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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
U.S. TRUST CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid: $757,367
(2) Form, Schedule or Registration Statement no.: Registration Statement on
Form S-4, Registration No. 333-30886
(3) Filing Party: The Charles Schwab Corporation
(4) Date Filed: February 22, 2000
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U.S. TRUST CORPORATION
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036
(212) 852-1000
U.S.TRUST May 1, 2000
Dear Shareholder:
You are cordially invited to attend our special meeting
of shareholders on Wednesday, May 31, 2000, at 10:00
a.m., local time, at the U.S. Trust Auditorium, 114
West 47th Street, New York, New York 10036.
At the special meeting, we will ask you to vote on the
merger of U.S. Trust Corporation and a wholly-owned
subsidiary of The Charles Schwab Corporation. In the
merger, you will receive 3.427 shares of Schwab common
stock for each common share of U.S. Trust that you own.
Schwab common stock is listed on the New York Stock
Exchange under the trading symbol "SCH" and on April
27, 2000, Schwab common stock closed at $45.50 per
share. You will receive cash for any fractional share
of Schwab common stock that you would otherwise receive
in the merger.
We cannot complete the merger unless the holders of
two-thirds of the outstanding common shares of U.S.
Trust vote to adopt the merger agreement. Only
shareholders who hold common shares of U.S. Trust at
the close of business on April 24, 2000 will be
entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK
FACTORS RELATING TO THE MERGER" COMMENCING ON PAGE 11
OF THIS PROXY STATEMENT/PROSPECTUS BEFORE VOTING.
PLEASE REVIEW CAREFULLY THIS ENTIRE PROXY
STATEMENT/PROSPECTUS.
AFTER CAREFUL CONSIDERATION, THE U.S. TRUST BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE MERGER, HAS UNANIMOUSLY DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT AND THE MERGER ARE FAIR
TO AND IN THE BEST INTERESTS OF U.S. TRUST AND YOU AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ADOPTION
OF THE MERGER AGREEMENT.
Thank you for your cooperation.
/s/ H. Marshall Schwarz
H. Marshall Schwarz
Chairman of the Board
Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE USE THE TOLL-FREE TELEPHONE NUMBER INCLUDED ON
THE ENCLOSED PROXY CARD OR
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD.
-------------------------
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Neither the Securities and Exchange Commission nor
any state securities regulator has approved or
disapproved the merger described in this proxy
statement/prospectus or the Schwab common stock to
be issued in connection with the merger, or
determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the
contrary is a criminal offense.
--------------------------------------------------------------
This proxy statement/prospectus is dated May 1, 2000,
and is first being mailed to shareholders on or about
May 2, 2000.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates documents by reference which
are not presented in or delivered with this proxy statement/prospectus. This
information is available to you without charge upon your oral or written
request. With respect to Schwab's documents, your requests should be directed to
The Charles Schwab Corporation, Investor Relations, 101 Montgomery Street, San
Francisco, California 94104 (telephone (415) 636-2787). With respect to U.S.
Trust's documents, your requests should be directed to U.S. Trust Corporation,
Public Relations Department, 114 West 47th Street, New York, New York 10036
(telephone (212) 852-1000). In order to ensure delivery of the documents in
advance of the special meeting, any request should be made at least five
business days prior to the date of the special meeting.
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PROXY STATEMENT FOR U.S. TRUST CORPORATION SPECIAL MEETING
PROSPECTUS OF THE CHARLES SCHWAB CORPORATION
NOTICE OF SPECIAL MEETING OF U.S. TRUST SHAREHOLDERS
TO BE HELD ON MAY 31, 2000
To the Shareholders of U.S. Trust Corporation:
We will hold a special meeting of the shareholders of U.S. Trust
Corporation on Wednesday, May 31, 2000, at 10:00 a.m., local time, at the U.S.
Trust Auditorium, 114 West 47th Street, New York, New York 10036, for the
following purpose:
To consider and vote upon a proposal to adopt the merger agreement
among The Charles Schwab Corporation, Patriot Merger Corporation, a
wholly-owned subsidiary of Schwab, and U.S. Trust. Under the merger
agreement, Patriot Merger Corporation will merge with and into U.S. Trust,
and each outstanding common share of U.S. Trust will be converted into the
right to receive 3.427 shares of Schwab common stock.
We will transact no other business at the special meeting except such
business as may properly be brought before the special meeting or any
adjournment of it by the U.S. Trust board of directors.
Only holders of record of common shares of U.S. Trust at the close of
business on April 24, 2000, the record date for the special meeting, are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements of it.
We cannot complete the merger unless the holders of two-thirds of the
outstanding common shares of U.S. Trust vote to adopt the merger agreement. U.S.
Trust shareholders have no dissenters' rights under New York law in connection
with the merger.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THIS PROXY
STATEMENT/PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A, THE STOCK
OPTION AGREEMENT ATTACHED AS ANNEX B AND THE FAIRNESS OPINION OF CREDIT SUISSE
FIRST BOSTON CORPORATION ATTACHED AS ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS.
Whether or not you plan to attend the special meeting, please submit your
proxy either by using the toll-free telephone number included on the enclosed
proxy card or by completing, signing and dating the enclosed proxy card and
returning it promptly in the enclosed postage-paid envelope. Properly executed
proxies that do not contain voting instructions will be voted for the adoption
of the merger agreement. IF YOUR SHARES ARE HELD IN "STREET NAME," YOU MUST
INSTRUCT YOUR BROKER, BANK OR OTHER NOMINEE IN ORDER TO VOTE. IF YOU DO NOT VOTE
BY PROXY OR IN PERSON AT THE SPECIAL MEETING, IT WILL COUNT AS A VOTE AGAINST
THE ADOPTION OF THE MERGER AGREEMENT.
Please do not send any stock certificates at this time. After the merger is
completed we will send you written instructions for exchanging your stock
certificates.
By Order of the Board of Directors,
/s/ Carol A. Strickland
Carol A. Strickland
Secretary
New York, New York
May 1, 2000
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TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 2
The Companies............................................. 2
General................................................... 2
The Special Meeting....................................... 3
The Merger Agreement and Related Agreements............... 4
Regulatory Matters........................................ 6
Recent Developments....................................... 6
Comparative Market Prices and Dividends................... 7
The Charles Schwab Corporation Selected Historical
Consolidated Financial Data............................ 8
U.S. Trust Corporation Selected Historical Consolidated
Financial Data......................................... 9
Comparative Per Share Information......................... 10
RISK FACTORS RELATING TO THE MERGER......................... 11
Schwab May Not Be Able to Achieve the Benefits It Expects
to Result from the Merger.............................. 11
The Shares Which You Will Receive in the Merger May
Decrease in Value if Schwab's Stock Price Goes Down.... 11
Factors Which Do Not Affect the Price of the Common Shares
of U.S. Trust May Decrease the Price of the Common
Stock of Schwab and Factors Which Increase the Price of
the Common Shares of U.S. Trust May Not Increase the
Price of the Common Stock of Schwab.................... 12
The Additional Regulatory Oversight to Which Schwab Will
Be Subject Following the Merger May Limit Schwab's
Activities............................................. 12
The Merger Could Adversely Affect Schwab's Combined
Financial Results or the Market Price of Its Common
Stock.................................................. 12
Uncertainties Associated With the Merger May Cause U.S.
Trust to Lose Clients.................................. 12
The Merger May Impede the Performance of Schwab's
"Services to Investment Managers" Business............. 13
FORWARD-LOOKING INFORMATION................................. 14
U.S. TRUST CORPORATION...................................... 15
THE CHARLES SCHWAB CORPORATION.............................. 17
THE SPECIAL MEETING......................................... 18
Date, Time and Place...................................... 18
Purpose of Special Meeting................................ 18
Record Date; Shares Entitled to Vote; Quorum.............. 18
Votes Required............................................ 18
Voting by U.S. Trust Directors and Executive Officers..... 18
Voting of Proxies......................................... 19
Revocability of Proxies................................... 19
Solicitation of Proxies................................... 20
Schwab Stockholders....................................... 20
THE MERGER.................................................. 21
Background of the Merger.................................. 21
Schwab's Reasons for the Merger........................... 24
U.S. Trust's Reasons for the Merger....................... 26
Recommendation of the U.S. Trust Board of Directors....... 28
Opinion of Credit Suisse First Boston Corporation......... 28
Interests of Directors and Executive Officers of U.S.
Trust in the Merger.................................... 35
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PAGE
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Merger Consideration...................................... 36
Regulatory Matters........................................ 37
Material United States Federal Income Tax Consequences of
the Merger............................................. 46
Accounting Treatment...................................... 47
Dissenters' Rights........................................ 47
Listing of Schwab Common Stock to be Issued in the
Merger................................................. 48
Delisting and Deregistration of Common Shares of U.S.
Trust.................................................. 48
Restrictions on Sale of Shares of Schwab Common Stock and
Common Shares of U.S. Trust by Affiliates of Schwab and
U.S. Trust............................................. 48
Operations Following the Merger........................... 48
THE MERGER AGREEMENT AND RELATED AGREEMENTS................. 49
The Merger Agreement...................................... 49
The Stock Option Agreement................................ 59
Employee Retention Program................................ 61
Executive Employment Agreements and Covenants Not to
Compete................................................ 62
DESCRIPTION OF CAPITAL STOCK OF SCHWAB...................... 66
Common Stock.............................................. 66
Preferred Stock........................................... 66
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SCHWAB AND
SHAREHOLDERS OF U.S. TRUST................................ 67
Capitalization............................................ 70
Classes of Common Stock; Voting Rights.................... 71
Authorization of Certain Actions.......................... 71
Business Combination Statutes............................. 72
Supermajority Vote Requirement............................ 72
Number of Directors....................................... 74
Classified Board of Directors............................. 74
Cumulative Voting for Directors........................... 74
Removal of Directors...................................... 74
Filling Vacancies on the Board of Directors............... 75
Preemptive Rights......................................... 75
Limits on Stockholder Action by Written Consent........... 75
Dividends................................................. 76
Amendment of Certificate of Incorporation................. 76
Amendment of Bylaws....................................... 76
Notice of Stockholder Action.............................. 77
Special Meetings of Stockholders.......................... 77
Stockholder Lists and Inspection Rights................... 78
Indemnification........................................... 78
Limitation of Liability................................... 79
Shareholder Rights Agreement.............................. 79
SHAREHOLDER PROPOSALS....................................... 81
LEGAL MATTERS............................................... 81
EXPERTS..................................................... 81
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 82
WHERE YOU CAN FIND MORE INFORMATION......................... 83
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ANNEXES:
Annex A: Merger Agreement dated as of January 12, 2000, by and among The
Charles Schwab Corporation, Patriot Merger Corporation and U.S. Trust
Corporation
Annex B: Stock Option Agreement dated as of January 12, 2000, with U.S. Trust
Corporation as Issuer, and The Charles Schwab Corporation as Grantee
Annex C: Fairness Opinion of Credit Suisse First Boston Corporation, dated
January 12, 2000
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE FOR MY U.S. TRUST CORPORATION SHARES?
A: You will receive 3.427 shares of The Charles Schwab Corporation common
stock for each common share of U.S. Trust that you own at the effective
time of the merger. You will receive cash for any fractional share that
you would otherwise receive in the merger. Based on the closing price
per share of Schwab common stock on the New York Stock Exchange on April
27, 2000, the value of 3.427 shares of Schwab common stock was $155.929.
The market value of the shares of Schwab common stock that you will
receive in the merger will fluctuate both before and after the merger.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We hope to complete the merger as soon as possible after the special
meeting, assuming the required shareholder approval is obtained. The
merger is also subject to the approval of Federal and state banking
regulatory authorities and the satisfaction of other closing conditions.
We expect to complete the merger during the summer of 2000.
Q: WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
A: The special meeting will be held on Wednesday, May 31, 2000, at 10:00
a.m., local time, at the U.S. Trust Auditorium, 114 West 47th Street,
New York, New York 10036.
Q: WHAT DO I NEED TO DO NOW?
A: After reviewing this proxy statement/prospectus, indicate on your proxy
card how you want to vote, sign it and mail it in the enclosed return
envelope as soon as possible. If you sign and send in your proxy card
and do not indicate how you want to vote, your proxy will be counted as
a vote in favor of the adoption of the merger agreement at the special
meeting. You may also grant your proxy by using the toll-free telephone
number included on the proxy card. If you do not return your proxy card,
grant your proxy by telephone or otherwise vote at the special meeting
or if you abstain from voting, it will have the same effect as if you
voted against the adoption of the merger agreement.
Q: CAN I VOTE MY SHARES IN PERSON?
A: Yes. You may attend the special meeting and vote your shares in person
rather than granting a proxy.
Q: CAN I REVOKE MY PROXY AND CHANGE MY MIND?
A: Yes. You may take back your proxy up to and including the day of the
special meeting by following the directions on page 19. Then you can
either grant a new proxy or attend the special meeting and vote in
person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares only if you instruct your broker on
how to vote. Your broker will send you directions on how you can
instruct your broker to vote. Your broker cannot vote your shares
without instructions from you.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After we complete the merger, we will send you written instructions
for exchanging your stock certificates.
Q: WHO CAN ANSWER MY QUESTIONS ABOUT THE MERGER?
A: If you have more questions about the merger, please contact the Office
of the Corporate Secretary of U.S. Trust by telephone at (212) 852-1000
or by e-mail at cstrickland@ustrust.com. You may also contact Morrow &
Co., Inc., our proxy solicitation firm, by telephone at 1-800-566-9061
or by e-mail at jmucha@morrowco.com.
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire proxy statement/prospectus, including the annexes and the other documents
to which we have referred you. For more information about The Charles Schwab
Corporation and U.S. Trust Corporation, see "Where You Can Find More
Information" on page 83 of this proxy statement/prospectus. We have included
page references parenthetically to direct you to a more complete description of
the topics presented in this summary.
THE COMPANIES (P. 15, P. 17)
The Charles Schwab Corporation
101 Montgomery Street
San Francisco, California 94104
(415) 627-7000
The Charles Schwab Corporation is a Delaware corporation. Through its
principal subsidiary Charles Schwab & Co., Inc., Schwab is the nation's fourth
largest financial services firm and the nation's largest electronic brokerage
firm, in each case measured by customer assets. At December 31, 1999, Schwab
served 6.6 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. Approximately 30% of Schwab's customer
assets and approximately 13% of its customer accounts are managed by the 5,800
independent, fee-based investment advisors served by Schwab's institutional
investor segment.
U.S. Trust Corporation
114 West 47th Street
New York, New York 10036
(212) 852-1000
U.S. Trust Corporation is a bank holding company registered under Federal
law and incorporated in New York. Through its subsidiaries, U.S. Trust engages
in two principal businesses: (1) personal wealth management services and (2)
institutional services. U.S. Trust's principal subsidiary is United States Trust
Company of New York, a state-chartered bank and trust company. At December 31,
1999, U.S. Trust had assets under management of approximately $86.1 billion.
GENERAL
U.S. TRUST SHAREHOLDERS WILL RECEIVE SCHWAB STOCK IN THE MERGER (P. 36)
If the merger is completed, you will have the right to receive 3.427 shares
of Schwab common stock for each common share of U.S. Trust that you own as of
the effective time of the merger. You will receive cash for any fractional share
that you would otherwise receive in the merger. Based on the closing price per
share of Schwab common stock on the New York Stock Exchange on April 27, 2000,
the value of 3.427 shares of Schwab common stock was $155.929. The market value
of the shares of Schwab common stock that you will receive in the merger will
fluctuate both before and after the merger.
OWNERSHIP OF SCHWAB FOLLOWING THE MERGER
Based on the number of common shares of U.S. Trust outstanding on the
record date, Schwab will issue approximately 73,000,000 shares of its common
stock to U.S. Trust shareholders in the merger. This will constitute
approximately 7.99% of the outstanding common stock of Schwab immediately after
the merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (P. 46)
The merger is intended to qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended. Holders of common
shares of U.S. Trust generally will not recognize gain or loss for United States
Federal income tax purposes as a result of the exchange of their common shares
of U.S. Trust for Schwab common stock in the
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merger, except for cash received instead of fractional shares of Schwab common
stock. Shareholders of U.S. Trust are encouraged to consult with their own tax
advisors as to the tax consequences of the merger to them.
DISSENTERS' RIGHTS (P. 47)
You do not have the right under New York law to exercise dissenters' rights
in connection with the merger.
RECOMMENDATION OF THE U.S. TRUST BOARD OF DIRECTORS (P. 28)
The U.S. Trust board of directors has unanimously determined that the terms
of the merger agreement and the merger are fair to and in the best interests of
U.S. Trust and you, and unanimously recommends that you vote FOR the adoption of
the merger agreement.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages 21, 26 and 11.
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION (P. 28)
U.S. Trust's financial advisor, Credit Suisse First Boston, has given an
opinion, dated January 12, 2000, to the U.S. Trust board of directors that the
exchange ratio is fair to you from a financial point of view. Credit Suisse
First Boston has not rendered an opinion as to whether the exchange ratio is
fair to the holders of common shares of U.S. Trust from a financial point of
view as of the date of this proxy statement/prospectus and has rendered its
January 12, 2000 opinion without reviewing either Schwab's or U.S. Trust's
quarterly reports for the period ended March 31, 2000 or any other facts or
circumstances that occurred after January 12, 2000. This opinion is attached as
Annex C to this proxy statement/prospectus. We encourage you to read this
opinion carefully.
THE SPECIAL MEETING (P. 18)
A special meeting of the U.S. Trust shareholders will be held on Wednesday,
May 31, 2000, at 10:00 a.m., local time, at the U.S. Trust Auditorium, 114 West
47th Street, New York, New York 10036. At the special meeting, you will be asked
to adopt the merger agreement among Schwab, Patriot Merger Corporation and U.S.
Trust dated as of January 12, 2000.
RECORD DATE; VOTES REQUIRED (P. 18)
You are entitled to vote at the special meeting if you owned common shares
of U.S. Trust as of the close of business on April 24, 2000, the record date. At
the special meeting, the merger agreement must be adopted by the affirmative
vote of at least two-thirds of the common shares of U.S. Trust outstanding on
the record date. On the record date, there were 19,284,585 common shares of U.S.
Trust entitled to vote, which were held by approximately 1,809 holders of
record.
Adoption of the merger agreement will also authorize the U.S. Trust board
of directors to exercise its discretion on whether to proceed with the merger in
the event that U.S. Trust has the right to terminate the merger agreement. This
determination may be made without notice to, or the resolicitation of proxies
from, the U.S. Trust shareholders.
VOTING BY U.S. TRUST DIRECTORS AND EXECUTIVE OFFICERS (P. 18)
On the record date, directors and executive officers of U.S. Trust and
their affiliates owned and were entitled to vote 639,332 common shares of U.S.
Trust, or approximately 3.315% of the common shares of U.S. Trust outstanding on
the record date. The directors and executive officers of U.S. Trust have
indicated their present intention to vote the common shares of U.S. Trust owned
by them for the adoption of the merger agreement.
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THE MERGER AGREEMENT AND RELATED
AGREEMENTS (P. 49)
Pursuant to the merger agreement, at the effective time of the merger,
Patriot Merger Corporation, a subsidiary that Schwab established for purposes of
the merger and referred to in this proxy statement/prospectus as Schwab Merger
Sub, will merge with and into U.S. Trust. Schwab will issue shares of its common
stock to the existing shareholders of U.S. Trust in exchange for their common
shares of U.S. Trust. After the merger, U.S. Trust will be a wholly-owned
subsidiary of Schwab.
CONDITIONS TO THE MERGER (P. 49)
Schwab and U.S. Trust will complete the merger only if various conditions
are satisfied or waived. The primary conditions are listed below:
- adoption of the merger agreement by U.S. Trust shareholders;
- receipt of various regulatory approvals under Federal and state banking
and other laws and expiration of any waiting periods;
- receipt of a letter from each of Schwab's and U.S. Trust's independent
auditors stating their respective opinions that the merger will qualify
for pooling-of-interests accounting treatment;
- receipt by U.S. Trust of an opinion from Cravath, Swaine & Moore stating
that the merger will qualify for United States Federal income tax
purposes as a reorganization within the meaning of the Internal Revenue
Code;
- satisfaction of the representations, warranties and covenants contained
in the merger agreement in all material respects; and
- satisfaction by U.S. Trust and each of its subsidiaries of the criteria
necessary for Schwab to qualify as a financial holding company under
Federal banking laws.
Some of the conditions to the merger may be waived by the party entitled to
assert the condition.
RIGHT TO TERMINATE (P. 53)
The boards of directors of Schwab and U.S. Trust may jointly agree in
writing to terminate the merger agreement without completing the merger. In
addition, some of the circumstances under which either company can individually
terminate the merger agreement prior to the completion of the merger are listed
below:
- the other party materially breaches any of its representations,
warranties or obligations under the merger agreement and has not cured
the breach within 45 days after written notice or by its nature or timing
the breach cannot be cured prior to the completion of the merger;
- the merger is not completed by December 31, 2000;
- the parties do not obtain the required regulatory approvals; or
- U.S. Trust shareholders do not adopt the merger agreement at the special
meeting.
Before the special meeting, U.S. Trust can also terminate the merger
agreement if the U.S. Trust board of directors receives an unsolicited proposal
by a third party to acquire U.S. Trust on terms determined in good faith by the
U.S. Trust board of directors after consultation with outside legal counsel and
an investment banking firm having national recognition to be a superior proposal
and Schwab has not matched the unsolicited third party proposal.
In that event U.S. Trust would be required to pay Schwab a termination fee
of $100 million and Schwab would be entitled to exercise the option granted to
it under the stock option agreement described below. For a more complete
discussion, see "The Merger Agreement and Related Agreements -- The Merger
Agreement -- Termination" on page 53, "-- The Merger Agreement -- Termination
Fee" on page 54 and "-- The Stock Option Agreement" on page 59.
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THE STOCK OPTION AGREEMENT (P. 59)
Concurrently with the execution of the merger agreement, Schwab and U.S.
Trust entered into a stock option agreement pursuant to which U.S. Trust has
granted Schwab an option to purchase up to approximately 19.9% of the common
shares of U.S. Trust outstanding if circumstances occur that entitle Schwab to
receive the termination fee under the merger agreement. The exercise price of
the option is $125.00 per share, subject to adjustment under specified
circumstances. The stock option agreement limits to $150 million the total value
Schwab may realize from the option and termination fee.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS OF U.S. TRUST IN THE MERGER (P.
35, P. 61, P. 62)
When considering the recommendation of the U.S. Trust board of directors
that you vote FOR the adoption of the merger agreement, you should be aware that
U.S. Trust directors and executive officers may have interests in the merger as
directors or officers that are different from, or in addition to, your interests
as a shareholder.
If the merger is completed:
- H. Marshall Schwarz, Chairman and Chief Executive Officer of U.S. Trust,
and Jeffrey S. Maurer, President and Chief Operating Officer of U.S.
Trust, will be appointed to the board of directors of Schwab, and Messrs.
Schwarz and Maurer, Maribeth S. Rahe, Vice Chairman of U.S. Trust, and
Frederick B. Taylor, Vice Chairman and Chief Investment Officer of U.S.
Trust, will be appointed to Schwab's management committee;
- indemnification arrangements for current directors and officers of U.S.
Trust will be continued;
- equity-based compensation under U.S. Trust employee benefit plans
denominated in common shares of U.S. Trust or equivalents will, in some
circumstances, pursuant to the terms of those plans, become fully
exercisable or vested, as applicable, to the extent not already
exercisable or vested and will be paid out in Schwab common stock;
- under some U.S. Trust employee benefit plans having change in control
provisions, any outstanding awards that are not equity based will become
fully vested to the extent not then already vested; and
- officers, together with all other U.S. Trust employees, will become
eligible to receive Schwab stock option grants in addition to grants
under a retention bonus program to be established by U.S. Trust and
Schwab.
In addition, concurrently with the execution of the merger agreement, U.S.
Trust and Schwab entered into new employment agreements with Messrs. Schwarz,
Maurer and Taylor and Ms. Rahe. The employment agreements become effective upon
completion of the merger and provide for three-year terms of employment.
U.S. TRUST EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENT PAYMENTS (P. 35, P. 62)
If the merger is completed, Schwab will assume the obligations of U.S.
Trust under its existing change-in-control and employment agreements. However,
under the employment agreements entered into by U.S. Trust and Schwab with
Messrs. Schwarz, Maurer and Taylor and Ms. Rahe, these executives have agreed to
relinquish and waive any rights under their existing change-in-control and
employment agreements if the merger is completed.
STOCK OPTIONS AND OTHER EQUITY-BASED AWARDS (P. 35)
At the effective time of the merger, various outstanding awards, options
and other rights to acquire common shares of U.S. Trust will be accelerated and
paid out in Schwab common stock.
ACCOUNTING TREATMENT (P. 47)
Schwab and U.S. Trust expect the merger to qualify as a
pooling-of-interests, which means
5
13
that the merger will be accounted for as if Schwab and U.S. Trust had always
been combined for accounting and financial reporting purposes. As a result, the
historical cost-based amounts of the assets and liabilities of Schwab and U.S.
Trust will be carried forward and recorded by the combined company.
REGULATORY MATTERS (P. 37)
The merger is subject to Federal Reserve Board and state regulatory
approvals. The Federal Reserve Board and state regulators must consider Schwab's
financial and managerial resources and the convenience and needs of the
communities to be served. The Federal Reserve Board may not approve a
transaction that would violate Federal antitrust laws. Schwab will also seek to
become a financial holding company, following the merger, under recent banking
legislation.
RECENT DEVELOPMENTS (P. 17)
In March 2000, Schwab acquired CyBerCorp, Inc., and in connection with the
acquisition issued 13,764,508 shares of Schwab common stock in exchange for all
of the outstanding capital stock and rights to acquire capital stock of
CyBerCorp. CyBerCorp is an electronic trading technology company that develops
and provides real-time electronic stock trading and execution systems for the
professional trader. The acquisition has been accounted for as a purchase.
6
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COMPARATIVE MARKET PRICES AND DIVIDENDS
Schwab common stock is traded on the New York Stock Exchange under the
symbol "SCH" as well as on the Boston, Cincinnati, Chicago, Pacific and
Philadelphia stock exchanges and a facility of the National Association of
Securities Dealers, Inc. Common shares of U.S. Trust are traded on the New York
Stock Exchange under the symbol "UTC." On January 12, 2000, the business day
immediately preceding the public announcement of the execution of the merger
agreement and on April 27, 2000, the most recent practicable date prior to the
date of this proxy statement/prospectus, the closing sale prices of Schwab
common stock and common shares of U.S. Trust and the equivalent price per common
share of U.S. Trust giving effect to the merger were as follows:
JANUARY 12, 2000 APRIL 27, 2000
---------------- --------------
Schwab common stock....................................... $ 37.625 $ 45.500
U.S. Trust common shares.................................. $ 78.875 $154.750
Equivalent price per common share of U.S. Trust........... $128.941 $155.929
The equivalent price per share data for common shares of U.S. Trust have
been determined by multiplying the closing sale price of one share of Schwab
common stock on each of these dates by the exchange ratio of 3.427.
