Registration No.333-_______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Form S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
---------------
Falmouth Bancorp, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 6035 Application pending
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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c/o Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02540
(508) 548-3500
(Address, including ZIP Code, and
telephone number, including area code, of
registrant's principal executive offices)
---------------
SANTO P. PASQUALUCCI
President and Chief Executive Officer
c/o Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02540
(508) 548-3500
(Name, address, including ZIP Code, and
telephone number, including area
code, of agent for service)
---------------
with a copy to:
RICHARD A. SCHABERG, ESQ.
Thacher Proffitt & Wood
1500 K Street, N.W.
Washington, D.C. 20005
(202) 347-8400
---------------
Approximate date of commencement of proposed sale of
the securities to the public: As soon as practicable
after the effective date of this Registration
Statement.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |X|
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CALCULATION OF REGISTRATION FEE
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Title of each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price Per Share(2) Aggregate Offering Price (2) Registration Fee
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Common Stock, 1,454,750 $14.00 $20,366,500 $4,073
$0.01 par value
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(1) Based upon 1,454,750 shares of common stock of Falmouth Bancorp, Inc.
to be issued in exchange for the same number of shares of common stock
of Falmouth Co-operative Bank in connection with the reorganization of
Falmouth Co-operative Bank as described in the Proxy
Statement-Prospectus.
(2) The proposed maximum offering price per share reflects the market price
of the common stock of Falmouth Co-operative Bank to be converted and
exchanged in connection with the reorganization described in the Proxy
Statement-Prospectus, computed in accordance with Rule 457(f)(1) under
the Securities Act of 1933, as amended. It is based on the average of
the high and low prices of the common stock on November 21, 1996, as
reported on the American Stock Exchange. The proposed maximum aggregate
offering price is estimated solely for the purpose of calculating the
registration fee.
This Registration Statement shall become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended.
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FALMOUTH BANCORP, INC.
Cross Reference Sheet Required by Item 501(b) of Regulation S-B
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Caption Caption in Proxy Statement-Prospectus
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I. INFORMATION ABOUT THE TRANSACTION
A. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus....................... Facing Page; Cross-Reference Sheet; Notice
of Annual Meeting of Stockholders; Outside
Front Cover Page of Proxy Statement-
Prospectus.
B. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Available Information; Table of Contents.
C. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................ Summary of the Proxy Statement-Prospectus;
General Information; Proposal 6--
Formation of Holding Company-- Terms
and Conditions to the Reorganization.
D. Terms of the Transaction............................. Summary of the Proxy Statement-Prospectus;
General Information; Proposal 6--
Formation of Holding Company--
Conditions to the Reorganization, Description
of Bancorp Capital Stock, Certain
Differences in Stockholder Rights, Tax
Consequences of the Reorganization,
Accounting Treatment of the Reorganization,
Market for the Common Stock; Appendix C
-- Agreement and Plan of Reorganization.
E. Pro Forma Financial Information...................... Pro Forma Consolidated Capitalization.
F. Material Contracts with the Company Being
Acquired............................................. Proposal 1-- Election of Directors--
Employee Benefit Plans, Employment
Agreement; Proposal 4-- 1997 Stock Option
Plan; Appendix A-- 1997 Stock Option
Plan; Proposal 5-- Recognition and
Retention Plan; Appendix B-- Recognition
and Retention Plan; Proposal 6-- Formation
of Holding Company-- Management of
Falmouth; Appendix C-- Agreement and
Plan of Reorganization.
G. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters...................................... Not Applicable.
H. Interests of Named Experts and Counsel............... Not Applicable.
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Caption Caption in Proxy Statement-Prospectus
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I. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... Proposal 6-- Formation of Holding
Company-- Certain Differences in
Stockholder Rights-- Limitation of Liability
and Indemnification of Directors, Officers
and Employees.
II. INFORMATION ABOUT THE REGISTRANT
A. Information with Respect to S-3 Registrants.......... Not Applicable.
B. Incorporation of Certain Information by
Reference............................................ Not Applicable.
C. Information with Respect to S-2 or S-3
Registrants.......................................... Not Applicable.
D. Incorporation of Certain Information by
Reference............................................ Not Applicable.
E. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.......................... Proposal 6-- Formation of Holding
Company-- Parties to the Reorganization,
Business of Bancorp, Description of Bancorp
Capital Stock, Market for the Common
Stock, Dividend Policy, Regulation and
Supervision, Management of Bancorp.
III. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
A. Information with Respect to S-3 Companies............ Not Applicable.
B. Information with Respect to S-2 or S-3
Companies............................................ Not Applicable.
C. Information with Respect to Companies Other
Than S-3 or S-2 Companies............................ Proposal 6-- Formation of Holding
Company-- Parties to the Reorganization,
Business of the Bank, Market for the
Common Stock, Dividend Policy, Regulation
and Supervision, Management's Discussion
and Analysis of Financial Condition and
Results of Operations, Management of
Falmouth.
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Caption Caption in Proxy Statement-Prospectus
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IV. VOTING AND MANAGEMENT INFORMATION
A. Information if Proxies, Consents or
Authorization are to Be Solicited.................... Notice of Annual Meeting of Stockholders;
Summary of the Proxy Statement-Prospectus;
General Information; Proposal 1-- Election
of Directors; Proposal 2-- Ratification of
Appointment of Independent Auditors;
Proposal 3-- Election of Clerk; Proposal 4
-- 1997 Stock Option Plan; Proposal 5--
Recognition and Retention Plan; Proposal 6
-- Formation of Holding Company--
Conditions to the Reorganization,
Management of Bancorp, Management of
Falmouth; Appendix A-- 1997 Stock Option
Plan; Appendix B-- Recognition and
Retention Plan; Appendix D-- Dissenters'
Appraisal Rights.
B. Information if Proxies, Consents or
Authorizations are Not to Be Solicited or in an
Exchange Offer....................................... Not Applicable.
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[Letterhead of Falmouth Co-operative Bank]
December ___, 1996
Dear Stockholder:
You are cordially invited to attend the 1997 annual meeting of
stockholders of Falmouth Co-operative Bank ("Falmouth" or the "Bank"), which
will be held on January 21, 1997 at 3:00 p.m. Eastern Standard time at the
Quality Inn, 921 Jones Road, Falmouth, Massachusetts (the "Annual Meeting").
At the Annual Meeting, you will be asked to consider and vote upon: (1)
the election of three directors to serve for a three-year term expiring in 2000;
(2) the ratification of the appointment of Shatswell MacLeod & Co., P.C. as
independent auditors for the Bank for the fiscal year ending September 30, 1997;
(3) the election of a Clerk of the Bank to serve until the Bank's 1998 annual
meeting of stockholders; (4) the 1997 Stock Option Plan for Outside Directors,
Officers and Employees of Falmouth Co-operative Bank; (5) the 1997 Recognition
and Retention Plan for Outside Directors, Officers and Employees of Falmouth
Cooperative Bank; and (6) a proposal to form a holding company for the Bank by
the adoption and approval of an Agreement and Plan of Reorganization, dated as
of November 25, 1996, among the Bank and Falmouth Bancorp, Inc., a newly-formed
Delaware business corporation organized at the direction of the Bank to be a
bank holding company with the Bank as its wholly-owned subsidiary. In addition,
management will report on the operations and activities of the Bank and there
will be an opportunity for you to ask questions about the Bank's business.
The Board of Directors believes that a holding company structure will
better position Falmouth to compete in the markets that it serves by
facilitating acquisitions of other savings institutions, by providing tax
savings on earnings from investments held by the holding company, and by
enhancing stockholder value by permitting stock repurchases without adverse tax
consequences.
It is very important that your shares be represented at the Annual
Meeting, regardless of whether or not you plan to attend in person. A plurality
of the votes is sufficient to elect directors. A majority of the votes
represented in person or by proxy and entitled to vote at the Annual Meeting is
necessary to ratify the appointment of the independent auditors and to elect a
Clerk of the Bank. The adoption of the Stock Option Plan and the RRP each
require the approval of votes representing a majority of the outstanding shares
of the Bank's common stock. The adoption of the holding company proposal
requires the approval of votes representing two-thirds of the outstanding shares
of the Bank's common stock. A failure to vote will have the same effect as a
vote against proposals 4, 5 and 6. I urge you to execute, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible to
ensure that your shares will be voted at the Annual Meeting.
YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING IN PERSON
The Board of Directors of Falmouth has determined that the matters to
be considered at the Annual Meeting are in the best interests of the Bank and
its stockholders. For the reasons set forth in the Proxy Statement-Prospectus,
the Board unanimously recommends a vote FOR each matter to be considered.
Sincerely yours,
Santo P. Pasqualucci
President and Chief Executive Officer
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Falmouth Co-operative Bank
-------------------
Notice of Annual Meeting of Stockholders
To Be Held on January 21, 1997
NOTICE IS HEREBY GIVEN that the 1997 annual meeting of stockholders of
Falmouth Co-operative Bank ("Falmouth" or the "Bank") will be held on January
21, 1997 at 3:00 p.m. Eastern Standard time at the Quality Inn, 921 Jones Road,
Falmouth, Massachusetts 02540 (the "Annual Meeting"). The Annual Meeting has
been called for the following purposes:
1. To elect three directors to serve for a three-year term
expiring at the 2000 annual meeting and until their respective
successors have been duly elected and qualified;
2. To ratify the appointment of Shatswell MacLeod & Co., P.C. as
independent auditors for the Bank for the year ending
September 30, 1997;
3. To elect a Clerk of the Bank to serve until the 1998 annual
meeting of stockholders;
4. Approval of the 1997 Stock Option Plan for Outside Directors,
Officers and Employees of Falmouth Co-operative Bank ("Stock
Option Plan") (a copy of the Stock Option Plan is attached as
Appendix A to the Proxy Statement--Prospectus accompanying
this Notice);
5. Approval of the 1997 Recognition and Retention Plan for
Outside Directors, Officers and Employees of Falmouth
Co-operative Bank ("RRP") (a copy of the RRP is attached as
Appendix B to the Proxy Statement--Prospectus accompanying
this Notice);
6. To consider and vote upon the formation of a bank holding
company for Falmouth by the adoption and approval of an
Agreement and Plan of Reorganization dated as of November 25,
1996 (the "Plan of Reorganization" or "Plan") by and between
the Bank and Falmouth Bancorp, Inc. ("Bancorp" or the
"Company"), pursuant to which Falmouth will become the
wholly-owned subsidiary of Bancorp and all of the outstanding
shares of common stock of Falmouth (other than shares held by
stockholders exercising dissenters' rights, if any) will be
converted into and exchanged for, on a one-for-one basis,
shares of common stock of Bancorp (a copy of the Plan is
attached as Appendix C to the Proxy Statement-Prospectus
accompanying this Notice); and
7. To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
Pursuant to the Bylaws of Falmouth, the Board of Directors has fixed
December 13, 1996 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting and at any adjournment
or postponement thereof. Only holders of the Bank's common stock as of the close
of business on the record date will be entitled to vote at the Annual Meeting or
any adjournment or postponement thereof.
Each Falmouth stockholder has the right to demand from Falmouth payment
for the fair value of his or her shares; provided, that such stockholder (1)
files with Falmouth, before the vote on the approval of the Plan, written
objection demanding payment for the shares at fair value if the Plan is
approved, and (2) does not vote such shares in favor of the Plan. Falmouth and
any such stockholder shall in such case have the rights and duties and shall
follow the procedures set forth in Sections 86 through 98 of Chapter 156B of the
General Laws of Massachusetts, a copy of which is attached as Appendix D to the
Proxy Statement-Prospectus accompanying this Notice.
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THE FALMOUTH BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF EACH PROPOSAL TO BE CONSIDERED AT THE ANNUAL
MEETING.
WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS. ANY STOCKHOLDER PRESENT AT
THE ANNUAL MEETING, INCLUDING ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY
REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE
ANNUAL MEETING.
By Order of the Board of Directors
John A. DeMello
Clerk
Falmouth, Massachusetts
December ___, 1996
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TABLE OF CONTENTS
AVAILABLE INFORMATION......................................................... 3
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS..................................... 4
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK.................... 9
GENERAL INFORMATION...........................................................10
General ............................................................10
Record Date and Voting...............................................10
Vote Required........................................................11
Rights of Dissenting Stockholders....................................11
Revocability of Proxies..............................................12
Solicitation of Proxies..............................................12
Security Ownership of Certain Beneficial Owners......................12
Stock Ownership of Management........................................13
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING................................15
PROPOSAL 1 ELECTION OF DIRECTORS.......................................15
General ............................................................15
Vote Required........................................................15
Information with Respect to Nominees and Continuing Directors........15
Nominees for Election as Directors...................................16
Continuing Directors.................................................16
Board and Committee Meetings.........................................17
Directors' Compensation..............................................17
Summary Compensation Table...........................................18
Certain Employee Benefit Plans and Employment Agreement..............18
Transactions with Certain Related Persons............................21
Compliance with Section 16(a) of the Securities Exchange Act
of 1934...................................................... 21
PROPOSAL 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.........22
PROPOSAL 3 ELECTION OF CLERK...........................................22
PROPOSAL 4 STOCK OPTION PLAN...........................................23
General Plan Information.............................................23
Purpose of the Stock Option Plan.....................................23
Vote Required........................................................23
Regulatory Restrictions and Conditions to Implementation.............23
Description of the Stock Option Plan.................................24
New Plan Benefits....................................................25
Termination or Amendment of the Stock Option Plan....................26
Effect of Reorganization on Stock Option Plan........................26
Federal Income Tax Consequences......................................26
PROPOSAL 5 RECOGNITION AND RETENTION PLAN..............................27
General Plan Information.............................................27
Purpose of the RRP...................................................27
Vote Required........................................................27
Regulatory Restrictions and Conditions to Implementation.............27
Description of the RRP...............................................28
New Plan Benefits....................................................29
Termination or Amendment of the RRP..................................29
Effect of Reorganization on RRP......................................29
Federal Income Tax Consequences......................................30
PROPOSAL 6 FORMATION OF HOLDING COMPANY................................30
General ............................................................30
Vote Required........................................................31
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PARTIES TO THE REORGANIZATION.................................................31
Falmouth Co-operative Bank...........................................31
Falmouth Bancorp, Inc................................................32
DESCRIPTION OF THE REORGANIZATION.............................................32
Reasons for the Reorganization.......................................32
Effective Date.......................................................33
Actions at the Effective Date........................................33
Conditions to the Reorganization.....................................33
Amendment and Termination ...........................................33
Exchange of Stock Certificates.......................................34
Effect of the Reorganization on Employee Benefit Plans...............34
DESCRIPTION OF BANCORP CAPITAL STOCK..........................................34
General ............................................................34
Common Stock.........................................................35
Bancorp Preferred Stock..............................................36
Anti-Takeover Provisions.............................................36
DESCRIPTION OF FALMOUTH CAPITAL STOCK.........................................36
General ............................................................36
The Common Stock.....................................................37
Bank Preferred Stock.................................................37
CERTAIN DIFFERENCES IN STOCKHOLDER RIGHTS.....................................37
General ............................................................37
Payment of Dividends.................................................38
Rights of Issuer to Repurchase Stock.................................38
Limitation of Liability and Indemnification of Directors,
Officers and Employees....................................... 38
Appraisal Rights.....................................................39
Special Meetings of Stockholders.....................................39
Certain Anti-Takeover Provisions.....................................39
TAX CONSEQUENCES OF THE REORGANIZATION........................................44
ACCOUNTING TREATMENT OF THE REORGANIZATION....................................44
MARKET FOR THE COMMON STOCK...................................................44
DIVIDEND POLICY...............................................................45
PRO FORMA CONSOLIDATED CAPITALIZATION.........................................46
BUSINESS OF BANCORP...........................................................46
General ............................................................46
Property ............................................................47
Competition..........................................................47
Employees............................................................47
BUSINESS OF THE BANK..........................................................47
General ............................................................47
Market Area..........................................................48
Lending Activities...................................................48
Investment Activities................................................58
Deposit Activity and Other Sources of Funds..........................61
Competition..........................................................64
Properties...........................................................64
Employees............................................................64
Legal Proceedings....................................................64
FEDERAL AND STATE TAXATION....................................................64
Federal Taxation.....................................................64
State Taxation.......................................................66
REGULATION AND SUPERVISION....................................................66
General ............................................................66
Federal Banking Regulations..........................................67
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Enforcement..........................................................68
Deposit Insurance....................................................68
Transactions with Affiliates and Insiders............................69
Real Estate Lending Policies.........................................70
Standards for Safety and Soundness...................................71
Federal Home Loan Bank System........................................71
Federal Reserve System...............................................71
Massachusetts Banking Laws and Supervision...........................71
Regulation of Holding Company........................................73
Federal Securities Laws..............................................74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................74
General ............................................................74
Business Strategy....................................................74
Asset/Liability Management...........................................75
Interest Rate Sensitivity Analysis...................................75
Average Balances, Interest and Average Yields........................77
Rate/Volume Analysis.................................................79
Comparison of Financial Condition at September 30, 1996
and 1995.................................................... 79
Comparison of Financial Condition at September 30, 1995 and 1994.....80
Comparison of Operating Results for the Years Ended
September 30, 1996 and 1995................................. 80
Comparison of Operating Results for the Years Ended
September 30, 1995 and 1994................................. 81
Liquidity and Capital Resources......................................82
Impact of Inflation and Changing Prices..............................83
Impact of New Accounting Standards...................................83
MANAGEMENT OF BANCORP.........................................................85
Directors............................................................85
Executive Officers...................................................85
Compensation.........................................................85
Employee Benefit Plans...............................................85
MANAGEMENT OF FALMOUTH........................................................85
Directors............................................................85
Executive Officers...................................................85
Compensation and Employee Benefit Plans..............................86
OTHER MATTERS.................................................................86
PROPOSALS FOR 1997 ANNUAL MEETING.............................................86
FINANCIAL STATEMENTS..........................................................87
INDEX TO FINANCIAL STATEMENTS OF FALMOUTH CO-OPERATIVE BANK..................F-1
CONSOLIDATED FINANCIAL STATEMENTS............................................F-2
APPENDICES
Appendix A Stock Option Plan
Appendix B Recognition and Retention Plan
Appendix C Agreement and Plan of Reorganization
Appendix D Dissenters' Appraisal Rights
Appendix E Bancorp Certificate of Incorporation
Appendix F Bancorp Bylaws
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Proxy Statement
Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02540
Annual Meeting of Stockholders
January 21, 1997
-------------------
Prospectus
Falmouth Bancorp, Inc.
Common Stock, par value $0.01 per share
This document serves as a Proxy Statement for the 1997 annual meeting
of stockholders of Falmouth Co-operative Bank ("Falmouth" or the "Bank"), to be
held on January 21, 1997 at 3:00 p.m. Eastern Standard time at the Quality Inn,
921 Jones Road, Falmouth, Massachusetts, and at any adjournment or postponement
thereof (the "Annual Meeting"), and is being used by the Board of Directors of
the Bank to solicit the proxies of the Bank's stockholders in connection
therewith. This Proxy Statement-Prospectus, with the accompanying proxy card, is
first being sent or given to Falmouth's stockholders on or about December 16,
1996.
As more fully described in this Proxy Statement-Prospectus, the purpose
of the Annual Meeting is (1) to elect three directors to serve for a three-year
term expiring in 2000; (2) to ratify the appointment of Shatswell MacLeod & Co.,
P.C. as independent auditors for the Bank for the fiscal year ending September
30, 1997; (3) to elect a Clerk of the Bank to serve until the 1998 annual
meeting of stockholders; (4) to approve the 1997 Stock Option Plan for Outside
Directors, Officers and Employees of Falmouth Co-operative Bank; (5) to approve
the 1997 Recognition and Retention Plan for Outside Directors, Officers and
Employees of Falmouth Co-operative Bank; (6) to consider and vote upon the
formation of a bank holding company by the adoption and approval of the
Agreement and Plan of Reorganization dated as of November 25, 1996 (the "Plan of
Reorganization" or "Plan") among Falmouth and Falmouth Bancorp, Inc.
("Bancorp"), a newly-formed Delaware business corporation organized at the
direction of the Bank to become the holding company for Falmouth (the
"Reorganization"); and (7) to transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement thereof.
This document also serves as a Prospectus in connection with the
issuance by Bancorp of up to 1,454,750 shares of Bancorp common stock, par value
$0.01 per share ("Bancorp Common Stock"). Upon the effective date of the
Reorganization (the "Effective Date"), all outstanding shares of the Bank's
common stock, par value $0.10 per share ("Bank Common Stock") (other than shares
held by stockholders exercising dissenters' rights, if any), will be converted
into and exchanged for an equal number of shares of Bancorp Common Stock, on a
one-for-one basis.
Under the Securities Act of 1933, as amended (the "Securities Act") and
the rules and regulations of the Securities and Exchange Commission (the "SEC"),
the solicitation of stockholders of Falmouth to approve the proposed Plan of
Reorganization constitutes an offering of Bancorp Common Stock. Bancorp has
filed with the SEC a registration statement on Form S-4 under the Securities Act
(the "Registration Statement") with respect to such offering, and this Proxy
Statement-Prospectus constitutes the prospectus of Bancorp filed as part of the
Registration Statement. This Proxy Statement-Prospectus does not contain all of
the information set forth in the Registration Statement and the related
exhibits, certain parts of which are omitted in accordance with the rules and
regulations of the SEC.
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This Proxy Statement-Prospectus shall not constitute a prospectus for a
public reoffering of Bancorp Common Stock issuable pursuant to the Plan of
Reorganization.
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Proxy Statement-Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement-Prospectus shall not constitute an offer to sell or a solicitation of
an offer to buy any securities in any jurisdiction in which it would be unlawful
to make such offer or solicitation. Neither the delivery of this Proxy
Statement-Prospectus, nor any offer or solicitation made hereunder, shall, under
any circumstances, imply that the information set forth or incorporated herein
is correct as of any time subsequent to its date.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE DIVISION OF BANKS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY OTHER FEDERAL
OR STATE AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION,
OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT- PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
The date of this Proxy Statement-Prospectus is December ___, 1996.
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AVAILABLE INFORMATION
Falmouth is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Federal Deposit Insurance Corporation (the "FDIC"). Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the FDIC at 550 17th Street, N.W., Washington, D.C. 20429, and at
the FDIC's Northeast Regional Office located at Westwood Executive Center, 200
Lowder Brook Drive, Westwood, Massachusetts 02090.
Bancorp is not currently subject to the information reporting
requirements of the Exchange Act and, accordingly, has not filed reports, proxy
statements or other information with the SEC. All of the Bancorp Common Stock is
currently owned by Falmouth, and there is, therefore, no public trading market
for Bancorp Common Stock. If the Reorganization is consummated, Bancorp Common
Stock will be registered under the Exchange Act, and Bancorp will file periodic
reports and other information with the SEC. In addition, in accordance with the
rules and regulations of the SEC with respect to annual meetings of the
stockholders of Bancorp, proxy statements accompanied or preceded by annual
reports to stockholders will be furnished to stockholders of Bancorp. Such
reports will contain financial information that has been examined and reported
upon, with an opinion expressed by, an independent public accounting firm.
This Proxy Statement-Prospectus does not contain all of the information
set forth in the Registration Statement and the related exhibits which Bancorp
has filed with the SEC, and to which reference is hereby made. Reports, proxy
and information statements and other information, including the Registration
Statement and exhibits thereto, can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies can be obtained at prescribed rates from the SEC Public
Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains a Web Site, http://www.sec.gov, that contains reports, proxy and
information statements and other information submitted by registrants, including
Bancorp.
