-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q7GK3SbO6DrkLBMeXslk+ankXKfC/GFOH5to0+LP/7cjCIJE2lGT9iFsGMSJtyJb 1ukP0qgyBEKb0sqMe8Y2SA== 0000903893-96-000124.txt : 19960327 0000903893-96-000124.hdr.sgml : 19960327 ACCESSION NUMBER: 0000903893-96-000124 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UST CORP CENTRAL INDEX KEY: 0000316901 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 042436093 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09623 FILM NUMBER: 96538590 BUSINESS ADDRESS: STREET 1: 40 COURT ST CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6177267000 MAIL ADDRESS: STREET 1: 40 COURT ST CITY: BOSTON STATE: MA ZIP: 02108 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE Required) COMMISSION FILE #0-9623 UST CORP. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2436093 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 40 COURT STREET, BOSTON, MASSACHUSETTS 02108 (Address of principal executive offices) (Zip Code) (617) 726-7000 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.625 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-k or any amendment to this Form 10-k. [ ] The number of shares of common stock held by nonaffiliates of the registrant as of February 20, 1996 was 15,168,635 for an aggregate market value of $218,049,128. At February 20, 1996, there were issued and outstanding 17,902,763 shares of common stock, par value $0.625 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for the 1996 Annual Meeting are incorporated by reference in Items 10, 11, 12 and 13 of Part III. 2 PART I ITEM 1 Business 3 ITEM 2 Properties 11 ITEM 3 Legal Proceedings 11 ITEM 4 Submission of Matters to a Vote of Security Holders 11 PART II ITEM 5 Market for the Registrant's Common Stock and Related Security Holder Matters 11 ITEM 6 Selected Financial Data 12 ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Financial Condition at December 31,1995 13 Results of Operations 23 ITEM 8 Financial Statements and Supplementary Material 29 ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 PART III ITEM 10 Directors and Executive Officers of the Registrant 52 ITEM 11 Executive Compensation 54 ITEM 12 Security Ownership of Certain Beneficial Owners and Management 54 ITEM 13 Certain Relationships and Related Transactions 55 PART IV ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 55 Signatures 58
2 PART I ITEM 1. Business General Description Of Business UST Corp. (the "Company"), a bank holding company registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), was organized as a Massachusetts business corporation in 1967. The Company is subject to examination by, and is required to file reports with, the Commissioner of Banks of the Commonwealth of Massachusetts (the "Massachusetts Commissioner"). The Company's banking subsidiaries are USTrust and United States Trust Company ("USTC"), each headquartered in Boston and each a Massachusetts trust company, and UST Bank/Connecticut ("UST/Conn"), headquartered in Bridgeport, a Connecticut trust company. All of the common stock of USTrust, USTC, and UST/Conn is issued to and owned by the Company. In addition, the Company owns, indirectly through its banking subsidiaries, all of the outstanding stock of three active nonbanking subsidiaries, all Massachusetts corporations: UST Leasing Corporation, UST Capital Corp. and JSA Financial Corporation. The Company engages in one line of business, that of providing financial services through its banking and nonbanking subsidiaries. A broad range of financial services is provided principally to individuals and small- and medium-sized companies in New England including those located in low- and moderate-income neighborhoods within the Company's defined Community Reinvestment Act assessment area. In addition, an important component of the Company's financial services is the provision of trust and money management services to professionals, corporate executives, nonprofit organizations, labor unions, foundations, mutual funds and owners of closely-held businesses most of whom are located in the New England region. As of the close of business on December 31, 1995, the Company's total assets were approximately $1.97 billion and USTrust, the lead bank, had over $1.86 billion, or 94 percent of the Company's consolidated assets. The Subsidiary Banks USTrust and UST/Conn are engaged in a general commercial banking business and accept deposits which are insured by the Federal Deposit Insurance Corporation ("FDIC"). USTC, which has full banking powers and accepts deposits which are insured by the FDIC, focuses its activity on trust and money management, venture capital and other fee-generating businesses. Two of the Company's banking subsidiaries are located in Massachusetts and one is located in Connecticut. Recent Developments Recent Operating History and Asset Quality Summary The Company reported net income of $15.0 million, or $0.83 per share for 1995, as compared with net income of $4.7 million, or $0.27 per share in 1994. Nonperforming assets at December 31, 1995, consisting of nonaccrual loans, restructured loans, accruing loans greater than 90 days past due and other real estate owned, were $29.0 million, down from a level of $87.1 million at December 31, 1994. At year-end 1995, the reserve for possible loan losses stood at $56.0 million, or 281 percent of nonaccrual loans and 193 percent of nonperforming assets. For a more detailed discussion, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations below. Potential One-time FDIC Insurance Premium Assessment and Subsequent Reduction of Premium Costs Federal legislation was proposed in 1995 to recapitalize the Savings Association Insurance Fund which may result in a one-time assessment on certain deposits assumed by the Company in connection with its 1990 acquisition of Home Owners Savings Bank, F.S.B., a failed savings association. While the amount of such potential assessment cannot be determined at this time, any assessment will be charged against earnings during the period in which the enabling legislation is enacted. Under the proposed legislation, subsequent to the one-time charge, the insurance premium charged on the former thrift deposits would be reduced. For further discussion, refer to Note 12 to the Notes to Consolidated Financial Statements of this Form 10-K. Regulatory Agreements and Orders Between 1992 and mid-1995, the Company and its banking subsidiaries operated under regulatory agreements and orders with state and federal bank regulatory authorities, all of which were removed by September 30, 1995. For a description of the foregoing agreements and orders which, as noted above, are no longer in effect, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. In June 1995, in conjunction with the release of the agreements and orders, USTrust's Board of Directors adopted a resolution pursuant to which USTrust agreed with the FDIC and Massachusetts 3 Commissioner, among other matters: (i) to continue to maintain a Tier 1 leverage capital ratio of at least 6 percent; (ii) not to pay a dividend which would cause the Bank's Tier 1 leverage capital ratio to fall below 6 percent; (iii) to continue to implement plans to reduce nonperforming assets and the aggregate level of insider loans; and (iv) to provide a quarterly progress report to the FDIC and Massachusetts Commissioner. USTC likewise has agreed with the FDIC and Massachusetts Commissioner not to declare or pay dividends should the effect of the payment of such dividends cause USTC's Tier 1 leverage capital ratio to fall below 6 percent. Adoption of Stock Repurchase Program In late 1995, the Board approved a stock repurchase program, authorizing the Company to repurchase up to 500,000 shares, or approximately 2.8 percent of the Company's common stock outstanding, subject to prevailing market conditions and other factors. The repurchased shares will be held as treasury shares to be used for general corporate purposes, including employee benefit plans. Purchases may be made on the open market or in privately negotiated transactions. At the date of this Report no shares had been repurchased under this program. Adoption of Shareholder Rights Plan In 1995, the Company adopted a shareholder rights plan (the "Rights Plan"), which is intended to strengthen the Board of Director's ability to fulfill its fiduciary duties to the Company's shareholders in the event of an attempted takeover of the Company. It is similar to plans adopted by a large number of public companies, including many bank holding companies. Under the Rights Plan, the Board declared a special dividend distribution of one preferred share purchase right for each outstanding share of the Company's common stock. This dividend was distributed on October 6, 1995 to stockholders of record as of the close of business on that date. The rights will become exercisable only if a person or group (i) acquires 15 percent or more of the common stock, (ii) announces a tender offer that would result in ownership of 15 percent or more of the common stock, or (iii) is declared to be an "Adverse Person" by the Board of Directors. "Adverse Person" includes any person or group who owns at least 10 percent of the Company's common stock and attempts an action that would adversely impact the Company. Each right would entitle a stockholder to buy 1/100th of a share of a new series of junior participating preferred stock. Once a person or group has acquired 15 percent or more of the outstanding common stock of the Company or is declared an "Adverse Person" by the Board of Directors, each right may entitle its holder (other than the acquiring person or adverse person) to purchase, at an exercise price of $40, shares of common stock of the Company (or of any organization that acquires the Company) at a price equal to 50 percent of their current market price. Under certain circumstances, the Continuing Directors (as defined in the Rights Plan) may exchange the rights for common stock (or equivalent securities) on a one-for-one basis excluding rights held by the acquiring person or Adverse Person. Until declaration of an Adverse Person, or ten days after public announcement that any person or group has acquired 15 percent or more of the Company's common stock, the rights are redeemable at the option of the Board of Directors, in certain cases with the concurrence of the Continuing Directors. Thereafter, they may be redeemed by the Continuing Directors in connection with certain acquisitions not involving any acquiring person or Adverse Person or in certain circumstances following a disposition of shares by the acquiring person or Adverse Person. The redemption price is $.001 per right. The rights will expire on October 6, 2005, unless redeemed prior to that date. Business Services USTrust and UST/Conn provide commercial banking services, including deposit, investment, cash management, payroll, wire transfer, leasing, merchant credit card and lending services throughout New England. Commercial and industrial lending takes the form primarily of direct loans and includes lines of credit, revolving credits, domestic and foreign letters of credit, term loans, mortgage loans, receivable, inventory and equipment loans and other specialized lending services. Furthermore, the Company provides additional services to small business customers through utilization of government sponsored and assisted loan programs and through the Company's Minority Enterprise Loan Program. Since 1994, USTrust has been certified by the SBA as a "Small Business Administration Lender." USTC provides deposit services and other banking services, but focuses its activities on money management, venture capital and other fee-generating services. Through loan participations, each bank is able to provide credit to businesses in its area up to the aggregate limit available to the Company's subsidiary banks. At December 31, 1995, the combined lending limit to a single borrower of the subsidiary banks was approximately $31.5 million. Consumer Services Consumer services are provided by USTrust and UST/Conn to customers in their respective geographic areas. These services include savings and checking accounts, NOW and money market accounts, consumer 4 loans, credit cards (through a private label arrangement), ATM cards, safe deposit box facilities and travelers' checks. Consumer loans include residential first mortgage and home equity loans and lines of credit, automobile loans, personal loans and loans to finance education costs as well as open-ended credit via cash reserve facilities. Automobile loans increased substantially in 1995 and reached a level of approximately $197 million as of December 31, 1995. The Company also makes available an Affordable Mortgage Program which is designed to provide certain customers of USTrust and UST/Conn who may not qualify for traditional mortgage financing with an alternate means of financing or refinancing a residence. The Company's banking subsidiaries, which currently have an aggregate of 32 offices, maintain an automated teller machine system which through membership in various networks provides the Company's customers with access to their accounts at locations throughout the world. Most of the Company's proprietary ATM machines provide information to customers in three languages, English, Spanish and Portuguese, and also provide information adapted for the visually impaired. Investment Services The Investment Group located at USTrust and UST/Conn was formed in 1994. The Investment Group, through Essex National Securities, Inc. ("Essex"), an unaffiliated, licensed broker-dealer, offers mutual funds (whose investments are managed by nonaffiliated third parties), treasury bills, notes, corporate bonds, state, federal and municipal bonds and discount brokerage services to the customers of USTrust and UST/Conn. Essex also offers annuities to USTrust and UST/Conn customers at branch locations. Real Estate Services USTrust and UST/Conn provide a broad range of industrial and commercial real estate lending services, residential mortgage banking services and other related financial services. Asset and Money Management and Trust Services Asset and money management, custodial and trust services are provided by USTC. In addition, USTC provides services as executor, administrator and trustee of estates and acts, under the terms of agreements, in various capacities such as escrow agent, bond trustee and trustee and agent of pension, profit sharing and other employee benefit trusts. At December 31, 1995, the total assets under management of USTC were approximately $2.9 billion. Approximately one-third of total assets under management are those of clients who have requested that their assets be managed with specified social as well as financial investment objectives in mind. In 1995, USTC also became investment adviser to a newly established balanced mutual fund, the Boston Managed Growth Fund. Securities Portfolios Maintained by the Company The subsidiary banks maintain securities portfolios consisting primarily of U.S. Treasury, U.S. Government Agency, corporate and municipal securities. All of the Company's securities are deemed "available-for-sale" which enhances the liquidity position of the Company and allows for flexibility in management of interest rate risk. USTrust's securities portfolio also includes certain other equity investments as allowed within limits prescribed by Massachusetts and federal law. Such investments currently include, among others, equity interests in the Massachusetts Housing Investment Corporation's Limited Partnership Equity Fund for Affordable Housing. The Treasury Division of the Company provides securities portfolio advisory services to the Company's affiliated banks. In early 1996, USTrust's application to become a member of the Federal Home Loan Bank of Boston was approved. This membership will provide USTrust with access to an additional source of funds. Principal Nonbanking Subsidiaries UST Leasing Corporation, a subsidiary of USTrust organized in 1987, provides a broad range of equipment leasing services to corporations headquartered throughout the United States. UST Leasing Corporation offers a line of leasing products designed to meet the needs of the Company's small business customers and other business entities with similar needs. As of December 31, 1995, UST Leasing Corporation's total assets were approximately $32 million. UST Capital Corp., organized in 1961 and acquired by the Company in 1969, is a subsidiary of USTC and is a licensed Small Business Investment Company. It specializes in equity and long-term debt financing for growth-oriented companies. 5 UST Data Services Corp. was formally dissolved as a separate legal entity as of December 31, 1995 and became a division of USTrust. In its new configuration, it continues to provide a full range of electronic data processing, deposit and other operations services to the Company and its affiliates. UST Securities Corp., a wholly-owned subsidiary of USTrust, was incorporated in 1995 and commenced its operations on January 1, 1996. This subsidiary was organized as a Massachusetts Securities Corporation to make exclusively passive investments and serve USTrust by buying, selling, dealing in and holding its securities. JSA Financial Corporation, a wholly-owned subsidiary of the Company, was organized in 1959. On June 30, 1995, this subsidiary acquired approximately $5.1 million of nonperforming assets from UST/Conn. Since that date, it has been engaged in an active program to liquidate those assets. As of the date of this Report, the value of the assets remaining on the books of JSA Financial Corporation is approximately $2 million. Competitive Conditions The Company's banking and nonbanking subsidiaries face substantial competition throughout Massachusetts and Connecticut. This competition is provided by commercial banks, savings banks, credit unions, consumer finance companies, insurance companies, "nonbank banks," mutual funds, government agencies, investment management companies, investment advisors, brokers and investment bankers. In addition, the Company anticipates increased competition from out-of-state and foreign banks and bank holding companies as those entities increase their usage of interstate banking powers granted since 1983 as well as by the 1994 enactment of the Riegle-Neal Interstate Banking and Branching Act (discussed under "Supervision and Regulation of the Company and its Subsidiaries" below). During the past six years several factors have resulted in the development or establishment of fewer, but financially stronger competitors in the local markets served by the Company's banking subsidiaries. The most important of these factors include: (i) the closing by regulators of a number of banks and bank holding companies in Eastern Massachusetts and Connecticut; (ii) the acquisition during the early 1990's of small- and medium-sized banks and bank holding companies by the largest New England bank holding companies; (iii) the somewhat improved economic conditions during the mid-1990's within the region; and (iv) most recently, the merger of Fleet Financial Group and Shawmut National Corporation and the proposed merger of Bank of Boston Corporation and BayBanks, Inc., which would result in the creation of two entities of what had been four of the five largest bank holding companies in New England. Supervision and Regulation of the Company and its Subsidiaries General As a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), the Company is subject to substantial regulation and supervision by the Federal Reserve Board. As state-chartered banks, USTC, USTrust and UST/Conn (collectively, the "Subsidiary Banks") are subject to substantial regulation and supervision by the FDIC and the applicable state bank regulatory agencies. Such activities are often intended primarily for the protection of depositors or are aimed at carrying out broad public policy goals that may not be directly related to the financial services provided by the Company and its subsidiaries. Federal and state banking and other laws impose a number of requirements and restrictions on the business operations, investments and other activities of depository institutions and their affiliates. Between 1992 and mid-1995, the Company and its banking subsidiaries operated under regulatory agreements and orders with state and federal bank regulatory authorities; all of the agreements and orders were removed by September 30, 1995. For a description of the foregoing agreements and orders, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 at pages 1-2. General Supervision and Regulation The Company, as a bank holding company under the BHC Act, is registered with the Federal Reserve Board and is regulated under the provisions of the BHC Act. Under the BHC Act the Company is prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing or controlling banks or furnishing services to, or acquiring premises for, its affiliated banks, except that the Company may engage in and own voting shares of companies engaging in certain activities determined by the Federal Reserve Board, by order or by regulation, to be so closely related to banking or to managing or controlling banks "as to be a proper incident thereto." 6 The Company is required by the BHC Act to file with the Federal Reserve Board an annual report and such additional reports as the Federal Reserve Board may require. The Federal Reserve Board also makes periodic inspections of the Company and its subsidiaries. The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if, after such acquisition, it would own or control, directly or indirectly, more than 5 percent of the voting shares of such bank. Because the Company is also a bank holding company under the Massachusetts General Laws, the Massachusetts Commissioner has authority to require certain reports from the Company from time to time and to examine the Company and each of its subsidiaries. The Massachusetts Commissioner also has enforcement powers designed to prevent banks from engaging in unfair methods of competition or unfair or deceptive acts or practices involving consumer transactions. Prior approval of the Massachusetts Board of Bank Incorporation is also required before the Company may acquire any additional commercial banks located in Massachusetts or in those states which permit acquisitions of banking institutions located in their states by Massachusetts bank holding companies. The Connecticut General Statutes require that the Company furnish to the Connecticut Commissioner such reports as the Connecticut Commissioner deems appropriate to the proper supervision of the Company. The Connecticut Commissioner is also authorized to make examinations of the Company and its Connecticut subsidiaries including UST/Conn, and to order the Company to cease and desist from engaging in any activity which constitutes a serious risk to the financial safety, soundness or stability of the Company or UST/Conn, or is inconsistent with sound banking principles or the provisions of the banking laws of Connecticut. The location of nonbank subsidiaries of the Company is not restricted geographically under the BHC Act. In 1989, after the passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), the Federal Reserve Board amended its regulations under the BHC Act to permit bank holding companies, as a nonbanking activity, to own and operate savings associations without geographical restrictions. Furthermore, in 1994, the Riegle-Neal Interstate Banking and Branching Act of 1994 (the "Interstate Banking Act") was enacted. The Interstate Banking Act's provisions, among other things: (i) permit bank holding companies, under certain circumstances, to acquire control of banks in any state, subject to (a) specified maximum national and state deposit concentration limits; (b) any applicable state law provisions requiring that the acquired bank has to have been in existence for a specified period of up to 5 years; (c) any applicable nondiscriminatory state provisions that make an acquisition of a bank contingent upon a requirement to hold a portion of such bank's assets available for call by a state-sponsored housing entity; and (d) applicable anti-trust laws; (ii) authorize interstate mergers by banks in different states, including branching through bank mergers, beginning June 1, 1997, subject to the provisions noted in (i) and to any state laws that "opt-in" as of an earlier date or "opt-out" of the provision entirely; (iii) authorize states to enact legislation permitting interstate de novo branching; and (iv) provide for parity of treatment for foreign bank branch activities. Proposed legislation has been filed in Massachusetts which, if enacted, would cause Massachusetts to "opt-in" prior to June 1, 1997. In 1995, the Connecticut Legislature enacted legislation which caused Connecticut to "opt-in." The full impact of the Interstate Banking Act will not be clear for the Company until the Massachusetts Legislature has acted on the foregoing legislation. Unlike the Company's banking subsidiaries, national banks have used the power available under a federal charter to move a bank's headquarters 30 miles or less and by that means have accelerated the pace of interstate branching. The Subsidiary Banks, whose deposits are insured by the FDIC, and the subsidiaries of such banks are subject to a number of regulatory restrictions, including certain restrictions upon: (i) extensions of credit to the Company and the Company's nonbanking affiliates (collectively with the Company, the "Affiliates"); (ii) the purchase of assets from Affiliates; (iii) the issuance of a guarantee or acceptance of a letter of credit on behalf of Affiliates; and (iv) investments in stock or other securities issued by Affiliates or acceptance thereof as collateral for an extension of credit. In addition, all transactions among the Company and its direct and indirect subsidiaries must be made on an arm's length basis and valued on fair market terms. The Subsidiary Banks pay deposit insurance premiums to the FDIC. In 1995, such premiums were reduced substantially. As noted above, however, in 1996 a one-time charge may be assessed on certain deposits assumed by the Company in connection with its 1990 acquisition of Home Owners Savings Bank, F.S.B. if federal legislation proposed in 1995 to recapitalize the Savings Association Insurance Fund is adopted. Refer to "Recent Developments-Potential One-time FDIC Insurance Premium Assessment and Subsequent Reduction of Premium Costs" above. Federal Reserve Board Policy requires bank holding companies to serve as a source of strength to their subsidiary banks by standing ready to use available resources to provide adequate capital funds to subsidiary banks during periods of financial stress or adversity. A bank holding company also can be liable under certain provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 7 ("FDICIA") for the capital deficiencies of an undercapitalized bank subsidiary. 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 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. Under the cross-guarantee provisions of the Federal Deposit Insurance Act, if any or all of the Subsidiary Banks were placed in conservatorship or receivership, the Company, as sole stockholder, would likely lose its investment in the applicable Subsidiary Bank or Subsidiary Banks, and, in addition, its investment in its other Subsidiary Bank or Subsidiary Banks would be at risk. The Company and all its subsidiaries are also subject to certain restrictions with respect to engaging in the issue, flotation, underwriting, public sale or distribution of certain types of securities. In addition, under both Section 106 of the 1970 Amendments to the BHC Act and regulations which have been issued by the Federal Reserve Board, the Company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of any property or the furnishing of any service. Various consumer laws and regulations also affect the operations of the Subsidiary Banks. The Subsidiary Banks, two of which are chartered under Massachusetts law and one of which is chartered under Connecticut law, are subject to federal requirements to maintain cash reserves against deposits, and to state mandated restrictions upon the nature and amount of loans which may be made by the banks (including restrictions upon loans to "insiders" of the Company and its Subsidiary Banks) as well as to restrictions relating to dividends, investments, branching and other bank activities. FDICIA prescribes the supervisory and regulatory actions that will be taken against undercapitalized insured depository institutions for the purposes of promptly resolving problems at such institutions at the least possible long-term loss to the FDIC. Five categories of depository institutions have been established by FDICIA in accordance with their capital levels: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." The federal banking agencies have adopted uniform regulations to implement the prompt regulatory action provisions of FDICIA. Under the uniform regulations, a well capitalized institution has a minimum Tier 1 capital-to-total risk-based assets ratio of 6 percent, a minimum total capital-to-total risk-based assets ratio of 10 percent and a minimum leverage ratio of 5 percent and is not subject to any written agreement, order or capital directive. An adequately capitalized institution meets all of its minimum capital requirements under the existing capital adequacy guidelines. An undercapitalized institution is one that fails to meet any one of the three minimum capital requirements. A significantly undercapitalized institution has a Tier 1 capital-to-total risk-based assets ratio of less than 3 percent, a Tier 1 leverage ratio of less than 3 percent or a total capital-to-total risk-based assets ratio of less than 6 percent. A critically undercapitalized institution has a Tier 1 leverage ratio of 2 percent or less. An institution whose capital ratios meet the criteria for a well capitalized institution may be classified as an adequately capitalized institution due to qualitative and/or quantitative factors other than capital adequacy. An adequately capitalized institution or undercapitalized institution, may under certain circumstances, be required to comply with supervisory action as if it were in the next lower category. USTC, USTrust and UST/Conn are each classified as "well capitalized." In June 1995, USTrust's Board of Directors adopted a resolution pursuant to which USTrust agreed with the FDIC and Massachusetts Commissioner to continue to maintain a Tier 1 leverage capital ratio of at least 6 percent. An undercapitalized institution is required to submit a capital restoration plan for acceptance by the appropriate federal banking agency and will be subject to close monitoring of both its condition and compliance with, and progress made pursuant to, its capital restoration plan. The capital restoration plan will be accepted only if: (i) it specifies the steps that will be taken to become adequately capitalized and the activities in which the institution will engage; (ii) it is based upon realistic assumptions and it is likely to succeed in restoring the institution's capital; (iii) it does not appreciably increase the institution's risk exposure; and (iv) each holding company that controls the institution provides appropriate assurances of performance and guaranties that the institution will comply with the plan until the institution is adequately capitalized on an average basis for each of four consecutive quarters. Liability under the guaranty is the lesser of (i) five percent of the institution's total assets at the time it became undercapitalized and (ii) the amount necessary to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with the plan. An institution that fails to submit an acceptable plan may be placed into conservatorship or receivership unless its capital restoration plan is accepted. An undercapitalized institution will also be subject to restrictions on asset growth, acquisitions, branching, new activities, capital distributions and the payment of management fees. FDICIA requires the appropriate regulatory agencies to take one or more specific actions against significantly undercapitalized institutions and undercapitalized institutions that fail to submit acceptable capital restoration plans, which actions include but are not limited to: (i) requiring the institution to sell shares or other obligations to raise capital; (ii) limiting deposit interest rates; (iii) requiring the election of a new board of directors and/or dismissing senior executive officers and directors who held such positions for more than 180 days before the institution became undercapitalized; (iv) prohibiting receipt of deposits 8 from correspondent banks, (v) requiring divestiture or liquidation of one or more subsidiaries; and (vi) requiring the parent company to divest the institution if such divestiture will improve the