to contracts
or commitments in force on the date of this Agreement) in an aggregate amount
in excess of $50 million;
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(b) (i) adjust, split, combine or reclassify any capital stock,
(ii) make, declare or pay any dividend or distribution (except, (A) for
regular quarterly cash dividends or distributions at a rate not in excess of
$0.22 per share of UST Common Stock and (B) for dividends paid in the ordinary
course of business by any Subsidiary (whether or not wholly-owned) of UST) or
make any other distribution on any shares of its capital stock or redeem,
purchase or otherwise acquire any securities or obligations convertible into
or exchangeable for any shares of its capital stock, (iii) grant any stock
appreciation rights or grant to any individual, corporation or other entity
any right to acquire any shares of its capital stock, other than the issuance
of UST Preferred Rights associated with the issuance of additional UST Common
Stock permitted pursuant to clause (iv) below, (iv) issue any additional
shares of capital stock, other than with respect to exercise of stock options
granted prior to January 1, 2000 pursuant to the Stock Option Plans and the
issuance of UST Preferred Stock upon the exercise of UST Preferred Rights or
(v) enter into any agreement, understanding or arrangement with respect to the
sale or voting of its capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its properties or assets, including capital stock in any Subsidiaries
of UST, to any individual, corporation or other entity other than a direct or
indirect wholly-owned Subsidiary, or cancel, release or assign any
indebtedness to any such person or any claims held by any such person, except
in the ordinary course of business consistent with past practice, pursuant to
contracts or agreements in force at the date of this Agreement or otherwise
with respect to properties, assets and indebtedness with an aggregate fair
market value not in excess of $10 million;
(d) acquire any business entity, whether by stock purchase,
merger, consolidation or otherwise, or make any other investment either by
purchase of stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual, corporation,
limited partnership or other entity other than a wholly-owned Subsidiary of
UST, other than, in the case of clause (ii), for investments in the ordinary
course of business consistent with past practice or for consideration with an
aggregate fair market value not in excess of $10 million;
(e) except as required under applicable law, the terms of any
existing agreement to which UST is a party, the terms of the Employment
Agreements or under Section 6.14, and except for increases in the ordinary
course of business consistent with past practice and except as contemplated by
Section 1.7, increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or, except as
contemplated in Section 6.14, become a party to, amend or commit itself to any
stock option plan or other stock-based compensation plan, pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement
with or for the benefit of any employee or accelerate the vesting of any stock
options or other stock-based compensation;
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(f) settle any material claim, action or proceeding involving
money damages or waive or release any material rights or claims, except in the
ordinary course of business consistent with past practice;
(g) change its methods of accounting in effect at December 31,
1999 in a manner materially affecting its assets, liabilities or businesses,
except as required by changes in GAAP as concurred in by
PricewaterhouseCoopers, LLP, its independent auditors, or change in any
material manner any of its methods of reporting income and deductions for
Federal income tax purposes from those employed in the preparation of the
Federal income tax returns of UST for the taxable years ending December 31,
1998 and 1997, or make, change, amend or revoke any material election for tax
purposes, other than in the ordinary course of business consistent with past
practice, except as required by changes in law or regulation;
(h) adopt or implement any amendment to its Certificate of
Incorporation or any changes to its Bylaws;
(i) other than after prior consultation with SCHWAB (but not
its prior approval), materially restructure or materially change its
investment securities portfolio, through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported or materially alter
the credit or risk concentrations associated with its underwriting and other
investment banking businesses;
(j) take any action that is intended or would be reasonably
likely to result in any of the conditions to the Merger set forth in Article
VII not being satisfied, except, in every case, as may be required by
applicable law; or
(k) agree to, or make any commitment to, take any of the
actions prohibited by this Section 5.2.
5.3 Forbearances of SCHWAB. During the period from the date of this
Agreement to the Effective Time, except as set forth in Section 5.3 of the
SCHWAB Disclosure Schedule or as expressly permitted by this Agreement, SCHWAB
shall not, and shall not permit any of its Subsidiaries to, without the prior
written consent of UST:
(a) make, declare or pay any dividend (except, (A) for regular
quarterly cash dividends at a rate that does not represent an increase over
the current quarterly dividend that is inconsistent with prior increases in
SCHWAB's dividend rate, (B) for dividends paid in the ordinary course of
business by any Subsidiary (whether or not wholly-owned) of SCHWAB and (C)
stock dividends) or make any other distributions on any shares of its capital
stock or directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or securities or obligations convertible into or
exchangeable for any shares of its capital stock;
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(b) change its method of accounting in effect on December 31,
1999 in a manner materially affecting its assets, liabilities or businesses,
except as required by changes in GAAP as concurred in by Deloitte & Touche,
LLP, its independent auditors;
(c) take any action that is intended or would be reasonably
likely to result in any of the conditions to the Merger set forth in Article
VII not being satisfied, except, in every case, as may be required by
applicable law;
(d) acquire any business entity, whether by stock purchase,
merger, consolidation or otherwise, if SCHWAB in good faith believes such
acquisition would unreasonably delay the consummation of the transactions
contemplated by this Agreement; or
(e) agree to, or make any commitment to, take any of the
actions prohibited by this Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.
(a) UST shall promptly prepare and file with the SEC the Proxy
Statement and SCHWAB shall promptly prepare and file with the SEC the S-4, in
which the Proxy Statement will be included as a prospectus. Each of SCHWAB and
UST shall use commercially reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such
filing, and UST shall thereafter mail or deliver the Proxy Statement to its
shareholders. SCHWAB shall, not later than 45 days after the date of this
Agreement, promptly prepare and file all requisite notices and applications
with respect to the Merger with the Federal Reserve Board, including its
application to become a bank holding company under the BHCA.
(b) Each of SCHWAB and UST shall, and shall cause its
Subsidiaries to, (i) take, or cause to be taken, all actions necessary, proper
or advisable to comply promptly with all legal requirements which may be
imposed on such party or its Subsidiaries with respect to the Merger,
including, without limitation, obtaining any third party consent which may be
required to be obtained in connection with the Merger and the other
transactions contemplated by this Agreement, and, subject to the conditions
set forth in Article VII hereof, to consummate the Merger and the other
transactions contemplated by this Agreement and (ii) obtain (and cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity which is required to be
obtained by UST or SCHWAB, respectively, or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement. The parties hereto shall cooperate with each
other and promptly prepare and file all necessary documentation, and to effect
all applications, notices,
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petitions and filings (including, to the extent necessary, any notification
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act")), to obtain as promptly as practicable all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities which are necessary or advisable to consummate the Merger and the
other transactions contemplated by this Agreement. UST shall obtain all
necessary consents and approvals under the 1940 Act and the Advisers Act prior
to the Effective Time. SCHWAB and UST shall have the right to review in
advance and, to the extent practicable, each will consult the other on, in
each case subject to applicable laws relating to the exchange of information,
all the information relating to UST or SCHWAB, as the case may be, and any of
their respective Subsidiaries, which appear in any filing made with, or
written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto shall act reasonably and as
promptly as practicable. The parties hereto agree that they will consult with
each other with respect to the obtaining of all permits, consents, approvals
and authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein. Each of SCHWAB and UST
shall resolve any objections that may be asserted by any Governmental Entity
with respect to this Agreement, the Merger or the other transactions
contemplated by this Agreement. For purposes of this Section 6.1(b), in taking
each of the foregoing actions each party shall be required only to use
commercially reasonable efforts; provided that with respect to obtaining the
approval of the Federal Reserve Board and the approvals of all other relevant
Federal and state bank and thrift regulators to the Merger and the
transactions contemplated by this Agreement, each party shall be required to
use best efforts. However, and notwithstanding anything to the contrary in
this Agreement, SCHWAB shall not be required to take any action or refrain
from taking any action to the extent that doing so or refraining from doing so
would be reasonably likely, individually or in the aggregate, to have a SCHWAB
Material Adverse Effect.
(c) SCHWAB and UST shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of SCHWAB, UST
or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) SCHWAB and UST shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined in Section
7.1(c)) will not be obtained or that the receipt of any such approval will be
materially delayed.
6.2 Access to Information.
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(a) Subject to the Confidentiality Agreement dated as of March
17, 1999, between SCHWAB and UST (as it may be amended from time to time, the
"Confidentiality Agreement"), UST and the UST Subsidiaries shall afford
SCHWAB, and SCHWAB's officers, employees, accountants, counsel, financial
advisors and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time or the termination of this
Agreement to all its properties, books, contracts, commitments, personnel and
records and, during such period, UST shall furnish promptly to SCHWAB (a) a
copy of each report, schedule, registration statement and other document filed
by UST or its Subsidiaries during such period pursuant to the requirements of
United States Federal or state banking or securities laws and (b) all other
information concerning UST's or its Subsidiaries' business, properties and
personnel as SCHWAB may reasonably request. Except as required by law, SCHWAB
will hold, and will cause its officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information received from UST, directly or indirectly, in accordance
with the Confidentiality Agreement.
(b) Subject to the Confidentiality Agreement, SCHWAB agrees to
provide to UST, from time to time prior to the Effective Time or termination
of this Agreement, such information as UST shall reasonably request with
respect to SCHWAB and its business, financial condition and operations. Except
as provided by law, UST will hold, and will cause its officers, employees,
accountants, counsel, financial advisors and other representatives to hold,
any nonpublic information received from SCHWAB, directly or indirectly, in
accordance with the Confidentiality Agreement.
(c) Neither SCHWAB nor UST nor any of their respective
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of
SCHWAB or UST, as the case may be, customers, jeopardize the attorney-client
privilege of the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty
or binding agreement entered into prior to the date of this Agreement. The
parties hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(d) No investigation by either of the parties or their
respective representatives shall affect the representations and warranties of
the other set forth herein.
6.3 Shareholder Approval.
(a) UST, in consultation with SCHWAB, will take all actions
necessary to call and hold an annual or a special meeting of UST shareholders
as soon as practicable after the S-4 has been declared effective by the SEC
and under all applicable state securities laws for the purpose of approving
the Merger and adopting the plan of merger (within the meaning of Section 902
of the NYBCL) contained in this Agreement (and any other documents or actions
necessary to the consummation of the Merger). The Board of Directors of UST
shall at all times recommend to UST's shareholders that such shareholders vote
in favor of the Merger and neither
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the Board of Directors of UST, nor any committee thereof shall withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
SCHWAB or MERGER SUB, the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger, except in the
case of a termination of this Agreement by UST that is in compliance with
Section 8.5 hereof. Without limiting the generality of the foregoing, the
obligations of UST under this Section shall not be altered by the
commencement, public proposal, public disclosure or communication to UST or
its shareholders of any Takeover Proposal (as defined below). The Board of
Directors of UST shall at all times recommend to UST's shareholders that they
reject any Takeover Proposal, except in the case of a termination of this
Agreement by UST that is in compliance with Section 8.5 hereof.