The following table sets forth, in per share amounts, for the calendar
quarters indicated, the high and low sales prices and the cash dividends
declared during each quarterly period for Schwab common stock and common shares
of U.S. Trust:
SCHWAB COMMON STOCK(1) U.S. TRUST COMMON SHARES(2)
----------------------------- ------------------------------
DIVIDENDS DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
------ ------ --------- ------- ------ ---------
1997:
First Quarter.................. $ 9.33 $ 6.75 $0.0111 $ 47.88 $37.63 $0.1500
Second Quarter................. 9.53 6.75 0.0111 49.13 39.25 0.1500
Third Quarter.................. 12.19 8.89 0.0111 57.25 44.75 0.1500
Fourth Quarter................. 14.75 9.75 0.0134 65.75 52.50 0.1500
1998:
First Quarter.................. 13.98 11.38 0.0133 66.50 56.63 0.1800
Second Quarter................. 13.33 9.88 0.0133 77.50 64.00 0.1800
Third Quarter.................. 15.33 9.25 0.0134 84.13 58.88 0.1800
Fourth Quarter................. 34.25 10.54 0.0140 76.75 46.75 0.1800
1999:
First Quarter.................. 49.00 25.44 0.0140 84.00 70.75 0.2200
Second Quarter................. 77.50 40.00 0.0140 95.50 71.59 0.2200
Third Quarter.................. 56.50 32.00 0.0140 94.88 76.75 0.2200
Fourth Quarter................. 46.75 26.94 0.0140 85.13 72.50 0.2200
2000:
First Quarter.................. 67.13 33.69 0.0140 224.19 75.75 0.2200
Second Quarter (through April
27, 2000).................... 60.88 38.50 0.0140 202.50 126.94 --
- ---------------
(1) Schwab price and dividend data reflect the following stock splits:
DATE SPLIT DISTRIBUTED SPLIT RATIO
- ---------------------- -----------
September 15, 1997.......................................... 3 for 2
December 11, 1998........................................... 3 for 2
July 1, 1999................................................ 2 for 1
(2) U.S. Trust price and dividend data reflect the following stock split:
DATE SPLIT DISTRIBUTED SPLIT RATIO
- ---------------------- -----------
February 21, 1997........................................... 2 for 1
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THE CHARLES SCHWAB CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
In Millions, Except for Per Share Amounts and as Noted
The selected historical consolidated financial data of Schwab presented
below have been derived from Schwab's audited consolidated annual financial
statements and related notes. Schwab's consolidated balance sheets as of
December 31, 1999 and 1998 and Schwab's statements of income for each of the
three years in the period ended December 31, 1999 are incorporated by reference
in this proxy statement/prospectus. Schwab's consolidated balance sheets and
statements of income for the other periods presented below are not incorporated
by reference in this proxy statement/prospectus. All selected historical
consolidated financial data of Schwab contained in this proxy
statement/prospectus should be read in conjunction with Schwab's audited
consolidated financial statements and related notes and Schwab's "Management's
Discussion and Analysis of Results of Operations and Financial Condition" that
are incorporated by reference in this proxy statement/prospectus. See "Where You
Can Find More Information" and "Incorporation of Certain Documents by Reference"
on pages 83 and 82.
GROWTH RATES
----------------------
COMPOUNDED ANNUAL
---------- ---------
5-YEAR 1-YEAR
1994-1999 1998-1999 1999 1998 1997(1) 1996 1995
---------- --------- ------- ------- ------- ------- -------
Revenues(2).............. 30% 44% $ 3,945 $ 2,736 $ 2,299 $ 1,851 $ 1,420
Net income(3)............ 34% 69% $ 589 $ 348 $ 270 $ 234 $ 173
Basic earnings per
share(3, 4)............ 32% 66% $ 0.73 $ 0.44 $ 0.34 $ 0.30 $ 0.22
Diluted earnings per
share(3, 4)............ 33% 67% $ 0.70 $ 0.42 $ 0.33 $ 0.29 $ 0.21
Dividends declared per
common share(4)........ 22% 4% $0.0560 $0.0540 $0.0467 $0.0400 $0.0311
Weighted-average common
shares outstanding --
diluted(4)............. 843 823 818 807 803
-- -- ------- ------- ------- ------- -------
Pre-tax profit margin.... 24.6% 21.1% 19.5% 21.3% 19.5%
After-tax profit
margin................. 14.9% 12.7% 11.8% 12.6% 12.2%
Total assets (at year
end)................... 30% 32% $29,299 $22,264 $16,482 $13,779 $10,552
Borrowings (at year
end)................... 22% 30% $ 455 $ 351 $ 361 $ 284 $ 246
Stockholders' equity (at
year end).............. 37% 59% $ 2,274 $ 1,429 $ 1,145 $ 855 $ 633
Borrowings to total
financial capital
(borrowings plus
stockholders'
equity)................ 17% 20% 24% 25% 28%
Return on stockholders'
equity................. 32% 27% 27% 31% 31%
-- -- ------- ------- ------- ------- -------
- -------------------------
(1) 1997 includes charges for a litigation settlement of $24 million after-tax
($0.03 per share for both basic and diluted earnings per share).
(2) Revenues are presented net of interest expense.
(3) 1999 reflects an accounting change, which increased net income by $41
million ($0.05 per share for both basic and diluted earnings per share), for
Schwab's internal-use software development costs to conform with Statement
of Position 98-1 issued by the American Institute of Certified Public
Accountants.
(4) All periods have been restated for the following common stock splits:
DATE SPLIT DISTRIBUTED SPLIT RATIO
- ---------------------- -----------
March 1, 1995............................................... 3 for 2
September 1, 1995........................................... 2 for 1
September 15, 1997.......................................... 3 for 2
December 11, 1998........................................... 3 for 2
July 1, 1999................................................ 2 for 1
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U.S. TRUST CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
In Millions, Except for Per Share Amounts and as Noted
The selected historical consolidated financial data of U.S. Trust presented
below have been derived from U.S. Trust's audited consolidated financial
statements and related notes. U.S. Trust's consolidated balance sheets as of
December 31, 1999 and 1998 and U.S. Trust's statements of income for each of the
three years in the period ended December 31, 1999 are incorporated by reference
in this proxy statement/prospectus. U.S. Trust's consolidated balance sheets and
statements of income for the other periods presented below are not incorporated
by reference in this proxy statement/prospectus. All selected historical
consolidated financial data of U.S. Trust contained in this proxy
statement/prospectus should be read in conjunction with U.S. Trust's audited
consolidated financial statements and related notes and U.S. Trust's
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" that are incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference" on pages 83 and 82.
GROWTH RATES
------------------------
COMPOUNDED ANNUAL
------------ ---------
3-YEAR 1-YEAR
1996-1999(1) 1998-1999 1999 1998 1997 1996 1995(2)
------------ --------- ------- ------- ------- ------- -------
Revenues(3).............. 19% 23% $ 542 $ 442 $ 373 $ 323 $ 385
Net income (loss)........ 24% 26% $ 78 $ 62 $ 51 $ 41 $ (51)
Basic earnings (loss) per
share(4)............... 26% 27% $ 4.18 $ 3.29 $ 2.64 $ 2.09 $ (2.62)
Diluted earnings (loss)
per share(4)........... 24% 26% $ 3.72 $ 2.96 $ 2.39 $ 1.95 $ (2.62)
Dividends declared per
common share(4)........ 21% 22% $0.8800 $0.7200 $0.6000 $0.5000 $0.6300
Weighted-average common
shares outstanding --
diluted(4)............. 21 21 22 21 19
Pre-tax profit margin.... 23.6% 22.9% 22.4% 21.5% (24.3%)
After-tax profit
margin................. 14.3% 14.0% 13.7% 12.7% (13.1%)
Total assets............. 13% 21% $ 5,023 $ 4,143 $ 3,815 $ 3,477 $ 2,573
Borrowings (at year
end)................... 34% (7)% $ 63 $ 68 $ 72 $ 26 $ 29
Stockholders' equity
(at year end).......... 12% 23% $ 302 $ 245 $ 231 $ 214 $ 182
Borrowings to total
financial capital
(borrowings plus
stockholders'
equity)................ 17% 22% 24% 11% 14%
Return on stockholders'
equity................. 29% 26% 23% 21% (23%)
- -------------------------
(1) Compounded growth rates have been calculated for the three-year period
subsequent to the sale of the processing businesses to The Chase Manhattan
Bank Corporation on September 1, 1995.
(2) The year ended December 31, 1995 includes revenues generated by the
processing businesses sold on September 1, 1995 to The Chase Manhattan Bank
Corporation. This period also includes $86.9 million (after tax) of
restructuring charges.
(3) Revenues are presented net of interest expense and the provision for credit
losses.
(4) All periods reflect the two-for-one stock split effected in the form of a
stock dividend distributed on February 21, 1997.
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COMPARATIVE PER SHARE INFORMATION
The following table shows historical per share data of Schwab and U.S.
Trust and also shows similar information reflecting the combination of the two
companies, which is referred to as "pro forma" information. In presenting the
comparative pro forma information, it is assumed that the companies have been
combined for accounting and financial reporting purposes for all periods
presented, as required by pooling-of-interests accounting.
The comparative per share data are derived from, and should be read in
conjunction with, the audited historical financial statements of Schwab and U.S.
Trust that are incorporated by reference in this proxy statement/prospectus. See
"Where You Can Find More Information" and "Incorporation of Certain Documents by
Reference" on pages 83 and 82.
The pro forma equivalent per U.S. Trust share data were calculated by
multiplying the corresponding pro forma combined per Schwab share data by the
exchange ratio of 3.427. The pro forma equivalent data show how each common
share of U.S. Trust would have participated in the net income and book value of
the combined company if Schwab and U.S. Trust had been combined for accounting
and financial reporting purposes for all periods presented. These amounts,
however, are not intended to reflect future per share levels of net income and
book value of the combined company.
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- ------- -------
SCHWAB HISTORICAL:
Net income per diluted share................................ $ 0.70 $ 0.42 $ 0.33
Cash dividends per share.................................... 0.0560 0.0540 0.0467
Unaudited book value per share(1)........................... 2.77 1.78 1.44
U.S. TRUST HISTORICAL:
Net income per diluted share................................ $ 3.72 $ 2.96 $ 2.39
Cash dividends per share.................................... 0.88 0.72 0.60
Unaudited book value per share(1)........................... 16.18 13.25 12.16
UNAUDITED PRO FORMA COMBINED NET INCOME PER DILUTED SHARE:
Per Schwab share............................................ $ 0.73 $ 0.46 $ 0.36
Equivalent per U.S. Trust share............................. 2.50 1.57 1.24
UNAUDITED PRO FORMA COMBINED CASH DIVIDENDS PER SHARE(2):
Per Schwab share............................................ $0.0560 $0.0540 $0.0467
Equivalent per U.S. Trust share............................. 0.1919 0.1851 0.1600
UNAUDITED PRO FORMA COMBINED BOOK VALUE PER SHARE:
Per Schwab share(1)(3)...................................... $ 2.83
Equivalent per U.S. Trust share(1)(3)....................... $ 9.71
- -------------------------
(1) Historical book value per share is computed by dividing stockholders' equity
by the number of common stock or common shares outstanding at the end of
each period. Pro forma combined book value per Schwab share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
Schwab common stock that would have been outstanding had the merger been
completed as of December 31, 1999.
(2) Pro forma cash dividends per Schwab share represent Schwab's historical
dividends per share.
(3) Schwab and U.S. Trust estimate that they will incur merger related expenses
of approximately $65 million after taxes consisting of investment bankers',
attorneys', accountants' and other consultants' fees; employer payroll taxes
and compensation relating to the change of control provisions in the U.S.
Trust equity based benefit plans; and financial printing and other related
charges. The pro forma combined book value gives effect to these expenses as
if they had been incurred as of December 31, 1999.
10
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RISK FACTORS RELATING TO THE MERGER
In addition to the other information included or incorporated by reference
in this proxy statement/prospectus, U.S. Trust shareholders should consider
carefully the matters described below in determining whether to adopt the merger
agreement.
SCHWAB MAY NOT BE ABLE TO ACHIEVE THE BENEFITS IT EXPECTS TO RESULT FROM THE
MERGER
Schwab's ability to realize the anticipated benefits of the merger may be
hampered by a number of factors, including:
- the risk that Schwab and U.S. Trust will be unable to share their
respective technology systems;
- the risk that Schwab and U.S. Trust will be unable to integrate their
respective risk management and compliance functions; and
- the risk that Schwab and U.S. Trust will be unable to meld their
respective corporate cultures.
Additionally, achieving the benefits of the merger will depend in part on
close collaboration between the management and key personnel of the two
companies in a timely and efficient manner so as to minimize the risk that the
merger will result in the loss of clients or employees or the continued
diversion of the attention of management. This task is made more difficult since
U.S. Trust's principal offices are located in New York, New York, while Schwab's
principal offices are located in San Francisco, California.
There can be no assurance that any of the anticipated benefits will be
realized. In addition, the attention and effort devoted to consummating and
achieving the benefits of the merger could significantly divert management's
attention from other important issues, which could materially and adversely
affect Schwab's operating results or stock price.
THE SHARES WHICH YOU WILL RECEIVE IN THE MERGER MAY DECREASE IN VALUE IF
SCHWAB'S STOCK PRICE GOES DOWN
The number of shares which you will receive in the merger is fixed. A
decline in the price of Schwab common stock would result in the value of the
shares to be issued in the merger being lower than the current value of those
shares. The price of Schwab common stock at the closing of the merger may vary
from its price on the date of this proxy statement/prospectus or on the date of
the special meeting. Neither Schwab nor U.S. Trust may terminate the merger
agreement or fail to consummate the merger based on the stock prices of either
Schwab or U.S. Trust. Schwab and U.S. Trust urge U.S. Trust shareholders to
obtain current market quotations for Schwab common stock.
The price of Schwab common stock may vary because of any of the following
factors:
- changes in the business or operations of Schwab or U.S. Trust;
- the market's assessment of the likelihood that the merger will be
completed;
- the timing of the completion of the merger;
- the market's perception of the prospects of the post-merger operations of
Schwab and U.S. Trust;
- the ability of Schwab and U.S. Trust to obtain the required regulatory
approvals; and
- general market and economic conditions.
11
19
FACTORS WHICH DO NOT AFFECT THE PRICE OF THE COMMON SHARES OF U.S. TRUST MAY
DECREASE THE PRICE OF THE COMMON STOCK OF SCHWAB AND FACTORS WHICH INCREASE THE
PRICE OF THE COMMON SHARES OF U.S. TRUST MAY NOT INCREASE THE PRICE OF THE
COMMON STOCK OF SCHWAB
Schwab's business differs from that of U.S. Trust. Consequently, Schwab's
results of operations and the price of Schwab common stock may be affected by
factors different from those affecting U.S. Trust's results of operations and
the price of common shares of U.S. Trust. For a discussion of Schwab's and U.S.
Trust's businesses and factors to consider in connection with those businesses,
see Schwab's Annual Report on Form 10-K for the fiscal year ended December 31,
1999 and U.S. Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, each of which is incorporated by reference in this proxy
statement/prospectus.
THE ADDITIONAL REGULATORY OVERSIGHT TO WHICH SCHWAB WILL BE SUBJECT FOLLOWING
THE MERGER MAY LIMIT SCHWAB'S ACTIVITIES
Upon consummation of the transaction with U.S. Trust, Schwab expects to
become a financial holding company, subject to Federal Reserve supervision,
under the Bank Holding Company Act of 1956, as amended. The transaction is
subject to Federal Reserve Board and other regulatory approvals and to U.S.
Trust's shareholder approval. If such regulatory and shareholder approvals are
obtained, Schwab and its subsidiaries will be required to limit its business to
financial services. It may be required to maintain capital at levels which could
affect its ability to pay dividends. Under some circumstances, Schwab and its
subsidiaries may be required to provide additional capital to its subsidiaries,
and those subsidiaries may be prohibited from paying dividends. Additionally,
Federal Reserve Board approval will be required for various changes in control
of Schwab. See "The Merger -- Regulatory Matters" on p. 37.
THE MERGER COULD ADVERSELY AFFECT SCHWAB'S COMBINED FINANCIAL RESULTS OR THE
MARKET PRICE OF ITS COMMON STOCK
If the benefits of the merger do not exceed the costs associated with the
merger, including any dilution to Schwab's stockholders resulting from the
issuance of shares in connection with the merger, Schwab's financial results,
including earnings per share, could be adversely affected. Schwab expects that
the merger will result in merger related costs of approximately $65 million
after taxes. In addition, if Schwab does not achieve the perceived benefits of
the merger as rapidly as, or to the extent, anticipated by financial or industry
analysts, the market price of Schwab common stock may decline.
UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE U.S. TRUST TO LOSE CLIENTS
U.S. Trust's clients may, in response to the announcement of the merger,
delay or defer decisions concerning their use of U.S. Trust products and
services following the merger. Any delay or deferral could have an adverse
effect on the combined businesses of Schwab and U.S. Trust. For example, U.S.
Trust may experience a decrease in expected revenue as a consequence of the
uncertainties associated with the merger.
12
20
THE MERGER MAY IMPEDE THE PERFORMANCE OF SCHWAB'S "SERVICES TO INVESTMENT
MANAGERS" BUSINESS
Schwab's "Services to Investment Managers" business consists of a network
of independent financial planning advisors who use Schwab's services. In fiscal
1999, approximately 13% of Schwab's revenues were derived from this business. To
the extent U.S. Trust's investment advisory activities are viewed as being in
direct competition with the services of these advisors, a number of them could
leave the network or reduce their level of business with Schwab. The loss of the
advisors' business could have a negative effect on Schwab's operations that may
not be offset by new business generated by U.S. Trust.
13
21
FORWARD-LOOKING INFORMATION
This proxy statement/prospectus, including information incorporated by
reference, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to various matters,
including: the business strategies, projected synergies, future after-tax cash
flows and related net income to be derived from the merger; pro forma
information relating to the merger; tax treatment of the merger; regulatory
matters; competitive positions; growth opportunities for existing products and
services; plans and objectives of management; and stock price of Schwab and U.S.
Trust. Statements in this proxy statement/prospectus that are not historical
facts are identified as "forward-looking statements" for the purpose of the safe
harbor provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act. These forward-looking statements, including those relating to
the future business prospects, revenues and income of Schwab, U.S. Trust and the
combined company, wherever they occur in this proxy statement/prospectus, are
necessarily estimates reflecting the best judgment of the senior management of
the subject company. These forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various factors,
including those set forth in this proxy statement/prospectus. Important factors
that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include, without
limitation, those factors set forth in "Risk Factors Relating to the Merger" on
page 11 and those factors discussed in documents incorporated by reference in
this proxy statement/prospectus.
Words such as "estimate," "project," "plan," "intend," "expect," "believe"
and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are found at various places throughout this proxy
statement/prospectus and the documents incorporated by reference in this proxy
statement/prospectus, including, without limitation, the Annual Report on Form
10-K for the year ended December 31, 1999 of Schwab, and the Annual Report on
Form 10-K for the year ended December 31, 1999 of U.S. Trust. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this proxy statement/prospectus or, in the case of
documents incorporated by reference, as of the date of those documents.
You should understand that it is not possible to predict or identify all
factors that could impact Schwab's and U.S. Trust's ability to achieve the
results described in any forward-looking statements, and that the factors
referred to above should not be considered a complete statement of all potential
risks and uncertainties. You should also realize that if underlying assumptions
prove inaccurate or unknown risks or uncertainties materialize, actual results
could vary materially from Schwab's and U.S. Trust's projections.
14
22
U.S. TRUST CORPORATION
U.S. Trust is a bank holding company registered under Federal law and
incorporated in New York. Through its subsidiaries, U.S. Trust engages in two
principal businesses:
PERSONAL WEALTH MANAGEMENT SERVICES. U.S. Trust provides a complete array
of financial services for affluent individuals and families. These services
include:
- investment management, including domestic and international equities,
fixed income securities and alternative investments, such as private
equity and real estate;
- investment consulting;
- trust and estate administration;
- financial and estate planning; and
- private banking.
U.S. Trust has been engaged in the personal wealth management business since
1853. U.S. Trust has offices in ten states and the District of Columbia. The
cornerstone of U.S. Trust's services to individuals and families is investment
management. At December 31, 1999, U.S. Trust had personal assets under
management of approximately $59.6 billion.
INSTITUTIONAL SERVICES. U.S. Trust provides institutional services to
endowments, foundations, pension plans and other institutional clients. These
services include:
- investment management; - special fiduciary services; and
- corporate trust; - brokerage services.
U.S. Trust's institutional investment management business offers a wide range of
investment options for clients, including balanced portfolios, specialized
domestic and international equity investment styles, structured investments,
real estate, fixed-income vehicles and short-term cash management. At December
31, 1999, U.S. Trust managed approximately $26.5 billion for its institutional
clients.
U.S. Trust's principal subsidiary is United States Trust Company of New
York, a state-chartered bank and trust company. U.S. Trust has other banking and
non-banking subsidiaries with offices located in California, Connecticut,
Delaware, Florida, New Jersey, North Carolina, Oregon, Pennsylvania, Texas and
Washington D.C.
United States Trust Company of New York was founded in 1853. U.S. Trust was
incorporated in New York in 1977. Following the sale of its processing
businesses to The Chase Manhattan Bank Corporation in 1995, U.S. Trust was
re-incorporated in New York that same year.
The principal executive offices of U.S. Trust are located at 114 West 47th
Street, New York, New York 10036, and its telephone number is (212) 852-1000.
15
23
ADDITIONAL INFORMATION. For more detailed information about U.S. Trust,
reference is made to the U.S. Trust Annual Report on Form 10-K for the year
ended December 31, 1999 and Current Reports on Form 8-K filed with the
Securities and Exchange Commission on January 14, 2000 and February 22, 2000,
which are incorporated by reference in this proxy statement/prospectus. More
information about U.S. Trust is also contained in its 1999 Annual Report to
Shareholders, a copy of which can be obtained by contacting the Public Relations
Department of U.S. Trust by telephone at (212) 852-1000 or by e-mail at
khall@ustrust.com. See "Where You Can Find More Information" on page 83 and
"Incorporation of Certain Documents by Reference" on page 82.
16
24
THE CHARLES SCHWAB CORPORATION
Schwab and its subsidiaries provide securities brokerage and related
financial services for 6.6 million active customer accounts. Customer assets in
these accounts totaled $725 billion at December 31, 1999. Schwab's principal
subsidiary, Charles Schwab & Co., Inc., is a securities broker-dealer with 340
domestic branch offices in 48 states, as well as branches in the Commonwealth of
Puerto Rico and the U.S. Virgin Islands. Another subsidiary, Charles Schwab
Europe, is a retail securities brokerage firm located in the United Kingdom.
Other subsidiaries include Charles Schwab Investment Management, Inc., the
investment advisor for Schwab's proprietary mutual funds, and Schwab Capital
Markets, L.P. (formerly Mayer & Schweitzer, Inc.), a market maker in Nasdaq and
other securities providing trade execution services to broker-dealers and
institutional clients.
Schwab provides financial services to individuals, institutional customers
and broker-dealers through three segments: Individual Investor, Institutional
Investor and Capital Markets. The Individual Investor segment includes Schwab's
domestic and international retail operations. The Institutional Investor segment
provides custodial trading and support services to independent investment
managers, and serves company 401(k) plan sponsors and third-party
administrators. The Capital Markets segment provides trade execution services in
Nasdaq, exchange-listed and other securities primarily to broker-dealers and
institutional customers. Schwab's mutual fund services are considered a product
and not a segment. Mutual fund service fees are included in both Individual
Investor and Institutional Investor segments.
Schwab was incorporated in Delaware in November 1986. Charles Schwab & Co.,
Inc. was incorporated in California in 1971 and merged in 1983 with a subsidiary
of BankAmerica Corporation. Schwab acquired Charles Schwab & Co., Inc. in a
management-led leveraged buyout in March 1987, and became a publicly held
company in September 1987.
RECENT DEVELOPMENTS. In March 2000, Schwab acquired CyBerCorp, Inc., and in
connection with the acquisition issued 13,764,508 shares of Schwab common stock
in exchange for all of the outstanding capital stock and rights to acquire
capital stock of CyBerCorp. CyBerCorp is an electronic trading technology
company that develops and provides real-time electronic stock trading and
execution systems for the professional trader. The acquisition has been
accounted for as a purchase.
The principal executive offices of Schwab are located at 120 Kearny Street,
San Francisco, California 94108, and its telephone number is (415) 627-7000.
ADDITIONAL INFORMATION. For more detailed information about Schwab,
reference is made to the Schwab Annual Report on Form 10-K for the year ended
December 31, 1999, the Definitive Proxy Statement filed with the Securities and
Exchange Commission on March 27, 2000, and Current Reports on Form 8-K filed
with the Securities and Exchange Commission on January 14, 2000 and February 22,
2000, which are incorporated by reference in this proxy statement/prospectus.
More information about Schwab is also contained in its 1999 Annual Report to
Shareholders which is available through Schwab's website at
http://www.Schwab.com/investor/annual. This reference to Schwab's website
address does not constitute incorporation by reference of the information
contained in Schwab's website. See "Where You Can Find More Information" on page
83 and "Incorporation of Certain Documents by Reference" on page 82.
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THE SPECIAL MEETING
U.S. Trust is furnishing this proxy statement/prospectus to shareholders of
U.S. Trust as part of the solicitation of proxies by the U.S. Trust board of
directors for use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting on Wednesday, May 31, 2000, at 10:00 a.m.,
local time, at the U.S. Trust Auditorium, 114 West 47th Street, New York, New
York 10036.
PURPOSE OF SPECIAL MEETING
At the special meeting, we are asking holders of common shares of U.S.
Trust to adopt the merger agreement. The U.S. Trust board of directors has
unanimously approved the merger agreement and the merger, has unanimously
determined that the merger agreement and the merger are fair to and in the best
interests of U.S. Trust and its shareholders and unanimously recommends that
U.S. Trust shareholders vote FOR the adoption of the merger agreement.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of common shares of U.S. Trust at the close of
business on April 24, 2000, the record date, are entitled to notice of and to
vote at the special meeting. On the record date, 19,284,585 common shares of
U.S. Trust were issued and outstanding and held by approximately 1,809 holders
of record. A quorum is present at the special meeting if a majority of the
common shares of U.S. Trust issued and outstanding and entitled to vote on the
record date are represented in person or by proxy. In the event that a quorum is
not present at the special meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies. Holders of record of
common shares of U.S. Trust on the record date are entitled to one vote per
share at the special meeting on the proposal to adopt the merger agreement.
VOTES REQUIRED
The adoption of the merger agreement requires the affirmative vote of
two-thirds of the common shares of U.S. Trust outstanding on the record date. IF
A U.S. TRUST SHAREHOLDER ABSTAINS FROM VOTING OR DOES NOT VOTE, EITHER IN PERSON
OR BY PROXY, IT WILL COUNT AS A VOTE AGAINST THE ADOPTION OF THE MERGER
AGREEMENT.
VOTING BY U.S. TRUST DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, directors and executive
officers of U.S. Trust and their affiliates owned and were entitled to vote
639,332 common shares of U.S. Trust, which represented approximately 3.315% of
the common shares of U.S. Trust outstanding on that date. Each U.S. Trust
director and executive officer has indicated his or her present intention to
vote, or cause to be voted, the common shares of U.S. Trust owned by him or her
for the adoption of the merger agreement.
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VOTING OF PROXIES
Holders of record of common shares of U.S. Trust on the record date may
submit their proxies either by telephoning the toll-free number included on the
enclosed proxy card or by returning a properly signed proxy card in the enclosed
postage-paid envelope. When you use the telephone system, the system verifies
that you are a shareholder through the use of a unique control number that is
assigned to you. The telephone system allows you to instruct the proxies how to
vote your shares and to confirm that your instructions have been properly
recorded. Beneficial owners of common shares of U.S. Trust that hold their
shares through a broker, bank or other nominee will receive voting instructions
from their nominee which must be followed in order to vote their shares.
All shares represented by properly submitted telephone proxies, or by
properly signed proxy cards, received in time for the special meeting will be
voted at the special meeting in the manner specified by the holders. Properly
signed proxies that do not contain voting instructions will be voted for the
adoption of the merger agreement. Proxies that are not properly signed will not
be voted at the special meeting and therefore will count as a vote against
adoption of the merger agreement.
Common shares of U.S. Trust represented at the special meeting but not
voting, including common shares of U.S. Trust for which proxies have been
received but for which holders of shares have abstained, will be treated as
present at the special meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business.