institution's financial condition and future prospects. In addition, an insured institution that receives a less-than-satisfactory rating for asset quality, management, earnings or liquidity may be deemed by its appropriate federal banking regulator to be engaging in an unsafe or unsound practice for purposes of issuing an order to cease and desist or to take certain affirmative actions. If the unsafe or unsound practice is likely to weaken the institution, cause insolvency or substantial dissipation of assets or earnings or otherwise seriously prejudice the interest of depositors or the FDIC, a receiver or conservator could be appointed. Finally, subject to certain exceptions FDICIA requires critically undercapitalized institutions to be placed into receivership or conservatorship within 90 days after becoming critically undercapitalized. The Federal Reserve Board has indicated that it will consult with each federal banking agency regulating the bank subsidiaries of a holding company to monitor required supervisory actions, and based upon an assessment of these developments, will take appropriate action at the holding company level. Under FDICIA, federal bank regulators are also required to see that changes are made in the operations and/or management of a bank or bank holding company if the financial institution is deemed to be "undercapitalized." Under FDICIA, a depository institution that is "adequately capitalized" but not "well capitalized" is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rates in its market. In addition, "pass through" insurance coverage may not be available for certain employee benefit accounts. Additional regulations adopted pursuant to FDICIA include: (i) real estate lending standards for depository institutions, which provide guidelines concerning loan-to-value ratios for various types of real estate loans; (ii) rules requiring depository institutions to develop and implement internal procedures to evaluate and control credit and settlement exposure to their correspondent banks; (iii) rules implementing the FDICIA provisions prohibiting, with certain exceptions, insured state banks from making equity investments or engaging in activities of the types and amounts not permissible for national banks; and (iv) rules and guidelines for enhanced financial reporting and audit requirements. Rules currently proposed for adoption pursuant to FDICIA include: (i) revisions to the risk-based capital guidelines regarding interest rate risk, concentrations of credit risk and the risks posed by "nontraditional activities;" and (ii) rules addressing various "safety and soundness" standards. In late 1995, the Federal Reserve Board provided all bank holding companies with new guidelines which direct examiners to provide separate supervisory ratings for the risk management process of all bank holding companies. Pursuant to the guidelines, examiners will evaluate the entire spectrum of risks facing the Company including, but not limited to, credit, market, liquidity, operational, legal and reputational risk. Under the guidelines, examiners are directed to place primary consideration on findings relating to the following elements: (i) active board and senior management oversight; (ii) adequate policies, procedures and limits; (iii) adequate risk measurement, monitoring, and management information systems; and (iv) comprehensive internal controls. In December 1995, the Company established a Risk Management Committee to coordinate the Company's management of applicable risks. The status of the Company as a registered bank holding company does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws and the Massachusetts corporate laws. With the passage of FIRREA in 1989, the Crime Control Act in 1990 and FDICIA in 1991, federal bank regulatory agencies, including the Federal Reserve Board and the FDIC, were granted substantially broader enforcement powers to restrict the activities of financial institutions and to impose or seek the imposition of increased civil and/or criminal penalties upon financial institutions, the individuals who manage or control such institutions and "institution affiliated parties" of such entities. Pursuant to the Community Reinvestment Act ("CRA") and similar provisions of Massachusetts and Connecticut law, regulatory authorities review the performance of the Company and its subsidiary banks in meeting the credit needs of the communities served by the subsidiary banks. The applicable regulatory authorities consider compliance with this law in connection with applications for, among other things, approval of branches, branch relocations and acquisitions of banks and bank holding companies. USTrust and UST/Conn both have received "outstanding" ratings from the FDIC. In 1995, the FDIC adopted new regulations whereby an institution that offers a narrow product line to a regional or broader market can apply for status as a "Limited Purpose Institution" and be examined as such by the FDIC for CRA compliance. USTC will apply for this status since its focus is only upon trust and asset management activities. The Massachusetts Commissioner has continued to examine USTC for CRA compliance, and currently rates USTC "satisfactory." 9 In 1994, the federal Riegle Community Development and Regulatory Improvement Act of 1994 (the "Community Development Act") was enacted. The Community Development Act established financial and other assistance for entities involved primarily in community development activities. The Community Development Act's provisions also, among other items, (i) increased restrictions on some types of high interest loans; (ii) improved small business access to capital; (iii) required federal banking agencies to, among other things, coordinate examinations and establish uniform regulations and guidelines where appropriate; and (iv) amended certain requirements on insider loans. The Community Development Act had the effect of reducing slightly certain regulatory burdens on financial institutions, including the Company's subsidiaries. From time to time various proposals are made in the United States Congress, as well as state legislatures, which would alter the powers of, and place restrictions on, different types of bank organizations as well as bank and nonbank activities. Such legislative proposals include proposals related to expansion of bank powers and increased consumer compliance disclosure requirements. In 1995, federal legislation was proposed which, if adopted, would have granted bank holding companies broader powers with respect to securities activities. At this time it does not appear that such legislation will be adopted, at least in its current form. It is impossible to predict whether any of the current proposals will be adopted and the impact of such adoption on the business of the Company or its subsidiaries. Supervision, regulation and examination of the Subsidiary Banks by the bank regulatory agencies are not intended for the protection of the Company's security holders. Governmental Policies, Economic Conditions and Credit Risk Concentration The earnings and business of the Company's subsidiaries are and will be affected by a number of external influences, including general economic conditions in the United States and particularly in New England and the policies of various regulatory authorities of the United States, including the Federal Reserve Board. The Federal Reserve Board regulates the supply of money and of bank credit to influence general economic conditions within the United States and throughout the world. From time to time, the Federal Reserve Board takes specific steps to dampen domestic inflation and to control the country's money supply. The instruments of monetary policy employed by the Federal Reserve Board for these purposes (including the level of cash reserves banks, including nonmember banks such as all three of the Company's banking subsidiaries, are required to maintain against deposits) influence in various ways the interest rates paid on interest-bearing liabilities and the interest received on earning assets, and the overall level of bank loans, investments and deposits. The impact upon the future business and earnings of the Company of prospective domestic economic conditions, and of the policies of the Federal Reserve Board as well as other U.S. regulatory authorities, cannot be predicted accurately. During the period from 1990 through 1993, the Company's primary loan market, the New England region, suffered from a weak economic environment. The economic climate contributed to a decline in real estate values and adversely affected the net worth of certain borrowing customers of the Company's subsidiary banks and the Company's collateral position with respect to certain loans. The New England regional economy improved somewhat in the mid-1990's, which aided the Company's loan workout efforts over the past several years. The New England region, however, still lags behind the economic growth experienced in the other regions of the United States. In 1995, revenues of employers in the Company's principal markets did not grow substantially and the level of creation of net new jobs was low. Most of the Company's loans outstanding are from borrowers located in Community Reinvestment Act delineated communities in Massachusetts and Connecticut and a substantial portion of these loans are various types of real estate loans; still others have real estate as additional collateral. At year-end 1995, the Company's exposure to credit risk from borrowers who had real estate as their primary collateral support included $381 million of loans. In addition to the foregoing, during the second half of 1994 and early 1995 prevailing interest rates rose substantially. Although interest rates have declined modestly during the second half of 1995, any renewed increases in the Base Lending Rate used by the Company's subsidiary banks may have an adverse effect upon the ability of some borrowers to repay their loans. General No significant portion of the loans or deposits of any of the Company's banking subsidiaries results from one or several accounts, the loss of which would materially affect its business. The Company does not experience significant seasonal fluctuations in its business. Employees As of December 31, 1995, the Company and its subsidiaries had approximately 880 full-time and part-time employees. 10 ITEM 2. Properties USTrust owns a twelve-story, 89,014 square foot brick and steel building constructed in 1915 and located at Government Center, 30-40 Court Street, Boston, Massachusetts which houses the banking premises of USTrust, USTC and the offices of the Company and all of its nonbanking subsidiaries. The Company currently leases a three-story brick office building of approximately 37,900 square feet at 196 Broadway, Cambridge, Massachusetts, all of which is used by USTrust, as well as 29,003 square feet in an adjacent office tower at 141 Portland Street, Cambridge, Massachusetts. USTrust also leases approximately 26,080 square feet of space at 25-55 Court Street, Boston, which is used primarily to house staff support services. In 1991, USTC sold the 25-55 Court Street, Boston, building to a third party, unaffiliated with the Company. USTrust owns ten branch offices in Boston, Canton, Gloucester, Milton, Milton Village, Natick, Norwood, Randolph, Stoughton and Swampscott, Massachusetts. The remaining branch offices of the Company occupy leased premises. The 1996 annual leasehold commitment for all premises leased by the Company's subsidiaries totals $3,857,000 not including expenses related to tax or maintenance escalation provisions. Refer to Note 16 to the Notes to the Consolidated Financial Statements of this Form 10-K. ITEM 3. Legal Proceedings In the ordinary course of operations, the Company and its subsidiaries become defendants in a variety of judiciary and administrative proceedings. In the opinion of management, however, there is no proceeding pending, or to the knowledge of management threatened, which is likely to result in a material adverse change in the financial condition or results of operations of the Company and its subsidiaries. ITEM 4. Submission of Matters to a Vote of Security Holders None PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters The common stock of the Company is traded over the counter and its price is quoted on the Nasdaq National Market System. During the period January 1, 1994 to December 31, 1995, the range of high and low sales prices for the Company's common stock was as follows: 1995 1994 Low High Low High 1st Quarter 9 3/4 11 3/8 10 1/2 13 1/2 2nd Quarter 10 1/2 13 1/2 12 5/8 14 3/8 3rd Quarter 13 1/4 15 1/2 11 1/4 13 1/2 4th Quarter 12 3/4 15 1/2 8 3/4 11 3/4 Such over-the-counter market quotations reflect interdealer prices, without retail markup, markdown or commission and may not represent actual transactions. The number of holders of record of common stock of the Company was 1,913 at January 31, 1996. The Company did not pay cash dividends from mid-1991 until the fourth quarter of 1995. In December 1995, the Company paid a cash dividend of $0.05 per share to each holder of its common stock. Future dividends will depend upon the financial condition and earnings of the Company and its subsidiaries, their need for funds and other factors, including applicable government regulations and the absence of regulatory objection. In June 1995, USTrust's Board of Directors adopted a resolution pursuant to which USTrust agreed with the FDIC and Massachusetts Commissioner not to pay a dividend which would cause the Bank's Tier 1 leverage capital ratio to fall below 6 percent. USTC likewise has agreed with the FDIC and Massachusetts Commissioner not to declare or pay dividends should the effect of the payment of such dividends cause USTC's Tier 1 leverage capital ratio to fall below 6 percent. Refer to the discussion of capital in Management's Discussion and Analysis of Financial Condition and Results of Operations below. 11 ITEM 6. Selected Financial Data Consolidated Summary of Selected Financial Data (1)
Year Ended December 31, (Dollars in thousands, except share amounts) 1995 1994 1993 1992 1991 Earnings Data: Interest income $ 147,969 $ 132,312 $ 140,628 $ 157,024 $ 221,493 Interest expense 52,535 40,213 47,944 68,970 134,640 ------ ------ ------ ------ ------- Net interest income 95,434 92,099 92,684 88,054 86,853 Provision for possible loan losses 13,090 24,281 68,427 42,245 53,712 ------ ------ ------ ------ ------ Net interest income after provision for possible loan losses 82,344 67,818 24,257 45,809 33,141 Noninterest income 29,970 30,334 36,723 42,359 43,636 Noninterest expense 88,187 91,355 93,341 95,820 89,322 ------ ------ ------ ------ ------ Income (loss) before income taxes 24,127 6,797 (32,361) (7,652) (12,545) Income tax provision (benefit) 9,169 2,051 (12,261) (2,931) (4,598) ----- ----- ------- ------ ------ Net income (loss) $ 14,958 $ 4,746 $ (20,100) $ (4,721) $ (7,947) =========== =========== ========== =========== ========== Per share data: Net income (loss) $ .83 $ .27 $ (1.31) $ (.34) $ .(58) Cash dividends declared $ .05 $ .15 Weighted average common shares outstanding 18,068,203 17,780,032 15,362,251 13,984,190 13,793,617 Consolidated Average Balances(2): Total assets $ 1,836,229 $ 1,881,429 $2,042,567 $ 2,270,874 $2,696,992 Loans 1,265,098 1,283,464 1,435,665 1,584,390 1,784,302 Deposits 1,474,636 1,527,113 1,635,178 1,826,738 2,172,984 Funds borrowed(3) 185,666 192,115 244,775 268,519 350,367 Stockholders' investment 163,651 152,256 143,149 147,440 150,193 Consolidated Ratios: Net income (loss) to average total assets .81% .25% (.98)% (.21)% (.30)% Net income (loss) to average stockholders' investment 9.14% 3.12% (14.04)% (3.20)% (5.29)% Average stockholders' investment to average total assets 8.9% 8.1% 7.0% 6.5% 5.6% Net chargeoffs to average loans 1.7% 1.9% 3.8% 2.6% 2.2% Reserve for possible loan losses to period end loans 4.4% 5.0% 4.8% 3.4% 3.0% Average earning assets to average total assets 94.8% 93.9% 93.0% 91.2% 87.5% Not Dividend Payout Ratio 6.0% meaningful
(1) This information should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K with particular reference to "Credit Quality and Reserve for Possible Loan Losses." (2) Average balances do not include the effect of fair value adjustments under SFAS No. 115, " Accounting for Certain Investments in Debt and Equity Securities." (3) Includes federal funds purchased, repurchase agreements, short-term and other borrowings. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The operating results for the year ended December 31, 1995, are highlighted by a substantial improvement in earnings and continued progress in the resolution of problem assets. Net income for 1995 was $15.0 million, or $0.83 per share, well above 1994 results of $4.7 million, or $0.27 per share, as costs associated with problem assets, including loan loss provisions and loan workout expense, were significantly reduced. Refer to "Results of Operations-Comparison of 1995 with 1994" for a further discussion. Substandard loans, as determined by the Company's internal credit risk rating system, peaked at $265 million at year-end 1993, following a three-year recessionary period in the local economy. Such loans were reduced $82 million during 1995 for a total reduction of over 80 percent, or $221 million since 1993, to $44 million at December 31, 1995. Nonperforming assets, consisting of substandard nonaccrual loans which are included in the aforementioned figures, restructured loans, accruing loans 12 greater than 90 days past due and other real estate owned also reflect the Company's successful efforts to reduce problem assets. Nonperforming assets were decreased $58 million in 1995 to $29 million at year end. During the fourth quarter, the Company initiated a program for the accelerated disposition of $20 million of such substandard and nonperforming assets. These $20 million of troubled loans are classified as loans held-for-sale, net of $6.9 million in chargeoffs, at December 31, 1995. Refer to "Credit Quality and Reserve for Possible Loan Losses" for a further discussion of asset quality. This discussion should be read in conjunction with the financial statements, notes, and tables included elsewhere in this Form 10-K. Certain amounts reported for prior periods have been reclassified to conform with the 1995 presentation. Financial Condition at December 31, 1995 Assets Total assets at December 31, 1995 were $1.97 billion, an increase of $166 million from $1.80 billion a year ago. The asset growth was primarily in securities which increased $174 million during the year. Funding for the higher level of securities was provided by an increase in deposits and short-term borrowings. Also contributing to the increase in securities was a $31 million change from a gross unrealized loss to an unrealized gain on securities available-for-sale. Refer to "Securities" herein for a further discussion. Slightly offsetting the higher level of securities were decreases in loans of $5 million, other real estate owned of $7 million and excess funds sold decreased to zero from $10 million a year ago. This year's increase in total assets is in contrast to the downward trend in the level of assets over the past several years which was led by declining loan volume. Presently the Company anticipates a relatively stable level of total and interest-earning assets in the coming year. Loan growth is expected to be funded by a combination of maturing securities, and additional short-term borrowings or deposit growth, as needed. Loans The following table presents the composition of the loan portfolio:
December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 Commercial and financial(1) $ 642,940 $ 705,075 $ 760,446 $ 862,590 $ 872,366 Commercial real estate: Construction 16,937 13,109 35,295 50,427 71,264 Developer, investor and land(1) 207,710 265,624 321,965 368,871 467,113 Consumer: Residential mortgage 85,806 90,643 85,889 57,896 52,224 Home equity 70,066 64,068 63,188 67,010 67,179 Indirect automobile installment(2) 197,148 90,255 31,848 42,786 83,039 Other consumer(2) 23,015 21,964 23,944 26,914 40,026 Lease financing 28,455 25,945 26,348 28,312 31,561 ------ ------ ------ ------ ------ Total loans(3) 1,272,077 1,276,683 1,348,923 1,504,806 1,684,772 Reserve for possible loan losses (56,029) (64,088) (64,465) (50,478) (50,100) ------- ------- ------- ------- ------- $ 1,216,048 $ 1,212,595 $ 1,284,458 $ 1,454,328 $ 1,634,672 ============ ============ ============ ============ ============
(1) Certain loans for which the principal source of repayment is not real estate collateral have been classified as commercial and financial for the 1992 through 1995 presentations. For 1991 these loans were included in the commercial real estate category. Information is not readily available to reclassify loans for that year. (2) Indirect automobile installment loans represent loans purchased without recourse from automobile dealers subject to adherence to the Company's underwriting standards. Automobile loans made directly to consumers are not significant and are included with other consumer loans. (3) Not included in the loan balances at December 31, 1995 were $13 million in troubled loans held-for-sale, recorded at net realizable value and classified as other assets. Refer to "Credit Quality and Reserve for Possible Loan Losses" for a discussion. The Company's commercial and commercial real estate loan portfolios have been experiencing a decline due to the combination of normal amortization and the aggressive reduction of problem loans through collection, chargeoff, third-party refinancing, or sale. The future outflow is expected to subside due to the significantly reduced level of troubled loans. Commercial and commercial real estate loan portfolios are expected to experience modest growth, tempered by increasing competition for small-to-middle market credits. 13 The indirect automobile loan portfolio has grown considerably since 1993 due to the Company's increased marketing efforts supported by the automation of this business unit's operations. Indirect automobile loans grew 118 percent, or $107 million in 1995, compared with growth of 183 percent, or $58 million in 1994. The Company anticipates continued growth in this portfolio in the coming year. In the aggregate, the remaining loan and lease portfolios, home equity, other consumer and equipment lease financing, are expected to continue with their current level of moderate growth. Loan Maturity Distribution The following table reflects the maturity and interest sensitivity of commercial and financial, and commercial real estate loans at December 31, 1995:
After 1 Year (Dollars in thousands) 1 Year or Less through 5 Years After 5 Years Total Commercial and financial $ 401,480 $ 189,411 $ 52,049 $ 642,940 Commercial real estate: Construction 5,519 10,482 936 16,937 Developer, investor and land 70,296 106,638 30,776 207,710 ------ ------- ------ ------- $ 477,295 $ 306,531 $ 83,761 $ 867,587 =============== =============== ============== =============== Interest sensitivity of above loans: With predetermined interest rates $ 90,125 $ 116,069 $ 44,600 $ 250,794 With floating interest rates 387,170 190,462 39,161 616,793 ------- ------- ------ ------- $ 477,295 $ 306,531 $ 83,761 $ 867,587 =============== =============== ============== ===============
The Company does not have an automatic rollover (renewal) policy for maturing loans. Renewal requests are reviewed and approved in substantially the same manner as applications by new customers for extensions of credit. Additionally, any renewal of a loan rated Substandard or lower in the Company's credit risk rating profile, requires the Controlled Loan Department head approval and for certain size loans and circumstances, the approval of the Senior Credit Committee and Board of Directors. Securities Securities increased $174 million during the year to $576 million at December 31, 1995. The growth in the portfolio reflects purchases of U.S. Government agency securities, mortgage-backed and asset-backed securities. In addition, the increase in securities reflects the change from an unrealized loss on securities available-for-sale of $29.0 million to an unrealized gain of $1.7 million, a $30.7 million improvement. This improvement was the result of a lower interest rate environment and corresponding higher bond prices in 1995. The upward trend this year compares with the sharp decline in bond prices in 1994 due to the rapid rise in interest rates. Refer to Note 2 to the Notes to Consolidated Financial Statements for a further discussion of the unrealized valuation adjustment to market value of securities available-for-sale as required under Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity Securities." The change in unrealized valuation to market value on securities available-for-sale also had the positive effect of increasing stockholders' investment by $24.6 million from a year ago. The unrealized loss reported as part of stockholders' investment of $23.6 million, net of a $5.4 million deferred tax benefit at December 31, 1994 changed to a unrealized gain of $1.0 million, net of a $.7 million deferred tax provision at December 31, 1995. In the fourth quarter of this year the Company redesignated a $100 thousand municipal bond, its sole held-to-maturity designated security, to the available-for-sale designation. This change was in response to a one-time opportunity permitted by the "Financial Accounting Standards Board" ("FASB") to reassess the appropriateness of the designations of an institution's securities that are affected by FASB No. 115. As of December 31, 1995, the Company's entire securities portfolio of $576 million was designated as available-for-sale. The Company has a policy of purchasing securities primarily rated A or better by Moody's Investors Services and U.S. Government securities to minimize credit risk. All securities, however, carry interest rate risk which affects their market value such that as market yields increase, the value of the Company's securities declines and vice versa. Additionally, mortgage-backed securities carry prepayment risk where expected yields may not be achieved due to an inability to re-invest the proceeds from prepayment at comparable yields. Moreover, such mortgage-backed securities may not benefit from price appreciation in periods of declining rates to the same extent as the remainder of the portfolio. Refer to Note 2 to the 14 Notes to Consolidated Financial Statements, "Summary of Significant Accounting Policies" of this Form 10-K for a further discussion of prepayment risk. The following table sets forth the book value of the securities owned by the Company:
December 31, (Dollars in thousands) 1995 1994 1993 Available-for-sale: Mortgage-backed securities $ 246,521 $ 195,009 $ 263,435 U.S. Treasury securities and securities of other U.S. Government agencies and corporations 196,967 142,414 129,703 Obligations of states and political subdivisions* 3,254 3,493 3,887 Other securities 128,931 60,724 152,531 ------- ------ ------- Total $ 575,673 $ 401,640 $ 549,556 =============== =============== =============== Held-to-maturity: Obligations of states and political subdivisions $ 100 =============== * Non-taxable
The following table presents maturities for the Company's securities at December 31, 1995, and the approximate weighted tax equivalent yields (at the statutory federal tax rate of 35 percent). Mortgage-backed securities are shown at or based on their final maturity but are expected to have shorter average lives. Considering this, the Company estimates the average life of the entire portfolio to be 2.3 years. Yields presented in this table have been computed using the amortized cost of the securities.
Securities Maturing In 1 Year After 1-Yr. 5-Yrs. 10 Yrs. Equity or Less through 5 thru 10 or more Securities Total (Dollars in thousands) Balance Yield Balance Yield Balance Yield Balance Yield Balance Yield Balance Available-for-sale: Mortgage-backed securities $ 38,521 6.47% $208,000 6.35% $246,521 U.S. Treasury securities and securities of other U.S. Government agencies and corporations $11,286 6.00% $161,244 5.81% 24,437 5.48% 196,967 Obligations of states and political subdivisions 560 10.55% 867 8.21% 867 8.96% 960 9.80% 3,254 All other securities 10,527 8.96% 71,565 6.15% 44,894 5.98% $1,945 22.78% 128,931 ------ ------ ------ -------- ------ -------- Total $22,373 7.51% $233,676 5.92% $108,719 6.06% $208,960 6.36% $1,945 22.78% $575,673 ======= ======== ======== ======== ====== ========
At December 31, 1995 the Company owned the following corporate notes and asset-backed securities, whose aggregate fair value was in excess of 10 percent of stockholders' investment.
(Dollars in thousands) Aggregate Market Value General Motors Acceptance Corporation Medium Term Notes $20,440 Sears, Roebuck Medium Term Notes 20,333 Nissan Automobile Receivables Grantor Trust 18,104
The corporate notes are unsecured. The Nissan asset-backed securities are secured by automobile loan receivables. Both the corporate notes and asset-backed securities are of investment grade and carry the normal credit risk associated with such instruments. Liquidity and Funding Liquidity involves the Company's ability to raise or gain access to funds in order to fulfill its existing and anticipated financial obligations. It may be provided through the maturity or sale of an entity's assets, such as loans and securities available-for-sale, liability sources such as increased deposits and purchased or borrowed funds, and access to the capital markets. While the Company's securities portfolio is currently classified entirely as available-for-sale, the Company has no present intention or need to sell 15 any of its securities or existing loan portfolio, other than a nominal volume of fixed-rate residential mortgage loans sold to investors as they are originated. As discussed in the "Introduction" the Company has classified $13 million of troubled loans as held-for-sale at December 31, 1995. At December 31, 1995, liquidity, which includes excess cash, excess funds sold and unpledged securities, totaled approximately $317 million, or 16 percent of total assets, a $58 million increase from 1994. The funds needed to support the Company's loan and securities portfolios are provided through a combination of commercial and retail deposits and short-term borrowings. Total deposits increased $22 million, or 1.5 percent, to $1.51 billion since December 31, 1994. NOW, money market and regular savings deposits decreased $104.1 million while time deposits increased $124.8 million reflecting investors attraction to the Company's competitively aggressive certificate of deposit rates throughout much of the year. Demand deposits experienced a slight increase of $1.2 million during 1995. As shown in the Consolidated Statements of Cash Flows, cash and cash equivalents decreased $3.3 million during 1995. Cash provided by operations resulted largely from net interest income from loans and securities, less the net difference of noninterest expense over noninterest income. Cash provided by financing activities was due principally to the net increases in deposits and in short-term borrowings, offset in part by payments on other borrowings. Net cash used by investing activities was due to an excess of purchases of securities over the proceeds from the sales and maturities of securities. At December 31, 1995, the parent company had $1 million in cash and due from banks and $5 million in short-term securities purchased under agreements to resell, compared with $2.3 million in cash and due from banks and $16 million in U.S. Treasury securities at December 31,1994. During 1995, the Company paid the remaining principal of $8 million plus accrued interest on its 8.5% Senior Notes. For the year ended December 31, 1995, the Company received a total of $3 million in dividends from its asset management and trust subsidiary, United States Trust Company ("USTC"), $1 million from USTrust and $1 million from JSA Financial Corporation ("JSA"), a nonbanking subsidiary of the Company specializing in the liquidation of problem assets. During the same period $1 million was contributed to UST Bank/Connecticut ("UST/Conn") and $6.5 million was contributed to JSA. This capital contribution to JSA facilitated the purchase of $5.1 million in problem assets from UST/Conn and provided JSA with additional operating capital. Deposits The following table sets forth the remaining maturities of certificates of deposit in the amount of $100 thousand or more at December 31, 1995: (Dollars in thousands) Less than three months $ 72,739 Three to six months 20,894 Six to twelve months 14,178 Over twelve months 4,615 ----- Total $ 112,426 ============== Short-term Borrowings The Company's short-term borrowings consist primarily of federal funds purchased and securities sold under agreements to repurchase. These instruments are generally overnight funds.