(b) Nothing contained in this Agreement shall prohibit UST from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
UST's shareholders if, in the good faith judgment of the Board of Directors of
UST, after consultation with outside counsel, failure so to disclose would be
a violation of its obligations under applicable law. Any such disclosure by
the Board of Directors of UST in accordance with this Section 6.3(b) shall not
be deemed to be a withdrawal or modification of the approval or recommendation
of the Merger and this Agreement by the Board of Directors of UST for the
purposes of this Agreement, except as provided in Section 8.1(f). Subject to
the immediately preceding two sentences, neither UST not its Board of
Directors nor any committee thereof shall withdraw or modify, or propose
publicly to withdraw or modify, its recommendation in favor of the Merger or
approve or recommend, or propose publicly to approve or recommend, a Takeover
Proposal other than by reason of termination of this Agreement in compliance
with Section 8.5 hereof.
6.4 No Solicitation.
(a) UST shall not, nor shall it permit any UST Subsidiary to,
nor shall it permit or authorize any officer, director, agent, affiliate or
employee of, or any investment banker, attorney or other advisor of UST or any
of its Subsidiaries to, directly or indirectly, solicit or encourage inquiries
or proposals with respect to, or engage in any negotiations concerning, or
provide any confidential information in response or relating to, or have any
discussions with any person relating to, any Takeover Proposal (as defined
below), or waive any provision of or amend the terms of the UST Rights
Agreement in respect of a Takeover Proposal. UST shall immediately cease and
cause to be terminated any activities, discussions or negotiations conducted
prior to the date of this Agreement with any persons other than SCHWAB with
respect to any of the foregoing and shall enforce any confidentiality or
similar agreement relating to a Takeover Proposal. UST shall, and shall cause
its Subsidiaries to, promptly (within 24 hours) advise SCHWAB following the
receipt by any of them of any Takeover Proposal and the substance thereof
(including the identity of the person making such Takeover Proposal), and
shall keep SCHWAB reasonably informed of the status and details with respect
to such Takeover Proposal promptly upon the occurrence thereof.
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(b) Notwithstanding Section 6.4(a), prior to receipt of the UST
Shareholder Approval, UST may, in response to a Takeover Proposal that did not
result from a breach of Section 6.4(a), and that in the good faith judgment of
the UST Board of Directors after consultation with outside counsel,
constitutes, or is reasonably likely to be, a Superior Proposal (as defined
below) (x) furnish information with respect to UST to the person making such
proposal and its representatives pursuant to a confidentiality agreement not
less restrictive of the other party than the Confidentiality Agreement and (y)
participate in discussions or negotiations with such person and its
representatives regarding such proposal.
(c) For purposes of this Agreement, "Takeover Proposal" means
any bona fide inquiry, proposal, offer or indication of interest from any
Person (whether or not conditional) relating to any direct or indirect (i)
acquisition, purchase or lease of a business or assets that constitute 20% or
more of the consolidated net revenues, net income or assets of UST and its
Subsidiaries or (ii) acquisition or purchase of 20% or more of any class of
common stock or voting securities of UST or any of its Subsidiaries or (iii)
tender offer or exchange offer that if consummated would result in any Person
beneficially owning 20% or more of any class of common stock or voting
securities of UST or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
(d) For purposes of this Agreement, "Superior Proposal" means
any proposal made by a third party to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution, sale of
assets or otherwise, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of UST's capital stock then
outstanding or all or substantially all of UST's assets (i) on terms which the
UST Board of Directors determines in its good faith judgment to be more
favorable from a financial point of view to the holders of UST Common Stock
than the Merger after consultation with an investment banking firm having
national recognition and (ii) that the UST Board of Directors determines in
its good faith judgment to be reasonably capable of being completed, taking
into account all financial, regulatory, legal and other aspects of such
proposal.
6.5 Continuity of Business Enterprise. SCHWAB, the Surviving
Corporation or any other member of the qualified group (as defined in Treasury
Regulation ss.1.368-1(d)) shall, for the foreseeable future, continue at least
one significant historic business line of UST or use at least a significant
portion of UST's historic business assets in a business, in each case within
the meaning of Treasury Regulation ss.1.368-1(d).
6.6 Tax Free Treatment. SCHWAB and UST intend the Merger to qualify
as a reorganization under Section 368(a) of the Code, and this Agreement to
constitute a "plan of reorganization" for purposes of Sections 354 and 361 of
the Code. Each of UST and SCHWAB shall use commercially reasonable efforts to
cause the Merger to so qualify and to obtain the opinion referred to in
Section 7.3(c). For purposes of the tax opinion described in Section 7.3(c),
UST and SCHWAB each shall provide customary representation letters, each dated
on or about the date that is two business days prior to the date the Proxy
Statement is mailed to the
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shareholders of UST and reissued as of the Closing Date. Each of SCHWAB,
MERGER SUB and UST and each of their respective affiliates shall not take any
action and shall not fail to take any action or suffer to exist any condition
which action or failure to act or condition would prevent, or would be
reasonably likely to prevent, the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
6.7 Pooling Treatment. SCHWAB and UST intend the Merger to qualify
as a "pooling of interests" for accounting purposes. Each of SCHWAB and UST
and their respective affiliates shall use commercially reasonable efforts to
cause the Merger to so qualify and to obtain the letters referred to in
Section 7.1(f). Each of SCHWAB, MERGER SUB and UST and each of their
respective affiliates shall not take any action and shall not fail to take any
action or suffer to exist any condition which action or failure to act or
condition would prevent, or would be reasonably likely to prevent, the Merger
from qualifying as a "pooling of interests" for accounting purposes.
6.8 Affiliates; Publication of Combined Financial Results. Each of
SCHWAB and UST shall use commercially reasonable efforts to cause each
director, executive officer and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act and for purposes of qualifying
the Merger for "pooling of interests" accounting treatment) of such party to
deliver to the other party hereto, as soon as practicable after the date of
this Agreement, and not less than 30 days in advance of the Effective Time, a
written agreement, in the form of Exhibit 6.8(a)(1) or (2), as applicable,
hereto. As soon as reasonably practicable after the Effective Time, SCHWAB
shall publish financial results covering at least 30 days of combined
operations of SCHWAB and UST.
6.9 Stock Exchange Listing. SCHWAB shall use commercially reasonable
efforts to cause the shares of SCHWAB Common Stock to be issued in the Merger
to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Effective Time.
6.10 Employee Benefits.
(a) Prior to the Effective Time, UST and SCHWAB shall take all
corporate action necessary for the assumption of all UST Rights outstanding
immediately prior to the Effective Time, as adjusted pursuant to Section
1.7(a) of this Agreement and this Section. In addition, UST and SCHWAB shall
take all necessary action so that, at the Effective Time, each account balance
under the UST 1989 Stock Compensation Plan, the UST Employee Stock Ownership
Plan, the UST Stock Plan for Non-Officer Directors or the UST Employee Stock
Purchase Plan (the "UST Stock Plans") that is invested or deemed invested in
UST Common Stock or UST Common Stock equivalents, as applicable, shall, unless
otherwise vested, exercised, paid or distributed at or prior to the Effective
Time in accordance with the terms of the applicable UST Stock Plans and
Section 1.7 of this Agreement, be adjusted and converted into an account
balance which will be denominated in SCHWAB Common Stock and which will
entitle the holder thereof to receive, and will represent an obligation of
SCHWAB to deliver to such holder, upon
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the same terms and conditions as those applicable to such accounts immediately
prior to the Effective Time, a number of shares of SCHWAB Common Stock equal
to the product of (x) the number of shares of UST Common Stock attributable to
such account immediately prior to the Effective Time and (y) the Exchange
Ratio, with any fraction rounded down to the nearest whole share. The
obligations of SCHWAB hereunder shall include the reservation, issuance and
listing on the NYSE of SCHWAB Common Stock in a number of shares at least
equal to the number of shares of SCHWAB Common Stock subject to such options
under the UST Stock Option Plans, and account balances under the UST
Compensation Plan and the UST Stock Plans, in each case as adjusted as
contemplated by this Agreement. No later than the Effective Time, SCHWAB shall
prepare and file with the SEC a registration statement on Form S-8 (or any
successor or other appropriate form) registering a number of shares of SCHWAB
Common Stock determined in accordance with the preceding sentence and shall
use its commercially reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus and prospectuses contained therein) for so long as
any such options remain outstanding or any such account balance remains
unpaid.
(b) UST and SCHWAB agree that participants' interests under the
plans and trusts of UST and its Subsidiaries listed on Section 6.10(b) of the
UST Disclosure Schedule that are deemed invested in investment vehicles other
than UST Common Stock shall not be paid to participants thereunder as a result
of the transactions contemplated hereby, and UST has taken, or shall take
prior to the Effective Time, all actions necessary to amend such plans to so
provide; provided, however, that participants' interests thereunder will
become vested, to the extent not already vested, as a result of the
consummation of the Merger.
(c) For purposes of their participation in the SCHWAB Benefit
Plans, SCHWAB shall credit each UST employee with full credit for all service
credited under the UST Benefit Plans (including service with UST prior to the
Effective Time and, where applicable, service with prior or predecessor
employers to the extent credit is given for such service under the UST Benefit
Plans) for purposes of eligibility to participate and receive benefits for
purposes of vesting and for purposes of benefit accruals (except where it
would result in a duplication of benefits). With respect to SCHWAB welfare
benefit plans, SCHWAB shall use commercially reasonable efforts to cause any
such plan to waive any pre-existing condition exclusions and actively-at-work
requirements thereunder with respect to the UST employees and their eligible
dependents (to the extent waived under the applicable UST welfare benefit
plan) and ensure that any covered expenses incurred on or before the Effective
Time shall be taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions after the
Effective Time to the extent that such expenses are taken into account for the
benefit of similarly situated employees of SCHWAB.
(d) For the period ending on December 31, 2001, SCHWAB shall
maintain, or cause to be maintained, each of the UST Benefit Plans, provided
that SCHWAB may substitute another plan or arrangement for any UST Benefit
Plan provided that such substituted plan or arrangement offers each
participant in that UST Benefit Plan equal or better benefit opportunities
taken as a whole.
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(e) SCHWAB shall cause UST to honor all written contractual
obligations of UST and its affiliates to their respective current and former
employees, directors and independent contractors, including, but not limited
to, all obligations under employment, severance and consulting plans and
arrangements and under all other UST Benefit Plans.
(f) As promptly as practicable after the Effective Time, SCHWAB
shall grant stock options to acquire SCHWAB Common Stock to the employees of
UST and in the amounts set forth in Section 6.10(f) of the UST Disclosure
Schedule. The grant of stock options under this Section 6.10(f) shall be in
addition to any stock options which shall be granted under the Retention
Program (as defined in Section 6.14).
(g) Except as otherwise provided in this Agreement, nothing in
this Section 6.10 shall be interpreted as preventing the Surviving Corporation
from amending, modifying or terminating any SCHWAB Benefit Plans, UST Benefit
Plans, or other employee benefit plans, contracts, arrangements, commitments
or understandings, in accordance with their terms and applicable law.
6.11 Indemnification; Directors' and Officers' Insurance.
(a) The Certificate of Incorporation and Bylaws of the
Surviving Corporation shall, with respect to indemnification of officers,
directors, employees and agents, not be amended, repealed or otherwise
modified after the Effective Time in any manner that would adversely affect
the rights thereunder of the persons who at any time prior to the Effective
Time were identified as prospective indemnitees under the Certificate of
Incorporation or Bylaws of UST in respect of actions or omissions occurring at
or prior to the Effective Time (including the transactions contemplated
hereby), unless such modification is required by law.