If the Plan of Reorganization is adopted and approved by the Bank's
stockholders, Bancorp and the Bank will file an application for approval of the
Plan of Reorganization, pursuant to Section 26B of Chapter 172 of the General
Laws of Massachusetts, with the Division of Banks of the Commonwealth of
Massachusetts (the "Division of Banks"). The non-confidential portions of the
application can be inspected at the office of the Division of Banks located at
100 Cambridge Street, Boston, Massachusetts 02202. In addition, Bancorp will
file with the Federal Reserve Board (the "FRB") an application to become a bank
holding company under the Bank Holding Company Act of 1956, as amended. Finally,
Bancorp will file an application with the American Stock Exchange in order to
list its shares on such exchange under the symbol "FCB," the same symbol
currently used by the Bank.
A copy of the Bank's Annual Report to Stockholders for the fiscal year
ended September 30, 1996 (the "Annual Report") accompanies this Proxy
Statement-Prospectus. The Annual Report contains financial statements, prepared
in conformity with generally accepted accounting principles, for the years ended
September 30, 1996 and 1995 and certain other information and should be read
along with this Proxy Statement-Prospectus.
-3-
<PAGE>
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS
This Summary is qualified in its entirety by the detailed information
contained in this Proxy Statement- Prospectus, the Appendices hereto and the
documents referred to herein.
Annual Meeting of Stockholders
Time and Place of the
Annual Meeting........ The Annual Meeting will be held on January 21, 1997 at
3:00 p.m. Eastern Standard time at the Quality Inn,
921 Jones Road, Falmouth, Massachusetts. See "General
Information -- General."
Purpose of the Annual
Meeting............... The purpose of the Annual Meeting is to (1) elect
three directors, each to serve for a three-year term
expiring in 2000; (2) ratify the appointment of
Shatswell MacLeod & Co., P.C. as independent auditors
for the Bank for the fiscal year ending September 30,
1997; (3) elect a Clerk of the Bank to serve until the
1998 annual meeting of stockholders; (4) approve the
Stock Option Plan for Outside Directors, Officers and
Employees of Falmouth Cooperative Bank; (5) approve
the 1997 Recognition and Retention Plan for Outside
Directors, Officers and Employees of Falmouth
Co-operative Bank; (6) consider and vote upon the Plan
of Reorganization pursuant to which Falmouth will
become the wholly-owned subsidiary of Bancorp, and all
of the outstanding shares of Bank Common Stock (other
than shares held by stockholders exercising
dissenters' rights, if any) will be converted into and
exchanged for, on a one-for-one basis, shares of
Bancorp Common Stock; and (7) transact such other
business as may properly come before the Annual
Meeting. See "General Information," "Proposal 1 --
Election of Directors," "Proposal 2 -- Ratification of
Appointment of Independent Auditors," "Proposal 3 --
Election of Clerk," "Proposal 4 -- Stock Option Plan,"
"Proposal 5 -- Recognition and Retention Plan" and
"Proposal 6 -- Formation of Holding Company."
Record Date.............. The Board of Directors of Falmouth has fixed the close
of business on December 13, 1996 as the record date
(the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the
Annual Meeting and at any adjournment or postponement
thereof. See "General Information -- Record Date and
Voting."
Beneficial Ownership by
Directors and
Executive Officers..... On November 1, 1996 the directors and executive
officers of Falmouth beneficially owned in the
aggregate 213,990 shares of Bank Common Stock. See
"General Information -- Stock Ownership of
Management."
Additional Information... For additional information, telephone Santo P.
Pasqualucci, Falmouth Co-operative Bank, at (508)
548-3500.
-4-
<PAGE>
Formation of Holding Company
The Parties to the
Reorganization........ Falmouth Co-operative Bank and Falmouth Bancorp, Inc.
Falmouth Co-operative
Bank.................. Falmouth is a state chartered co-operative bank
organized under the rules and regulations of the
Commonwealth of Massachusetts. Falmouth conducts its
business through an office located at 20 Davis
Straits, Falmouth, Massachusetts 02540, and its
telephone number is (508) 548-3500.
On March 28, 1996, the Bank converted from mutual to
stock form and issued 1,454,750 shares of common
stock, par value $0.10 per share.
Falmouth Bancorp, Inc.... Bancorp is a business corporation incorporated as a
wholly-owned subsidiary of Falmouth under the General
Corporation Law of the State of Delaware. Bancorp was
organized at the direction of Falmouth to become a
bank holding company with Falmouth as its wholly-owned
subsidiary. Bancorp will acquire all of the issued and
outstanding shares of the Bank Common Stock as part of
the Plan of Reorganization. Bancorp's telephone number
and address are the same as those given for Falmouth
above.
Reasons for the
Reorganization........ The Board of Directors believes that a holding company
structure will better position Falmouth to (i) enhance
stockholder value by permitting stock repurchases
without adverse tax consequences, (ii) reduce interest
expenses associated with the ESOP, (iii) provide a
source of shares to satisfy proposed stock option and
restricted stock plans without dilution to
stockholders, (iv) provide tax savings on earnings
from investments held by Bancorp and its subsidiaries,
and (v) facilitate acquisitions of other savings
institutions should such opportunities arise. See
"Proposal 6 -- Formation of Holding Company --
Description of the Reorganization -- Reasons for the
Reorganization."
Description of the
Reorganization........ Under the Plan of Reorganization, all of the
outstanding shares of Bank Common Stock (other than
shares held by stockholders exercising dissenters'
rights, if any) will be automatically converted into
and exchanged for, on a one-for-one basis, shares of
Bancorp Common Stock and Falmouth will become the
wholly-owned subsidiary of Bancorp. Falmouth will
continue its current business and operations as a
Massachusetts chartered co-operative bank using its
current name. Certificates representing shares of Bank
Common Stock will automatically represent shares of
Bancorp Common Stock. Stockholders will not need to
exchange their Falmouth stock certificates for Bancorp
stock certificates.
-5-
<PAGE>
The Plan of Reorganization is incorporated by
reference into this Proxy Statement-Prospectus and
attached hereto as Appendix C. See "Proposal 6 --
Formation of Holding Company -- Description of the
Reorganization -- Conditions to the Reorganization."
Management of Bancorp.... The Board of Directors of Bancorp is comprised of the
current members of the Board of Directors of the Bank.
The officers of Bancorp are the current senior
officers of the Bank. See "Proposal 6 -- Formation of
Holding Company" and "Management of Bancorp."
Conditions and Required
Regulatory Approvals.. The consummation of the Reorganization is subject to
the satisfaction of a number of conditions, including:
(1) the adoption and approval of the Plan of
Reorganization by the holders of at least two-thirds
of the outstanding shares of Bank Common Stock; (2)
the approval by the Division of Banks of the
application of Bancorp and the Bank to approve the
Plan of Reorganization, which will be filed following
adoption and approval of the Plan of Reorganization by
the Bank's stockholders; (3) the approval of the FRB
of Bancorp's application to become a bank holding
company; and (4) the receipt by Falmouth of a
favorable opinion of counsel as to the federal income
tax consequences of the Reorganization. There is no
assurance that these conditions will be satisfied. See
"Tax Consequences of the Reorganization" and
"Description of the Reorganization -- Conditions to
the Reorganization" under "Proposal 6 -- Formation of
Holding Company."
Comparison of Stockholder
Rights ............... The Certificate of Incorporation of Bancorp (the
"Certificate of Incorporation"), attached hereto as
Appendix E, and the Bylaws of Bancorp, attached hereto
as Appendix F, are similar in many respects to the
current Charter and Bylaws of Falmouth. However,
certain differences will exist following the
Reorganization between the rights of the stockholders
of Bancorp and those of Falmouth. These differences
will include such matters as limitations on the
liability of directors, indemnification of directors,
officers and employees, appraisal rights and
antitakeover protections. See "Proposal 6 -- Formation
of Holding Company -- Certain Differences in
Stockholder Rights," Appendix E -- Bancorp Certificate
of Incorporation and Appendix F -- Bancorp Bylaws.
Anti-Takeover Effects.... The Certificate of Incorporation and Bylaws of Bancorp
and the Charter and Bylaws of Falmouth contain
provisions that may be relevant to potential changes
in control. See "Proposal 6 -- Formation of Holding
Company -- Certain Differences in Stockholder Rights
-- Certain Anti-takeover Provisions," Appendix E --
Bancorp Certificate of Incorporation and Appendix F --
Bancorp Bylaws.
Federal Income Tax
Consequences.......... The Plan of Reorganization is conditioned, in part,
upon the receipt by Falmouth of an opinion of counsel
to the effect that for federal
-6-
<PAGE>
income tax purposes: (1) no gain or loss will be
recognized by stockholders of Falmouth on the transfer
of their shares of Bank Common Stock to Bancorp solely
in exchange for shares of Bancorp Common Stock; (2) no
gain or loss will be recognized by Bancorp upon its
receipt of shares of Bank Common Stock in exchange for
shares of Bancorp Common Stock; (3) the aggregate
basis of the shares of Bancorp Common Stock to be
received by each Falmouth stockholder will be the same
as the aggregate basis of the shares of Bank Common
Stock exchanged therefor; and (4) the holding period
of the shares of Bancorp Common Stock to be received
by each Falmouth stockholder will include the holding
period of Bank Common Stock exchanged therefor,
provided that each such stockholder held such shares
of Bank Common Stock as a capital asset on the
Effective Date. Each stockholder is urged to consult
his or her own tax advisor as to the specific
consequences of the Reorganization to the stockholder
under federal, state and any other applicable tax
laws. See "Proposal 6 -- Formation of Holding Company
-- Tax Consequences of the Reorganization."
Accounting Treatment of
the Reorganization..... It is expected that the Reorganization will be
characterized as, and treated similarly to, a "pooling
of interests" for financial reporting and related
purposes. See "Proposal 6 -- Formation of Holding
Company -- Accounting Treatment of the
Reorganization."
Regulation and
Supervision............ After the Effective Date, Bancorp will be subject to
regulation by the FRB as a bank holding company under
the BHCA and by the SEC. Falmouth will continue to be
subject to regulation by the Division of Banks and the
FDIC. See "Proposal 6 -- Formation of Holding Company
-- Regulation and Supervision."
Market for Stock......... The Bank's Common Stock is currently traded on the
American Stock Exchange under the symbol "FCB".
Following the Reorganization, it is expected that
Bancorp Common Stock will be traded on the American
Stock Exchange under the same symbol. See "Market For
The Common Stock" and "Dividend Policy" under
"Proposal 6 -- Formation of Holding Company."
Effective Date........... The Effective Date will be the date of the
consummation of the Plan of Reorganization. See
"Proposal 6 -- Formation of Holding Company --
Description of the Reorganization -- Conditions to the
Reorganization, -- Effective Date."
Rights of Dissenting
Stockholders.......... Holders of shares of Bank Common Stock are entitled to
dissent from the Plan of Reorganization and to receive
the fair value of their shares if they follow certain
statutory procedures under Massachusetts law. See
"General Information -- Appraisal Rights", "Proposal 6
-- Formation of Holding Company" "General Information
-- Rights of Dissenting Stockholders" and Appendix D
-- Dissenters' Appraisal Rights.
-7-
<PAGE>
Stockholder Vote Required
for Approval.......... Approval of the Plan of Reorganization will require
the vote of the holders of two-thirds of the
outstanding shares of Bank Common Stock entitled to
vote thereon.
Recommendation Of
Management............ The Board of Directors of Falmouth unanimously
recommends that stockholders vote for the adoption of
the Plan of Reorganization.
-8-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set
forth below is derived in part from and should be read in conjunction with the
Financial Statements of the Bank and Notes thereto presented elsewhere in this
Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
At September 30, At April 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1993(1) 1992
---- ---- ---- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total amount of:
Assets.............................. $90,516 $73,735 $74,666 $75,144 $74,202 $72,826
Loans, net.......................... 40,237 32,503 27,584 28,956 29,406 32,380
Investment Securities(2):
Available-for-sale............... 20,249 15,514 -- -- -- --
Held-to-maturity................. 24,212 16,315 38,992 35,326 34,574 30,343
Deposits............................ 66,438 64,780 66,428 67,571 66,321 66,623
Stockholders' equity/Net worth(3)... 21,914 8,435 7,847 7,196 6,774 6,108
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended April 30,
--------------------------------------------------------------------------------
1996 1995 1994 1993(1) 1993(1) 1992
---- ---- ---- ------- ------- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest and dividend income.... $5,576 $4,815 $4,629 $5,207 $5,483 $6,143
Interest expense on deposits and
borrowings.................... 2,833 2,487 2,137 2,455 2,750 3,912
----- ----- ----- ----- ----- -----
Net interest income............. 2,743 2,328 2,492 2,752 2,733 2,231
Provision for possible loan losses 51 -- 9 -- 178 156
Net interest income after provision
for possible loan losses........ 2,692 2,328 2,483 2,752 2,555 1,075
Other income:
Gain (loss) on sales of
investment securities, net. 2 16 16 48 -- (24)
Other...................... 123 99 214 140 117 112
Total other income... 125 115 230 188 117 88
Operating expenses.............. 1,888 1,793 1,615 1,652 1,541 1,474
----- ----- ----- ----- ----- -----
Income before income taxes...... 929 650 1,098 1,288 1,131 689
Income taxes.................... 359 211 447 470 465 275
--- --- --- --- --- ---
Income before cumulative effect
of change in accounting
principle..................... 570 439 651 818 666 414
Cumulative effect of change in
accounting principles......... -- -- -- 106 -- --
--- --- --- --- --- ---
Net income...................... $ 570 $ 439 $ 651 $ 924 $ 666 $ 414
====== ====== ====== ====== ====== ======
Net income per common share (4) .32 -- -- -- -- --
Weighted average number of
common shares outstanding(5).... 1,454,750 -- -- -- -- --
</TABLE>
(1) During 1993, the Bank changed its fiscal year end from April 30 to
September 30. Throughout this Proxy Statement- Prospectus, information for
the year ended September 30, 1993 represents a twelve-month audited period.
(2) Effective October 1, 1994, the Bank adopted Statement of Financial
Accounting Standards No. 115 which requires the classification of the
Bank's investment securities as "trading securities," "held-to-maturity" or
"available-for-sale." See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of New Accounting
Standards."
(3) Includes unrealized gain on available-for-sale securities of $144,000 and
$149,000, net of tax, at September 30, 1996 and 1995, respectively.
(4) Amount calculated from March 28, 1996, the date of Conversion, to September
30, 1996. For the twelve months ended September 30, 1996, net income per
share of common stock was $0.39.
(5) Calculated from March 28, 1996, the date of Conversion, to September 30,
1996.
-9-
<PAGE>
<TABLE>
<CAPTION>
At or for the Year
At or for the Year Ended September 30, Ended April 30,
-------------------------------------- ---------------
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest rate spread information:(1)
Average during period................... 2.59% 2.95% 3.21% 3.56% 3.48% 2.84%
End of period........................... 2.73 2.97 3.12 3.52 3.71 2.89
Net interest margin(2).................... 3.40 3.33 3.49 3.80 3.75 3.16
Return on average assets.................. .69 .61 .88 1.23 .89 .58
Return on average equity.................. 3.51 5.48 8.52 13.55 10.13 7.13
Non-performing loans as a percent of
total loans............................. .03 -- 1.15 1.17 1.52 2.72
Non-performing assets as a percent of
total assets............................ .02 -- .43 .57 .61 1.45
Allowance for possible loan losses as a
percent of non-performing loans........... 3557.14 -- 96.27 80.99 61.42 28.62
Capital Ratios:
Average equity to average assets........ 19.56 11.08 10.36 9.10 8.76 7.97
Regulatory Tier 1 leverage capital ratio 24.27 11.52 10.55 9.54 9.00 8.39
</TABLE>
- - ---------------------------
(1) Interest rate spread represents the difference between weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
GENERAL INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to stockholders of
Falmouth, in connection with the solicitation of proxies by the Board of
Directors of Falmouth to be used at the Annual Meeting to be held on January 21,
1997, at 3:00 p.m. Eastern Standard time at the Quality Inn, 921 Jones Road,
Falmouth, Massachusetts, and at any adjournment or postponement thereof.
Holders of Bank Common Stock are requested promptly to sign, date and
return the accompanying proxy card to Falmouth in the enclosed postage-paid,
addressed envelope. Failure to return a properly executed proxy card or to vote
at the Annual Meeting will have the same effect as a vote against Proposals 4, 5
and 6.
RECORD DATE AND VOTING
The Board of Directors of Falmouth has fixed the close of business on
December 13, 1996 as the Record Date for the determination of the holders of
Bank Common Stock entitled to receive notice of and to vote at the Annual
Meeting. Only holders of record of Bank Common Stock at the close of business on
that date will be entitled to vote at the Annual Meeting and at any adjournment
or postponement thereof. At the close of business on the Record Date, there were
1,454,750 shares of Bank Common Stock outstanding.
Each holder of shares of Bank Common Stock outstanding on the Record
Date will be entitled to one vote for each share held of record upon each matter
properly submitted at the Annual Meeting and at any adjournment or postponement
thereof. The presence, in person or by proxy, of the holders of at least a
-10-
<PAGE>
majority of the total number of outstanding shares of Bank Common Stock entitled
to vote at the Annual Meeting is necessary to constitute a quorum at the Annual
Meeting. If a quorum is not obtained, or if fewer shares of Bank Common Stock
are voted in favor of any of Proposals 2, 3, 4, 5 or 6 than the number required
for approval, it is expected that the Annual Meeting will be postponed or
adjourned for the purpose of allowing additional time for obtaining additional
proxies or votes. At any subsequent reconvening of the Annual Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the Annual Meeting (except for any proxies which
have theretofore effectively been revoked or withdrawn).
If the enclosed proxy card is properly executed and received by
Falmouth in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions marked on the proxy
card. Executed proxy cards without voting instructions will be voted FOR each of
the proposals set forth in the accompanying Notice of Annual Meeting of
Stockholders.
Management is not aware of any matters other than those set forth in
the Notice of Annual Meeting of Stockholders that may be brought before the
Annual Meeting. If any other matters properly come before the Annual Meeting,
including, among other things, a motion to adjourn or postpone the Annual
Meeting to another time or place or both for the purpose of soliciting
additional proxies or otherwise, the persons named in the accompanying proxy
will vote the shares represented by all properly executed proxies on such
matters in such manner as shall be determined by a majority of the Board of
Directors of Falmouth.
VOTE REQUIRED
The vote required for each proposal is set forth in the discussion of
such proposal under the caption "-- Vote Required."
RIGHTS OF DISSENTING STOCKHOLDERS
Massachusetts law provides that stockholders of record of the Bank on
December 13, 1996 have the right to dissent from the Reorganization and, if the
Reorganization is consummated, to receive compensation equal to the fair value
of their shares. Stockholders of the Bank desiring to exercise their dissent and
appraisal rights must follow the procedures set forth in Sections 86 through 98
of Chapter 156B of the General Laws of the Commonwealth of Massachusetts, as
summarized below and included as Appendix D to this Proxy Statement-Prospectus.
Stockholders of the Bank desiring to exercise their dissent and appraisal rights
are urged to read Appendix D in its entirety since failure to comply with the
procedures set forth therein may result in the loss of dissent and appraisal
rights.
To exercise dissent and appraisal rights under Massachusetts law, a
stockholder must (1) file with the Bank, before the stockholder vote on the Plan
of Reorganization, a written objection to the Reorganization stating that he or
she intends to demand payment for his or her shares, (2) not vote in favor of
the Plan of Reorganization, and (3) within 20 days after the date of mailing to
him or her of a written notice that the Reorganization has become effective,
make written demand upon the Bank for payment of his or her shares and an
appraisal of the value thereof. A stockholder who fails to satisfy all of the
conditions set forth above will not acquire the right to payment for his or her
shares under Massachusetts law. Signed proxies that are returned but left blank
will be voted for the Reorganization; therefore, in order to be assured that
shares are not voted in favor of the Plan of Reorganization, a stockholder must
either vote in person or by proxy against the Plan of Reorganization or abstain
from voting. Failure to vote against the Plan of Reorganization will not
constitute a waiver of dissent and appraisal rights.
After making written demand for payment of his or her shares as
provided above, the Bank will pay to such dissenting stockholder the fair value
of his or her shares within 30 days after the expiration of the period during
which such demand may be made. If within this 30-day period the parties fail to
agree as to the fair value of the shares, the Bank or stockholder may, within
four months after the expiration of such 30- day period, demand a determination
of the value of the stock by filing a bill in equity with the Superior Court
-11-
<PAGE>
in Barnstable County. For the purpose of a Superior Court determination, the
value of the shares of the Bank will be determined as of the day preceding the
vote of the Bank's stockholders on the Plan of Reorganization and shall be
exclusive of any element of value arising from the expectation of accomplishment
of the Reorganization. Upon making written demand for payment, the dissenting
stockholder will not thereafter be entitled to notice of any meeting of
stockholders, to vote at any meeting of stockholders or to receive dividends or
other distributions on the Bank's common stock (except dividends or other
distributions payable to stockholders of record at a date which is prior to the
date of the vote approving the Reorganization) unless (1) neither the Bank nor
the dissenting stockholder files a bill in equity within four months demanding
judicial appraisal of the value of the stock, (2) a bill in equity, if filed, is
dismissed as to that stockholder, or (3) the stockholder delivers a written
withdrawal of his or her objection to, and indicates an acceptance of, the
Reorganization, with the written approval of the Bank.
The costs of the bill in equity required under Massachusetts law in
order to determine the value of the Bank's common stock, including the
reasonable compensation and expenses of any master appointed by the Superior
Court, but exclusive of fees of counsel or of experts retained by any party,
shall be determined by the Superior Court and taxed upon the parties to the
bill, or any of them, in such manner as appears to be equitable, except that all
costs of giving notice to stockholders will be paid by the Bank. Interest will
be paid upon any award from the date of the vote approving the Reorganization,
and the Superior Court may, on application of any interested party, determine
the amount of interest to be paid in the case of any stockholder.
REVOCABILITY OF PROXIES
The presence of a stockholder at the Annual Meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may revoke
a proxy at any time prior to its exercise by (i) delivering to the Clerk of the
Bank a written notice of revocation prior to the Annual Meeting, (ii) delivering
to the Clerk of the Bank prior to the Annual Meeting a duly executed proxy
bearing a later date or (iii) attending the Annual Meeting, filing a written
notice of revocation with the Clerk of the Bank, and voting in person.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees
of Falmouth and its subsidiaries may solicit proxies for the Annual Meeting from
Falmouth stockholders personally or by telephone or telegram without additional
remuneration therefor. Falmouth will also provide persons, firms, banks and
corporations holding shares in their names or in the names of nominees, which in
either case are beneficially owned by others, proxy material for transmittal to
such beneficial owners and will reimburse such record owners for their expenses
in doing so. Falmouth has retained Chase Mellon Shareholder Services to aid in
the solicitation of proxies at a fee of $4,000 plus expenses. The cost of
solicitation of proxies for the Falmouth Annual Meeting, including the fees of
Chase Mellon Shareholder Services, will be borne by Falmouth. A Falmouth
stockholder may authorize another person or persons to act for him or her as
proxy by transmitting or authorizing the transmission of a telegram, cablegram
or other means of electronic transmission to Chase Mellon Shareholder Services,
provided that any such telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information (such as a
prescribed identification code) from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the
outstanding shares of Bank Common Stock on November 1, 1996, except as otherwise
indicated. Other than the beneficial owner listed below, the Bank is not aware
of any person or group that beneficially owns more than 5% of the outstanding
shares of Bank Common Stock as of November 1, 1996.
-12-
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Shares of
Name and Address Beneficial Common Stock
Title of Class of Beneficial Owner Ownership Outstanding (1)
- - -------------- ------------------- --------- ---------------
<S> <C> <C> <C>
Common Stock Falmouth Co-operative Bank 82,921 5.7%
Employee Stock Ownership
Plan (the "ESOP")
20 Davis Straits
Falmouth, Massachusetts 02540
</TABLE>
(1) The total number of shares of Bank Common Stock outstanding on November
1, 1996 was 1,454,750 shares.