December 31, For the Year Ended December 31, Weighted Average Maximum Amount Average Amount Weighted Average (Dollars in thousands) Balance Interest Rate At Any Month End Outstanding Interest Rate Federal funds purchased: 1995 $ 57,406 5.63% $ 58,013 $ 40,020 5.86% 1994 19,296 6.00% 35,061 29,090 4.14% 1993 35,913 3.25% 80,126 42,965 3.14% Securities sold under agreements to repurchase: 1995 $172,689 4.73% $172,689 $127,752 4.85% 1994 126,597 4.48% 155,709 137,139 3.22% 1993 158,618 2.31% 221,549 167,696 2.55%
Interest Rate Risk Volatility in interest rates requires the Company to manage interest rate risk which arises from differences in the timing of repricing of assets and liabilities. Management monitors and adjusts the difference 16 between interest-sensitive assets and interest-sensitive liabilities ("GAP" position) within various time frames. An institution with more assets repricing than liabilities within a given time frame is considered asset sensitive ("positive GAP") and in time frames with more liabilities repricing than assets it is liability sensitive ("negative GAP"). Within GAP limits established by the Board of Directors, the Company seeks to balance the objective of insulating the net interest margin from rate exposure with that of taking advantage of anticipated changes in rates in order to enhance income. The Company's policy is to limit its one-year cumulative GAP position to 2.5 times equity, presently equal to approximately 22 percent of total assets. The Company manages its interest rate GAP primarily by lengthening or shortening the maturity structure of its securities portfolio. The Company's GAP presentation may not reflect the degrees to which interest-earning assets and core deposit costs respond to changes in market interest rates. The Company's rate-sensitive assets consist primarily of loans tied to the prime rate and to a lesser extent the London Interbank Offered Rate ("LIBOR"). As interest rates rose during the first quarter of 1995, the prime rate and, therefore, the Company's yield on earning assets increased faster than the rate paid on interest-bearing liabilities. After a period of interest rate stability experienced within the second quarter, interest rates decreased during the last half of 1995, effecting a reduced prime rate. This had a predictable effect on the Company's margin with the yield on earning assets decreasing faster than the rate paid on interest-bearing liabilities. The following table summarizes the Company's GAP position at December 31, 1995. The majority of loans are included in 0-30 days as they reprice in response to changes in the interest rate environment. Interest-bearing deposits are classified according to their expected interest rate sensitivity. Actual sensitivity of these deposits is reviewed periodically and adjustments are made in the Company's GAP analysis as management deems appropriate. Securities and noninterest-bearing demand deposits are categorized according to their expected lives based on published industry prepayment estimates in the case of securities and current management estimates for demand deposits. Securities are evaluated in conjunction with the Company's asset/liability management strategy and may be purchased or sold in response to expected or actual changes in interest rates and credit risk, prepayment risk, loan growth and similar factors. The reserve for possible loan losses is included in the "Over 1 Year" category of loans. At December 31, 1995, the one-year cumulative GAP position was negative at $57 million, or approximately 3 percent of total assets.
Interest Sensitivity Periods (Dollars in millions) 0-30 Days 31-90 Days 91-365 Days Over 1 Year Total Loans, net of reserve $ 728 $ 24 $ 93 $ 371 $ 1,216 Securities 20 25 108 423 576 Other assets 23 2 152 177 -- - --- --- --- Total assets $ 771 $ 51 $ 201 $ 946 $ 1,969 ----------- ---------- ----------- ----------- ============= Interest-bearing deposits $ 315 $ 50 $ 333 $ 442 $ 1,140 Borrowed funds 243 243 Noninterest-bearing demand deposits 123 250 373 Other liabilities and Stockholders' equity 16 197 213 -- ---- ------ ------ ----- Total liabilities and equity $ 697 $ 50 $ 333 $ 889 $ 1,969 ----------- ---------- ----------- ----------- ============= GAP for period $ 74 $ 1 $ (132) $ 57 =========== ---------- ----------- ----------- Cumulative GAP $ 75 $ (57) $ 0 ========== =========== =========== As a percent of total assets 3.76% 3.81% (2.89)%
Capital There are three capital requirements which banks and bank holding companies must meet. Two requirements take into consideration risks inherent in assets for both on- and off-balance sheet items on a risk weighted basis ("risk-based assets"). Risk weightings are as determined by banking regulators for the industry as a whole. Under these requirements, the Company must meet minimum Tier 1 and Total risk-based capital ratios (capital, as defined in the regulations, divided by risk-based assets) of 4 percent and 8 percent, respectively. Tier 1 capital is essentially shareholders' investment, net of intangible assets and Tier 2 capital is the allowable portion of the loan loss reserve (as defined) and discounted subordinated debt. Total capital is the combination of Tier 1 and Tier 2. The third requirement is a leverage capital ratio, defined as Tier 1 capital divided by total average assets, net of intangibles. All but the most highly-rated banks are required to maintain a minimum of 4 percent. The Company has not been notified of a specific requirement above the minimum. 17 At December 31, 1995 and 1994, the Company's consolidated risk-based assets were $1.63 billion and $1.52 billion, respectively. The capital ratios and regulatory minimum requirements applicable to the Company were:
December 31, 1995 December 31, 1994 Amount Percent Amount Percent Minimum Minimum Minimum Minimum (Dollars in millions) Actual Required Actual Required Actual Required Actual Required Tier 1 capital $167.4 $ 65.3 10.24% 4.00% $149.7 $ 61.0 9.82% 4.00% Total (Tier 1 and Tier 2) capital 187.8 127.7 11.75% 8.00% 169.5 118.5 11.45% 8.00% Tier 1 leverage capital 167.4 75.8 8.83% 4.00% 149.7 71.3 8.27% 4.00%
Capital ratios have been calculated consistent with regulatory policy which excludes the impact of SFAS No. 115 and the recording of an unrealized gain/loss on securities available-for-sale. However, as required, any net unrealized loss on marketable equity securities has been deducted from Tier 1 capital. The Tier 1 leverage capital ratios and regulatory minimum requirements for the Company's subsidiary banks at December 31, 1995 and 1994 were:
December 31, 1995* December 31, 1994 Amount Percent Amount Percent Minimum Minimum Minimum Minimum (Dollars in millions) Actual Required Actual Required Actual Required Actual Required USTrust $141.7 $107.3 7.92% 6.00% $129.2 $102.6 7.55% 6.00% USTC 5.0 .9 32.99% 6.00% 4.3 .7 39.46% 6.00% UST/Conn 9.1 4.4 8.31% 4.00% 6.7 6.3 6.40% 6.00% * Refer to "Former Agreements with Bank Regulatory Agencies" below for a discussion of regulatory capital requirements for the Company's subsidiary banks.
The Company and each of its subsidiary banks are in compliance with their respective capital requirements. In the fourth quarter of 1995 the Company declared and paid a cash dividend of $0.05 per share to stockholders for a total dividend of $888 thousand. During this year the Company received dividends from subsidiaries of $3 million from USTC, $1 million from USTrust and $1 million from JSA Financial Corporation. During the same period the Company contributed as capital to its subsidiaries totaling $1 million to UST/Conn and $6.5 million to JSA Financial Corporation. In 1995, the Company's Board of Directors approved a stock repurchase program and the Company adopted a shareholder rights plan, refer to Part I Recent Developments, "Adoption of Stock Repurchase Program," and "Adoption of Shareholder Rights Plan," respectively, of this Form 10-K for a discussion. Former Agreements with Bank Regulatory Agencies On July 21, 1995, the Company was released from the terms of its Written Agreement originally entered into on August 3, 1992, by the Federal Reserve Bank of Boston ("FRB-Boston") and the Office of the Massachusetts Commissioner of Banks ("Massachusetts Commissioner"). For a discussion of the Agreement which is no longer in effect, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. In June 1995, the Company's Massachusetts-based and largest subsidiary bank, USTrust, was released by the Federal Deposit Insurance Corporation ("FDIC") and the Massachusetts Commissioner from the terms of its Cease and Desist Order, originally issued in January 1992. In conjunction with the release of the Order, USTrust's Board of Directors adopted a resolution pursuant to which USTrust agreed, among other matters: (i) to continue to maintain a Tier 1 leverage capital ratio of at least 6 percent; (ii) not to pay a dividend which would cause the Bank's Tier 1 leverage capital ratio to fall below 6 percent; (iii) to continue to implement plans to reduce nonperforming assets and the aggregate level of insider loans; and (iv) to provide a quarterly progress report to the FDIC and the Massachusetts Commissioner. For a discussion of the Order which is no longer in effect, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. The Company's second Massachusetts-based banking subsidiary, USTC, was released from a similar Order in 1994, and has also agreed not to declare or pay dividends should the effect of the payment of such dividends cause USTC's Tier 1 leverage capital ratio to fall below 6 percent. On September 14, 1995, UST/Conn was released by the Commissioner of Banks for the State of Connecticut from the terms of its Stipulation and Agreement, originally issued in 18 June 1991. For a discussion of the Agreement which is no longer in effect, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Credit Quality and Reserve for Possible Loan Losses Improving credit quality has been a major strategic focus of the Company since 1993. The success of the program is evidenced by the Company's aggressive reduction in the level of problem assets in 1994 and this year. At December 31, 1995, substandard loans were $44 million compared with $126 million a year ago and a peak of $265 million at the end of 1993. Loans reported as substandard for the purpose of this discussion include loans classified as Substandard or Doubtful, as determined by the Company in its internal credit risk rating system. Under the Company's definition, Substandard loans are characterized by the distinct possibility that some loss will be sustained if the credit deficiencies are not corrected. The Substandard classification, however, does not necessarily imply ultimate loss for each individual loan so classified. Loans classified as Doubtful have all the weaknesses inherent in Substandard loans with the added characteristic that the weaknesses make collection of 100 percent of the assets questionable and improbable. At December 31, 1995, Substandard and Doubtful loans were $42.9 million and $.9 million, respectively. Substandard loans include $24.5 million of accruing commercial and commercial real estate loans, of which 99 percent were current, and $18.4 million in loans that were on nonaccrual and included in nonperforming assets. All of the loans rated Doubtful were on nonaccrual and included in nonperforming assets. Also, at December 31, 1995, loans rated Special Mention in the Company's internal credit risk rating profile amounted to $1.6 million, all of which were current. This compares with $16 million a year ago. Special Mention loans, as defined by the Company, have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the assets. As of year-end 1995, approximately 65 percent of loans classified as Substandard or Doubtful were collateralized with real estate, and the remainder were collateralized with accounts receivable, inventory, equipment and other business assets. Of the loans secured by real estate, approximately 45 percent were collateralized by owner-occupied commercial properties, approximately 40 percent were collateralized by commercial real estate development, and approximately 10 percent by residential real estate. The remaining loans were collateralized by real estate under construction and raw land. 19 Nonperforming Assets The following table displays the Company's total nonperforming assets and measures performance regarding key indicators of asset quality:
December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 Nonperforming assets: Nonaccruals:(1) Commercial and financial $14,531 $36,754 $ 28,511 $ 55,893 $ 44,453 Commercial real estate: Construction 44 551 1,025 16,558 12,830 Developer, investor and land 3,114 18,447 25,475 24,461 32,706 Consumer: Residential 956 3,373 3,601 2,518 3,636 Home equity 741 656 190 1,240 2,625 Indirect automobile installment 446 134 40 271 945 Other consumer 98 29 540 550 246 Lease financing ------- ------- -------- -------- -------- Total nonaccrual 19,930 59,944 59,382 101,491 97,441 Accruing loans 90 days or more 257 1,409 557 1,091 8,554 Other real estate owned (OREO), 3,015 9,958 11,270 28,644 43,470 Restructured loans(1)(3) 5,783 15,757 41,477 44,899 36,311 ----- ------ ------ ------ ------ Total nonperforming assets $28,985 $87,068 $112,686 $176,125 $185,776 ======= ======= ======== ======== ======== Reserve for possible loan losses $56,029 $64,088 $ 64,465 $ 50,478 $ 50,100 Net chargeoffs $21,149 $24,658 $ 54,440 $ 41,867 $ 39,620 OREO reserve(4) $ 568 $ 1,044 $ 4,635 $ 389 Ratios: Reserve to nonaccrual loans 281.1% 106.9% 108.6% 49.7% 51.4% Reserve to total of nonaccrual loans, accruing loans 90 days or more past due and restructured loans 215.7% 83.1% 63.6% 34.2% 35.2% Reserve to period-end loans 4.4% 5.0% 4.8% 3.4% 3.0% Nonaccrual loans to period-end loans 1.6% 4.7% 4.4% 6.7% 5.8% Nonaccrual loans and accruing loans over 90 days past due to period-end loans 1.6% 4.8% 4.4% 6.8% 6.3% Nonperforming assets to period-end loans and OREO 2.3% 6.8% 8.3% 11.5% 10.7% Nonperforming assets to total assets 1.5% 4.8% 5.5% 8.1% 7.9% Net chargeoffs to average loans 1.7% 1.9% 3.8% 2.6% 2.2% OREO reserve to OREO(4) 15.9% 9.5% 29.1% 1.3% (1) The amount of interest on December 31, 1995 nonaccrual and restructured loans that would have been recorded had the loans been paying in accordance with their original terms during 1995 was approximately $3,131,000. The amount of interest income on these loans included in net income in 1995 was approximately $2,522,000. (2) Other real estate owned ("OREO") represents assets to which title to the collateral has been taken through foreclosure or in settlement of loans. Other real estate owned is recorded at the lower of the recorded investment in the loan or fair value minus estimated costs to sell ("net realizable value"). Prior to 1992, other real estate owned was recorded at the lower of recorded investment in the loan or fair value. Included in OREO are automobiles owned which are vehicles repossessed for reason of nonpayment. The balance is stated at the lower of the recorded investment in the loan or net realizable value. (3) Restructured loans are those where interest rates and/or principal repayments have been restructured to defer or reduce payments as a result of financial difficulties of the borrower. (4) Prior to December 1992, when the Company adopted AICPA Statement of Position 92-3, OREO was reduced to its fair value by direct charges to the asset. Since then, the Company, like other bank holding companies, has used reserves to indicate the net realizable value of its OREO.
The improvement in credit quality is also exhibited in the Company's successful reduction of nonperforming assets. During 1995, these assets were reduced 67 percent , or $58.1 million to $29.0 million. Nonperforming assets were 1.5 percent of total assets at December 31, 1995 compared with 4.8 percent and 5.5 percent at year-end 1994 and 1993, respectively. The lower level of nonperformers has 20 also directly contributed to the decreasing amount of net chargeoffs recorded by the Company. This year net chargeoffs were $21.1 million compared with 1994 and 1993 chargeoffs of $24.7 million and $54.4 million, respectively. The 1995 net chargeoffs included a charge of $6.9 million recorded in connection with a program for the accelerated disposition of $20 million in troubled assets which are classified as loans held-for-sale at December 31, 1995. The Company continues to consider further accelerated disposition programs for the remaining balance of troubled loans. At December 31, 1995, total impaired loans were $25.7 million, comprised of $1.4 million that required a reserve for possible loan losses of $.3 million and $24.3 million that did not require a related reserve. Impaired loans, as defined in Statement of Financial Accounting Standards No. 114 ("SFAS No. 114") are loans recognized by the Company as nonaccrual and restructured. Refer to Note 5 to the Notes to Consolidated Financial Statements of this Form 10-K for a further discussion on SFAS No. 114. The reserve for possible loan losses decreased from $64.1 million at year-end 1994 to $56.0 million this year. Provisions for possible loan losses were recorded at amounts relatively consistent with the level of net chargeoffs throughout much of the year. The exception was the late fourth quarter $6.9 million charge related to the accelerated disposition program. Despite the decrease in the reserve balance, the reserve coverage continually strengthened throughout 1995 equaling 281 percent of nonaccrual loans at year end compared with 108 percent last year and 109 percent in 1993. Credit Quality Monitoring Credit quality within the commercial and commercial real estate loan portfolios of each subsidiary is quantified by an internal credit risk rating system designed to parallel regulatory criteria and categories of loan risk. Lenders monitor their loans to ensure appropriate rating assignments are made on a timely basis. Risk ratings and overall loan quality are also assessed on a regular basis by an independent Loan Review Department which reports to the Company's Board of Directors and its Asset Quality Committee. Loan Review personnel conduct ongoing portfolio trend analyses and individual credit reviews to evaluate loan risk and compliance with corporate lending policies. Results and recommendations from this process provide senior management and the Board of Directors and its Asset Quality Committee with independent information on loan portfolio condition. The Asset Quality Committee, which reports to the Audit Committee of the Company's Board of Directors, monitors asset quality monthly and actively reviews the large credit exposures. The Company's commercial lending, credit and loan administration departments are charged with ensuring compliance with lending policies, procedures and administrative guidelines for the commercial portfolio. In addition, an Appraisal Department reviews third-party real estate loan collateral appraisals to ensure adherence to federal requirements and the Company's lending policies. There is a Controlled Loan Department with specialized expertise in handling most of the Company's nonaccrual and other troubled loans. In order to ensure the effectiveness of credit quality monitoring systems, monitoring controls are periodically reviewed and tested by the Company's Internal Audit Department. The credit quality of the lease financing receivables portfolio is measured by the same credit rating system described above. Consumer loan quality is evaluated on the basis of delinquent data due to the large number of such loans and relatively small size of individual credits. Historical trend analysis reports are reviewed on a monthly basis by senior lending officers and the Company's Board of Directors. Past due nonconsumer loans, nonaccrual loans, and troubled debt restructurings are reviewed at least quarterly by a Special Assets Committee whose membership includes the Chief Executive Officer of the Company, Loan Review Department management and the most senior lending officers in the major lending and credit-related divisions. Loans are placed on nonaccrual when there is doubt as to the collectibility of interest or principal or if loans are 90 days or more past due unless they are both well secured and in the process of collection. In every case, a loan reaching 180 days past due is placed on nonaccrual. Reserve for Possible Loan Losses The Company maintains a reserve for possible loan losses to absorb future chargeoffs of loans and leases in the existing portfolio. The reserve is increased when a loan loss provision is recorded in the income statement. When a loan, or portion thereof, is considered uncollectible, it is charged against the reserve. Recoveries on amounts previously charged-off are added to the reserve when collected. Adequacy of the reserve for possible loan losses is determined using a consistent, systematic methodology which analyzes the size and risk of the loan and lease portfolio on a monthly basis. Factors in this analysis include historical loss experience and asset quality, as reflected by delinquency trends, nonaccrual and restructured loans and the Company's credit risk rating profile. Consideration is also given to the current and expected economic conditions and in particular how such conditions affect the types of credits in the portfolio and the market area in general. This analysis is documented using a combination of numerical and qualitative analysis and includes sensitivity testing and a written conclusion. 21 No portion of the reserve is restricted to any loan or group of loans, and the entire reserve is available to absorb future realized losses. The amount and timing of realized losses and future reserve allocations may vary from current estimates. An allocation of the loan loss reserve and ratio of loans in each category to total loans at December 31, 1991 through 1995 is presented below:
December 31, 1995 1994 1993 1992 1991 Loans as a Loans as a Loans as a Loans as a Loans as a Allocation Percent of Allocation Percent of Allocation Percent of Allocation Percent of Allocation Percent of (Dollars in Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans thousands) Amount of loan loss reserve: Commercial and financial $20,055 50.6% $30,962 55.3% $38,123 56.3% $25,702 57.3% $23,568 51.8% Commercial real estate: Construction 495 1.3% 538 1.0% 1,648 2.6% 1,399 3.4% 1,781 4.2% Developer, investor and land 4,802 16.3% 8,885 20.8% 12,426 23.9% 8,453 24.5% 9,913 27.7% Consumer* 8,515 29.6% 6,028 20.9% 5,470 15.2% 4,762 12.9% 5,324 14.4% Lease financing 356 2.2% 130 2.0% 132 2.0% 142 1.9% 158 1.9% Unallocated 21,806 17,545 6,666 10,020 9,356 ------ ----- ------- ----- ------- ----- ------- ----- ------ ----- Total $56,029 100.0% $64,088 100.0% $64,465 100.0% $50,478 100.0% $50,100 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== * Consumer loans include indirect automobile installment loans, residential mortgages and home equity lines of credit, credit cards, and check credit loans.
A summary of loan loss experience for the years ended December 31, 1991 through 1995 is presented below:
December 31, (Dollars in thousands) 1995 1994 1993 1992 1991 Reserve for loan losses at beginning of period $ 64,088 $ 64,465 $ 50,478 $ 50,100 $ 36,008 Chargeoffs: Commercial and financial 8,823 15,320 29,789 24,012 17,613 Commercial real estate: Construction 511 197 1,705 924 2,242 Developer, investor and land 16,531 13,483 23,387 10,788 10,366 Consumer: Residential mortgage 1,845 897 686 1,250 2,839 Home equity* 403 119 370 673 Indirect automobile installment 844 806 1,981 2,181 5,366 Other consumer 117 237 280 3,386 2,890 Lease financing ---------- --------- --------- ---------- -------- Total chargeoffs 29,074 31,059 58,198 43,214 41,316 ------ ------ ------ ------ ------ Recoveries: Commercial and financial 4,236 4,319 1,628 688 735 Commercial real estate: Construction 181 32 24 9 Developer, investor and land 1,799 1,034 928 56 Consumer: Residential mortgage 982 62 11 36 78 Home equity* 46 48 101 66 Indirect automobile installment 642 820 1,046 219 564 Other consumer 39 86 20 329 263 Lease financing ----------- ---------- ----------- -------- -------- Total recoveries 7,925 6,401 3,758 1,347 1,696 ----- ----- ----- ----- ----- Net chargeoffs 21,149 24,658 54,440 41,867 39,620 Provisions charged to operations 13,090 24,281 68,427 42,245 53,712 ------ ------ ------ ------ ------ Reserve for loan losses at end of period $ 56,029 $ 64,088 $ 64,465 $ 50,478 $ 50,100 ============= ============== ============== =============== ============= Average loans $ 1,265,098 $ 1,283,464 $ 1,435,665 $ 1,584,390 $ 1,784,302 ============= ============== ============== =============== ============= Ratio of net chargeoffs to average loans 1.7% 1.9% 3.8% 2.6% 2.2% * This information is available separately for 1992-1995 only. The 1991 information is included in the other consumer category.
22 Results of Operations Comparison of 1995 with 1994 For the year ended December 31, 1995, net income was $15.0 million, or $0.83 per share, a substantial increase over the $4.7 million, $0.27 per share, earned in 1994. The improvement in earnings was the direct result of a $11.2 million reduction in the provision for possible loan losses from $24.3 million last year to $13.1 million for 1995. In addition, a stronger net interest margin and notable reductions in noninterest expense, particularly foreclosed asset and workout expense and FDIC deposit insurance assessments, also contributed to a higher level of net income. This year's stronger earnings results are also reflected in an improved return on average stockholders' investment of 9.14 percent compared with 3.12 percent last year, and an improved return on average assets of .81 percent compared with .25 percent in 1994. A comparative analysis for return on average assets and return on average stockholders' investment is shown below:
Return on Average Assets -- Component Analysis Year Ended December 31, 1995 1994 Net interest income 5.20% 4.90% Provision for possible loan losses (.72) (1.29) ---- ----- Net interest income after provision for possible loan losses 4.48 3.61 Noninterest income 1.63 1.61 Noninterest expense (4.80) (4.86) ----- ----- Income before income tax 1.31 .36 Income tax provision .50 .11 --- --- Net income .81% .25% === ===
Return on Average Stockholders' Investment -- Component Analysis Year Ended December 31, 1995 1994 Net interest income 58.32% 60.49% Provision for possible loan losses (8.00) (15.95) ----- ------ Net interest income after provision for possible loan losses 50.32 44.54 Noninterest income 18.31 19.92 Noninterest expense (53.89) (60.00) ------ ------ Income before income tax 14.74 4.46 Income tax provision 5.60 1.34 ---- ---- Net income 9.14% 3.12% ==== ====
Net Interest Income Analysis The Company's net interest income on a fully taxable equivalent basis was $96.4 million, $3.3 million higher than the $93.1 million in 1994. The increase reflects the positive effect on net interest income of a higher level of interest rates in 1995 compared with 1994. The average interest rate spread was relatively level with 1994 while the average interest rate margin was higher than a year ago. Partially offsetting the effect of a stronger interest rate margin was a decline in the volume of earning assets, particularly loans, and a shift by deposit customers from savings products to higher cost certificates of deposit during the year. 23 The table below presents the following information: average earning assets (including nonaccrual loans) and average interest-bearing liabilities supporting earning assets; and interest income and interest expense expressed as a percentage of the related asset or liability. The average balances and, therefore, the rates presented do not include the effect of fair value adjustments under SFAS No. 115 " Accounting for Certain Investments in Debt and Equity Securities."
December 31, 1995 1994 1993 Average Average Average Average Average Average (Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Cash and due from banks $ 89,490 $ 95,717 $ 100,755 Excess funds sold and other 51,908 $ 3,047 5.87% 24,095 $ 1,197 4.97% 2,704 $ 96 3.55% Securities: Taxable 418,484 25,746 6.15 452,700 27,206 6.01 450,998 29,303 6.50 Non-taxable(1) 5,097 750 14.71 5,559 557 10.02 11,175 819 7.33 ----- --- ----- --- ------ --- Total securities 423,581 26,496 6.26 458,259 27,763 6.06 462,173 30,122 6.52 Loans(1) 1,265,098 119,375 9.44 1,283,464 104,322 8.13 1,435,665 111,586 7.77 Reserve for possible loan losses (63,039) (64,063) (64,531) ------- ------- ------- Net loans 1,202,059 1,219,401 1,371,134 Other assets 69,191 83,957 105,801 ------ -------- ------ -------- ------- -------- Total assets/interest income $1,836,229 $148,918 8.11% $1,881,429 $133,282 7.08% $2,042,567 $141,804 6.94% ========== ======== ========== ======== ========== ======== Liabilities and Stockholders' Investment Deposits: Noninterest-bearing demand $ 336,931 $ 350,405 $ 346,980 Interest-bearing demand (NOW accounts) 158,636 $ 2,176 1.37% 163,841 $ 2,343 1.43% 144,255 $ 2,693 1.87% Money market 237,580 6,580 2.77 288,489 6,372 2.21 346,314 8,429 2.43 Regular savings 254,496 7,104 2.79 311,139 7,745 2.49 320,357 9,338 2.91 Time 486,993 26,823 5.51 413,239 16,447 3.98 477,272 19,840 4.16 ------- ------ ------- ------ ------- ------ Total interest-bearing deposits 1,137,705 42,683 3.75 1,176,708 32,907 2.80 1,288,198 40,300 3.13 ------- ------- ------- Total deposits 1,474,636 1,527,113 1,635,178 Short-term borrowings 179,260 9,281 5.18 180,325 6,240 3.46 227,944 6,239 2.74 Other borrowings 6,406 571 8.91 11,790 1,066 9.04 16,831 1,405 8.35 Other liabilities 12,276 9,945 19,465 Stockholders' investment 163,651 152,256 143,149 ------- ------ ------- ------ ------- ------ Total liabilities and stockholders' investment/interest expense $1,836,229 $ 52,535 2.86% $1,881,429 $ 40,213 2.14% $2,042,567 $ 47,944 2.35% ========== ======== ========== ========= ========== ======== Earning assets-- interest income $1,740,587 $148,918 8.56% $1,765,818 $ 133,282 7.55% $1,900,542 $141,804 7.46% Interest-bearing liabilities-- interest expense $1,323,371 52,535 3.97% $1,368,823 40,213 2.94% $1,532,973 47,944 3.13% ------ ------ ------ Net interest spread(2) 4.59% 4.61% 4.33% Net interest margin(3) $ 96,383 5.54% $ 93,069 5.27% $ 93,860 4.94% ======== ========= ======== (1) Interest on loans to and obligations of states and political subdivisions is not subject to federal income tax. In order to make pretax yields comparable to taxable loans and investments, a tax equivalent adjustment is utilized. The adjustment is based on a 35 percent federal income tax rate in 1995 and 1993, and 34 percent in 1994 and includes applicable state taxes, net of federal tax benefit. (2) Net interest spread is the excess of the interest rate on average earning assets over the interest rate on average interest-bearing liabilities. (3) Net interest margin is the excess of the interest earned over interest expense divided by average earning assets.