(b) SCHWAB shall cause the Surviving Corporation to indemnify,
defend and hold harmless, the present and former officers, directors,
employees and agents of UST or any of UST's Subsidiaries in their capacities
as such (each an "Indemnified Party") in accordance with the Certificate of
Incorporation and Bylaws, or other charter documents, of UST and the
respective UST Subsidiaries and any agreements or plans maintained by UST and
the respective UST Subsidiary, to the fullest extent permitted by law after
the Effective Time against all losses, expenses, claims, damages and
liabilities arising out of actions or omissions occurring on or prior to the
Effective Time.
(c) SCHWAB shall use commercially reasonable efforts to cause
the persons serving as officers and directors of UST immediately prior to the
Effective Time to be covered for a period of six years from the Effective Time
by the directors' and officers' liability insurance policy maintained by UST
(provided that SCHWAB may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not less
advantageous than such policy) with respect to acts or omissions occurring
prior to the Effective Time which were committed by such officers and
directors in their capacity as such; provided, however, that in no event shall
SCHWAB be required to expend more than 200% of the current
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amount expended by UST (the "Insurance Amount") to maintain or procure
insurance coverage pursuant hereto and further provided, that if SCHWAB is
unable to maintain or obtain the insurance called for by this Section 6.8(c),
SCHWAB shall use commercially reasonable efforts to obtain as much comparable
insurance as available for the Insurance Amount.
(d) In the event SCHWAB or any of its successors or assigns or
the Surviving Corporation or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of SCHWAB or the
Surviving Corporation, as applicable, assume the obligations set forth in this
section.
(e) The provisions of this Section 6.11 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
6.12 Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement (including the Merger and any other merger between a Subsidiary
of UST and a Subsidiary of SCHWAB) or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by, and at
the sole expense of, SCHWAB.
6.13 Advice of Changes. SCHWAB and UST shall promptly advise the
other party of any change or event having a SCHWAB Material Adverse Effect or
a UST Material Adverse Effect, as applicable, or which it believes would or
would be reasonably likely to cause or constitute a breach of any of its
representations, warranties, covenants or agreements contained herein.
6.14 Employee Retention Plan. Prior to the Effective Time, SCHWAB
and UST agree to establish a key employee retention program in accordance with
the general terms outlined in Section 6.14 of the UST Disclosure Schedule to
provide retention incentives for the categories of employees identified in
Section 6.14 of the UST Disclosure Schedule (collectively, the "Retention
Program").
6.15 State Takeover Statutes. Each party will take all steps
necessary to exempt (or continue the exemption of) the Merger and the
transactions contemplated by this Agreement and the UST Option Agreement from
any applicable state takeover law, as now or hereafter in effect.
6.16 Section 15 of the 1940 Act.
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(a) UST will use its commercially reasonable efforts to
facilitate, prior to the Effective Time, in accordance with the provisions of
Section 15 of the 1940 Act applicable thereto, (i) the due consideration and
the due approval by the board of directors or trustees of each of the
Excelsior Mutual Funds (collectively, the "Funds") of a new Investment Company
Adviser Agreement for such Fund identical in all material respects to that in
effect immediately prior to the Closing, except that such new Investment
Adviser Agreement shall be effective immediately after the Closing and shall
have an initial term of two years and (ii) to the extent that such board of
directors or trustees approvals are obtained, the consideration and due
approval by such Funds security holders of such new Investment Company Adviser
Agreements.
(b) UST shall use its commercially reasonable efforts to
assure, prior to the Effective Time, the satisfaction of the conditions set
forth in Section 15(f) of the 1940 Act with respect to each Fund.
(c) SCHWAB agrees, insofar as within the control of it or its
affiliates, to use its commercially reasonable efforts to assure compliance
with the conditions of Section 15(f) of the 1940 Act with respect to the
Funds. Without limiting the foregoing, SCHWAB agrees that (i) for a period of
not less than three years after the Effective Time, SCHWAB shall assure that
no more than 25% of the members of the Board of Directors of any Fund shall be
"interested persons" (as defined in the 1940 Act) of SCHWAB (or such other
entity which acts as adviser or subadviser to the Funds) or of the predecessor
investment adviser of the Funds and (ii) neither SCHWAB nor any affiliate
(including any parent company of SCHWAB) of SCHWAB (or any entity which will
act as adviser to the Funds), for a period of not less than two years after
the Effective Time, shall have any express or implied understanding,
arrangement or intention to impose an "unfair burden" (as such term is used in
Section 15(f) of the 1940 Act) on any of the Funds as a result of the
transactions contemplated hereby.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. The UST Shareholder Approval shall
have been obtained.
(b) Stock Exchange Listing. The shares of SCHWAB Common Stock,
which shall be issued to the shareholders of UST upon consummation of the
Merger, shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
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(c) Regulatory Approvals. The approvals of the Federal Reserve
Board and all other relevant Federal and state bank and thrift regulators for
SCHWAB to acquire UST and bank or trust company UST Subsidiaries shall have
been obtained and shall remain in full force and effect. The applicable
waiting period and any extensions thereof under the HSR Act shall have expired
or been terminated. All other regulatory approvals required to consummate the
Merger and the other transactions contemplated hereby, and all other statutory
waiting periods, the failure of any of which to be obtained or observed would
be reasonably likely to have a SCHWAB Material Adverse Effect or UST Material
Adverse Effect, shall have been obtained and shall remain in full force and
effect or, in the case of waiting periods, shall have expired or been
terminated (the approvals referred to in the first sentence of this Section
7.1(c), all such other approvals and the expiration or termination of all such
waiting periods, including under the HSR Act, being referred to herein as the
"Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the S-4 shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order,
injunction, decree or judgment issued by any court or governmental body or
agency of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger or any of the other
material transactions contemplated by this Agreement shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or makes illegal consummation of the Merger.
(f) Pooling of Interests. UST and SCHWAB shall have received
letters from PricewaterhouseCoopers, LLP and Deloitte & Touche, LLP,
respectively, dated as of the Closing Date, to the effect that the Merger will
qualify for "pooling of interests" accounting treatment.
7.2 Conditions to Obligations of SCHWAB. The obligation of SCHWAB to
effect the Merger is also subject to the satisfaction or waiver by SCHWAB at
or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of UST set forth in Section 3.2 shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date,
in each case except to the extent such representations and warranties are
expressly made only as of an earlier date, in which case as of such earlier
date; provided, however, and notwithstanding anything to the contrary herein,
the condition stated in this sentence shall be deemed not to be satisfied if
the number of shares of UST Common Stock on a fully diluted basis referred to
in the second sentence of Section 3.2 understates the aggregate amount of UST
Common Stock on a fully diluted basis as of such date by more than 75,000
shares. The representations and warranties of UST set forth in Section 3.13(c)
shall be true and correct as of the date of this Agreement and as of the
Closing Date as
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though made on such Closing Date. The other representations and warranties of
UST set forth in this Agreement shall be true and correct, in each case as of
the date of this Agreement and as of the Closing Date as though made on such
Closing Date, except to the extent such representations and warranties are
expressly made only as of an earlier date, in which case as of such earlier
date; provided that, if any of such other representations and warranties shall
not be true and correct (for this purpose disregarding any qualification or
limitation as to materiality or UST Material Adverse Effect), then the
condition stated in this second sentence of this Section 7.2(a) shall be
deemed satisfied if and only if the cumulative effect of all inaccuracies of
such other representations and warranties (for this purpose disregarding any
qualification or limitation as to materiality or UST Material Adverse Effect)
shall not be or have a UST Material Adverse Effect. SCHWAB shall have received
a certificate signed on behalf of UST by its Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
(b) Performance of Obligations of UST. UST shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and SCHWAB shall have received
a certificate signed on behalf of UST by its Chief Executive Officer and Chief
Financial Officer to such effect.
(c) Regulatory Conditions. No Governmental Entity shall have
imposed, in connection with obtaining any Requisite Regulatory Approval, any
conditions, restrictions or requirements on SCHWAB, UST or the Surviving
Corporation which have or would be reasonably likely to have a SCHWAB Material
Adverse Effect, including, without limitation, any requirement for SCHWAB or
any of its Subsidiaries to divest or hold separate, or curtail, or accept any
restriction on or cease to operate any portion of the business or assets of
SCHWAB, UST or the Surviving Corporation that would be reasonably likely to
have a SCHWAB Material Adverse Effect.
(d) Financial Holding Company Status. At the Effective Time,
UST and each of its Subsidiaries shall meet (i) the criteria set forth at 12
U.S.C. ss.1843(l) as in effect as of the Effective Time and (ii) any other
criteria of the Federal Reserve Board necessary for SCHWAB to qualify as a
"Financial Holding Company" as that term is used in 12 U.S.C. ss.1841(p).
7.3 Conditions to Obligations of UST. The obligation of UST to
effect the Merger is also subject to the satisfaction or waiver by UST at or
prior to the Effective Time of the following conditions:.
(a) Representations and Warranties. The representations and
warranties of SCHWAB set forth in Section 4.2 shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on such Closing Date, except to the extent such
representations and warranties are expressly made only as of an earlier date,
in which case as of such earlier date. The other representations and
warranties of SCHWAB set forth in this Agreement shall be true and correct, in
each case as of the date of this Agreement and as of the Closing Date as
though made on such Closing Date, except to the
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extent such representations and warranties are expressly made only as of an
earlier date, in which case as of such earlier date; provided that, if any
such other representations and warranties shall not be true and correct (for
this purpose disregarding any qualification or limitation as to materiality or
SCHWAB Material Adverse Effect), then the condition stated in this second
sentence of this Section 7.3(a) shall be deemed satisfied if and only if the
cumulative effect of all inaccuracies of such other representations and
warranties (for this purpose disregarding any qualification or limitation as
to materiality or SCHWAB Material Adverse Effect) shall not be or have a
SCHWAB Material Adverse Effect. UST shall have received a certificate signed
on behalf of SCHWAB by SCHWAB's Chairman, President or a Vice-Chairman and by
SCHWAB's Chief Financial Officer to the foregoing effect.
(b) Performance of Obligations of SCHWAB. SCHWAB shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and UST shall have
received a certificate signed on behalf of SCHWAB and MERGER SUB by SCHWAB's
Chairman, President or a Vice-Chairman and by SCHWAB's Chief Financial Officer
to such effect.