(2) The Employee Stock Ownership Plan ("ESOP") is administered by a
committee of the Bank's Board of Directors (the "ESOP Committee"). The
ESOP's assets are held in a trust (the "ESOP Trust"), for which
directors Gardner L. Lewis, John L. Lynch, Jr. and Armand Ortins serve
as trustees (the "ESOP Trustee"). The ESOP Trust purchased these shares
with funds borrowed from a third-party lender and intends to allocate
them to employees over a period of ten years. If the Reorganization is
consummated, Bancorp intends to assume the loan to the ESOP currently
held by the third party lender. See "Proposal 6-- Formation of Holding
Company-- Description of the Reorganization-- Reasons for the
Reorganization." The terms of the ESOP provide that, subject to the
ESOP Trustee's fiduciary responsibilities under the Employee Retirement
Income Security Act of 1974, ("ERISA") as amended, the ESOP Trustee
will vote, tender or exchange shares of Bank Common Stock held in the
ESOP Trust in accordance with the following rules. The ESOP Trustee
will vote tender or exchange shares of Bank Common Stock allocated to
participants' accounts in accordance with instructions received from
the participants. As of September 30, 1996, 4,364 shares held by the
ESOP Trust were allocated. The ESOP Trustee will vote allocated shares
as to which no instructions are received and any shares that have not
been allocated to participants' accounts in the same proportion as
allocated shares with respect to which the ESOP Trustee receives
instructions are voted. The ESOP Trustee will tender or exchange any
shares in the suspense account or that otherwise have not been
allocated to participants' accounts in the same proportion as allocated
shares with respect to which the ESOP Trustee receives instructions are
tendered or exchanged. With respect to allocated shares as to which no
instructions are received, the ESOP Trustee will be deemed to have
received instructions not to tender or exchange such shares. Except as
described above, the ESOP Committee has sole investment power, except
in limited circumstances, but no voting power over all Bank Common
Stock held in the ESOP Trust.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information as of November 1, 1996 as to
shares of Bank Common Stock beneficially owned by each director of the Bank, the
Named Executive Officer of the Bank identified in the Summary Compensation Table
appearing in this Proxy Statement-Prospectus and all directors and executive
officers as a group. Ownership information is based upon information furnished
by the respective individuals. For purposes of this table, an individual is
considered to "beneficially own" any securities (a) over which such individual
exercises sole or shared voting or investment power, or (b) of which such
individual has the right to acquire beneficial ownership, including the right to
acquire beneficial ownership by the exercise of stock options, within 60 days
after November 1, 1996. As used herein, "voting power" includes the power to
vote, or direct the voting of, such securities, and "investment power" includes
the power to dispose of, or direct the disposition of, such securities. Except
as otherwise indicated, each person and the group shown in the table has sole
voting and investment power with respect to the shares indicated.
-13-
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Common
Beneficial Stock
Name Title Ownership Outstanding(1)
- - ---- ----- --------- --------------
<S> <C> <C> <C>
Santo P. Pasqualucci(2) President, Chief
Executive Officer and 25,826 1.78%
Director
John W. Holland, Jr.(3) Director 2,500 *
James A. Keefe Director 17,669 1.21%
Gardner L. Lewis(4) Director 7,069 *
John J. Lynch, Jr. Director 25,000 1.72%
Ronald L. McLane Director 1,500 *
Eileen C. Miskell(5) Director 5,000 *
Robert H. Moore Director 3,000 *
Walter A. Murphy Chairman of the Board 10,000 *
William E. Newton Director 15,000 1.03%
Armand Ortins Director 3,000 *
All directors and executive
officers as a group 213,990 14.71%
(15 persons)(6)(7)
</TABLE>
* Less than 1% of outstanding shares of Bank Common Stock.
(1) Percentages with respect to each person or group of persons have been
calculated on the basis of 1,454,750 shares of Bank Common Stock, the
number of shares outstanding as of November 1, 1996. No officer or
director has the right to acquire beneficial ownership of additional
shares of Bank Common Stock within 60 days after November 1, 1996.
(2) Includes 659 shares allocated to Mr. Pasqualucci under the ESOP as to
which he has sole voting power, but no investment power, except in
limited circumstances.
(3) Includes 500 shares held jointly with spouse and 2,000 shares held
solely by spouse.
(4) Includes 4,700 shares over which Mr. Lewis has sole voting and
investment power and 2,369 shares over which Mr. Lewis has shared
voting and investment power.
(5) Includes 1,000 shares over which Ms. Miskell has sole voting and
investment power and 4,000 shares over which Ms. Miskell has shared
voting and investment power.
(6) Includes 1,949 shares held by the ESOP Trust that have been allocated
as of September 30, 1996 to the individual accounts of the executive
officers under the ESOP and as to which such executive officers have
sole voting power, but no investment power, except in limited
circumstances. Also includes 2,415 shares held by the ESOP Trust and
allocated to the individual accounts of the other Bank employees under
the ESOP, and as to which such employees have sole voting power but no
investment power except in limited circumstances. Also includes 82,921
unallocated shares held by the ESOP Trust as to which the ESOP Trustee
may be deemed to share voting and investment power.
(7) Includes 56,764 shares over which the directors and executive officers
share voting and investment power.
-14-
<PAGE>
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
-----------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
-----------------------------
GENERAL
The Bylaws of the Bank provide that the Board of Directors shall be
divided into three classes, as nearly equal in number as possible. The directors
of each class serve for a term of three years, with one class elected each year.
In all cases, directors serve until their successors are elected and qualified.
The Falmouth Board of Directors currently consists of eleven members.
The terms of three directors expire at the Annual Meeting. Each of the three
incumbent directors, James A. Keefe, Ronald L. McLane and Robert H. Moore, has
been nominated by the Board of Directors to serve for a three-year term expiring
at the annual meeting of stockholders to be held in 2000, or until their
successors are otherwise duly elected and qualified. Each nominee has consented
to being named in the Proxy Statement-Prospectus and to serve if elected.
If any nominee is unable to serve, the shares represented by all
properly executed proxies which have not been revoked will be voted for the
election of a substitute as the Board of Directors may recommend or the size of
the Board of Directors may be reduced to eliminate the vacancy. At this time,
the Board knows of no reason why any nominee might be unavailable to serve.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. The holders of Bank Common Stock may not vote their
shares cumulatively for the election of directors. Shares underlying broker
non-votes will not be counted as having been voted in person or by proxy and
will have no effect on the election of directors.
INFORMATION WITH RESPECT TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to each
nominee for election as a director and each director whose term does not expire
at the Annual Meeting ("Continuing Director"). There are no arrangements or
understandings between the Bank and any director or nominee pursuant to which
such person was elected or nominated to be a director of the Bank. For
information with respect to security ownership of directors, see "General
Information -- Stock Ownership of Management."
-15-
<PAGE>
<TABLE>
<CAPTION>
Nominees Age(1) Term Expires Positions Held with the Bank Director Since
-------- ------ ------------ ---------------------------- --------------
<S> <C> <C> <C> <C>
James A. Keefe 70 1997 Director 1973
Ronald L. McLane 79 1997 Director 1970
Robert H. Moore 63 1997 Director 1976
CONTINUING DIRECTORS
John W. Holland, Jr. 71 1999 Director 1966
Gardner L. Lewis 59 1999 Director 1993
John J. Lynch, Jr. 69 1998 Director 1970
Eileen C. Miskell 38 1999 Director 1994
Walter A. Murphy 70 1998 Chairman of the Board 1969
William E. Newton 58 1998 Director 1975
Armand Ortins 77 1999 Director 1966
Santo P. Pasqualucci 57 1998 President, Chief Executive 1993
Officer and Director
- - ----------
</TABLE>
(1) As of November 1, 1996.
The principal occupation and business experience of each nominee for
election as director and each Continuing Director is set forth below.
NOMINEES FOR ELECTION AS DIRECTORS
James A. Keefe has been a principal of Falmouth Ford, an automobile
dealership, since October of 1966.
Ronald L. McLane has been retired for the past five years. Previously
Mr. McLane was a building contractor in the Falmouth area.
Robert H. Moore has worked as an agent with the Paul Peters Agency,
Inc., a general insurance agency located in Falmouth, since May of 1960.
CONTINUING DIRECTORS
John W. Holland, Jr. is an attorney with the law firm of Holland &
Delaney, Falmouth, Massachusetts. Mr. Holland has provided legal services to the
Bank at its request from time to time.
Gardner L. Lewis is currently retired. He owned and operated The
Pancake Man, a family restaurant located in Falmouth, from 1964 to 1994.
John J. Lynch, Jr. has served as President of Paul Peters Agency, Inc.,
a general insurance agency located in Falmouth, since 1957.
-16-
<PAGE>
Eileen C. Miskell, CPA, is Treasurer of Wood Lumber Company in
Falmouth, Massachusetts. Prior thereto, she was an accountant at the New England
Deaconess Hospital.
Walter A. Murphy served as President of the Bank from 1968 to 1992 and
continues to serve as its Chairman of the Board.
William E. Newton has worked as a contractor and has been a principal
of C. H. Newton Builders, Inc. in West Falmouth since 1965.
Armand Ortins has been retired since 1984. Previously Mr. Ortins was
owner and operator of a local photo sales and service retail store.
Santo P. Pasqualucci has served as President of the Bank since
December, 1992. Prior to that time, he served as the President of a savings bank
for six years. He has served the banking community of Massachusetts for 30
years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" ALL OF THE NOMINEES FOR ELECTION AS DIRECTORS.
BOARD AND COMMITTEE MEETINGS
The Board of Directors conducts its business through meetings of the
Board and its committees. Regular meetings of the Board of Directors are held on
a monthly basis. The Board of Directors held twelve regular meetings and no
special meetings during the fiscal year ended September 30, 1996. No director
attended fewer than 75% of the meetings of the Board of Directors and committees
on which such director served during this period.
The Board of Directors of the Bank has established the following
committees:
The Executive Committee consists of Directors Keefe, Lewis, Lynch,
Newton, Pasqualucci, and Miskell (alternate). The Executive Committee considers
strategic, planning and industry issues and is authorized to act as appropriate
between meetings of the Board of Directors.
The Audit Committee consists of Directors Miskell, Lewis and Ortins.
The Audit Committee is responsible for review of the annual audit with the
Bank's outside auditors and to report any substantive issues thereon to the
Board.
The Security Committee consists of Directors McLane, Moore and
Pasqualucci. The Security Committee reviews the loan collateral, appraisal
reports on real estate, and authorizes the funding of real estate loans. In
addition, the Committee authorizes the release of periodic draws on construction
loans.
The Board of Directors, acting as nominating committee, met in
September, 1996 to select the nominees for election as directors at the Annual
Meeting. In accordance with the Bylaws of the Bank, no nominations for election
as directors, except those made by the Board acting as nominating committee,
shall be voted upon at the Annual Meeting unless properly made by a stockholder.
To be timely, notice of a stockholder's nomination for an annual meeting must be
delivered to the Clerk of the Bank no later than five days prior to the Annual
Meeting.
DIRECTORS' COMPENSATION
Director's Fees. Members of Falmouth's Board of Directors receive fees
of $400 per Board Meeting, and fees ranging from $100 to $300 per committee
meeting attended. The Chairman of the Board receives $700 per Board Meeting
attended. Total directors' fees for fiscal 1996 were $87,220, which includes
$4,400 in bonuses paid to directors during fiscal 1996.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth cash and noncash compensation for the
fiscal years ended September 30, 1996, 1995 and 1994 awarded to or earned by the
Bank's Chief Executive Officer and by each other executive officer whose
compensation exceeded $100,000 for services rendered in all capacities to the
Bank during the fiscal year ended September 30, 1996 ("Named Executive
Officers"). No other officers received total compensation in excess of $100,000
in fiscal 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------------
Annual Compensation(1) Awards Payouts
---------------------- ------------------------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Annual Stock LTIP All Other
Name and Principal Compensation Awards Options Payouts Compensation
Positions Year Salary($) Bonus($) ($)(2) ($)(3) (#)(3) ($)(3) ($)(4)
- - ------------------------- ---- --------- -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Santo P. Pasqualucci 1996 121,045 -- -- -- -- -- 14,391
President and Chief Executive 1995 117,545 5,877 -- -- -- -- 7,175
Officer 1994 100,000 -- -- -- -- -- 5,611
- - ----------
</TABLE>
(1) Under Annual Compensation, the column titled "Salary" includes base
salary, amounts deferred under the Bank's 401(k) plan (but not matching
contributions from the Bank) and payroll deductions for health
insurance under the Bank's health insurance plan.
(2) For fiscal 1996, there were no: (a) perquisites with an aggregate value
for any named individual in excess of the lesser of $50,000 or 10% of
the total of the individual's salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred
compensation; (c) payments of earnings with respect to long-term
incentive plans prior to settlement or maturation; (d) tax payment
reimbursements; or (e) preferential discounts on stock.
(3) During the fiscal year ended September 30, 1996, the Bank did not
maintain any restricted stock, stock option or other long-term
incentive plans.
(4) Includes (i) the dollar value of premiums, if any, paid by the Bank
with respect to term life insurance (other than group term insurance
coverage under a plan available to substantially all salaried
employees) for the benefit of the executive officer and (ii) the Bank's
contributions on behalf of the executive officer to the Bank's 401(k)
plan and the ESOP. See "-- Certain Employee Benefit Plans and
Employment Agreement -- Retirement Plans" and "-- Employee Stock
Ownership Plan and Trust."
CERTAIN EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENT
Employment Agreement. The Bank has entered into an employment agreement
(the "Employment Agreement") with Mr. Santo P. Pasqualucci, the Bank's President
and Chief Executive Officer and the Named Executive Officer of the Bank
identified in the Summary Compensation Table appearing in this Proxy
Statement-Prospectus. Mr. Pasqualucci is responsible for overseeing all
operations of the Bank.
The Employment Agreement became effective on March 27, 1996, provides
for a term of four years and provides for an annual base salary equal to Mr.
Pasqualucci's existing base salary rate in effect on the date of the Bank's
conversion from mutual to stock form (the "Conversion"). On each anniversary
date from the date of commencement of the Employment Agreement, the term of
employment will be extended for an additional one-year period beyond the then
effective expiration date, upon a determination by the Board of Directors that
the performance of Mr. Pasqualucci has met the required performance standards
and that such Employment Agreement should be extended. The Employment Agreement
provides Mr. Pasqualucci with a salary review by the Board of Directors not less
often than annually, as well as with inclusion in any
-18
<PAGE>
discretionary bonus plans, retirement and medical plans, customary fringe
benefits and vacation and sick leave. The Employment Agreement will terminate
upon death or disability, and is terminable by the Bank for "cause" as defined
in the Employment Agreement. In the event of termination for cause, no severance
benefits are available. If the Bank terminates Mr. Pasqualucci without cause, he
will be entitled to a continuation of his salary and benefits from the date of
termination through the remaining term of the Employment Agreement. If the
Employment Agreement is terminated due to his "disability" (as defined in the
Employment Agreement), Mr. Pasqualucci will be entitled to a continuation of his
salary at three-quarters level and benefits until he becomes employed again,
reaches age 65 or dies. In the event of death during the term of the Employment
Agreement, his estate will be entitled to receive his salary through the end of
the month of his death.
The Employment Agreement contain provisions stating that in the event
of involuntary termination of employment in connection with, or within one-year
after, any "change in control" (as defined in the Employment Agreement), Mr.
Pasqualucci will be paid within 10 days of such termination an amount equal to
2.99 times his "base amount," as defined in Section 280G(b)(3) of the Code. The
Employment Agreement also provides for a lump sum payment of the payments due to
Mr. Pasqualucci for the remaining term of the Employment Agreement to be made in
the event of his voluntary termination of employment, upon the occurrence, or
within 60 days thereafter, of certain specified events which have not been
consented to in writing by Mr. Pasqualucci, including (i) the requirement that
he perform his principal executive functions more than 35 miles from the Bank's
current primary office, (ii) a material reduction in his authority and
responsibility, (iii) liquidation or dissolution of the Bank and (iv) a breach
of the Employment Agreement by the Bank. The aggregate payments that would be
made to Mr. Pasqualucci assuming his termination of employment under the
foregoing circumstances at September 30, 1996 would have been approximately
$340,322. These provisions may have an anti-takeover effect by making it more
expensive for a potential acquiror to obtain control of the Bank.
Retirement Plans. The Bank is a participant in the retirement plans
sponsored by the Co-operative Bank Employees Retirement Association ("CBERA").
Two plans are provided: a defined contribution plan (the "401(k) Plan"), under
which employee contributions are matched by contributions from the Bank, and a
Defined Benefit Plan that is funded solely by the employer. Employees of the
Bank are eligible for enrollment in these Plans after attaining age 21 and
completing one year of service (defined as a 12-month period commencing on the
date of hire during which the employee has worked at least 1,000 hours).
Under the 401(k) Plan, the Bank provides a 50% match of participating
employees' contributions up to a limit of 5% of salary. Under the Defined
Benefit Plan, upon reaching the age of 65, participants are entitled to receive
their vested account balances in a lump sum or periodically in the form of an
annuity. Annual retirement benefits under the Defined Benefit Plan are
determined according to the following formula: one percent of the final average
compensation paid over the employee's three consecutive highest years, plus
one-half percent of the amount by which the above average exceeds the employee's
average Social Security Wage Base for a designated period, times all years of
service since January 1, 1989.
The following table sets forth the estimated annual benefits that would
be payable under the Defined Benefit Plan in the form of a single life annuity
before reduction for the social security amount upon retirement at the normal
retirement date. The amounts are expressed at various levels of compensation and
years of service.
-19
<PAGE>
Pension Plan Table
Years of Credited Service
-----------------------------------------------------------
Average
Earnings 10 15 20 25
-------- -- -- -- --
$ 20,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000
40,000 4,535 6,802 9,070 11,337
60,000 7,535 11,302 15,070 18,837
80,000 10,535 15,802 21,070 26,337
100,000 13,535 20,302 27,070 33,837
120,000 16,535 24,802 33,070 41,337
140,000 19,535 29,302 39,070 48,837
160,000 21,535 32,302 43,070 53,837
For purposes of determining the estimated annual benefits that would be
payable under the Defined Benefit Plan to Santo P. Pasqualucci, the Named
Executive Officer listed in the Summary Compensation Table, as of September 30,
1996, Mr. Pasqualucci had completed three years, ten months of service to the
Bank and had final average compensation of $117,684.
Employee Stock Ownership Plan and Trust. The Bank has established, for
the benefit of eligible employees, an ESOP and related trust which became
effective upon completion of the Conversion. Substantially all employees of the
Bank who have attained age 21 and have completed six months of service may be
eligible to become participants in the ESOP. The ESOP purchased 87,285 shares of
Bank Common Stock issued in the Conversion. In order to fund the ESOP's purchase
of the Bank Common Stock, the Bank borrowed funds equal to the aggregate
purchase price of the Bank Common Stock. Although contributions to the ESOP are
discretionary, the Bank makes annual contributions to the ESOP in an aggregate
amount at least equal to the principal and interest requirement on the debt. The
ESOP loan is for a term of 10 years, bearing interest at the rate of 8.15% per
annum and calls for level annual payments of principal and interest designed to
amortize the loan over its term. The loan also permits optional pre-payment. The
Bank may make additional annual contributions to the ESOP to the maximum extent
deductible for federal income purposes.
Shares purchased by the ESOP are pledged as collateral for the loan,
and held in a suspense account until released for allocation among participants
in the ESOP as the loan is repaid. The pledged shares will be released annually
from the suspense account in an amount proportional to the repayment of the ESOP
loan for each plan year, and allocated among the accounts of participants on the
basis of the participant's compensation for the year of allocation. Participants
will be fully vested at all times as to any shares that have been allocated to
their account. Vested benefits may be paid in a single sum or in the form of
shares of Bank Common Stock and are payable upon death, retirement at age 65 or
older, disability or separation from service.
In connection with the establishment of the ESOP, a Committee of the
Bank's Board of Directors was appointed to administer the ESOP (the "ESOP
Committee"). The trustees of the ESOP are directors Gardner Lewis, John J.
Lynch, Jr. and Armand Ortins. The ESOP Committee may instruct the trustees
regarding investment of funds contributed to the ESOP. The ESOP trustees,
subject to their fiduciary duty, must vote all allocated shares held in the ESOP
in accordance with the instructions of the participating employees. Under the
ESOP, unallocated shares will be voted in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock as long as such vote is in accordance with the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The ESOP may purchase additional shares of Bank Common Stock in the
future, in the open market yor otherwise, and may do so either on a leveraged
basis with borrowed funds or with cash dividends, periodic employer
contributions or other cash flow. Whether such purchases will be made and the
terms and
-20-
<PAGE>
conditions of any such purchases will be determined by the ESOP's fiduciaries
taking into account such factors as they consider relevant at the time,
including their judgment as to the attractiveness of the Bank Common Stock as an
investment, the price at which Bank Common Stock may be purchased and, in the
case of leveraged purchases, the terms and conditions on which borrowed funds
are available and the willingness of the Bank to offer purchase money financing
or guarantee purchase money financing offered by third parties.
If the Reorganization is consummated, the ESOP will be assumed by
Bancorp and shares of Bank Common Stock held by the ESOP will automatically
become shares of Bancorp Common Stock. Bancorp will also adopt and assume the
ESOP loan, which is currently held by a third party lender. See "Proposal 6 --
Formation of Holding Company -- Description of Reorganization -- Effect of the
Reorganization on Employee Benefit Plans."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
From time to time Falmouth makes mortgage or other loans to its
directors. Prior to the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), Falmouth had a policy of offering loans
to directors, officers and employees on terms substantially equivalent to those
offered to the public.
Under FIRREA, loans to Falmouth's directors are required to be made on
terms substantially the same as those offered in comparable transactions to
other persons. Furthermore, FIRREA generally prohibits loans above the greater
of $25,000 or 5.0% of Falmouth's capital and surplus (up to $500,000) to
directors and officers and their affiliates, unless such loans are approved in
advance by a disinterested majority of the Board of Directors. As a matter of
policy, loans to directors of the Bank, as well as other affiliated persons or
entities, currently are made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, do not
involve more than the normal risk of collectability or present other unfavorable
features, and are approved by the Board of Directors.
In addition to these provisions of federal law, Massachusetts law
requires that loans by a co-operative bank to its officers and directors be made
on non-preferential terms and receive the prior approval of a disinterested
majority of the board of directors. Further, loans by a co-operative bank to its
own officers may not exceed $20,000 for general purposes; $75,000 for
educational purposes; and $275,000 for residential home mortgage purposes. All
loans by a co-operative bank to its officers and directors must be reported
annually to the Commissioner.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Bank's directors,
executive officers, and any person holding more than ten percent of the Bank's
Common Stock to file with the FDIC reports of ownership changes. Officers,
directors and greater than ten percent stockholders are required to furnish the
Bank with copies of all Section 16(a) forms they file. Based solely on its
review of the copies of such forms received by it, or written representations
from certain reporting persons, the Bank believes that all filing requirements
applicable to its executive officers, directors and greater than ten percent
beneficial owners were complied with.
-21-
<PAGE>
-----------------------------
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
-----------------------------
The Board of Directors has appointed the firm of Shatswell MacLeod &
Co., P.C. as independent auditors for the Bank for the fiscal year ending
September 30, 1997, subject to ratification of such appointment by the
stockholders. Representatives of Shatswell MacLeod & Co., P.C. are expected to
be present at the Annual Meeting to respond to questions and to make a statement
if they desire to do so.