Interest rates moved downward in the second half of 1995 following a period of rapid interest rate rise from early 1994 through the first quarter of 1995. The result of this year's higher level of interest rates was an improvement in yield on earning assets of 101 basis points from 7.55 percent last year to 8.56 percent this year. The cost of interest-bearing liabilities, principally deposits, increased by 103 basis points from 2.94 percent last year to 3.97 percent in 1995. Yields on prime-based loans and excess funds, which reprice daily, reached their peak in the first quarter of this year and decreased steadily throughout the remainder of the year consistent with the movement of interest rates. While the Company initially refrained from increasing deposit rates in the rising interest rate environment of 1994, to satisfy liquidity needs and in response to competition for deposits, more aggressive deposit pricing was adopted in late 1994 and the first quarter of this year. Beginning with the second quarter and continuing through the rest of 1995, the Company moved to a less competitive 24 pricing policy. The result was a rising cost of deposits earlier this year which subsided during the latter half of the year. The Company anticipates that deposit rates will be relatively level in the first half of 1996 and move downward in the second half in response to lower interest rates. This year's interest rate spread of 4.59 percent was approximately equal with the 1994 spread of 4.61 percent as the rise in yield on earning assets equaled the increase in cost of interest-bearing liabilities. The net interest rate margin improved 27 basis points to 5.54 percent reflecting the positive impact of an equal rise in rates on the larger balance of average earning assets which totaled $1.74 billion compared with interest-bearing liabilities which totaled $1.32 billion. Also contributing to the increased net interest rate margin was a reduction in interest-bearing liabilities of $45 million which exceeded a decrease in interest-earning assets by $20 million. The net effect on net interest income from changes in rates in 1995 compared with 1994 was an increase of $5.5 million. Despite the year-to-year increase in interest rate margin and level interest rate spread, both spread and margin were in a downward trend since peaking at historical highs in the first quarter of this year. The narrowing of rate and margin is expected to continue due to declining interest rates, which will reduce yield on interest earning assets, particularly loans. In the short term, rates on new deposits are expected to remain relatively stable with little impact on margin and spread. Average earning assets decreased $25 million from $1.77 billion in 1994 to $1.74 billion in 1995. The decrease reflects declines in average loans of $18 million and securities of $35 million which was partially offset by an increase in lower yielding excess funds of $28 million. Average interest-bearing liabilities decreased $45 million from last year to $1.32 billion. In addition, interest-bearing liabilities experienced a shift in the mix of average deposits from savings and money market deposits to higher cost certificates of deposit. Regular savings, NOW and money market deposits decreased $113 million while time deposits increased $74 million. Further changes in the mix from savings deposit products to higher cost time deposit products would negatively impact net interest income. The net effect on net interest income from changes in volume of loans, deposits and other interest-bearing balances in 1995 compared with 1994 was a decrease of $2.2 million. The following table attributes changes in interest income and interest expense to changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities for the year ended December 31, 1995 when compared with the year ended December 31, 1994. Changes attributable to both rate and volume are allocated on a weighted basis.
Increase (Decrease) From Year Ended December 31, 1994 Year Ended Amount Due to Changes in (Dollars in thousands) December 31, 1995 Total Change Volume Rate Interest income: Interest and fees on loans* $ 119,375 $ 15,053 $ (1,512) $ 16,565 Interest and dividends on securities: Taxable 25,746 (1,460) (2,093) 633 Non-taxable* 750 193 (50) 243 Interest on excess funds sold and other 3,047 1,850 1,599 251 ----- ----- ----- --- Total interest income* 148,918 15,636 (2,056) 17,692 ------- ------ ------ ------ Interest expense: Interest on NOW, money market and regular savings deposits 15,860 (600) (2,599) 1,999 Interest on time deposits 26,823 10,376 3,293 7,083 Interest on short-term borrowings 9,281 3,041 (37) 3,078 Interest on other borrowings 571 (495) (480) (15) --- ---- ---- --- Total interest expense 52,535 12,322 177 12,145 ------ ------ --- ------ Net interest income $ 96,383 $ 3,314 $ (2,233) $ 5,547 =============== ============= ============== ============== * Fully taxable equivalent at the federal income tax rate of 35 percent and includes applicable state taxes net of federal benefit. The tax equivalent adjustment on loans was approximately $.7 million and on non-taxable securities was approximately $.2 milion.
Noninterest Income Total noninterest income was $30.0 million in 1995, a slight decrease of $.3 million from 1994. Asset management fees decreased $1.1 million due to timing differences in the recognition of fee income in 1994 and a slight decrease in the level of assets under management this year compared to last year. Offsetting the lower asset management fees were increases in corporate services income, residual income on maturing equipment leases and higher realized gains from the sale of primarily equity securities held by an investment company subsidiary. 25 Noninterest Expense Total noninterest expense was reduced $3.2 million in 1995 to $88.2 million compared to a year ago due largely to decreases in foreclosed asset and workout expense and deposit insurance assessments. The lower level of problem assets this year resulted in a $3.0 million decrease in foreclosed asset and workout expense. Further declines in loan workout expense are expected as the level of problem assets is reduced. Deposit insurance assessments decreased $1.5 million in 1995 due to the reduction in insurance premium rates by the FDIC. Refer to Note 12 to the Notes to Consolidated Financial Statements, "Deposit Insurance Assessment," for a further discussion of deposit insurance. Salary and employee benefits increased $1.6 million in 1995 to $44.3 million. The increase was largely due to a full year of asset management revenue-sharing provisions in 1995 compared with only a half-year provision in 1994. Refer to the paragraph below for a further discussion of the revenue-sharing provisions. Included in salary and employee benefits was $.7 million and $1.0 million in expenses related to severance agreements for 1995 and 1994, respectively. In late 1994 and early 1995, the Company and senior executives of USTC's Asset Management Division negotiated and entered into employment agreements designed to maximize the profitability and grow the assets under management of the asset management business. The agreements are designed to increase the foregoing executives' participation in the value created in the asset management business and, in a change-in-control situation, increase the likelihood that a prospective purchaser will retain the services of the executives. Certain provisions of the agreements became effective July 1, 1994, and contain revenue-sharing provisions which permit the Asset Management Division to use a specified percentage of its base revenues for the payment of expenses of the operation, including incentive compensation. Other noninterest expense was reduced $.6 million in 1995 to $23.0 million. Included in other noninterest expense were provisions recorded in connection with space consolidation, including the writedown to market value of Company facilities offered for sale and the writeoff of leases on abandoned facilities, lease subsidies and leasehold improvements. The facility consolidation provisions were $1.9 million in 1995 compared with $.5 million in 1994. In addition, this year the Company accelerated the amortization of certain core deposit intangible assets after conducting a review of the expected future economic benefits derived from these assets and their current carrying amount. The amount of accelerated amortization expense recorded this year was $.6 million which resulted in an increase in amortization of intangible asset expense of $.4 million compared with 1994. Excluding such special items, other noninterest expense was reduced over 10 percent, or $2.6 million, in 1995. The largest reductions were in legal and consulting $1.2 million and all other noninterest expense of $1.2 million. The decrease in all other noninterest expense was due to reductions across numerous expense categories, the largest were declines in appraisal fees, litigation expense and audit fees. The major components of other noninterest expense were:
Year Ended December 31, (Dollars in thousands) 1995 1994 Furniture and equipment $ 3,572 $ 3,476 Legal and consulting 2,356 3,553 Advertising and promotion 2,123 2,307 Facility consolidation provisions 1,895 480 Amortization of intangibles 1,798 1,367 Service bureau and other data processing 1,274 1,173 All other 9,951 11,171 ----- ------ Total other noninterest expense $22,969 $23,527 ======= =======
Income Taxes The Company recorded income taxes of $9.2 million in 1995 compared with $2.1 million in 1994. The increase is the direct result of the significantly higher level of pre-tax income recorded this year. Refer to Note 13 to the Notes to Consolidated Financial Statements of this Form 10-K for a further discussion of income taxes. In 1993 the Company adopted Statement of Financial Accounting Standards No. 109 " Accounting for Income Taxes." This Standard changed the accounting for deferred income taxes to the "liability method." This change, a one-time event, increased net income by $750 thousand in January 1993 representing the cumulative effect of adopting the new standard on the balance sheet. Refer to Note 2 to the Notes to Consolidated Financial Statements of this Form 10-K for a further discussion of this matter. As of December 31, 1995, included in other assets was a deferred tax asset of approximately $7.0 million, net of a valuation allowance of $.2 million, which is expected to be realized against future taxable income. Management believes that it is more likely than not that the Company will realize the benefit of these deferred assets. Fair Value of Financial Instruments The methods and assumptions used by the Company to estimate the fair value of each class of financial instruments as of December 31, 1995 and 1994, in accordance with SFAS No. 107, "Disclosures about Fair 26 Value of Financial Instruments," are discussed in Note 19 to the Notes to Consolidated Financial Statements of this Form 10-K. Financial instruments do not include all of the assets and liabilities recorded on a company's balance sheet. Therefore, the aggregate fair value amounts of the financial instruments do not represent the underlying value of a company. As a result of those assumptions and valuation methodologies, the estimated fair value of Financial Instrument assets and liabilities of the Company as of December 31, 1995 was $1.91 billion and $1.76 billion, or $43 million and $4 million in excess of carrying value, respectively. The estimated fair value of Financial Instrument assets and liabilities as of December 31, 1994 was $1.71 billion and $1.66 billion, or $16 million and $3 million in excess of carrying value, respectively. The increase in excess of fair value over the carrying value of Financial Instrument assets of $27 million is attributed, in the opinion of management, to the large decline in substandard loans and resulting reduction in credit risk, and the effect of lower market interest rates from a year ago. The slight increase in excess of fair value over carrying value of Financial Instrument liabilities, is attributed, in the opinion of management, to the decline in market interest rates at December 31, 1995, particularly deposit rates, compared with a year ago. Comparison of 1994 with 1993 Net Interest Income Analysis Net interest income on a fully taxable equivalent basis decreased slightly from $93.9 million in 1993 to $93.1 million in 1994. The decrease reflects a lower volume of interest-earning assets offset by an improvement in interest rate spread and margin. Spread and margin benefited from interest rate increases throughout the year. After a decline in yield on earning assets, principally loans, in the fourth quarter of 1993 and early 1994, yields, driven by higher interest rates, rose considerably throughout the remainder of the year. The result was an improvement in yield on earning assets from 7.46 percent in 1993 to 7.55 percent in 1994. The cost of interest-bearing liabilities, principally deposits, remained relatively stable during 1994 until the fourth quarter when the Company adopted more aggressive deposit pricing. The cost of interest-bearing liabilities for the year was 2.94 percent compared with 3.13 percent in 1993. The increased yield on earning assets, which outpaced increases in the cost of interest-bearing liabilities, produced an improvement in interest rate spread and margin from 4.33 percent and 4.94 percent in 1993 to 4.61 percent and 5.27 percent, respectively, in 1994. The net effect from changes in rates was an increase in net interest income of $5.1 million. Average loans outstanding in 1994 were $1.28 billion, a decrease of $152 million from 1993. Average interest-bearing deposits were $1.18 billion, $111 million below the 1993 level. The effect from changes in volume of loans, deposits and other interest-bearing balances was a decrease in net interest income of $5.9 million. The following table attributes changes in interest income and interest expense to changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities for the year ended December 31, 1994 when compared with the year ended December 31, 1993. Changes attributable to both rate and volume are allocated on a weighted basis.
Increase (Decrease) From Year Ended December 31, 1993 Year Ended Amount Due to Changes in (Dollars in thousands) December 31, 1994 Total Change Volume Rate Interest income: Interest and fees on loans* $ 104,322 $ (7,264) $ (12,208) $ 4,944 Interest and dividends on securities: Taxable 27,206 (2,097) 110 (2,207) Non-taxable* 557 (262) (499) 237 Interest on excess funds sold and other 1,197 1,101 1,048 53 ----- ----- ----- -- Total interest income* 133,282 (8,522) (11,549) 3,027 ------- ------ ------- ----- Interest expense: Interest on NOW, money market and regular savings 16,460 (4,000) (1,147) (2,853) Interest on time deposits 16,447 (3,393) (2,576) (817) Interest on short-term borrowings 6,240 1 (1,455) 1,456 Interest on other borrowings 1,066 (339) (448) 109 ----- ---- ---- --- Total interest expense 40,213 (7,731) (5,626) (2,105) ------ ------ ------ ------ Net interest income $ 93,069 $ (791) $ (5,923) $ 5,132 =============== ============== =============== ============= * Fully taxable equivalent at the federal income tax rate of 34 percent and includes applicable state taxes net of federal benefit. The tax equivalent adjustment on loans was approximately $.8 million and on non-taxable securities was approximately $.2 million.
27 Noninterest Income Total noninterest income was $30.3 million in 1994, a decrease of $6.4 million from 1993. Gains from the sale of securities decreased $3.1 million, asset management fees decreased $1.4 million and service charges on deposit accounts decreased $.5 million due to decline in fee-based deposit accounts as well as higher average individual customer account balances which reduced the amount of fees assessed. Residual income on maturing equipment leases decreased $.8 million. Other noninterest income of $1.4 million declined $.5 million from 1993. Income recognized in connection with home equity loans purchased from the Resolution Trust Corporation decreased $.4 million. These loans were originally purchased at a substantial discount in 1991 and have returned principal on a schedule closer to the original contractual amount. These decreases to other noninterest income were partially offset by fees derived from sales of mutual funds, a new product introduced in May 1994. Noninterest Expense Total noninterest expense decreased $2 million to $91.4 million in 1994. Foreclosed asset and workout expense declined $10.4 million as a result of lower writedowns of other real estate owned. Salary and employee benefits increased $4.2 million over 1993. In 1994 salary and employee benefits included expenses related to severance agreements of $1 million and a $1.2 million Asset Management Division revenue-sharing provision. Refer to "Comparison of 1995 with 1994" under Noninterest Expense for a discussion of USTC revenue-sharing provisions. The increase in salary and employee benefits also reflected the addition of a qualified mutual fund sales staff and increases in professional staff to improve loan administration and monitoring of credit quality. In addition, the rise reflects normal merit raises and employee benefit cost increases. FDIC deposit insurance premiums declined $.4 million as a result of a lower level of deposits compared with 1993. Other noninterest expense increased $4.0 million in 1994, reflecting $1 million in increased legal fees, $1 million in advertising and promotion, $.4 million in collateral appraisal fees, $.5 million in facility consolidation provisions and $.9 million in fees for consulting services by certain former Company executives. The higher other noninterest expense also stems from a $.8 million reduction in the Company's reserve for litigation recorded in 1993. The increases were partially offset by a reduction in the cost of property and casualty insurance of $.4 million. The major components of other noninterest expense were:
Year Ended December 31, (Dollars in thousands) 1994 1993 Legal and consulting $ 3,553 $ 1,801 Furniture and equipment 3,476 3,614 Advertising and promotion 2,307 1,280 Amortization of intangibles 1,367 1,367 Service bureau and other data processing 1,173 1,151 Special provisions for litigation (750) Other 11,651 11,059 ------ ------ Total other noninterest expense $ 23,527 $ 19,522 ============== =============
28 ITEM 8. Financial Statements and Supplementary Material
Index to Financial Statements Financial Statements Page Report of Independent Public Accountants 30 Consolidated Balance Sheets-- December 31, 1995 and 1994 31 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 32 Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1995, 1994 and 1993 33 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 34 Notes to Consolidated Financial Statements 35
29 Report of Independent Public Accountants To the Stockholders and Board of Directors of UST Corp.: We have audited the accompanying consolidated balance sheets of UST Corp. (a Massachusetts corporation) and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of UST Corp. and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As explained in Note 2 to the consolidated financial statements, the Company changed its method of accounting for income taxes and investments by adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1993 and December 31, 1993, respectively. /s/ Arthur Andersen LLP Arthur Andersen LLP Boston, Massachusetts January 29, 1996 30
Consolidated Balance Sheets December 31, (Dollars in thousands, except share amounts) 1995 1994 Assets Cash, due from banks and interest-bearing deposits (Note 3) $ 89,799 $ 93,079 Excess funds sold 10,000 Securities (Notes 2 and 4): Securities available-for-sale: Mortgage-backed securities 246,521 195,009 U.S. Treasury, corporate notes and other 329,152 206,631 ------- ------- Total securities available-for-sale 575,673 401,640 Securities held-to-maturity 100 -------- --- Total securities 575,673 401,740 Loans (Notes 5, 15, and 17): Loans-- net of unearned discount of $33,419 in 1995 and $18,604 in 1994 1,272,077 1,276,683 Reserve for possible loan losses (56,029) (64,088) ------- ------- Total loans, net 1,216,048 1,212,595 Premises, furniture and equipment, net (Note 6) 31,840 32,403 Loans held-for-sale (Note 2) 13,098 Intangible assets, net 4,650 6,445 Other real estate owned, net (Note 7) 3,015 9,958 Other assets (Notes 10 and 13) 34,965 37,012 ------ ------ Total Assets $1,969,088 $1,803,232 ========== ========== Liabilities and Stockholders' Investment Deposits: Demand $ 372,917 $ 371,716 Interest-bearing demand (NOW accounts) 166,011 168,434 Money market 210,924 271,898 Regular savings 244,680 285,350 Time: Certificates of deposit over $100 thousand 112,426 79,373 Other 405,779 314,035 ------- ------- Total deposits 1,512,737 1,490,806 Short-term borrowings (Note 8) 242,962 158,989 Other borrowings (Note 9) 143 9,964 Other liabilities (Note 10) 39,578 10,839 ------ ------ Total liabilities 1,795,420 1,670,598 Commitments and contingencies (Notes 16 and 17) Stockholders' investment (Notes 2, 4, 9, 11, and 14): Preferred stock $1 par value; Authorized -- 4,000,000 shares; Outstanding -- None Common stock $.625 par value; Authorized -- 30,000,000 shares; Outstanding-- 17,843,582 and 17,614,792 shares in 1995 and 1994, respectively 11,152 11,009 Additional paid-in capital 74,158 72,129 Retained earnings 87,253 73,183 Unrealized gain (loss) on securities available-for-sale, net of tax 961 (23,601) Deferred compensation and other 144 (86) --- --- Total stockholders' investment 173,668 132,634 ------- ------- Total Liabilities and Stockholders' Investment $1,969,088 $1,803,232 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
31
Consolidated Statements of Income Year Ended December 31, (Dollars in thousands, except share amounts) 1995 1994 1993 Interest income: Interest and fees on loans $ 118,666 $ 103,526 $ 110,673 Interest and dividends on securities: Taxable 25,746 27,206 29,242 Non-taxable 204 215 265 Dividends 306 168 352 Interest on excess funds and other 3,047 1,197 96 ----- ----- -- Total interest income 147,969 132,312 140,628 ------- ------- ------- Interest expense: Interest on deposits 42,683 32,907 40,300 Interest on short-term borrowings 9,281 6,240 6,239 Interest on other borrowings 571 1,066 1,405 --- ----- ----- Total interest expense 52,535 40,213 47,944 ------ ------ ------ Net interest income 95,434 92,099 92,684 Provision for possible loan losses (Note 5) 13,090 24,281 68,427 ------ ------ ------ Net interest income after provision for possible loan losses 82,344 67,818 24,257 ------ ------ ------ Noninterest income: Asset management fees 13,276 14,419 15,798 Corporate services income 8,529 8,198 8,365 Service charges on deposit accounts 4,637 4,893 5,356 Securities gains, net (Note 4) 1,802 1,105 4,222 Lease residual income 682 362 1,148 Other 1,044 1,357 1,834 ----- ----- ----- Total noninterest income 29,970 30,334 36,723 ------ ------ ------ Noninterest expense: Salary and employee benefits (Note 10) 44,287 42,650 38,467 Net occupancy expense 7,672 7,837 7,419 Foreclosed asset and workout expense (Note 7) 5,784 8,820 19,187 Credit card processing expense 4,408 3,955 3,815 Deposit insurance assessment (Note 12) 3,067 4,566 4,931 Other (Note 12) 22,969 23,527 19,522 ------ ------ ------ Total noninterest expense 88,187 91,355 93,341 ------ ------ ------ Income (loss) before income taxes 24,127 6,797 (32,361) Income tax provision (benefit) (Note 13) 9,169 2,051 (11,511) ----- ----- ------- Net income (loss) before change in accounting method 14,958 4,746 (20,850) Cumulative effect of change in method of accounting for income taxes (Note 2) (750) ------- ------- ---- Net income (loss) $ 14,958 $ 4,746 $ (20,100) =============== =============== =============== Per share data: Net income (loss) $ .83 $ .27 $ (1.31) Cash dividends declared $ .05 Weighted average number of common shares (Note 11) 18,068,203 17,780,032 15,362,251 The accompanying notes are an integral part of these consolidated financial statements.
32
Consolidated Statements of Changes in Stockholders' Investment Common Stock Unrealized Deferred Additional Retained Gain/(Loss Compensation) (Dollars and shares in thousands) Shares Amount Paid-in Capital Earnings on Securities) and Other) Balance December 31, 1992 14,037 $ 8,773 $ 47,694 $ 88,537 $ (17) $ (1,107) Net loss (20,100) Common stock sales (Note 14) 3,155 1,972 21,271 Stock option exercises and stock issued under restricted stock plans (Notes 10 and 11) 96 59 622 Cumulative effect of change in method of accounting for investment securities, net of tax (Note 2) 3,335 Change in unrealized loss on equity securities 17 Reduction in ESOP loan guarantee (Note 9) 321 Activity in Directors Deferred Compensation Program, net (Note 11) 17 11 107 1,324 -- -- --- ----- ---- ----- Balance December 31, 1993 17,305 10,815 69,694 68,437 3,335 538 Net income 4,746 Stock option exercises and stock issued under restricted stock plans (Notes 10 and 11) 258 162 2,108 (664) Change from net unrealized gain to loss on securities available-for-sale, net of tax (Note 2) (26,936) Reduction in ESOP loan guarantee (Note 9) 322 Activity in Directors Deferred Compensation Program, net (Note 11) 52 32 327 (282) -- -- --- ---- ---- ---- Balance December 31, 1994 17,615 11,009 72,129 73,183 (23,601) (86) Net income 14,958 Stock option exercises and stock issued under restricted stock plans (Notes 10 and 11) 223 139 1,987 (171) Change from net unrealized loss to gain on securities available-for-sale, net of tax (Note 2) 24,562 Reduction in ESOP loan guarantee (Note 9) 321 Activity in Directors Deferred Compensation Program, net (Note 11) 6 4 42 80 Cash dividends declared (888) --- --- --- ---- ----- ---- Balance December 31, 1995 17,844 $ 11,152 $ 74,158 $ 87,253 $ 961 $ 144 ====== ========= ========== ========== ======== =========== The accompanying notes are an integral part of these consolidated financial statements.
33
Consolidated Statements of Cash Flows Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net income (loss) $ 14,958 $ 4,746 $ (20,100) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting method (750) Provision for possible loan losses 13,090 24,281 68,427 Depreciation and amortization 5,244 5,295 5,029 Amortization of gain on sale/leaseback (372) (384) (384) Amortization of security premiums and discounts, net 481 732 1,344 Securities gains, net (1,802) (1,105) (4,222) (Gain) loss on sale of other real estate owned, net (450) (384) 1,075 Writedowns of other real estate owned 2,035 2,360 10,346 Deferred income tax (benefit) expense (1,558) 7,134 (4,494) Increase in accruals and other, net 13,668 13,149 22,099 ------ ------ ------ Net cash provided by operating activities 45,294 55,824 78,370 Cash flows (used) provided by investing activities: Sales and maturities of investment securities 5,584 Purchase of investment securities (1,063) Proceeds from sales of securities held for sale 321,517 Proceeds from sales of securities available-for-sale 56,019 61,669 Proceeds from maturities of securities available-for-sale 25,599 196,943 Purchases of securities held for sale (387,472) Purchases of securities available-for-sale (223,026) (144,794) Purchases of securities held-to-maturity (100) Net decrease (increase) in excess funds sold 10,000 11,000 (20,700) Net (increase) decrease in loans (21,689) 37,735 72,247 Proceeds from other real estate owned 10,503 8,753 13,693 Purchases of premises and equipment (2,884) (3,670) (1,268) ------ ------ ------ Net cash (used) provided by investing activities (145,478) 167,536 2,538 Cash flows provided (used) by financing activities: Net decrease in nontime deposits (102,866) (91,940) (90,408) Net increase (decrease) in certificates of deposit 124,797 (58,052) (60,725) Net increase (decrease) in short-term borrowings 83,973 (67,279) 24,217 Payments on other borrowings (9,500) (4,000) (4,000) Cash dividends paid (888) Issuance of common stock for cash, net 1,388 792 23,677 ----- --- ------ Net cash provided (used) by financing activities 96,904 (220,479) (107,239) ------ -------- -------- (Decrease) increase in cash and cash equivalents (3,280) 2,881 (26,331) Cash and cash equivalents at beginning of year 93,079 90,198 116,529 ------ ------ ------- Cash and cash equivalents at end of year $ 89,799 $ 93,079 $ 90,198 ============== ============= =============== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 51,730 $ 39,853 $ 48,959 ============== ============= =============== Income taxes $ 7,768 $ 2,204 $ 1,210 ============== ============= =============== Noncash transactions: Transfers from investment portfolio to securities held for sale $ 7,103 Transfers from securities held-to-maturity to securities available-for-sale $ 100 =============== ============== Transfers from other assets to securities available-for-sale $ 499 $ 300 ============== ============= Transfers from loans to other real estate owned $ 6,175 $ 24,872 $ 35,827 ============== ============= =============== Transfers from loans to loans held-for-sale, net $ 13,098 ============== Financed other real estate owned sales $ 565 $ 14,732 $ 24,885 ============== ============= =============== Common stock issuance $ 784 $ 1,837 $ 365 ============== ============= =============== The accompanying notes are an integral part of these consolidated financial statements.