(c) Tax Opinion. UST shall have received a written opinion, dated as
of the Closing Date, from Cravath, Swaine & Moore, counsel to UST, to the
effect that the Merger will be treated for U.S. Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, and that
SCHWAB, MERGER SUB and UST will each be a party to that reorganization within
the meaning of Section 368(b) of the Code; it being understood that in
rendering such opinion, such tax counsel shall be entitled to rely upon
customary representations provided by UST and SCHWAB, as described in Section
6.6.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the shareholders of
UST of the matters presented in connection with the Merger:
(a) by the mutual written consent of SCHWAB and UST;
(b) by either SCHWAB or UST (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material
breach of any of the covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of the other party, which
breach, either individually or in the aggregate with all other breaches, would
constitute, if occurring or continuing on the Closing Date, the failure of one
or more of the conditions set forth in Section 7.2(a) or (b) or Section 7.3(a)
or (b), as the case may be, and
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which (i) is not cured within 45 days following written notice to the party
committing such breach or (ii) by its nature or timing, cannot be cured prior
to the Closing;
(c) by either SCHWAB or UST if the Merger shall not have been
consummated on or before December 31, 2000, unless the failure of the Closing
(as defined in Section 9.1) to occur by such date shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein;
(d) by either SCHWAB or UST if (i) any Requisite Regulatory
Approval required to be obtained pursuant to Section 7.1(c) has been denied by
the relevant Governmental Entity and such denial has become final and
nonappealable or any Governmental Entity of competent jurisdiction shall have
issued a final nonappealable injunction permanently enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement or (ii) the UST Shareholder Approval is not obtained at the UST
shareholder meeting duly convened therefor or at any adjournment or
postponement thereof;
(e) By UST prior to receipt of the UST Shareholder Approval, in
accordance with Section 8.5; provided, however, that in order for this
paragraph (e) to be effective, UST shall have complied with all provisions of
Section 8.5, including the notice provisions therein; or
(f) By SCHWAB if the UST Board of Directors (i) withdraws or
modifies or proposes publicly to withdraw or modify, in a manner adverse to
SCHWAB, its approval or recommendation of this Agreement or the Merger or
approves or recommends, or proposes publicly to approve or recommend, a
Takeover Proposal or (ii) takes any action in accordance with Section 6.3(b)
that would have been deemed a withdrawal or modification of its approval or
recommendation of the Merger and this Agreement were it not for the second
sentence of Section 6.3(b); provided that, for the purposes of Section 8.2 of
this Agreement, any express withdrawal or modification of, or proposal to
expressly withdraw or modify, its approval or recommendation of this Agreement
or the Merger, by the UST Board of Directors (as contrasted with action that
is deemed to be such under Section 6.3(b)), or any approval, recommendation or
proposal to approve or recommend a Takeover Proposal by the UST Board of
Directors, shall be covered by subparagraph (i) and not subparagraph (ii) of
this Section 8.2(f).
8.2 Effect of Termination.
(a) In the event of termination of this Agreement pursuant to
this Article VIII, no party to this Agreement shall have any liability or
further obligation hereunder to the other party hereto, except that (i) the
last sentences of Sections 6.2(a) and (b), and Sections 8.2, 9.2 and 9.3 shall
survive any termination of this Agreement and (ii) notwithstanding anything to
the contrary in this Agreement, termination will not relieve a breaching party
from liability for any willful and material breach of any provision of this
Agreement.
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(b) UST shall pay to SCHWAB a fee of $100,000,000 (the
"Termination Fee") in the event that:
(i) this Agreement is terminated by SCHWAB pursuant to
Section 8.1(b), for a willful and material breach, under Section 8.1(c)
without a UST shareholder meeting having occurred at which UST Shareholder
Approval is sought, under Section 8.2(d)(ii) or under Section 8.1(f)(ii), but
in any such case only if (x) a Takeover Proposal Event has occurred prior to
the date of termination and (y) within 12 months of such termination UST
enters into a definitive agreement to consummate a Takeover Proposal or a
Takeover Proposal is consummated directly with the shareholders of UST;
(ii) this Agreement is terminated pursuant to Section
8.1(e) and Section 8.5; or
(iii) this Agreement is terminated pursuant to Section
8.1(f)(i).
(c) Any Termination Fee that becomes payable pursuant to
Section 8.2(b) shall be paid promptly, via wire transfer to the designated
account of SCHWAB; provided that, to the extent that UST is prohibited under
applicable law or regulation from paying the Termination Fee in full, UST
shall immediately so notify SCHWAB and thereafter promptly pay or cause to be
paid, from time to time, to SCHWAB the portion of the Termination Fee that UST
is no longer prohibited from paying; and, provided further, that UST shall use
its best efforts immediately to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable so that
it is no longer prohibited from paying any outstanding portion of the
Termination Fee.
(d) For purposes of Section 8.2(b)(i)(y), a "Takeover Proposal"
shall have the meaning assigned to such term in Section 6.4(c), except that
references to "20%" in such definition shall be deemed to be references to
35%. For purposes of this Agreement, a "Takeover Proposal Event" shall be
deemed to occur if a Takeover Proposal shall have been made known to UST or
any of its Subsidiaries or has been made directly to UST's shareholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a Takeover Proposal. SCHWAB and UST agree that the
agreements contained in this Section 8.2 are an integral part of the
transactions contemplated by this Agreement, and that without such agreements
SCHWAB would not have entered into this Agreement; accordingly, if UST fails
to pay the amount due under this Section 8.2 and SCHWAB commences a suit which
results in a judgment against UST for the Termination Fee, UST shall pay to
SCHWAB its costs and expenses (including reasonable attorneys fees and
expenses) in connection with such suit, together with interest on the amount
of the Termination Fee at the prime rate in effect on the date such payment
was required to be made as stated in The Wall Street Journal.
8.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized
by their respective Boards of Directors, at any time before or after approval
of the matters presented in connection with the
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Merger by the shareholders of UST; provided, however, that after any approval
of the transactions contemplated by this Agreement by the shareholders of UST,
there may not be, without further approval of such shareholders, any amendment
of this Agreement which changes the amount or the form of the consideration to
be delivered to the holders of UST Common Stock hereunder other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein;
provided, however, that after any approval of the transactions contemplated by
this Agreement by the shareholders of UST, there may not be, without further
approval of such shareholders, any extension or waiver of this Agreement or
any portion thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of UST Common Stock hereunder
other than as contemplated by this Agreement. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party, but such extension or
waiver or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
8.5 Superior Proposal Termination. UST may terminate this Agreement
pursuant to Section 8.1(e) only if (i) the UST Board of Directors has received
a Superior Proposal, (ii) UST has notified SCHWAB in writing of the
determination of the UST Board of Directors to accept the Superior Proposal,
with such notice to include a summary of all material terms and conditions of
the Superior Proposal, (iii) at least ten business days following receipt by
SCHWAB of the notice referred to in clause (ii) above, and taking into account
any revised proposal made by SCHWAB since receipt of the notice referred to in
clause (ii) above, such Superior Proposal remains a Superior Proposal, (iv)
UST is in compliance with Section 6.4, (v) the UST Board of Directors
concurrently approves, and UST concurrently enters into, a definitive
agreement providing for the implementation of such Superior Proposal and (vi)
UST pays the Termination Fee.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement
and the UST Option Agreement, the closing of the Merger (the "Closing") will
take place at 10:00 a.m. local time on a date and at a place to be specified
by the parties, which shall be no later than three business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of
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the conditions set forth in Article VII hereof, unless extended by mutual
agreement of the parties (the "Closing Date").
9.2 Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement (other than pursuant
to the UST Option Agreement, which shall terminate in accordance with its
terms) shall survive the Effective Time, except for those covenants and
agreements contained herein and therein which by their terms apply in whole or
in part after the Effective Time.
9.3 Expenses. Subject to Section 8.2, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense, provided, however,
that the costs and expenses of printing and mailing the Proxy Statement, and
all filing and other fees paid to the SEC in connection with the Merger, shall
be borne equally by SCHWAB and UST.
9.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to SCHWAB, to:
101 Montgomery Street
Mail Stop: SF 120 KNY-29
San Francisco, CA 94104
Attention: Christopher V. Dodds
Chief Financial Officer
with a copy to:
101 Montgomery Street
Mail Stop: SF 120 KNY-29-119
San Francisco, CA 94104
Attention: Carrie Dwyer
Executive Vice President Corporate
and to:
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
A Professional Corporation
Three Embarcadero Center
Suite 700
San Francisco, California 94111-4065
Attention: Lawrence B. Rabkin
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<PAGE>
Fax: (415) 217-5910
and
(b) if to UST, to:
U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
Attention: Jeffrey S. Maurer
President and Chief Operating Officer
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: B. Robbins Kiessling
Fax: (212) 474-3700
9.5 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.6 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.7 Entire Agreement. This Agreement (including the Disclosure
Schedules and other documents and the instruments referred to herein)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof other than the UST Option Agreement and the
Confidentiality Agreement.
9.8 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law.
9.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such
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<PAGE>
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
9.10 Publicity. Except as otherwise required by applicable law or
the rules of the NYSE, neither SCHWAB nor UST shall, nor shall either permit
any of its Subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be
unreasonably withheld or delayed.
9.11 Assignment; Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations shall be assigned by either of
the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns. Except
for (i) Section 1.7 which is for the benefit of the holders of UST Rights and
(ii) Section 6.11 which is for the benefit of the persons specified in Section
6.11(e), this Agreement (including the documents and instruments referred to
herein) is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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<PAGE>
IN WITNESS WHEREOF, The Charles Schwab Corporation, Patriot Merger
Corporation and U.S. Trust Corporation have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
THE CHARLES SCHWAB CORPORATION U.S. TRUST CORPORATION
By: /s/ David S. Pottruck By: /s/ H. Marshall Schwartz
------------------------- ------------------------------
Name: David S. Pottruck Name: H. Marshall Schwartz
Title: President and Co-Chief Title: Chairman and Chief
Executive Officer Executive Officer
PATRIOT MERGER CORPORATION
By: /s/ David S. Pottruck
-------------------------
Name: David S. Pottruck
Title: President
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<PAGE>
EXHIBIT 6.8(a)(1)
FORM OF AFFILIATE LETTER ADDRESSED TO UST
Mr. Jeffrey S. Maurer
President and Chief Operating Officer
U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
Dear Mr. Maurer:
I have been advised that as of the date hereof I may be deemed
to be an "affiliate" of The Charles Schwab Corporation, a Delaware corporation
("SCHWAB"), as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act") and/or (ii) used in
and for purposes of Accounting Series, Releases 130 and 135, as amended, of
the Commission. I have been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of January 12, 1999 (the "Merger
Agreement") among U.S. Trust Corporation, a New York corporation ("UST"),
SCHWAB and Patriot Merger Corporation, a wholly-owned subsidiary of SCHWAB
("Merger Sub"), Merger Sub will be merged with and into UST (the "Merger").
I represent, warrant and covenant to UST that from the date
that is at least 30 days prior to the Effective Time (as defined in the
Agreement) I will not sell, transfer or otherwise dispose of shares, including
entering into any hedging transaction with respect to, of SCHWAB Common Stock
(as defined in the Merger Agreement) held by me and that I will not sell,
transfer or otherwise dispose of, including entering into any hedging
transaction with respect to, any shares of SCHWAB Common Stock (as defined in
the Merger Agreement) until after such time as results covering at least 30
days of combined operations of SCHWAB and UST have been published by SCHWAB,
in the form of a quarterly earnings report, an effective registration
statement filed with the Commission, a report to the Commission on Form 10-K,
10-Q, or 8-K, or any other public filing or announcement which includes the
results of at least 30 days of combined operations; provided, however, that
this paragraph shall not prevent me from selling, transferring or disposing of
such number of shares of UST Common Stock or SCHWAB Common Stock as will not,
in the reasonable judgment of accountants to SCHWAB, interfere with or prevent
the Merger being accounted for as a "pooling of interests," taking into
account the nature, extent and
<PAGE>
timing of such sale, transfer or disposition and of similar sales, transfers
or dispositions by all other affiliates of UST and all affiliates of SCHWAB.