On July 16, 1996, the Board of Directors voted to engage the firm of
Shatswell MacLeod & Co., P.C. as the Bank's independent auditor. Shatswell
MacLeod & Co., P.C. replaced Keith Hersey Sheehan Benoit Dempsey & Oman, P.C.,
the Bank's independent auditor for the 1995 fiscal year. The Bank's business
relationship with Keith Hersey Sheehan Benoit Dempsey & Oman, P.C. had always
been good and the decision to change independent auditors was mutually agreed
upon.
None of the reports of Keith Hersey Sheehan Benoit Dempsey & Oman, P.C.
on the financial statements of the Bank for the two most recent fiscal years
contained an adverse opinion or a disclaimer of opinion or was qualified or
modified as to uncertainty, audit scope or accounting principles. During the
Bank's two most recent fiscal years, there was no disagreement with Keith Hersey
Sheehan Benoit Dempsey & Oman, P.C. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of that firm, would have
caused it to make reference to the subject matter of the disagreement in
connection with its reports.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF SHATSWELL MACLEOD & CO., P.C.
AS INDEPENDENT AUDITORS FOR THE BANK.
-----------------------------
PROPOSAL 3
ELECTION OF CLERK
-----------------------------
Under Massachusetts law and the Bylaws of the Bank, a Clerk is to be
elected by the Bank's stockholders at the Annual Meeting or at a special meeting
called for that purpose. The Board of Directors may fill any vacancy in the
Clerk's office until the next meeting of stockholders.
The Board of Directors has nominated John A. DeMello to serve as the
Clerk of the Bank until the 1998 annual meeting of stockholders or until his
successor is chosen and qualified. The Clerk serves in an official capacity and
is authorized to execute various corporate documents on behalf of the Bank. Mr.
DeMello is currently the Bank's Clerk and has served as Clerk for 22 years. He
has also served as Vice President/Loan Officer of the Bank since 1972 and is
currently Vice President/Compliance.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ELECTION OF JOHN A. DEMELLO TO SERVE AS CLERK OF THE BANK.
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<PAGE>
-----------------------------
PROPOSAL 4
STOCK OPTION PLAN
-----------------------------
GENERAL PLAN INFORMATION
The Bank has adopted, subject to approval by stockholders of the Bank
and the Division of Banks, the 1997 Stock Option Plan for Outside Directors,
Officers and Employees of Falmouth Co-operative Bank (the "Stock Option Plan").
The Stock Option Plan provides for the grant of options to purchase Common Stock
of the Bank ("Options") to certain officers, employees and outside directors of
the Bank. The Stock Option Plan is not subject to ERISA and is not a
tax-qualified plan under the Code. The principal provisions of the Stock Option
Plan are summarized below. The full text of the Stock Option Plan is set forth
as Appendix A to this Proxy Statement-Prospectus, to which reference is made,
and the summary provided below is qualified in its entirety by such reference.
PURPOSE OF THE STOCK OPTION PLAN
The purpose of the Stock Option Plan is to promote the growth and
profitability of the Bank, to provide certain key officers, employees and
directors of the Bank with an incentive to achieve corporate objectives, to
attract and retain individuals of outstanding competence and to provide such
individuals with an equity interest in the Bank.
VOTE REQUIRED
Approval of the Stock Option Plan requires the affirmative vote of a
majority of the outstanding shares of the Bank. The required vote of
stockholders on the Stock Option Plan is based upon the number of outstanding
shares of Bank Common Stock, and not the number of those shares that are
actually voted. Accordingly, the failure to submit a proxy card or to vote in
person at the Annual Meeting or an abstention from voting will have the same
effect as a "NO" vote with respect to this proposal. Broker non-votes will not
be counted as having been voted in person or by proxy at the Annual Meeting and
will have the same effect as a "NO" vote with respect to this proposal.
REGULATORY RESTRICTIONS AND CONDITIONS TO IMPLEMENTATION
The Stock Option Plan is subject to certain restrictions imposed by the
FDIC and the percentage limitations of the regulations issued by the Office of
Thrift Supervision (the "OTS") with respect to stock option plans or other
management or employee stock benefit plans that are established or implemented
by a state-chartered bank within one year after conversion from mutual to stock
form. The restrictions apply to the Stock Option Plan because the Conversion
occurred within one year prior to the date of this Annual Meeting. To satisfy
these requirements, the Stock Option Plan provides that (i) no Options may be
granted prior to the date on which a majority of the Bank's outstanding shares
approve the Stock Option Plan or before March 28, 1997, whichever is later; (ii)
no individual officer or employee may be granted Options to purchase more than
36,368 Shares; and (iii) no individual director may be granted Options to
purchase more than 7,273 shares and directors may not be granted Options to
purchase more than 43,642 shares in the aggregate.
In addition, if the Stock Option Plan is approved by stockholders, it
will be subject to the approval of the Division of Banks, which also requires
that, for a three year period following conversion, any stock benefit plan
(including management contracts) must be reviewed for reasonableness by an
independent third party compensation consultant approved by the Division of
Banks. The maximum number of shares which
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<PAGE>
would be issued under the Stock Option Plan will not exceed 145,475 shares, or
more than 10% of the stock that was issued in the Conversion.
Management of the Bank has been advised by its legal counsel that the
Stock Option Plan complies with the FDIC regulations, the percentage limitations
of the OTS regulations and the regulations of the Division of Banks. Neither the
FDIC, the OTS or the Division of Banks has endorsed or approved the Stock Option
Plan and there are no assurances that the Division of Banks will approve the
Stock Option Plan, if it is approved by stockholders. In that event, no options
will be granted under the Stock Option Plan.
DESCRIPTION OF THE STOCK OPTION PLAN
Administration. The members of the Compensation Committee who are
disinterested directors (the "Option Committee") will administer the Stock
Option Plan and will determine, within the limitations of the Stock Option Plan,
the officers and employees to whom Options will be granted, the number of shares
subject to each Option, the terms of such Options (including provisions
regarding exercisability and acceleration of exercisability) and the procedures
by which the Options may be exercised. Options granted to directors under the
Stock Option Plan are by automatic formula grant, and the Option Committee has
no discretion over the material terms of such grants. Subject to certain
specific limitations and restrictions set forth in the Stock Option Plan, the
Option Committee has full and final authority to interpret the Stock Option
Plan, to prescribe, amend and rescind rules and regulations, if any, relating to
the Stock Option Plan and to make all determinations necessary or advisable for
the administration of the Stock Option Plan. The costs and expenses of
administering the Stock Option Plan will be borne by the Bank.
Stock Subject to the Stock Option Plan. Upon receipt of all necessary
regulatory and stockholder approvals, the Bank will reserve 145,475 shares of
Bank Common Stock ("Option Shares") for issuance upon exercise of Options. This
amount represents 10% of the shares issued in the Conversion. Such Option Shares
may be authorized and unissued shares or shares previously issued and reacquired
by the Company. See "Proposal 6 -- Formation of Holding Company." Any Option
Shares subject to grants under the Stock Option Plan which expire or are
terminated, forfeited or cancelled without having been exercised or vested in
full, shall again be available for purposes of the Stock Option Plan. As of
November 21, 1996, the aggregate fair market value of the Option Shares reserved
for issuance was $2,036,650, based on the closing sales price per share of Bank
Common Stock of $14.00 on the American Stock Exchange on November 21, 1996.
Eligibility. Any employee of the Bank, the Bank or any affiliate
approved by the Board who is selected by the Option Committee is eligible to
participate in the Stock Option Plan as an "Eligible Individual." As of November
15, 1996, there were ____ Eligible Individuals. Members of the Board of
Directors of the Bank or any affiliate approved by the Board who are not
employees or officers of the Bank or such affiliate are eligible to participate
as an "Eligible Director." As of November 15, 1996, there were 10 Eligible
Directors.
Terms and Conditions of Options Granted to Officers and Employees. The
Stock Option Plan provides for the grant of options which qualify for favorable
federal income tax treatment as "incentive stock options" ("ISOs") and
non-qualified stock options which do not so qualify ("NQSOs"). ISOs are subject
to certain restrictions under the Code. A maximum of 36,368 shares may be issued
to any one officer or employee upon exercise of Options. Unless otherwise
designated by the Option Committee, Options granted under the Stock Option Plan
will be NQSOs, will be exercisable at a price per share equal to the fair market
value of a share of Common Stock on the date of the Option grant and will be
exercisable for a period of ten years after the date of grant (or for a shorter
period ending three months after the option holder's termination of employment
for reasons other than death, disability or retirement or discharge for cause,
one year after termination of employment due to death disability or retirement,
or immediately upon termination for cause). In no event may an Option be granted
with an exercise price per share that is less than fair market value of a share
of Bank Common Stock when the Option is granted. On each anniversary of the date
stockholder approval is obtained until all Options subject to the grant are
exercisable, the Option will become exercisable as to 20% of the Option Shares
as to which the option holder's outstanding Option has been granted. An option
holder's
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right to exercise Options is suspended during any period when the option holder
is the subject of a pending proceeding to terminate his or her employment for
cause. If the Option expires during such suspension, the Bank will, upon the
employee's reinstatement, pay damages equal to the value of the expired Options
less the exercise price.
Upon the exercise of an Option, the Exercise Price must be paid in
full. Payment may be made in cash or in such other consideration as the Option
Committee deems appropriate, including, but not limited to, Bank Common Stock
already owned by the option holder or Option Shares to be acquired by the option
holder upon exercise of the Option. Options may be transferred prior to exercise
only to certain family members, certain non-profit organizations, and on death
of the option holder.
Terms and Conditions of Options Granted to Outside Directors. Effective
on the Stock Option Plan Effective Date, each person who is an Eligible Director
on such date will be granted a NQSO to purchase a number of Option Shares to be
determined by the Committee in consultation with an employee benefits consultant
and not to exceed 7,273 for any individual Eligible Director and 43,642 for all
Eligible Directors in the aggregate. Such Options will have an Exercise Price
equal to the fair market value of a share of Bank Common Stock on the date of
grant and an Exercise Period commencing on the date of grant and expiring on the
earliest of (i) the date he or she ceases to be an Eligible Director due to a
removal for cause (in accordance with the Bylaws of the Bank or other affiliate,
as applicable) and (ii) the last day of the ten-year period commencing on the
date the Option was granted. On each anniversary of the date stockholder
approval is obtained until all Option Shares subject to the grant are
exercisable, the Option will become exercisable as to 20% of the Option Shares
as to which his or her outstanding Option has been granted. All Option Shares
not previously purchased or available for purchase will become available for
purchase on the date of the option holder's death or disability as defined in
the Stock Option Plan. A maximum of 43,642 shares may be issued to Eligible
Directors upon exercise of Options.
Options granted to directors under the Stock Option Plan will be NQSOs.
Upon the exercise of an Option, the Exercise Price must be paid in full. Payment
may be made in cash or in such other consideration as the Option Committee deems
appropriate, including, but not limited to, Bank Common Stock already owned by
the option holder or Option Shares to be acquired by the option holder upon
exercise of the Option.
Mergers and Reorganizations; Adjustments for Extraordinary Dividends.
The number of shares available under the Stock Option Plan and the outstanding
options will be adjusted to reflect any merger, consolidation or business
reorganization in which the Bank is the surviving entity, and to reflect any
stock split, stock dividend or other event generally affecting the number of
shares. If a merger, consolidation or other business reorganization occurs and
the Bank is not the surviving entity, outstanding Options may be cancelled upon
30 days' written notice to the option holder so long as the option holder
receives payment determined by the Board to be the equivalent value of the
cancelled Options. The Stock Option Plan provides that the Bank will make a cash
payment to option holders to equitably reflect any extraordinary non-stock
dividend that may be paid which results in a non-taxable return of capital. No
representation is made that any such dividend will be declared or paid.
NEW PLAN BENEFITS
As of the date of this Proxy Statement-Prospectus, no grants have been
made under the Stock Option Plan. It is not determinable at this time what
benefits, if any, outside directors, officers or employees will receive under
the Stock Option Plan. See "-- Regulatory Restrictions and Conditions to
Implementation."
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TERMINATION OR AMENDMENT OF THE STOCK OPTION PLAN
Unless sooner terminated, the Stock Option Plan will terminate
automatically on the day preceding the tenth anniversary of the Stock Option
Plan Effective Date. The Board may suspend or terminate the Stock Option Plan in
whole or in part at any time prior to the tenth anniversary of the Stock Option
Plan Effective Date by giving written notice of such suspension or termination
to the Option Committee. In the event of any suspension or termination of the
Stock Option Plan, all Options theretofore granted under the Stock Option Plan
that are outstanding on the date of such suspension or termination of the Stock
Option Plan will remain outstanding under the terms of the agreements granting
such Options.
The Board may amend or revise the Stock Option Plan in whole or in part
at any time, but if the amendment or revision amends a material term of the
Stock Option Plan, such amendment or revision will be subject to approval by the
stockholders of the Bank to the extent required to comply with Section 162(m) of
the Code.
EFFECT OF REORGANIZATION ON STOCK OPTION PLAN
If the Plan of Reorganization is adopted and approved by stockholders
at the Annual Meeting, on the Effective Date, Bancorp will adopt and assume
sponsorship of the Stock Option Plan, including all of the Bank's obligations
with respect to any outstanding options pursuant to such plan. All outstanding
options to purchase Bank Common Stock granted pursuant to the Stock Option Plan
prior to the Reorganization will become options to purchase the same number of
shares of Bancorp Common Stock with the same terms, conditions and exercise
price as the original options granted.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws, regulations
and policies affecting the Bank and recipients of ISOs and NQSOs that may be
granted under the Stock Option Plan. Any change in applicable law or regulation
or in the policies of various taxing authorities may have a material effect on
the discussion contained herein.
There are no federal income tax consequences for the Bank or the option
holder at the time an ISO is granted or upon the exercise of an ISO. If there is
no sale or other disposition of the shares acquired upon the exercise of an ISO
within two years after the date the ISO was granted, or within one year after
the exercise of the ISO, then at no time will any amount be deductible by the
Bank with respect to the ISO. If the option holder exercises an ISO and sells or
otherwise disposes of the shares so acquired after satisfying the foregoing
holding period requirements, then he will realize a capital gain or loss on the
sale or disposition. If the option holder exercises his ISO and sells or
disposes of his shares prior to satisfying the foregoing holding period
requirements, then an amount equal to the difference between the amount realized
upon the sale or other disposition of such shares and the price paid for such
shares upon the exercise of the ISO will be includible in the ordinary income of
such person, and such amount will ordinarily be deductible by the Bank at the
time it is includible in such person's income.
With respect to the grant of NQSOs, there are no federal income tax
consequences for the Bank or the option holder at the date of the grant. Upon
the exercise of a NQSO, an amount equal to the difference between the fair
market value of the shares to be purchased on the date of exercise and the
aggregate purchase price of such shares is generally includible in the ordinary
income of the person exercising such NQSO, although such inclusion may be at a
later date in the case of an option holder whose disposition of such shares
could result in liability under Section 16(b) of the Exchange Act. The Bank will
ordinarily be entitled to a deduction for federal income tax purposes at the
time the option holder is taxed on the exercise of the NQSO equal to the amount
which the option holder is required to include as ordinary income. Section
162(m) of the Code limits the Bank's deductions of compensation in excess of
$1,000,000 per year for the chief executive officer and the four other most
highly paid executives named in its proxy statement, but provides for certain
exceptions for performance based compensation. The Bank intends the Stock Option
Plan to comply with the
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requirements for an exception to Section 162(m) applicable to stock option plans
so that the Bank's deduction for compensation related to the exercise of stock
options would not be subject to the $1,000,000 limitation. No executive of the
Bank currently receives compensation subject to this limitation.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Options that may be
granted under the Stock Option Plan. State and local tax consequences also may
be significant.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THE 1997 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES OF FALMOUTH CO-OPERATIVE BANK.
-----------------------------
PROPOSAL 5
RECOGNITION AND RETENTION PLAN
-----------------------------
GENERAL PLAN INFORMATION
The Bank has adopted, subject to the approval by stockholders of the
Bank, the 1997 Recognition and Retention Plan for Outside Directors, Officers
and Employees of Falmouth Co-operative Bank ("RRP"). The RRP provides for
restricted stock awards ("Awards") to certain officers, employees and outside
directors. The RRP will not take effect, and no Awards granted thereunder will
be effective, prior to the date of such shareholder approval ("Effective Date").
The RRP is not subject to ERISA. The principal provisions of the RRP are
summarized below. The full text of the RRP is set forth as Appendix B to this
Proxy Statement, to which reference is made, and the summary provided below is
qualified in its entirety by such reference.
PURPOSE OF THE RRP
The purpose of the RRP is to advance the interests of the Bank and its
stockholders by providing current officers, employees and outside directors of
the Bank and its affiliates with an incentive to achieve corporate objectives
and by attracting and retaining officers, employees and outside directors of
outstanding competence through the award of equity interests in the Bank.
VOTE REQUIRED
Approval of the RRP requires the affirmative vote of a majority of the
outstanding shares of the Bank. The required vote of stockholders on the RRP is
based upon the number of outstanding shares of Bank Common Stock, and not the
number of those shares that are actually voted. Accordingly, the failure to
submit a proxy card or to vote in person at the Annual Meeting or an abstention
from voting will have the same effect as a "NO" vote with respect to this
proposal. Broker non-votes will not be counted as having been voted in person or
by proxy at the Annual Meeting and will have the same effect as a "NO" vote with
respect to this proposal.
REGULATORY RESTRICTIONS AND CONDITIONS TO IMPLEMENTATION
The RRP is subject to certain restrictions imposed by the FDIC and the
percentage limitations of the regulations issued by the OTS with respect to
stock option plans or other management or employee stock benefit plans that are
established or implemented by a state-chartered bank within one year after
conversion
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from mutual to stock form. The restrictions apply to the RRP because the
Conversion occurred within one year prior to the date of this Annual Meeting. To
satisfy these requirements, the RRP provides that (i) no Awards may be granted
prior to the date on which a majority of the Bank's outstanding shares approve
the RRP or before March 28, 1997, whichever is later; and (ii) no individual
officer or employee may be granted Awards of more than 14,547 shares and no
outside director may be granted Awards of more than 2,909.
In addition, if the RRP is approved by stockholders, it will be subject
to the approval of the Division of Banks, which also requires that, for a three
year period following conversion, any stock benefit plan (including management
contracts) must be reviewed for reasonableness by an independent third party
compensation consultant approved by the Division of Banks. The maximum number of
Awards which would be made under the RRP will not exceed 58,190 shares, or more
than 4% of the stock that was issued in the Conversion.
Management of the Bank has been advised by its legal counsel that the
RRP complies with the FDIC regulations, the percentage limitations of the OTS
regulations and the regulations of the Division of Banks. Neither the FDIC, the
OTS or the Division of Banks has endorsed or approved the RRP and there are no
assurances that the Division of Banks will approve the RRP, if it is approved by
stockholders. In that event, no Awards will be made under the RRP.
DESCRIPTION OF THE RRP
Administration. The committee administering the RRP (the "RRP
Committee") will be comprised of at least three directors of the Bank, and all
directors on the RRP Committee will be "disinterested directors" (as that term
is defined under Section 16(b) and the rules and regulations promulgated
thereunder) who are not currently and have not at any time during the
immediately preceding one-year period been an employee of the Bank or any
affiliates. The RRP Committee will determine, within the limitations of the RRP,
the officers and employees to whom Awards will be granted, the number of shares
subject to each Award, the terms of such Awards (including provisions regarding
exercisability and acceleration of exercisability) and the procedures by which
the Awards shall be exercised. Awards granted to outside directors under the RRP
are by automatic formula grant, and the RRP Committee has no discretion over
such grants. Subject to certain specific limitations and restrictions set forth
in the RRP, the RRP Committee has full and final authority to interpret the RRP,
to prescribe, amend and rescind rules and regulations, if any, relating to the
RRP and to make all determinations necessary or advisable for the administration
of the RRP. The costs and expenses of administering the RRP will be borne by the
Bank and not charged to any grant of an Award nor to any participating officer,
employee or outside director.
Stock Subject to the RRP. The Bank will establish a trust ("Trust") and
will contribute, or cause to be contributed, to the Trust, from time to time,
such amounts of money or property as shall be determined by the Board, in its
discretion. No contributions by participants will be permitted. A trustee will
invest the assets of the Trust in Shares and in such other investments including
savings accounts, time or other interest bearing deposits in or other interest
bearing obligations of the Bank, in such proportions as shall be determined by
the RRP Committee. In no event shall the assets of the Trust be used to purchase
more than 58,190 Shares. As of November 21, 1996, the aggregate fair market
value of the Shares proposed to be authorized for the RRP was $814,660, based on
the closing sales price per share of $14.00 on the American Stock Exchange on
November 21, 1996.
Eligibility. Any employee of the Bank or its affiliates who is selected
by the RRP Committee is eligible to participate in the RRP as an "Eligible
Individual." As of November 15, 1996, there were __ Eligible Individuals.
Members of the board of directors of the Bank who are not employees or officers
of the Bank are eligible to participate in the Director RRP as an "Eligible
Director." As of November 15, 1996, there were ten Eligible Directors.
Terms and Conditions of Awards. The RRP Committee may, in its
discretion, grant Awards of restricted stock to Eligible Individuals. The RRP
Committee will determine at the time of the grant the
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number of Shares subject to an Award and the vesting schedule applicable to the
Award and may, in its discretion, establish other terms and conditions
applicable to the Award.
On the Effective Date, each Eligible Director will be granted an Award
of a number of shares to be determined by the Committee in consultation with an
employee benefits consultant and not to exceed 2,909 shares for any individual
and 17,457 for all Eligible Directors in the aggregate. Each Award will become
vested and distributable at a rate of 20% on each anniversary date of the grant,
but such Award will become fully vested on the date of the Award holder's death
or Disability.
Stock subject to Awards is held in trust pursuant to the RRP until
vested. An individual to whom an Award is granted is entitled to exercise voting
rights and receive cash dividends with respect to stock subject to Awards
granted to him whether or not vested. The RRP Committee will exercise voting
rights with respect to shares in the RRP trust that have not been allocated as
directed by the individuals eligible to participate in the RRP, whether or not
such individuals have been granted as Award. The shares covered by an Award will
become vested in accordance with the terms of the Award and as soon as
practicable following such vesting, the trustee will transfer the shares to the
recipient. Unless the RRP Committee provides otherwise, the shares covered by an
Award will vest 20% each year for five years; however, if the recipient
terminates employment with the Bank on account of his death or disability, or in
the event of a tender offer for, or a change of control of, the Bank, then any
shares covered by the Award will become 100% vested as of the date of his
termination of employment with the Bank or as of the commencement of such tender
offer or the effective date of such change of control. If an individual covered
by an Award terminates employment for reasons other than death or disability,
the individual forfeits all rights to his unvested shares remaining in the RRP
trust. Shares distributed to any person pursuant to an Award generally will not
be transferable for six months following the date of distribution.
NEW PLAN BENEFITS
As of the date of this Proxy Statement-Prospectus, no grants have been
made under the RRP. It is not determinable at this time what benefits, if any,
outside directors, officers or employees will receive under the RRP. See "--
Regulatory Restrictions and Conditions to Implementation."
TERMINATION OR AMENDMENT OF THE RRP
The Board may suspend or terminate the RRP in whole or in part at any
time prior to the tenth anniversary of the Effective Date by giving written
notice of such suspension or termination to the RRP Committee, but the RRP may
not be terminated while there are outstanding Awards that may thereafter become
vested. Upon the termination of the RRP, the trustee shall make distributions
from the Trust in such amounts and to such persons as the RRP Committee may
direct and shall return the remaining assets of the Trust, if any, to the Bank.