34 Notes to Consolidated Financial Statements, December 31, 1995 (1) Nature of Operations UST Corp. is a bank holding company with three principal banking subsidiaries: USTrust and United States Trust Company ("USTC"), each headquartered in Boston, Massachusetts, and UST Bank/Connecticut ("UST/Conn"), headquartered in Bridgeport, Connecticut. UST Corp. and its banking and nonbanking subsidiaries (the "Company") is engaged in a single line of business, that of providing a broad range of financial services principally to individuals and small- and medium-sized companies in the New England region. Included in these services are commercial banking, consumer services, trust and money management, and equipment leasing. The Company through its banking subsidiaries operates 28 banking branches in the greater Boston area and 4 banking branches in the Bridgeport area. (2) Summary of Significant Accounting Policies The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practice in the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reporting and disclosure of assets and liabilities, including those that are of a contingent nature, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant accounting and reporting policies of the Company are summarized below. Principles of Consolidation The consolidated financial statements include the accounts of UST Corp. and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. The parent company only financial statements contained in Note 18 reflect investments in subsidiaries using the equity method of accounting. Certain reclassifications have been made to prior year balances to conform with the current year presentation. Assets owned by others and held in a fiduciary or agency capacity are not included in the consolidated balance sheets. Securities On December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt and Equity Securities." This Statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Under this statement such securities are classified as held-to-maturity, trading, or available-for-sale. Securities Held-to-Maturity -- Debt securities which management has the positive intent and ability to hold to maturity are classified as held-to-maturity, and are carried at cost adjusted for the amortization of premium or the accretion of discount. Trading Securities -- Debt and equity securities with readily determinable market values that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are carried at fair value, with unrealized gains and losses included in current earnings. At December 31, 1995 and 1994, the Company had no securities classified as trading. Securities Available-for-Sale -- Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale and carried at fair value, with unrealized after-tax gains and losses reported as a separate component of stockholders' investment. At December 31, 1995, stockholders' investment was increased by an unrealized gain related to SFAS No. 115 of $961,000 net of taxes of $721,000. Securities that do not have readily determinable market values are carried at cost and classified in other assets. At December 31, 1995 and 1994, such securities amounted to $4,201,000 and $3,908,000, respectively. For mortgage-backed securities, the Company recalculates the effective yield on the investment to reflect the actual prepayment results and estimated future prepayments. The net investment in these securities is adjusted to the amount that would have existed had the new estimated average life and effective yield been applied since the acquisition of the securities. Such adjustments are charged or credited to interest income in the current period. The Company determines the securities sold by the specific identification method. The amount of taxes paid on gains is dependent upon the overall results of operations of the subsidiary incurring the gain. 35 Premises, Furniture and Equipment Premises, furniture and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation using the straight-line method by charges to expense in amounts estimated to amortize the cost over the estimated useful lives of the respective assets as follows: Buildings and building improvements 10-40 years Furniture and equipment 3-10 years Leasehold improvements are amortized over the life of the lease agreements plus one renewal period. Loan Income and Fees Most installment loans and certain commercial time loans are made on a discounted basis. The unearned discount applicable to such loans is recorded as income monthly by use of the actuarial method. Interest income on nondiscounted loans is accrued based on the principal amount of loans outstanding. Loans are placed on nonaccrual, with the reversal of all accrued interest receivable, when there is doubt as to the collectibility of interest or principal or if loans are 90 days or more past due unless they are both well secured and in the process of collection. In every case, a loan reaching 180 days past due is placed on nonaccrual. Interest received on nonaccrual loans is applied to principal if collection of principal is doubtful; otherwise, it is reflected in interest income on a cash basis. Reserve for Possible Loan Losses The reserve for possible loan losses is maintained at a level considered adequate by management to provide for possible losses from loans, leases and commitments to extend credit. Adequacy of the reserve is determined by management using a consistent methodology which analyzes the size and risk of the loan portfolio on a monthly basis. Factors in this analysis include past loan loss experience and asset quality, as reflected by trends of delinquent, nonaccrual and restructured loans and the Company's credit risk rating profile. Consideration is also given to the current and expected economic conditions and, in particular, how such conditions affect the types of credits in the portfolio and the market area in general. This analysis is documented using a combination of numerical and qualitative analysis and includes sensitivity testing and a written conclusion. The reserve is based on estimates, and ultimate losses may vary from current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the current period. Loans Held-For-Sale In December 1995, the Company transferred certain loans to an accelerated disposition portfolio, "Loans held-for-sale." Such loans were transferred at their estimated disposition values less estimated cost of disposal. The excess, if any, of the loan balance over the estimated disposition value less estimated cost of disposal was charged to the reserve for possible loan losses. Other Real Estate Owned Other real estate owned ("OREO") includes properties which the Company has acquired through foreclosure or in settlement of loans. All OREO is held for sale and carried at the lower of the loan value or fair value of the property acquired, less estimated costs to sell ("net realizable value"). At the time of foreclosure, the excess, if any, of the loan value over the net realizable value, is charged to the reserve for possible loan losses. The carrying value of OREO is reviewed periodically. Subsequent declines in the fair value of the property and net operating results of the property are included in noninterest expense, "Foreclosed asset and workout expense." Income Taxes The Company provides for income taxes in accordance with the comprehensive income tax allocation method. This method recognizes the tax effects of all income and expense transactions in each year's statement of income regardless of the year in which the transactions are reported for tax purposes. The Company follows the deferral method of accounting for investment tax credits. Under the deferral method, the credit is reflected as a reduction of tax expense ratably over the period during which the asset is depreciated for financial reporting purposes. The Company adopted SFAS No. 109, "Accounting for Income Taxes," on January 1, 1993. This statement requires the use of the "liability method" of providing deferred income taxes under which the amount of deferred taxes on the balance sheet is adjusted whenever tax rates or provisions of income tax law are changed. This change in accounting principle increased net income $750,000 in January 1993, representing the cumulative effect of the new standard on the balance sheet at the date of adoption. 36 Earnings (Loss) Per Share Earnings per share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents consist primarily of dilutive outstanding stock options computed under the treasury stock method. Average dilutive common stock equivalents were 382,206 for 1995 and 379,059 for 1994. Loss per share computations for 1993 do not include common stock equivalents due to their antidilutive effect. The dual presentation of primary and fully diluted earnings per share is not presented since the difference from earnings per share is not material. Intangible Assets Intangible assets include goodwill and core deposit intangibles which are stated at cost less accumulated amortization. Cost of purchased businesses in excess of net assets acquired ("goodwill") includes amounts being amortized over twenty- and forty-year periods. Amortization expense was $122,500 in each of 1995, 1994 and 1993. Values assigned to deposits of purchased businesses ("core deposit intangibles") are being amortized over seven- and thirteen-year periods. Amortization expense was $1,675,500 in 1995 and $1,245,000 in 1994 and 1993. On a periodic basis, the Company reviews its goodwill and core deposit intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets may not be recoverable, and, if appropriate, reduces the carrying amount through a charge to other noninterest expense. Retirement Benefits In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 is effective for fiscal years beginning after December 15, 1992. This Statement did not have any impact on the Company's financial position or results of operations. In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112 is effective for fiscal years beginning after December 15, 1993. This Statement did not have any impact on the Company's financial position or results of operations. Statements of Cash Flows For the purpose of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and interest-bearing deposits. Recent Accounting Developments The FASB issued in March 1995, SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." This Statement requires a review for impairment of long-lived assets and certain identifiable intangibles to be held and used by an entity whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment would be estimated if the sum of the expected future cash flows to result from the use and eventual disposition of the asset is less than the carrying amount of the asset. This Statement does not apply to financial instruments, core deposit intangibles, mortgage and other servicing rights, or deferred tax assets. This Statement would apply for fiscal years beginning after December 15, 1995. While the effect on the Company has not yet been determined, the adoption of this Statement could have a material impact on the Company's results of operations in future periods. As an amendment to SFAS No. 65, "Accounting for Mortgage Banking Activities," the FASB issued in May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights." This Statement amends certain SFAS No. 65 provisions prohibiting the capitalization of mortgage loan servicing rights acquired through loan origination activities, by requiring that both originated and purchase mortgage loan servicing rights be capitalized. In addition, FASB No. 122 requires all capitalized mortgage loan service rights be evaluated for impairment based on their fair values. This Statement would apply prospectively for fiscal years beginning after December 15, 1995. The adoption of this Statement is not expected to have a material impact on the Company's results of operations. 37 (3) Restrictions on Cash and Due From Banks At December 31, 1995 and 1994, cash and due from banks included $34,830,000 and $34,173,000, respectively, to satisfy the reserve requirements of the Federal Reserve Board. (4) Securities A comparison of the amortized cost, estimated fair value and gross unrealized gains and losses as of December 31, 1995 and December 31, 1994 for securities available-for-sale and held-to-maturity follows:
1995 Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value Securities available-for-sale: Mortgage-backed securities: FHLMC $ 155,916 $ 1,486 $ (411) $ 156,991 FNMA 89,239 799 (508) 89,530 ------ --- ---- ------ Total mortgage-backed securities 245,155 2,285 (919) 246,521 U.S. Treasury and federal agencies 197,641 570 (1,244) 196,967 Asset-backed securities 85,157 443 85,600 Corporate debt securities 40,499 323 (2) 40,820 States and municipalities 3,169 85 3,254 Marketable equity securities 1,806 159 (20) 1,945 Foreign governments 390 390 All other securities 176 176 --------------- ------------- -------------- --------------- Total securities available-for-sale $ 573,993 $ 3,865 $ (2,185) $ 575,673 =============== ============= ============== ===============
1994 Gross Gross Amortized Unrealized Unrealized Fair (Dollars in thousands) Cost Gains Losses Value Securities available-for-sale: Mortgage-backed securities: FHLMC $ 132,241 $ 97 $ (8,765) $ 123,573 FNMA 77,761 45 (6,370) 71,436 ------ -- ------ ------ Total mortgage-backed securities 210,002 142 (15,135) 195,009 U.S. Treasury and federal agencies 154,823 5 (12,414) 142,414 Corporate debt securities 59,716 208 (1,611) 58,313 States and municipalities 3,577 49 (133) 3,493 Marketable equity securities 1,954 120 (254) 1,820 Foreign governments 425 425 All other securities 166 166 --- ------ --- ------ Total securities available-for-sale $ 430,663 $ 524 $ (29,547) $ 401,640 =============== ========== =============== =============== Securities held-to-maturity: States and municipalities $ 100 $ (3) $ 97 =============== =============== =============== Total securities held-to-maturity $ 100 $ (3) $ 97 =============== =============== ===============
38 The amortized cost and estimated fair value of debt securities at December 31, 1995 and 1994, by contractual maturity, are shown in the table below. Actual maturities are expected to differ from contractual maturities because some borrowers have the right to prepay without penalty. Mortgage-backed securities are shown at their final maturity but are expected to have shorter average lives. Equity securities, which have no contractual maturity, are presented in the aggregate.
1995 1994 Amortized Estimated Amortized Estimated (Dollars in thousands) Cost Fair Value Cost Fair Value Securities available-for-sale: Mortgage-backed securities: Due after 5 years through 10 years $ 38,276 $ 38,521 $ 26,144 $ 25,967 Due after 10 years 206,879 208,000 183,858 169,042 ------- ------- ------- ------- Total mortgage-backed securities 245,155 246,521 210,002 195,009 All other debt securities: Due in 1 year or less 22,052 22,197 22,706 22,624 Due after 1 year through 5 years 233,296 233,676 168,449 159,047 Due after 5 years through 10 years 70,594 70,198 25,935 21,575 Due after 10 years 914 960 1,451 1,399 --- --- ----- ----- Total debt securities 572,011 573,552 428,543 399,654 Total marketable equity securities and all other securities 1,982 2,121 2,120 1,986 ----- ----- ----- ----- Total $ 573,993 $ 575,673 $ 430,663 $ 401,640 =========== =========== =========== =========== Securities held-to-maturity: Due after 1 year through 5 years $ 100 $ 97 =========== =========== Total $ 100 $ 97 =========== ===========
Proceeds from sales of debt securities available-for-sale during 1995 were $53,474,000 and $60,061,000 during 1994. Gross gains of $132,000 for 1995 and $79,000 for 1994 and gross losses of $229,000 for 1995 and none for 1994 were realized on those sales. Net gains on all securities were $1,802,000, $1,105,000, and $4,222,000 for 1995, 1994, and 1993, respectively. The 1995 gains were comprised principally from the sale of equity securities. At December 31, 1995, securities carried at $215,276,000 were pledged to secure public and trust deposits, securities sold under agreements to repurchase and for other purposes as required by law. (5) Loans The composition of the loan portfolio (net of unearned discount) at December 31, 1995 and 1994 was as follows:
(Dollars in thousands) 1995 1994 Commercial and financial $ 642,940 $ 705,075 Commercial real estate: Construction 16,937 13,109 Developer, investor and land 207,710 265,624 Consumer: Residential mortgage 85,806 90,643 Home equity 70,066 64,068 Indirect automobile installment 197,148 90,255 Other consumer 23,015 21,964 Lease financing 28,455 25,945 ------ ------ 1,272,077 1,276,683 Reserve for possible loan losses (56,029) (64,088) ------- ------- $1,216,048 $1,212,595 ========== ==========
39 Most of the Company's lending activity is with customers located within the states of Massachusetts and Connecticut. At year-end 1995, the Company's exposure to credit risk principally secured by commercial real estate, home equity and residential real estate included $381 million of loans. Refer to Note 17 for additional discussion of concentration of credit risk. Reserve for Possible Loan Losses Analysis of the reserve for possible loan losses for the three years ended December 31, 1995, 1994 and 1993 is as follows:
(Dollars in thousands) 1995 1994 1993 Balance at beginning of period $ 64,088 $ 64,465 $ 50,478 Loans charged-off (29,074) (31,059) (58,198) Recoveries on loans previously charged-off 7,925 6,401 3,758 ----- ----- ----- Net chargeoffs (21,149) (24,658) (54,440) Provisions charged to operations 13,090 24,281 68,427 ------ ------ ------ Balance at end of period $ 56,029 $ 64,088 $ 64,465 ============== ============== ==============
In June 1993 the Company recorded a special $30 million provision for loan losses which is included in the above table. Impaired Loans The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114 ("SFAS No. 114"), "Accounting by Creditors for Impairment of a Loan," which the Company adopted on January 1, 1995. SFAS No. 114 requires, among other things, that creditors measure impaired loans at the present value of expected future cash flows, discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. For purposes of this Statement, a loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due, including interest, according to the contractual terms of the loan agreement. SFAS No. 114 as amended by SFAS No. 118, allows creditors to use their existing methods of recognizing interest income on impaired loans. Loans recognized by the Company as nonaccrual and restructured have been classified "impaired loans" by the Company in accordance with SFAS No. 114. At December 31, 1995, total impaired loans were $25.7 million, comprised of $1.4 million that required reserves of $.3 million and $24.3 million that did not require a related reserve since there was no dollar impairment as measured by the Statement's provisions. The average recorded investment in impaired loans for the year ended December 31, 1995 was $45 million. The reserve for possible loan losses has not required an additional loan loss provision as a result of the adoption of this Statement. The methodology used in the required reserve calculation utilized the fair value of collateral. SFAS No. 114 also requires that in-substance foreclosures be reported as part of loans and the in-substance foreclosure valuation reserve be included in the reserve for possible loan losses. The effect at January 1, 1995, the date of adoption of SFAS No. 114, on the Company's balance sheet was an increase to loans of $10.6 million, an increase to the reserve for possible loan losses of $2.1 million and a decrease in other real estate owned of $8.5 million. In addition, prior period balances have been reclassified to reflect loans, OREO, reserve for possible loan losses, loan loss provision and in-substance foreclosure writedown expense on a basis comparable to the classification that would have been used under SFAS No. 114. There was no effect on net income of the Company as a result of the adoption of this Statement. Nonaccrual loans were $19.9 million and $59.9 million at December 31, 1995 and December 31, 1994, respectively. Accruing restructured loans totaled $5.8 million and $15.8 million at December 31, 1995 and 1994, respectively. For the years ended December 31, 1995 and 1994, the amount of interest income on nonaccrual and restructured loans that would have been recognized if the loans had been paying in accordance with their original terms, was $3,131,000 and $6,259,000, respectively, while the amount recognized as interest income in the same periods was $2,522,000 and $3,188,000, respectively. 40 (6) Premises, Furniture and Equipment A summary of the accounts as of December 31, 1995 and 1994 is as follows:
(Dollars in thousands) 1995 1994 Land $ 2,746 $ 2,839 Buildings and leasehold improvements 33,037 34,861 Furniture and equipment 15,343 15,450 ------ ------ 51,126 53,150 Accumulated depreciation and amortization (19,286) (20,747) ------- ------- $ 31,840 $ 32,403 ============= =============
Depreciation and amortization expenses reflected in the consolidated statements of income were $3,445,000, $3,927,000 and $3,662,000 in 1995, 1994 and 1993, respectively. On January 3, 1991, the Company sold one of its buildings to an unaffiliated third party for $8.2 million. A portion of the building houses certain functions of the Company which were leased back from the purchaser. This transaction resulted in a gain of approximately $5 million of which $3 million was recognized in 1991 with the difference amortized to income over the life of the lease. (7) Other Real Estate Owned Other real estate owned is stated net of valuation allowances. Analysis of the valuation allowances for the three years ended December 31, 1995, 1994 and 1993 is as follows:
Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Balance at beginning of period $ 1,044 $ 4,635 $ 389 Chargeoffs (2,511) (5,951) (6,100) Provisions charged to operations 2,035 2,360 10,346 ----- ----- ------ Balance at end of period $ 568 $ 1,044 $ 4,635 ============= ============= ===========
The net cost of other real estate owned included in foreclosed asset and workout expense in the income statement was $3,596,000, $5,348,000 and $17,087,000 in 1995, 1994 and 1993, respectively. These costs include provisions charged to operations to reflect reductions in net realizable value, net gain or loss on sales and cost of maintaining and operating the properties. (8) Short-term Borrowings Short-term borrowings consisted of the following at December 31, 1995 and 1994:
(Dollars in thousands) 1995 1994 Federal funds purchased $ 57,406 $ 19,296 Securities sold under agreements to repurchase 172,689 126,597 Treasury tax and loan note account 12,867 13,096 ------ ------ $ 242,962 $158,989 ========= ========
The weighted average interest rates at December 31, 1995 and 1994 were 4.98 percent and 4.74 percent, respectively. The average outstanding short-term borrowings were $179,260,000 in 1995 and $180,325,000 in 1994. The approximate weighted average interest rates during the year were 5.18 percent in 1995 and 3.46 percent in 1994. The maximum amount of short-term borrowings outstanding at any month end was $242,962,000 in 1995 and $212,174,000 in 1994. 41 (9) Other Borrowings Other borrowings consisted of the following at December 31, 1995 and 1994:
(Dollars in thousands) 1995 1994 UST Corp. 8.5% Senior Notes due in installments from 1992 - 1996 $8,000 Guaranteed ESOP debt at 84% of the prime rate, as established, due in installments to 1996 $143 464 UST Capital Corp. 11.505% note to the Small Business Administration due 1995 1,500 ---- ----- $143 $9,964 ==== ======
Payments required under the above obligations were $5,821,000 in 1995 and the balance of $143,000 due in 1996. In addition to the required payment in 1995, the Company elected to prepay the final $4,000,000 installment due in 1996 on the 8.5% Senior Notes. Effective with this payment the Company was released from all terms and conditions of the Note agreement. The Company has an employee stock ownership plan ("ESOP") which covers substantially all of its employees. The plan is administered by a committee designated by the Board of Directors and is maintained in a separate trust established for that purpose. The trustee obtained third-party financing to purchase shares of UST Corp. common stock and UST Corp. has guaranteed this debt. The purchased shares are allocated to the participants on a pro-rata basis over the period in which they are earned. (10) Employee Benefit Plans The Company has a noncontributory, defined benefit retirement plan covering all employees who meet specified age and employment requirements. The Company also has a nonqualified, unfunded supplemental retirement plan, which covers certain officers of the Company. The plans provide pension benefits that are based on the employee's compensation during the highest four consecutive years before retirement. The following summary sets forth each plan's funded status and amounts included in the Company's consolidated balance sheets as of December 31, 1995 and 1994:
Qualified Plan Supplemental Plan (Dollars in thousands) 1995 1994 1995 1994 Actuarial present value of benefit obligations: Vested benefit obligation $ 15,124 $ 10,980 $ 1,186 $ 949 Nonvested benefit obligation 402 309 26 5 --- --- -- - Accumulated benefit obligation 15,526 11,289 1,212 954 Effect of projected future compensation levels 3,863 2,959 330 89 ----- ----- --- -- Projected benefit obligation for service rendered to date 19,389 14,248 1,542 1,043 Plan assets, primarily listed stocks and U.S. bonds 20,514 16,811 ------ ------ ------ ------ Excess (deficiency) of plan assets over projected benefit obligation 1,125 2,563 (1,542) (1,043) Unrecognized loss (gain) 2,753 1,924 (197) (442) Unrecognized prior service asset (obligation) (683) (751) 292 443 Unrecognized net transition asset (1,354) (1,625) ------ ------ ------ ------- Prepaid (accrued) costs included in other assets (other liabilities) $ 1,841 $ 2,111 $ (1,447) $ (1,042) ============== ============= ============ ===========
The actuarial assumptions used for both plans were as follows:
1995 1994 Discount rate 7.0% 8.5% Rate of increase of future compensation levels 4.0% 5.0% Expected rate of return on plan assets 9.0% 9.0%
42 Net pension cost for 1995, 1994 and 1993 included the following components:
(Dollars in thousands) 1995 1994 1993 Service cost benefit earned during the period $ 862 $ 1,050 $ 880 Interest cost on projected benefit obligation 1,377 1,265 1,179 Return on plan assets (4,248) 325 (1,232) Net amortization and deferral 2,805 (1,789) (463) ----- ------ ---- Net pension cost $ 796 $ 851 $ 364 ========== ============= ===========
The Company has an Employee Savings Plan which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan, which originated in January 1994 and was amended in October 1995, participating employees may defer a portion up to 10 percent of their pretax earnings not to exceed the Internal Revenue Service annual contribution limits. The Company matches each eligible employee's contribution up to 5 percent of the employee's earnings. The rate of matching is 100 percent for the first 1 percent of each employee's contribution and a rate of 25 percent for contributions of greater than 1 percent up to the 5 percent maximum. The Company made a matching contribution of $273,000 and $198,000, respectively, in 1995 and 1994. The Company also has an ESOP for substantially all employees. Under the plan, the Company contributes either a fixed amount or a percentage of compensation of all participants. Certain key employees are awarded shares of the Company's common stock through the Company's Restricted Stock Ownership Plan adopted in 1989 and the restricted stock program of the Stock Compensation Plan adopted in 1992 and amended in 1994. Under these restricted stock plans 498,570 shares of common stock have been granted. The shares vest to the employee over varying schedules. In 1995, 53,229 restricted shares vested under this plan. At December 31, 1995, there were 84,666 unvested restricted shares outstanding. Expenses relating to the plans were as follows:
Year Ended December 31, Employee Employee Savings (Dollars in thousands) Pension Stock Ownership Restricted Stock Plan 401(k) 1995 $796 $425 $490 $273 1994 851 425 558 198 1993 364 319 399
(11) Stock Options The Company has a Stock Compensation Plan adopted in 1992 and amended in 1994, under the terms of which the Company may issue incentive stock options, nonqualified stock options and shares of restricted stock. At December 31, 1995, 112,069 shares of the Company's common stock remained available for future grants to officers and key employees. The Company's Stock Compensation Plan provides that the number of shares of common stock reserved for future grants under the plan be increased by an amount equal to 1.25 percent of the number of shares outstanding on the first day of each fiscal year. As a result, as of January 1, 1996, 223,045 additional common shares will be reserved for future grants. The Company records stock compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." 43 The following table presents the activity for the employee stock option program under the Stock Compensation Plan for the years ended December 31, 1995, 1994, and 1993:
Number of Shares Under Option Option Price Per Share Total Outstanding December 31, 1992 583,886 $ 5.00 - $ 9.13 $ 3,596,343 Granted in 1993 300,000 $ 7.50 - $12.00 2,700,000 Canceled in 1993 (161,331) $ 6.07 - $ 9.18 (1,434,063) Exercised in 1993 (65,696) $ 6.07 (398,869) ------- ------ -------- Outstanding December 31, 1993 656,859 $ 5.00 - $12.00 4,463,411 ------- ------ ------ --------- Granted in 1994 1,004,500 $ 9.00 - $13.38 10,459,688 Canceled in 1994 (283,337) $ 6.07 - $13.38 (3,542,162) Exercised in 1994 (123,108) $ 6.07 - $ 8.62 (760,209) -------- ------ ------ -------- Outstanding December 31, 1994 1,254,914 $ 5.00 - $12.00 10,620,728 --------- ------ ------ ---------- Granted in 1995 164,100 $10.75 - $14.13 2,207,700 Canceled in 1995 (26,365) $ 6.07 - $ 9.75 (228,862) Exercised in 1995 (147,956) $ 5.00 - $ 9.75 (1,028,062) -------- ------ ------ ---------- Outstanding December 31, 1995 1,244,693 $ 5.00 - $14.13 $11,571,504 ========= ====== ====== =========== Options exercisable at: December 31, 1993 290,492 $ 5.00 - $ 8.62 $ 1,770,462 December 31, 1994 721,936 $ 5.00 - $12.00 $ 5,910,636 December 31, 1995 838,614 $ 5.00 - $14.13 $ 7,112,906
In December 1994, the Board of Directors authorized an option substitution program permitting employees to surrender options with an option price of more than $9.75 (the fair market value) in exchange for new options on a one-for-one basis. Outstanding options for 273,500 were exchanged under the program. In May 1995, the stockholders approved the 1995 Stock Option Plan for Directors under which each eligible director would receive option grants for 7,500 shares at fair value. A total of 150,000 shares of the Company's common stock has been reserved for issuance under this Plan. As of December 31, 1995, 118,200 shares were granted and outstanding. The Company has a Directors Deferred Compensation Program under which up to 250,000 shares of the Company's common stock may be granted to Directors of the Company or its banking subsidiaries who choose to receive their Director's fees or stipend in shares of the Company in lieu of cash. (12) Noninterest Expense Deposit Insurance Assessment On August 8, 1995, the Federal Deposit Insurance Corporation ("FDIC") voted to reduce insurance premiums paid to the Bank Insurance Fund ("BIF") by the best managed and capitalized banks to 4 cents per $100 of deposits from the then current rate of 23 cents per $100 of deposits. Premiums for savings and loan associations ("Thrifts") insured by the Savings Association Insurance Fund ("SAIF") remain unchanged, ranging from 23 cents for the best managed and capitalized Thrifts to 31 cents per $100 of deposits for those institutions which present a higher risk to the insurance fund. In 1990, the Company purchased the deposits of a failed Thrift institution. Accordingly, the Company's deposit insurance premiums reflect a combination of SAIF and BIF assessments. In the third quarter of this year the Company received a $700 thousand rebate of deposit insurance premiums paid earlier in 1995 as a result of the aforementioned action to reduce premium rates on insured deposits. Proposed Federal legislation may result in a one-time assessment on Thrift deposits that would supplement the weaker Thrift deposit insurance fund followed by a merger of SAIF and BIF. The amount of such a one-time assessment cannot be determined at this time but could have a material impact on the operating results of the Company. Under the proposed legislation, subsequent to the one-time charge, the insurance premium charged on the former Thrift deposits would be reduced. 44 Other Noninterest Expense The major components of other noninterest expense were:
Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Furniture and equipment $ 3,572 $ 3,476 $ 3,614 Legal and consulting 2,356 3,553 1,801 Advertising and promotion 2,123 2,307 1,280 Facility consolidation provisions 1,895 480 Amortization of intangibles 1,798 1,367 1,367 Service bureau and other data processing 1,274 1,173 1,151 All other 9,951 11,171 10,309 ----- ------ ------ Total other noninterest expense $ 22,969 $ 23,527 $ 19,522 ============== ============== ==============
(13) Income Taxes The income tax provision (benefit) included in the consolidated statements of income consisted of the following:
Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Current tax expense (benefit)*: Federal $ 7,860 $ (6,230) $ (8,302) State 2,867 1,147 1,285 ----- ----- ----- 10,727 (5,083) (7,017) ------ ------ ------ Deferred tax expense (benefit): Federal (1,735) 6,588 (4,448) State 177 546 (46) --- --- --- (1,558) 7,134 (4,494) ------ ----- ------ Total $ 9,169 $ 2,051 $ (11,511) ============= ============= =============== * The 1995 current provision does not reflect $286 thousand of tax benefits related to stock options exercised that have been credited directly to additional paid-in capital.