Only shares affirmatively voted for the adoption of the merger agreement,
including properly signed proxies that do not contain voting instructions, will
be counted as favorable votes for that proposal. IF A U.S. TRUST SHAREHOLDER
ABSTAINS FROM VOTING OR DOES NOT VOTE, EITHER IN PERSON OR BY PROXY, IT WILL
COUNT AS A VOTE AGAINST THE ADOPTION OF THE MERGER AGREEMENT. BROKERS, BANKS OR
OTHER NOMINEES WHO HOLD COMMON SHARES OF U.S. TRUST IN STREET NAME FOR CUSTOMERS
WHO ARE THE BENEFICIAL OWNERS OF THOSE SHARES MAY NOT GIVE A PROXY TO VOTE THOSE
CUSTOMERS' SHARES IN THE ABSENCE OF SPECIFIC INSTRUCTIONS FROM THOSE CUSTOMERS.
These non-voted shares are referred to as broker non-votes and count as votes
against the adoption of the merger agreement.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to adopt
the merger agreement will be voted in favor of any such adjournment.
U.S. Trust does not expect that any matter other than the proposal to adopt
the merger agreement will be brought before the special meeting. If, however,
other matters are properly presented for consideration at the special meeting by
the U.S. Trust board of directors, the persons named as proxies will vote in
accordance with their judgment.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed proxy card or by telephone does not
preclude a shareholder from voting in person at the special meeting. A
shareholder may revoke a proxy at any time prior to its exercise by:
- filing with the Secretary of U.S. Trust a properly signed revocation of
proxy;
- submitting a properly signed proxy to the Secretary of U.S. Trust bearing
a later date;
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- submitting a new proxy by telephone; or
- appearing at the special meeting and voting in person.
Attendance at the special meeting will not itself constitute revocation of
a proxy. IN ADDITION, IF YOUR COMMON SHARES OF U.S. TRUST ARE HELD IN STREET
NAME, YOU MUST OBTAIN A PROXY, SIGNED IN YOUR FAVOR, FROM THE INSTITUTION THAT
HOLDS YOUR SHARES IN ORDER TO VOTE IN PERSON AT THE SPECIAL MEETING.
SOLICITATION OF PROXIES
U.S. Trust will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of U.S. Trust and its subsidiaries may solicit proxies from
shareholders by telephone or other electronic means or in person. U.S. Trust
will cause brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of common shares of U.S.
Trust held of record by such persons. U.S. Trust will reimburse these
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in doing so.
Morrow & Co., Inc. will assist in the solicitation of proxies by U.S. Trust
from banks, brokerage firms, other nominees, institutional holders and
individual shareholders. Morrow & Co.'s services will include:
- delivering proxy materials to banks, brokerage firms and other nominees
for redelivery to beneficial owners of common shares of U.S. Trust;
- placing follow-up calls to individuals and institutions to ensure receipt
of the proxy materials and to encourage them to vote; and
- answering routine telephone inquiries from shareholders.
U.S. Trust will pay Morrow & Co. a fee of approximately $15,000, plus
reimbursement of reasonable out-of-pocket expenses, and will indemnify Morrow &
Co. against any losses arising out of Morrow & Co.'s proxy soliciting services
on behalf of U.S. Trust.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. A
transmittal form with instructions for the surrender of certificates
representing common shares of U.S. Trust will be mailed to U.S. Trust
shareholders as soon as practicable after completion of the merger.
SCHWAB STOCKHOLDERS
Under Schwab's certificate of incorporation and bylaws, the rules of the
New York Stock Exchange and Delaware law, the adoption of the merger agreement
does not require the approval of Schwab's stockholders. Consequently, the
approval of Schwab's stockholders is not being sought.
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THE MERGER
The discussion in this proxy statement/prospectus of the material terms of
the merger, the merger agreement and the stock option agreement should be read
in conjunction with the merger agreement and the stock option agreement, which
are attached as Annex A and Annex B to this proxy statement/prospectus.
BACKGROUND OF THE MERGER
On February 24, 1999, David S. Pottruck, President and Co-Chief Executive
Officer of Schwab, met with H. Marshall Schwarz, Chairman and Chief Executive
Officer of U.S. Trust, Jeffrey S. Maurer, President and Chief Operating Officer
of U.S. Trust, Maribeth S. Rahe, Vice Chairman of U.S. Trust, and Frederick B.
Taylor, Vice Chairman and Chief Investment Officer of U.S. Trust, to explore the
services that U.S. Trust could potentially offer to Schwab's investment advisor
and retail clients and to discuss a possible investment in U.S. Trust by Schwab.
On March 17, 1999, Schwab and U.S. Trust entered into a confidentiality
agreement.
On March 18, 1999, Mr. Pottruck, Christopher V. Dodds, Executive Vice
President and Chief Financial Officer of Schwab, Steven L. Scheid, Vice Chairman
and Executive Vice President of Schwab, and Daniel O. Leemon, Executive Vice
President and Chief Strategy Officer of Schwab, met with Mr. Maurer and Ms.
Rahe. At this meeting, Mr. Maurer and Ms. Rahe provided a review of U.S. Trust's
business and financial performance, and the parties discussed the possibility of
a business combination.
On June 8, 1999, Messrs. Pottruck, Dodds and Scheid met with Messrs.
Schwarz, Maurer and Taylor and Ms. Rahe to discuss business and financial
performance of both companies, Schwab's vision for providing financial services
to affluent investors and Schwab's culture. The parties also discussed brand and
employee matters and continued discussions regarding the possible business
combination.
On June 19, 1999, Mr. Pottruck met with Mr. Maurer and Ms. Rahe to discuss
U.S. Trust's business and the two firms' strategic and cultural fit and to
continue discussions regarding the possible business combination.
On June 22, 1999, the U.S. Trust board of directors held a regular meeting
at which Messrs. Schwarz and Maurer informed the board of directors that
discussions were ongoing with Schwab regarding a possible business combination
and reported on the discussions to date. The U.S. Trust board of directors
authorized management to continue discussions with Schwab.
On June 30, 1999, Charles R. Schwab, Chairman and Co-Chief Executive
Officer of Schwab, met with Mr. Schwarz to discuss Schwab's and U.S. Trust's
businesses and to continue discussions regarding the possible business
combination.
From June 1999 through September 15, 1999, and again in December 1999 and
January 2000, representatives of Schwab and its legal and financial advisors
performed a due diligence review of U.S. Trust.
From July 1, 1999 through September 15, 1999, representatives of Schwab and
U.S. Trust participated in telephone conferences to discuss, and exchanged
materials relating to, the possible business combination.
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On July 22, 1999, the Schwab board of directors held a regular meeting,
which was also attended by members of Schwab's senior management. Messrs.
Pottruck and Dodds reported on the previous meetings with U.S. Trust. Schwab's
management advised the board of directors that Goldman, Sachs & Co., Inc. had
been retained to advise Schwab with respect to the possible business
combination. Schwab's management also advised the board of directors that the
law firms of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional
Corporation, Schwab's regular outside counsel, and Skadden, Arps, Slate, Meagher
& Flom LLP, as bank regulatory counsel, had been retained to advise Schwab in
connection with the possible business combination.
On July 27, 1999, the U.S. Trust board of directors held a regular meeting,
which was also attended by several members of U.S. Trust's senior management, at
which further updates were given and discussions were held regarding the
possible business combination.
On July 30, 1999, Messrs. Pottruck, Dodds and Scheid met with Mr. Maurer
and Ms. Rahe to continue discussions regarding the possible business
combination, including how the combined company's services could be offered to
different customer segments, employee compensation arrangements, technology,
distribution channels, support functions of the two companies and the degree of
autonomy and integration of the two companies.
On August 11, 1999, the Executive Committee of the U.S. Trust board of
directors held a meeting at which further updates were given and discussions
were held regarding the possible business combination.
On August 18, 1999, representatives of Schwab met with representatives of
the Federal Reserve Board to discuss issues that might be raised if Schwab were
to acquire a bank holding company. U.S. Trust was not identified at that
meeting.
On August 19, 1999, representatives of Schwab, as well as representatives
of Credit Suisse First Boston Corporation, financial advisors to U.S. Trust, and
Goldman, Sachs & Co. met to discuss the terms and conditions of the possible
business combination, including, among others, the value to be attributed to
each common share of U.S. Trust in the merger.
On August 31, 1999, Messrs. Schwab and Pottruck met with Messrs. Schwarz
and Maurer to discuss the status and terms of the possible business combination.
In August and September 1999 and again in December 1999 and January 2000,
representatives of U.S. Trust and its legal and financial advisors performed a
due diligence review of Schwab.
From September 8, 1999 through September 13, 1999, representatives of
Schwab and Schwab's legal and financial advisors conducted intensive on- and
off-site due diligence reviews and held numerous meetings and discussions
regarding possible terms and structures for the possible business combination.
As part of its due diligence review, Schwab reviewed public and non-public
documents and information of U.S. Trust and heard presentations by
representatives of U.S. Trust.
Between September 8, 1999 and September 14, 1999, representatives of Schwab
and U.S. Trust and their respective financial and legal advisors participated in
ongoing negotiations regarding the terms of the possible business combination.
During this period, counsel to Schwab and U.S. Trust held telephone conference
calls to review and discuss drafts of the merger agreement, the stock option
agreement, other ancillary documents and related issues.
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On September 15, 1999, Schwab communicated to U.S. Trust its decision not
to proceed with the possible business combination at that time. Schwab's senior
management discussed this decision with its board of directors at the
regularly-scheduled meeting on September 23, 1999. On September 28, 1999, the
U.S. Trust board of directors held a regular meeting at which the board of
directors was informed that negotiations with Schwab had ceased.
On October 28, 1999, Mr. Maurer and Ms. Rahe contacted Mr. Pottruck to
explore possible ways not involving a business combination in which U.S. Trust
and Schwab might work together. Mr. Pottruck subsequently informed them that
Schwab was not interested in any of the alternatives that were discussed.
On November 15, 1999, Mr. Maurer telephoned Mr. Pottruck to ask whether
Schwab was interested in resuming discussions regarding a possible business
combination.
On November 23, 1999, the U.S. Trust board of directors held a regular
meeting at which the board of directors authorized senior management of U.S.
Trust to recommence discussions with Schwab regarding a possible business
combination.
On December 2, 1999, Messrs. Pottruck and Scheid and Carrie E. Dwyer,
Executive Vice President of Corporate Oversight and General Counsel of Schwab,
met with Messrs. Schwarz and Maurer to recommence discussions regarding a
possible business combination.
On December 14, 1999, the U.S. Trust board of directors held a regular
meeting at which the board of directors was updated on the status of discussions
with Schwab. At this meeting, representatives of Credit Suisse First Boston
presented financial information relating to Schwab and the possible business
combination. The U.S. Trust board of directors directed U.S. Trust's management
to meet with Schwab and its representatives and negotiate the terms and
conditions of the business combination.
On December 15, 1999, Schwab senior management advised the Schwab board of
directors of the status of its discussions with U.S. Trust.
On December 16 and 17, 1999, Schwab senior management, including Messrs.
Pottruck, Scheid and Dodds, and Schwab's legal and financial advisors met with
Mr. Maurer and Ms. Rahe and U.S. Trust's legal and financial advisors to discuss
the terms of the possible business combination.
Between December 18, 1999 and January 12, 2000, representatives of Schwab
and U.S. Trust and their respective financial, legal and accounting advisors
participated in ongoing negotiations regarding the terms of the possible
business combination. During this period, counsel to Schwab and U.S. Trust spoke
by telephone conference on a number of occasions to review and discuss drafts of
the merger agreement, the stock option agreement, other ancillary documents and
related issues.
On January 10, 2000, Mr. Scheid, Ms. Dwyer and Mr. Maurer met with
representatives of the Federal Reserve Board to discuss the possible business
combination. On that date, Mr. Scheid also met with representatives of the
Securities and Exchange Commission to discuss the possible business combination.
On January 12, 2000, the Schwab board of directors held a special meeting
attended by several members of Schwab's senior management and representatives of
Goldman, Sachs & Co., Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A
Professional Corporation, Skadden, Arps, Slate, Meagher & Flom LLP and Deloitte
& Touche LLP. Prior to the
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meeting, Schwab's legal counsel provided each member of the Schwab board of
directors with a current draft of the merger agreement, the stock option
agreement and related documents. The Schwab board of directors considered the
proposed merger agreement, the proposed stock option agreement, other related
documents and the transactions contemplated thereby. Mr. Dodds summarized the
terms of the proposed agreements. The Company's legal counsel, outside auditors
and financial advisors participated in discussions with the board of directors.
Representatives of Goldman, Sachs described the financial analyses performed by
Goldman, Sachs with respect to the possible business combination. Following
discussions, the Schwab board of directors concluded that the merger agreement
and the merger were fair to and in the best interests of Schwab and its
stockholders and approved the merger agreement, the stock option agreement and
related documents.
On January 12, 2000, the U.S. Trust board of directors held a special
meeting attended by several members of U.S. Trust's senior management and
representatives of Credit Suisse First Boston and Cravath, Swaine & Moore, legal
counsel to U.S. Trust. Prior to the meeting, U.S. Trust's legal counsel provided
each member of the U.S. Trust board of directors with a current draft of the
merger agreement, the stock option agreement and related documents. U.S. Trust's
legal counsel described to the U.S. Trust board of directors the fiduciary
duties applicable to directors in considering a strategic business combination.
The U.S. Trust board of directors considered the proposed merger agreement, the
proposed stock option agreement, other related documents and the transactions
contemplated thereby. Mr. Schwarz summarized the status of negotiations.
Representatives of Credit Suisse First Boston described the financial analyses
performed by Credit Suisse First Boston with respect to the possible business
combination, and then delivered the oral opinion of Credit Suisse First Boston,
later confirmed in writing, to the effect that the exchange ratio was fair to
U.S. Trust shareholders from a financial point of view. Following discussions,
the U.S. Trust board of directors concluded that the merger agreement and the
merger were fair to and in the best interests of U.S. Trust and its shareholders
and unanimously approved the merger agreement, the stock option agreement and
related documents.
On January 13, 2000, following the execution and delivery of the definitive
agreements on the night of January 12, 2000, Schwab and U.S. Trust issued a
joint press release announcing the execution of the merger agreement.
SCHWAB'S REASONS FOR THE MERGER
In reaching its decision to approve the merger and the merger agreement,
the Schwab board of directors consulted with and received advice from senior
management and its financial, accounting and legal advisors and considered a
number of factors. In view of the variety of material factors considered in
connection with its evaluation of the merger, the Schwab board of directors did
not find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the Schwab board of directors may have given
different weight to different factors.
POSITIVE FACTORS. The following factors are not intended to be exhaustive,
but rather are the primary factors considered by the Schwab board of directors
in making its determination that the merger will be beneficial to Schwab and its
shareholders:
- the belief that the combination of certain of Schwab's strengths,
including technology, operations, advertising and distribution, with U.S.
Trust's highly personalized service model, research capabilities, trust
and estate services, investment track record and
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reputation in wealth management services, will create a comprehensive,
integrated, value-priced, wealth management offering for affluent
households, including both individual investors and customers of
independent investment managers;
- the belief that the merger will allow Schwab to provide its customers
with some of the services that U.S. Trust has historically provided to
its customers, including trust and estate capabilities, private banking
services, tax and financial planning, equity research and specialized
investment products. Schwab believes that these expanded services will
enable it to better attract and retain both Schwab retail and investment
management clients;
- the belief that Schwab's and U.S. Trust's complementary operating
philosophies and shared vision and culture, including a significant level
of employee ownership, a dedication to clients and a commitment to
long-term relationships, will help Schwab to achieve the expected
benefits of the merger;
- the belief that with the addition of U.S. Trust's fee-based revenues,
Schwab's revenue composition will become more diversified and less
dependent on trading revenue; and
- the belief that Schwab will be able to foster the growth of U.S. Trust's
business by providing advanced technological resources and multi-channel
access to U.S. Trust customers, by enhancing brand development, by
referring current and prospective Schwab high net worth customers to U.S.
Trust and by continuing U.S. Trust's national expansion.
ADDITIONAL FACTORS. In the course of deliberations, the Schwab board of
directors also considered a number of additional factors relevant to the merger,
including:
- historical information concerning Schwab's and U.S. Trust's respective
business, financial performance and condition, operations, technology,
management and competitive position, including filings with the
Securities and Exchange Commission concerning the results of operations;
- the financial condition, results of operations, businesses and prospects
of Schwab and U.S. Trust before and after giving effect to the merger and
the performance of the common stock relative to selected comparable
companies and the terms of comparable transactions;
- current financial market conditions and historical market prices,
volatility and trading information with respect to common shares of
Schwab and U.S. Trust common stock;
- the tax and accounting treatment of the merger;
- the terms of the merger agreement and stock option agreement; and
- the impact of the merger on Schwab clients, employees and other
constituencies.
NEGATIVE FACTORS. The Schwab board of directors also identified and
considered a number of potentially negative factors in its deliberations,
including:
- the potential benefits sought in the merger might not be fully realized;
- the additional regulatory oversight to which Schwab will be subject
following the merger may limit Schwab's activities;
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- the merger could adversely affect Schwab's combined financial results or
the market price of its common stock;
- uncertainties associated with the merger may cause U.S. Trust to lose
clients; and
- the merger may impede the performance of Schwab's "Services to Investment
Managers" business.
These negative considerations are further discussed under "Risk Factors Relating
to the Merger" beginning on page 11.
The Schwab board of directors believed that some of these risks were
unlikely to occur, that Schwab could avoid or mitigate others, and that,
overall, these risks were outweighed by the potential benefits of the merger.
U.S. TRUST'S REASONS FOR THE MERGER
In reaching its decision to approve the merger and the merger agreement and
to recommend that U.S. Trust shareholders vote to adopt the merger agreement,
the U.S. Trust board of directors consulted with senior management and its
financial, accounting and legal advisors and considered a number of factors. The
U.S. Trust board of directors did not specifically adopt the conclusions of the
opinion of Credit Suisse First Boston referred to below under "-- Positive
Factors." The Credit Suisse First Boston opinion was only one of many factors
considered by the U.S. Trust board of directors in its evaluation of the merger.
In view of the variety of material factors considered in connection with its
evaluation of the merger, the U.S. Trust board of directors did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the U.S. Trust board of directors may have given different
weight to different factors.
POSITIVE FACTORS. The following factors are not intended to be exhaustive,
but rather are the primary factors considered by the U.S. Trust board of
directors in making its determination that the merger will be beneficial to U.S.
Trust and its shareholders:
- the belief that the merger is a strategic opportunity to create a
uniquely positioned financial services franchise with superior growth
prospects, complementary business fits and significant synergies and
capabilities across the two companies' business lines, which belief stems
in part from the following factors:
- the belief that the combined company will be positioned to be a
complete service provider for investors seeking to manage their
investments and wealth for the long-term, whether they are beginning
investors or already managing significant accumulated wealth;
- U.S. Trust and Schwab share complementary operating philosophies,
vision and culture, including a significant level of employee
ownership, a dedication to clients and a commitment to long-term
relationships;
- the merger provides added resources for U.S. Trust to continue the
national expansion of its wealth management business through
acquisitions and enhanced distribution channels; and
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- the merger allows U.S. Trust access to advanced technology to
supplement its traditional "high touch" personal services to its
clients and puts U.S. Trust in a more competitive position;
- the exchange ratio yields values that are superior to standard valuation
benchmarks, and represents a significant premium to the current and
historical trading value of common shares of U.S. Trust;
- Schwab's intention to operate U.S. Trust as a separate subsidiary, to
retain the U.S. Trust brand name and to retain the U.S. Trust
headquarters in New York, thereby enabling U.S. Trust, among other
things, to maintain greater control over its client relationships;
- the merger is expected to qualify as a tax-free reorganization; and
- the detailed financial analyses and other information with respect to the
companies presented by Credit Suisse First Boston to the U.S. Trust board
of directors, including Credit Suisse First Boston's opinion dated
January 12, 2000 that the exchange ratio was fair to the U.S. Trust
shareholders from a financial point of view.
ADDITIONAL FACTORS. In the course of deliberations, the U.S. Trust board
of directors also considered a number of additional factors relevant to the
merger, including:
- historical information concerning U.S. Trust's and Schwab's respective
businesses, financial performance and condition, operations, technology,
management and competitive position, including filings with the
Securities and Exchange Commission concerning the results of operations;
- the financial condition, results of operations, businesses and prospects
of U.S. Trust and Schwab before and after giving effect to the merger;
- current financial market conditions and historical market prices,
volatility and trading information with respect to common shares of U.S.
Trust and Schwab common stock;
- the terms of the merger agreement and the stock option agreement;
- the prospects of U.S. Trust as an independent company; and
- the impact of the merger on U.S. Trust clients, employees and other
constituencies.
NEGATIVE FACTORS. The U.S. Trust board of directors also identified and
considered a number of potentially negative factors in its deliberations,
including:
- the risk that the potential benefits sought in the merger might not be
fully realized, which could adversely affect or temporarily disrupt the
level of service to U.S. Trust's clients, reduce the growth prospects and
opportunities for synergies identified above under "-- Positive Factors"
and result in the loss of employees seeking opportunities elsewhere;
- the possibility that the merger might not be consummated and the risks to
the business of U.S. Trust if that were to occur, including loss of
clients and/or employees or the possibility of a different and inferior
third-party offer;
- the uncertainty as to the effect of the public announcement of the merger
on various clients of U.S. Trust and the ability of U.S. Trust to attract
and retain wealth management professionals and other personnel; and
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- risk associated with fluctuations in the price of Schwab's common stock
prior to completion of the merger.
These negative considerations are further discussed under "Risk Factors Relating
to the Merger" beginning on page 11.
The U.S. Trust board of directors believed that some of these risks were
unlikely to occur, that U.S. Trust could avoid or mitigate others, and that,
overall, these risks were outweighed by the potential benefits of the merger.
RECOMMENDATION OF THE U.S. TRUST BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, THE U.S. TRUST BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND HAS UNANIMOUSLY
DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE MERGER ARE FAIR TO AND
IN THE BEST INTERESTS OF U.S. TRUST AND ITS SHAREHOLDERS. THE U.S. TRUST BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF U.S. TRUST VOTE FOR
THE ADOPTION OF THE MERGER AGREEMENT.
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
Credit Suisse First Boston has acted as financial advisor to U.S. Trust in
connection with the merger. Credit Suisse First Boston was selected by U.S.
Trust based on Credit Suisse First Boston's experience, expertise and
familiarity with U.S. Trust and its business. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, U.S. Trust
requested that Credit Suisse First Boston evaluate the fairness of the exchange
ratio from a financial point of view. On January 12, 2000, at a meeting of the
U.S. Trust board of directors held to review and consider the terms of the
merger, Credit Suisse First Boston rendered to the U.S. Trust board an oral
opinion to the effect that, as of such date and based upon and subject to
matters stated in its opinion, the exchange ratio was fair to the holders of
common shares of U.S. Trust from a financial point of view. Credit Suisse First
Boston has confirmed its oral opinion of January 12, 2000 by delivery of a
written opinion dated the same date.
Credit Suisse First Boston's opinion speaks only as of January 12, 2000.
Credit Suisse First Boston has not rendered an opinion as to whether the
exchange ratio is fair to the holders of common shares of U.S. Trust from a
financial point of view as of the date of this proxy statement/prospectus and
has rendered its January 12, 2000 opinion without reviewing either Schwab's or
U.S. Trust's quarterly reports for the period ended March 31, 2000, or any other
facts or circumstances that occurred after January 12, 2000.
U.S. Trust is not aware of any significant events or factors that have
occurred since January 12, 2000 that would render the fairness determination of
Credit Suisse First Boston misleading, nor is it aware of any circumstances that
would permit Credit Suisse First Boston to revoke the delivery of its fairness
opinion. If Credit Suisse First Boston were to attempt to revoke the delivery of
its fairness opinion, the U.S. Trust board of directors would evaluate
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that action along with all other facts and circumstances prevailing at that
time, and make any disclosures required at that time under the federal
securities laws.
U.S. Trust does not intend to request an updated fairness opinion from
Credit Suisse First Boston. If an updated fairness opinion is requested by U.S.
Trust as a result of a material amendment to the financial terms of the merger
agreement, Credit Suisse First Boston will have to evaluate whether it would be
able to give an updated fairness opinion based on the then prevailing facts and
circumstances and it would be under no obligation to give an updated fairness
opinion. As a result, U.S. Trust may not obtain an updated fairness opinion even
if one is requested.
THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION TO THE U.S.
TRUST BOARD OF DIRECTORS DATED JANUARY 12, 2000, WHICH SETS FORTH THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. CREDIT SUISSE
FIRST BOSTON HAS CONSENTED TO THE INCLUSION OF ITS OPINION AS ANNEX C.
SHAREHOLDERS OF U.S. TRUST ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY.
CREDIT SUISSE FIRST BOSTON'S OPINION IS DIRECTED TO THE U.S. TRUST BOARD OF
DIRECTORS AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY
RELATED MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO
HOW THE SHAREHOLDER SHOULD VOTE AT THE U.S. TRUST SPECIAL MEETING.
In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and publicly available business and financial information relating to
U.S. Trust and Schwab. Credit Suisse First Boston also reviewed other
information, including financial forecasts provided to Credit Suisse First
Boston by U.S. Trust and Schwab, and met with the managements of U.S. Trust and
Schwab to discuss the businesses and prospects of U.S. Trust and Schwab. Credit
Suisse First Boston also considered financial and stock market data of U.S.
Trust and Schwab and compared that data with similar data for other publicly
held companies in businesses similar to those of U.S. Trust and Schwab, and
considered the financial terms of other business combinations and other mergers
that were recently effected. Credit Suisse First Boston also considered such
other information, financial studies, analyses and investigations, and
financial, economic and market criteria which Credit Suisse First Boston deemed
relevant. No limitations were imposed on Credit Suisse First Boston with respect
to the investigations made or procedures followed by Credit Suisse First Boston
in rendering its opinion.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information
provided to or otherwise reviewed by Credit Suisse First Boston and relied on
that information being complete and accurate in all material respects. With
respect to the financial forecasts, Credit Suisse First Boston assumed that the
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of U.S. Trust and Schwab as
to the future financial performance of U.S. Trust and Schwab. U.S. Trust also
informed Credit Suisse First Boston and Credit Suisse First Boston assumed that
the merger would be treated as a tax-free reorganization for Federal income tax
purposes and accounted for as a pooling-of-interests in accordance with
generally accepted accounting principles. In addition, Credit Suisse First
Boston was not requested to make, and did not make, an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of U.S. Trust
and Schwab, nor was Credit Suisse First Boston furnished with any such
evaluations or appraisals. Credit Suisse First Boston's opinion was necessarily
based upon financial,
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economic, market and other conditions as they existed and could be evaluated on
the date of its opinion. Credit Suisse First Boston did not express any opinion
as to the actual value of the Schwab common stock when issued pursuant to the
merger or the prices at which the Schwab common stock would trade subsequent to
the merger. Credit Suisse First Boston was not requested to, and did not,
determine or recommend the specific consideration payable in the merger, which
consideration was determined by arms'-length negotiations between Schwab and
U.S. Trust.
In preparing its opinion to the U.S. Trust board, Credit Suisse First
Boston performed a variety of financial and comparative analyses, including
those described below. The summary of Credit Suisse First Boston's analyses set
forth below does not purport to be a complete description of the analyses
underlying Credit Suisse First Boston's opinion, but, rather, sets forth a
description of the material analyses performed by Credit Suisse First Boston for
purposes of its opinion. In arriving at its opinion, Credit Suisse First Boston
made qualitative judgments as to the significance and relevance of each analysis
and factor considered by it. Credit Suisse First Boston did not quantify or
otherwise assign relative weights to the specific analyses it performed;
however, each analysis performed by Credit Suisse First Boston supported its
fairness opinion. The analyses performed by Credit Suisse First Boston did not
indicate any material factors which did not support its fairness opinion.
Accordingly, Credit Suisse First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying its analyses and its opinion.