Very truly yours,
By:__________________________________
Name:________________________________
Accepted this ____ day of __________,
1999 by
U.S. TRUST CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
EXHIBIT 6.8(a)(2)
FORM OF AFFILIATE LETTER ADDRESSED TO SCHWAB
Mr. Christopher V. Dodds
Chief Financial Officer
The Charles Schwab Corporation
101 Montgomery Street
Mail Stop: SF 120 KNY-29
San Francisco, CA 94104
Dear Mr. Dodds:
I have been advised that as of the date hereof I may be deemed
to be an "affiliate" of U.S. Trust Corporation, a New York corporation
("UST"), as the term "affiliate" is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series, Releases 130 and 135, as amended, of the
Commission. I have been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of January 12, 1999 (the "Merger
Agreement") among The Charles Schwab Corporation, a Delaware corporation
("SCHWAB"), UST and Patriot Merger Corporation, a wholly-owned subsidiary of
SCHWAB ("Merger Sub"), Merger Sub will be merged with and into UST (the
"Merger") and that as a result of the Merger, I may receive shares of SCHWAB
Common Stock (as defined in the Merger Agreement), in exchange for shares of
UST Common Stock (as defined in the Merger Agreement), owned by me.
I represent, warrant and covenant to SCHWAB that in the event I
receive any SCHWAB Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of
the SCHWAB Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and
discussed its requirements and other applicable limitations upon my ability to
sell, transfer or otherwise dispose of SCHWAB Common Stock to the extent I
believed necessary with my counsel or counsel for UST.
C. I have been advised that the issuance of SCHWAB Common Stock
to me pursuant to the Merger will be registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been advised
that, since at the time the Merger will be submitted for a vote of the
shareholders of SCHWAB, I may be deemed to have been an affiliate of UST and
the distribution by me of the SCHWAB Common Stock has not been registered
under the Act, and that I may not sell, transfer or otherwise dispose of
SCHWAB
<PAGE>
Common Stock issued to me in the Merger unless (i) such sale, transfer or
other disposition has been registered under the Act, (ii) such sale, transfer
or other disposition is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Commission under the Act or (iii)
in the opinion of counsel reasonably acceptable to SCHWAB, such sale, transfer
or other disposition is otherwise exempt from registration under the Act.
D. I understand that SCHWAB is under no obligation to register
the sale, transfer or other disposition of the SCHWAB Common Stock by me or on
my behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
E. I also understand that stop transfer instructions will be
given to SCHWAB transfer agents with respect to the SCHWAB Common Stock and
that there will be placed on the certificates for the SCHWAB Common Stock
issued to me, or any substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been
issued in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies and may only be sold or
otherwise transferred in compliance with the requirements of
Rule 145 or pursuant to a registration statement under said act
or an exemption from such registration."
F. I also understand that unless the transfer by me of my
SCHWAB Common Capital Stock has been registered under the Act or is a sale
made in conformity with the provisions of Rule 145, SCHWAB reserves the right
to put the following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to
which Rule 145 promulgated under the Securities Act of 1933
applies. The shares have been acquired by the holder not with a
view to, or for resale in connection with, any distribution
thereof within the meaning of Securities Act of 1933 and may
not be sold, pledged or otherwise transferred except in
accordance with an exemption from the registration requirements
of the Securities Act of 1933."
It is understood and agreed that the legends set forth in
paragraphs E and F above shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have delivered to
SCHWAB a copy of a letter from the staff of the Commission, or an opinion of
counsel in form and substance reasonably satisfactory to SCHWAB, to the effect
that such legend is not required for purposes of the Act.
I further represent to and covenant with SCHWAB that from the
date that is 30 days prior to the Effective Time (as defined in the Merger
Agreement) I will not sell, transfer or
<PAGE>
otherwise dispose of, including entering into any hedging transaction with
respect to, shares of UST Common Stock held by me and that I will not sell,
transfer or otherwise dispose of, including entering into any hedging
transaction with respect to, any shares of SCHWAB Common Stock received by me
in the Merger or other shares of SCHWAB Common Stock until after such time as
results covering at least 30 days of combined operations of SCHWAB and UST
have been published by SCHWAB, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q, or 8-K, or any other public filing or
announcement which includes the results of at least 30 days of combined
operations; provided, however, that this paragraph shall not prevent me from
selling, transferring or disposing of such number of shares of UST Common
Stock or SCHWAB Common Stock as will not, in the reasonable judgment of
accountants to SCHWAB, interfere with or prevent the Merger being accounted
for as a "pooling of interests," taking into account the nature, extent and
timing of such sale, transfer or disposition and of similar sales, transfers
or dispositions by all other affiliates of UST and all affiliates of SCHWAB.
I understand that pursuant to the Merger Agreement, no
certificate for SCHWAB Common Stock shall be delivered to me in exchange for
certificates representing UST Common Stock until I have executed and delivered
this agreement.
Very truly yours,
By:__________________________________
Name:________________________________
Accepted this ____ day of __________,
1999 by
THE CHARLES SCHWAB CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER....................................................1
1.1 The Merger....................................................1
1.2 Effective Time................................................1
1.3 Effects of the Merger.........................................2
1.4 Conversion of UST Common Stock................................2
1.5 MERGER SUB Common Stock.......................................3
1.6 SCHWAB Common Stock...........................................3
1.7 Options and Contingent Issuances..............................3
1.8 Certificate of Incorporation..................................4
1.9 Bylaws........................................................4
1.10 Directors and Officers of Surviving Corporation and
Subsidiaries...............................................4
1.11 Representation on SCHWAB Board of Directors and Management
Committee..................................................5
ARTICLE II EXCHANGE OF SHARES............................................5
2.1 SCHWAB to Make Shares Available...............................5
2.2 Exchange of Shares............................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF UST.........................8
3.1 Corporate Organization........................................8
3.2 Capitalization................................................9
3.3 Authority; No Violation......................................10
3.4 Consents and Approvals.......................................11
3.5 Reports......................................................12
3.6 Financial Statements.........................................12
3.7 Broker's Fees................................................13
3.8 Absence of Certain Changes or Events.........................13
3.9 Legal Proceedings............................................14
3.10 Taxes and Tax Returns........................................14
3.11 Employees....................................................16
3.12 SEC Reports..................................................17
3.13 Compliance with Applicable Law...............................18
3.14 Certain Contracts............................................18
3.15 Agreements with Regulatory Agencies..........................19
3.16 Investment Securities........................................19
3.17 Derivative Instruments.......................................20
3.18 Loan Losses..................................................20
3.19 Undisclosed Liabilities......................................20
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3.20 Environmental Liability......................................20
3.21 State Takeover Laws; UST Rights Plan.........................21
3.22 Insurance....................................................21
3.23 Pooling of Interests.........................................21
3.24 Title to Properties..........................................22
3.25 Intellectual Property........................................22
3.26 Year 2000....................................................22
3.27 No Excess Parachute Payments.................................23
3.28 Opinion......................................................23
3.29 UST Information..............................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF SCHWAB AND MERGER SUB.....................................24
4.1 Corporate Organization.......................................24
4.2 Capitalization...............................................25
4.3 Authority; No Violation......................................25
4.4 Consents and Approvals.......................................26
4.5 Broker's Fees................................................26
4.6 Absence of Certain Changes or Events.........................26
4.7 Legal Proceedings............................................26
4.8 Taxes and Tax Returns........................................27
4.9 SEC Reports..................................................27
4.10 Compliance with Applicable Law...............................28
4.11 Agreements with Regulatory Agencies..........................28
4.12 Undisclosed Liabilities......................................29
4.13 Pooling of Interests.........................................29
4.14 Year 2000....................................................29
4.15 Opinion......................................................29
4.16 SCHWAB Information...........................................29
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS....................30
5.1 Conduct of UST Business Prior to the Effective Time..........30
5.2 Forbearances of UST..........................................30
5.3 Forbearances of SCHWAB.......................................32
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Page
ARTICLE VI ADDITIONAL AGREEMENTS........................................33
6.1 Regulatory Matters...........................................33
6.2 Access to Information........................................34
6.3 Shareholder Approval.........................................35
6.4 No Solicitation..............................................36
6.5 Continuity of Business Enterprise............................37
6.6 Tax Free Treatment...........................................37
6.7 Pooling Treatment............................................38
6.8 Affiliates; Publication of Combined Financial Results........38
6.9 Stock Exchange Listing.......................................38
6.10 Employee Benefits............................................38
6.11 Indemnification; Directors' and Officers' Insurance..........40
6.12 Additional Agreements........................................41
6.13 Advice of Changes............................................41
6.14 Employee Retention Plan......................................41
6.15 State Takeover Statutes......................................41
6.16 Section 15 of the 1940 Act...................................41
ARTICLE VII CONDITIONS PRECEDENT.........................................42
7.1 Conditions to Each Party's Obligation To Effect the Merger...42
(a) Shareholder Approval..................................42
(b) Stock Exchange Listing................................42
(c) Regulatory Approvals..................................43
(d) S-4...................................................43
(e) No Injunctions or Restraints; Illegality..............43
(f) Pooling of Interests..................................43
7.2 Conditions to Obligations of SCHWAB..........................43
(a) Representations and Warranties........................43
(b) Performance of Obligations of UST.....................44
(c) Regulatory Conditions.................................44
(d) Financial Holding Company Status......................44
7.3 Conditions to Obligations of UST.............................44
(a) Representations and Warranties........................44
(b) Performance of Obligations of SCHWAB..................45
(c) Tax Opinion...........................................45
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Page
ARTICLE VIII TERMINATION AND AMENDMENT....................................45
8.1 Termination..................................................45
8.2 Effect of Termination........................................46
8.3 Amendment....................................................47
8.4 Extension; Waiver............................................48
8.5 Superior Proposal Termination................................48
ARTICLE IX GENERAL PROVISIONS...........................................48
9.1 Closing......................................................48
9.2 Nonsurvival of Representations, Warranties and Agreements....49
9.3 Expenses.....................................................49
9.4 Notices......................................................49
9.5 Interpretation...............................................50
9.6 Counterparts.................................................50
9.7 Entire Agreement.............................................50
9.8 Governing Law................................................50
9.9 Severability.................................................50
9.10 Publicity....................................................51
9.11 Assignment; Third Party Beneficiaries........................51
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Exhibit 99.1
FOR IMMEDIATE RELEASE
Contact:
Media: Glen Mathison; Marta von Loewenfeldt
The Charles Schwab Corporation
212-906-3149 or
415-636-5454
Analysts: Rich Fowler
The Charles Schwab Corporation
415-636-9869
SCHWAB AND U.S. TRUST TO FORM
FULL-SERVICE BROKERAGE AND WEALTH MANAGEMENT FIRM
Combined entity poised to take a leadership position serving the
emerging and established affluent markets
NEW YORK CITY - January 13, 2000 - The Charles Schwab Corporation [SCH] and
U.S. Trust Corporation [UTC] today announced they have signed a definitive
agreement for Schwab and U.S. Trust to merge, creating a combined organization
positioned to serve the investment and wealth management needs of investors at
every stage of their financial growth.