The Board may amend or revise the RRP in whole or in part at any time,
but if the amendment or revision (1) materially increases the benefits accruing
under the RRP, (2) materially increases the number of Shares which may be issued
under the RRP or (3) materially modifies the requirements as to eligibility for
Awards under the RRP, such amendment or revision will be subject to approval by
the shareholders of the Bank. Subject to these above provisions, the Board will
also have broad authority to amend the RRP to take into account changes in
applicable securities and tax laws and accounting rules, as well as other
developments.
EFFECT OF REORGANIZATION ON RRP
If the RRP is approved by stockholders at the Annual Meeting, on the
Effective Date, Bancorp will adopt and assume sponsorship of the RRP, including
all of Falmouth's obligations with respect to any outstanding restricted stock
granted pursuant to the RRP and all grants of restricted shares of Bank Common
Stock granted pursuant to the RRP prior to the Reorganization will become grants
of restricted shares of Bancorp Common Stock.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws, regulations
and policies affecting the Bank and recipients of Awards that may be granted
under the RRP. Any descriptions of the provisions of any law, regulation or
policy contained herein are qualified in their entirety by reference to the
particular law, regulation or policy. Any change in applicable law or regulation
or in the policies of various taxing authorities may have a material effect on
the discussion contained herein. The RRP does not constitute a qualified plan
under Section 401(a) of the Code.
The award of Shares under the RRP does not result in federal income tax
consequences to either the Bank or the award recipient. Upon the vesting of an
award and the distribution of the vested shares, the award recipient generally
will be required to include in ordinary income, for the taxable year in which
the vesting date occur, an amount equal to the fair market value of the shares
on the vesting date, and the Bank generally will be allowed to claim a
deduction, for compensation expense, in a like amount. To the extent that
dividends are paid with respect to unvested shares held under the RRP and
distributed to the award recipient, such dividend amounts will likewise be
includible in the ordinary income of the recipient and allowable as a deduction,
for compensation expense, to the Bank. Dividends declared and paid with respect
to vested shares, as well as any gain or loss realized upon an award recipient's
disposition of the shares, will be treated as dividend income and capital gain
or loss, respectively, in the same manner as for other shareholders.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Awards that may be
granted under the RRP. State and local tax consequences also may be significant.
Participants are advised to consult with their tax advisor as to the tax
consequences of the RRP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE 1997 RECOGNITION AND RETENTION PLAN FOR OUTSIDE
DIRECTORS, OFFICERS AND EMPLOYEES OF FALMOUTH CO-OPERATIVE BANK.
-----------------------------
PROPOSAL 6
FORMATION OF HOLDING COMPANY
-----------------------------
GENERAL
Bancorp and Falmouth entered into the Plan of Reorganization as of
November 25, 1996, pursuant to which Bancorp will become a bank holding company
with Falmouth as its wholly-owned subsidiary. A copy of the Plan of
Reorganization is set forth as Appendix C to this Proxy Statement-Prospectus and
is incorporated herein by reference. The discussion below is qualified in its
entirety by such reference. Bancorp is a newly-formed Delaware business
corporation that was organized by Falmouth for the purpose of effecting the
Reorganization and, therefore, has no operating history. If the Reorganization
is approved by the holders of Bank Common Stock, and subject to the satisfaction
of all other conditions set forth in the Plan of Reorganization, including
receipt of all required regulatory approvals, on the Effective Date, all of the
outstanding shares of Bank Common Stock (other than shares held by stockholders
exercising dissenters' rights, if any) will be converted into and exchanged for,
on a one-for-one basis, shares of Bancorp Common Stock.
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After the Effective Date, Falmouth will continue its existing business
and operations as a wholly-owned subsidiary of Bancorp. The consolidated assets,
liabilities, stockholders' equity and income of Bancorp immediately following
the Effective Date will be the same as those of Falmouth immediately prior to
the Effective Date. The Board of Directors of Bancorp is, and upon the Effective
Date will continue to be, comprised of the current members of the Board of
Directors of Falmouth. The officers of Bancorp are, and upon the Effective Date
will continue to be, certain current officers of Falmouth. See "Management of
Bancorp." Falmouth will continue to operate under the name "Falmouth
Co-operative Bank" and its deposit accounts will continue to be insured by the
Bank Insurance Fund ("BIF") of the FDIC and the Share Insurance Fund of the
Co-operative Central Bank. The corporate existence of Falmouth will continue
unaffected and unimpaired by the Reorganization, except that all of the
outstanding shares of Bank Common Stock (other than shares held by stockholders
exercising dissenters' rights, if any) will be owned by Bancorp. Falmouth's
stockholders prior to the Effective Date will, in turn, own all of the
outstanding shares of Bancorp Common Stock, having received that stock in
exchange for their shares of Bank Common Stock as part of the Reorganization.
VOTE REQUIRED
Approval of the Plan of Reorganization requires the approval of
two-thirds of the outstanding shares of the Bank. The required vote of
stockholders on the Plan of Reorganization is based upon the number of
outstanding shares of Bank Common Stock, and not the number of those shares that
are actually voted. Accordingly, the failure to submit a proxy card or to vote
in person at the Annual Meeting or an abstention from voting will have the same
effect as a "NO" vote with respect to this proposal. Broker non-votes will not
be counted as having been voted in person or by proxy at the Annual Meeting and
will have the same effect as a "NO" vote with respect to this proposal.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED
REORGANIZATION AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" ADOPTION
OF THE PLAN OF REORGANIZATION.
PARTIES TO THE REORGANIZATION
FALMOUTH CO-OPERATIVE BANK
The Bank was founded in 1925 as a Massachusetts chartered mutual
co-operative bank with its office in Falmouth, Massachusetts. The Bank completed
its conversion to stock form on March 28, 1996, and issued 1,454,750 shares of
common stock at $10.00 per share. The Bank's deposits have been federally
insured since 1986 and are currently insured by the BIF and the Share Insurance
Fund of the Co-operative Central Bank. The Bank has been a member of the
Co-operative Central Bank since 1932 and a member of the Federal Home Loan Bank
of Boston since 1975. The Bank is subject to comprehensive examination,
supervision, and regulation by the Commissioner of the Division of Banks and the
FDIC.
The Bank considers its primary market area to be the Massachusetts
communities of Falmouth and Mashpee located in the Cape Cod region of
Massachusetts. The Bank serves its market area through its office in Falmouth,
Massachusetts and will serve its market area through a new branch located in
East Falmouth, which is expected to open in February, 1997. The Bank competes
with 15 branches of financial institutions (including national banks, savings
banks, savings and loans and credit unions) which are headquartered outside of
its market area. The Bank is the only independent financial institution
headquartered in Falmouth.
The business of the Bank primarily consists of attracting savings
deposits from the general public and investing such deposits in loans secured by
single-family residential real estate and investment securities, including U.S.
Government and Agency securities and interest-earning deposits. Falmouth also
makes commercial real estate loans and consumer loans, including passbook loans,
automobile, home equity and other consumer loans. Falmouth originates both
fixed-rate and adjustable-rate loans and emphasizes the
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origination of residential real estate mortgage loans with adjustable interest
rates, and makes other investments which allow Falmouth to more closely match
the interest rate and maturities of its assets and liabilities.
Falmouth's business strategy is to operate as a well-capitalized,
profitable and independent community bank dedicated to financing home ownership
and consumer and small business needs in its market area and to provide quality
service to its customers. The Bank has implemented this strategy by: (i) closely
monitoring the needs of customers and providing quality service; (ii)
emphasizing consumer-oriented banking by originating residential mortgage loans
and consumer loans, and by offering checking accounts and other financial
services and products; (iii) focusing on expanding the volume of the Bank's
existing lending activities to produce moderate increases in loan originations;
(iv) maintaining high asset quality through conservative underwriting standards;
(v) maintaining capital in excess of regulatory requirements; and (vi) producing
stable earnings.
FALMOUTH BANCORP, INC.
Bancorp was organized in November, 1996 at the direction of the Board
of Directors of the Bank to become a bank holding company with Falmouth as its
wholly-owned subsidiary. Bancorp, upon the approval of the Division of Banks to
acquire the Bank and the approval by the FRB of Bancorp's application for
approval to become a bank holding company, will be subject to regulation by the
FRB. See "Regulation and Supervision -- Regulation of Holding Company." Upon
consummation of the Reorganization, Bancorp will have no significant assets
other than the shares of the Bank's capital stock acquired in the
Reorganization, and will have no significant liabilities. The management of
Bancorp is set forth under "Management of Bancorp." Initially, Bancorp will
neither own nor lease any property, but will instead use the premises, equipment
and furniture of the Bank. At the present time, Bancorp does not intend to
employ any persons other than certain executive officers, but will utilize the
support staff of the Bank from time to time. Additional employees will be hired
as appropriate, to the extent Bancorp expands its business in the future.
Bancorp's executive office is located at 20 Davis Straits, Falmouth,
Massachusetts 02540 and its telephone number is (508) 548-3500.
DESCRIPTION OF THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Board of Directors believes that a holding company structure will
better position Falmouth to compete in the markets that it serves by providing
Falmouth with greater flexibility to conduct its banking business. The formation
of a holding company will permit management greater flexibility with respect to
the enhancement of stockholder value through, among other things, the
implementation of a stock repurchase program. After the Reorganization is
completed, the Board of Directors may consider the establishment of a stock
repurchase program by evaluating the holding company's financial condition, the
value of its common stock and the available strategic alternatives for enhancing
stockholder value. The Bank can not repurchase its own shares without taking the
risk of triggering potentially severe adverse tax consequences, but the holding
company may do so without such tax consequences after the Reorganization is
completed. Repurchased shares may be used to fund the Stock Option Plan and the
RRP, if implemented. In addition, Bancorp will assume the ESOP loan, which is
currently held by a third party lender, and thereby reduce interest expense
associated with the ESOP debt. In the future, Bancorp may acquire or organize
other operating subsidiaries, including other savings institutions, without
merging such institutions with Falmouth. In addition, the holding company
structure will permit Bancorp and Falmouth, as a combined entity, to record
significant tax savings on earnings generated by investments held at the holding
company level.
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EFFECTIVE DATE
The Effective Date will be the fifth business day following the date on
which the Commissioner of the Division of Banks files the Plan in accordance
with the provisions of Section 26B of Chapter 172 of the General Laws of
Massachusetts, providing all conditions precedent are satisfied.
ACTIONS AT THE EFFECTIVE DATE
The Reorganization will be accomplished through the following steps:
1. Bancorp has been incorporated as a wholly-owned subsidiary of
Falmouth. The primary purpose of Bancorp is to become the
holding company for Falmouth.
2. At the Effective Date, Bancorp automatically will acquire all
shares of Bank Common Stock issued and outstanding immediately
prior to the Effective Date.
3. At the Effective Date, the holders of the shares of Bank
Common Stock issued and outstanding immediately prior to the
Effective Date automatically will become owners of one share
of Bancorp Common Stock for each share of Bank Common Stock
held by them immediately prior to the Effective Date.
4. All shares acquired by Falmouth as a result of the exercise of
dissenters' rights will be cancelled upon receipt.
After consummation of the Reorganization, the Bank expects to make a
capital contribution to Bancorp by transferring investment securities to
Bancorp, which may be used to conduct the activities described in "Reasons for
the Reorganization" including funding stock repurchase programs, if implemented,
or cash dividends, if declared. See "Dividend Policy." There are no assurances
that the Bank will obtain regulatory approval for the Reorganization or that, if
the Reorganization is consummated, Bancorp will conduct such activities.
CONDITIONS TO THE REORGANIZATION
The Plan of Reorganization provides that the obligations of Falmouth
and Bancorp to consummate the Reorganization are subject to the satisfaction of
the following conditions: (1) the approval of the Plan of Reorganization by an
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Bank Common Stock; (2) the approval by the Division of Banks of Bancorp and
the Bank's application for approval of the Plan of Reorganization; (3) the
approval by the FRB of Bancorp's application to become a holding Company under
the BHCA; (4) the receipt of a favorable ruling from the Internal Revenue
Service or a favorable opinion of counsel as to the federal income tax
consequences of the Reorganization; (5) the registration with the SEC of Bancorp
Common Stock under the Securities Act; (6) compliance with all applicable state
securities or "blue sky" laws relating to the issuance and distribution of
Bancorp Common Stock; and (7) the receipt of all other consents and approvals
and the satisfaction of all other requirements necessary to the consummation of
the Reorganization. There are no assurances that these conditions will be
satisfied and that the Reorganization will be consummated.
AMENDMENT AND TERMINATION
The Plan of Reorganization provides that it may be amended by the
parties thereto in whole or in part at any time prior to its approval by
stockholders and subsequent to approval by stockholders, if approved by the
Division of Banks.
The Plan of Reorganization further provides that it may be terminated
at any time prior to the Effective Date (whether before or after approval by the
stockholders of Falmouth) if the Reorganization
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becomes inadvisable in the opinion of the Board of Directors of Falmouth or
Bancorp due to (1) the number of shares of Bank Common Stock owned by
stockholders exercising dissenters' rights; (2) an action, suit, proceeding or
claim that has been made or threatened relating to the Plan of Reorganization;
or (3) any other reason.
EXCHANGE OF STOCK CERTIFICATES
In connection with the exchange of Bank Common Stock for Bancorp Common
Stock, it will not be necessary for stockholders of Falmouth to exchange their
certificates for certificates representing shares of Bancorp Common Stock. On
the Effective Date, non-dissenting stockholders of Falmouth automatically will
become stockholders of Bancorp and each outstanding certificate representing
shares of Bank Common Stock will automatically represent, and will be deemed for
all purposes to evidence ownership of, the same number of shares of Bancorp
Common Stock.
After the Effective Date, as currently outstanding certificates of Bank
Common Stock are presented for transfer, or, upon the request of any holder of
Bank Common Stock, the registrar and transfer agent for Bank Common Stock and
Bancorp Common Stock (the "Transfer Agent") will issue new stock certificates
representing the same number of shares of Bancorp Common Stock as the number of
shares of Bank Common Stock surrendered therefor. Upon surrender, each
certificate representing Bank Common Stock will be cancelled. After the
Effective Date, there will be no further registration of transfers of shares of
Bank Common Stock on the records of Falmouth.
EFFECT OF THE REORGANIZATION ON EMPLOYEE BENEFIT PLANS
On the Effective Date, the ESOP will be assumed by Bancorp. Shares of
Bank Common Stock held by the ESOP will automatically become shares of Bancorp
Common Stock. Bancorp will also adopt and assume the ESOP loan, which is
currently held by a third party lender.
If the Stock Option Plan is approved by stockholders at the Annual
Meeting, on the Effective Date, Bancorp will adopt and assume sponsorship of the
Stock Option Plan, and all outstanding options to purchase Bank Common Stock
granted pursuant to the Stock Option Plan prior to the Reorganization will
become options to purchase the same number of shares of Bancorp Common Stock
with the same terms, conditions and exercise price as the original options
granted.
If the RRP is approved by stockholders at the Annual Meeting, on the
Effective Date, Bancorp will adopt and assume sponsorship of the RRP, including
all of Falmouth's obligations with respect to any outstanding restricted stock
granted pursuant to the RRP and all grants of restricted shares of Bank Common
Stock granted pursuant to the RRP prior to the Reorganization will become grants
of restricted shares of Bancorp Common Stock.
The Reorganization will not trigger any change in control provisions
contained in any of the employment agreements with the Bank's officers. All
other employee benefit plans of Falmouth will be unchanged by the
Reorganization. See "Management of Falmouth -- Compensation and Employee Benefit
Plans."
DESCRIPTION OF BANCORP CAPITAL STOCK
GENERAL
The Certificate of Incorporation of Bancorp authorizes the issuance of
capital stock consisting of 5,000,000 shares of common stock, par value $0.01
per share, and 500,000 shares of preferred stock, par value $0.01 per share (the
"Bancorp Preferred Stock"). There are 100 shares of Bancorp Common Stock
currently issued and outstanding, all of which are owned by Falmouth. On the
Effective Date, such shares
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will be cancelled, and there will be, subject to the exercise of dissenters'
rights, if any, 1,454,750 shares outstanding as a result of the exchange of
shares of Bancorp Common Stock for shares of Bank Common Stock. Because all of
the issued and outstanding shares of Bancorp Common Stock are owned by Falmouth,
there is currently no established public trading market for Bancorp Common
Stock.
In the future, the authorized but unissued and unreserved shares of
Bancorp Common Stock and the authorized and unissued shares of Bancorp Preferred
Stock will be available for issuance for general corporate purposes, including,
but not limited to, possible issuance as stock dividends or stock splits, future
mergers or acquisitions, or future private placements or public offerings.
Bancorp's Board of Directors may (i) divide, and cause the issuance of, one or
more series of the authorized shares of Bancorp Preferred Stock, (ii) fix the
number of shares constituting any such new series, and (iii) fix the dividend
rate, terms, conditions, conversion and exchange rights, redemption rights
(including sinking fund provisions), liquidation preferences and voting rights,
if any, of any such new series. Such rights and preferences may be superior to
those of Bancorp Common Stock. Except as otherwise may be required to approve a
merger or other transaction in which the additional authorized shares of Bancorp
Common Stock or authorized shares of Bancorp Preferred Stock would be issued, no
stockholder approval will be required for the issuance of those shares. See
"Certain Differences in Stockholder Rights" for a discussion of the rights of
the holders of Bancorp Common Stock as compared to the holders of Bank Common
Stock. In addition, the Company may be restricted in its ability to register
additional shares of capital stock after completion of the Reorganization due to
certain requirements of the SEC related to financial statement disclosures and
related disclosures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMMON STOCK
General. Each share of Bancorp Common Stock has the same relative
rights as, and is identical in all respects to, each other share of Bancorp
Common Stock. Until such time as voting Bancorp Preferred Stock is issued, if
ever, the holders of shares of Bancorp Common Stock will possess all rights,
including exclusive voting rights, pertaining to the capital stock of Bancorp.
The relative rights of shares of Bancorp Common Stock do not differ materially
from the relative rights of shares of Bank Common Stock.
Dividend Rights. The holders of Bancorp Common Stock will be entitled
to dividends when, as and if declared by Bancorp's Board of Directors out of
funds legally available therefor. The payment of dividends by Bancorp will
depend on Bancorp's net income, financial condition, regulatory requirements and
other factors, including the results of Falmouth's operations. See "Dividend
Policy" for restrictions on the payment of dividends on Bancorp Common Stock.
Bancorp has no present intention to pay dividends, but may consider doing so in
the future.
Voting Rights. Each share of Bancorp Common Stock will entitle the
holder thereof to one vote on all matters upon which stockholders have the right
to vote. In addition, the Board of Directors of Bancorp is classified so that
approximately one-third of the directors will be elected each year. Stockholders
of Bancorp will not be entitled to cumulate their votes for the election of
directors. See "Certain Differences in Stockholder Rights -- Certain
Anti-Takeover Provisions."
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of Bancorp, the holders of shares of Bancorp Common Stock will be
entitled to receive, after payment of all debts and liabilities of Bancorp and
subject to the prior rights, if any, of holders of shares of Bancorp Preferred
Stock, all remaining assets of Bancorp available for distribution in cash or in
kind. In the event of any liquidation, dissolution or winding up of Falmouth,
Bancorp, as the holder of all shares of Bank Common Stock, upon completion of
the Reorganization, would be entitled to receive payment of all debt, and
liabilities of Falmouth (including all deposits and accrued interest thereon)
and all remaining assets of Falmouth available for distribution in cash or in
kind.
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Preemptive Rights; Redemption. Holders of shares of Bancorp Common
Stock will not be entitled to preemptive rights with respect to any shares that
may be issued. Bancorp Common Stock is not subject to call or redemption.
BANCORP PREFERRED STOCK
No Bancorp Preferred Stock is being issued in connection with the
Reorganization and the Board of Directors of Bancorp has no present plan or
intention to issue any Bancorp Preferred Stock. The Board of Directors may,
without action of the stockholders of Bancorp, issue shares of Bancorp Preferred
Stock from time to time in one or more series with distinctive serial
designations, preferences, limitations and other rights.
The Board of Directors is authorized to determine, among other things,
with respect to each series which may be issued: (i) the dividend rate,
conditions of payment of dividends, dividend preferences, if any, and whether
dividends would be cumulative and, if so, the date from which dividends on such
series would accumulate; (ii) whether, and upon what terms, such series would be
redeemable and, if so, the redemption price and terms and conditions of
redemption; (iii) the preference, if any, to which such series would be entitled
in the event of voluntary or involuntary liquidation, dissolution or winding up
of Bancorp; (iv) whether or not a sinking fund would be provided for the
redemption of such series and, if so, the terms and conditions thereof; (v)
whether, and upon what terms, such series would be convertible into or
exchangeable for shares of any other class of capital stock or other series of
Bancorp Preferred Stock; and (vi) whether, and to what extent, the holders of
such series would enjoy voting rights, if any, in addition to those prescribed
by law. With regard to dividends, redemption and liquidation preference, any
particular series of Bancorp Preferred Stock may rank junior to, on a parity
with or senior to any other series of Bancorp Preferred Stock.
It is not possible to state the actual effect of the authorization of
Bancorp Preferred Stock upon the rights of holders of Bancorp Common Stock,
until the Board of Directors determines the specific rights of the holders of a
series of Bancorp Preferred Stock. However, such effects might include (a)
restrictions on dividends on Bancorp Common Stock if dividends on Bancorp
Preferred Stock have not been paid; (b) dilution of the voting power of Bancorp
Common Stock to the extent that Bancorp Preferred Stock has voting rights; (c)
dilution of the equity interest of Bancorp Common Stock to the extent that
Bancorp Preferred Stock is converted into Bancorp Common Stock; or (d) Bancorp
Common Stock not being entitled to share in Bancorp's assets upon liquidation
until satisfaction of any liquidation preference granted the holders of Bancorp
Preferred Stock. Issuance of Bancorp Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could make it more difficult for a third party to acquire a majority
of the outstanding voting stock. Accordingly, the issuance of Bancorp Preferred
Stock may be used as an "anti-takeover" device without further action on the
part of the stockholders of Bancorp.
ANTI-TAKEOVER PROVISIONS
See "Certain Differences in Stockholder Rights -- Certain Anti-Takeover
Provisions" for a description of certain provisions contained in the Certificate
of Incorporation and Bylaws of Bancorp that might have the effect of delaying,
deferring or preventing a change in control of Bancorp.
DESCRIPTION OF FALMOUTH CAPITAL STOCK
GENERAL
The Bank's Charter authorizes the issuance of up to 2,500,000 shares of
common stock, par value $0.10 per share (the "Bank Common Stock") and 500,000
shares of serial preferred stock, par value $0.10 per share (the "Bank Preferred
Stock"). The Bank Preferred Stock may be issued in classes and series having
such rights, preferences, privileges and restrictions as the Board of Directors
of the Bank may determine from time to time.
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The Bank Preferred Stock may be issued by the Bank in one or more
series from time to time as determined by the Bank's board of directors by the
adoption of resolutions and the filing of a certificate of establishment of
preferred stock with the Secretary of State of the Commonwealth of
Massachusetts. No Bank Preferred Stock has been authorized by the Board of
Directors at this time.
THE COMMON STOCK
Under the Bank's Charter, each holder of shares of Bank Common Stock is
entitled to one vote per share on all matters requiring stockholder action and
to participate equally (subject to any preference which may hereafter be
established in favor of the Bank Preferred Stock) with the other holders of Bank
Common Stock in any dividends, when, as and if declared by the Board of
Directors of the Bank from funds legally available therefor. See "Dividend
Policy." Subject to any preferential rights established in favor of any
outstanding Bank Preferred Stock, each share of Bank Common Stock is entitled to
equal rights in the event of liquidation. Stockholders of Falmouth do not have
the right to cumulate their votes for the election of directors.