In its analyses, Credit Suisse First Boston made numerous assumptions with
respect to U.S. Trust, Schwab, industry performance, regulatory, general
business, economic, market and financial conditions, and other matters, many of
which are beyond the control of U.S. Trust and Schwab. No company, merger or
business used in Credit Suisse First Boston's analyses as a comparison is
identical to U.S. Trust, Schwab or the merger, nor is an evaluation of the
results of Credit Suisse First Boston's analyses entirely mathematical; rather,
Credit Suisse First Boston's analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the merger, public trading or other values of the companies,
business segments or mergers being analyzed. The estimates contained in Credit
Suisse First Boston's analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by Credit Suisse First Boston's analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Credit Suisse First Boston's
analyses and estimates are inherently subject to substantial uncertainty. Credit
Suisse First Boston's opinion and financial analyses were only two of the many
factors considered by the U.S. Trust board in its evaluation of the merger and
should not be viewed as determinative of the views of the U.S. Trust board or
management with respect to the exchange ratio or the merger.
The following is a summary of each of the material financial analyses
performed, procedures followed, findings and recommendations made, and the basis
for and methods of arriving at such findings and recommendations, by Credit
Suisse First Boston in connection with its opinion dated January 12, 2000:
CALCULATION OF VALUE OF EXCHANGE RATIO. Credit Suisse First Boston
calculated the implied value of the exchange ratio based on the closing stock
price of Schwab common
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stock on January 11, 2000, which indicated an implied equity value for U.S.
Trust of approximately $134.10 per common share of U.S. Trust. The implied
equity value of $134.10 per share equated to implied multiples for U.S. Trust
of:
- latest 12 months', which means the most recently completed four fiscal
quarters, earnings per share;
- estimated calendar 1999 EPS;
- estimated calendar 2000 EPS; and
- tangible book value
as set forth in the table below. Credit Suisse First Boston then compared these
results with those derived from other analyses it performed, as set forth in the
table below.
IMPLIED PRICE TO(1)
-----------------------------------------------
IMPLIED VALUE
LATEST RANGE PER U.S.
12 MONTHS' 1999E 2000E TANGIBLE TRUST COMMON
EPS EPS EPS BOOK SHARE
---------- ----- ----- -------- ----------------------
EXCHANGE RATIO............ 38.3X 36.7X 32.3X 13.8X $134.10
Comparable Companies(2)... 29.6x 29.1x 25.9x 8.7x $ 84.48 - $107.44
Comparable Transactions... 29.1 29.1 23.9 5.8 55.98 - 106.22
Discounted Cash Flow:
Base Case............... 83.14 - 108.04
Upside Case............. 92.76 - 120.67
- -------------------------
(1) Based on mean of value range. 1999E EPS and 2000E EPS based on estimates
supplied by I/B/E/S International Inc. I/B/E/S is an industry service
provider of global earnings information based on an average of earnings
estimates published by selected research analysts regarding companies of
interest to institutional investors.
(2) Includes a 30% assumed premium as of January 11, 2000.
COMPARABLE COMPANIES ANALYSIS. Credit Suisse First Boston compared
financial, operating and stock market data of U.S. Trust to corresponding data
of selected publicly traded companies in the banking industry, after applying an
equity control premium of 30%. The 30% change in control premium is derived from
the average change of control premium paid in bank mergers since 1996. The peer
group, which is collectively referred to below as the selected companies, is
comprised of four banks who have a significant reliance on non-credit oriented
fee-based sources of earnings:
- The Bank of New York Company, Inc.;
- Northern Trust Corporation;
- State Street Corporation; and
- Mellon Financial Corporation.
All multiples were based on closing stock prices on January 11, 2000. This
analysis indicated an average of multiples for the selected companies of latest
12 months' EPS, estimated calendar 1999 EPS, estimated calendar 2000 EPS, most
recent book value and
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tangible book value as set forth in the table below. This analysis indicated an
implied equity reference range of approximately $84.48 to $107.44 per common
share of U.S. Trust.
PRICE TO
-----------------------------------------------------------
LATEST
12 MONTHS' 1999E 2000E
EPS EPS EPS BOOK VALUE TANGIBLE BOOK
---------- ----- ----- ---------- -------------
U.S. TRUST STAND ALONE... 22.4X 21.4X 18.9X 5.6X 8.1X
Comparable Companies(1)
Bank of New York....... 21.4x 20.9x 18.6x 5.4x 8.0x
Mellon................. 16.4 16.3 14.6 3.6 7.6
Northern Trust......... 28.4 27.6 24.6 5.5 5.9
State Street........... 25.0 24.6 21.8 4.9 5.4
Peer Average............. 22.8x 22.4x 19.9x 4.9x 6.7x
PEER AVERAGE W/30%
PREMIUM................ 29.6X 29.1X 25.9X 6.3X 8.7X
EXCHANGE RATIO........... 38.3X 36.7X 32.3X 9.6X 13.8X
- -------------------------
(1) As of January 11, 2000.
COMPARABLE TRANSACTIONS ANALYSIS. Credit Suisse First Boston analyzed the
multiples implied by the exchange ratio and compared these to multiples in
comparable transactions. Given the lack of directly comparable transactions,
Credit Suisse First Boston focused on selected asset management transactions,
which are collectively referred to below as the selected transactions,
including:
- Wachovia Corporation/OFFIT Holdings, Inc.;
- American International Group, Inc./SunAmerica;
- Merrill Lynch & Co., Inc./Mercury Asset Management;
- Allianz AG/Pimco Advisors Holding L.P.; and
- UBS AG/Global Asset Management.
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This analysis indicated a range of multiples for the selected transactions
of latest 12 months' EPS, estimated calendar 1999 EPS, estimated calendar 2000
EPS and tangible book value as set forth in the table below. This analysis
indicated an implied equity reference range of approximately $55.98 to $106.22
per common share of U.S. Trust.
MULTIPLE TO
----------------------------------------------------------
LATEST
12
PREMIUM MONTHS' 1999E 2000E
TO MARKET EPS EPS EPS TANGIBLE BOOK
--------- ---------- ----- ----- -------------
Wachovia/OFFIT........... NA 37.0x 32.7x 25.7x 7.4x
AIG/SunAmerica........... 26% 34.4 31.5 26.5 5.7
Merrill Lynch/Mercury
Asset Management....... NA 25.4 NA NA NA
Allianz/Pimco Advisors... 18 23.9 23.1 19.4 4.2
UBS/Global Asset
Management............. NA 24.6 NA NA NA
AVERAGE.................. 22% 29.1X 29.1X 23.9X 5.8X
EXCHANGE RATIO........... 71% 38.3X 36.7X 32.3X 13.8X
DISCOUNTED CASH FLOW ANALYSIS. Credit Suisse First Boston estimated the
present value of the future streams of after-tax free cash flows that U.S. Trust
could produce on a stand-alone basis through calendar year 2005 based upon U.S.
Trust's base case forecast which reflected the strategic plan U.S. Trust's
management had shared with its board of directors. Credit Suisse First Boston
also estimated the present value of the future streams of after-tax free cash
flows that U.S. Trust could produce on a stand-alone basis through calendar year
2005 based upon the upside case forecast U.S. Trust's management developed in
conjunction with its strategic planning process. The range of estimated terminal
values was calculated by applying multiples ranging from 19x to 23x to the
projected calendar year 2005 net income of U.S. Trust. The free cash flow
streams and estimated terminal values were then discounted to present values
using discount rates ranging from 12% to 14%. This analysis indicated an implied
equity reference range for U.S. Trust of approximately $83.14 to $108.04 per
common share of U.S. Trust in the base case, and approximately $92.76 to $120.67
per common share of U.S. Trust in the upside. In addition, Credit Suisse First
Boston estimated the future streams of after-tax free cash flows generated by
the synergies that the merger of U.S. Trust and Schwab could generate. These
were estimated to be between $80 million and $100 million by calendar year 2001,
translating into incremental net income of between $19 million and $24 million.
These estimated synergies have a present value of $25 to $33 per common share of
U.S. Trust, assuming 19x to 23x exit multiples and
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discount rates of between 12% and 14%. The results of the base case and upside
case analyses are shown in the tables below, excluding the estimated synergies:
BASE CASE(1)
TERMINAL MULTIPLE TO
DISCOUNT RATE 2005E EARNINGS
- ------------- ---------------------------
19.0X 21.0X 23.0X
12%........................................ $91.87 $99.96 $108.04
13......................................... 87.37 95.04 102.70
14......................................... 83.14 90.41 97.68
- -------------------------
(1) Based on management estimates. Assumes target tangible leverage ratio of 6%.
UPSIDE CASE(1)
TERMINAL MULTIPLE TO
DISCOUNT RATE 2005E EARNINGS
- ------------- -----------------------------
19.0X 21.0X 23.0X
12%...................................... $102.54 $111.60 $120.67
13....................................... 97.50 106.09 114.68
14....................................... 92.76 100.91 109.06
- -------------------------
(1) Based on management estimates, assuming increased operating leverage.
Assumes target tangible leverage of 6%.
MERGER CONSEQUENCES ANALYSIS. Credit Suisse First Boston analyzed the
potential pro forma effect of the merger on Schwab's EPS during calendar years
2000 and 2001 relative to Schwab on a stand-alone basis. This analysis indicates
that the merger will be accretive to Schwab's EPS by approximately 3.5% and 3.2%
in 2000 and 2001, respectively, excluding merger related costs and before
accounting for projected synergies, and when including projected synergies,
accretion increases to 3.9% and 5.3%, respectively.
ENGAGEMENT OF CREDIT SUISSE FIRST BOSTON. Pursuant to the terms of Credit
Suisse First Boston's engagement, U.S. Trust has agreed to pay Credit Suisse
First Boston a total fee of $19.5 million, $5 million of which became payable
upon the announcement of the execution of the merger agreement, $2 million of
which will become payable upon the mailing of this proxy statement/prospectus to
shareholders of U.S. Trust and the $12.5 million balance of which will become
payable upon the completion of the merger. U.S. Trust also has agreed to
periodically reimburse Credit Suisse First Boston for all reasonable out-of-
pocket expenses, including the fees and expenses of its legal counsel and any
other advisor retained by Credit Suisse First Boston, and to indemnify Credit
Suisse First Boston against liabilities and expenses, in each case resulting
from or arising out of Credit Suisse First Boston's engagement.
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In the ordinary course of their businesses, Credit Suisse First Boston and
its affiliates may actively trade the debt and equity securities of both U.S.
Trust and Schwab for their own accounts and for the accounts of customers, and,
accordingly, may at any time hold a long or short position in those securities.
Except as described above, there are currently no material relationships between
Credit Suisse First Boston and its affiliates and U.S. Trust and its affiliates.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS OF U.S. TRUST IN THE MERGER
When considering the recommendation of the U.S. Trust board of directors
that shareholders vote in favor of the adoption of the merger agreement, U.S.
Trust shareholders should be aware that directors and executive officers of U.S.
Trust have interests in the merger as directors or officers that are different
from, or in addition to, those of a U.S. Trust shareholder, as described below.
The U.S. Trust board was aware of, and considered the interests of, its
directors and executive officers when it considered and approved the merger
agreement and the merger.
As of April 24, 2000, approximately 697,604 common shares of U.S. Trust
were subject to outstanding stock options granted to executive officers under
compensatory equity-based plans of U.S. Trust. Immediately prior to, or as of,
the effective time of the merger, U.S. Trust's stock options and other
equity-based compensation awards will become fully exercisable or vested. At the
effective time of the merger, such stock options and awards, excluding any which
are exercised prior to the effective time of the merger, will be paid out in the
form of Schwab common stock having an equivalent value to the value of the
participants' respective equity-based awards, instead of any cash payments that
would otherwise have been provided under the equity-based plans' terms prior to
their amendment. Restricted stock units granted under the U.S. Trust board of
directors deferred compensation plan and restricted stock units that have not
been granted under any other U.S. Trust compensation plan, in each case
denominated in common shares of U.S. Trust, will be converted at the effective
time of the merger into restricted stock units denominated in Schwab common
stock based upon the exchange ratio of 3.427 and will otherwise continue to be
administered in accordance with their original terms.
Under several of U.S. Trust's executive compensation plans having change in
control provisions, any outstanding awards that are not equity-based will become
fully vested at the effective time of the merger to the extent not then already
vested, but will otherwise continue in effect in accordance with their original
terms.
As promptly as practicable following the effective time of the merger,
Schwab will grant stock options to acquire Schwab common stock to employees of
U.S. Trust, in addition to stock options that will be granted under the
retention program discussed below. Employees of U.S. Trust who are serving as
vice presidents or in more senior executive positions, other than the members of
the Office of the Chairman, will receive a grant of stock options in an
aggregate amount to be determined at an exercise price per share equal to the
fair market value of Schwab common stock on the date of grant.
Under the terms of the merger agreement, Schwab and U.S. Trust will
establish, as of the effective time of the merger, a retention program for all
of U.S. Trust's approximately 1,900 employees, including all executive officers,
that will provide for the awarding of retention bonuses. The aggregate amount of
retention bonuses will equal approximately $150 million, consisting of a cash
component of approximately $125 million and a stock option component of
approximately $25 million. The retention program will cover all U.S. Trust
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employees in employment with U.S. Trust on January 12, 2000, provided that,
subject to limited exceptions, these individuals remain in continuous employment
with U.S. Trust for two years following the effective time of the merger. The
amount of the retention bonus will vary by employment position, ranging from 25%
of base salary for non-officers to $2.8 million for each of Mr. Schwarz, Mr.
Maurer, Ms. Rahe and Mr. Taylor, who collectively comprise the Office of the
Chairman. Cash retention payments vest on the second anniversary of the
completion of the merger, and the stock option component of the retention
payments vests 50% on the third anniversary of the completion of the merger and
50% on the fourth anniversary of the completion of the merger. For a more
complete description of the terms of the retention program, see "The Merger
Agreement and Related Agreements -- Employee Retention Program" on page 61.
Simultaneously with the execution of the merger agreement, Schwab and U.S.
Trust entered into new three-year employment agreements with Messrs. Schwarz,
Maurer and Taylor and Ms. Rahe, which become effective as of the effective time
of the merger. Each covered executive will continue to serve in the same
position he or she is serving in immediately prior to the effective time of the
merger. Each covered executive will receive an annual base salary equal to the
annual base salary being paid to him or her as of the effective time of the
merger. Effective March 27, 2000, such salaries are $675,000 for Mr. Schwarz and
$530,000 for each of Mr. Maurer, Ms. Rahe and Mr. Taylor. Each covered executive
will also receive an annual target bonus, expressed as a percentage of base
salary, of 175% for Mr. Schwarz, 170% for Mr. Maurer and 160% for each of Ms.
Rahe and Mr. Taylor. Further, each covered executive will receive a specified
option grant, 25,000 options for Messrs. Schwarz and Maurer, and 20,000 options
for Ms. Rahe and Mr. Taylor, as soon as practicable following the effective time
of the merger, with an exercise price per share based upon the fair market value
of Schwab common stock on the date of grant. Each covered executive, other than
Mr. Schwarz, will also receive a restricted stock grant of 20,000 shares as soon
as practicable following the effective time of the merger. For a more complete
description of the terms of the employment agreements, see "The Merger Agreement
and Related Agreements -- Executive Employment Agreements and Covenants Not To
Compete" on page 62.
Under the terms of the merger agreement, Schwab has also agreed, following
the merger, to cause U.S. Trust to continue to indemnify the existing and past
directors and officers of U.S. Trust and its subsidiaries in accordance with the
indemnification provisions contained in the charter documents of U.S. Trust and
its subsidiaries. In addition, Schwab will use its commercially reasonable
efforts to retain and keep in effect U.S. Trust's current directors' and
officers' liability insurance for a six-year period following the merger or will
purchase and keep in effect for that same period directors' and officers'
liability insurance having liability limits and providing coverage for acts or
omissions of the type provided by U.S. Trust's existing directors' and officers'
liability insurance.
MERGER CONSIDERATION
In the merger, holders of common shares of U.S. Trust will receive 3.427
shares of Schwab common stock for each common share of U.S. Trust they own at
the effective time of the merger. No fractional shares of Schwab common stock
will be issued in the merger. In lieu of fractional shares, Schwab will issue a
check for the value of any fractional share in an amount determined by
multiplying (1) the closing sale price of Schwab common stock on the New York
Stock Exchange as reported in The Wall Street Journal on the last trading day
prior to the effective time of the merger by (2) the fraction of a share,
rounded to the nearest
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thousandth of a share, of Schwab common stock that the holder would otherwise be
entitled to receive.
The number of shares of Schwab common stock to be issued for each common
share of U.S. Trust is fixed and will not be adjusted based upon changes in the
value of Schwab common stock or common shares of U.S. Trust. As a result, the
value of the Schwab common stock that you receive in the merger will not be
determined at the time you vote on the merger agreement and may go up or down if
the market price of Schwab common stock goes up or down. Neither Schwab nor U.S.
Trust may terminate the merger agreement based on changes in the value of Schwab
common stock prior to the closing of the merger.
REGULATORY MATTERS
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Completion of the merger is subject to a number of regulatory approvals and
consents.
In order to complete the merger and thereby become a bank holding company,
Schwab must first obtain the approval of the Federal Reserve Board under the
Bank Holding Company Act and the Federal Reserve Board's regulations. In
reviewing applications under the Bank Holding Company Act, the Federal Reserve
Board must consider, among other factors, (1) the financial and managerial
resources and future prospects of the existing and merged institutions and (2)
the convenience and needs of the communities to be served. In addition, the
Federal Reserve Board may not approve a merger:
- that will result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of
banking in any part of the United States;
- if its effect in any section of the country may be substantially to
lessen competition or to tend to create a monopoly; or
- if it would in any other manner be a restraint of trade.
However, the Federal Reserve Board may approve a merger if it finds that the
anticompetitive effects of the merger are clearly outweighed by the public
interests and the probable effect of the merger on meeting the convenience and
needs of the communities to be served. Any merger approved by the Federal
Reserve Board may not be completed until 30 days after the approval is obtained.
During this 30-day period, the Department of Justice may challenge the merger on
antitrust grounds and seek the divestiture of certain assets and liabilities.
With the approval of the Federal Reserve Board and the Department of Justice,
the waiting period may be reduced to no less than 15 days.
In order to become a financial holding company under the Bank Holding
Company Act, Schwab must file a declaration with the Federal Reserve Board that
each of U.S. Trust's bank subsidiaries is well capitalized and well managed. A
well capitalized institution must meet the minimum capital ratios set forth at
page 43. A well managed institution must have received at least a satisfactory
bank examination rating for management as well as a composite CAMEL rating of 1
or 2. Unless the Federal Reserve Board determines that one of U.S. Trust's bank
subsidiaries has received an examination rating under the Community Reinvestment
Act that is less than satisfactory, or is otherwise not well capitalized or well
managed, Schwab will become a financial holding company following the merger.
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Under the Community Reinvestment Act, the Federal Reserve Board must also
take into account the record of performance of each of U.S. Trust's bank
subsidiaries in meeting the credit needs of the bank's entire community,
including low and moderate income neighborhoods, through community development
activities. As part of the review process, the banking agencies frequently
receive comments and protests from community groups and others.
Inner City Press/Community on the Move and its members and affiliates have
submitted comments to the Federal Reserve Board and the New York Banking
Department regarding Schwab's application to the Federal Reserve Board to
acquire U.S. Trust. Schwab has responded to the comments.
In addition, the merger is subject to the prior approval of the New York
State Banking Department under provisions of the New York Banking Law. In
determining whether to approve the merger application, the New York State
Banking Department considers, among other factors:
- whether the merger would be consistent with adequate or sound banking
and/or would result in concentration of assets beyond limits consistent
with effective competition;
- whether the merger would result in a lessening of competition that would
be injurious to the interest of the public or tend toward monopoly; and
- whether the merger would serve the public interest and the public's needs
and convenience.
In addition, Schwab's indirect acquisition through the merger of other
state chartered depository institutions of U.S. Trust is subject to the prior
approval of the bank regulatory authorities of the states of Connecticut,
Delaware, Florida, New Jersey and North Carolina. Such approvals are subject to
similar standards as those outlined above for New York.
Additional non-banking regulatory approvals, consents and notices must be
obtained or provided in connection with the merger. These include notifying or
obtaining the consent or approval of various self-regulatory organizations of
which subsidiaries of Schwab and U.S. Trust are members, including the National
Association of Securities Dealers, Inc., and obtaining the consents of the
directors and shareholders of the registered investment companies advised by
U.S. Trust and/or several of its subsidiaries to the deemed assignment of their
investment advisory contracts resulting from the merger.
Schwab filed the application for the approval of the Federal Reserve Board
on March 2, 2000 and for approval of state regulators shortly thereafter. The
Federal Reserve Board advised Schwab by letter dated March 9, 2000 that it plans
to act on Schwab's application by May 1, 2000, but it may choose to extend this
period. On March 20, 2000, the Federal Reserve Board requested that Schwab
provide additional information. Schwab provided the requested information on
April 3, 2000. Schwab does not know of any reason why it would not be able to
obtain the approval of the Board of Governors of the Federal Reserve System or
the relevant state regulators in a timely manner. Schwab and U.S. Trust are not
aware of any other regulatory approvals that would be required for completion of
the merger, except as described above.
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If any of the requisite regulatory approvals are not obtained, the merger
cannot proceed. In addition, U.S. Trust's bank subsidiaries must meet the
standards required for Schwab to become a financial holding company. There can
be no assurance that Schwab will be able to obtain all regulatory approvals.
Furthermore, if the Department of Justice were to challenge the merger, Schwab
cannot predict the result.
REGULATORY MATTERS RELATING TO THE BUSINESS OF SCHWAB FOLLOWING THE MERGER
FINANCIAL MODERNIZATION LEGISLATION. On November 12, 1999, the
Gramm-Leach-Bliley Act was enacted. Effective March 11, 2000, the
Gramm-Leach-Bliley Act permits qualifying bank holding companies to become
financial holding companies and thereby affiliate with a far broader range of
financial companies than has previously been permitted for a bank holding
company. Permitted affiliates include securities brokers, underwriters and
dealers, investment managers, insurance companies and companies engaged in other
activities that are "financial in nature or incidental thereto" or
"complementary." A bank holding company may elect to become a financial holding
company if each of its subsidiary banks is well capitalized, is well managed and
has at least a satisfactory examination rating under the Community Reinvestment
Act.
The Gramm-Leach-Bliley Act identifies several activities as financial in
nature, including, securities brokerage, underwriting, dealing in or making a
market in securities, investment management services and insurance activities.
In addition, the Federal Reserve Board, in cooperation with the Treasury
Department, may declare additional activities to be financial in nature, and the
Federal Reserve Board may unilaterally declare activities to be complementary.
Under the Gramm-Leach-Bliley Act and the Federal Reserve Board's
regulations, if any one of U.S. Trust's bank subsidiaries subsequently fails to
be well capitalized or well managed as described above, Schwab must enter into
an agreement to correct the condition. The Federal Reserve Board has the
authority to limit the activities of such a financial holding company. If the
condition is not corrected within six months or within the additional time
granted by the Federal Reserve Board, the financial holding company must either
divest its bank subsidiaries or divest nonbank operations that are conducted in
reliance upon its financial holding company status.
The Community Reinvestment Act provides that each insured bank or thrift
serve the convenience and needs of its community, including the low- and
moderate-income segments of its community. The Community Reinvestment Act
requires that Federal regulators take into account an institution's record of
serving its community in connection with obtaining regulatory approvals. In
addition, the Federal regulators periodically assess an institution's record by
conducting examinations that result in a Community Reinvestment Act rating. The
Community Reinvestment Act does not apply to firms that are not insured
depository institutions, or to affiliates of an insured depository institution.
If any one of the insured bank or thrift subsidiaries of a financial holding
company does not receive at least a satisfactory Community Reinvestment Act
examination rating, the financial holding company must immediately cease to
engage in new activities or to make new investments, other than investments made
by an insurance or merchant banking affiliate, in reliance upon its authority as
a financial holding company. Each of U.S. Trust's insured bank and thrift
subsidiaries has received a satisfactory Community Reinvestment Act rating.
The Federal Reserve Board's regulations provide that the Federal Reserve
Board reserves the right to prohibit a financial holding company from engaging
in new activities or acquiring
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additional companies if the Federal Reserve Board concludes that the financial
holding company's capital or managerial resources are not adequate. The
regulations provide no standard for the adequacy of capital or management for a
financial holding company.
The Gramm-Leach-Bliley Act establishes the Federal Reserve Board as the
umbrella supervisor for financial holding companies and adopts an administrative
approach to regulation that requires the Federal Reserve Board to defer to the
actions and requirements of the "functional" regulators of subsidiary
broker-dealers, investment managers, investment companies, insurance companies,
banks and other regulated institutions. Thus, the various state and Federal
regulators of a financial holding company's subsidiaries would retain their
jurisdiction and authority over such operating entities. As the umbrella
supervisor, however, the Federal Reserve Board has the potential to affect the
operations and activities of a financial holding company's subsidiaries through
its authority over the financial holding company parent. In addition, the
Gramm-Leach-Bliley Act provides the Federal Reserve Board with back-up
regulatory authority over functionally regulated subsidiaries, such as
broker-dealers and banks, to intervene directly in the affairs of the subsidiary
for specific reasons.
The Federal Reserve Board is expected to issue regulations addressing the
activities in which a financial holding company may engage, consolidated capital
requirements and other regulatory issues. These regulations may limit Schwab's
business or impose additional costs or requirements.
GENERAL. Schwab will become a bank holding company subject to supervision
and regulation by the Federal Reserve Board under the Bank Holding Company Act.
In addition, Schwab will take advantage of provisions added to the Bank Holding
Company Act for a diversified financial services firm to become a financial
holding company. As a financial holding company, Schwab's activities and those
of its banking and nonbanking subsidiaries are limited to the business of
banking and activities that are financial or incidental thereto or are
complementary. Schwab may not directly or indirectly acquire the ownership or
control of more than 5% of any class of voting shares or substantially all of
the assets of any bank or savings and loan association, without the prior
approval of the Federal Reserve Board.
U.S. Trust's bank subsidiaries include state chartered banks, national
banks and a state chartered savings bank. The state chartered institutions are
subject to the supervision, regulation and examination of the relevant state
banking departments and each institution's respective Federal regulator,
including the Federal Deposit Insurance Corporation, Office of Thrift
Supervision and the Federal Reserve Board. The national banks are subject to the
supervision, regulation and examination of the Comptroller of the Currency. The
Federal regulators have broad enforcement authority over Federally-insured
depository institutions, including the power to:
- terminate deposit insurance;
- appoint a conservator or receiver if any of a number of conditions exist;
and
- impose substantial fines and other civil penalties.
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Almost every aspect of the operations and financial condition of U.S.
Trust's bank subsidiaries are subject to extensive regulation and supervision
and to various requirements and restrictions under Federal and state law,
including requirements governing:
- capital adequacy; - management practices;
- liquidity; - branching;
- earnings; - loans;
- dividends; - investments; and
- reserves against deposits; - the provision of services.
Various consumer protection laws and regulations also affect the operations
of U.S. Trust's bank subsidiaries. The deposits of U.S. Trust's bank
subsidiaries are insured up to applicable limits by the FDIC. Supervision and
regulation of financial holding companies and their subsidiaries is intended
primarily for the protection of depositors, the deposit insurance funds of the
FDIC and the banking system as a whole, not for the protection of bank holding
company stockholders or creditors.
The following description summarizes some of the laws to which Schwab and
U.S. Trust's bank subsidiaries are subject. To the extent statutory or
regulatory provisions or proposals are described, the description is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
PAYMENT OF DIVIDENDS. Schwab is a legal entity separate and distinct from
U.S. Trust's bank subsidiaries. There are various legal and regulatory
limitations under Federal and state law on the extent to which banking
subsidiaries can finance or otherwise supply funds to their holding companies.