The transaction joins two powerful brands. Measured by client assets, Schwab
is the nation's fourth largest U.S. financial services company and a leading
provider of retail and institutional investment services. U.S. Trust is one of
the nation's leading wealth management firms serving affluent individuals and
families. Together, the two companies establish a complete service provider
for investors seeking to manage their investments and wealth for the
long-term, whether they are beginning investors or managing significant
accumulated wealth.
Under the terms of the agreement, U.S. Trust shareholders will receive 3.427
shares of Schwab stock for each share of U.S. Trust stock. Based on Schwab's
closing stock price as of 1/12/2000, the transaction values
<PAGE>
Page 2 of 5
each U.S. Trust share at $129, resulting in a total transaction value of
approximately $2.7 billion. The companies expect the transaction to qualify
for pooling of interests accounting treatment. Both companies will retain
their separate brand identities, while sharing significant synergies and
capabilities across their complementary business lines.
Announcing the acquisition, Schwab chairman and co-CEO, Charles R. Schwab
said, "We've long held a goal of building an organization that can serve
investors completely - from those taking their first steps towards becoming
lifelong investors, to those looking to manage their accumulated wealth for
themselves and their families. We believe U.S. Trust brings the most respected
wealth management expertise in the nation, and our combined strengths create
an organization that can serve clients at every stage of wealth accumulation.
The combination also adds new strengths to the services that Schwab's
affiliated investment advisors provide. U.S. Trust represents for us a piece
of the puzzle that had been missing in our offering to affluent investors, and
we're very excited about the prospects that this combination offers."
U.S. Trust, which was founded in 1853, is a wealth management company that
provides investment management and consulting, fiduciary services, financial
and estate planning and private banking. Headquartered in New York City, the
company has 24 offices nationwide in nine states and the District of Columbia
and 1,900 employees. As of December 31st, 1999, U.S. Trust had $86 billion of
assets under management.
"We are very enthusiastic about our merger with Schwab," said H. Marshall
Schwarz, chairman and chief executive officer of U.S. Trust. "Chuck Schwab has
transformed the brokerage industry to serve investors, and he's done that
based on deeply held values that U.S. Trust shares: services to clients at the
highest levels of our abilities and a focus on their long term well-being. We
are confident that our complementary strengths will lead to greatly enhanced
success for both firms. Schwab will be able to offer affluent clients access
to
<PAGE>
Page 3 of 5
U.S. Trust's wealth management expertise, while Schwab's vast technological
resources will enable U.S. Trust to combine our traditional high-touch
approach with high-tech to better serve our clients."
Schwab's merger with U.S. Trust takes place at a time when the number of
affluent investors is growing at a rapid pace. Today, there are over six
million U.S. households each with a net worth of over $1 million. More than
three million households in the U.S. have investable assets in excess of $1
million, and the number of these households is expected to grow 13-14 percent
per year over the next three years.
"The baby boomers are emerging as a dominant wealth segment in the United
States," said Schwab president and co-CEO David Pottruck. "They bring with
them a desire for a high degree of control, a willingness to embrace
technology for their investing needs and an unwillingness to compromise. Many
of these investors will demand wealth management services - supported by the
unique strengths of the Internet - that offer them more control and
information than has ever been available before. At the same time, we believe
that these investors are underserved - no one has garnered a truly significant
share of this expanding market; no one has developed a comprehensive wealth
management service especially for the needs of the emerging affluent
investor."
Remarking on the importance of the merger to its investment advisor business,
Mr. Pottruck added, "Through U.S. Trust, we will be able to provide the trust,
financial and estate planning, and private banking services that are so
crucial to wealth management. Our investment manager clients have told us
repeatedly that trust and private banking services are absolutely essential in
order to serve affluent clients well."
Schwab has steadily broadened its offerings to affluent investors. Its rapidly
growing Schwab Institutional business, which has grown to over $200 billion in
assets, provides back-end and custodial services to over 5600 independent
fee-based advisors. Its Schwab AdvisorSource(R) program refers affluent
investors to
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Page 4 of 5
independent advisors to whom they can delegate their day-to-day investment
management. In 1999, Schwab created its Signature Services program to provide
affluent investors with investment help and advice as well as tax, attorney
and other advisor referrals, and Schwab Access, a cash management account
providing online checking, bill paying, and ATM access. The addition of U.S.
Trust will complement rather than duplicate those services. For instance,
there will be opportunities to provide Schwab's advisor clients with trust
services, private banking and equity and fixed-income research within their
Schwab relationship.
"U.S. Trust will continue to pursue its strategy of expanding nationally into
areas where wealth is concentrated," said Jeffrey S. Maurer, president and
chief operating officer of U.S. Trust. "We anticipate that the merger will
enable us to devote added resources to new offices and marketing which will
enable us to establish the dominant national brand in the wealth management
business."
Mr. Schwarz and Mr. Maurer will join the Schwab board of directors. Both U.S.
Trust executives will maintain their current titles. Messrs. Schwab and
Pottruck will join the U.S. Trust board of directors, which will remain in
place.
Schwab expects to become a financial holding company under the Financial
Services Reform Act of 1999. The transaction is subject to Federal Reserve
Board and other regulatory approvals and to U.S. Trust shareholder approval.
The transaction is expected to close by July 2000.
On a proforma basis, in 1999 (based on the mid-point of the pre-announced
range for Schwab) the combined company would have had net revenues of $4.5
billion, net income of $663 million, and year end customer assets of about
$800 billion.
<PAGE>
Page 5 of 5
The Charles Schwab Corporation (NYSE:SCH), through its principal operating
subsidiary Charles Schwab & Co., Inc. (member SIPC, NYSE), is the nation's
fourth largest financial services firm and the nation's largest electronic
brokerage serving 6.4 million active accounts with $725 billion in customer
assets through 340 branch offices, four regional customer telephone service
centers and automated telephonic and online channels. More than 30 percent of
Schwab's customer assets and more than 10 percent of its customer accounts are
managed by the 5,600 independent, fee-based investment advisors served by
Schwab's Institutional division.
U.S. Trust (NYSE: UTC) provides investment management, fiduciary, financial
planning and private banking services to affluent individuals, families and
institutions nationwide through its 24 offices in California, Connecticut,
Florida, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas and
Washington, D.C. Approximately 80 percent of the company's investment assets
under management are personal assets, while 20 percent are institutional. U.S.
Trust is also the investment advisor to the $8 billion Excelsior mutual fund
family of 27 no-load funds.
Editor's Note: A media briefing and conference call to discuss the announced
acquisition with co-CEOs Charles Schwab and David Pottruck and Marshall
Schwarz and Jeffrey Maurer of U.S. Trust will be held today at 11:00 A.M.
Eastern Standard Time at The Intercontinental Hotel, 48th Street and Lexington
Avenue. Please attend 15 minutes prior to the event. If you are unable to
attend, you can call in by dialing 1-800-260- 0712. Please dial in 10 minutes
before the conference starts. A simultaneous presentation of slides from the
briefing will be available on the internet at www.placeware.com/schwabtwo.
Exhibit 99.2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January 12,
2000 between U.S. Trust Corporation, a New York corporation ("Issuer"), and
The Charles Schwab Corporation, a Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, as a condition to, and simultaneously with, the execution
and delivery of this Agreement, Grantee, Patriot Merger Corporation, a New
York corporation ("Merger Sub"), and Issuer are entering into an Agreement and
Plan of Merger pursuant to which Merger Sub will merge with and into Issuer on
the terms and subject to the conditions set forth therein; and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee
the Option (as hereinafter defined);
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase, subject to the terms hereof, up to 3,713,558 fully paid
and nonassessable shares ("Option Shares") of Issuer's Common Stock, par value
$1.00 per share ("Common Stock"), at a price of $125.00 per share (the "Option
Price"); provided, however, that in the event Issuer issues or agrees to issue
any shares of Common Stock (other than as permitted under the Merger
Agreement) at a price less than the Option Price (as adjusted pursuant to
Section 5), the Option Price shall be equal to such lesser price; provided
further, that in no event shall the number of shares of Common Stock for which
this Option is exercisable exceed 19.9% of the Issuer's issued and outstanding
shares of Common Stock. The number of shares of Common Stock that may be
received upon the exercise of the Option and the Option Price are subject to
adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement), the number of shares of Common Stock subject
to the Option shall be increased so that, after such issuance, such number
equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant to
the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. (a) Grantee may exercise the Option, with respect to any or all
of the Option Shares, at any time and from time to time, after a Triggering
Event (as hereinafter defined) shall have occurred; provided, however, that
the Option will terminate and be of no further force
<PAGE>
or effect upon the earliest to occur of: (i) the Effective Time (as defined in
the Merger Agreement), (ii) twelve months after the first occurrence of a
Triggering Event and (iii) termination of the Merger Agreement in accordance
with the provisions thereof if such termination occurs prior to the occurrence
of a Triggering Event, unless, in the case of clause (iii), Grantee has the
right to receive a Termination Fee (as defined in the Merger Agreement)
following such termination upon the occurrence of certain events, in which
case the Option will not terminate until the later of (x) twelve months
following the time such Termination Fee first becomes payable and (y) the
expiration of the time period in which Grantee has such right or could obtain
the right to receive a Termination Fee. The date on which the Option
terminates is referred to hereinafter as the "Exercise Termination Event."
Notwithstanding the occurrence of an Exercise Termination Event, Grantee will
be entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the Exercise Termination Event and
the termination of the Option will not affect any rights hereunder which by
their terms do not terminate or expire prior to or as of such termination.
(b) A "Triggering Event" shall mean any event as a result of
which Grantee is entitled to receive the Termination Fee pursuant to Section
8.2(b) of the Merger Agreement by reason of all the conditions stated in
Section 8.2(b) having been satisfied.
(c) Issuer shall notify Grantee promptly in writing of the
occurrence of any Triggering Event of which it has notice, it being understood
that the giving of such notice by Issuer shall not be a condition to the right
of Grantee to exercise the Option.
(d) In the event Grantee is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided
that, if prior notification to or approval of the Federal Reserve Board or any
other regulatory agency is required in connection with such purchase, Grantee
shall promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed; provided further, that the Closing Date shall not in any event be
later than twelve months after the Notice Date. Any exercise of the Option
shall be deemed to occur on the Notice Date relating thereto.
(e) At the closing referred to in subsection (d) of this
Section 2, Grantee shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer; provided that, failure or refusal of Issuer to designate such a bank
account shall not preclude Grantee from exercising the Option.
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<PAGE>
(f) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (e) of this Section 2,
Issuer shall deliver to Grantee a certificate or certificates representing the
number of shares of Common Stock purchased by Grantee and, if the Option
should be exercised in part only, a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares purchasable hereunder,
and Grantee shall deliver to Issuer a letter agreeing that Grantee will not
offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Agreement.