The holders of the Bank Common Stock have no preemptive or other rights
to subscribe for additional shares of any class of capital stock of the Bank.
Without preemptive rights, a stockholder's ownership position in the Bank is
subject to dilution if additional shares of capital stock are issued by the
Bank. The Bank Common Stock is not redeemable.
BANK PREFERRED STOCK
The Board of Directors may, without action of the stockholders of the
Bank, issue shares of Bank Preferred Stock from time to time in one or more
series with distinctive serial designations, preferences, limitations and other
rights. The Board of Directors is authorized to determine the same features with
respect to the Bank Preferred Stock as those of Bancorp Preferred Stock.
No Bank Preferred Stock is being issued in connection with the
Reorganization and there is currently no Bank Preferred Stock outstanding. The
Board of Directors of the Bank has no present plan or intention to issue any
Bank Preferred Stock.
CERTAIN DIFFERENCES IN STOCKHOLDER RIGHTS
GENERAL
The rights of the holders of Bank Common Stock are currently governed
by Massachusetts banking law and by Falmouth's Charter and the Bylaws adopted
thereunder. The rights of the holders of Bancorp Common Stock will be governed
by Delaware General Corporation Law ("DGCL"), by Bancorp's Certificate of
Incorporation and the Bylaws adopted thereunder and by the applicable
regulations of the SEC. Certain differences in stockholder rights arise from
this change of governing law. The following discussion summarizes the material
differences as reflected in Bancorp's Certificate of Incorporation and Bylaws
and is not intended to be a complete statement of all differences affecting the
rights of stockholders. This discussion is qualified in its entirety by
reference to Bancorp's Certificate of Incorporation and Bylaws, copies of which
are attached hereto as Appendix E and Appendix F, respectively. If the
Reorganization is not consummated, any action affecting the rights of
stockholders of Falmouth, including any change in control, will continue to be
subject to the relevant provisions of Falmouth's Charter and Bylaws and the
Massachusetts banking law. For a description of Bancorp Common Stock, see
"Description of Bancorp Capital Stock -- Common Stock." For a description of
provisions contained in the Certificate of Incorporation and Bylaws of Bancorp
that may be deemed to have an anti-takeover effect, see "-- Certain
Anti-Takeover Provisions."
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PAYMENT OF DIVIDENDS
The ability of Falmouth to pay dividends on its common stock is
restricted by Massachusetts banking law and by tax considerations related to
state-chartered banks. Falmouth may only pay dividends on its capital stock if
such payment would not impair its capital stock and surplus account. No
dividends may be paid if such dividends would reduce stockholders' equity of the
Bank below the amount of the liquidation account required by Massachusetts
conversion regulations. In addition, the Bank may not pay dividends in excess of
current earnings for three years following the Conversion. See "Dividend
Policy." Although Bancorp's ability to pay dividends will not be subject to
these restrictions, such restrictions will indirectly affect the Company because
dividends from the Bank will be a primary source of funds of the Company for the
payment of dividends to stockholders of the Company. Bancorp will be limited by
certain restrictions imposed generally on Delaware corporations. Subject to
certain limitations and exceptions, dividends may be paid only out of a Delaware
corporation's surplus (as defined by the DGCL) or its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. See
"Dividend Policy" and "Regulation and Supervision -- Regulation of Holding
Company." Bancorp intends to continue the Bank's current dividend policy.
RIGHTS OF ISSUER TO REPURCHASE STOCK
Under the Massachusetts banking law, Falmouth may repurchase its stock
under certain specific conditions, but only with the prior approval of the
Division of Banks. See "Dividend Policy" Under the DGCL, no prior approval is
required and, therefore, Bancorp will be allowed to purchase its own stock in
the open market subject to applicable law and the availability of funds
therefor. Under certain circumstances, stock repurchases by Bancorp will require
the prior approval of the Federal Reserve Bank of Boston. See "Regulation and
Supervision -- Bank Holding Company Regulation" for a description of the
restrictions on the repurchase by Bancorp of its stock. Bancorp may consider
repurchases of its stock in the future, but there can be no assurance that
Bancorp will conduct such repurchases.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Certificate of Incorporation of Bancorp contains provisions that
limit the personal liability of directors to Bancorp or to its stockholders for
monetary damages for breach of fiduciary duty, except to the extent such
limitation is not permitted by the DGCL. Section 102(b)(7) of the DGCL provides
that such a provision shall not eliminate or limit the personal liability of a
director (1) for any breach of the director's duty of loyalty to the corporation
or its stockholders; (2) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law; (3) under Section 174 of
the DGCL, which imposes liability for the unlawful payment of dividends or
unlawful stock purchase or redemption; or (4) for any transaction from which the
director received an improper personal benefit. The provisions in Bancorp's
Certificate of Incorporation apply only to the liability of a director acting in
his capacity as such and not to actions brought other than by a stockholder or
Bancorp. Bancorp's Certificate of Incorporation contains provisions that require
indemnification of the directors and officers and permits indemnification of
employees of Bancorp and any of its direct or indirect subsidiaries. To be
entitled to indemnification, it must be determined that, in general terms, the
person acted in good faith and in a manner believed to be in, or not opposed to,
the best interests of Bancorp and, with respect to a criminal action, had no
reasonable cause to believe his or her conduct was unlawful.
Massachusetts law permits institutions to indemnify directors, officers
and employees or agents, as provided in (i) the Charter, (ii) a bylaw adopted by
stockholders or (iii) a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. Falmouth's Bylaws
include a provision indemnifying directors and officers of the Bank against
expenses arising out of litigation or other proceedings relating to such
person's activities as a director or officer of the Bank.
Bancorp's Certificate of Incorporation defines in greater detail than
the Massachusetts banking law the circumstances under which a person may be
entitled to indemnification and the procedures for obtaining
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indemnification and for resolving disputes over indemnification. Under the
Federal Deposit Insurance Act, as amended ("FDIA"), both Falmouth and Bancorp
would be prohibited from paying any indemnification with respect to any
liability or legal expense incurred by a director, officer, or employee as
result of an action or proceeding by a federal banking agency resulting in a
civil money penalty or certain other remedies against such person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Bancorp
pursuant to the forgoing provisions, Bancorp has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
APPRAISAL RIGHTS
Under Massachusetts law, a stockholder of a Massachusetts chartered
co-operative bank, such as the Bank, which engages in a merger or consolidation
has the right to demand from such co-operative bank payment of the fair or
appraised value of his or her stock in the co-operative bank, subject to
specified procedural requirements. The Massachusetts regulations governing a
stockholder's appraisal rights are attached hereto as Appendix D.
After the Reorganization, the rights of appraisal of dissenting
stockholders will be governed by the DGCL. The DGCL provides that dissenting
stockholders have appraisal rights in certain instances. However, the DGCL
generally does not confer appraisal rights if a corporation's stock is held of
record by more than 2,000 stockholders, or if it is listed on a national
securities exchange or listed on the Nasdaq National Market System, provided
that stockholders receive only certain forms of consideration in exchange for
their shares of stock.
SPECIAL MEETINGS OF STOCKHOLDERS
The Bank's Bylaws provide that special meetings of the stockholders of
the Bank may be called by the Chairman of the Board, the President, or a
majority of the Board of Directors. The Company's Certificate of Incorporation
and Bylaws contain a provision pursuant to which special meetings of
stockholders of the Company may only be called by the Chairman, the President
and Chief Executive Officer, or by resolution of at least three-fourths of the
Directors then in office.
CERTAIN ANTI-TAKEOVER PROVISIONS
General. The principal purpose of any anti-takeover provision is to
protect the interests of a corporation and its stockholders in the event of a
sudden takeover attempt. Such provisions are intended to require a hostile
purchaser to deal fairly with stockholders and to give a corporation's board of
directors a better opportunity to analyze prospective business combinations and
tender offers, evaluate alternatives, and make careful recommendations to
stockholders. Such provisions could have the effect of making more difficult, or
discourage, a merger, tender offer, proxy contest, or assumption of control and
change of incumbent management, even when a majority of stockholders considers
such a course to be in its best interests. However, the Board of Directors of
the Bank and Bancorp believes that the disadvantages of discouraging such
actions are outweighed by the best interests of the stockholders as a whole and
by the benefits obtained by protecting the ability of the Board to negotiate
with a proponent of an unfriendly or unsolicited proposal to take over or
restructure the Bank or Bancorp.
The following discussion focuses on certain provisions of Bancorp's
Certificate of Incorporation and Bylaws and, where applicable, the corresponding
provisions of Falmouth's Charter and Bylaws that could be relevant to change in
control situations and that may affect the rights of stockholders.
Capital Stock. Falmouth's Charter authorizes the issuance of up to
2,500,000 shares of common stock and 500,000 shares of serial preferred stock
and Bancorp's Certificate of Incorporation authorizes the issuance
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of up to 5,000,000 shares of common stock and 500,000 shares of preferred stock.
Although neither Falmouth nor Bancorp has any arrangements, understandings or
plans at the present time for the issuance or use of additional shares of common
stock or any of the shares of authorized preferred stock, the availability of
such shares will provide Falmouth or Bancorp with flexibility in structuring
financings and acquisitions and meeting other corporate needs that may arise.
As permitted by the DGCL, Bancorp's Board of Directors may, without
stockholder approval, issue additional shares of Bancorp Common Stock or
authorize the issuance of a series of preferred stock with rights and
preferences that could impede the completion of a transaction to which
management is opposed. Bancorp's ability to issue additional capital stock is
subject to applicable law, including the duty of directors to exercise their
business judgment in the best interests of Bancorp and its stockholders.
Board of Directors. Falmouth's Charter provides that the authorized
number of directors shall not be fewer than seven nor more than twenty-five, as
fixed in Falmouth's Bylaws. Bancorp's Certificate of Incorporation and Bylaws
also provide that the authorized number of directors shall not be fewer than
seven nor more than twenty-five, with the exact number to be fixed by resolution
of Bancorp's Board of Directors. The Board of Bancorp will initially be composed
of eleven directors, the same number of directors currently on Falmouth's Board
of Directors. See "Management of Bancorp." Falmouth's Bylaws and Bancorp's
Certificate of Incorporation provide for a board of directors that is to be
divided into three classes, which shall be as nearly equal in number as
possible. The power to fill vacancies for each of Falmouth and Bancorp is vested
in their respective Boards of Directors. The overall effect of such provisions
may be to prevent a person or entity from immediately acquiring control of
Falmouth or Bancorp through an increase in the number of directors and the
election of such person or of such person's or entity's nominees to fill such
newly created vacancies.
The DGCL provides that a director serving on a classified board may be
removed by the holders of a majority of the shares entitled to vote thereon, but
only for cause, unless the certificate of incorporation provides otherwise. The
Bylaws of Falmouth provide that any director may be removed only for cause, at a
special meeting of stockholders by a vote of the holders of two-thirds of the
shares then entitled to vote at an election of directors. Bancorp's Certificate
of Incorporation provides that any director may be removed only for cause by a
vote of the holders of 80% of the shares then entitled to vote at an election of
directors. The classified Board of Directors, the enhanced requirement for
removal of directors of Bancorp and the related provisions discussed above could
make it more difficult for stockholders to force an immediate change in the
composition of a majority of the composition of a majority of the Board of
Directors.
Action Without a Stockholder Meeting. Falmouth's Bylaws do not provide
for action by stockholders without a meeting. Bancorp's Certificate of
Incorporation affirmatively prohibits stockholder action by written consent in
lieu of an annual or special meeting of stockholders.
Notice of Director Nominations and Stockholder Proposals. The Bank's
Bylaws provide that stockholders may submit nominations for election of
directors to the Clerk of the Bank at least five days prior to the date of the
annual meeting of Stockholders but do not provide for stockholder submission of
other new business.
Bancorp's Bylaws provide that all nominations for election to the Board
of Directors and proposals for any new business, other than those made by the
Chairman of the Board, the President and Chief Executive Officer or by
resolution of at least three-fourths of the directors then in office, shall be
made by a stockholder who has complied with the written notice provisions in the
Bylaws, which generally provide for 60 days notice to the Secretary of Bancorp.
The Bylaw procedures regarding stockholder proposals and nominations
are intended to provide the Board of Directors of Bancorp with the information
deemed necessary to evaluate a stockholder proposal or nomination and other
relevant information, such as existing stockholder support, as well as the time
necessary to consider and evaluate such information in advance of a meeting. The
procedures will give incumbent
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directors advance notice of a business proposal or nomination. This may make it
easier for incumbent directors to defeat a stockholder proposal or nomination,
even when certain stockholders may view such proposal or nomination as in the
best interests of the Company or its stockholders.
Stockholder Vote Required to Approve Certain Business Combinations.
Under the Bank's Charter, business combinations, such as mergers,
consolidations, purchases and sales of substantially all of the assets of an
institution, require the approval of the holders of two-thirds of the
outstanding voting stock entitled to vote thereon. This provision is comparable
to the provision in Bancorp's Certificate of Incorporation discussed below.
Bancorp's Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock,
together with the affirmative vote of the Company's outstanding shares not
beneficially owned by an Interested Stockholder (as defined below) to approve
certain "Business Combinations," as defined therein, and related transactions.
Under Delaware law, absent this provision, Business Combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of stockholders is required in connection
with any transaction involving an Interested Stockholder except (i) in cases
where the proposed transaction has been approved in advance by a majority of
those members of the Company's Board of Directors who are unaffiliated with the
Interested Stockholder and were directors prior to the time when the Interested
Stockholder became an Interested Stockholder or (ii) if the proposed transaction
meets certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares in which case, if a
stockholder vote is required, approval of only a majority of the outstanding
shares of voting stock would be sufficient. The term "Interested Stockholder" is
defined to include any individual, corporation, partnership or other entity
(other than the Company or its subsidiary) which owns beneficially or controls,
directly or indirectly, 10% or more of the outstanding shares of voting stock of
the Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include (i) any merger or
consolidation of the Company or any of its subsidiaries with or into any
Interested Stockholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Stockholder or Affiliate of 5% or more of the assets of the Company or combined
assets of the Company and its subsidiary; (iii) the issuance or transfer to any
Interested Stockholder or its Affiliate by the Company (or any subsidiary) of
any securities of the Company other than on a pro rata basis to all
stockholders; (iv) the adoption of any plan for the liquidation or dissolution
of the Company proposed by or on behalf of any Interested Stockholder or
Affiliate thereof; and (v) any reclassification of securities, recapitalization,
merger or consolidation of the Company which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company owned directly or indirectly by an Interested
Stockholder or Affiliate thereof.
Evaluation of Offers. The Certificate of Incorporation of the Company
provides that the Board of Directors of the Company, when evaluating any offer
to the Company from another party to (i) make a tender or exchange offer for any
equity security of the Company, (ii) merge or consolidate the Company with
another corporation or entity or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company and the stockholders of the Company, give due
consideration to the extent permitted by law to all relevant factors, including,
without limitation, the financial and managerial resources and future prospects
of the other party, the possible effects on the business of the Company and its
subsidiaries and on the employees, customers, suppliers and creditors of the
Company and its subsidiaries, the effects on the communities in which the
Company's and its subsidiaries' facilities are located and the commitment and
ability of the other party to remain faithful to the special mission of the
Company and its subsidiaries in the communities in which the Company and its
subsidiaries are located in the tradition begun by the Bank. By having these
standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in
-41-
<PAGE>
the best interest of the Company, even if the price offered is significantly
greater than the then market price of any equity security of the Company. The
Bank's Charter includes a comparable provision.
Amendment of Certificate of Incorporation and Bylaws. Falmouth's
Charter provides that amendments of the Charter must be proposed by the Board of
Directors and approved by the holders of a majority of the total votes of
stockholders entitled to vote thereon at a meeting. Falmouth's Charter and
Bylaws permit the amendment of the Bylaws by a vote of two-thirds of the Board
of Directors or by holders of two-thirds of the total votes of stockholders
present in person or by proxy at a meeting and entitled to vote thereon.
Bancorp's Certificate of Incorporation generally provides that, in
addition to any affirmative vote required by applicable law and any voting
rights granted to or held by holders of any series of Bancorp Preferred Stock,
any alteration, amendment, repeal or rescission (collectively, any "Change") of
any provision of the Certificate of Incorporation must be approved by a majority
of the directors of Bancorp then in office and by the affirmative vote of the
holders of a majority (or such greater proportion as may otherwise be required
pursuant to any specific provision of the Certificate of Incorporation) of the
total votes eligible to be cast by the holders of all outstanding shares of
Bancorp Common Stock entitled to vote. In addition to the above requirement, a
Change to certain provisions of the Certificate of Incorporation must also be
approved either (i) by not less than a majority of the authorized number of
directors and, if one or more Interested Stockholders exist, by not less than a
majority of the Disinterested Directors or (ii) by the affirmative vote of the
holders of not less than two-thirds of the total votes eligible to be cast by
the holders of all outstanding shares of the capital stock of Bancorp entitled
to vote thereon and, if the Change is proposed by or on behalf of an Interested
Stockholder or a director who is an Affiliate or Associate of an Interested
Stockholder, by the affirmative vote of the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares
entitled to vote thereon not beneficially owned by an Interested Stockholder or
an Affiliate or Associate thereof. Amendment of the provision relating to
business combinations must also be approved by either (i) a majority of the
Disinterested Directors, or (ii) the affirmative vote of not less than eighty
percent (80%) of the total number of votes eligible to be cast by the holders of
all outstanding shares of the Voting Stock, voting together as a single class,
together with the affirmative vote of not less than fifty percent (50%) of the
total number of votes eligible to be cast by the holders of all outstanding
shares of the Voting Stock not beneficially owned by any Interested Stockholder
or Affiliate or Associate thereof, voting together as a single class.
Capitalized terms are as defined in the Certificate of Incorporation.
Furthermore, the Company's Certificate of Incorporation provides that provisions
of the Certificate of Incorporation and Bylaws that contain supermajority voting
requirements may not be altered, amended, repealed or rescinded without a vote
of the Board or holders of capital stock entitled to vote thereon that is not
less than the supermajority specified in such provision. Absent these
provisions, the DGCL provides that a corporation's certificate of incorporation
and bylaws may be amended by the holders of a majority of the corporation's
outstanding capital stock. The Certificate of Incorporation also provides that
the Board of Directors is authorized to make, alter, amend, rescind or repeal
any of the Company's Bylaws in accordance with the terms thereof, regardless of
whether the Bylaw was adopted initially by the stockholders. However, this
authorization neither divests the stockholders of their right, nor limits their
power to adopt, amend, rescind or repeal any Bylaw under the DGCL. These
provisions could have the effect of discouraging a tender offer or other
takeover attempt where the ability to make fundamental changes through Bylaw
amendments is an important element of the takeover strategy of the acquiror.
The provisions of Bancorp's Certificate of Incorporation limiting the
liability of directors, as described above, may not be repealed or amended
without the affirmative vote of the holders of 80% of the total votes eligible
to be cast by the holders of all of the outstanding shares of the capital stock
of Bancorp entitled to vote thereon.
Section 203 of Delaware General Corporate Law. The State of Delaware
has a statute designed to provide Delaware corporations with additional
protection against hostile takeovers. The takeover statute, which is codified in
Section 203 of the DGCL ("Section 203"), is intended to discourage certain
takeover practices by impeding the ability of a hostile acquiror to engage in
certain transactions with the target company.
-42-
<PAGE>
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(a "Section 203 Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became a Section 203 Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
Section 203 Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming
Section 203 Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became Section 203 Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with Section 203 Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Section 203 Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirement of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Additional Change in Control Regulation. The acquisition of more than
ten percent (10%) of either Bancorp Common Stock or Bank Common Stock
outstanding may, in certain circumstances, be subject to the provisions of the
Change in Bank Control Act of 1978 (the "Change in Bank Control Act"). The FDIC
has also adopted a regulation pursuant to the Change in Bank Control Act which
generally requires persons who at any time intend to acquire control of an
FDIC-insured state-chartered non-member bank, including a converted co-operative
bank such as the Bank, either directly or indirectly through an acquisition of
control of Bancorp to provide 60 days prior written notice and certain financial
and other information to the FDIC. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least
twenty-five percent (25%) of any class of voting stock or the power to direct
the management or policies of the Bank or Bancorp. However, under FDIC
regulations, control is presumed to exist where the acquiring party has voting
control of at least ten percent (10%) of any class of voting securities if (i)
the Bank or Bancorp has a class of voting securities which is registered under
Section 12 of the Exchange Act, or (ii) the acquiring party would be the largest
holder of a class of voting shares of the Bank or Bancorp. The statute and
underlying regulations authorize the FDIC to disapprove a proposed acquisition
on certain specified grounds. In some circumstances, similar filings with the
Commissioner may be required under the Massachusetts Change in Bank Control Act.
Prior approval of the FRB would be required for any acquisition of
control of the Bank or Bancorp by any bank holding company under the Bank
Holding Company Act ("BHCA") and approval by the Board of Bank Incorporation
would be required under Massachusetts law. Control for purposes of the BHCA
would be based on, among other things, a twenty-five percent (25%) voting stock
test or on the ability of the holding company otherwise to control the election
of a majority of the Board of Directors of the Bank or Bancorp. As part of such
acquisition, the acquiring company (unless already so registered) would be
required to register as a bank holding company under the BHCA.
The Exchange Act requires that a purchaser of any class of a
corporation's securities registered under the Exchange Act notify the SEC and
such corporation within ten days after its purchases exceed 5% of the
outstanding shares of that class of securities. This notice must disclose the
background and identity of the purchaser, the source and amount of funds used
for the purchase, the number of shares owned and, if the purpose of the
transaction is to acquire control of the corporation, any plans to alter
materially the corporation's business or corporate structure. In addition, any
tender offer to acquire a corporation's securities is subject to the limitations
and disclosure requirements of the Exchange Act.
-43-
<PAGE>
TAX CONSEQUENCES OF THE REORGANIZATION
The consummation of the Reorganization is conditioned, in part, upon
receipt by Falmouth of an opinion of counsel to Falmouth to the effect that, for
federal income tax purposes: (1) no gain or loss will be recognized by
stockholders of Falmouth on the transfer of their shares of Bank Common Stock to
Bancorp solely in exchange for Bancorp Common Stock; (2) no gain or loss will be
recognized by Bancorp upon its receipt of shares of Bank Common Stock in
exchange for shares of Bancorp Common Stock; (3) the aggregate basis of the
shares of Bancorp Common Stock to be received by each Falmouth stockholder will
be the same as the aggregate basis of the shares of Bank Common Stock exchanged
therefor; and (4) the holding period of Bancorp Common Stock to be received by
each Falmouth stockholder will include the holding period of the shares of Bank
Common Stock exchanged therefor, provided that such stockholder held such shares
of Bank Common Stock as a capital asset on the Effective Date.
John P. Conroy, P.C., has opined, subject to the limitations and
qualifications in its opinion, that the Reorganization will not be a taxable
transaction to Bancorp, Falmouth or Falmouth's stockholders (who do not elect to
exercise dissenters' rights) for Massachusetts state income and corporate tax
purposes.
Thacher Proffitt & Wood, the Bank's special counsel for the
Reorganization, will not express an opinion as to whether or to what extent
payments to stockholders who exercise dissenters' rights or payments by Falmouth
to Bancorp of an amount that exceeds the current and accumulated earnings and
profits of Falmouth will cause Falmouth to have income. In addition, Thacher
Proffitt & Wood will not express an opinion as to the tax consequences to
stockholders of exercising their dissenters' rights with respect to any shares
of Bank Common Stock.
Each stockholder is urged to consult his or her own tax advisor as to
the specific consequences of the Reorganization to the stockholder under
federal, state and any other applicable laws.
ACCOUNTING TREATMENT OF THE REORGANIZATION
The Reorganization is expected to be characterized as, and treated
similarly to, a "pooling of interests" (rather than a "purchase") for financial
reporting and related purposes, with the result that the accounts of Falmouth
and Bancorp will be combined.