Federal Reserve Board policy provides that, as a matter of prudent banking,
a bank holding company generally should not maintain a rate of cash dividends
unless its net income available to common stockholders has been sufficient to
fully fund the dividends, and the prospective rate of earnings retention appears
to be consistent with the capital needs, asset quality and overall financial
condition of the holding company and its bank subsidiaries. Since Schwab will be
a bank holding company, this policy may be applied to it even though it is also
a financial holding company. In addition, among other things, dividends from a
New York-chartered bank, such as U.S. Trust's New York state bank, and U.S.
Trust's national banks, are limited to an amount equal to the bank's net profits
for the current year plus its prior two years' retained net profits, less any
required transfer to surplus or a fund for the retirement of any preferred
stock.
Under Federal law, a depository institution is prohibited from paying a
dividend if the depository institution would thereafter be "undercapitalized" as
determined by the Federal bank regulatory agencies. The relevant Federal
regulatory agencies, and the state regulatory agencies, also have authority to
prohibit a bank or a bank holding company from engaging in what, in the opinion
of the regulatory body, constitutes an unsafe or unsound practice in conducting
its business. The payment of dividends could, depending upon the financial
condition of U.S. Trust's bank subsidiaries, be deemed to constitute such an
unsafe or unsound practice.
TRANSACTIONS WITH AFFILIATES. U.S. Trust's bank subsidiaries are subject
to restrictions under Federal law that limit transactions with Schwab and its
nonbank subsidiaries, including loans and other extensions of credit,
investments or asset purchases. Such transactions by a
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bank subsidiary with any one affiliate are limited in amount to 10% of the
bank's capital and surplus and, with all affiliates together, to an aggregate of
20% of the bank's capital and surplus. Furthermore, such loans and extensions of
credit, as well as other transactions, are required to be secured in specified
amounts. These and various other transactions, including any payment of money to
Schwab, must be on terms and conditions that are, or in good faith would be,
offered to nonaffiliated companies. See "The Merger Agreement and Related
Agreements -- The Merger Agreement -- Conditions to the Completion of the
Merger" on page 49 and "-- The Merger Agreement -- Termination" on page 53.
HOLDING COMPANY LIABILITY. Under Federal Reserve Board policy, a bank
holding company is expected to act as a source of financial strength to each of
its bank subsidiaries and commit resources to their support. Such support may be
required at times when, absent this Federal Reserve Board policy, a holding
company may not be inclined to provide it. As a bank holding company, Schwab may
be subject to this policy even though it is also a financial holding company. As
discussed below under "Prompt Corrective Action" on page 42, a bank holding
company could be required to guarantee the capital plan of an undercapitalized
banking subsidiary or subject the bank to seizure by the FDIC.
In addition, the Gramm-Leach-Bliley Act authorizes the Federal Reserve
Board to order a registered broker-dealer, investment advisor or investment
company affiliate of a financial holding company to transfer capital to an
affiliated bank. The Securities and Exchange Commission can veto such an order.
If the Securities and Exchange Commission vetoes such an order, the Federal
Reserve Board can order the financial holding company to divest the bank
affiliate.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required
to cure immediately any deficit under any commitment by the debtor holding
company to any of the Federal banking agencies to maintain the capital of an
insured depository institution, and any claim for breach of such obligation will
generally have priority over most other unsecured claims.
PROMPT CORRECTIVE ACTION. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, the Federal banking agencies must take prompt
supervisory and regulatory actions against undercapitalized depository
institutions. Depository institutions are assigned one of five capital
categories:
- well capitalized;
- adequately capitalized;
- undercapitalized;
- significantly undercapitalized; and
- critically undercapitalized.
Each capital category is subject to differing regulation. A well
capitalized, adequately capitalized or undercapitalized institution may
sometimes be treated as if the institution were in the next lower capital
category. A depository institution is generally prohibited from making capital
distributions, including paying dividends, or paying management fees to a
holding company if the institution would thereafter be undercapitalized.
Adequately capitalized institutions cannot accept, renew or roll over brokered
deposits except with a waiver from the FDIC and are subject to restrictions on
the interest rates that can be paid on
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such deposits. Undercapitalized institutions may not accept, renew or roll over
brokered deposits.
The banking regulatory agencies are permitted or, sometimes, required to
take actions with respect to institutions falling within one of the three
undercapitalized categories. Depending on the level of an institution's capital,
the agency's corrective powers include, among other things:
- prohibiting the payment of principal and interest on subordinated debt;
- prohibiting the holding company from making distributions without prior
regulatory approval;
- placing limits on asset growth and restrictions on activities;
- placing additional restrictions on transactions with affiliates;
- restricting the interest rate the institution may pay on deposits;
- prohibiting the institution from accepting deposits from correspondent
banks; and
- in the most severe cases, appointing a conservator or receiver for the
institution.
A banking institution that is undercapitalized is required to submit a
capital restoration plan, and this plan will not be accepted unless, among other
things, the banking institution's holding company guarantees the plan up to a
specified amount. The failure to submit such a guaranteed capital plan may
result in the seizure of the bank by the FDIC. As of December 31, 1999, U.S.
Trust's bank subsidiaries exceeded the required capital ratios for
classification as well capitalized.
CAPITAL ADEQUACY. The Federal Reserve Board has adopted various capital
guidelines for bank holding companies. The Federal Reserve has not indicated
whether the guidelines will be modified with respect to a bank holding company
such as Schwab that also qualifies as a financial holding company.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The minimum ratio of total capital to risk-weighted
assets is 8%. Risk-weighted assets are the credit risk equivalents of balance
sheet assets and various off balance sheet items such as standby letters of
credit. At least half of the total capital must be composed of common
stockholders' equity, including retained earnings, qualifying non-cumulative
perpetual preferred stock, minority interests in the equity accounts of
consolidated subsidiaries, and, for bank holding companies only, a limited
amount of qualifying cumulative perpetual preferred stock, less goodwill, other
disallowed intangibles and disallowed deferred tax assets, among other items.
The remainder may consist of a limited amount of subordinated debt, other
perpetual preferred stock, hybrid capital instruments, mandatory convertible
debt securities that meet Federal Reserve Board requirements, as well as a
limited amount of reserves for loan losses. The Federal Reserve Board has also
adopted a minimum leverage ratio for bank holding companies, requiring Tier 1
capital of at least 3% of average total consolidated assets.
The Federal Reserve Board's risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
specified criteria, assuming that they have the highest regulatory rating. Bank
holding companies not meeting these criteria are expected to operate with
capital positions well above the minimum ratios. The Federal Reserve Board may
set capital requirements for a particular bank holding company that are
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higher than the minimum ratios when circumstances warrant. Federal Reserve Board
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant reliance
on intangible assets. In addition, the regulations of the Federal Reserve Board
provide that concentration of credit risk, interest rate risk and risks arising
from nontraditional activities, as well as an institution's ability to manage
these risks, are important factors to be taken into account by regulatory
agencies in assessing an organization's overall capital adequacy. The agencies
have also adopted an adjustment to the risk-based capital calculations to cover
market risk in trading accounts of certain institutions.
The Federal Reserve Board recently adopted amendments to their risk-based
capital regulations to provide for the consideration of interest rate risk in
the agencies' determination of a banking organization's capital adequacy. The
amendments require such institutions to effectively measure and monitor their
interest rate risk and to maintain capital adequate for that risk.
The Federal banking regulators have also established risk-based and
leverage capital guidelines that insured banks and thrifts are required to meet.
These regulations are generally similar to those established by the Federal
Reserve Board for bank holding companies. The capital ratios for Schwab, on a
pro forma basis, U.S. Trust and U.S. Trust's bank subsidiaries are provided in
the chart below.
RISK-BASED CAPITAL AND LEVERAGE RATIOS
AS OF DECEMBER 31, 1999
------------------------------
RISK-BASED RATIOS
------------------
TIER I TOTAL LEVERAGE
CAPITAL CAPITAL RATIO
------- ------- --------
Schwab (pro forma)(1).............................. 10.25% 10.25% 7.61%
U.S. Trust Corporation............................. 11.79% 12.66% 6.16%
United States Trust Company of New York............ 9.74% 10.67% 5.42%
U.S. Trust Company (Connecticut)................... 37.14% 37.90% 8.79%
U.S. Trust Company of New Jersey................... 67.07% 68.14% 18.58%
U.S. Trust Company of Texas, N.A................... 33.34% 33.89% 8.93%
U.S. Trust Company, N.A. (California).............. 18.25% 19.04% 6.13%
U.S. Trust Company of Florida Savings Bank......... 37.07% 37.57% 14.42%
Minimum required ratio............................. 4.00% 8.00% 4.00%
"Well capitalized" minimum ratio................... 6.00% 10.00% 5.00%
- ---------------
(1) The calculation of Schwab's pro forma risk-based capital and leverage ratios
gives effect to Schwab as a bank holding company as of December 31, 1999,
without giving effect to the merger.
The Gramm-Leach-Bliley Act authorizes the Federal Reserve Board to
establish consolidated capital requirements for financial holding companies. The
Gramm-Leach-Bliley Act prohibits the Federal Reserve Board from imposing capital
requirements on functionally
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regulated nonbank subsidiaries of a financial holding company, such as
broker-dealers and investment advisors. The Federal Reserve Board has not
published consolidated capital requirements specific to financial holding
companies, but may do so in the future. The Federal Reserve Board has proposed
to require that a financial holding company deduct from capital an amount
equivalent to 50% of the company's merchant banking investments.
As discussed below under "Enforcement Powers of the Federal Banking
Agencies," failure to meet the minimum regulatory capital requirements could
subject a bank holding company and its bank or thrift subsidiaries to a variety
of enforcement remedies available to Federal regulatory authorities, including,
in the most severe cases, the termination of deposit insurance by the FDIC and
the placement of the institution into conservatorship or receivership.
ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES. The Federal banking
agencies have broad enforcement powers, including the power to terminate deposit
insurance, impose substantial fines and other civil and criminal penalties and
appoint a conservator or receiver. Failure to comply with applicable laws,
regulations and supervisory agreements could subject Schwab, U.S. Trust or U.S.
Trust's bank subsidiaries, as well as officers, directors and other
institution-affiliated parties of these organizations, to administrative
sanctions and potentially substantial civil money penalties. In addition to the
grounds discussed under "Prompt Corrective Action" on page 42, the appropriate
Federal banking agency may appoint the FDIC as conservator or receiver for a
banking institution, or the FDIC may appoint itself if any one or more of a
number of circumstances exist, including, without limitation:
- the fact that the banking institution is undercapitalized and has no
reasonable prospect of becoming adequately capitalized;
- the institution fails to become adequately capitalized when required to
do so;
- the institution fails to submit a timely and acceptable capital
restoration plan; or
- the institution materially fails to implement an accepted capital
restoration plan.
PRIVACY. Subject to limited exceptions, the privacy provisions of the
Gramm-Leach-Bliley Act prohibit financial institutions from disclosing to
unaffiliated third parties nonpublic personal information regarding consumers
and require financial institutions to develop and disclose consumer privacy
policies. In addition, under these provisions Federal regulators may regulate
information-sharing practices of financial institutions and enforce these
provisions. Federal regulations implementing the statute are being developed.
Federal law does not preempt state financial privacy laws that are stricter than
the Federal provisions. Schwab and U.S. Trust may be required to amend their
privacy policies and consumer disclosures to comply with the Gramm-Leach-Bliley
Act and its implementing regulations.
CONTROL ACQUISITIONS. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company such as
Schwab, unless the Federal Reserve Board has been notified and has not objected
to the transaction. Under a rebuttable presumption established by the Federal
Reserve Board, the acquisition of 10% or more of a class of voting stock of a
bank holding company, such as Schwab, with a class of securities registered
under Section 12 of the Exchange Act, such as Schwab, would, under the
circumstances set forth in the presumption, constitute acquisition of control of
Schwab.
In addition, any company is required to obtain the approval of the Federal
Reserve Board under the Bank Holding Company Act before acquiring 25% or more of
the outstanding common stock of Schwab, or otherwise obtaining control or a
"controlling
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influence" over Schwab. In the case of an acquirer that is a bank holding
company, such Federal Reserve Board approval is required before acquiring a 5%
or greater interest in Schwab.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits an adequately capitalized and adequately managed bank holding company,
with Federal Reserve Board approval, to acquire banking institutions located in
states other than the bank holding company's home state without regard to
whether the transaction is prohibited under state law. In addition, effective
June 1, 1997, national banks and state banks with different home states are
permitted to merge across state lines, with the approval of the appropriate
Federal banking agency, unless the home state of a participating banking
institution has passed legislation prior to that date that expressly prohibits
interstate mergers. De novo interstate branching is permitted if the laws of the
host state so authorize.
FUTURE LEGISLATION. Various legislation is from time to time introduced in
Congress, including proposals to alter the bank regulatory system, expand the
powers of banking institutions and bank holding companies and limit the
investments that a depository institution may make with insured funds. Such
legislation may change banking statutes and the operating environment of Schwab
and its subsidiaries in substantial and unpredictable ways. Schwab cannot
determine the ultimate effect that potential legislation, if enacted, or
implementing regulations, would have upon the financial condition or results of
operations of Schwab or its subsidiaries.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion summarizes the anticipated material United
States Federal income tax consequences of the merger to holders of common shares
of U.S. Trust who exchange those shares for Schwab common stock in the merger.
This discussion addresses only those shareholders who hold their common shares
of U.S. Trust as capital assets and does not address all of the United States
Federal income tax consequences that may be relevant to particular shareholders
in light of their individual circumstances or to shareholders who are subject to
special rules, such as financial institutions, tax-exempt organizations,
insurance companies, dealers in securities or foreign currencies, foreign
holders, persons who hold shares as a hedge against currency risk, or as part of
a constructive sale or conversion transaction, or holders who acquired their
shares upon the exercise of employee stock options or otherwise as compensation.
This discussion does not address any state, local or foreign tax consequences of
the merger. HOLDERS OF COMMON SHARES OF U.S. TRUST ARE STRONGLY URGED TO CONSULT
THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
No ruling has been, or will be, sought from the Internal Revenue Service as
to the United States Federal income tax consequences of the merger, and the
following discussion is not binding on the Internal Revenue Service. It is based
upon the Internal Revenue Code, laws, regulations, rulings and decisions in
effect as of the date of this proxy statement/ prospectus, all of which are
subject to change, possibly with retroactive effect.
In the opinion of Cravath, Swaine & Moore, special tax counsel to U.S.
Trust, so long as all conditions to the closing of the merger are satisfied or
waived and the merger is completed as described in this proxy
statement/prospectus:
- the merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
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- holders of common shares of U.S. Trust who exchange their shares for
Schwab common stock in the merger will not recognize gain or loss for
United States Federal income tax purposes, except with respect to cash,
if any, they receive instead of a fractional share of Schwab common
stock;
- each holder's aggregate tax basis in the Schwab common stock received in
the merger will be the same as his or her aggregate tax basis in the
common shares of U.S. Trust surrendered in the merger, decreased by the
amount of any tax basis allocable to any fractional share interest for
which cash is received; and
- the holding period of the Schwab common stock received in the merger by a
holder of common shares of U.S. Trust will include the holding period of
the common shares of U.S. Trust that he or she surrendered in the merger.
An opinion of counsel represents counsel's best legal judgment and is not
binding on the Internal Revenue Service or any court.
A holder of common shares of U.S. Trust who receives cash instead of a
fractional share of Schwab common stock will recognize gain or loss equal to the
difference between the amount of cash received and his or her tax basis in the
common shares of U.S. Trust that is allocable to the fractional share. That gain
or loss generally will constitute capital gain or loss. In the case of an
individual shareholder, any capital gain will be subject to a maximum United
States Federal income tax rate of 20% if the individual has held his or her
common shares of U.S. Trust for more than 12 months at the effective time of the
merger. The deductibility of capital losses is subject to limitations for both
individuals and corporations.
ACCOUNTING TREATMENT
Completion of the merger is conditioned upon receipt by Schwab and U.S.
Trust of letters from Deloitte & Touche LLP and PricewaterhouseCoopers LLP
regarding those firms' concurrence with Schwab's management's and U.S. Trust's
management's conclusions, respectively, that as of the date the merger is
completed, no conditions exist that would preclude accounting for the merger as
a pooling-of-interests business combination, if the merger is completed in
accordance with the merger agreement. See "The Merger Agreement and Related
Agreements -- The Merger Agreement -- Conditions to the Completion of the
Merger" on page 49 and "-- The Merger Agreement -- Termination" on page 53.
Under the pooling-of-interests method of accounting, upon completion of the
merger, the historical cost-based amounts of the assets and liabilities of
Schwab and U.S. Trust will be carried forward and recorded by the combined
company. The stockholders' equities of Schwab and U.S. Trust are also combined.
In addition, the income of the combined company will include the income of
Schwab and U.S. Trust for the entire fiscal period in which the merger is
completed, and the reported income for the prior periods will be combined and
restated as the income of the combined company.
DISSENTERS' RIGHTS
Shareholders of U.S. Trust who vote against the adoption of the merger
agreement do not have the right under Section 623 of the Business Corporation
Law of New York to receive payment in cash for the fair value of their shares in
lieu of receiving the consideration provided for under the merger agreement.
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LISTING OF SCHWAB COMMON STOCK TO BE ISSUED IN THE MERGER
It is a condition to the merger that Schwab common stock issuable to the
U.S. Trust shareholders in the merger be approved for listing on the New York
Stock Exchange, subject to official notice of issuance.
DELISTING AND DEREGISTRATION OF COMMON SHARES OF U.S. TRUST
If the merger is completed, the common shares of U.S. Trust will be
delisted from the New York Stock Exchange and will be deregistered under the
Exchange Act.
RESTRICTIONS ON SALE OF SHARES OF SCHWAB COMMON STOCK AND COMMON SHARES OF U.S.
TRUST BY AFFILIATES OF SCHWAB AND U.S. TRUST
The shares of Schwab common stock to be issued in connection with the
merger will be registered under the Securities Act and will be freely
transferable under the Securities Act, except for shares of Schwab common stock
issued to any person who is deemed to be an affiliate of either Schwab or U.S.
Trust at the time of the special meeting. Persons who may be deemed affiliates
include individuals or entities that control, are controlled by or are under
common control of either Schwab or U.S. Trust and may include several officers
and directors as well as principal shareholders. Affiliates may not sell their
shares of Schwab common stock received in the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- another applicable exemption under the Securities Act, including the
resale provisions of Rule 144.
In addition, it is expected that each affiliate will agree not to make any
disposition of Schwab common stock or common shares of U.S. Trust within 30 days
prior to the completion of the merger and until after such time as financial
results covering at least 30 days of combined operations of Schwab and U.S.
Trust have been published. The merger agreement requires Schwab and U.S. Trust
to use commercially reasonable efforts to cause each of their respective
affiliates to enter into such affiliate agreements. Schwab's registration
statement on Form S-4, of which this proxy statement/prospectus forms a part,
does not cover the resale of shares of Schwab common stock to be received by
affiliates in the merger.
OPERATIONS FOLLOWING THE MERGER
Following the merger, U.S. Trust will be a wholly-owned subsidiary of
Schwab. Upon consummation of the merger, the membership of U.S. Trust's board of
directors will be changed to include Messrs. Schwab and Pottruck, and the
membership of Schwab's board of directors will be changed to include Messrs.
Schwarz and Maurer. In addition, Messrs. Schwarz, Maurer and Taylor and Ms. Rahe
will be appointed to the Schwab management committee. The shareholders of U.S.
Trust will become stockholders of Schwab, and their rights as stockholders will
be governed by Schwab's certificate of incorporation, Schwab's bylaws and the
laws of the state of Delaware. Please see "Comparison of Rights of Stockholders
of Schwab and Shareholders of U.S. Trust" on page 67.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following description summarizes the material provisions of the merger
agreement, the stock option agreement, the employee retention program and the
employment agreements. You should read carefully the merger agreement and the
stock option agreement, which are attached as Annex A and Annex B to this proxy
statement/prospectus.
THE MERGER AGREEMENT
CONDITIONS TO THE COMPLETION OF THE MERGER
CONDITIONS TO SCHWAB'S AND U.S. TRUST'S OBLIGATIONS TO COMPLETE THE
MERGER. Each party's obligation to effect the merger is subject to the
satisfaction or waiver of the following conditions:
- holders of two-thirds of the voting power of all outstanding common
shares of U.S. Trust have adopted the merger agreement;
- the shares of Schwab common stock issuable to U.S. Trust shareholders in
the merger have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance;
- the merger has been approved by the Federal Reserve Board and all other
relevant Federal and state bank and thrift regulators;
- all other regulatory approvals and all other statutory waiting periods
have been obtained or expired, other than those which would not be
reasonably likely to have a material adverse effect on Schwab or U.S.
Trust;
- the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, has become effective under the
Securities Act and is not the subject of any stop order or proceedings
seeking a stop order;
- no order, injunction, decree or judgment has been issued by any court or
governmental body or agency, or other legal restraint or prohibition
preventing the consummation of the merger is in effect;
- no statute, rule, regulation, order, injunction or decree that prohibits
or makes illegal the consummation of the merger has been enacted,
entered, promulgated or enforced; and
- Schwab and U.S. Trust each has received a letter, dated as of the closing
date of the merger, from both Deloitte & Touche LLP and
PricewaterhouseCoopers LLP to the effect that the merger will qualify for
pooling-of-interests accounting treatment.
CONDITIONS TO SCHWAB'S OBLIGATION TO COMPLETE THE MERGER. Schwab's
obligation to effect the merger is also subject to the satisfaction or waiver by
Schwab of the following conditions:
- the representations and warranties of U.S. Trust set forth in the merger
agreement relating to the capitalization of U.S. Trust are true and
correct in all material respects as of the date of the merger agreement
and as of the closing date of the merger, or, if such representations and
warranties expressly relate to an earlier date, then as of such date;
provided, however, that the foregoing condition will not be satisfied if
the
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number of common shares of U.S. Trust outstanding on a fully diluted
basis on January 6, 2000 exceeded 22,193,743;
- the representations and warranties of U.S. Trust set forth in the merger
agreement relating to the status of U.S. Trust's insured depository
institutions are true and correct as of the date of the merger agreement
and as of the closing date of the merger;
- the other representations and warranties of U.S. Trust set forth in the
merger agreement are true and correct as of the date of the merger
agreement and as of the closing date of the merger, or, if such
representations and warranties expressly relate to an earlier date, then
as of such date; provided that, if any such representations and
warranties are not true and correct, without giving effect to any
qualification or limitation as to materiality or material adverse effect,
then this condition will be deemed satisfied if and only if the
cumulative effect of all inaccuracies of such representations and
warranties, without giving effect to any qualification or limitation as
to materiality or material adverse effect, is not or does not have a
material adverse effect on U.S. Trust;
- U.S. Trust has performed in all material respects all obligations
required to be performed by it under the merger agreement on or prior to
the closing date of the merger, and Schwab has received a certificate
signed on behalf of U.S. Trust by its Chief Executive Officer and Chief
Financial Officer to that effect;
- no conditions, restrictions or requirements have been imposed on Schwab,
U.S. Trust or the surviving corporation in the merger by a governmental
entity that have or would reasonably be likely to have a material adverse
effect on Schwab, including 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, U.S. Trust or the surviving corporation in the merger that
would be reasonably likely to have a material adverse effect on Schwab;
and
- U.S. Trust and each of its subsidiaries meet the criteria necessary for
Schwab to qualify as a financial holding company under the
Gramm-Leach-Bliley Act.
CONDITIONS TO U.S. TRUST'S OBLIGATION TO COMPLETE THE MERGER. U.S. Trust's
obligation to effect the merger is also subject to the satisfaction or waiver by
U.S. Trust of the following conditions:
- the representations and warranties of Schwab set forth in the merger
agreement relating to the capitalization of Schwab are true and correct
in all material respects as of the date of the merger agreement and as of
the closing date of the merger, or, if such representations and
warranties expressly relate to an earlier date, then as of such date;
- the other representations and warranties of Schwab set forth in the
merger agreement are true and correct as of the date of the merger
agreement and as of the closing date of the merger, or, if such
representations and warranties expressly relate to an earlier date, then
as of such date; provided that, if any such representations and
warranties are not true and correct, without giving effect to any
qualification or limitation as to materiality or material adverse effect,
then this condition will be deemed satisfied if and only if the
cumulative effect of all inaccuracies of such representations and
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warranties, without giving effect to any qualification or limitation as
to materiality or material adverse effect, is not or does not have a
material adverse effect on Schwab;
- Schwab has performed in all material respects all obligations required to
be performed by it under the merger agreement on or prior to the closing
date of the merger, and U.S. Trust has received a certificate signed on
behalf of Schwab and Schwab Merger Sub by Schwab's President or a
Vice-Chairman and by Schwab's Chief Financial Officer to that effect; and
- U.S. Trust has received from Cravath, Swaine & Moore, on the closing date
of the merger, an opinion stating that the merger will qualify for United
States Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code. The issuance of this
opinion is conditioned upon the receipt by Cravath, Swaine & Moore of
customary representation letters from each of U.S. Trust, Schwab Merger
Sub and Schwab in form and substance reasonably satisfactory to Cravath,
Swaine & Moore.
The merger agreement provides that a "material adverse effect" means, when
used in connection with U.S. Trust or Schwab, any effect that is, or would be
reasonably likely to be, material and adverse to the business, operations,
financial condition or results of operations of such party and its subsidiaries
taken as a whole or does, or would be reasonably likely to, prevent the parties
from consummating the merger, other than:
- any effect resulting from events, facts or circumstances relating to the
economy in general, including market fluctuations and changes in interest
rates, or to the parties' industry in general and specifically relating
to either party or any subsidiary of such party; or
- the loss of customer business, in whole or in part, resulting from the
announcement or consummation of the merger agreement or the merger.
U.S. Trust can provide no assurance that all of the conditions precedent to
the merger will be satisfied or waived by the party permitted to do so. U.S.
Trust cannot at this point determine whether it would resolicit proxies in the
event that it decides to waive any of the items listed above. This decision
would depend upon the facts and circumstances leading to U.S. Trust's decision
to complete the merger and whether U.S. Trust believes there has been a material
change in the terms of the merger and its effect on U.S. Trust's shareholders.
In making its determination, U.S. Trust would consider, among other factors:
- the reasons for the waiver;
- the effect of the waiver on the terms of the merger;
- whether the requirement being waived was necessary in order to make the
deal fair to the shareholders from a financial point of view;
- the availability of alternative transactions; and
- the prospects of U.S. Trust as an independent entity.
If U.S. Trust determines that a waiver of a condition would materially and
adversely change the terms of the merger, including the expected qualification
of the merger as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, it will resolicit proxies.
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NO SOLICITATION. The merger agreement provides that U.S. Trust will not,
nor will it permit any of its subsidiaries to, nor will it authorize or permit
any of its directors, officers, employees, agents or affiliates or any
investment banker, attorney or other advisor to, directly or indirectly:
- solicit or encourage inquiries or proposals with respect to any takeover
proposals, as discussed below;
- engage in any negotiations regarding, or have any discussions with any
person relating to, any takeover proposal;
- provide any confidential information in response or relating to any
takeover proposal; or
- waive any provision of, or amend the terms of, U.S. Trust's rights
agreement in respect of a takeover proposal.
However, at any time prior to the date of the special meeting, the U.S.
Trust board of directors may, in response to a takeover proposal that did not
result from a breach of the obligations outlined above, and that, in its good
faith judgment, after consultation with outside counsel, is or is reasonably
likely to be, a superior proposal, as described below:
- furnish information with respect to U.S. Trust to the person making the
superior proposal under a confidentiality agreement that is not less
restrictive than the confidentiality agreement that U.S. Trust has
entered into with Schwab; and
- participate in discussions or negotiations regarding such superior
proposal.
The merger agreement provides that:
- The term "takeover proposal" means any bona fide inquiry, proposal, offer
or indication of interest from any person relating to any direct or
indirect (1) acquisition, purchase or lease of 20% or more of the
consolidated net revenues, net income or assets of U.S. Trust and its
subsidiaries, taken as a whole or (2) acquisition or purchase of 20% or
more of any class of common stock or voting securities of U.S. Trust or
any of its subsidiaries or (3) 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 U.S. Trust or any of
its subsidiaries.