(g) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of such agreement is
on file at the principal office of Issuer and will be provided to
the holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if Grantee shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act, (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference and (iii)
the legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(h) Upon the giving by Grantee to Issuer of the written notice
of exercise of the Option provided for under subsection (e) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, Grantee shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered
to Grantee. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 2 in the name of Grantee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock,
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<PAGE>
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer (provided that compliance by Issuer with applicable law
and regulation shall be deemed to not be a voluntary act), (iii) promptly use
best efforts to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18(a) and
regulations promulgated thereunder and (y) in the event, under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), or the Change in Bank
Control Act of 1978, as amended, or any state banking law, prior approval of
or notice to the Federal Reserve Board, to the Office of Thrift Supervision or
to any state regulatory authority is necessary before the Option may be
exercised, cooperating fully with Grantee in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state regulatory authority as they may require) in order to permit Grantee to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto and (iv) promptly to take all action provided herein to
protect the rights of Grantee against dilution.
4. Upon receipt by Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement, if
mutilated, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1
of this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment
from time to time as provided in this Section 5. In the event of any change
in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Merger Agreement, or the
like, the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such manner as
shall fully preserve the economic benefits provided hereunder and proper
provision shall be made in any agreement governing any such transaction to
provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Issuer shall, at the request of Grantee delivered within two
years after the exercise of the Option, promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any Option
Shares and shall use its commercially reasonable efforts to cause such
registration statement to become effective and remain current in order to
permit the sale or other disposition of any Option Shares in accordance with
any plan of disposition requested by Grantee. Issuer will use its commercially
reasonable efforts to cause such
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<PAGE>
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of Option Shares as
provided above, Issuer is in registration with respect to an underwritten
public offering of shares of Common Stock, and if in the good faith judgment
of the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of Grantee's
Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced; and
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of Grantee shall
constitute at least 25% of the total number of shares to be sold by Grantee
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur.
Grantee shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
Grantee in connection with such registration, Issuer shall become a party to
any underwriting agreement relating to the sale of such shares, but only to
the extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in secondary offering
underwriting agreements for Issuer.
7. (a) At any time after the occurrence of a Repurchase Event (as
defined below), (i) at the request of Grantee, delivered prior to an Exercise
Termination Event, Issuer (or any successor thereto) shall repurchase the
Option from Grantee at a price (the "Option Repurchase Price") equal to the
amount by which (A) the Market Price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then be
exercised and (ii) at the request of Grantee at any time it is the owner of
Option Shares (the "Owner"), delivered prior to an Exercise Termination Event,
Issuer shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price") equal
to the Market Price multiplied by the number of Option Shares so designated.
The term "Market Price" shall mean the average closing price for shares of
Common Stock for the five trading days ending on and including the trading day
immediately preceding the date Grantee gives notice of the required repurchase
of this Option or the Owner gives notice of the required repurchase of Option
Shares, as the case may be.
(b) Grantee and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares,
as applicable, accompanied by a written notice or notices stating that Grantee
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the later to occur of (x) five business days after the
surrender of a copy of this Agreement and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto and (y) the
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<PAGE>
time that is immediately prior to the occurrence of a Repurchase Event, Issuer
shall deliver or cause to be delivered to Grantee the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from so delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in
full, Issuer shall immediately so notify Grantee and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to Grantee
and/ or the Owner, as appropriate, the portion of the Option Repurchase Price
and the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any
time after delivery of a notice of repurchase pursuant to paragraph (b) of
this Section 7 is prohibited under applicable law or regulation from
delivering to Grantee and/or the Owner, as appropriate, the Option Repurchase
Price and the Option Share Repurchase Price, respectively, in full (and Issuer
hereby undertakes to use its best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), Grantee or the Owner may
revoke its notice of repurchase of the Option or the Option Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case,
Issuer shall promptly (i) deliver to Grantee and/or the Owner, as appropriate,
that portion of the Option Repurchase Price or the Option Share Repurchase
Price that Issuer is not prohibited from delivering and (ii) deliver, as
appropriate, either (A) to Grantee, a new Stock Option Agreement evidencing
the right of Grantee to purchase that number of shares of Common Stock
obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to Grantee and
the denominator of which is the Option Repurchase Price, or (B) to the Owner,
a certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a "Repurchase Event" shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease
or other acquisition of all or a substantial portion of the assets of Issuer,
other than any merger, consolidation, purchase or similar transaction
involving only Issuer and one or more of its Subsidiaries (as defined in the
Merger Agreement) or involving only two or more of such Subsidiaries or (ii)
upon the acquisition by any person of beneficial ownership of 50% or more of
the then outstanding shares of Common Stock, provided that no such event shall
constitute a Repurchase Event unless a Triggering Event shall have occurred
prior to an Exercise Termination Event. Grantee will be entitled to exercise
its rights under this Section 7 if it has exercised such rights in accordance
with the terms hereof prior to the termination of the Option.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such
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<PAGE>
consolidation or merger, (ii) to permit any person, other than Grantee or one
of its Subsidiaries, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but, in connection with such merger, the then
outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other person or cash or any other property or
the then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents of
the merged company or (iii) to sell or otherwise transfer all or substantially
all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction (the date of such consummation the
"Consummation Date") and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at the
election of Grantee, of either (x) the Acquiring Corporation (as hereinafter
defined) or (y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing
or surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person and (iii) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the Market Price, as
defined in Section 7, as of the Consummation Date.
(iv) "Average Price" shall mean the average closing price
of a share of the Substitute Common Stock for the 30 trading days immediately
preceding the Consummation Date; provided that, if Issuer is the issuer of the
Substitute Option, the Average Price shall equal the Assigned Value.
(c) The Substitute Option shall have the same terms as the
Option; provided that, if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to Grantee. The issuer of the Substitute
Option shall also enter into an agreement (the "Substitute Option Agreement")
with Grantee of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is
then exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal to
the Option Price multiplied by a fraction, the numerator of which shall be the
number of
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<PAGE>
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares
of Substitute Common Stock outstanding prior to exercise of the Substitute
Option.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
9. (a) For the purposes hereof Total Gain as of any date shall be
the aggregate of all amounts (before taxes) received by Grantee hereunder as
(i) the Option Repurchase Price, (ii) the excess of (A) the Option Share
Repurchase Price over (B) the aggregate amount of the Option Price paid for
the shares for which Grantee receives the Option Share Repurchase Price and
(iii) the Sale Proceeds. For the purposes hereof Sale Proceeds shall be the
excess of (A) the net proceeds (before taxes, but after deducting brokerage
commissions and other similar customary sales expenses) from the sale (other
than a sale to Issuer (or any successor thereto) pursuant to Section 7) of
Option Shares or any portion thereof over (B) the aggregate amount of exercise
price paid for such Option Shares. In determining the amount of the Sale
Proceeds, the value of any non-cash consideration received for the sale of the
Option Shares shall be, (i) for securities listed on a national securities
exchange or traded on the Nasdaq National Market, the average closing price
per share of such security as reported on such exchange or the Nasdaq National
Market for the five trading days prior to the date of delivery of such
consideration to Grantee and (ii) for other securities or property, the value
as determined by a nationally recognized independent investment banking firm
mutually agreed upon by Grantee and Issuer. In the event that the Option is
converted into a Substitute Option pursuant to Section 8, the provision of the
applicable Substitute Option Agreement corresponding to this Section 9(a)
shall provide that the Total Gain with respect to such Substitute Option shall
include in its aggregate amount the Total Gain with respect to this Option as
determined pursuant to this Section 9(a).
(b) If at any time the aggregate amount of (x) the Total Gain
and (y) any Termination Fee paid to Grantee pursuant to Section 8.2(b) of the
Merger Agreement shall exceed $150 million, Grantee at its sole election shall
(i) deliver cash to Issuer, (ii) authorize Issuer to reduce the amount then
payable to Grantee under Section 7, (iii) agree to cancel a portion of the
Option, (iv) deliver Common Stock to Issuer (the shares so delivered being
deemed to have a per share value equal to the closing price of the Common
Stock on the day prior to the day of the event giving rise to the requirement
to make such payment) or (v) any combination thereof so that Grantee's
realized Total Gain when aggregated with such Termination Fee so paid to
Grantee no longer exceeds $150 million after taking into account the foregoing
actions.
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<PAGE>
(c) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Gain (as defined below) which, together
with any Termination Fee theretofore paid to Grantee would exceed $150
million; provided that, nothing in this sentence shall restrict any exercise
of the Option permitted hereby on any subsequent date.
(d) As used herein, the term "Notional Total Gain" with respect
to any number of shares as to which Grantee may propose to exercise the Option
shall be the Total Gain determined as of the date of such proposal assuming
that the Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price for the Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).
10. The period for exercise of certain rights under Sections 2, 6
and 7 shall be extended to the extent necessary to avoid liability under
Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the
date hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of
Common Stock at any time and from time to time issuable hereunder, and all
such shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrances and security interests and not subject to any
preemptive rights.
(c) Issuer has taken all action (including, if required,
redeeming all of the rights outstanding under, or amending or terminating, the
UST Rights Agreement) so that the entering into of this Agreement, the
acquisition of shares of Common Stock hereunder and the other transactions
contemplated hereby do not and will not result in the grant of any rights to
any person under the UST Rights Agreement or enable or require the rights
outstanding thereunder to be exercised, distributed or triggered.
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<PAGE>
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred
to herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance and applying to the Federal Reserve Board under
the BHCA for approval to acquire the shares issuable hereunder, but Grantee
shall not be obligated to apply to state banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time, if
ever, as it deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that Grantee is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pursuant to Sections
1(b) or 5 hereof), it is the express intention of Issuer to allow Grantee to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
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<PAGE>
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
22. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
THE CHARLES SCHWAB CORPORATION
By: /s/ David S. Pottruck
-----------------------------
Name: David S. Pottruck
Title: President and Co-Chief
Executive Officer
U.S. TRUST CORPORATION
By: /s/ H. Marshall Schwartz
-----------------------------
Name: H. Marshall Schwartz
Title: Chairman and Chief
Executive Officer
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EXHIBIT 99.3
CHARLES SCHWAB U.S.TRUST
Continued Leadership in Serving
Customers:
Growing With the Affluent Investor
January 13, 2000
<PAGE>
Introduction
- - Announcing the combination of two premier firms in financial services -
The Charles Schwab Corporation and U.S. Trust Corporation.
- - This transaction advances our new model of full-service investing and
creates compelling benefits for today's affluent and emerging affluent
investors.
- - We're creating a new platform for continuing our growth and
profitability in a rapidly changing marketplace.
2
<PAGE>
In addition to historical information, this presentation contains
forward-looking statements that reflect management's goals, objectives and
expectations as of the date hereof. These statements relate to, among other
things, U.S. investor demographics, benefits to be realized from the transaction
and the pro forma financial impact of the transaction. Achievement of the
expressed goals, expectations and objectives is subject to certain risks and
uncertainties that could cause actual results to differ materially from those
goals, objectives or expectations.