At December 31, 1995 and 1994, cumulative net deferred income tax benefits amounting to $6,983,000 and $11,679,000 were included in the consolidated balance sheets as other assets. Additionally, at December 31, 1995, there were current taxes payable of $1,810,000 included in other liabilities, while at December 31, 1994, there were tax refund receivables of $2,998,000 included in other assets. The components of the net deferred tax asset were as follows:
December 31, (Dollars in thousands) 1995 1994 Book reserve for loan losses in excess of tax $ 23,117 $ 26,175 Alternative minimum tax credit 6,768 4,988 Investment tax credits 5,498 4,730 Deferred compensation benefits not deducted for tax 1,449 1,264 Securities mark to market adjustment deferred for tax (1,198) (1,779) Book writedowns on foreclosed real estate, not deducted for tax 240 323 Net operating losses* 12,207 Tax deductions on leveraged leases deferred for book (14,919) (17,226) Loan mark to market adjustment for tax (12,990) (11,228) Pension expense deducted for tax not book (741) (850) Tax basis in partnership investment less than book (704) (708) Cumulative tax depreciation in excess of book (583) (675) Tax basis in core deposits less than book (355) (850) Valuation allowance (state) (181) (365) Valuation allowance (federal)* (6,017) Other, net 1,582 1,690 ----- ----- Total deferred tax asset $ 6,983 $ 11,679 ============= ============== * The federal valuation allowance in 1994 was related primarily to the unrealized loss on securities available-for-sale. This amount was reversed during 1995 as the market value of the securities portfolio increased and the tax effect on the unrealized loss component of stockholders' investment decreased.
45 The provisions for income taxes differ from the amounts computed by applying the U.S. statutory federal tax rate of 35 percent in 1995 and 1993 and 34 percent in 1994 to income (loss) before income taxes principally due to:
Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Tax (benefit) at statutory rate $ 8,444 $ 2,311 $ (11,326) Increases (reductions) from: Tax-exempt income on investment securities and loans (596) (676) (832) State income taxes, net of federal income tax benefit 1,979 1,118 818 Low income housing credits (724) (911) (862) Other, net 66 209 691 -- --- --- Tax expense (benefit) recorded $ 9,169 $ 2,051 $ (11,511) ============= ============= ===============
(14) Capital and Former Regulatory Agreements In 1993, the Company sold 500,000 shares of its common stock in a private placement for a cash price of $3,750,000. Substantially all of the net proceeds of that placement were used to repay principal on the Company's long-term debt. Also in 1993, the Company sold 2.87 million shares of its common stock in a European offering. These shares were placed with more than sixty institutional investors and the offering was made under Regulation S of the United States Securities and Exchange Commission. Net proceeds of this placement were approximately $21 million. Dividends The Company and its banking subsidiaries' ability to pay dividends is subject to certain limitations imposed by statutes of the Commonwealth of Massachusetts and the State of Connecticut, and limitations imposed by bank and bank holding company regulators. Massachusetts statutes restrict the amount of dividends payable by banks to be the balance of their undivided profits, net of any amount transferred to capital in excess of par value. In the case of Connecticut law, the limit is undivided profits plus reserve for possible loan losses. In any event, it is not likely that bank and bank holding company regulators would allow an institution to dividend any amounts which would reduce that institution's capital to below the minimum capital requirement in effect at that time. Refer to "Former Agreements with Bank Regulatory Agencies" below for additional discussion on dividend restrictions. In the fourth quarter of 1995, the Company declared and paid a cash dividend of $0.05 per share to stockholders for a total dividend of $888 thousand. During the year the Company received dividends from subsidiaries of $3 million from USTC, $1 million from USTrust and $1 million from JSA Financial Corporation, a nonbanking subsidiary. During 1995 the Company contributed capital to its subsidiaries totaling $1 million to UST/Conn and $6.5 million to JSA Financial Corporation. Shareholder Rights Plan On September 22, 1995, the Company declared a special dividend distribution of one preferred share purchase right for each outstanding share of the Company's common stock. This dividend was distributed on October 6, 1995 to stockholders of record as of the close of business on that date. The rights will become exercisable only if a person or group (i) acquires 15 percent or more of the Company's common stock, (ii) announces a tender offer that would result in ownership of 15 percent or more of the common stock, or (iii) is declared to be an "Adverse Person" by the Company's Board of Directors. "Adverse Person" includes any person or group who owns at least 10 percent of the Company's common stock and attempts an action that would adversely impact the Company. Each right would entitle a stockholder to buy 1/100th of a share of a new series of junior participating preferred stock. Once a person or group has acquired 15 percent or more of the outstanding common stock of the Company or is declared an "Adverse Person" by the Company's Board of Directors, each right may entitle its holder (other than the acquiring person or Adverse Person) to purchase, at an exercise price of $40, shares of common stock of the Company (or any organization that acquires the Company) at a price equal to 50 percent of their current market price. Under certain circumstances, the Continuing Directors (as defined in the rights plan) may exchange the rights for common stock (or equivalent securities) on a one-for-one basis excluding rights held by the acquiring person or Adverse Person. Until declaration of an Adverse Person, or ten days after public announcement that any person or group has acquired 15 percent or more of the Company's common stock, the rights are redeemable at the option of the Company's Board of Directors, in certain cases with the concurrence of the Continuing 46 Directors. Thereafter, they may be redeemed by the Continuing Directors in connection with certain acquisitions not involving any acquiring person or Adverse Person or in certain circumstances following a disposition of shares by the acquiring person or Adverse Person. The redemption price is $.001 per right. The rights will expire on October 6, 2005, unless redeemed prior to that date. Distribution of the rights is not taxable to stockholders. Stock Repurchase Program On October 17, 1995, the Company's Board of Directors approved a stock repurchase program. Under the program, the Company is authorized to repurchase up to 500,000 shares, which was approximately 2.8 percent of the Company's common stock outstanding on the date of authorization. The stock buyback is authorized to take place from time to time, subject to prevailing market conditions. Purchases may be made on the open market or in privately negotiated transactions. Shares repurchased are to be held as treasury shares to be used for general corporate purposes, including employee benefit plans. Former Agreements with Bank Regulatory Agencies On July 21, 1995, the Company was released from the terms of its Written Agreement originally entered into on August 3, 1992, by the Federal Reserve Bank of Boston ("FRB-Boston") and the Office of the Massachusetts Commissioner of Banks ("Massachusetts Commissioner"). For a discussion of the Agreement which is no longer in effect, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. In June 1995, the Company's Massachusetts-based and largest subsidiary bank, USTrust, was released by the Federal Deposit Insurance Corporation ("FDIC") and the Massachusetts Commissioner from the terms of its Cease and Desist Order, originally issued in January 1992. In conjunction with the release of the Order, USTrust's Board of Directors adopted a resolution pursuant to which USTrust agreed, among other matters: (i) to continue to maintain a Tier 1 leverage capital ratio of at least 6 percent; (ii) not to pay a dividend which would cause the Bank's Tier 1 leverage capital ratio to fall below 6 percent; (iii) to continue to implement plans to reduce nonperforming assets and the aggregate level of insider loans; and (iv) to provide a quarterly progress report to the FDIC and the Massachusetts Commissioner. For a discussion of the Order which is no longer in effect, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. The Company's second Massachusetts-based banking subsidiary, USTC, was released from a similar Order in 1994; and has also agreed not to declare or pay dividends should the effect of the payment of such dividends cause USTC's Tier 1 leverage capital ratio to fall below 6 percent. On September 14, 1995, UST/Conn was released by the Commissioner of Banks for the State of Connecticut from the terms of its Stipulation and Agreement, originally issued in June 1991. For a discussion of the Agreement which is no longer in effect, refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. All banks and bank holding companies are required to meet certain capital requirements. The Company's Tier 1 capital, Total risk-based capital and Tier 1 leverage capital ratios at December 31, 1995 were 10.24 percent, 11.75 percent and 8.83 percent, respectively. The Tier 1 leverage capital ratios for the Company's subsidiary banks, USTrust, USTC and UST/Conn, were 7.92 percent, 32.99 percent and 8.31 percent, respectively. The Company believes its consolidated capital ratios and the capital ratios of its subsidiary banks exceed required minimums. (15) Related Party Transactions In the ordinary course of business, the Company's banking subsidiaries have granted loans to certain of the Company's directors and executive officers. All such transactions are made on substantially the same terms as those prevailing at the same time for individuals not affiliated with the Company and its subsidiaries and at the time they were granted did not involve more than the normal risk of collectibility. At December 31, 1995, none of these transactions were on nonaccrual status, nor did they involve delinquent or restructured loans. However, at December 31, 1995, loans to directors of the Company or to their affiliated companies in the amount of approximately $6 million (all to Director Francis X. Messina and his related interests) were characterized as Substandard, in the Company's internal risk rating system. Under the Company's definition, Substandard loans are characterized by the distinct possibility that some loss will be sustained if the credit deficiencies are not corrected. However, the Substandard classification does not imply ultimate loss for each individual loan so classified. 47 An analysis of loans outstanding in excess of $60,000 to directors and officers related to the foregoing entities at December 31, 1995 is as follows:
(Dollars in thousands) Balance, December 31, 1994 $46,626 Additions 1 Repayments (27,883) ------- Balance, December 31, 1995 $18,744 =======
(16) Commitments and Contingencies Commitments for leased premises expire at various dates through 2010. At December 31, 1995, minimum rental commitments for noncancelable leases are as follows:
(Dollars in thousands) 1996 $ 3,857 1997 3,707 1998 3,343 1999 2,820 2000 2,667 thereafter 3,819 ----- Total $ 20,213 ========
As part of a space consolidation program, the Company recorded a $1.3 million provision in 1995 for future lease commitments on abandoned leased facilities. The 1995 provision will reduce the amount of noninterest expense recorded in future periods for lease commitments listed in the above table. Rent expense for the years ended December 1995, 1994 and 1993 was $3,927,000, $4,133,000, and $3,932,000, respectively. In the ordinary course of business, the Company and its subsidiaries become defendants in a variety of judicial and administrative proceedings. In the opinion of management there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision, would result in a material adverse change in the financial condition or results of operations of the Company. (17) Financial Instruments With On- and Off-Balance Sheet Risk The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount contained in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument or commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company generally requires collateral or other security to support financial instruments with credit risk.
Contract or Notional Amount (Dollars in thousands) December 31, 1995 December 31, 1994 Financial instruments whose contract amount represents credit risk: Commitments to extend credit $ 387,000 $ 308,000 Standby letters of credit and financial guarantees written 48,000 64,000 Commercial letters of credit 3,000 2,000 Foreign exchange 1,000 1,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract during its term. Commitments generally have fixed expiration 48 dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. Of the total commitments to extend credit, approximately $70 million and $76 million were secured by real estate at December 31, 1995 and December 31, 1994, respectively. The amount of collateral obtained is based on management's evaluation of the credit risk. Collateral held on commitments and loans varies but may include cash, accounts receivable, inventory, property, plant and equipment. Standby and commercial letters of credit and financial guarantees written are conditional commitments issued by the Company to guarantee the performance of, or payment by, a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds various collateral to support these commitments including (but not limited to) cash, account receivables, inventory, property, plant and equipment. The extent of collateral held for those commitments varies from zero to one hundred percent. Of the total standby and commercial letters of credit, approximately $12 million and $15 million were secured by real estate at December 31, 1995 and 1994, respectively. The Company's primary loan market is the New England region. Most of the loans outstanding are from eastern Massachusetts and a substantial portion of these loans are various types of real estate loans; still others have real estate as additional collateral. Approximately 95 percent of the Company's outstanding commercial and real estate loans are collateralized. The Company enters into foreign currency exchange contracts exclusively as a service to its customers. Contracts are purchased on the open market and have offsetting customer agreements. The Company is exposed to credit risk in the event the customer fails to deliver or take delivery of the agreed upon currency. The Company's securities portfolio consists largely of mortgage-backed securities. These securities carry prepayment risk due to the fact that prevailing interest rates could decline. Under such circumstances an unusually high percentage of homeowners may choose to refinance their first mortgages to take advantage of these lower rates with the result that, under the Company's accounting policy, adjustments reducing gross unamortized premiums would be required. Refer to Note 2, Securities Policies. In October 1994, the Financial Standards Board issued Statement of Financial Accounting Standards No. 119 (SFAS No. 119), " Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," which is effective for fiscal years ending after December 15, 1994. SFAS No. 119 requires certain disclosures about derivative financial instruments including futures, forward swap and option contracts and other financial instruments with similar characteristics. As of December 31, 1995, there were no derivative financial instruments held by the Company requiring disclosure under SFAS No. 119. (18) Parent Company Financial Information Summarized information relative to the balance sheets at December 31, 1995 and 1994 and statements of income and cash flows for the three years in the period ended December 31, 1995 of UST Corp. (parent company only) are presented as follows:
Balance Sheets -- Parent Company Only December 31, (Dollars in thousands) 1995 1994 Assets: Cash, due from banks and interest-bearing deposits $ 952 $ 2,258 Securities purchased under agreements to resell 5,000 Securities available-for-sale 15,957 Investment in banking subsidiaries 161,920 124,548 Investment in nonbanking subsidiaries 5,139 46 Premises, furniture and equipment, net 76 69 Other assets 3,645 3,084 ----- ----- Total assets $ 176,732 $ 145,962 =============== =============== Liabilities and Stockholders' Investment: Other borrowings $ 143 $ 8,464 Other liabilities 2,921 4,864 Stockholders' investment 173,668 132,634 ------- ------- Total liabilities and stockholders' investment $ 176,732 $ 145,962 =============== ===============
49
Statements of Income -- Parent Company Only Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Dividend income $ 5,000 $ 3,000 $ 5,250 Undistributed equity in net income (loss) of subsidiaries 10,518 2,492 (24,065) Other income 4,216 731 292 ----- --- --- 19,734 6,223 (18,523) Expenses 4,776 1,477 1,577 ----- ----- ----- Net income (loss) $ 14,958 $ 4,746 $ (20,100) ============== ============= ===============
Statements of Cash Flows -- Parent Company Only Year Ended December 31, (Dollars in thousands) 1995 1994 1993 Cash flows from operating activities: Net income (loss) $ 14,958 $ 4,746 $ (20,100) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 125 447 447 Undistributed (income) loss of affiliates (10,518) (2,492) 24,065 Loss (gain) on sale of securities 2 (5) (Increase) decrease in other assets (568) 536 (338) (Decrease) increase in other liabilities (1,262) 316 1,543 ------ --- ----- Net cash provided by operating activities 2,737 3,548 5,617 Cash flows provided (used) by investing activities: Proceeds from securities 15,957 19,961 26,700 Purchase of securities (35,912) (47,750) Net (increase) decrease in short-term investments (5,000) 21,000 Equity contributed to affiliates (7,500) (5,400) (5,250) ------ ------ ------ Net cash provided (used) by investing activities 3,457 (351) (26,300) Cash flows provided (used) by financing activities: Repayment of other borrowings (8,000) (4,000) (4,000) Proceeds from issuance of common stock, net 1,388 792 23,677 Cash dividends paid (888) ---- ------ ------- Net cash provided (used) by financing activities (7,500) (3,208) 19,677 ------ ------ ------ Decrease in cash and cash equivalents (1,306) (11) (1,006) Cash and cash equivalents beginning of year 2,258 2,269 3,275 ----- ----- ----- Cash and cash equivalents end of year $ 952 $ 2,258 $ 2,269 ============== ============= =============== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 607 $ 938 $ 1,415 ============== ============= =============== Income taxes $ 550 ==============
Cash dividends paid to the Company in 1995 by consolidated bank subsidiaries totaled $4,000,000 and $3,000,000 in 1994 and none in 1993. Cash dividends paid to the Company by nonbank subsidiaries in 1995 totaled $1,000,000 and none in 1994 and 1993. (19) Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of the fair market value of financial instruments, whether assets, liabilities or off-balance sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instruments. Fair value estimates which were derived from discounted cash flows or broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Cash and due from banks, excess funds sold and other short-term investments - -- For these short-term instruments the carrying amount is a reasonable estimate of fair value. 50 Securities available-for-sale -- For marketable securities fair values are based on quoted market prices or dealer quotes. Loans -- For certain homogeneous categories of loans, such as residential mortgages and home equity loans, fair value is estimated based on broker quotes on sales of similar loans. The fair value of fixed rate loans was estimated by discounting anticipated future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of performing variable rate loans is the same as the book value at the reporting date because the loans reprice when the market changes. Deposit liabilities -- The fair value of noncertificate deposit accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the anticipated future cash payments using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings -- For these short-term instruments the carrying amount is a reasonable estimate of fair value. Other borrowings -- The fair value of other borrowings were determined by discounting the anticipated future cash payments by using the rates currently available to the Company for debt with similar terms and remaining maturities. Off-balance sheet financial instruments -- For commitments to extend credit, standby and commercial letters of credit and foreign exchange contracts, the carrying amount which represents accruals of deferred income (fees) arising from these instruments, and the fair value of such deferred income is not material. Refer to Note 17 for notional or contract amounts and a further discussion of off-balance sheet financial instruments. Values not determined -- SFAS No. 107 excludes certain assets from its disclosure requirements including real estate included in banking premises and equipment, and the intangible value inherent in the Company's deposit relationships (i.e., core deposits). Accordingly, the aggregate fair value amounts presented below do not represent the underlying value of the Company. The carrying amount and estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 are as follows:
1995 1994 (Dollars in thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial instrument assets: Cash and due from banks $ 89,799 $ 89,799 $ 93,079 $ 93,079 Securities 575,673 575,673 401,740 401,737 Excess funds sold 10,000 10,000 Loans, net 1,187,949 1,230,762 1,186,650 1,202,541 Loans held-for-sale 13,098 13,098 Financial instrument liabilities: Deposits Demand $ 372,917 $ 372,917 $ 371,716 $ 371,716 Interest-bearing demand (NOW accounts) 166,011 166,011 168,434 168,434 Money market 210,924 210,924 271,898 271,898 Regular savings 244,680 244,680 285,350 285,350 Time 518,205 522,189 393,408 396,030 Short-term borrowings 242,962 242,962 158,989 158,989 Other borrowings 143 143 9,964 10,267
51 (20) Consolidated Selected Quarterly Financial Data (unaudited)
For Year Ended December 31, 1995 For Year Ended December 31, 1994 Fourth Third Second First Fourth Third Second First (Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Interest income $37,954 $37,626 $36,467 $35,920 $34,238 $33,471 $32,715 $31,887 Interest expense 14,311 13,921 12,867 11,436 10,287 9,806 10,036 10,082 Net interest income 23,643 23,705 23,600 24,484 23,951 23,665 22,679 21,805 Provision for possible loan losses 1,800 2,790 3,670 4,830 4,801 7,223 6,545 5,713 Net interest income after provision for possible loan losses 21,843 20,915 19,930 19,654 19,150 16,442 16,134 16,092 Noninterest income 7,170 7,083 7,007 8,710 7,241 7,578 7,616 7,900 Noninterest expense 21,619 21,287 21,211 24,070 24,451 22,517 22,051 22,336 Income tax expense 2,895 2,566 2,182 1,524 576 447 376 653 Net income 4,499 4,145 3,544 2,770 1,364 1,056 1,323 1,003 Earnings per share $ 0.25 $ 0.23 $ 0.20 $ 0.16 $ 0.08 $ 0.06 $ 0.07 $ 0.06
As shown above, the net income of the Company has experienced substantial growth from the modest level of earnings achieved in the early quarters of 1994 to the fourth quarter of 1995 high of $4.5 million. The largest contributor to earnings growth was the quarterly reductions in provision for possible loan losses consistent with the declining level of troubled assets. The lower level of troubled assets also led to a reduction in foreclosed asset and workout expense which is reflected in the quarterly declines in noninterest expense. Net interest income increased throughout the four quarters of 1994 and peaked in the first quarter of 1995 reflecting the positive effect of a rise in interest rates on interest earning assets while the Company controlled the level of costs of interest-bearing liabilities. Noninterest income has remained relatively constant except for quarterly fluctuations due to the recognition of gains on sale of securities. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Executive Policy Committee In 1987, the Board of Directors of the Company created an Executive Policy Committee which is the primary management forum of the Company for all strategic and policy decisions. All decisions of the Executive Policy Committee are subject to the review and approval of the Board of Directors of the Company. The Executive Policy Committee has been directed by the Board of Directors to make recommendations to the Board concerning adoption of policies, strategies and programs concerning the following, among other matters: (a) acquisitions and dispositions of corporate entities, assets and/or investments; (b) the issuance of equity and/or debt; (c) engaging in new business activities; (d) the hiring, termination, training and motivation of senior management; (e) the development of marketing programs concerning financial services; (f) improvements to operations, service delivery and implementation of procedures for cost control; (g) improvements to the financial reporting and financial control systems; (h) improvements to the business information systems; and (i) improvements concerning risk management and legal and regulatory compliance programs. As of February 20, 1996, there were 11 members of the Executive Policy Committee. The members of the Committee are identified and the background of each Committee member is set forth below under "Executive Officers". 52 Executive Officers The names and ages of the executive officers of the Company and each executive officer's position with the Company and its principal subsidiaries are listed below. Each such executive officer is elected annually by the Directors of the Company (or the Directors of the applicable subsidiary of the Company) and serves until his or her successor is duly chosen and qualified or until his or her earlier death, removal or disqualification.
Name age Positions and Offices with the Company (and/or where appropriate, position with one of the Company's subsidiaries) * Neal F. Finnegan 58 President, Chief Executive Officer and Director of the Company and Chairman, President and Chief Executive Officer of USTrust * Domenic Colasacco 47 Executive Vice President/Trust and Investment Management and Director of the Company and Chairman and President of USTC * James K. Hunt 52 Executive Vice President, Chief Financial Officer and Treasurer of the Company and Chief Financial Officer and Executive Vice President of USTrust; Treasurer of UST Leasing Corporation * Eric R. Fischer 50 Executive Vice President, General Counsel and Clerk of the Company and Executive Vice President, General Counsel and Secretary of USTrust and USTC; Clerk of UST Capital Corp. and UST Leasing Corporation * Kathie S. Stevens 45 Executive Vice President and Senior Lending Officer of the Company and USTrust and Vice Chairman of USTrust; President of UST Capital Corp. * Katharine C. Armstrong 51 Executive Vice President/Commercial Lending of the Company and USTrust * Robert T. McAlear 53 Executive Vice President/Controlled Loans and Credit of the Company and Vice Chairman of USTrust * Suzanne Moot 46 Executive Vice President/Marketing and Retail Banking of the Company and USTrust * Walter E. Huskins, Jr. 56 Executive Vice President/Administration of the Company and USTrust; Acting President of UST Bank/Connecticut and President of UST Leasing Corporation * Linda J. Lerner 51 Senior Vice President/Human Resources of the Company, USTrust and USTC * Kenneth L. Sullivan 59 Senior Vice President/Operations of the Company and Senior Vice President of USTrust George T. Clarke 49 Senior Vice President and Controller of the Company and USTrust; Treasurer of UST Capital Corp.