- The term "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 the common shares of U.S. Trust or all or
substantially all the assets of U.S. Trust, (1) on terms that the U.S.
Trust board of directors determines in its good faith judgment, based on
the advice of an investment banking firm having national recognition, to
be more favorable to U.S. Trust shareholders from a financial point of
view and (2) that the U.S. Trust board of directors determines in its
good faith judgment to be reasonably capably of being completed, taking
into account all financial, regulatory, legal and other aspects of such
proposal.
Except as expressly permitted by the merger agreement, neither the U.S.
Trust board of directors nor any committee of the board is permitted to withdraw
or modify, or propose
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publicly to withdraw or modify, in a manner adverse to Schwab, the approval or
recommendation of the merger or the merger agreement by the U.S. Trust board of
directors or any committee of the board, nor will they approve or recommend, or
propose publicly to approve or recommend, any takeover proposal. The U.S. Trust
board of directors is required at all times to recommend to U.S. Trust
shareholders that they vote in favor of the adoption of the merger agreement and
is required at all times to recommend that U.S. Trust shareholders reject any
takeover proposal, except as described below.
Notwithstanding the foregoing, in response to a superior proposal, U.S.
Trust may terminate the merger agreement prior to its adoption by U.S. Trust
shareholders if:
- the U.S. Trust board of directors has received a superior proposal;
- U.S. Trust has notified Schwab in writing of the determination of the
U.S. Trust board of directors to accept the superior proposal, and has
included a summary of all material terms and conditions of the superior
proposal;
- at least ten business days following receipt by Schwab of the notice
referred to in the second bullet above, such superior proposal remains a
superior proposal after taking into account any revised proposals made by
Schwab after its receipt of the notice from U.S. Trust;
- U.S. Trust is in compliance with its obligations described above under
"-- No Solicitation" on page 52;
- the U.S. Trust board of directors concurrently approves, and U.S. Trust
concurrently enters into, a definitive agreement providing for the
implementation of such superior proposal; and
- U.S. Trust pays the termination fee to Schwab.
See "-- Termination" directly below and "-- Termination Fee" on page 54.
TERMINATION. The merger agreement may be terminated at any time prior to
the effective time of the merger, whether before or after adoption of the merger
agreement by the shareholders of U.S. Trust:
- by mutual written consent of Schwab and U.S. Trust;
- by Schwab or U.S. Trust, if the merger has not been completed by December
31, 2000, unless the failure to close the merger is due to the failure of
the party seeking to terminate the merger agreement to perform or observe
the covenants and agreements of such party set forth in the merger
agreement;
- by Schwab or U.S. Trust, if the U.S. Trust shareholders do not adopt the
merger agreement at a U.S. Trust shareholders' meeting;
- by Schwab or U.S. Trust, if any requisite regulatory approval has been
denied and such denial is final and nonappealable, or any legal restraint
or prohibition is in effect and has become final and nonappealable,
preventing the completion of the merger;
- by Schwab or U.S. Trust, if the other party has breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in the merger agreement, which
breach or failure to perform would give rise to the failure of a
condition to the merger and is not cured within 45 calendar
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days after written notice or, by its nature or timing, cannot be cured
prior to the closing;
- by U.S. Trust, at any time prior to the date of the special meeting, in
response to a superior proposal that was not solicited by U.S. Trust and
that did not otherwise result from a breach of the provisions of the
merger agreement described above under "-- No Solicitation" on page 52,
if U.S. Trust has complied with notice requirements described above and
paid the termination fee; or
- by Schwab, if the U.S. Trust board of directors has taken any of the
actions that would be prohibited by the third paragraph described above
under "-- No Solicitation" on page 52.
TERMINATION FEE. U.S. Trust must pay Schwab a termination fee of $100
million if:
- the merger agreement is terminated by Schwab:
(a) due to a willful and material breach of any of the covenants or
agreements or any of the representations or warranties set forth in
the merger agreement by U.S. Trust, which breach would give rise to
the failure of a condition to Schwab's obligation to close the
merger and which is not cured within 45 days following written
notice to U.S. Trust or, by its nature or timing, cannot be cured
prior to the closing of the merger;
(b) because the merger has not been consummated on or before December
31, 2000, and no U.S. Trust shareholder meeting has occurred at
which adoption of the merger agreement is sought from U.S. Trust
shareholders, unless the failure of the closing of the merger to
occur by such date is due to Schwab's failure to perform or observe
its covenants and agreements set forth in the merger agreement;
(c) if the shareholders of U.S. Trust do not adopt the merger agreement
at the special meeting or at any adjournment or postponement of the
special meeting; or
(d) if the U.S. Trust board of directors withdraws or modifies or
publicly proposes to withdraw or modify its recommendation of the
merger as a result of taking and disclosing to the shareholders any
position required by the securities laws in response to an
unsolicited takeover action;
provided that no termination fee will be payable in any of the above cases
unless a takeover proposal has been made or publicly announced prior to
the date of termination and within 12 months of the termination U.S. Trust
enters into a definitive agreement to consummate, or consummates, a
takeover proposal involving at least 35% of the stock or assets of U.S.
Trust or a takeover proposal involving at least 35% of the stock of U.S.
Trust is consummated directly with the shareholders of U.S. Trust; or
- the merger agreement is terminated by U.S. Trust in response to a
superior proposal prior to the adoption of the merger agreement by U.S.
Trust shareholders as described above under "-- No Solicitation" on page
52; or
- the merger agreement is terminated by Schwab due to the U.S. Trust board
of directors having withdrawn or modified or having proposed publicly to
withdraw or
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modify, in a manner adverse to Schwab, its approval or recommendation of
the merger agreement or the merger, other than as described above, or
approved or recommended, or proposed publicly to approve or recommend, a
takeover proposal.
The merger agreement further provides that if U.S. Trust fails to pay any
termination fee due, U.S. Trust must pay Schwab's costs and expenses in
connection with any action taken to collect payment, together with interest on
the amount of the termination fee.
CONDUCT OF U.S. TRUST BUSINESS PENDING THE MERGER. Under the merger
agreement, U.S. Trust has agreed that, prior to the effective time of the
merger, it will carry on its businesses in the usual, regular and ordinary
course consistent with past practice, will use commercially reasonable efforts
to maintain and preserve intact its current business organization, employees and
advantageous business relationships and retain the services of its key officers
and other key employees and to not take any action that would adversely affect
or delay in any material respect the ability of either U.S. Trust or Schwab to
obtain the necessary regulatory or other governmental approvals required for the
merger. In addition, U.S. Trust has agreed that, among other things and subject
to limited exceptions, neither it nor any of its subsidiaries, without the prior
written consent of Schwab or unless otherwise provided in the merger agreement,
may:
- other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, other than
short-term indebtedness incurred to refinance existing indebtedness,
indebtedness of U.S. Trust to any of its subsidiaries or of any of its
subsidiaries to U.S. Trust and indebtedness under existing lines of
credit, or assume, guarantee, endorse or otherwise become responsible for
the obligations of any other person or entity, or make any loan or
advance, except to the extent committed to prior to the date of the
merger agreement, in an aggregate amount in excess of $10 million;
- incur any capital expenditures, other than capital expenditures incurred
pursuant to contracts or commitments in force as of the date of the
merger agreement, which, in the aggregate, are in excess of $50 million;
- adjust, split, combine or reclassify any of its capital stock;
- make, declare, or pay any dividend or other distribution on any of its
capital stock, other than (a) dividends and distributions paid in the
ordinary course of business by any subsidiary of U.S. Trust and (b)
regular quarterly cash dividends or distributions at a rate not in excess
of $0.22 per common share of U.S. Trust, 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;
- grant any stock appreciation rights or grant to any individual,
corporation or other entity any right to acquire any shares of its
capital stock, or issue any additional shares of capital stock, other
than with respect to the exercise of stock options granted prior to
January 1, 2000;
- enter into any agreement, understanding or arrangement with respect to
the sale or voting of its capital stock;
- sell, mortgage, transfer, encumber or otherwise dispose of any of its
properties or assets, including its capital stock, or cancel, release or
assign any indebtedness to any person, or held by any such person except
in the ordinary course of business
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consistent with past practice or under contracts or agreements in force
on the date of the merger agreement or otherwise with respect to
properties, assets and indebtedness with an aggregate fair market value
not in excess of $10 million;
- acquire any business entity by stock purchase, merger, consolidation or
otherwise;
- make any investment in another entity, other than a wholly-owned
subsidiary of U.S. Trust and except 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;
- except as required by law or the terms of any existing agreement to which
U.S. Trust is a party or as contemplated in the merger agreement and the
employment agreements and except for increases in the ordinary course of
business consistent with past practice, 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 or 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;
- 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;
- 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 generally accepted accounting principles and
concurred in by PricewaterhouseCoopers LLP;
- change in any material manner any of its methods of reporting income and
deductions for Federal income tax returns for the taxable years ending
December 31, 1997 and 1998 or make, change, amend or revoke any material
election for tax purposes, other than in the ordinary course of business
consistent with past practice and except as required by changes in law or
regulation;
- adopt or implement any amendment to its certificate of incorporation or
bylaws;
- other than after prior consultation with Schwab, but not subject to
Schwab's prior approval, materially restructure or materially change its
investment securities portfolio 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;
- take any action that is intended or is reasonably likely to result in any
of the conditions to the merger not being satisfied, except as may be
required by applicable law; or
- agree to, or make any commitment to, take any of the foregoing actions.
CONDUCT OF SCHWAB BUSINESS PENDING THE MERGER. Under the merger agreement,
Schwab has agreed that, prior to the effective time of the merger, Schwab will
not, and will
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not permit any of its subsidiaries to, without the prior written consent of U.S.
Trust or unless otherwise provided in the merger agreement:
- make, declare or pay any dividend or other distribution on any shares of
its capital stock except for (a) 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) dividends paid in the ordinary course of business by any
subsidiary of Schwab and (c) stock dividends;
- 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;
- 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 generally accepted accounting principles as
concurred on by Deloitte & Touche LLP;
- take any action that is intended or is reasonably likely to result in any
of the conditions to the merger not being satisfied, except as may be
required by applicable law;
- 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 merger; or
- agree to, or make any commitment to, take any of the foregoing actions.
AMENDMENT; EXTENSION AND WAIVER. Subject to applicable law:
- the merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been adopted by the
shareholders of U.S. Trust, no amendment may be entered into which
requires further adoption by U.S. Trust's shareholders unless such
further adoption is obtained; and
- at any time prior to the effective time of the merger, a party may, by
written instrument signed on behalf of such party, extend the time for
performance of the obligations of any other party to the merger
agreement, waive inaccuracies in representations and warranties of any
other party contained in the merger agreement or in any related document
and, except as provided in the merger agreement, waive compliance by any
other party with any agreements or conditions in the merger agreement.
EXPENSES. Whether or not the merger is completed, all fees and expenses
incurred in connection with the merger and the merger agreement will be paid by
the party incurring such fees or expenses, except as otherwise provided in the
merger agreement and except that Schwab and U.S. Trust will share equally the
expenses incurred in connection with filing, printing and mailing this proxy
statement/prospectus and the registration statement of which this proxy
statement/prospectus forms a part.
REPRESENTATIONS AND WARRANTIES. The merger agreement contains customary
representations and warranties relating to, among other things:
- corporate organization and similar corporate matters of each of Schwab
and U.S. Trust;
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- subsidiaries of each of Schwab and U.S. Trust;
- the capital structure of each of Schwab and U.S. Trust;
- authorization, execution, delivery, performance and enforceability of the
merger agreement and related matters by or against each of Schwab and
U.S. Trust;
- the merger agreement and the transactions contemplated by it do not
violate or conflict with (a) the charter documents of Schwab or U.S.
Trust, (b) any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Schwab or U.S. Trust or
any of their respective subsidiaries, or (c) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, contract or other
instrument or obligation of Schwab or U.S. Trust;
- consents and approvals needed by each of Schwab and U.S. Trust for the
merger;
- documents filed by each of Schwab and U.S. Trust with the Securities and
Exchange Commission, and by U.S. Trust with the Federal Reserve Board,
the Federal Deposit Insurance Corporation, the Office of the Comptroller
of the Currency, self-regulatory agencies and other regulatory bodies,
the accuracy of information contained in such documents and the absence
of undisclosed liabilities of each of Schwab and U.S. Trust in those
filings;
- the financial statements of Schwab and U.S. Trust;
- engagement and payment of fees of brokers, investment bankers, finders
and financial advisors by each of Schwab and U.S. Trust;
- absence of material changes or events concerning each of Schwab and U.S.
Trust;
- pending or threatened material litigation of each of Schwab and U.S.
Trust;
- filing of tax returns and payment of taxes by each of Schwab and U.S.
Trust;
- matters relating to benefit plans of U.S. Trust;
- matters relating to the Employee Retirement Income Security Act for U.S.
Trust;
- compliance with applicable laws by each of Schwab and U.S. Trust;
- matters relating to contracts of U.S. Trust;
- absence of agreements with regulatory agencies by each of Schwab and U.S.
Trust;
- matters relating to investment securities held by U.S. Trust;
- matters relating to derivative instruments of U.S. Trust;
- absence of loan losses of U.S. Trust;
- absence of undisclosed liabilities of each of Schwab and U.S. Trust;
- absence of environmental liabilities of U.S. Trust;
- satisfaction or inapplicability of state takeover statutes and
inapplicability of the U.S. Trust rights plan;
- insurance coverage of U.S. Trust;
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- absence of actions by each of Schwab and U.S. Trust that would prevent
using the pooling-of-interests method to account for the merger;
- title to properties of U.S. Trust;
- intellectual property of U.S. Trust;
- year 2000 matters of each of Schwab and U.S. Trust;
- absence of excess parachute payments under section 280G of the Internal
Revenue Code by U.S. Trust;
- receipt of fairness opinions by each of Schwab and U.S. Trust from their
respective financial advisors; and
- accuracy of information supplied by each of Schwab and U.S. Trust in
connection with the preparation this proxy statement/prospectus and the
registration statement of which this proxy statement/prospectus forms a
part.
AMENDMENTS TO THE U.S. TRUST CERTIFICATE OF INCORPORATION. As of the
effective time of the merger, the U.S. Trust certificate of incorporation will
be amended to provide that the total number of shares of all classes of stock
which U.S. Trust will shall have authority to issue is 1,000 shares of common
stock, par value $1.00 per share, and, as so amended, such certificate of
incorporation will be the certificate of incorporation of the surviving
corporation following the merger until changed or amended. Following the merger,
the charter documents of U.S. Trust and its subsidiaries will permit all
directors of U.S. Trust and its subsidiaries to be removed without cause at the
discretion of the applicable shareholder.
AMENDMENTS TO THE U.S. TRUST BYLAWS. The merger agreement provides that
the bylaws of Schwab Merger Sub, as in effect immediately prior to the effective
time of the merger, will be the bylaws of the surviving corporation following
the merger until changed or amended.
THE STOCK OPTION AGREEMENT
GENERAL. Simultaneously with the execution and delivery of the merger
agreement, Schwab and U.S. Trust entered into a stock option agreement under
which U.S. Trust granted Schwab an option to purchase up to 3,713,558 common
shares of U.S. Trust, or such number of common shares of U.S. Trust as
represents 19.9% of the then-outstanding common shares of U.S. Trust, at an
exercise price per share of $125.00.
EXERCISE OF THE OPTION. Except as described below, the option is
exercisable at any time after the occurrence of any event entitling Schwab to
receive the termination fee under the merger agreement. The right to purchase
shares under the stock option agreement will expire upon the earliest to occur
of:
- the effective time of the merger;
- 12 months after the first occurrence of any event entitling Schwab to
receive the termination fee under the merger agreement; or
- termination of the merger agreement in accordance with its provisions
prior to the occurrence of any event entitling Schwab to receive the
termination fee under the merger agreement, unless Schwab has the right
to receive a termination fee following such termination upon the
occurrence of a limited number of events, in which case
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the option will not terminate until the later of (1) 12 months following
the time such termination fee first becomes payable and (2) the
expiration of the time period during which Schwab has such right or could
obtain the right to receive a termination fee.
Any purchase of shares upon the exercise of the option is subject to the
approval of the Federal Reserve Board or any other regulatory agency required in
connection with the purchase.
CASH PAYMENT FOR THE OPTION. The stock option agreement defines a
"repurchase event" as the occurrence, after any event entitling Schwab to
receive the termination fee under the merger agreement but prior to the
expiration of the option, of any of the following:
- the consummation of any merger, consolidation or similar transaction
involving U.S. Trust;
- the purchase, lease or other acquisition of all or a substantial portion
of the assets of U.S. Trust; or
- the acquisition by any person of beneficial ownership of 50% or more of
the then outstanding common shares of U.S. Trust.
At any time after the occurrence of a repurchase event, instead of
purchasing common shares of U.S. Trust under the option, Schwab may require U.S.
Trust to pay to Schwab an amount per common share of U.S. Trust equal to the
number of common shares of U.S. Trust subject to the option multiplied by the
difference between:
- the average closing price on the New York Stock Exchange per common share
of U.S. Trust for the five trading days ending on and including the
trading day immediately preceding the date Schwab gives notice of the
required repurchase and
- the exercise price of the option.
If, however, Schwab has already purchased common shares of U.S. Trust
pursuant to the option, then at anytime after the occurrence of a repurchase
event, Schwab may instead require U.S. Trust to repurchase those shares at a
price equal to the product of:
- the average closing price on the New York Stock Exchange per common share
of U.S. Trust for the five trading days ending on and including the
trading day immediately preceding the date Schwab gives notice of the
required repurchase and
- the number of shares designated by Schwab to be repurchased by U.S.
Trust.
LIMITATION ON PROFIT. The stock option agreement provides that in no event
will Schwab's total profit from the option plus any termination fee paid to
Schwab exceed $150 million in the aggregate and, if Schwab's total profit from
the option would otherwise exceed such amount, Schwab is required to:
- reduce the number of common shares of U.S. Trust subject to the option;
- deliver to U.S. Trust for cancellation common shares of U.S. Trust
previously purchased by Schwab pursuant to the option;
- pay cash to U.S. Trust;
- reduce the amount payable under the repurchase arrangement described
above; or
- engage in any combination of the foregoing
so that Schwab's total profit from the option plus the termination fee paid to
Schwab pursuant to the merger agreement does not exceed $150 million after
taking into account the foregoing actions.
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REGISTRATION RIGHTS AND LISTING. Schwab may be able to require U.S. Trust
to register any shares purchased under the option under the securities laws for
a period of two years after the exercise of the option and to require the
listing of such shares on the New York Stock Exchange.
ASSIGNMENT. The stock option agreement may not be assigned or delegated by
Schwab or U.S. Trust without the prior written consent of the other.
EFFECT OF STOCK OPTION AGREEMENT. The stock option agreement is intended
to increase the likelihood that the merger will be completed on the terms set
forth in the merger agreement. Consequently, the stock option agreement may
discourage persons who might now or prior to the effective time of the merger be
interested in acquiring all of or a significant interest in U.S. Trust from
considering or proposing such an acquisition, even if such persons were prepared
to offer higher consideration per common share of U.S. Trust than that implicit
in the 3.427 exchange ratio or a higher price per common share of U.S. Trust
than the market price.
EMPLOYEE RETENTION PROGRAM
PURPOSE. Immediately following consummation of the merger, Schwab will
establish a retention program of approximately $150 million for the employees of
U.S. Trust, which is designed to retain and motivate employees.
ELIGIBILITY. All U.S. Trust employees employed on January 12, 2000 and who
remain continuously employed with U.S. Trust through the second anniversary of
the closing date of the merger are eligible to receive bonuses under the
retention program. The amount of bonuses for each category of employee is as
follows:
LEVEL APPROXIMATE TARGET BONUS
----- ------------------------
Non-officer employee 25% of base salary as of January 13,
2000
Officer, below vice president level 50% of base salary as of January 13,
2000
Vice president and senior vice 100% of base salary as of January 13,
president 2000
Managing Directors and Operating 50-150% of base salary and target
Committee bonus as of January 13, 2000
The Office of the Chairman $2.8 million for each of the four
persons in the Office of the Chairman
FORM OF PAYMENT. The retention bonuses consist of two components:
five-sixths in cash and one-sixth in a grant of options to purchase Schwab
common stock. The stock options granted will have a ten year term and the number
of options granted will be calculated using a valuation methodology that assumes
a 15% annual growth rate in Schwab common stock over two years. The exercise
price of the options will be the closing price of Schwab common stock on the
grant date. For example, if the price of Schwab common stock is $40.00 on the
grant date, then assuming a 15% annual growth rate, the stock price would be
$52.90 two years from that date. Accordingly, Schwab would divide $25 million,
which is one-sixth of the total retention bonus pool of $150 million, by the
$12.90 difference in stock price to arrive at 1,937,985 options to be granted to
U.S. Trust employees.
ACCOUNTING TREATMENT. The cash component of the retention bonus will be
expensed ratably over the period from the closing date through the second
anniversary of the closing date.
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TIMING OF AWARDS. Except as otherwise specifically provided below, Schwab
will pay the cash portion of the award as soon as practicable following the
second anniversary of the closing date of the merger to each eligible employee
who has remained continuously employed with U.S. Trust from the closing date of
the merger through the second anniversary of the closing date of the merger.
Schwab will grant the stock option portion of the award as promptly as
practicable following the effective time of the merger. The options will vest
50% on the third anniversary of the closing date of the merger, with the
remaining 50% of the options vesting on the fourth anniversary of the closing
date of the merger.
EFFECT OF TERMINATION OF EMPLOYMENT.
- An eligible employee who voluntarily terminates his employment with U.S.
Trust will forfeit any retention bonus that has not been paid or which
has not vested as of the date of termination.
- An eligible employee who is terminated by U.S. Trust for cause will
forfeit any retention bonus that has not been paid or which has not
vested as of the date of termination.
- An eligible employee who is terminated by U.S. Trust without cause,
including termination for good reason, and who otherwise has severance
benefits of 200% of base salary or more will receive a prorated retention
bonus, calculated from the date of termination.
- An eligible employee who is terminated by U.S. Trust without cause,
including a termination for good reason, and who otherwise has severance
benefits of less than 200% of base salary will receive his full retention
bonus.
- An eligible employee who dies or becomes disabled will be eligible to
receive a pro rated retention bonus, calculated from the date of
termination.
The effect of termination of employment on the option component of an
eligible employee's retention bonus will be determined in accordance with the
applicable stock option documents.
EXECUTIVE EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
PURPOSE. Schwab and U.S. Trust have entered into employment agreements
with four executives of U.S. Trust, Messrs. Schwarz, Maurer and Taylor and Ms.
Rahe. The employment agreements will become effective only upon completion of
the merger. The executives have agreed to remain with U.S. Trust for a period of
three years from the closing of the merger unless their employment is terminated
earlier by U.S. Trust, or they resign or the agreements are terminated upon the
mutual consent of U.S. Trust and the affected executive prior to the expiration
of their respective employment agreements.
COMPENSATION. Each executive is to be paid a salary equal to the
executive's then current annual base salary. Effective as of March 27, 2000,
such salaries are $675,000 for Mr. Schwarz and $530,000 for each of Messrs.
Maurer and Taylor and Ms. Rahe. In addition, each executive is eligible to
receive an annual target bonus, expressed as a percentage of base salary, of
175% for Mr. Schwarz, 170% for Mr. Maurer and 160% for each of Ms. Rahe and Mr.
Taylor. For calendar year 2000, each executive's bonus will not be less than the
short term incentive bonus received by the executive from U.S. Trust for
calendar year 1999, and
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for calendar year 2001, each executive's bonus other than that of Mr. Schwarz
will not be less than 60% of the short term incentive bonus received by the
executive from U.S. Trust for calendar year 1999. Mr. Schwarz's bonus for
calendar year 2001 will be not less than 80% of his 1999 short term incentive
bonus. In addition, each executive will receive an initial grant of options,
25,000 options for Messrs. Schwarz and Maurer and 20,000 options for Ms. Rahe
and Mr. Taylor, as soon as practicable following the effective time of the
merger, with an exercise price per share based upon the fair market value of
Schwab common stock on the date of grant, in each case subject to annual vesting
in equal 25% parts at the conclusion of each of the following four calendar
years. Each of Mr. Maurer, Ms. Rahe and Mr. Taylor will also receive 20,000
shares of Schwab restricted stock, in each case subject to annual vesting in
equal 25% parts over four years. Each executive is also eligible to participate
in the retention program described above as a member of the Office of the
Chairman. At Schwab's option, beginning December 31, 2001, or sooner if mutually
agreed, each executive is also eligible to participate in various executive
compensation and employee benefit plans of Schwab.
COVENANT NOT TO COMPETE OR SOLICIT. The employment agreements also provide
that, until two years following any termination of an executive's employment
prior to or on the second anniversary of the effective date of the executive's
employment agreement, or until one year following any termination of an
executive's employment after the second anniversary of the effective date of the
executive's employment agreement, the executive will not, directly or
indirectly:
- enter the employ of or render any services to any person, joint venture,
partnership, firm, corporation or other entity engaged in providing
private banking, fiduciary services, tax, estate or financial planning
services, each a "competitive business;"
- engage in providing private banking, fiduciary services, tax, estate or
financial planning services, including consultation or start-up
activities in connection with such services for the executive's own
business, any third party or any competitive business;
- become interested in any competitive business, directly or indirectly, in
any capacity or in any relationship with any other person or entity,
whether as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee or consultant;
- discourage any employee of, or consultant under contract with, U.S. Trust
from becoming an employee of, or working with, U.S. Trust, Schwab or any
of Schwab's other affiliates or subsidiaries;
- hire any employee who has left the employment of U.S. Trust, Schwab or
any of Schwab's other affiliates or subsidiaries within one year of such
employee's termination, or solicit or encourage any employee to leave the
employment of U.S. Trust, Schwab or any of Schwab's other affiliates or
subsidiaries; or
- hire, solicit or encourage to cease work with U.S. Trust, Schwab or any
of Schwab's other affiliates or subsidiaries, any consultant then under
contract with U.S. Trust, Schwab or any of Schwab's other affiliates or
subsidiaries.
In addition, each executive agrees to keep secret and retain in the
strictest confidence all confidential matters relating to U.S. Trust, Schwab and
Schwab's other affiliates and subsidiaries.
TERMINATION AND SEVERANCE. Under the terms of the employment agreements,
if the employment of an executive is terminated without cause or the executive
resigns for good
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reason prior to the expiration of the three year employment term, then the
executive will be entitled to:
- the executive's annual base salary for each year remaining in the
agreement, but not less than three times the executive's annual base
salary if the employment of the executive is terminated without cause or
the executive leaves for good reason prior to or on the second
anniversary of the effective date of the employment agreement or not less
than two times the executive's annual base salary if the employment of
the executive is terminated without cause or the executive leaves for
good reason after the second anniversary of the effective date of the
employment agreement, payable at Schwab's option in a discounted lump sum
or over time consistent with Schwab's payroll practices;
- any bonus due in respect to Schwab's fiscal year ended prior to the
executive's termination of employment and a bonus based on the
executive's then current target bonus for each year remaining on the
agreement, but not less than three years of bonuses if the employment of
the executive is terminated without cause or the executive leaves for
good reason prior to or on the second anniversary of the effective date
of the employment agreement or not less than two years of bonuses if the
executive is terminated without cause or leaves for good cause after the
second anniversary of the effective date of the employment agreement;
- full and immediate vesting of any outstanding stock options and other
equity-based awards;
- all unreimbursed out-of-pocket business expenses incurred by the
executive prior to termination of employment;
- all unused vacation days accrued to the date of the termination of
employment;
- continuation of the medical, dental and life insurance coverage provided
to the executive immediately prior to the date of the termination of
employment for the period during which the executive may receive base
salary payments over time as described above;
- three additional years of deemed age and service credit from the
effective date of the termination of employment if the employment is
terminated without cause or the executive resigns for good reason prior
to or on the second anniversary of the effective date of the executive's
employment agreement or two additional years of deemed age and service
credit from the effective date of the executive's employment agreement,
under U.S. Trust's or, if applicable, Schwab's tax-qualified and
nonqualified pension plans in which the executive is then a participant;
- outplacement assistance services for up to one year; and
- all other vested accrued benefits to which the executive is entitled
under applicable U.S. Trust or Schwab employee benefit plans.