Important factors that may cause such differences include, but are not limited
to: economic disruptions; a severe downturn in the securities markets; changes
in the growth rate of U.S. household assets; outcomes significantly different
than assumptions concerning the feasibility, magnitude or timing of expected
benefits; intensified competition in the wealth management arena; and changes in
the legal and regulatory environment. Additional discussions of the risks faced
by Schwab and U.S. Trust are contained in their Annual Reports and Quarterly
Reports on Form 10-Q.
3
<PAGE>
CHARLES SCHWAB U.S.TRUST
Continued Leadership in Serving
Customers:
Growing With the Affluent Investor
January 13, 2000
<PAGE>
Transaction Summary
- - Structured as a non-taxable stock for stock exchange with pooling of
interests accounting:
- $129 per share based on January 12 Schwab closing price. -3.4
shares of Schwab stock for each share of U.S. Trust.
- 19.9% option granted to Schwab.
- Retention program for U.S. Trust employees.
- - Targeted to close by July 2000.
- - Accretive to earnings before synergies.
- - Increases Schwab's customer assets by 10%.
- - Will apply for Financial Holding Company status.
5
<PAGE>
Two Shared Visions:
CHARLES SCHWAB
To provide customers with the most useful and ethical financial services
in the world.
U.S.TRUST
To provide professional expertise in wealth management and build lasting
relationships based on performance, quality and integrity.
6
<PAGE>
The Opportunity
- - The affluent market is the growth engine of investable assets in the
U.S.
$15 trillion U.S. investable assets
[70% + among households with >$500,000]
- - All high net worth categories are growing rapidly.
<TABLE>
<CAPTION>
Net Worth U.S. Households 5-Year Growth
(millions) (thousands) Rate (%)
---------- --------------- -------------
<S> <C> <C>
> $5 300 25
$1 - $5 6,100 40
$.5 - $1 9,500 20
</TABLE>
Source: PSI 1997
7
<PAGE>
The Opportunity
- - Today's affluent ($2-10 million net worth) and emerging affluent ($0.5-2
million) retail investors face a number of service compromises...
- An opportunity to create a comprehensive, integrated,
value-priced wealth management offer for these investors.
... and the super-affluent ($10 million and up) lack
multi-channel access.
8
<PAGE>
The Opportunity
- - Independent investment advisors and their clients face the same
compromises.
- An opportunity to create a comprehensive, integrated suite of
services -
Trust and Estate
Private Banking
Specialized Products
- for investment advisors competing with national brokerage and
advisory firms.
9
<PAGE>
THE OPPORTUNITY
- - Affluent investors need a full array of wealth management services.
<TABLE>
<S> <C> <C> <C> <C>
Estate
Planning
Financial Banking
Planning Services
Seamless
Trust Creation Integration Tax Planning
and for
Management Customers
Investment Self-Directed
Management Investing
</TABLE>
- - They want value, transparency, no-conflict help and control.
10
<PAGE>
U.S. Trust - Key Capabilities
- - Providing a full range of wealth management services to affluent
individuals and their families.
PRIVATE BANKING FIDUCIARY SERVICES
TAX PLANNING/PREPARATION FINANCIAL PLANNING
ESTATE PLANNING INVESTMENT CONSULTING
INVESTMENT MANAGEMENT EQUITY RESEARCH
- - Relationships are sustained across generations.
- - Primary target market is the 1.5 million U.S. households with at least
$2 million in investable assets.
11
<PAGE>
U.S. TRUST - DISTRIBUTION
===============================================================================
- - With 24 offices across the U.S., U.S. Trust is the only firm dedicated to
wealth management that has developed a national presence.
- 14 of those offices opened over the past five years.
- Currently reaches most of the nation's largest affluent markets:
Essex
West Hartford
Stamford
Portland Greenwich
[MAP OF U.S.] Garden City
New York
Larkspur Morristown
San Francisco Philadelphia
Princeton
Washington
Los Angeles Palm Beach
Costa Mesa Boca Raton
Naples
Vero Beach
12
<PAGE>
U.S. TRUST -- PERFORMANCE
================================================================================
- - A record of growth and profitability.
CUSTOMER ASSETS UNDER MANAGEMENT ($ in billions)
[BAR GRAPH]
1996............ 38
1997............ 47
1998............ 61
1999............ 74
CAGR -- 25%
NET REVENUES ($ in millions)
[BAR GRAPH]
1996............ 323
1997............ 373
1998............ 442
1999............ 541
CAGR -- 19%
EARNINGS PER SHARE ($)
[BAR GRAPH]
1996............ 1.95
1997............ 2.39
1998............ 2.96
1999............ 3.72
CAGR -- 24%
AFTER-TAX PROFIT MARGIN (%)
[BAR GRAPH]
1996............ 12.7
1997............ 13.7
1998............ 14.0
1999............ 14.3
13
<PAGE>
Schwab - Key Capabilities
- - Growing customer assets by delivering innovation, technology-based
solutions, superior service and value.
<TABLE>
<CAPTION>
($ in billions) 1996 1997 1998 1999*
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net New Assets $54 $69 $79 $107
Growth Rate 42% 27% 15% 35%
Net Revenues Per
Customer Asset $ (in bp) 85 76 66 67
</TABLE>
* Estimated.
14
<PAGE>
Schwab - Key Capabilities
- - A leadership position across multiple businesses.
- Fourth largest U.S. financial institution ranked by customer
assets.
- 6.5 million total active accounts.
- The world's largest online broker - $350 billion* in online
assets.
- The largest distributor of mutual funds -
Mutual Fund Marketplace Assets $176 billion
SchwabFunds Assets $109
Total Mutual Fund Assets $285
- - The largest provider of investment manager services - $215 billion* in
SIM assets.
- - Holds 10+% of assets belonging to investors with at least $1 million in
investable assets.
* Estimated
15
<PAGE>
SCHWAB -- PERFORMANCE
================================================================================
- - Another record of growth and profitability.
CUSTOMER ASSETS ($ in billions)
[BAR GRAPH]
1996............ 253
1997............ 354
1998............ 491
1999(e)......... 725
CAGR -- 41%
NET REVENUES ($ in billions)
[BAR GRAPH]
1996............ 1.9
1997............ 2.3
1998............ 2.7
1999(e)......... 3.9
CAGR -- 27%
EARNINGS PER SHARE ($)
[BAR GRAPH]
1996............ 0.29
1997............ 0.33
1998............ 0.43
1999(e)......... 0.70
CAGR -- 34%
AFTER-TAX PROFIT MARGIN (%)
[BAR GRAPH]
1996............ 12.6
1997............ 11.8
1998............ 12.7
1999(e)......... 14.9
16
<PAGE>
The Solution
- - Success comes from U.S. Trust's ability to round out Schwab's
offering...
Independent
Schwab Retail Investment Advisors
Successor & Corporate Trustee [x] [x]
Specialized Products [x] [x]
Equity Research [x] [x]
...and Schwab's ability to propel U.S. Trust's growth via brand
development, referrals and the application of technology.
17
<PAGE>
The Solution
- - Take Schwab's core competencies ...
- Technology leadership and operations skills;
- Effective and efficient advertising/marketing;
- Integrated multiple distribution channels; and
- Strong market position with emerging and mid-affluent boomers.
- - ... combine them with U.S. Trust's strengths ...
- Superior wealth management capabilities and reputation;
- Investment track record;
- Proven team of professionals;
- Research, trust, and private banking products; and
- High-touch service model.
18
<PAGE>
The Solution
- - ... and create a new model of wealth management for affluent households.
- - A unique, no-compromises capability, offering a combination of:
Value
Choice
Service Excellence
Control
that is unmatched in the marketplace for Schwab's retail and investment advisor
clients.
19
<PAGE>
The Solution
================================================================================
- - We're creating an organization that can break the compromises and deliver
seamless full service for all investors.
Estate Planning
Financial Banking
Planning Services
Seamless
Trust Creation Integration Tax Planning
and for
Management Customers
Investment Self-Directed
Management Investing
U.S. TRUST Charles Schwab
20
<PAGE>
Pro Forma 1999 Financial Profile
<TABLE>
<CAPTION>
Schwab* U.S. Trust Combined
------- ---------- --------
<S> <C> <C> <C>
Net Revenues ($ Billions) $3.9 $0.5 $4.5
Net Income ($ Millions) $585 $78 $663
After-Tax Profit Margin (%) 15 14 15
Trading Revenue as a %
of Net Revenues 60 N/A 53
</TABLE>
* Estimated based on mid-point of pre-announced range.
21
<PAGE>
Targeted Synergies
==============================================================================
- - High Net Worth private banking referral program.
- - Electronic brokerage accounts and services for U.S. Trust.
- - New for Schwab Retail:
----------------------------------
Trust services INCREASED
SHARE-OF-WALLET
Private banking
Research
INCREASED CLIENT
Specialized Products ACQUISITION
Wealth Management
for "middle" affluent DECREASED
ATTRITION
- - New for Schwab SIM:
Top quality private label trust
and private banking services,
STRENGTHENED
research and specialized products IA RELATIONSHIPS
-----------------------------------
- - Order flow/mutual funds
------------------------------------------------------
Incremental 2001 Revenue Impact: $80 to $100 million
------------------------------------------------------
22
<PAGE>
Pro Forma Financial Impact
- - We expect this transaction to be EPS and growth accretive.
- EPS accretion of about 4% in 2000 before realization of any
synergies.
- Synergies expected to create incremental EPS accretion of 2-3%
in 2001.
<TABLE>
<CAPTION>
2000(e) 2001(e)
------- -------
<S> <C> <C>
Schwab EPS (Median IBES) $0.83 $1.00
U.S. Trust EPS (Median IBES) $4.15 $4.88
After-Tax Synergies $0.01 $0.02-$0.03
Pro Forma EPS $0.87 $1.06
</TABLE>
Excludes expected acquisition related charges (fees and U.S. Trust employee
retention program costs).
23
<PAGE>
Implementation
- - U.S. Trust will be a separate subsidiary of Schwab and retain its brand;
headquarters to remain in New York.
- - H. Marshall Schwarz will continue as Chairman and CEO of U.S. Trust,
reporting to Schwab's President and Co-CEO. He and Jeffrey S. Maurer,
President and COO, will join Schwab's Board.
- - U.S. Trust executives Schwarz; Maurer; Maribeth S. Rahe, Vice Chairman;
and Frederick B. Taylor, Vice Chairman and CIO; will join Schwab's
Management Committee.
24
<PAGE>
Implementation
- - Effective cross-enterprise coordination, as always at Schwab, is a key
to success.
- Synergy Steering Committee will be led by John Coghlan, a Vice
Chairman of Schwab.
- - Few organizational changes contemplated.
- - No immediate system/back office changes expected.
- Customer technology solutions will be an immediate focus.
25
<PAGE>
Summary
- - Two premier financial services brands are uniting to create a unique
platform for serving evolving investor needs.
- Consistency of vision and culture, including strong employee
ownership, means the combined firm will stay values driven,
customer focused and service oriented.
- - We believe our success in building long-term relationships with affluent
investors and investment advisors will reward our customers, our
employees and our stockholders.
26
<PAGE>
CHARLES SCHWAB U.S.TRUST
Continued Leadership in Serving
Customers:
Growing With the Affluent Investor
January 13, 2000