* Member, Executive Policy Committee The following sets forth the principal occupation during the past five years of each of the executive officers of the Company. Mr. Finnegan has served as President and Chief Executive Officer of the Company since 1993. During the prior five years, Mr. Finnegan was Executive Vice President in charge of Private Banking at Bankers Trust Company, New York, New York. From 1986 to 1988, Mr. Finnegan was President and Chief Operating Officer of Bowery Savings Bank in New York City. From 1982 to 1986 he was Vice Chairman of Shawmut Corporation in Boston. Mr. Finnegan also serves as Vice Chairman of the Board of Trustees of Northeastern University. Mr. Finnegan is also Chairman, President and Chief Executive Officer of USTrust and a Director and Chairman of the Executive Committee of USTC. Mr. Colasacco was elected Executive Vice President and a Director of the Company in 1990. In 1993, he was also elected Chairman of the Board and President of USTC. Prior to that time, he served as an Executive Vice President of USTC. He also directs the trust and investment management activities of the Company and its subsidiaries. Mr. Colasacco has been an officer of the Company or of one of its subsidiaries since 1974. Mr. Hunt was elected Executive Vice President, Treasurer and Chief Financial Officer of the Company in 1994. Prior to joining the Company, Mr. Hunt served as Executive Vice President at Peoples Bancorp of Worcester, Inc., Worcester, Massachusetts, from 1987 through mid-1994. He also serves as Executive Vice President and Chief Financial Officer of USTrust and as Treasurer of UST Leasing Corporation and various other nonbanking subsidiaries. Mr. Fischer was elected Executive Vice President, General Counsel and Clerk of the Company in 1992. Prior to 1992, he served as Senior Vice President, General Counsel and Assistant Clerk of the Company. Before joining the Company in 1986, he served as Assistant General Counsel of Bank of 53 Boston Corporation and its principal subsidiary, The First National Bank of Boston. Mr. Fischer is, and has been since 1984, a member of the faculty of the Morin Center for Banking and Financial Law Studies of Boston University School of Law. He also serves as Executive Vice President, General Counsel and Secretary of USTC and USTrust, Assistant Secretary of UST/Conn, and Clerk of UST Capital Corp., UST Leasing Corporation and various other nonbanking subsidiaries. Ms. Stevens who has served as Executive Vice President and Senior Lending Officer of the Company since 1993 was also elected to the positions of Vice Chairman of USTrust and Chairman of the Senior Credit Committee of the Company and USTrust in 1995. Ms. Stevens has been a senior officer in the Commercial Lending function since she joined the Company in 1985. Ms. Stevens is also President of UST Capital Corp. Ms. Armstrong was named Executive Vice President/Commercial Lending of the Company and USTrust in 1995. In that capacity she oversees the commercial lending, asset-based lending and commercial real estate lending functions of the Company. From 1993 to 1995 Ms. Armstrong served as Senior Vice President/Credit Administration of the Company. Ms. Armstrong joined the Company in 1985 and served in various credit administration functions from 1985 until she assumed her position as Executive Vice President/Commercial Lending in 1995. Mr. McAlear was elected Executive Vice President/Controlled Loans and Credit of the Company in 1994. He has served as Vice Chairman of USTrust since he joined the Company in 1990. His primary responsibilities involve the supervision of the controlled loan, owned real estate and credit administration functions of USTrust and the Company. Prior to 1990, Mr. McAlear served as an Executive Vice President in the lending area of the Bank of New England. Ms. Moot joined the Company in 1995 and serves as Executive Vice President/Marketing and Retail Banking of the Company and USTrust. Prior to joining the Company, Ms. Moot served as a consultant to more than two dozen commercial and savings bank clients between 1988 and 1995 and served as Vice President of Commercial Marketing at Shawmut Bank, Boston, MA from 1985 to 1988. Mr. Huskins was elected Executive Vice President/Administration of the Company in August 1993. Mr. Huskins is also responsible for the leasing activities of the Company. Prior to joining the Company, Mr. Huskins served as President, Sterling Protection Company, Watertown, MA (security systems) from 1990 to 1993 and as Vice Chairman of Chancellor Corporation, Boston, MA (leasing) from 1977 to 1989. Mr. Huskins also serves as a Director and Acting President of UST/Conn and as Chairman of the Board and President of UST Leasing Corporation. Ms. Lerner has served as Senior Vice President of the Company since she joined the Company in 1988. She directs the Human Resources activities of the Company. Prior to her joining the Company, Ms. Lerner served in a similar capacity for the Provident Institution for Savings in Boston. Mr. Sullivan has served as Senior Vice President/Operations of the Company since 1994. He also serves as Senior Vice President of USTrust. In those capacities, he has responsibility for the data processing and information systems of the Company as well as for its operations activities. Prior to 1988, Mr. Sullivan served as Executive Vice President of Operations with BayBanks Systems, Inc. in Waltham, Massachusetts. Prior to 1995, he also served as President of UST Data Services Corp. which as of December 31, 1995 was dissolved and became a division of USTrust. Mr. Clarke was elected Senior Vice President and Controller of the Company in 1994 and of USTrust in 1996. Prior to 1994 he served as Vice President and Controller of the Company since 1988. Before joining the Company, Mr. Clarke served as Deputy Comptroller of The First National Bank of Boston. Mr. Clarke is also Treasurer of UST Capital Corp. There are no arrangements or understandings between any executive officer and any other person pursuant to which he or she was selected as an executive officer. Other than the information provided in the preceding paragraphs of this Item 10, this item has been omitted since the Company will have filed a definitive proxy statement within 120 days after December 31, 1995, the close of its fiscal year. The additional information required by this item is incorporated by reference to such proxy statement. ITEM 11. Executive Compensation This item has been omitted since the Company will have filed a definitive proxy statement within 120 days after December 31, 1995, the close of its fiscal year. The information required by this item is incorporated by reference to such proxy statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management This item has been omitted since the Company will have filed a definitive proxy statement within 120 days after December 31, 1995, the close of its fiscal year. The information required by this item is incorporated by reference to such proxy statement. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors to file reports of ownership and changes in ownership with the Securities and Exchange 54 Commission. Executive Officers and Directors are required by the SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, the Company believes that, during 1995, all such filing requirements applicable to its executive officers and directors were complied with by such individuals. ITEM 13. Certain Relationships and Related Transactions This item has been omitted since the Company will have filed a definitive proxy statement within 120 days after December 31, 1995, the close of its fiscal year. The information required by this item is incorporated by reference to such proxy statement. PART IV ITEM 14. Exhibits. Financial Statement Schedules, and Reports on Form 8-K (a) List the following documents filed as part of this report: 1. All financial statements UST Corp. and Subsidiaries See Index to Financial Statements. 2. Financial statement schedules required to be filed by Item 8 of Form 10-K and by Item 14(d) None (Information included in Financial Statements). 3. Exhibits required to be filed by Item 501 of Regulation S-K and by Item 13(c) (3) Articles: By-Laws 3(a) Articles of Organization of the Company as amended to date.** 3(b) By-laws of the Company as amended to date.** (4) Instruments defining the rights of security holders, including indentures: 4(a) Specimen of the Company's Common Stock Certificate. (Exhibit 4.1 to Registrant's Registration Statement No. 2-67787 on Form S-l.)** 4(b) Description of rights of the holders of the Company's Common Stock (Appearing on Page 76 of Registrant's Registration Statement No. 33-11118 on Form S-4).** 4(c) Note Agreement, dated August 8, 1986, between the Company and holders of the Company's 8.5% Senior Notes Due August 1, 1996. (Exhibit 4(d) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986.)** 4(d) Rights Agreement, dated September 19, 1995, between UST Corp. and United States Trust Company, as Rights Agent. (Exhibit to Registrant's Form 8-A filed September 26, 1995)** 4(d)(i) Certificate of Vote Establishing a Series of a Class of Stock. (Exhibit A to Rights Agreement between the Company and United States Trust Company, dated September 19, 1995 and filed as an Exhibit to Registrant's Form 8-A filed September 26, 1995.)** 4(d)(ii) Form of Rights Certificate. (Exhibit B to Rights Agreement between the Company and United States Trust Company, dated September 19, 1995 and filed as an Exhibit to Registrant's Form 8-A filed September 26, 1995.)** 4(d)(iii) Summary of Rights to Purchase Preferred Shares. (Exhibit C to Rights Agreement between the Company and United States Trust Company, dated September 19, 1995 and filed as an Exhibit to Registrant's Form 8-A filed September 26, 1995.)** (10) Material Contracts 10(a)Deferred Compensation Program, as amended to June 16, 1992. (Exhibit to Form 10-K for year ended December 31, 1992)** 55 10(b)Incentive Stock Option Plan, as amended to May 15, 1990. (Exhibit to Form 10-K for year ended December 31, 1992)** 10(c)Pension Plan, as amended to January 1, 1990. (Exhibit to Form 10-K for year ended December 31, 1991)** 10(c)(i) December 20, 1994 Amendment to Pension Plan** 10(d)Employee Stock Ownership Plan, as amended to January 1, 1991. (Exhibit to Form 10-K for year ended December 31, 1991)** 10(d)(i) December 20, 1994 Amendment to Employee Stock Ownership Plan** 10(e)Employee Savings Plan (formerly known as Profit-Sharing Plan), as amended to January 1, 1991. (Exhibit to Form 10-K for year ended December 31, 1991)** 10(e)(i) Amendment, as of January 1, 1994, to Employee Savings Plan** 10(f)1992 Stock Compensation Plan. (Registration Statement Nos. 33-54390 and 2-77803)** 10(f)(i) 1992 Stock Compensation Plan as amended and restated on November 15, 1994** 10(g)Dividend Reinvestment Plan, as amended. (Exhibit to Registration Statement No. 33-38836 on Form S-3.)** 10(h)1989 Directors Stock Option Plan (Exhibit to Form 10-K for year ended December 31, 1989)** 10(i) 1995 Stock Option Plan for Non-Employee Directors** 10(j)Purchase Agreement, dated as of June 1, 1993, between the Company and Kidder, Peabody Group, Inc. related to the private placement of 500,000 shares of UST Corp. Common Stock. (Exhibit to Form 8-K for quarter ended June 30, 1993)** 10(k)Registration Rights Agreement, dated as of June 1, 1993, between the Company and Kidder, Peabody Group, Inc. related to the private placement of 500,000 shares of UST Corp. Common Stock. (Exhibit to Form 8-K for quarter ended June 30, 1993)** 10(l)Restated and amended Employment Agreement, dated as of November 21, 1995, between the Company and Neal F. Finnegan, President and Chief Executive Officer of the Company.* 10(m)Placing Agreement, dated July 28, 1993, between the Company and Fox-Pitt Kelton N.V., relating to the placement overseas of 2,870,000 shares of the Company's Common Stock. (Exhibit to Form 10-Q for quarter ended September 30, 1993)** 10(n)Transition Agreement, dated as of June 30, 1993, between the Company and James V. Sidell, former President and Chief Executive Officer of the Company. (Exhibit to Form 10-Q for quarter ended September 30, 1993)** 10(o)Separation Agreement dated August 16, 1993, between the Company and Robert G. Truslow, former President of the Company's wholly-owned subsidiary, USTrust. (Exhibit to Form 10-Q for quarter ended September 30, 1993)** 10(p)Separation Agreement, dated September 20, 1993, between the Company and Frank A. Morse, former President of the Company's wholly-owned subsidiary, UST Bank/Connecticut. (Exhibit to Form 10-Q for quarter ended September 30, 1993)** 10(q)Separation Agreement, dated April 6, 1994, between the Company and Theodore M. Shediac, former Chairman of the Company's wholly-owned subsidiary, USTrust.** 10(r)Retirement Agreement, dated September 27, 1994, between the Company and Paul M. Siskind, former Chairman of the Board of the Company** 10(s)Separation Agreement, dated March 31, 1994, between the Company and William C. Brooks, former Chief Financial Officer and Treasurer of the Company** 10(t)Resignation Agreement, dated as of February 1, 1995, and effective February 28, 1995, between the Company and James M. Breiner, former Director of the Company and Chairman of the Board of Directors of the Company's wholly-owned subsidiary, USTBank/Connecticut.** 10(u)Executive Employment Agreements with certain members of the Company's Executive Policy Committee, dated as of February 1, 1996: 56 10(u)(i) Restated Employment Agreement between UST Corp. and Walter E. Huskins, Executive Vice-President/Administration of the Company* 10(u)(ii) Restated Employment Agreement between UST Corp. and James K. Hunt, Executive Vice President, Chief Financial Officer and Treasurer of the Company* 10(u)(iii) Restated Employment Agreement between UST Corp. and Eric R. Fischer, Executive Vice President, General Counsel and Clerk of the Company* 10(u)(iv) Restated Employment Agreement between UST Corp. and Linda J. Lerner, Senior Vice President/Human Resources of the Company* 10(u)(v) Restated Employment Agreement between UST Corp. and Kenneth L. Sullivan, Senior Vice President/Operations of the Company* 10(u)(vi) Restated Employment Agreement between UST Corp. and Katharine C. Armstrong, Executive Vice President/Commercial Lending of the Company* 10(u)(vii) Restated Employment Agreement between UST Corp. and Suzanne Moot, Executive Vice President/Marketing and Retail Banking of the Company* 10(u)(viii)Employment Agreement between UST Corp. and Robert T. McAlear, Executive Vice President/Controlled Loans and Credit of the Company* 10(u)(ix) Employment Agreement between UST Corp. and Kathie S. Stevens, Executive Vice President, Senior Lending Officer of the Company* 10(v) Severance Pay Plan, effective January 1, 1995** 10(w)Senior Officer Severance Pay Plan, effective January 1, 1995** 10(x)Asset Management Employment Agreement by and among Employee/Principals of the Asset Management Division of the United States Trust Company and United States Trust Company and UST Corp., effective as of January 1, 1995: 10(x)(i) Employment Agreement among UST Corp, USTC and Domenic Colasacco, President of USTC, a wholly owned subsidiary of the Company** 10(x)(ii) Employment Agreement among UST Corp., USTC and Robert A. Lincoln, Senior Vice President, Senior Portfolio Manager of USTC** 10(x)(iii) Employment Agreement among UST Corp., USTC and Stephen K. Moody, Senior Vice President, Senior Portfolio Manager of USTC** 10(x)(iv) Employment Agreement among UST Corp., USTC and Lucia B. Santini, Senior Vice President/Administrator of USTC** 10(x)(v) Employment Agreement among UST Corp., USTC and Robert B. Zevin, Senior Vice President, Economist and Senior Portfolio Manager of USTC** 10(y)Asset Management Unifying Agreement by and among Employee/Principals of the Asset Management Division of the United States Trust Company and United States Trust Company and UST Corp., effective as of January 1, 1995** (11) Statement re: computation of per share earnings (See Note 2 to the Notes to Consolidated Financial Statements.)* (21) Subsidiaries of the Registrant* (23) Consent of Arthur Andersen LLP* (27) Article 9 Summary Financial Information for 12 months ended December 31, 1995* * Filed herewith ** Filed as part of a previous Commission filing and incorporated herein by reference. (b) Reports on Form 8-K None. (d) Exhibits being filed See Exhibit Index (e) Financial Statement Schedules included in Financial Statements. 57 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UST Corp. By /s/ NEAL F. FINNEGAN By /s/ JAMES K. HUNT --------------------- ------------------ Neal F. Finnegan James K. Hunt President and Chief Executive Officer Executive Vice President and Treasurer (Principal Executive Officer) (Principal Financial Officer and Date: February 20, 1996 Principal Accounting Officer) Date: February 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ ROBERT M. COARD By /s/ WALLACE M. HASELTON -------------------- ------------------------- Robert M. Coard, Director Wallace M. Haselton, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ DOMENIC COLASACCO By /s/ BRIAN W. HOTAREK ---------------------- --------------------- Domenic Colasacco, Director and Brian W. Hotarek, Director Executive Vice President Date: February 20, 1996 Date: February 20, 1996 By /s/ ROBERT L. CULVER By /s/ FRANCIS X. MESSINA ---------------------- ------------------------ Robert L. Culver, Director Francis X. Messina, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ ALAN K. DERKAZARIAN By /s/ SYDNEY L. MILLER ------------------------ --------------------- Alan K. Derkazarian, Director Sydney L. Miller, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ DONALD C. DOLBEN By /s/ VIKKI L. PRYOR --------------------- --------------------- Donald C. Dolben, Director Vikki L. Pryor, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ NEAL F. FINNEGAN By /s/ GERALD M. RIDGE --------------------- --------------------- Neal F. Finnegan, Director, Gerald M. Ridge, Director President and Chief Executive Officer Date: February 20, 1996 Date: February 20, 1996 By /s/ WALTER A. GULESERIAN By /s/ WILLIAM SCHWARTZ ------------------------- ----------------------- Walter A. Guleserian, Director William Schwartz, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ EDWARD GUZOVSKY By /s/ SAMUEL B. SHELDON ------------------------ ------------------------ Edward Guzovsky, Director Samuel B. Sheldon, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ JAMES V. SIDELL By /s/ BARBARA C. SIDELL ---------------------- ------------------------- James V. Sidell, Director Barbara C. Sidell, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ PAUL D. SLATER By /s/ MICHAEL J. VERROCHI --------------------- ------------------------ Paul D. Slater, Director Michael J. Verrochi, Director Date: February 20, 1996 Date: February 20, 1996 By /s/ EDWARD J. SULLIVAN By /s/ GORDON M. WEINER ------------------------ ---------------------- Edward J. Sullivan, Director Gordon M. Weiner, Director Date: February 20, 1996 Date: February 20, 1996
EX-10.L 2 EMPLOYMENT AGREEMENT EXHIBIT 10(l) FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT This First Amended and Restated Employment Agreement (hereafter, this "Employment Agreement") made and entered into as of the 21st day of November, 1995 by and between UST Corp. ("UST"), a bank holding company with its principal place of business in Boston, Massachusetts, and Neal F. Finnegan, a resident of Cohasset, Massachusetts, (the "Employee"), amending in part and restating that certain Employment Agreement between the parties dated as of the 20th day of April, 1993, as amended on July 13, 1993 and February 15, 1994 (the "Original Agreement"). WITNESSETH: WHEREAS, the parties entered in the Original Agreement as of April 20, 1993 in connection with the employment of the Employee as President and Chief Executive Officer of UST and thereafter amended the Original Agreement on July 13, 1993 and February 15, 1994 and wish to further amend the Original Agreement hereby; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto do hereby agree as follows: I. Employment: UST hereby employs the Employee as President, Chief Executive Officer and as a Director of UST and as a Director of UST's subsidiary banks, USTrust and United States Trust Company. The Employee may also at the pleasure of UST's Board of Directors be appointed or elected from time to time, to serve as a member of committees of the Board of Directors of UST and/or its subsidiaries. The Employee hereby agrees to accept such positions upon election or appointment. In addition, if elected or appointed, the Employee may also serve as an officer or Director of any other affiliate of UST, if such service is deemed appropriate by the UST Board of Directors. All such activities and services shall be rendered by the Employee in good faith and in a manner consistent with banking industry standards. II. Compensation: Effective as of January 1, 1996, the Employee shall be paid a base salary at the rate of not less than $360,000 per annum during the term hereof, payable on the first and third Fridays of each month (or upon such other schedule as executive UST Officers are then paid). Increases, if any, over and above the annual base salary set forth herein shall be determined annually by the Board of Directors of UST. The Employee shall be eligible to be considered for an annual bonus of up to a maximum of fifty percent (50%) of his annual base salary for each full calendar year during the term hereof. The determination of whether bonus compensation will be granted and, if so, the amount of any such bonus shall be determined by the Board of Directors of UST in its discretion based on its assessment of the Employee's performance during the applicable calendar year and taking into consideration the Employee's total compensation (including but not limited to the value of Restricted Stock, as hereafter defined, granted him) in comparison with that of other chief executive officers in businesses comparable to UST. The Employee -2- shall not be eligible to participate in any other bonus plan, program or arrangement of UST during the term hereof unless expressly so authorized by the Board of Directors of UST. In addition, the Employee shall receive an allowance of $790 per month which he shall use to defray the costs of the business use of an automobile owned by the Employee. The Employee's annual dues and reasonable business expenses related to UST's business at the Bay Club and the Union Club shall also be reimbursed by UST. Except as otherwise provided herein, the Employee also shall be entitled to such fringe benefits, including without limitation benefits under UST's Supplemental Retirement Benefits Plan(s), and paid vacation time, as UST may provide to other executive UST officers. Pursuant to the Original Agreement, the Employee was granted by UST's Board of Directors, stock options under UST's Stock Compensation Plan as amended by UST from time to time (the "Plan"), enabling the Employee to purchase up to an aggregate of 150,000 shares (subject to anti-dilution provisions) of UST Common Stock. All such options have vested as of the effective date hereof. The Employee was granted additional options to purchase 200,000 shares of UST Common Stock under the Plan thereafter, which options have also vested. Pursuant to the Original Agreement, the Employee was granted 60,000 shares of UST Restricted Common Stock ("Restricted Stock") under the Plan, 40,000 shares of which have vested as of the effective date hereof and the remaining 20,000 shares of which shall vest on April 20, 1996, in accordance with the Plan. As of the effective date hereof, the Employee has been granted an additional 45,000 shares of Restricted Stock under the Plan, one third of which shares shall vest on each of January 2, 1997, January 2, 1998 and January 4, 1999, in accordance with the Plan. -3- In addition to the options granted the Employee, as described above, the Employee has been granted by UST's Board of Directors, as of the effective date hereof, stock options under the Plan, having the terms described herein, which will enable the Employee to purchase up to an aggregate of 150,000 additional shares of UST Common Stock at the fair market value of UST Common Stock at the close of trading on November 21, 1995, as reported by the Wall Street Journal, i.e., at 13 7/16 (the "Exercise Price"). The options shall vest as follows: (i) one third of the shares on January 2, 1996; (ii) one third on the earlier of January 2, 1997 or the first trading day on which the closing price of UST Common Stock shall have equaled or exceeded for ten consecutive trading days the Exercise Price plus Three Dollars ($3.00); and (iii) the last third on the earlier of January 2, 1998 or the first trading day on which the closing price of UST Common Stock shall have equaled or exceeded for ten consecutive trading days the Exercise Price plus Six Dollars ($6.00). All stock options granted the Employee hereunder shall be treated as incentive stock options to the extent permitted by applicable law. The Employee shall not receive any Directors' fees or Directors' compensation for attendance at UST or UST subsidiary Directors' meetings. III. Term: Unless earlier terminated by the death or "Disability" of the Employee as defined in Section V hereof or as otherwise provided in this Employment Agreement, the Employee is engaged for a period commencing on the effective date hereof and ending on January 4, 1999, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the original or any renewal term that this Employment Agreement shall not renew. -4- UST shall have the right to terminate this Employment Agreement for Cause, meaning dishonesty which materially and adversely affects UST, gross malfeasance, gross misconduct or the Employee's conviction of a felony or his willful violation of any provision of federal or state banking or securities law or his willful failure to perform his obligations under this Employment Agreement. Except in the case of dishonesty, UST agrees to give written notice of at least ten (10) business days as to the particulars which are asserted to be the basis for termination and an opportunity extending not more than ten (10) business days to cure such event in a manner which reasonably assures UST that such event will not recur. Should the Employee be terminated for any of the reasons set forth in this Section III, he shall be paid salary, earned additional compensation, awarded bonuses and other fringe benefits through the date of termination, but shall forfeit his rights to any unvested compensation, benefits, securities or other consideration under this Employment Agreement as of the date of such termination. The Employee shall have the right to terminate this Employment Agreement for Good Reason, meaning (i) failure of UST to continue the Employee in his position as President and Chief Executive Officer; (ii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iii) material failure of UST to provide the Employee base salary and benefits in accordance with the terms of Section II hereof, other than an insubstantial failure not occurring in bad faith and which is remedied by UST within 10 business days of receipt of notice from the Employee; or (iv) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his work site on the effective date hereof. -5- IV. Scope of Service: Employee shall devote his full time and effort to the faithful performance of his duties hereunder and shall be engaged in no outside business or employment during the course of his employment hereunder. It is agreed that the provisions of this Section will not be deemed to be violated by the holding of directorships or related positions in charitable, educational or not-for-profit organizations which do not involve continuous or substantial time commitments or such other directorships as the Board of Directors of UST may approve, or by passive personal real estate or other personal investment activities which the Employee is able to monitor outside of his normal working hours. V. Disability: In the event the Employee shall be unable to perform his regular and customary duties by reason of physical or mental ailment or other disability for a period of six consecutive months or less (a "Disability"), he shall be entitled to receive regular compensation during that period. In the event said illness or other disability shall continue for a period longer than six consecutive months, UST's obligations under this Employment Agreement shall terminate and his compensation thereafter shall be limited to the amounts received from insurance payments provided by UST. -6- VI. Non-competition: In the event the Employee shall leave his employment without Good Reason during the term hereof or shall be discharged during the term hereof for one or more of the causes set forth in Section III, the Employee agrees that he will not enter into the employment of any other financial institution or entity in Eastern Massachusetts or the Bridgeport, Connecticut banking market (as defined by the Federal Reserve Bank of Boston) having assets in excess of $1 billion for a period equal to the balance of the term provided for herein or for a period of six months, whichever is greater. The Employee further agrees that for a period of two years following such termination of his employment hereunder, he will not directly or indirectly, for his own account or for the account of others, (i) solicit the business of persons whom he knows to be customers of UST or any of its subsidiaries or affiliates with regard to the provision of any type of financial service provided by UST or any of its subsidiaries, or (ii) after notice from UST that any person or persons is or are a customer, commence or continue the solicitation of such business from such person or (iii) solicit or hire executive personnel of UST or any of its subsidiaries for the benefit of any entity controlled by the Employee or by which the Employee is employed or from which the Employee receives any form of fee or compensation. -7- VII. Confidential Information: The Employee recognizes and acknowledges that there may be made available to him in the course of his employment hereunder confidential information of or relating to UST and its subsidiaries and affiliates, including, without limitation, client and customer lists, acquisition, expansion, and other strategic plans (collectively the "Confidential Information"). The Employee hereby acknowledges that the Confidential Information, as it may exist from time to time, is a valuable, special and unique asset of the business of UST and its subsidiaries and affiliates. Except as may be required by law, the Employee shall not, during or after the term of his employment hereunder, make any use of Confidential Information or disclose any Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, other than in connection with the normal performance of his duties hereunder. UST or any of its subsidiaries or affiliates shall be entitled to obtain injunctive relief, restraining the Employee from disclosing or using any Confidential Information in violation of this Section VII or from any violation of Section VI hereof, and to recover any and all costs and expenses incurred in enforcing this Employment Agreement, in addition to any other relief provided by applicable law. The Employee acknowledges that the nature of the business of UST and the value of the Confidential Information render inadequate any remedy at law which may be obtained by UST or any of its subsidiaries or affiliates for a breach by the Employee of Section VI hereof or this Section VII and the Employee therefore hereby agrees that UST or any of its subsidiaries or affiliates may seek such equitable remedies. VIII.Change of Control: In the event that during the term of this Employment Agreement there shall have occurred a "Change of Control" (as defined in Section 8 of the Plan) in the ownership of UST, -8- the person(s), corporation(s) or other entity or entities so acquiring control of UST shall assume UST's obligations under this Employment Agreement. A. Elective Termination: In addition, upon such a Change of Control, the Employee shall be entitled to terminate this Employment Agreement by a written notice to UST or its successor, and in such event (in addition to whatever entitlements the Employee shall then have under this Employment Agreement for any benefits other than salary, additional compensation or bonus not yet earned), the Employee shall be entitled to receive a cash severance payment equal to 2.99 times the "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended, but excluding his W-2 earnings resulting from the exercise of stock options, payable in one lump sum on the date of termination. B. Involuntary Termination: In addition, in the event that, subsequent to such a Change of Control, UST or its successor terminates the Employee's employment (other than for the causes specified in Section III hereof), UST or its successor otherwise breaches this Employment Agreement, or the successor to UST does not expressly assume UST's obligations under this Employment Agreement, then the Employee shall be entitled to receive a severance payment as set forth in Section VIII. A. above (in addition to whatever other entitlements the Employee shall then have under this Employment Agreement for any benefits other than salary, additional compensation or bonus not yet earned). For these purposes, any diminution in the rights, benefits or entitlements of the Employee or positions or authorities occupied by the Employee prior to the Change of Control shall be conclusively deemed to be a breach of this Employment Agreement. C. Elective or Involuntary Termination: -9- Upon a "Change of Control," as defined in the Plan, the vesting of any Restricted Stock or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. If, in connection with a Change of Control, any other employees who hold stock options under the Plan or UST Restricted Common Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. D. Reductions. Notwithstanding anything to the contrary contained in this Employment Agreement, the payments and benefits to which the Employee would be entitled pursuant to this Section VIII or otherwise as a result of a Change of Control shall be reduced (i) by any severance pay or comparable payments to which the Employee is entitled under applicable law as a result of the termination of his/her employment and (ii) to the maximum amount for which UST will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision or pursuant to any other provision of applicable law. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from UST of the need for such reduction or, if the Employee fails to so specify timely, as determined by UST. IX. Indemnification Undertakings: UST shall, and UST shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is -10- exposed as a result of the Employee's employment and positions with UST and its subsidiaries and affiliates as contemplated by this Employment Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of UST and its subsidiaries and affiliates. UST, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of UST and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organizations and/or by-laws or other similar documents of UST and its subsidiaries and affiliates. X. Notices: All notices required under this Employment Agreement shall be sufficient if made in writing, by certified or registered mail, return receipt requested, or by hand delivery provided that any party may change such address by providing notice thereof: If to the Employee: Neal F. Finnegan 87 Atlantic Avenue Cohasset, Massachusetts 02025 with a copy to Neal J. Curtin, Esq. Bingham, Dana & Gould 150 Federal Street Boston, Massachusetts 02110 If to UST Corp.: -11- Attention: Linda Lerner, Senior Vice President 40 Court Street Boston, Massachusetts 02108 with a copy to Eric R. Fischer, Esq. 40 Court Street Boston, Massachusetts 02108 XI. Withholding: All payments made by UST under this Employment Agreement shall be reduced by any tax or other amounts required to be withheld by UST under applicable law. XII. Amendments and Waivers: This Employment Agreement represents the exclusive statement of the entire agreement between the parties concerning the subject matter hereof; provided, however, that this Employment Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of UST. This Employment Agreement may not be amended, modified or revoked in whole or in part except by written agreement of the parties. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Employment Agreement, or the waiver by either party of any breach of this Employment Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. XIII. Governing Law: -12- This Employment Agreement shall be governed, construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof. XIV. Severability: In the event that any provision of Section VI or VII hereof shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. In the event that any part of this Employment Agreement shall be held to be illegal or null and void by any court of competent jurisdiction, such determination shall not affect the enforceability, validity or binding nature of the remaining parts of this Employment Agreement and they shall remain in full force and effect. -13- XV. Non-Assignment: Neither the Employee nor UST may make any assignment of this Employment Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that UST may assign its rights and obligations under this Employment Agreement without the consent of the Employee to any person(s), corporation(s) or other entity or entities with which UST shall hereafter affect a reorganization, consolidate with, or merge into or to which UST shall hereafter transfer all or substantially all of its properties or assets if in so doing UST assigns the entire Employment Agreement and all rights and obligations of the Employee and UST thereunder. XVI. Binding Nature: This Employment Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and permitted assigns. XVII. No Conflicting Agreement: The Employee hereby represents and warrants to UST that he is under no contract, agreement or obligation which (i) prohibits him from entering into this Employment Agreement, (ii) conflicts with the terms of this Employment Agreement or (iii) prevents him, in any way, from performing the duties contemplated hereby. IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed in duplicate originals as of the date first written above. UST CORP. By: /s/ Wallace M. Haselton -------------------------------- Title: Chairman, Compensation Committee -------------------------------- and Authorized Signer -------------------------------- /s/ Neal F. Finnegan -------------------- -14- EX-10.U.I 3 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(i) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Walter E. Huskins (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 24th day of October, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit 1 organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or 2 gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above 3 if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible 4 dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or 5 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. 6 b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as 7 amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Walter E. Huskins By: /s/ Wallace M. Haselton - --------------------- ----------------------- Walter E. Huskins Wallace M. Haselton Executive Vice President, Chairman, Compensation Committee Administration and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.II 4 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(ii) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and James K. Hunt (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 27th day of June, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided 1 that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross 2 misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the 3 Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. 4 Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the 5 surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 6 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and 7 the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ James K. Hunt By: /s/ Wallace M. Haselton - ----------------- ----------------------- James K. Hunt Wallace M. Haselton Executive Vice President, Chairman, Compensation Committee Chief Financial Officer and authorized signer and Treasurer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its 10 terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.III 5 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(iii) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Eric R. Fischer (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 24th day of October, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit 1 organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or 2 gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above 3 if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible 4 dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or 5 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. 6 b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as 7 amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Eric R. Fischer By: /s/ Wallace M. Haselton - ------------------- ----------------------- Eric R. Fischer Wallace M. Haselton Executive Vice President, Chairman, Compensation Committee General Counsel and Clerk and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.IV 6 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(iv) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Linda J. Lerner (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 24th day of October, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit 1 organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or 2 gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above 3 if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible 4 dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or 5 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. 6 b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as 7 amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Linda J. Lerner By: /s/ Wallace M. Haselton - ------------------- ----------------------- Linda J. Lerner Wallace M. Haselton Senior Vice President, Chairman, Compensation Committee Human Resources and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.V 7 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(v) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Kenneth L. Sullivan (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 24th day of October, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit 1 organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or 2 gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above 3 if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible 4 dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or 5 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. 6 b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as 7 amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Kenneth L. Sullivan By: /s/ Wallace M. Haselton - ----------------------- ----------------------- Kenneth L. Sullivan Wallace M. Haselton Senior Vice President, Chairman, Compensation Committee Operations and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.VI 8 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(vi) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Katharine C. Armstrong (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 24th day of October, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit 1 organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or 2 gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above 3 if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible 4 dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or 5 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. 6 b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as 7 amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Katharine C. Armstrong By: /s/ Wallace M. Haselton - ----------------------- ----------------------- Katharine C. Armstrong Wallace M. Haselton Executive Vice President, Chairman, Compensation Committee Commercial Lending and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.VII 9 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(vii) FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This First Amended Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Suzanne Moot (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"), amending in part and restating that certain Executive Employment Agreement between the parties dated as of the 24th day of October, 1994 (the "Original Agreement"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit 1 organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or 2 gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above 3 if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible 4 dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or 5 nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. 6 b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as 7 amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Suzanne Moot By: /s/ Wallace M. Haselton - ---------------- ----------------------- Suzanne Moot Wallace M. Haselton Executive Vice President, Chairman, Compensation Committee Marketing and Retail and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ EX-10.U.VIII 10 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(viii) EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Robert T. McAlear (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"). This Agreement supersedes the Executive Employment Agreement between the Employee and USTrust dated as of the 11th day of July, 1990 (the "Original Agreement") which both parties mutually agree (except with respect to the Employee's obligations related to the Original Agreement pursuant to Section 14 hereof) to terminate as of January 31, 1996. In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit organizations which do not involve 1 continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, embezzlement or other material dishonesty 2 with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the 3 nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in 4 the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i.(4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent 5 (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 6 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and 7 the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to the Original Agreement or any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Robert T. McAlear By: /s/ Wallace M. Haselton - --------------------- ----------------------- Robert T. McAlear Wallace M. Haselton Executive Vice President, Chairman, Compensation Committee Controlled Loans and Credit and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its 10 terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ 11 EX-10.U.IX 11 EMPLOYMENT AGREEMENT EXHIBIT 10(u)(ix) EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (hereafter referred to as this "Agreement") is made by and between UST Corp., a Massachusetts corporation, (the "Company") and Kathie S. Stevens (the "Employee") as of the 1st day of February, 1996 (the "Effective Date"). In consideration of the mutual promises, terms and conditions contained in this Agreement, the parties agree as follows: 1. Employment. The Company agrees to continue the employment of the Employee, and the Employee agrees to continue in the service of the Company, subject to the terms and conditions contained in this Agreement. 2. Term. Subject to earlier termination, as provided hereafter, the Employee's employment hereunder shall be for an initial term of two (2) years, commencing on the Effective Date, which term shall automatically renew thereafter for successive terms of one year each unless either party gives notice to the other at least sixty (60) days prior to the expiration of the initial or any renewal term that this Agreement shall not renew. Notwithstanding the foregoing, in the event that this Agreement is in effect on the date of consummation of a Change of Control, as defined in Section 6.g.ii below, this Agreement shall automatically be extended on said date such that the remaining term of the Agreement shall then be two (2) years, but this Agreement shall be renewable thereafter only by a written agreement signed by the Employee and a duly authorized representative of the Company. The term of this Agreement, as from time to time renewed or extended in accordance with this Section 2, is hereafter referred to as "the term hereof" or "the term of this Agreement". 3. Performance. a. During the term hereof, the Employee shall hold such executive position or positions with the Company as he/she held on the Effective Date hereof and/or such other executive position or positions with the Company, its affiliates and subsidiaries to which the parties may hereafter from time to time agree and the Employee shall perform the duties and assume the responsibilities of such positions and such other appropriate duties and responsibilities as may be assigned by the Board of Directors of the Company (the "Board") or its designees. b. During employment, the Employee shall devote his/her full business time and best efforts, judgment, skill and knowledge exclusively to the advancement of the Company's interests and to the discharge of his/her duties and responsibilities for the Company. While employed by the Company, the Employee shall not be engaged in any other business activity, except as approved by the Board, the President or the Board's designee in writing. It is agreed, however, that the provisions of this Section 3.b shall not be violated by the Employee's holding of directorships or related positions in charitable, educational or not-for-profit organizations which do not involve continuous or substantial time commitments or by passive personal investment activities, provided that such positions and activities are not in conflict, 1 and do not otherwise interfere, with the Employee's duties and responsibilities to the Company and its subsidiaries. 4. Compensation. As compensation for all services performed for the Company and its subsidiaries during the term of this Agreement, the Company shall pay the Employee a base salary at an annual rate not less than the Employee's base salary on the Effective Date, subject to increase from time to time by the Company in its discretion. Notwithstanding the foregoing, the Company may reduce the Employee's base salary, but (i) only in the event of a salary reduction affecting all or substantially all of the Company's officers employed under an executive employment agreement and only in proportion to the salary reductions applicable to such other affected officers and (ii) only if no Change of Control has occurred. 5. Employee Benefits. During the term hereof, the Employee shall be entitled to participate in any and all employee benefit plans from time to time in effect for employees of the Company generally, excluding only plans providing payments and/or other benefits in the event of termination of employment. Such participation shall be subject to the terms of the applicable plan documents, generally applicable Company policies and the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. 6. Termination of Employment. Notwithstanding the provisions of Section 2 above, the Employee's employment under this Agreement shall terminate under the following circumstances and, in that event, the Company shall have only such obligations to the Employee as are specified below under the applicable termination provision: a. Upon Death. In the event of the Employee's death during the term hereof, the Employee's employment hereunder shall immediately and automatically terminate. In such event, the Company shall pay to the Employee's designated beneficiary or, if no beneficiary has been designated by the Employee, to the Employee's estate, any base salary earned and unpaid through the date of death. b. As a Result of Disability. In the event that the Employee becomes disabled during the term hereof and, as a result, is unable to perform substantially all of his/her duties for the Company for more than one hundred and twenty (120) days during any period of three hundred and sixty-five (365) days, the Company may terminate the Employee's employment without further obligation upon notice to the Employee. In the event of such disability, the Employee will continue to receive his/her base salary and benefits under Sections 4 and 5 hereof until the earlier of the date the Employee becomes eligible for disability income under the Company's long-term disability or workers' compensation insurance plan or the date his/her employment terminates. c. By the Company for Cause. The Company may terminate the Employee's employment for Cause at any time upon notice to the Employee setting forth in reasonable detail the nature of such Cause. The following, as determined by the Board in its reasonable judgment, shall constitute Cause for termination: (i) the Employee's refusal to perform, or gross negligence in the performance of, his/her duties or responsibilities on behalf of the Company and, if applicable, its affiliates and subsidiaries; (ii) the Employee's fraud, 2 embezzlement or other material dishonesty with respect to the Company or any of its affiliates or subsidiaries; (iii) the Employee's gross misconduct or his/her conviction of, or plea of no contest to, a felony. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. d. By the Company other than for Cause. The Company may terminate the Employee's employment other than for Cause upon notice to the Employee under this subsection d or under subsection g below, whichever is applicable. In the event of such termination prior to, or more than two years following, a Change of Control and provided that the Employee executes the release of claims attached hereto and marked "A" (the "Employee Release") within twenty-one (21) days of his/her receipt of notice of termination of employment and does not timely revoke the Employee Release, the Company: i. shall pay the Employee severance pay in an amount equal to twelve (12) months' base salary at the rate in effect on the date of termination, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday immediately following the effective date of the Employee Release, but retroactive to the date of termination and, ii. at the Employee's election, (A) shall continue to pay, for the period of twelve (12) months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if participation had been elected and continued for a period of twelve (12) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise any rights they have under COBRA to continue participation in the group health plan at their cost, effective as of the date the Employee's employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under Sections 601-607 of ERISA and Section 4980B of the Internal Revenue Code (collectively referred to as "COBRA") as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the Employee elects to receive payment under subparagraph d.i., directly above, in the form of salary continuation. 3 e. By the Employee for Good Reason. The Employee may terminate employment hereunder for Good Reason upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. The following shall constitute Good Reason for termination by the Employee: (i) failure of the Company to continue the Employee in his/her executive position; (ii) a change adverse to the Employee in the Employee's primary reporting relationship; (iii) material diminution in the nature or scope of the Employee's responsibilities, duties or authority; (iv) material failure of the Company to provide the Employee base salary and benefits in accordance with the terms of Sections 4 and 5 hereof; or (v) a permanent transfer of the Employee to a work site more than twenty-five miles distant from his/her work site on the Effective Date. In the event of termination in accordance with this Section 6.e, the Company shall provide the Employee base salary and health insurance benefits in accordance with Section 6.d hereof, provided that the Employee executes the Employee Release within twenty-one (21) days of his/her notice of termination of employment and provided further that the Employee does not timely revoke the Employee Release. f. By the Employee other than for Good Reason. The Employee may resign employment other than for Good Reason at any time upon one month's notice to the Company. In the event of such termination, the Company shall have no further obligation to the Employee, other than for base salary earned through the date of termination. g. Upon a Change of Control. i. If a Change of Control (as defined in subsection g.ii below) occurs and, within two (2) years following such Change of Control, the Company terminates the Employee's employment other than for Cause, or the Employee terminates his/her employment for Good Reason, and the Employee executes the Employee Release within twenty-one (21) days of the date of notice of termination of his/her employment and does not timely revoke it, then, in lieu of any payment and benefits to which the Employee would otherwise be entitled under Section 6.d or 6.e hereof, the Company (1) shall pay the Employee an amount equal to twenty-four (24) months' base salary at the rate in effect on the date of termination of the Employee's employment, which the Employee may elect to receive (A) in a single lump sum, payable within thirty (30) days following the effective date of the Employee Release or (B) as salary continuation payable at the Company's regular payroll periods and in accordance with its regular payroll practices commencing on the next regular payday following the effective date of the Employee Release, but retroactive to the date of termination, and (2) at the Employee's election, (A) shall continue to pay, for the period of twenty-four months following termination of the Employee's employment or, if earlier, until the date the Employee is covered under another employer's health plan that is comparable to that of the Company (the "Post-Employment Health Coverage Period"), that share of the premium cost of Employee's participation and that of his/her eligible dependents in the Company's group health plan as it pays for active employees of the Company and their eligible dependents generally OR (B) shall pay the Employee a single lump sum payment equal to the amount that the Company would have expended if 4 participation had been elected and continued for a period of twenty-four (24) months, which lump sum shall be payable within thirty (30) days following the effective date of the Employee Release, and the Employee and his/her eligible dependents may exercise their rights under COBRA to continue participation in the group health plan at their cost effective as of the date his/her employment terminates. Should the Employee elect option (A) above, the period of any continued health coverage to which the Employee and his/her eligible dependents may be entitled under COBRA as a result of the Employee's termination of employment will commence at the end of the above-defined Post-Employment Health Coverage Period. Notwithstanding anything to the contrary contained herein, the Employee may only elect option (A) directly above if the employee elects to receive payment under subparagraph g.i.(1) in the form of salary continuation. (3) Upon a Change of Control as defined in the Company's Stock Compensation Plan as amended by the Company from time to time (the "Plan"), the vesting of any UST Restricted Common Stock ("Restricted Stock") or stock options to purchase UST Common Stock granted to the Employee and not yet exercised, expired, surrendered or canceled shall be in accordance with the Plan. (4) If in connection with a Change of Control as defined in the Plan any other employees who hold stock options under the Plan or Restricted Stock will have their options or Restricted Stock or both cashed out, whether under the Plan or otherwise, the Employee shall have the right to have all or any of such options or Restricted Stock or both cashed out on the same basis and at the same time the options and Restricted Stock of such other employees are cashed out. ii. Except as otherwise provided with respect to subparagraphs g.i.(3) and g.i. (4) directly above, a "Change of Control" shall be deemed to have been consummated if hereafter (A) any "person", as such term used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") other than the Company or any of its subsidiaries or affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or affiliates, becomes a beneficial owner (within the meaning of Rule 13d-3, as amended, as promulgated under the Exchange Act), directly or indirectly, of securities representing twenty-five (25%) percent or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C) or (D) of this Section 6.g.(ii) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the 5 beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or (C) there occurs a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change of Control; or (D) the stockholders of the Company approve a plan of a complete liquidation of the Company; or (E) there occurs a closing of a sale or other disposition by the Company of all or substantially all of the Company's assets. h. Upon Expiration of the Term Hereof. Notice by the Company pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as termination by the Company other than for Cause pursuant to Section 6.d. Notice by the Employee pursuant to Section 2 hereof that this Agreement shall not renew shall be treated as a termination by the Employee of his/her employment other than for Good Reason. 7. Confidential Information. a. The Employee acknowledges that the Company continually develops Confidential Information, that the Employee may develop Confidential Information for the Company and that the Employee may learn of Confidential Information during the course of employment. The Employee agrees to comply with the policies and procedures of the Company for protecting Confidential Information and agrees that he shall never disclose to any person, corporation or other entity, except as required for the proper performance of his/her regular duties for the Company, and shall never use for his/her own benefit or that of another, any Confidential Information obtained by the Employee incident to his/her employment or other association with the Company or any of its affiliates or subsidiaries. The Employee understands that this restriction will continue to apply throughout his/her employment and after his/her employment terminates, regardless of the reason for such termination; provided, however, that the obligations contained in this Section 7 shall not apply to any Confidential Information that becomes publicly known through no fault of the Employee or that the Employee is otherwise required by law or regulation to disclose. b. As used in this Agreement, "Confidential Information" means any and all information of the Company, its subsidiaries and affiliates, that is not generally known by 6 others with whom any of them competes or does business, or with whom any of them plans to compete or do business, including without limitation any and all information concerning the identity and special needs of the customers of the Company, its subsidiaries and affiliates and the people and organizations with whom any of them has business relationships and those relationships. Confidential Information also includes any information received by the Company or any of its subsidiaries or affiliates from others with any understanding, express or implied, that it will not be disclosed. 8. Non-Solicitation. While the Employee is employed by the Company and (a) for a period of two years following the termination of his/her employment pursuant to Section 6.b or 6.c or 6.f hereof or (b) in the event of termination pursuant to Section 6.d or 6.e or 6.g hereof, for a period equal to the months of severance pay provided the Employee thereunder: (i) the Employee shall not, directly or indirectly, solicit or encourage any customer of the Company or any of its subsidiaries or affiliates to terminate or diminish substantially its relationship with the Company or any of its subsidiaries or affiliates and (ii) the Employee shall not, directly or indirectly, hire or attempt to hire any executive personnel of the Company or any of its subsidiaries or affiliates or solicit or encourage any executive personnel of the Company or any of its subsidiaries or affiliates to discontinue employment with the Company or any of its subsidiaries or affiliates. For purposes of this Section 8, the term "months of severance pay" shall mean the quotient of the total sum of payments to be made to the Employee under the applicable termination provision divided by the Employee's base salary at the monthly rate in effect on the date of termination. 9. Remedies. The Employee acknowledges that, if he/she were to breach any of the provisions of Section 7 or Section 8 of this Agreement, the harm to the Company would be irreparable. The Employee therefore agrees that, in addition to any other remedies available to it, the Company shall be entitled to obtain preliminary and permanent injunctive relief against any such breach, without having to post bond. 10. Taxes. All payments made to the Employee under this Agreement shall be reduced by any tax or other amount required to be withheld by the Company under applicable law. 11. Reductions. Notwithstanding anything to the contrary contained in this Agreement, (a) any and all payments and benefits to be provided to the Employee hereunder are subject to reduction to the extent required by applicable statutes, regulations, rules and directives of federal, state and other governmental and regulatory bodies having jurisdiction over the Company and/or any of its affiliates or subsidiaries and (b) the payments and benefits to which the Employee would be entitled pursuant to Section 6.g hereof or otherwise as a result of a Change of Control shall be reduced to the maximum amount for which the Company will not be limited in its deduction pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision. Any such reduction shall be applied to the amounts due to the Employee in such manner as the Employee may reasonably specify within thirty (30) 7 days following notice from the Company of the need for such reduction or, if the Employee fails to so specify timely, as determined by the Company. 12. Assignment. The Company may assign its rights and obligations under this Agreement without the consent of the Employee in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other person, corporation or other entity or transfer all or substantially all of its assets to any other person, corporation or other entity. The Company requires the personal services of the Employee and he/she may not assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee and their respective successors, executors, administrators, heirs and permitted assigns. 13. Indemnification. The Company shall, and the Company shall use its best efforts to cause its subsidiaries and affiliates to, indemnify the Employee to the maximum extent permitted by law and regulation in connection with any liability, expense or damage which the Employee incurs or to which the Employee is exposed as a result of the Employee's employment and positions with the Company and its subsidiaries and affiliates as contemplated by this Agreement, provided that the Employee shall not be indemnified with respect to any matter as to which he/she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company and its subsidiaries and affiliates. The Company, on behalf of itself and its subsidiaries and affiliates, hereby confirms that the occupancy of all offices and positions which in the future are or were occupied or held by the Employee have been so occupied or held at the request of and for the benefit of the Company and its subsidiaries and affiliates for purposes of the Employee's entitlement to indemnification under applicable provisions of the respective articles of organization and/or other similar documents of the Company and its subsidiaries and affiliates. 14. Miscellaneous. This Agreement sets forth the entire agreement between the Company and the Employee and supersedes all prior communications, agreements and understandings, whether written or oral, with respect to the Employee's employment; provided, however, that this Agreement shall not terminate or supersede any additional obligations of the Employee pursuant to any other agreement with respect to the Confidential Information or the like or with respect to any restrictions on the activities of the Employee or the like or with respect to the securities of the Company. The headings and captions contained herein are for convenience of reference only and are not part of this 8 Agreement. This Agreement may not be modified or amended, and no breach of this Agreement shall be deemed to be waived, unless agreed to in writing by the Employee and the Company. This is a Massachusetts contract and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 15. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its main office, attention of the Senior Vice President, Human Resources with a copy to the General Counsel of the Company. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by its duly authorized representative, and by the Employee, as of the date first written above. THE EMPLOYEE UST CORP. /s/ Kathie S. Stevens By: /s/ Wallace M. Haselton - --------------------- ----------------------- Kathie S. Stevens Wallace M. Haselton Executive Vice President Chairman, Compensation Committee and Senior Lending Officer and authorized signer 9 "A" RELEASE OF CLAIMS FOR AND IN CONSIDERATION OF the special payments to be made to me in connection with my separation of employment, as set forth in the employment agreement between UST Corp. and me dated as of the ____ day of _____________, 1994 (the "Employment Agreement"), I, on my own behalf and on behalf of my heir, beneficiaries and representatives and all others connected with me, hereby release and forever discharge UST Corp. (the "Company"), its subsidiaries and affiliates, and all of their respective officers, directors, employees, agents, representatives, successors and assigns and all others connected with them (all collectively, the "Releasees"), both individually and in their official capacities, from any and all liability, claims, demands, actions and causes of action of any type (all collectively "Claims") which I have had in the past, now have, or might now have, through the date of my execution of this Release of Claims, in any way resulting from, arising out of or connected with my employment or its termination or pursuant to any federal, state or local employment law, regulation or other requirement (including without limitation Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, as amended, and the Massachusetts fair employment practices act, as amended). Excluded from the scope of this Release of Claims is (i) any claim arising hereafter under the terms of the Employment Agreement or under the terms of any of the Company's employee qualified and non-qualified benefit plans (including without limitation the Company's employee pension plan, profit sharing plan or stock ownership plan) and (ii) any right of indemnification or contribution pursuant to the Articles of Organization or By-Laws of the Company that I have or hereafter acquire if any claim is asserted or proceedings are brought against me by any governmental or regulatory agency, or by any customer, creditor, employee or shareholder of the Company, or by any self-regulatory organization, stock exchange or the like, related or allegedly related to my having been an officer or employee of the Company or to any of my activities as an officer or employee of the Company. By acceptance of or reliance on this Release of Claims, the Company promises that neither it nor any of the other Releasees affiliated with the Company will take any action that is designed, specifically as to me or with respect to a class of similarly situated former employees, to reduce or abrogate, or may reasonably be expected to result in an abridgment or elimination of, any rights of indemnification or contribution available to me pursuant to the Articles of Organization or By-Laws of the Company, or under any policy or policies of directors and officers liability insurance affording coverage to former officers and in effect from time to time, unless any such abridgment or elimination of rights is also generally applicable to then-current officers and employees of the Company. In signing this Release of Claims, I acknowledge that I have had at least twenty-one (21) days from the date of my receipt of notice of termination of my employment (or, if applicable, the date I gave such notice to the Company) to consider the terms of this Release of Claims, 10 that I am encouraged by the Company to seek the advice of an attorney prior to signing this Release of Claims and that I am signing this Release of Claims voluntarily and with a full understanding of its terms. I understand that I may revoke this Release of Claims at any time within seven (7) days of the date of my signing by written notice to the President of the Company and that this Release of Claims will take effect only upon the expiration of such seven-day revocation period and only if I have not timely revoked it. IN WITNESS WHEREOF, I have set my hand and seal on the date written below. Signature: _________________________________ Date Signed: _______________________________ EX-21 12 SUBSIDIARIES OF UST CORP. EXHIBIT 21 SUBSIDIARIES OF UST CORP.(*) USTrust United States Trust Company UST Bank/Connecticut JSA Financial Corporation UST Leasing Corporation(**) UST Securities Corp.(**) UST Capital Corp.(***) (*) Other than UST Bank/Connecticut which is a Connecticut trust company, each of the above subsidiaries of UST Corp. is a Massachusetts Corporation or trust company and each of the above entities does business only under its corporate name. The foregoing list does not include the names of inactive subsidiaries or the names of subsidiaries of banking entities which subsidiaries have been organized to hold foreclosed property, or other assets held in satisfaction of debts previously contracted by the applicable banking entity. (**) Wholly-owned by USTrust (***) Wholly-owned by United States Trust Company EX-23 13 CONSENT OF ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 10-K of our report dated January 29, 1996. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Boston, Massachusetts March 20, 1996 EX-27 14 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UST CORP. AT OR FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF FORM 10-K. 1,000 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1.00 89,745 54 0 0 575,673 0 0 1,272,077 56,029 1,969,088 1,512,737 242,962 39,578 143 0 0 11,152 162,516 1,969,088 118,666 26,256 3,047 147,969 42,683 52,535 95,434 13,090 1,802 88,187 24,127 24,127 0 0 14,958 .83 .83 8.56 19,930 257 5,783 26,100 64,088 29,074 7,925 56,029 56,029 0 21,806
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