If the executive resigns without good reason or the executive's employment
is terminated with cause during the term of the executive's employment
agreement, then the executive will be paid only the executive's salary through
the date of termination, any bonus payment due in respect of Schwab's fiscal
year ended prior to termination, all unreimbursed out-of-pocket business
expenses incurred by the executive prior to the executive's termination, all
unused vacation days accrued to the date of the termination of employment and
all other vested
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accrued benefits to which the executive is entitled under applicable U.S. Trust
or Schwab employee benefit plans.
In addition, U.S. Trust has agreed that if any of the severance payments
described above are subject to the excise tax imposed under Section 4999 of the
Internal Revenue Code, U.S. Trust will pay the executive an additional amount
such that the net amount retained by the executive, after deduction of the
excise tax and any Federal, state and local income and employment tax upon the
additional "gross-up" payment, will be equal to the severance payments described
above.
For purposes of the employment agreements, "cause" means:
- the executive's failure or refusal to substantially perform the
executive's duties or the executive's continued neglect to perform such
duties to the full extent of the executive's abilities for reasons other
than death or physical or mental incapacity;
- the executive's gross negligence or willful misconduct in the performance
of the executive's duties under the employment agreement, or conduct that
is materially adverse, monetarily or otherwise, to U.S. Trust or its
shareholders;
- a finding by a court or other governmental body that an act or acts of
the executive constituted a felony or other crime involving theft or
fraud under the laws of the United States or any state;
- the executive's violation of Federal or state laws and regulations and a
good faith determination by U.S. Trust's board of directors that the
continued employment of the executive by U.S. Trust would be seriously
detrimental to U.S. Trust and its business; or
- a material breach by the executive of the employment agreement.
For purposes of the employment agreements, "good reason" means:
- a material breach of the executive's employment agreement by Schwab;
- a substantial diminution in the duties, titles, positions or
responsibilities of the executive;
- the required relocation of the executive's place of employment outside of
New York City, New York;
- a reduction in the executive's annual base salary or the total targeted
compensation of the executive; or
- the failure by Schwab or U.S. Trust to obtain the express written
assumption of the executive's employment agreement by any successor to
Schwab or U.S. Trust.
Moreover, under the employment agreements, Messrs. Schwarz, Maurer and
Taylor and Ms. Rahe have agreed to relinquish and waive any rights under their
existing change-in-control and employment agreements if the merger is completed.
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DESCRIPTION OF CAPITAL STOCK OF SCHWAB
Schwab's authorized capital stock consists of 2,000,000,000 shares of
common stock, par value $0.01 per share, and 9,940,000 shares of preferred
stock, par value $0.01 per share. As of April 24, 2000, there were 840,881,273
shares of Schwab common stock outstanding, held of record by 10,193
stockholders. As of April 24, 2000, there were no shares of Schwab preferred
stock issued or outstanding.
COMMON STOCK
Each holder of Schwab common stock is entitled to one vote per share for
the election of directors and for all other matters to be voted upon by Schwab's
stockholders. Schwab's certificate of incorporation does not provide for
cumulative voting. The Schwab board of directors is divided into three classes.
Holders of shares of Schwab common stock are entitled to receive dividends
out of funds legally available for distribution if and when declared by the
board of directors, and, subject to the rights of any preferred stock that may
be outstanding in the future, to share ratably in the assets of Schwab legally
available for distribution to its stockholders in the event of the liquidation,
dissolution or winding-up of Schwab. Holders of Schwab common stock have no
preemptive, subscription, redemption or conversion rights. The Schwab shares to
be issued pursuant to the merger will, upon issuance, be fully paid and
nonassessable.
PREFERRED STOCK
The Schwab board of directors has the power, without further action by the
stockholders, to issue preferred stock as a class without series, or in one or
more series, and to fix the voting rights, designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions applicable to the preferred stock.
The rights of holders of Schwab common stock as described above will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. The board of directors may
cause shares of preferred stock to be issued to obtain additional financing, in
connection with acquisitions, to officers, directors and employees of Schwab and
its subsidiaries pursuant to benefit plans or otherwise, and for other proper
corporate purposes. Shares of preferred stock issued by Schwab could make it
more difficult for a third party to gain control of Schwab. Schwab has no
current plans or agreements to issue any series of preferred stock in the
future.
For a discussion of additional provisions of Schwab's certificate of
incorporation and bylaws, see "Comparison of Rights of Stockholders of Schwab
and Shareholders of U.S. Trust" on page 67.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF SCHWAB
AND SHAREHOLDERS OF U.S. TRUST
U.S. Trust is incorporated under the laws of the State of New York. The
rights of U.S. Trust shareholders are currently governed by the New York
Business Corporation Law and the certificate of incorporation and bylaws of U.S.
Trust. Pursuant to the merger, holders of common shares of U.S. Trust will
become stockholders of Schwab and the rights of all such former U.S. Trust
shareholders will thereafter be governed by the Delaware General Corporate Law
and the certificate of incorporation and bylaws of Schwab. Differences between
the laws of Delaware, the state of incorporation of Schwab, and those of New
York, the state of incorporation of U.S. Trust, and between Schwab's certificate
of incorporation and bylaws, on the one hand, and U.S. Trust's certificate of
incorporation and bylaws, on the other hand, will result in several changes in
the rights of shareholders of U.S. Trust. A summary of the more significant
changes are set forth below.
The following is not intended to be a complete statement of the rights of
stockholders under Schwab's certificate of incorporation, bylaws and other
governing instruments and applicable law, as compared with the rights of U.S.
Trust shareholders under U.S. Trust's certificate of incorporation, bylaws and
other governing instruments and applicable law, or a complete description of the
specific provisions described below. The following is qualified in its entirety
by reference to the governing corporate instruments of Schwab and U.S. Trust and
to the laws of Delaware and New York, respectively, to which you are referred.
For information as to how these corporate instruments may be obtained, see
"Where You Can Find More Information" on page 83.
The chart which follows briefly summarizes the differences between the
rights of stockholders of Schwab and shareholders of U.S. Trust which are
described in somewhat more detail below, with references to the pages where
those descriptions begin.
RIGHTS OF U.S. TRUST
PROVISION RIGHTS OF SCHWAB STOCKHOLDERS SHAREHOLDERS
--------- ----------------------------- --------------------
Capitalization (p. 70)...................................... 2,000,000,000 shares of common 70,000,000 common shares
stock authorized, 840,881,273 authorized, 19,284,585 issued
issued and outstanding as of and outstanding as of April
April 24, 2000 24, 2000
9,940,000 shares of preferred 5,000,000 preferred shares
stock authorized, none issued authorized, none issued as of
as of April 24, 2000 April 24, 2000
Authorization of Certain Actions (p. 71).................... Approval of holders of a Approval of holders of two-
majority of shares required to thirds of shares required to
approve mergers and sales of approve mergers and sales of
substantially all assets; no substantially all assets
approval of stockholders
required for mergers involving
issuance of a number of shares
equal to under 20% of
outstanding shares
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RIGHTS OF U.S. TRUST
PROVISION RIGHTS OF SCHWAB STOCKHOLDERS SHAREHOLDERS
--------- ----------------------------- --------------------
Business Combination Statutes (p. 72)....................... Business combinations with Business combinations with
owners of 15% or more of owners of 20% or more of
voting power prohibited for 3 voting power prohibited for 5
years following date of such years following date of such
acquisition of voting power, acquisition of voting power,
unless specified conditions unless specified conditions
met met
Supermajority Vote Requirement (p. 72)...................... Business combinations with Business combinations with
owners of 15% or more of owners of 10% or more of
voting power, or affiliates of voting power, or affiliates or
15% owners, must be approved assignees of 10% owners, must
by holders of at least 80% of be approved by holders of at
voting power, unless approved least 80% of voting power and
by majority of disinterested a majority of disinterested
directors or meets fair price shareholders, unless approved
and procedure requirements by majority of continuing
directors or meets fair price
and procedure requirements
Number of Directors (p. 74)................................. 12 (14 after merger) 17
Classified Board of Directors (p. 74)....................... 3 classes 3 classes
Cumulative Voting for Directors (p. 74)..................... None None
Removal of Directors (p. 74)................................ Stockholders may remove for Shareholders or board may
cause on vote of the holders remove for cause by a majority
of at least 80% of voting vote
power
Filling Vacancies on the Board of Directors (p. 75)......... Vacancies filled by the Vacancies filled by either a
majority vote of the remaining majority vote of shareholders
directors or a majority vote of the
remaining directors
Preemptive Rights (p. 75)................................... None None other than as the board
may determine
Limits on Stockholder Action by Written Consent (p. 75)..... Stockholder action by written Shareholder action by
consent not allowed unanimous written consent
allowed
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RIGHTS OF U.S. TRUST
PROVISION RIGHTS OF SCHWAB STOCKHOLDERS SHAREHOLDERS
--------- ----------------------------- --------------------
Dividends (p. 76)........................................... May pay dividends out of May pay dividends out of
surplus or net profits, but surplus only, and may not do
capital remaining may not be so if it would result in
less than capital represented insolvency after the dividend
by outstanding stock having a is paid
preference upon the
distribution of the assets
Amendment of Certificate of Incorporation (p. 76)........... Holders of a majority of Holders of a majority of
shares may amend, except for shares may amend
provisions which require at
least an 80% stockholder vote
Amendment of Bylaws (p. 76)................................. Holders of a majority of Holders of a majority of
shares or a majority of the shares or a majority of the
board may amend, except for board may amend
provisions which require at
least an 80% stockholder vote
Notice of Stockholder Action (p. 77)........................ To bring matter before an To bring matter before an
annual meeting, stockholder annual meeting, shareholder
must give notice 60 to 90 days must give notice 90 to 120
prior to anniversary date of days prior to anniversary date
previous year's meeting or previous year's meeting
Special Meetings of Stockholders (p. 77).................... Stockholders may not call Shareholders may not call
special meeting special meeting, except that
holders of at least 10% of
voting power may call if there
is a failure to elect a
sufficient number of directors
to conduct meeting one month
or longer after the date fixed
by the bylaws for an annual
meeting
Stockholder Lists and Inspection Rights (p. 78)............. Any stockholder may inspect Any shareholder may inspect
stock ledger, list of minutes and record of
stockholders and various other shareholders on at least five
books and records; list of days' written demand
stockholders to be open at
least 10 days prior to a
meeting of stockholders
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RIGHTS OF U.S. TRUST
PROVISION RIGHTS OF SCHWAB STOCKHOLDERS SHAREHOLDERS
--------- ----------------------------- --------------------
Indemnification (p. 78)..................................... Officers and directors Officers and directors
indemnified to extent allowed indemnified similar in scope
by Delaware law, which is to that allowed by New York
similar to that allowed by New law, but may not be
York law; authorized to indemnified if finally
maintain insurance on behalf adjudged that acts in bad
of officers and directors faith or deliberately
dishonest and material or that
gained personal advantage to
which not legally entitled,
may not be indemnified after a
settlement unless U.S. Trust
consents and not obligated to
be indemnified if covered by
an insurance policy
Limitation of Liability (p. 79)............................. Directors not personally Directors not personally
liable to Schwab or liable to U.S. Trust or
stockholders for monetary shareholders for monetary
damages for breach of damages for breach of
fiduciary duty, except for (i) fiduciary duty, except where
breach of duty of loyalty; (i) finally adjudged acts or
(ii) acts or omissions not in omissions were in bad faith or
good faith or which involve involved intentional
intentional misconduct or misconduct or knowing
knowing violation of the law; violation of law; (ii)
(iii) liability for unlawful director personally gained an
dividends and stock advantaged to which not
repurchases and redemptions; legally entitled; or (iii)
or (iv) transactions in which acts violated the New York
an improper personal benefit Business Corporation Law
is derived
Shareholder Rights Agreement (p. 79)........................ None Shareholder Rights Agreement
in effect, but amended so that
not triggered by this merger
CAPITALIZATION
The authorized capital stock of Schwab consists of 2,000,000,000 shares of
Schwab common stock, $0.01 par value per share, of which, as of April 24, 2000,
840,881,273 shares were issued and outstanding, and 9,940,000 shares of
preferred stock, $0.01 par value per share, of which, as of April 24, 2000, no
shares were issued and outstanding.
The authorized capital stock of U.S. Trust consists of 70,000,000 common
shares, par value $1.00 per share, of U.S. Trust of which, as of April 24, 2000,
19,284,585 shares were issued and outstanding, and 5,000,000 preferred shares,
par value $1.00 per share, of which, as of April 24, 2000, none were issued and
outstanding. The authorized preferred shares include 300,000 shares of Series A
Participating Cumulative Preferred Shares, none of which were issued and
outstanding as of April 24, 2000.
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Both boards of directors are authorized to provide for the issuance from
time to time of preferred shares in one or more series, and, as to each series,
to fix the designation and relative voting, dividend, liquidation and other
rights, preferences and limitations of the shares of each such series. The
issuance of preferred stock, while prompting flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting rights of holders of common shares and make it more difficult for a third
party to gain control of Schwab or U.S. Trust or remove members of the board of
directors.
Except as described below under the caption "-- Shareholder Rights
Agreement" on page 79, holders of common shares of U.S. Trust and Schwab are not
entitled to preemptive, subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to common shares. Upon
liquidation, dissolution or winding up, holders of common shares are entitled to
receive all assets available for distribution to shareholders, subject to the
rights of any holders of preferred shares that may then be outstanding.
CLASSES OF COMMON STOCK; VOTING RIGHTS
Both companies have one class of common stock issued and outstanding.
Holders of each company's common stock are each entitled to one vote for each
share held and are not entitled to cumulative voting.
AUTHORIZATION OF CERTAIN ACTIONS
Under Delaware law, the approval of the Schwab board and holders of a
majority of the outstanding Schwab common stock entitled to vote thereon is
required for mergers or consolidations, and for sales, leases or exchanges of
substantially all of Schwab's property and assets. Delaware law would permit
Schwab to merge with another corporation without obtaining the approval of
Schwab stockholders if:
- Schwab is the surviving corporation of the merger;
- the merger agreement does not amend the certificate of incorporation;
- each share of Schwab common stock outstanding immediately prior to the
effective date of the merger is to be an identical outstanding or
treasury share of Schwab common stock after the merger; and
- either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into such stock are to be
issued under the merger plan, or authorized but unissued shares or
treasury shares of Schwab common stock to be issued or delivered under
the plan of merger plus those initially issuable upon conversion of any
other securities or obligations to be issued or delivered under such plan
do not exceed 20% of the shares of Schwab common stock outstanding
immediately prior to the effective date of the merger.
Under New York law, the consummation of a merger, consolidation,
dissolution or disposition of substantially all of the assets of a New York
corporation, such as U.S. Trust, requires the approval of such corporation's
board of directors and two-thirds of all outstanding shares of the corporation
entitled to vote thereon. The affirmative vote of holders of a majority of all
outstanding shares of each class or series of shares outstanding is required if:
- the corporation was formed after February 22, 1998; or
- the corporation's certificate of incorporation expressly so provides.
U.S. Trust's certificate of incorporation is silent on this issue.
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BUSINESS COMBINATION STATUTES
Under Delaware law, a corporation is prohibited from engaging in any
business combination with any interested stockholder, defined as the beneficial
owner of 15% or more of the voting power of the corporation, for a period of
three years following the date that such stockholder became an interested
stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by
the interested stockholder.
Under Delaware law, a corporation has the option to opt-out of the above
business combination statute. Neither Schwab's certificate of incorporation nor
its bylaws excludes Schwab from the restrictions imposed by this provision.
Under New York law, a corporation may not engage in any business
combination with any interested shareholder, defined as the beneficial owner of
20% or more of the voting power of a corporation, for a period of five years
following the date that such shareholder became an interested shareholder,
unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
shareholder becoming an interested shareholder;
- it is approved no earlier than five years after the interested
shareholder's stock acquisition date by a majority of the shares not
owned by, or by an affiliate of, the interested shareholder; or
- statutory fair price requirements are met.
Under New York law, a corporation has the option to opt-out of the above
business combination statute. Neither U.S. Trust's certificate of incorporation
nor its bylaws exclude it from the restrictions imposed by the business
combination statute.
SUPERMAJORITY VOTE REQUIREMENT
Schwab's and U.S. Trust's certificates of incorporation both require the
approval of a supermajority of their respective stockholders for some business
combinations with interested stockholders. Schwab's certificate of incorporation
defines an interested stockholder as a person, partnership or group which
directly or indirectly beneficially owns more than 15% of the voting power of
the outstanding shares of Schwab, or an affiliate or associate of a 15% owner.
U.S. Trust's certificate of incorporation defines an interested shareholder as
the beneficial owner of 10% or more of the outstanding voting stock of U.S.
Trust, or an affiliate of a 10% owner or the assignee of a 10% owner if the
assignment was within a two-year period through a transaction or series of
transactions not involving a public offering.
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Notwithstanding any lesser percentage permitted by law, under the
certificates of incorporation of both companies 80% of the combined voting power
of the stockholders, and in the case of U.S. Trust also a majority of
disinterested shareholders, must approve any of the following business
combinations:
- A merger of the company or any of its subsidiaries with an
interested stockholder or an affiliate or associate of an interested
stockholder;
- Any sale to an interested stockholder of assets of the company or
one of its subsidiaries, if those assets have a fair market value of
$5,000,000 or more, in the case of Schwab, or if those assets are
more than 5% of the seller's total assets, in the case of U.S.
Trust;
- Any sale to the company or any of its subsidiaries of assets of the
interested stockholder, if those assets have a fair market value of
$5,000,000 or more, in the case of Schwab, or if those assets are
more than 5% of the seller's total assets, in the case of U.S.
Trust;
- The issuance or transfer by the company or any of its subsidiaries
of any securities of the company or any of its subsidiaries to an
interested stockholder, unless, in the case of Schwab, the fair
market value of the property received has a fair market value of
less than $5,000,000 or, in the case of U.S. Trust, the securities
issued have a fair market value of less than $13,000,000;
- Any reclassification of securities of the company, merger or
consolidation of the company with any of its subsidiaries, or any
similar transaction which has the effect of increasing the
proportionate amount of the outstanding shares of any class of
equity securities of the company or any of its subsidiaries which is
directly or indirectly owned by any interested shareholder or its
affiliate or associate; or
- The adoption of any plan or proposal for the liquidation or
dissolution of the company--in the case of U.S. Trust, the plan or
proposal must be proposed by or on behalf of any interested
shareholder or its affiliate or associate.
Additionally, for U.S. Trust the supermajority and disinterested
shareholder requirements apply to any merger of U.S. Trust into a subsidiary, or
a consolidation between U.S. Trust and a subsidiary, unless the surviving or
consolidated corporation or company, as the case may be, has a provision in its
certificate of incorporation substantially similar to the supermajority vote
provision.
The supermajority requirement does not apply to business combinations
approved by a majority of disinterested directors, in the case of Schwab, or
continuing directors, in the case of U.S. Trust. Disinterested directors and
continuing directors are defined similarly. A disinterested or continuing
director is any member of the company's board who is:
- not an interested stockholder;
- not an affiliate or a representative, in Schwab's definition, or an
associate, in U.S. Trust's definition, of an interested shareholder;
and
- either was a member of the company's board before the interested
stockholder became an interested stockholder or was nominated to
succeed a disinterested or continuing director by a majority of the
disinterested or continuing directors.
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The Schwab definition also requires that a disinterested director must not
be a party to an agreement or arrangement with an interested stockholder to act
in concert with that interested stockholder to direct the management or policies
of Schwab.
For both Schwab and U.S. Trust, the supermajority requirement does not
apply to business combinations meeting fair price and procedural requirements
set forth in the certificate of incorporation.
NUMBER OF DIRECTORS
Under Delaware law, a board of directors shall consist of one or more
directors, with the number fixed by or in the manner provided in the bylaws,
unless the certificate of incorporation fixes the number of directors, in which
case a change in the number of directors may be made only by amendment to the
certificate of incorporation. Schwab's certificate of incorporation provides
that the number of directors shall be fixed from time to time exclusively
pursuant to a resolution adopted by a majority of the entire board. At present,
the Schwab board has 12 members. This will increase to 14 upon completion of the
merger. See "The Merger -- Operations Following the Merger" on page 48.
Under New York law, a board of directors shall consist of one or more
individuals, with the number specified in or fixed in accordance with the bylaws
or by action of the shareholders or of the board of directors under the specific
provisions of a bylaw adopted by the shareholders. U.S. Trust's bylaws provide
that the U.S. Trust board shall consist of not less than nine members, the
number to be fixed from time to time by resolution adopted by majority of the
entire board or at any annual or special meeting of the shareholders entitled to
vote for the election of directors. At present, the U.S. Trust board has 17
members.
CLASSIFIED BOARD OF DIRECTORS
Under Delaware law, the directors of a corporation may, by the certificate
of incorporation, by an initial bylaw or by a bylaw adopted by a vote of the
stockholders, be divided into one, two or three classes. Under New York law, the
certificate of incorporation or the provisions of a bylaw adopted by the
shareholders may provide that the directors be divided into either two, three or
four classes, with all classes being as nearly equal in number as possible.
Schwab's certificate of incorporation and U.S. Trust's bylaws provide that the
directors will be classified into three classes, all classes being as nearly
equal in number as possible. Schwab's certificate of incorporation excepts any
directors elected by holders of preferred stock from this classified board
provision.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting must be expressly provided for in the certificate of
incorporation of a Delaware or New York corporation. Neither company's
certificate of incorporation provides for cumulative voting.
REMOVAL OF DIRECTORS
Under Delaware law, any director may be removed, with or without cause, by
holders of a majority of shares then entitled to vote at an election of
directors. However, in the case of a corporation with a classified board,
stockholders may effect such removal only for cause unless the certificate of
incorporation otherwise provides. Schwab's certificate of
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incorporation and bylaws provide that, subject to the rights of holders of
preferred stock, any director may be removed from office at any time, but only
for cause, and only by the affirmative vote of the holders of 80% of the
combined voting power of the then outstanding shares of stock entitled to vote
in the election of directors, voting together as a single class.
Under New York law, the directors may be removed for cause by vote of the
shareholders or, if the certificate of incorporation or the provisions of a
bylaw adopted by the shareholders so provide, by action of the board of
directors. Directors may be removed without cause by vote of the shareholders if
the certificate of incorporation or the bylaws so provide. Under New York law,
an action to procure a judgment removing a director for cause may be brought by
the attorney-general or by holders of ten percent of the outstanding shares.
U.S. Trust's certificate of incorporation provides that any director may be
removed for cause by either a majority of the shareholders or by a majority of
the entire board.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, the procedure for filling vacancies may be determined
by a provision in the bylaws. Schwab's bylaws provide that any vacancies on the
Schwab board, including those resulting from any increase in the number of
directors, shall be filled by the majority vote of the remaining directors then
in office, even though less than a quorum.
Under New York law, vacancies occurring in the board of directors for any
reason other than the removal of directors without cause may be filled by a vote
of the board of directors. Vacancies occurring by reason of the removal of
directors without cause may be filled only by vote of the shareholders, unless
the certificate of incorporation or the provisions of a bylaw adopted by the
shareholders provide otherwise. U.S. Trust's bylaws provide that newly created
directorships and vacancies on the board may be filled either by a majority of
the shareholders or a majority of the directors then in office, although less
than a quorum.
PREEMPTIVE RIGHTS
Schwab stockholders have no preemptive rights, while U.S. Trust
shareholders have no preemptive rights other than as the U.S. Trust board of
directors may determine. The U.S. Trust board of directors has not, as of the
date of this proxy statement/prospectus, authorized any preemptive rights.
LIMITS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, unless prohibited by the certificate of incorporation,
corporate actions may be authorized without a meeting by written consent of
holders of voting shares sufficient to approve the action at a meeting where all
holders of voting shares were present and voted. Schwab's certificate of
incorporation prohibits stockholders from acting by written consent in lieu of a
meeting.
Under New York law, whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a shareholder meeting:
- by written consent of all persons entitled to vote on the action; or
- if the certificate of incorporation so provides, by the written consent
of holders of outstanding shares having not less than the minimum number
of votes that would be necessary to authorize such action at a meeting at
which all shares entitled to vote thereon were present and voted. U.S.
Trust's certificate of incorporation is silent on the issue.
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DIVIDENDS
Under Delaware law, a corporation may, unless otherwise restricted by its
certificate of incorporation, declare and pay dividends out of surplus, or, if
no surplus exists, out of net profits for the current or preceding fiscal year.
However, the amount of the capital following the declaration and payment of the
dividend may not be less than the aggregate amount of capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of the assets of the corporation. Schwab's certificate of
incorporation contains no such restriction.
Under New York law, dividends may be declared and paid and other
distributions may be made out of surplus only, so that the net assets of the
corporation remaining after such declaration, payment or distribution must at
least equal the amount of its stated capital. Further, under New York law, a
corporation may not declare and pay dividends or make other distributions if the
corporation is insolvent or would otherwise be made insolvent, or when the
declaration, payment or distribution would be contrary to any restrictions
contained in the certificate of incorporation. U.S. Trust's certificate of
incorporation contains no such restriction.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware and New York law, a corporation may amend its certificate of
incorporation if, among other things, such amendment is approved by a majority
of the outstanding stock entitled to vote; however, whenever the certificate of
incorporation shall require for action an affirmative vote greater than that
normally provided for by Delaware law, such provision of the certificate of
incorporation may not be amended or repealed without such greater vote. Schwab's
certificate of incorporation provides that the articles concerning amendment of
bylaws, number, classification and removal of directors, cumulative voting,
business combinations, limitation on stockholder action and amendment of the
certificate of incorporation may only be altered or amended by the affirmative
vote of the holders of at least 80% of the voting power of all shares of Schwab.
U.S. Trust's certificate of incorporation is silent on the issue of amending the
certificate.
AMENDMENT OF BYLAWS
Under Delaware law, the power to adopt, amend or repeal bylaws is vested in
the stockholders unless the certificate of incorporation confers the power to
adopt, amend or repeal bylaws upon the directors as well. Schwab's certificate
of incorporation provides that, with limited exceptions, the Schwab board is
expressly authorized to adopt, amend and repeal the bylaws by the affirmative
vote of the majority of those directors present at any meeting. Schwab's
certificate of incorporation provides that the sections concerning notice of
stockholder business and nominations, limits on stockholder action by written
consent, number, election and classification of directors, removal of directors,
vacancies on the board and amendment of bylaws may not be amended, altered or
repealed, nor may any provision inconsistent with such sections be adopted,
except by the affirmative vote of holders of no less than 80% of all the shares
entitled to vote in the election of directors, voting together as a class.
Under New York law, the bylaws of a corporation may be amended or repealed
by a majority of the votes of the shares entitled to vote in the election of any
directors or by the board of directors, when so provided in the certificate of
incorporation or a bylaw adopted by the shareholders. U.S. Trust's certificate
of incorporation is silent on the matter. U.S. Trust's
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bylaws provide that any bylaw may be amended or repealed and new bylaws may be
adopted at an annual or special meeting by a majority of the votes cast by
holders of shares entitled to vote in the election of directors, or by a
majority of the U.S. Trust board of directors at any meeting of the board of
directors.
NOTICE OF STOCKHOLDER ACTION
Under Schwab's bylaws, for a matter to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of Schwab not less than 60 days nor more than 90
days prior to the anniversary date of the immediately preceding annual meeting.
Under U.S. Trust's bylaws, notice of shareholder proposals must be made no less
than 90 days nor more than 120 days prior to the anniversary of the immediately
preceding annual meeting.
The requirement for such notice under both Schwab and U.S. Trusts bylaws
are substantially the same and must include:
- a brief description of the matter desired to be brought, the reasons for
bringing such a matter before the meeting, and any material interest the
stockholder or the beneficial owner on whose behalf the proposal is made
has in the matter;
- the name and address of the stockholder proposing such action, and the
name and address of any beneficial owner on whose behalf the proposal is
made;
- the class and number of shares of common stock which are beneficially
owned by the stockholder or the beneficial owner; and
- if the stockholder proposes to nominate a director for election or
re-election, the stockholder must also include all information required
to be disclosed in solicitations for proxies for election of directors in
an election contest pursuant to Regulation 14A under the Exchange Act and
Rule 14a-11 thereunder.
SPECIAL MEETINGS OF STOCKHOLDERS
Under Delaware and New York law, special meetings of the stockholders may
be called by the board of directors or such other persons as may be authorized
by the certificate of incorporation or bylaws.
In addition, under New York law if, for a period of one month after the
date fixed by the bylaws for the annual meeting of shareholders, there is a
failure to elect a sufficient number of directors to conduct the business of the
corporation, the board of directors must call a special meeting of shareholders
for the election of directors. If the board of directors fails to do so, holders
of ten percent of the votes of the shares entitled to vote in an election of
directors may demand the call of a special meeting for the election of
directors. Under Schwab's bylaws, special meetings of stockholders may be called
only by the board of directors, the chairman of the board or a committee of the
board which has been duly designated by the board and whose authority includes
the power to call such meetings. U.S. Trust's bylaws provide that the U.S. Trust
board, the chairman of the board, the president or a vice chairman may call a
special meeting of shareholders for such purposes as may be designated in the
notice thereof.
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STOCKHOLDER LISTS AND INSPECTION RIGHTS
Under Delaware law, any stockholder may inspect the corporation's stock
ledger, a list of its stockholders and its other books and records for any
proper purpose reasonably related to such person's interest as a stockholder. A
list of stockholders is to be open to the examination of any stockholder, for
any purpose germane to a meeting of stockholders, during ordinary business
hours, for a period of at least 10 days prior to such meeting. The list is also
to be produced and kept at the place of the meeting during the entire meeting,
and may be inspected by any stockholder who is present.
Under New York law, a shareholder of record has a right to inspect the
shareholder minutes and record of shareholders, during usual business hours, on
at least five days' written demand. The examination of the shareholder minutes
and record of shareholders must be for a purpose reasonably related to the
shareholder's interest as a shareholder. A list of shareholders as of the record
date shall be produced at any meeting of shareholders upon the request of any
shareholder.
INDEMNIFICATION
Under both Delaware and New York law, a corporation has the power to
indemnify directors, officers, employees and agents for actions, subject to
similar limitations. Both Delaware and New York law permit a corporation to
purchase and maintain liability insurance for its directors and officers. New
York law does not allow insurance where the officer or director personally
gained a financial profit or advantage to which he was not legally entitled, or
a judgment adverse to the director or officer establishes that his acts of
active and deliberate dishonesty were material to the cause of action.
Schwab's bylaws provide that directors and officers of Schwab and those
serving at the request of Schwab as a director, officer, employee or agent of
another corporation or entity will be indemnified by Schwab to the fullest
extent authorized by Delaware law. The indemnification right includes the right
to be paid by Schwab the expenses incurred in defending any proceeding in
advance of its final disposition. Schwab's bylaws provide that the
indemnification rights conferred by Schwab's bylaws are not exclusive of any
other right to which persons seeking indemnification may be entitled under any
law, certificate of incorporation, agreement, vote of stockholders or
disinterested directors or otherwise. Schwab is authorized by Schwab's bylaws to
purchase and maintain insurance on behalf of its directors and officers.
U.S. Trust's bylaws provide officers and directors a broad indemnification
right, similar in scope to that permitted under New York law. However:
- no indemnification may be made to or on behalf of any person if a
judgment or other final adjudication adverse to such person establishes
that his acts were committed in bad faith or were a result of deliberate
dishonesty and were material to the cause of action so adjudicated, or
that he personally gained in fact a financial profit or other advantage
to which he was not legally entitled;
- no indemnification shall be required in connection with the settlement of
any pending or threatened action or proceeding, or any other disposition
thereof except a final adjudication, unless U.S. Trust has consented to
such a settlement or other disposition; and
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- U.S. Trust shall not be obligated to indemnify any person if and to the
extent such person is entitled to be indemnified under a policy of
insurance as such policy would apply in the absence of U.S. Trust's
indemnification provision.
The indemnification right includes the right to be paid by U.S. Trust the
expenses incurred in defending any proceeding in advance of its final
disposition.
LIMITATION OF LIABILITY
Delaware law allows a corporation to include in its certificate of
incorporation a provision limiting personal liability for a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision does not eliminate or limit the
liability of a director:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporate Law concerning
unlawful dividends and stock repurchases and redemptions; or
- for any transaction from which the director derived an improper personal
benefit.
Under New York law, a corporation can include in its certificate of
incorporation a provision limiting personal liability for a director to the
corporation or its shareholders for monetary damages for breach of duty as a
director, provided that such provision does not eliminate or limit the liability
of a director if a judgment or other final adjudication adverse to such director
establishes that:
- such director's acts or omissions were in bad faith, or involved
intentional misconduct or a knowing violation of law;
- the director personally gained in fact a financial profit or other
advantage to which the director was not legally entitled; or
- the director's acts violated provisions of the New York Business
Corporation law.
Under both Delaware and New York law, a provision limiting directors'
personal liability does not eliminate or limit the liability of a director for
any act or omission occurring prior to the date when such provision becomes
effective.
SHAREHOLDER RIGHTS AGREEMENT
Schwab does not have a stockholder rights plan.
U.S. Trust is party to a shareholder rights agreement with First Chicago
Trust Company of New York, as rights agent, pursuant to which, on August 29,
1995, U.S. Trust's board of directors declared a dividend granting shareholders
one right for each outstanding common share of U.S. Trust. On January 12, 2000,
U.S. Trust amended the rights agreement to ensure that in connection with the
execution of the merger agreement and the stock option agreement and the
completion of the merger and related transactions:
- the rights agreement does not apply to Schwab or any of its "affiliates"
or "associates," as those terms are defined in the rights agreement;
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- no "distribution date," "triggering event" or "affiliate merger," as
those terms are defined in the rights agreement, has occurred or will
occur; and
- no rights will separate from common shares of U.S. Trust or otherwise
become exercisable.
The rights agreement has the effect of deterring potential acquirors, other
than Schwab, from acquiring control of U.S. Trust. If U.S. Trust, however, were
to terminate the merger agreement in order to accept an unsolicited takeover
proposal from a third party as permitted under the merger agreement, U.S. Trust
could further amend its rights agreement to exempt from its effects the new
transaction. See "The Merger Agreement and Related Agreements -- The Merger
Agreement -- Termination" on page 53.
For a more complete description of the rights agreement, as amended, see
U.S. Trust's Form 8-A filed with the Securities and Exchange Commission on April
13, 1999, as amended by Form 8-A/A filed on January 18, 2000, incorporated by
reference in this proxy statement/ prospectus. See "Incorporation of Certain
Documents by Reference" on page 82 and "Where You Can Find More Information" on
page 83.
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SHAREHOLDER PROPOSALS
U.S. Trust will hold a 2000 annual meeting of U.S. Trust shareholders only
if the merger is not completed before the time of such meeting. The deadline for
submission of shareholder proposals for inclusion in U.S. Trust's proxy
materials for the 2000 U.S. Trust annual meeting was November 15, 1999.
If the merger is not completed, U.S. Trust shareholders may present proper
proposals for consideration at the next annual meeting of U.S. Trust
shareholders by submitting their proposal in writing to the Secretary of U.S.
Trust in a timely manner.
The U.S. Trust bylaws establish an advance notice procedure with regard to
various matters, including shareholder proposals not included in U.S. Trust's
proxy statement, to be brought before an annual meeting of shareholders. See
"Comparison of Rights -- Notice of Stockholder Action" on page 77.
The only business that will be conducted at a meeting of U.S. Trust
shareholders is business that is brought before the meeting:
- pursuant to U.S. Trust's notice of meeting;
- by or at the direction of the U.S. Trust board of directors; or
- by any shareholder of U.S. Trust who is a shareholder of record at the
time of giving of the notice of shareholder action, who is entitled to
vote at such meeting and who complies with the advance notice procedures.
LEGAL MATTERS
The validity of the shares of Schwab common stock offered by this proxy
statement/ prospectus will be passed upon for Schwab by Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, San Francisco,
California. Some directors of that firm beneficially own an aggregate of less
than one percent of Schwab common stock. Various legal matters with respect to
Federal income tax consequences in connection with the merger will be passed
upon for U.S. Trust by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The audited consolidated financial statements and the related financial
statement schedules of The Charles Schwab Corporation and subsidiaries as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 incorporated in this proxy statement/prospectus by reference
from The Charles Schwab Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated by reference in
this proxy statement/prospectus, and have been so incorporated in reliance upon
the reports of Deloitte & Touche LLP given upon their authority as experts in
accounting and auditing. Their report on the consolidated financial statements
expresses an unqualified opinion and includes an explanatory paragraph related
to an accounting change to conform with Statement of Position 98-1.
The audited consolidated financial statements of U.S. Trust Corporation and
its subsidiaries incorporated by reference in this proxy statement/prospectus
for the periods
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indicated have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent public accountants, given on the
authority of PricewaterhouseCoopers LLP as experts in auditing and accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by The Charles Schwab Corporation with the
Securities and Exchange Corporation are incorporated by reference in this proxy
statement/prospectus:
1. The Charles Schwab Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999, filed on March 27, 2000.
2. The Charles Schwab Corporation's Definitive Proxy Statement, filed March
27, 2000.
3. The Charles Schwab Corporation's Current Report on Form 8-K, filed on
January 14, 2000.
4. The Charles Schwab Corporation's Current Report on Form 8-K, filed on
February 22, 2000.
The following documents filed by U.S. Trust Corporation with the Securities
and Exchange Corporation are incorporated by reference in this proxy
statement/prospectus:
1. U.S. Trust Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999, filed on March 15, 2000.
2. U.S. Trust Corporation's Current Report on Form 8-K, filed on January
14, 2000.
3. U.S. Trust Corporation's Current Report on Form 8-K, filed on February
22, 2000.
4. The description of common shares of U.S. Trust set forth in the
Registration Statement on Form 10 filed on September 5, 1995 pursuant to
Section 12 the Exchange Act.
5. The description of the rights associated with common shares of U.S.
Trust set forth on Form 8-A filed on April 13, 1999, as amended by Form
8-A/A filed on January 18, 2000, pursuant to Section 12 of the Exchange
Act.
All reports and definitive proxy or information statements filed by Schwab
and U.S. Trust pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this proxy statement/prospectus and prior to the
date of the special meeting will be deemed to be incorporated by reference into
this proxy statement/prospectus from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this proxy statement/prospectus will be deemed to be modified or
superseded for purposes of this proxy statement/prospectus to the extent that a
statement contained in this proxy statement/prospectus, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference, modifies or supersedes such statement. Any such statement so modified
or superseded will not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement/prospectus.
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WHERE YOU CAN FIND MORE INFORMATION
Schwab and U.S. Trust file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York, and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the website maintained by the
Securities and Exchange Commission at http://www.sec.gov.
Schwab has filed a registration statement with the Securities and Exchange
Commission to register the Schwab common stock to be issued to U.S. Trust
shareholders in the merger. This proxy statement/prospectus forms a part of that
registration statement and constitutes a prospectus of Schwab in addition to
being a proxy statement of U.S. Trust for the special meeting.
As allowed by the Securities and Exchange Commission's rules, this proxy
statement/ prospectus does not contain all of the information relating to Schwab
and U.S. Trust you can find in the registration statement or the exhibits to the
registration statement. Some of the important business and financial information
relating to Schwab and U.S. Trust that you may want to consider in deciding how
to vote is not included in this proxy statement/prospectus, but rather is
"incorporated by reference" to documents that have been previously filed by
Schwab and U.S. Trust with the Securities and Exchange Commission. The
information incorporated by reference is deemed to be a part of this proxy
statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/ prospectus. See "Incorporation of
Certain Documents by Reference" on page 82.
Schwab has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Schwab, and U.S. Trust has
supplied all information contained or incorporated by reference in this proxy
statement/prospectus relating to U.S. Trust. Neither Schwab nor U.S. Trust
warrants the accuracy or completeness of information relating to the other.
If you are a shareholder, you can obtain any of the documents incorporated
by reference through Schwab, U.S. Trust or the Securities and Exchange
Commission. Documents incorporated by reference are available from Schwab and
U.S. Trust without charge, excluding exhibits unless such exhibits are
specifically incorporated by reference. You may obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them orally or in
writing or by telephone to the following addresses or telephone numbers:
The Charles Schwab Corporation U.S. Trust Corporation
Investor Relations Public Relations
101 Montgomery Street 114 West 47th Street
San Francisco, California 94104 New York, New York 10036
(415) 636-2787 (212) 852-1000
If you would like to request documents, please do so by May 23, 2000 in
order to receive them before the special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. NEITHER
SCHWAB NOR U.S. TRUST HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT FROM WHAT IS
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CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS
DATED MAY 1, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE
MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF
SCHWAB COMMON STOCK IN THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
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ANNEX A
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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TABLE OF CONTENTS
PAGE
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ARTICLE I THE MERGER................................................ A-1
1.1 The Merger................................................ A-1
1.2 Effective Time............................................ A-1
1.3 Effects of the Merger..................................... A-1
1.4 Conversion of UST Common Stock............................ A-2
1.5 MERGER SUB Common Stock................................... A-2
1.6 SCHWAB Common Stock....................................... A-2
1.7 Options and Contingent Issuances.......................... A-3
1.8 Certificate of Incorporation.............................. A-4
1.9 Bylaws.................................................... A-4
1.10 Directors and Officers of Surviving Corporation and
Subsidiaries.............................................. A-4
1.11 Representation on SCHWAB Board of Directors and Management
Committee................................................. A-4
ARTICLE II EXCHANGE OF SHARES........................................ A-5
2.1 SCHWAB to Make Shares Available........................... A-5
2.2 Exchange of Shares........................................ A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF UST..................... A-7
3.1 Corporate Organization.................................... A-7
3.2 Capitalization............................................ A-8
3.3 Authority; No Violation................................... A-9
3.4 Consents and Approvals.................................... A-9
3.5 Reports................................................... A-10
3.6 Financial Statements...................................... A-10
3.7 Broker's Fees............................................. A-11
3.8 Absence of Certain Changes or Events...................... A-11
3.9 Legal Proceedings......................................... A-12
3.10 Taxes and Tax Returns..................................... A-12
3.11 Employees................................................. A-13
3.12 SEC Reports............................................... A-15
3.13 Compliance with Applicable Law............................ A-15
3.14 Certain Contracts......................................... A-16
3.15 Agreements with Regulatory Agencies....................... A-16
3.16 Investment Securities..................................... A-17
3.17 Derivative Instruments.................................... A-17
3.18 Loan Losses............................................... A-17
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PAGE
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3.19 Undisclosed Liabilities................................... A-17
3.20 Environmental Liability................................... A-18
3.21 State Takeover Laws; UST Rights Plan...................... A-18
3.22 Insurance................................................. A-18
3.23 Pooling of Interests...................................... A-18
3.24 Title to Properties....................................... A-18
3.25 Intellectual Property..................................... A-19
3.26 Year 2000................................................. A-19
3.27 No Excess Parachute Payments.............................. A-19
3.28 Opinion................................................... A-20
3.29 UST Information........................................... A-20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SCHWAB AND MERGER SUB... A-20
4.1 Corporate Organization.................................... A-21
4.2 Capitalization............................................ A-21
4.3 Authority; No Violation................................... A-22
4.4 Consents and Approvals.................................... A-22
4.5 Broker's Fees............................................. A-22
4.6 Absence of Certain Changes or Events...................... A-23
4.7 Legal Proceedings......................................... A-23
4.8 Taxes and Tax Returns..................................... A-23
4.9 SEC Reports............................................... A-23
4.10 Compliance with Applicable Law............................ A-24
4.11 Agreements with Regulatory Agencies....................... A-24
4.12 Undisclosed Liabilities................................... A-25
4.13 Pooling of Interests...................................... A-25
4.14 Year 2000................................................. A-25
4.15 Opinion................................................... A-25
4.16 SCHWAB Information........................................ A-25
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS................. A-26
5.1 Conduct of UST Business Prior to the Effective Time....... A-26
5.2 Forbearances of UST....................................... A-26
5.3 Forbearances of SCHWAB.................................... A-28
ARTICLE VI ADDITIONAL AGREEMENTS..................................... A-28
6.1 Regulatory Matters........................................ A-28
6.2 Access to Information..................................... A-30
6.3 Shareholder Approval...................................... A-30
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PAGE
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6.4 No Solicitation........................................... A-31
6.5 Continuity of Business Enterprise......................... A-32
6.6 Tax Free Treatment........................................ A-32
6.7 Pooling Treatment......................................... A-32
6.8 Affiliates; Publication of Combined Financial Results..... A-32
6.9 Stock Exchange Listing.................................... A-33
6.10 Employee Benefits......................................... A-33
6.11 Indemnification; Directors' and Officers' Insurance....... A-34
6.12 Additional Agreements..................................... A-35
6.13 Advice of Changes......................................... A-35
6.14 Employee Retention Plan................................... A-35
6.15 State Takeover Statutes................................... A-35
6.16 Section 15 of the 1940 Act................................ A-35
ARTICLE VII CONDITIONS PRECEDENT...................................... A-36
7.1 Conditions to Each Party's Obligation To Effect the
Merger.................................................... A-36
(a) Shareholder Approval...................................... A-36
(b) Stock Exchange Listing.................................... A-36
(c) Regulatory Approvals...................................... A-36
(d) S-4....................................................... A-36
(e) No Injunctions or Restraints; Illegality.................. A-37
(f) Pooling of Interests...................................... A-37
7.2 Conditions to Obligations of SCHWAB....................... A-37
(a) Representations and Warranties............................ A-37
(b) Performance of Obligations of UST......................... A-37
(c) Regulatory Conditions..................................... A-37
(d) Financial Holding Company Status.......................... A-38
7.3 Conditions to Obligations of UST.......................... A-38
(a) Representations and Warranties............................ A-38
(b) Performance of Obligations of SCHWAB...................... A-38
(c) Tax Opinion............................................... A-38
ARTICLE VIII TERMINATION AND AMENDMENT................................. A-39
8.1 Termination............................................... A-39
8.2 Effect of Termination..................................... A-40
8.3 Amendment................................................. A-40
8.4 Extension; Waiver......................................... A-41
8.5 Superior Proposal Termination............................. A-41
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PAGE
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ARTICLE IX GENERAL PROVISIONS........................................ A-41
9.1 Closing................................................... A-41
9.2 Nonsurvival of Representations, Warranties and
Agreements................................................ A-41
9.3 Expenses.................................................. A-42
9.4 Notices................................................... A-42
9.5 Interpretation............................................ A-43
9.6 Counterparts.............................................. A-43
9.7 Entire Agreement.......................................... A-43
9.8 Governing Law............................................. A-43
9.9 Severability.............................................. A-43
9.10 Publicity................................................. A-43
9.11 Assignment; Third Party Beneficiaries..................... A-43
EXHIBITS
6.8(a)(1) Form of Affiliate Letter Addressed to U.S. Trust
6.8(a)(2) Form of Affiliate Letter Addressed to Schwab
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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 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.
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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 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
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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
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.
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(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.
(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.
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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 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.
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(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 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 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).
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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.
(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
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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 5,000,000 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 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.
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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 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
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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 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
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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 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
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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 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.
(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
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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, 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").
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(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 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.
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(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 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. sec.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,
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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 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
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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 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.
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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 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
Patriot 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.
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
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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, 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
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(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 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
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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 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
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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 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
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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.
(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
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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 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
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dividends, its credit or risk 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 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
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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;
(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,
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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) (i) acquire any business entity, whether by stock purchase,
merger, consolidation or otherwise, or (ii) 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;
(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
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(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;
(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
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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, 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.
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6.2 Access to Information.
(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 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
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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.
(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
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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
sec.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 sec.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 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.
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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 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
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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.
(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
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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 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.
(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
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(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.
(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.
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(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 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
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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.
sec.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. sec.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
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.
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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 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).
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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.
(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 8.1(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 Merger by the shareholders of UST;
provided, however, that after any approval of the
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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 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.
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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
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
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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 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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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 SCHWARZ
------------------------------------------- -------------------------------------------
Name: David S. Pottruck Name: H. Marshall Schwarz
Title: President and Co-Chief Title: Chairman of the Board and
Executive Officer Chief Executive Officer
PATRIOT MERGER CORPORATION
By: /s/ DAVID S. POTTRUCK
-------------------------------------------
Name: David S. Pottruck
Title: President
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ANNEX B
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 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
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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.
(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."
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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, (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.
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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 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
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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 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
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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 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 shares
of Common Stock for which the Option is then exercisable and the
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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.
(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
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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 PATRIOT
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 PATRIOT Rights Agreement or enable or require the
rights outstanding thereunder to be exercised, distributed or triggered.
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.
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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.
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.
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22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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 SCHWARZ
-----------------------------------
Name: H. Marshall Schwarz
Title: Chairman of the Board and
Chief Executive Officer
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ANNEX C
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
January 12, 2000
Board of Directors
U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
Dear Members of the Board:
You have asked us to advise you with respect to the fairness to the shareholders
of U.S. Trust Corporation (the "Company") from a financial point of view of the
Exchange Ratio (as defined below), pursuant to the terms of the Agreement and
Plan of Merger, dated as of January 12, 2000 (the "Merger Agreement"), among the
Company, The Charles Schwab Corporation (the "Acquiror") and Patriot Merger
Corporation (the "Merger Sub"). The Merger Agreement provides for the merger
(the "Merger") of the Company with the Merger Sub pursuant to which each
outstanding common share, $1.00 par value per share, of the Company will be
converted into the right to receive 3.427 shares (the "Exchange Ratio") of
common stock, $0.01 par value per share, of the Acquiror.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to the Company and the Acquiror, as well as
the Merger Agreement. We have also reviewed certain other information, including
financial forecasts, provided to us by the Company and the Acquiror, and have
met with the Company's and the Acquiror's management to discuss the business and
prospects of the Company and the Acquiror.
We have also considered certain financial and stock market data of the Company
and the Acquiror, and we have compared those data with similar data for other
publicly held companies in businesses similar to the Company and the Acquiror
and we have considered the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and the Acquiror's management as to the future financial performance
of the Company and the Acquiror. You also have informed us, and we have assumed,
that the Merger will be treated as a tax-free reorganization for federal income
tax purposes and accounted for as a pooling of interests in accordance with
generally accepted accounting principles. In addition, we have not been
requested to make, and have not made, an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company or the
Acquiror, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We are not
expressing any opinion as to the actual value of the common stock of the
Acquiror when issued to the Company's shareholders pursuant to the Merger or the
prices at which such common stock
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will trade subsequent to the Merger. We were not requested to, and did not,
solicit third party indications of interest in acquiring all or any part of the
Company.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement.
In the past, we have performed certain investment banking services for the
Company and have received customary fees for such services. In addition, we have
also performed certain investment banking services for the Acquiror.
In the ordinary course of our business, we and our affiliates may actively trade
the debt and equity securities of both the Company and the Acquiror for our and
such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Merger, and is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus or proxy statement, or in any
other document used in connection with the offering or sale of securities,
without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair to shareholders of the Company from a
financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ MICHAEL E. MARTIN
----------------------------------
Michael E. Martin
Managing Director
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U.S. TRUST Dear Fellow Shareholder:
We have attached your Proxy Card for U.S. Trust's
Special Meeting of Shareholders. Your vote is important,
and we urge you to exercise your rights as a
shareholder.
You can vote in one of two ways:
1. Call toll free 1-888-457-2962 on a touch-tone
telephone and follow the instructions on the reverse
side. There is NO CHARGE to you for this call.
or
2. Mark, sign and date your proxy card and return it
promptly in the enclosed envelope.
Should you wish to attend, the Special Meeting will be
held on Wednesday, May 31, 2000 at 10:00 a.m. in the
first floor auditorium at 114 West 47th Street, New York
City.
Thank you for your cooperation and continued support.
/s/ H. Marshall Schwarz
H. Marshall Schwarz
Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
U.S. TRUST U.S. TRUST CORPORATION
Proxy/Voting Instructions Solicited by Board of Directors for the
Special Meeting of Shareholders on Wednesday, May 31, 2000
The undersigned appoints each of RICHARD B. GROSS and CAROL A. STRICKLAND, with
full power of substitution, to vote all Common Shares of U.S. Trust Corporation
which the undersigned is entitled to vote at the Special Meeting of Shareholders
or any adjournment thereof. THE SHARES REPRESENTED BY THIS PROXY/VOTING
INSTRUCTION WILL BE VOTED AS INSTRUCTED BY THE UNDERSIGNED, AND IN THE
DISCRETION OF THE PROXIES ON ALL OTHER MATTERS. IF NOT OTHERWISE SPECIFIED,
SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF
DIRECTORS.
VOTING BY MAIL. If you wish to vote by mailing this proxy, please sign your name
exactly as it appears on this proxy and mark, date and return it in the enclosed
envelope. When signing as attorney, executor, administrator, trustee, guardian
or officer of a corporation, please give your full title as such.
VOTING BY TELEPHONE. If you wish to vote by telephone, please follow the
instructions on the reverse side.
U.S. TRUST EMPLOYEES. If you are a current or former employee of U.S. Trust and
have an interest in Common Shares through the 401(k) Plan and ESOP and/or
Employee Stock Purchase Plan (ESPP), your ESOP and ESPP shares and proportionate
interest in the Stock Fund as of April 24, 2000 are shown on this card and your
vote (by mail or telephone) will provide voting instructions to the Trustee of
the respective Plan. If no instructions are given, the Trustee will vote the
shares pursuant to the terms of the Plan.
CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE AND RETURN PROMPTLY OR VOTE BY TELEPHONE.
154
VOTE BY TELEPHONE
QUICK -- EASY -- IMMEDIATE
U.S. Trust Corporation offers you the convenience of telephone voting. Your
telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card. To vote by
telephone:
o You will be asked to enter a Control Number, which is located in the box
in the middle of this form.
o You will hear the following instructions:
Option # 1: To vote as the Board of Directors recommends, press 1.
Option # 2: If you choose to vote other than as the Board of Directors
recommends, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU FOR VOTING.
If you vote by telephone, DO NOT mail back your proxy card.
-----------------------------------
CALL TOLL FREE ON A TOUCH-TONE PHONE
1-888-457-2962 -- ANYTIME
There is NO CHARGE for this call.
-----------------------------------
CONTROL NUMBER FOR
TELEPHONE VOTING
/ FOLD AND DETACH HERE IF YOU ARE NOT VOTING BY TELEPHONE /
- --------------------------------------------------------------------------------
/X/ Please mark your
vote with an X.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
MERGER AGREEMENT.
- --------------------------------------------------------------------------------
The shares represented by this proxy shall be voted as follows:
To consider and vote on a proposal to adopt the 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. As a result of the
merger, U.S. Trust will become a wholly owned subsidiary of Schwab. In the
merger, shareholders of U.S. Trust will receive 3.427 shares of Schwab common
stock for each common share of U.S. Trust that they own at the effective time of
the merger.
FOR AGAINST ABSTAIN
/ / / / / /
- --------------------------------------------------------------------------------
Sign here as name(s) appear to the left.
----------------------------------------
----------------------------------------
IMPORTANT: Please sign EXACTLY as your
name(s) appears on the left. Joint
owners should each sign. If you are
signing as an executor, administrator,
trustee, guardian, attorney or corporate
officer, please give your full title.
Date: ____________________________, 2000
(SEE REVERSE SIDE)