MARKET FOR THE COMMON STOCK
Although there is an established market for the Bank's common stock,
which currently is quoted on the American Stock Exchange under the symbol "FCB,"
Bancorp, as a newly formed corporation, has never issued capital stock and
consequently there is no established market for Bancorp Common Stock. It is
expected that Bancorp Common Stock will be at least as liquid as Bank Common
Stock since the number of outstanding shares of Bancorp Common Stock following
the Reorganization will match the number of shares of Bank Common Stock prior to
the Reorganization. However, there can be no assurance that an active and liquid
trading market for Bancorp Common Stock will be maintained.
At November 1, 1996, there were 1,454,750 shares of Bank Common Stock
outstanding which were held of record by approximately 900 stockholders, not
including persons or entities who hold the stock in nominee or "street" name
through various brokerage firms. Since March 28, 1996, the date of the Bank's
Conversion, the Bank Common Stock has traded on the American Stock Exchange
under the symbol "FCB." The following table shows the high and low per share
sales prices of the Bank Common Stock as reported on the American Stock Exchange
since the Conversion.
-44-
<PAGE>
<TABLE>
<CAPTION>
Price Range
--------------------------------------
Quarter Ended High Low
- - ----------------------------------------------------------------- ---- ---
<S> <C> <C>
Fiscal year ended September 30, 1996:
Second Quarter ended March 31, 1996......................... $ 11 1/8 $ 10 5/8
Third Quarter ended June 30, 1996........................... 11 5/8 10 1/8
Fourth Quarter ended September 30, 1996..................... 12 7/8 10 1/4
Fiscal year ending September 30, 1997:
First Quarter (through November 21, 1996)................... 14 7/8 12 1/2
</TABLE>
DIVIDEND POLICY
The Board of Directors of Bancorp will have the authority to declare
dividends on Bancorp Common Stock, subject to statutory and regulatory
requirements. The Board of Directors plans to continue the Bank's current
dividend policy for the Bancorp Common Stock; however, there can be no
assurances that this dividend policy will continue in the future. Future
declarations of dividends by the Board of Directors will depend upon a number of
factors, including investment opportunities available to Bancorp or Falmouth,
capital requirements, regulatory limitations, Bancorp's and Falmouth's results
of operations, financial and tax considerations and general economic conditions.
After consummation of the Reorganization, management of the Bank expects to make
a capital contribution to Bancorp by transferring investment securities to
Bancorp, which may be used by Bancorp after the Reorganization to, among other
things, fund cash dividends that may be declared.
Since the Conversion and as of the date of this Proxy
Statement-Prospectus, the Board of Directors of Falmouth has declared a
quarterly cash dividend of $0.05 per share of Bank Common Stock, payable on
December 15, 1996 to stockholders of record on December 2, 1996. There are
significant regulatory limitations on the Bank's ability to pay dividends
depending on its capital structure and the overall health of the institution. An
insured depository institution may not make a capital distribution if, following
such distribution, the institution will be "undercapitalized" as that term is
defined for purposes of the prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act ("FDICIA"). Pursuant to the Bank's
formal dividend policy, the Board of Directors has determined that the Bank will
not pay dividends in excess of current earnings for the three years following
the Conversion, and will not pay dividends from borrowed funds or nonrecurring
gains. As a condition to the approval of the Conversion, any change in this
policy to permit the payment of dividends in excess of current earnings would
require the prior approval of the Commissioner.
The Bank is also prohibited from paying any dividend which would reduce
the Bank's total regulatory capital below the amount then required for the
liquidation account established for the benefit of the Bank's Eligible Account
Holders at the time of the Conversion.
Unlike the Bank, Bancorp is not subject to Division of Banks regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends could be, in part, dependent upon dividends from the
Bank in addition to the net proceeds retained by Bancorp and earnings thereon.
Bancorp is subject to the requirements of Delaware law, which generally limit
dividends to an amount equal to the excess of the net assets of Bancorp (the
amount by which total assets exceed total liabilities) over its statutory
capital, or if there is no such excess, to its net profits for the current
and/or immediately preceding fiscal year.
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<PAGE>
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table presents the capitalization of Falmouth as of
September 30, 1996 and the pro forma consolidated capitalization of Bancorp and
its subsidiary, Falmouth, as of September 30, 1996, as adjusted to give effect
to the Reorganization as described in this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
Falmouth Bancorp and Subsidiary
--------------------------- --------------------------------
(In thousands, except share amounts)
------------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Stockholders' equity:
Preferred stock, par value $0.01 per share for
Bancorp, $0.10 per share for Falmouth:
Authorized.................................. 500,000 -- 500,000 --
Issued and outstanding...................... -- -- -- --
Common stock, par value $.01 per share for
Bancorp, $0.10 per share for Falmouth:
Authorized.................................. 2,500,000 -- 5,000,000 --
Issued and outstanding...................... 1,454,750 $ 145 1,454,750 $ 15
Unearned ESOP shares................................. (82,901) (829) (82,901) (829)
Additional paid-in capital .......................... 13,598 13,598
Retained earnings (deficit).......................... 8,856 8,856
Unrealized gain (loss) on securities available-for-sale
net of tax........................................... 144 144
--- ---
Total stockholders' equity........................... $21,914 $ 21,784
======= ========
</TABLE>
BUSINESS OF BANCORP
GENERAL
Bancorp is a business corporation organized under the laws of the State
of Delaware on November 25, 1996. The only office of Bancorp, and its principal
place of business, is located at the administrative offices of Falmouth at 20
Davis Straits, Falmouth, Massachusetts 02540. Bancorp's telephone number is
(508) 548-3500.
Bancorp was organized for the purpose of becoming the holding company
of Falmouth. On the Effective Date, Falmouth will become a wholly-owned
subsidiary of Bancorp, which thereby will become a bank company, and each
stockholder of Falmouth will, subject to the exercise of dissenters' rights,
become a stockholder of Bancorp without any change in the number of shares owned
or in respective ownership percentages.
Bancorp has not yet undertaken any operating business activities and
does not currently propose to do so. In the future, Bancorp may become an
operating company or acquire other co-operative banks, commercial banks or bank
holding companies, or engage in or acquire such other activities or businesses
as may be permitted by applicable law, although there are no present plans or
intentions to do so.
After consummation of the Reorganization, the Bank expects to make a
capital contribution to Bancorp by transferring investment securities to
Bancorp, which may be used to conduct the activities described in "Proposal 6 --
Formation of Holding Company -- Description of the Reorganization -- Reasons for
the
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<PAGE>
Reorganization," including funding stock repurchase programs, if implemented, or
cash dividends, if declared. See "Dividend Policy." There are no assurances that
the Bank will obtain regulatory approval for the Reorganization or that, if the
Reorganization is consummated, Bancorp will conduct such activities.
PROPERTY
Initially, Bancorp will neither own nor lease any real or personal
property but will utilize the premises and property of Falmouth without the
payment of any rental fees to Falmouth.
COMPETITION
It is expected that for the near future the primary business of Bancorp
will be the ongoing business of Falmouth. Therefore, the competitive conditions
to be faced by Bancorp will be the same as those faced by Falmouth. In addition,
many banks and financial institutions have formed, or are in the process of
forming, holding companies. It is likely that these holding companies will
attempt to acquire banks, thrift institutions or companies engaged in
bank-related activities. Thus, Bancorp will face competition in undertaking any
such acquisitions and in operating subsequent to any such acquisitions. Bancorp
has no present plans or intentions to undertake any such acquisitions. See
"Business of the Bank -- Competition."
EMPLOYEES
At the present time, Bancorp does not intend to have any employees
other than its management. See "Management of Bancorp." It will utilize the
support staff of Falmouth from time to time without the payment of any fees. If
Bancorp acquires other financial institutions or pursues other lines of
business, it may at such time hire additional employees.
BUSINESS OF THE BANK
GENERAL
The Bank was founded in 1925 as a Massachusetts chartered mutual
co-operative bank with its office in Falmouth, Massachusetts. The Bank,
currently a Massachusetts chartered stock co-operative bank, completed its
conversion to stock form on March 28, 1996, and issued 1,454,750 shares of
common stock at $10.00 per share. The Bank's deposits have been federally
insured since 1986 and currently are insured by the BIF of the FDIC and the
Share Insurance Fund of the Co-operative Central Bank. The Bank has been a
member of the Co-operative Central Bank since 1932 and a member of the Federal
Home Loan Bank of Boston since 1975. The Bank is subject to comprehensive
examination, supervision, and regulation by the Commissioner of the Division of
Banks and the FDIC.
The Bank serves its primary market area, the Massachusetts communities
of Falmouth and Mashpee located in the Cape Cod region of Massachusetts, through
its office in Falmouth, Massachusetts. In February, 1997, the Bank expects to
open a new branch located in East Falmouth. The Bank competes with fifteen
branches of financial institutions (including national banks, savings banks,
savings and loans and credit unions) which are headquartered outside its market
area. The Bank is the only independent financial institution headquartered in
Falmouth.
The business of the Bank primarily consists of attracting savings
deposits from the general public and investing such deposits in loans secured by
single-family residential real estate and investment securities, including
United States Government and Agency securities and interest-earning deposits.
Falmouth also makes commercial real estate loans and consumer loans, including
passbook loans, automobile, home equity and other consumer loans. Falmouth
originates both fixed-rate and adjustable-rate loans and emphasizes the
origination of residential real estate mortgage loans with adjustable interest
rates, and makes other investments which allow Falmouth to more closely match
the interest rate and maturities of its assets and liabilities.
-47-
<PAGE>
Falmouth's business strategy is to operate as a well-capitalized,
profitable and independent community bank dedicated to financing home ownership
and consumer and small business needs in its market area and to provide quality
service to its customers. The Bank has implemented this strategy by: (i)
monitoring closely the needs of customers and providing quality service; (ii)
emphasizing consumer-oriented banking by originating residential mortgage loans
and consumer loans, and by offering checking accounts and other financial
services and products; (iii) focusing on expanding the volume of the Bank's
existing lending activities to produce moderate increases in loan originations;
(iv) maintaining high asset quality through conservative underwriting standards;
(v) maintaining capital in excess of regulatory requirements; and (vi) producing
stable earnings.
MARKET AREA
Falmouth's office is located in Falmouth, Massachusetts. The Bank
considers its primary market area to be the communities of Falmouth and Mashpee
in Barnstable County, Massachusetts. The year-round population of Barnstable
County is 186,605 (based on the 1990 Census). This county is in the Cape Cod
region of Massachusetts, approximately 72 miles south of Boston, Massachusetts.
The majority of the Bank's lending has been in Falmouth and Mashpee. The Cape
Cod region is a major recreational resort/retirement community, with seasonal
tourism being the most significant economic activity. Falmouth's year-round
population of approximately 27,000 increases to a summer population of
approximately 68,000. Visitors find accommodations in the many motels, hotels
and inns in the area. Falmouth has approximately 44 miles of ocean and lakes
shoreline. There are nine harbors and inlets, some with docking and most with
mooring facilities. Two major harbors offer access, via ferry, to the island of
Martha's Vineyard with service to the island of Nantucket during the summer
months from Woods Hole. As well as swimming, boating, fishing and other forms of
water recreation, Falmouth also has four public and two private golf courses.
The major employers in the Falmouth area are Woods Hole Oceanographic
Institute, with approximately 800 employees, Falmouth Hospital, with 750
employees and Woods Hole, Martha's Vineyard and Nantucket Steamship Authority,
with 500 employees. Other major employers include Marine Biological Laboratories
and ORE International, Inc. The housing vacancy rate in Falmouth, which is where
a majority of the Bank's loans are located, was approximately 3.8% at December
31, 1994.
LENDING ACTIVITIES
General. Falmouth originates loans entirely through its office located
in Falmouth, Massachusetts and through originations made by the Bank's two loan
originators. The principal lending activity of the Bank is the origination of
conventional mortgage loans for the purpose of purchasing or refinancing
owner-occupied, one- to four-family residential properties in its designated
community reinvestment area of the Massachusetts towns of Falmouth and Mashpee.
To a lesser extent, the Bank also originates consumer loans including home
equity and passbook loans and commercial loans. The Bank also originates and
retains in its loan portfolio adjustable-rate loans and fixed-rate loans with
maturities of up to 15 years. Historically, fixed-rate loans with terms in
excess of 15 years were sold in the secondary market. Beginning in March 1995,
the Bank has begun to retain its fixed-rate loans with terms in excess of 15
years in the portfolio. The Bank is a qualified seller/servicer for Federal
National Mortgage Corporation ("FNMA") and was servicing $444,000 in loans for
FNMA at September 30, 1996. The Bank's five largest loans to one borrower,
outstanding as of September 30, 1996, ranged from $255,000 to $1.2 million.
Loan Portfolio. The following table presents selected data relating to
the composition of Falmouth's loan portfolio by type of loan on the dates
indicated.
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<PAGE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans... $35,671 86.02% $26,094 78.66% $22,029 78.33% $22,923 78.05%
Commercial real estate loans. 2,670 6.45 3,538 10.66 3,111 11.06 2,886 9.83
Consumer loans............... 771 1.86 819 2.47 832 2.96 1,104 3.76
Home equity loans............ 1,683 4.06 1,890 5.70 2,150 7.65 2,456 8.36
Commercial loans............. 665 1.61 830 2.51 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total loans............... 41,460 100.00% 33,171 100.00% 28,122 100.00% 29,369 100.00%
Less:
Deferred loan origination
fees.................... 143 121 101 96
Unadvanced principal...... 582 102 127 40
Allowance for possible
loan losses............. 498 445 310 277
------- ------- ------- -------
Loans, net................ $40,237 $32,503 $27,584 $28,956
======= ======= ======= =======
</TABLE>
(CONTINUED)
At April 30,
-------------------------------------------------
1993 1992
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Residential mortgage loans... $22,829 76.52% $25,356 77.27%
Commercial real estate loans. 3,023 10.13 3,260 9.94
Consumer loans............... 1,484 4.97 1,746 5.32
Home equity loans............ 2,500 8.38 2,450 7.47
Commercial loans............. -- -- -- --
------ ------ ------ ------
Total loans............... 29,836 100.00% 32,812 100.00%
Less:
Deferred loan origination
fees.................... 93 94
Unadvanced principal...... 60 83
Allowance for possible
loan losses............. 277 255
------- -------
Loans, net................ $29,406 $32,380
======= =======
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<PAGE>
One- to Four-Family Residential Real Estate Lending. The primary
emphasis of Falmouth's lending activity is the origination of conventional
mortgage loans on one- to four-family residential dwellings located in
Falmouth's primary market area. As of September 30, 1996, loans on one- to
four-family residential properties accounted for 86.02% of Falmouth's loan
portfolio.
Falmouth's mortgage loan originations are for terms of up to 30 years,
amortized on a monthly basis with interest and principal due each month.
Residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms as borrowers may refinance or prepay loans
at their option, without penalty. Conventional residential mortgage loans
granted by Falmouth customarily contain "due-on-sale" clauses which permit
Falmouth to accelerate the indebtedness of the loan upon transfer of ownership
of the mortgaged property.
Falmouth makes conventional mortgage loans and Falmouth uses standard
FNMA documents, to allow for the sale of loans in the secondary mortgage market.
Falmouth's lending policies generally limit the maximum loan-to-value ratio on
mortgage loans secured by owner-occupied properties to 95% of the lesser of the
appraised value or purchase price of the property, with the condition that
private mortgage insurance is required on loans with a loan-to-value ratio in
excess of 80%.
Falmouth, since the early 1980s, has offered adjustable-rate mortgage
loans with terms of up to 30 years. Adjustable-rate loans offered by Falmouth
include loans which reprice every one, three and five years and provide for an
interest rate which is based on the interest rate paid on United States Treasury
securities of a corresponding term, plus a margin of 2.75%. Falmouth currently
offers adjustable-rate loans with initial rates below those which would prevail
under the foregoing computations, based upon the Bank's determination of market
factors and competitive rates for adjustable-rate loans in its market area. For
adjustable-rate loans, borrowers are qualified at the initial rate plus an
anticipated upward adjustment of 200 basis points.
Falmouth retains all adjustable-rate mortgages it originates.
Falmouth's adjustable-rate mortgages include caps on increases or decreases of
2% per year, and 6% over the life of the loan (3% per adjustment, and 5% over
the life of the loan for three-year adjustable-rate loans). The retention of
adjustable-rate mortgage loans in Falmouth's loan portfolio helps reduce
Falmouth's exposure to increases in interest rates. However, there are
unquantifiable credit risks resulting from potential increased costs to the
borrower as a result of repricing of adjustable-rate mortgage loans. It is
possible that during periods of rising interest rates, the risk of default on
adjustable-rate mortgage loans may increase due to the upward adjustment of
interest cost to the borrower.
During the year ended September 30, 1996, Falmouth originated $6.5
million in adjustable-rate mortgage loans and $6.6 million in fixed-rate
mortgage loans. Approximately 13.3% of all loan originations during fiscal 1996
were refinancings of loans already in Falmouth's loan portfolio. At September
30, 1996, Falmouth's loan portfolio included $20.8 million in adjustable-rate
one- to four-family residential mortgage loans or 50.18% of Falmouth's total
loan portfolio, and $14.9 million in fixed-rate one- to four-family residential
mortgage loans, or 35.86% of Falmouth's total loan portfolio.
The Bank engages in a limited amount of construction lending usually
for the construction of single family residences. Most are
construction/permanent loans structured to become permanent loans upon the
completion of construction. All construction loans are secured by first liens on
the property. Loan proceeds are disbursed as construction progresses and
inspections warrant. Loans involving construction financing present a greater
risk than loans for the purchase of existing homes, since collateral values and
construction costs can only be estimated at the time the loan is approved. Due
to the small amount of construction loans in the Bank's portfolio, the risk in
this area is limited.
Commercial Real Estate Loans. At September 30, 1996, the Bank's
commercial real estate loan portfolio consisted of 22 loans, totaling $2.7
million, or 6.45% of total loans. The Bank's largest loan is a commercial loan
with an outstanding balance of $795,000 at September 30, 1996 secured by an
office complex located in Falmouth, Massachusetts.
-50-
<PAGE>
Commercial real estate lending entails additional risks compared with
one- to four-family residential lending. For example, commercial real estate
loans typically involve large loan balances to single borrowers or groups of
related borrowers and the payment experience on such loans is typically
dependent on the successful operation of a real estate project and/or the
collateral value of the commercial real estate securing the loan. At September
30, 1996, all of the Bank's commercial real estate loans were performing.
Home Equity Loans. Falmouth also originates home equity loans which are
loans secured by available equity based on the appraised value of one- to
four-family residential property. If the Bank currently holds the first mortgage
on the property securing the loan, home equity loans will be made for up to 80%
of the tax assessed or appraised value of the property (less the amount of the
first mortgage). If the Bank does not hold the first mortgage, home equity loans
are limited to 70% of the appraised value of the property (less the amount of
the first mortgage). Home equity loans have an adjustable interest rate which
ranges from 0% to 1% above the prime rate as reported in the Wall Street Journal
and have terms of ten years or less. At September 30, 1996, the Bank had $4.0
million in home equity loans with unused credit available to existing borrowers
of $2.4 million.
Consumer Loans. The Bank's consumer loans consist of passbook loans,
and other consumer loans, including automobile loans. At September 30, 1996, the
consumer loan portfolio totaled $771,000, or 1.86% of total loans. Consumer
loans generally are offered for terms of up to five years at fixed interest
rates. Consumer loans do not exceed $15,000 individually. Management expects to
continue to promote consumer loans as part of its strategy to provide a wide
range of personal financial services to its customers and as a means to increase
the yield on the Bank's loan portfolio.
The Bank makes loans up to 90% of the amount of the depositor's savings
account balance. The interest rate on the loan is 4.0% higher than the rate
being paid on regular savings accounts and 3% higher than the rate being paid on
certificates of deposit. The Bank also makes other consumer loans, which may or
may not be secured. The terms of such loans usually depend on the collateral. At
September 30, 1996, the total amount of passbook and other consumer loans was
$594,000.
The Bank makes loans for automobiles, both new and used, directly to
the borrowers. The loans are generally limited to 80% of the purchase price or
the retail value listed by the National Automobile Dealers Book. The terms of
the loans are determined by the age and condition of the collateral. Collision
insurance policies are required on all these loans. At September 30, 1996, the
total amount of automobile loans was $113,000.
Consumer loans generally are originated at higher interest rates than
residential mortgage loans but also tend to have a higher credit risk than
residential loans due to the loan being unsecured or secured by rapidly
depreciable assets. Despite these risks, the Bank's level of consumer loan
delinquencies generally has been low. No assurance can be given, however, that
the Bank's delinquency rate on consumer loans will continue to remain low in the
future, or that the Bank will not incur future losses on these activities.
Commercial Loans. In August 1994, the Bank hired a commercial loan
officer with over 18 years of experience in commercial lending in the Falmouth
market for the purpose of establishing a commercial lending program for the
Bank. The Bank intends to pursue on a selective basis the origination of
commercial loans to meet the working capital and short-term financing needs of
established local businesses. Unless otherwise structured as a mortgage on
commercial real estate, it is anticipated that such loans would generally be
limited to terms of five years or less. Substantially all such commercial loans
would have variable interest rates tied to the prime rate as reported in the
Wall Street Journal. Whenever possible, the Bank will collateralize these loans
with a lien on commercial real estate, or alternatively, with a lien on business
assets and equipment and the personal guarantees from principals of the
borrower. Commercial loans are not expected to comprise a significant portion of
the Bank's loan portfolio in the foreseeable future. At September 30, 1996 the
Bank's commercial loan portfolio consisted of 23 loans, totaling $665,000.
-51-
<PAGE>
Commercial business loans generally are considered to involve a higher
degree of risk than residential mortgage loans because the collateral may be in
the form of intangible assets and/or inventory subject to market obsolescence.
Commercial loans also may involve relatively large loan balances to single
borrowers or groups of related borrowers, with the repayment of such loans
typically dependent on the successful operation and income stream of the
borrower. Such risks can be affected significantly by economic conditions. In
addition, commercial business lending generally requires substantially greater
oversight efforts compared to residential real estate lending.
Loan Commitments. The Bank makes a 60-day loan commitment to borrowers.
At September 30,1996, the Bank had $1.5 million in loan commitments outstanding,
all for the origination of one- to four-family residential real estate loans.
Loan Solicitation and Loan Fees. Loan originations are derived from a
number of sources, including the Bank's existing customers, referrals, realtors,
advertising and "walk-in" customers at the Bank's office.
In November 1994 and in February 1996, the Bank added two full-time
residential loan originators who are compensated by salary and commission. The
originators meet with applicants at their convenience and location and are in
regular contact with real estate brokers, attorneys, accountants, building
contractors, developers and others in the Bank's local market area. The Bank has
recently increased its advertising in locally distributed newspapers and has
begun to utilize local radio advertising to increase market share of residential
loan originations.
Upon receipt of a loan application from a prospective borrower, a
credit report and verifications are ordered to verify specific information
relating to the loan applicant's employment, income and credit standing. For all
mortgage loans, an appraisal of real estate intended to secure the proposed loan
is obtained from an independent fee appraiser who has been approved by the
Bank's Board of Directors. Fire and casualty insurance are required on all loans
secured by improved real estate.
Insurance on other collateral is required unless waived by the loan
committee. The Board of Directors of the Bank has the responsibility and
authority for the general supervision over the loan policies of the Bank. The
Board has established written lending policies for the Bank. All applications
for residential and commercial real estate mortgages and commercial business
loans must be ratified by the Bank's Board of Directors. In addition, certain
designated officers of the Bank have limited authority to approve consumer
loans.
Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area and the Bank
generally charges an origination fee on new mortgage loans. The origination
fees, net of direct origination costs, are deferred and amortized into income
over the life of the loan. At September 30, 1996, the amount of deferred loan
origination fees was $143,000.
Loan Maturities. The following table sets forth certain information at
September 30, 1996 regarding the dollar amount of loans maturing in the Bank's
portfolio based on their contractual terms to maturity, including scheduled
repayments of principal. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less.
-52-
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------------------------------
Real Consumer Total
Estate and Other Loans
------ --------- -----
(In thousands)
Total loans scheduled to mature:
<S> <C> <C> <C>
In one year or less......................... $ 1,548 $ 703 $ 2,251
After one year through five years........... 3,262 441 3,703
Beyond five years........................... 34,781 -- 34,781
------ ------- ------
Total..................................... $39,591 $ 1,144 $40,735
======= ======= =======
Loan balance by type scheduled to
mature after one year:
Fixed....................................... $14,163 $ 441 $14,604
Adjustable.................................. 23,880 -- 23,880
</TABLE>
Originations and Sales of Loans. The following table sets forth
information with respect to originations and sales of loans during the periods
indicated.
Originations for the year ended September 30, 1996 have increased due
to the addition of a mortgage loan originator and a senior commercial lending
officer. Loan sales were reduced during the same period as the Bank has begun to
retain certain fixed-rate loans with terms of greater than 15 years in its
portfolio.
<TABLE>
<CAPTION>
Years Ended September 30, Years Ended April 30,
------------------------------------------------------ -------------------------------
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Beginning balance.................. $ 32,948 $ 27,894 $ 29,233 $ 31,310 $ 32,635 $ 34,941
-------- --------- --------- --------- --------- --------
Mortgage loan originations(1).... 13,090 8,722 6,214 7,586 5,334 7,088
Consumer loan
originations................... 1,844 964 613 559 445 373
Commercial loan
originations................... 1,321 1,127 -- -- -- --
Less:
Amortization and payoffs(2)...... (8,468) (5,310) (5,496) (4,990) (5,552) (5,299)
Transfers to OREO................ -- -- -- -- (92) (533)
Net loans originated........... 7,787 5,503 1,331 3,155 135 1,629
----- ----- ----- ----- --- -----
Total loans sold................. -- (449) (2,670) (5,232) (3,087) (3,935)
------- ---- ------ ------ ------ ------
Ending balance..................... $ 40,735 $ 32,948 $ 27,894 $ 29,233 $ 29,683 $ 32,635
======== ========= ========= ========= ========= ========
- - ----------
</TABLE>
(1) Includes residential and commercial real estate loans.
(2) Includes unadvanced principal.
-53-
<PAGE>
Non-Performing Assets, Asset Classification and Allowances for Losses. Loans
are reviewed on a regular basis and are placed on a non-accrual status when, in
the opinion of management, the collection of principal and interest are
doubtful.
Real estate acquired by the Bank as a result of foreclosure is classified as
real estate owned until such time as it is sold. When such property is acquired,
it is recorded at the lower of the unpaid principal balance or its fair value.
Any required write-down of the loan to its fair value is charged to the
allowance for loan losses.
<TABLE>
<CAPTION>
At September 30, At April 30,
------------------------------------------------ --------------------------------
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans 30-89 days past due
(not included in non-
performing loans)............. $ 81 $ -- $ 62 $ -- $ 59 $ 699
Loans 30-89 days past due as a
percent of total loans ...... .20% --% .22% --% .20% 2.21%
Non-performing loans:
(90 days past due)
Total non-performing loans.... $ 14 $ -- $ 322 $ 342 $ 451 $ 891
OREO.............................. $ -- -- -- 85 -- 168
------ ---- ------ ------ ------ ------
Total non-performing
assets...................... $ 14 $ -- $ 322 $ 427 $ 451 $1,059
====== ==== ====== ====== ====== ======
Non-performing loans as a
percent of total loans........ .04% --% 1.15% 1.17% 1.52% 2.72%
Non-performing assets as a
percent of total assets....... .02% --% .43% .57% .61% 1.45%
</TABLE>
During the year ended September 30, 1996, gross interest income of $636,
would have been recorded on loans accounted for on a non-accrual basis if the
loans had been current throughout the period. No interest on such loans was
included in income during the respective periods. At September 30, 1996,
management was not aware of any loans not currently classified as non-accrual,
90 days past due or restructured but which may be so classified in the near
future because of concerns over the borrower's ability to comply with repayment
terms.
Federal and state regulations require each banking institution to classify
its asset quality on a regular basis. In addition, in connection with
examinations of such banking institutions, federal and state examiners have
authority to identify problem assets and, if appropriate, classify them. An
asset is classified substandard if it is determined to be inadequately protected
by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. As a general rule, the Bank will classify a loan as substandard
if the Bank can no longer rely on the borrower's income as the primary source
for repayment of the indebtedness and must look to secondary sources such as
guarantors or collateral. An asset is classified as doubtful if full collection
is highly questionable or improbable. An asset is classified as loss if it is
considered uncollectible, even if a partial recovery could be expected in the
future. The regulations also provide for a special mention designation,
described as assets which do not currently expose a banking institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require a banking institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified loss, a banking institution must either establish specific allowances
for loan losses in the amount of the portion of the asset classified loss, or
charge off such amount. Examiners may disagree with a banking institution's
classifications and amounts reserved. If a banking institution does not agree
with an examiner's classification of an asset,
-54-
<PAGE>
it may appeal this determination to the FDIC Regional Director. At September 30,
1996, the Bank had no assets classified as special mention, doubtful or loss,
and $224,000 in assets designated as substandard.
In originating loans, Falmouth recognizes that credit losses will occur and
that the risk of loss will vary with, among other things, the type of loan being
made, the creditworthiness of the borrower over the term of the loan, general
economic conditions and, in the case of a secured loan, the quality of the
security for the loan. It is management's policy to maintain an adequate general
allowance for loan losses based on, among other things, the Bank's and the
industry's historical loan loss experience, evaluation of economic conditions
and regular reviews of delinquencies and loan portfolio quality. Further, after
properties are acquired following loan defaults, additional losses may occur
with respect to such properties while the Bank is holding them for sale. The
Bank increases its allowances for loan losses and losses on real estate owned by
charging provisions for possible losses against the Bank's income. Specific
reserves also are recognized against specific assets when warranted.
Results of recent examinations by bank regulators indicate that these
regulators may be applying more conservative criteria in evaluating real estate
market values, requiring significantly increased provisions for potential loan
losses. While Falmouth believes it has established its existing allowances for
loan losses in accordance with generally accepted accounting principles, there
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to increase its allowance for loan losses, thereby
negatively affecting the Bank's financial condition and earnings.
In December 1993, the banking regulatory agencies, including the FDIC,
adopted a policy statement regarding maintenance of an adequate allowance for
loan and lease losses and an effective loan review system. This policy includes
an arithmetic formula for checking the reasonableness of an institution's
allowance for loan loss estimate compared to the average loss experience of the
industry as a whole. Examiners will review an institution's allowance for loan
losses and compare it against the sum of (i) 50% of the portfolio that is
classified doubtful; (ii) 15% of the portfolio that is classified as
substandard; and (iii) for the portions of the portfolio that have not been
classified (including those loans designated as special mention), estimated
credit losses over the upcoming twelve months given the facts and circumstances
as of the evaluation date. This amount is considered neither a "floor" nor a
"safe harbor" of the level of allowance for loan losses an institution should
maintain, but examiners will view a shortfall relative to the amount as an
indication that they should review management's policy on allocating these
allowances to determine whether it is reasonable based on all relevant factors.
The following table analyzes activity in Falmouth's allowance for loan losses
for the periods indicated.
-55-
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30, Years Ended April 30,
------------------------------------------------- ---------------------------
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Average loans, net...................... $35,920 $30,134 $28,283 $29,563 $30,531 $33,467
Period-end total loans.................. 40,735 32,948 27,894 29,233 29,683 31,636
Allowance for possible loan losses at
beginning of period................... 445 310 277 $ 313 255 145
Loans charged-off....................... -- -- (2) (37) (157) (47)
Plus recoveries....................... 2 135 26 1 1 1
Provision charged to operations....... 51 -- 9 -- 178 156
------- ------- ------- ------- ------- -------
Allowance for possible loan losses at
end of period......................... $ 498 $ 445 $ 310 $ 277 $ 277 $ 255
======= ======= ======= ======= ======= =======
Ratios:
Allowance for possible loan losses
as a percentage of period end totaL
loans.............................. 1.22% 1.35% 1.11% .95% .93% .81%
Allowance for possible loan losses
as a percentage of non-performing
loans.............................. 3,557.14 -- 96.27 80.99 61.42 28.62
Net charge-offs to average loans, net. -- -- -- .12 .51 .14
Net charge-offs to allowance for
possible loan losses................ -- -- -- 13.36 56.67 18.43
</TABLE>
The following table sets forth a breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. These
allocations are not necessarily indicative of future losses and do not restrict
the use of the allowance to absorb losses in any loan category.
-56-
<PAGE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Percent of
Loans in Percent of Percent of Percent of
Each Loans in Each Loans in Each Loans in Each
Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
mortgage:
Residential....... $428 86.02% $295 78.66% $188 78.33% $199 78.05%
Commercial........ 32 6.45 96 10.66 103 11.06 63 9.83
Commercial loans,
other................ 8 1.61 32 2.51 -- -- -- --
Consumer, including
home equity loans.... 30 5.92 22 8.17 19 10.61 15 12.12
-- ---- -- ---- -- ----- -- -----
Total allowance
for loan losses... $498 $445 $310 $277
==== ==== ==== ====
</TABLE>
(CONTINUED)
At April 30,
-----------------------------------------------------------
1993 1992
---- ----
Percent of Percent of
Loans in Loans in
Each Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
Real estate
mortgage:
Residential....... $188 76.52% $184 77.27%
Commercial........ 67 10.13 64 9.94
Commercial loans,
other................ -- -- -- --
Consumer, including
home equity loans.... 22 13.35 7 12.79
---- ----
Total allowance
for loan losses... $277 $255
==== ====
-57-
<PAGE>
INVESTMENT ACTIVITIES
General. Falmouth is required to maintain an amount of liquid assets
appropriate for its level of net withdrawal savings and current borrowings. It
has been generally the Bank's policy to maintain a liquidity portfolio in excess
of regulatory requirements. At September 30, 1996, the Bank's liquidity ratio
was 72.44%. Liquidity levels may be increased or decreased depending upon the
yields on investment alternatives, management's judgment as to the
attractiveness of the yields then available in relation to other opportunities,
management's expectations of the level of yield that will be available in the
future and management's projections as to the short-term demand for funds to be
used in Falmouth's loan origination and other activities.
Interest income from investments in various types of liquid assets provides
a significant source of revenue for the Bank. Beginning in the early 1980s, the
Bank opted to originate primarily adjustable-rate mortgages as part of its
effort to mitigate interest rate risk associated with long term fixed rate
loans. In addition, as the New England economy experienced a severe downturn in
the late 1980s, the Bank maintained its conservative underwriting standards in
an effort to avoid asset quality problems and chose instead to invest excess
liquidity in its investment portfolio. Because of these strategies, the Bank
increased the size of its investment portfolio relative to the size of its loan
portfolio and has invested excess funds in short-term interest-sensitive
investment products. The Bank's short-term investments include United States
Treasury securities and United States Agency securities, commercial paper, bank
certificates of deposits, equity securities, short-term corporate debt
securities and overnight federal funds. The balance of the securities
investments maintained by the Bank in excess of regulatory requirements reflects
management's historical objective of maintaining liquidity at a level that
assures the availability of adequate funds, taking into account anticipated cash
flows and available sources of credit, for meeting withdrawal requests and loan
commitments and making other investments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Bank purchases securities through a primary dealer of United States
Government obligations or such other securities dealers authorized by the Board
of Directors and requires that the securities be delivered to the safekeeping
agent (First National Bank of Boston) before the funds are transferred to the
broker or dealer. Falmouth purchases investment securities pursuant to an
investment policy established by the Board of Directors.
All securities and investments are recorded on the books of the Bank in
accordance with generally accepted accounting principles. The Bank does not
purchase securities and investments for trading. Effective October 1, 1994, the
Bank implemented SFAS 115. Available-for-sale securities are reported at fair
value with unrealized gains or losses reported as a separate component of net
worth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of New Accounting Standards." All purchases of
securities and investments conform to the Bank's interest rate risk policy.
Investments may be made in certificates of deposit and savings accounts in other
financial institutions insured by the FDIC so long as the total investment with
accrued interest does not exceed the $100,000 insurance limit per each
institution.
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's investment securities at
September 30, 1996.
-58-
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
---------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years
---------------- ----------------- ----------------- -------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Obligations.... $17,383 5.9% $7,091 6.5% $1,000 7.1% $-- --%
Mortgage-backed Securities..... 1,342 5.0 -- -- 13 8.5 1,503 7.5
Corporate Notes and Bonds...... 6,146 6.5 4,253 6.7 22 6.5 -- --
----- ----- -- ------
Total...................... $24,871 6.0% $11,344 6.6% $1,035 7.1% $1,503 7.5%
======= ======= ====== ======
Marketable Equity Securities...
FHLB Stock.....................
Total Investment Portfolio..
</TABLE>
(CONTINUED)
-
Total Investment Portfolio
-------------------------------------------
Carrying Average Market
Value Yield Value
----- ----- -----
U.S. Government Obligations.... $25,474 6.1% $25,469
Mortgage-backed Securities..... 2,858 6.3 2,887
Corporate Notes and Bonds...... 10,421 6.6 10,440
------ ------
Total...................... 38,753 6.3 38,796
Marketable Equity Securities... 2,318 6.4 2,815
FHLB Stock..................... 301 6.3 301
--- ---
Total Investment Portfolio.. $41,372 6.3% $41,912
======= =======
-59-
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------------------------
Available-for-Sale Held-to-Maturity
-------------------------------------------- ------------------------------------------------
Amortized Market Amortized Market
Cost Value Percent(1) Cost Value Percent(2)
---- ----- ---------- ---- ----- ----------
Investment securities(3): (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government obligations..... $10,345 $10,357 55.2% $15,128 $15,112 66.2%
Other bonds and obligations..... 4,083 4,101 21.9 6,338 6,339 27.8
Marketable equity securities.... 2,318 2,815 15.0 -- -- --
Mortgage-backed securities(4)... 1,485 1,491 7.9 1,373 1,396 6.0
-- ----- ----- --- ----- ----- ---
Total Investment Portfolio.... $18,231 $18,764 100.0% $22,839 $22,847 100.0%
======= ======= ===== ======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------------------------
1996 1995 1994
-------------------- ---------------------------------- -------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Investment securities(3): (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government obligations...... $25,473 62.02% $19,291 62.06% $25,834 66.73%
Other bonds and obligations...... 10,421 25.37 7,720 24.83 8,732 22.56
Marketable equity securities..... 2,318 5.64 2,115 6.80 2,071 5.35
Mortgage-backed securities(4).... 2,858 6.97 1,960 6.31 2,075 5.36
-- ----- ---- ----- ---- ----- ----
Total Investment Portfolio.... $41,070 100.00% $31,086 100.00% $38,712 100.00%
======= ====== ======= ====== ======= ======
- - ----------
</TABLE>
(1) As a percentage of market value.
(2) As a percentage of amortized cost.
(3) Does not include $4.2 million invested in Bank Investment Fund One, a
mutual bond fund offered by the Co-operative Central Bank, a
quasi-governmental agency, and interest-earning overnight deposits of
$1,684,000 or Federal Home Loan Bank Stock of $300,900.
(4) Consists of collateralized mortgage obligations, GNMA and FHLMC
certificates.
-60-
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
General. Deposits are the primary source of Falmouth's funds for
lending and other investment purposes. In addition to deposits, Falmouth derives
funds from principal repayments and interest payments on loans and investments
as well as other sources arising from operations in the production of net
earnings. Loan repayments and interest payments are a relatively stable source
of funds, while deposit inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources, or on a longer term basis for general business purposes.
Deposits. Deposits are attracted principally from within Falmouth's
primary market area through the offering of a broad selection of deposit
instruments, including passbook savings, NOW accounts, demand deposits, money
market accounts and certificates of deposit. Deposit account terms vary, with
the principal differences being the minimum balance required, the time periods
the funds must remain on deposit and the interest rate.
The Bank's policies are designed primarily to attract deposits from
local residents and businesses rather than to solicit deposits from areas
outside its primary market. The Bank does not accept deposits from brokers due
to the volatility and rate sensitivity of such deposits. Interest rates paid,
maturity terms, service fees and withdrawal penalties are established by the
Bank on a periodic basis. Determination of rates and terms are predicated upon
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
Management attributes the net decrease in deposits before interest
credited in recent years primarily to the interest rates offered by the Bank as
compared to alternative investments and increased competition from other
financial institutions. As interest rates on deposits reached a twenty-year low,
depositors sought higher returns from other investments. The Bank does not offer
premiums for deposits, and does not institute promotional programs which result
in increased rates being paid on deposits. These strategies are consistent with
management's goals of keeping the Bank's cost of funds at moderate levels versus
competitive bank rates.
The following table sets forth the various types of deposit accounts at
Falmouth and the balances in these accounts at September 30, 1996.
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<PAGE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
---------------------- ---------------------- ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings deposits...... $13,986 21.1% $13,921 21.5% $16,092 24.2% $16,596 24.6%
NOW accounts.......... 5,674 8.5 5,562 8.6 5,261 7.9 5,161 7.6
Money market deposits. 7,770 11.7 8,441 13.0 10,268 15.5 10,825 16.0
----- ---- ----- ---- ------ ---- ------ ----
Total............... 27,430 41.3 27,924 43.1 31,621 42.6 32,582 48.2
Demand deposits....... 943 1.4 701 1.1 141 0.2 -- --
Certificates of
deposit............. 38,066 53.3 36,157 55.8 34,666 52.2 34,989 51.8
------ ---- ------ ---- ------ ---- ------ ----
Total deposits...... $66,439 100.0% $64,782 100.0% $66,428 100.0% $67,571 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
(CONTINUED)
At April 30,
-------------------------------------------------------
1993 1992
------------------------- ------------------------
Amount Percent Amount Percent
------ ------- ------ -------
Savings deposits...... $16,034 24.4% $15,340 23.0%
NOW accounts.......... 5,042 7.6 5,093 7.6
Money market deposits. 11,157 16.8 11,315 17.0
------ ---- ------ ----
Total............... 32,233 48.6 31,748 47.6
Demand deposits....... -- -- -- --
Certificates of
deposit............. 34,088 51.4 34,875 52.4
------ ---- ------ ----
Total deposits...... $66,321 100.0% $66,623 100.0%
======= ===== ======= =====
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<PAGE>
For more information on the Bank's deposit accounts, see Note 5 of
Notes to Financial Statements.
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity at September 30,
1995.
Maturity Period Certificates of Deposit
--------------- -----------------------
(In thousands)
0-12 months . . . . . . . . $3,712
1-2 years . . . . . . . . . . 1,124
2-3 years . . . . . . . . . . 318
------
Total . . . . . . . . . . . . $5,154
======
The following table sets forth the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30, Years Ended April 30,
--------------------------------------------------- ------------------------------------
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Deposits.................. $153,704 $ 84,785 $ 70,679 $ 73,404 $ 76,326 $ 116,484
Withdrawals............... 155,067 88,973 73,950 76,675 79,387 118,093
------- ------ ------ ------ ------ -------
Net increase (decrease)
before interest credited (1,498) (4,188) (3,271) (3,271) (3,061) (1,609)
Interest credited......... 2,786 2,542 2,128 2,461 2,759 3,912
----- ----- ----- ----- ----- -----
Net increase (decrease)
in deposits.......... $ 1,423 $ (1,646) $ (1,143) $ (810) $ (302) $ 2,303
========= ========= ========= ========= ========= =========
</TABLE>
Borrowings. Savings deposits historically have been the primary source of
funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from the
FHLB of Boston to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB would be secured by the Bank's
stock in the FHLB and a portion of the Bank's mortgage loans. The Bank had no
FHLB advances outstanding at September 30, 1996.
The FHLB of Boston functions as a central reserve bank providing credit for
savings institutions and certain other financial institutions. As a member,
Falmouth is required to own capital stock in the FHLB and is authorized to apply
for advances on the security of such stock and certain of its home mortgages and
other assets (principally, securities which are obligations of, or guaranteed by
the United States) provided certain standards related to creditworthiness have
been met.
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<PAGE>
COMPETITION
The Bank experiences substantial competition both in attracting and retaining
savings deposits and in the making of mortgage and other loans. Direct
competition for savings deposits primarily comes from larger commercial banks
and other savings institutions located in or near the Bank's primary market area
which generally have significantly greater financial and technological resources
than the Bank. Additional significant competition for savings deposits comes
from credit unions, money market funds and brokerage firms. The primary factors
in competing for loans are interest rates and loan origination fees and the
range of services offered by the various financial institutions. Competition for
origination of real estate loans normally comes from commercial banks, other
thrift institutions, mortgage bankers, mortgage brokers and insurance companies.
Management considers the Bank's competitors in its market area to consist of 15
branches of financial institutions headquartered outside of its market area. The
Bank is the only independent financial institution headquartered in Falmouth.
PROPERTIES
The following table sets forth certain information at September 30, 1996
regarding Falmouth's office facility, which is owned by Falmouth, and certain
other information relating to this property at that date.
Year Completed Square Footage Net Book Value
-------------- -------------- --------------
Main Office: 1978 10,696 $317,857
The Bank is currently establishing a new branch location in East Falmouth to
be in operation in February, 1997. At September 30, 1996, the net book value of
Falmouth's computer equipment and other furniture, fixtures and equipment at its
existing office totaled $208,203. For more information, see Note 4 of Notes to
Financial Statements.
EMPLOYEES
At November 1, 1996, Falmouth had 23 full-time and 5 part-time employees.
Falmouth's employees are not represented by a collective bargaining agreement,
and the Bank considers its relationship with its employees to be good.
LEGAL PROCEEDINGS
Although Falmouth, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Bank, its directors or its officers is a party or to
which any of its property is subject.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The following is a discussion of material federal income tax matters
and does not purport to be a comprehensive description of the federal income tax
rules applicable to the Bank or Bancorp. The Bank has not been audited by the
Internal Revenue Service since 1975. For federal income tax purposes, after the
Reorganization, Bancorp and the Bank may file consolidated income tax returns
and report their income on a fiscal year basis using the accrual method of
accounting and will be subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly the Bank's tax
reserve for bad debts, discussed below.
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<PAGE>
Tax Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Tax Act"), which was enacted on August 20, 1996, made significant changes
to provisions of the Internal Revenue Code of 1986 (the "Code") relating to a
savings institution's use of bad debt reserves for federal income tax purposes
and requires such institutions to recapture (i.e., take into income) certain
portions of their accumulated bad debt reserves. The effect of the 1996 Tax Act
on the Bank is discussed below. Prior to the enactment of the 1996 Tax Act, the
Bank was permitted to establish tax reserves for bad debts and to make annual
additions thereto, which additions, within specified formula limits, were
deducted in arriving at the Bank's taxable income. The Bank's deduction with
respect to "qualifying loans," which are generally loans secured by certain
interests in real property, was permitted to be computed using an amount based
on a six-year moving average of the Bank's charge-offs for actual losses (the
"Experience Method"), or a percentage equal to 8% of the Bank's taxable income
(the "PTI Method"), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve. The Bank's deduction with respect to non-qualifying
loans was required to be computed under the Experience Method. Each year the
Bank reviewed the most favorable way to calculate the deduction attributable to
an addition to the tax bad debt reserves, which historically has been the PTI
Method.
The 1996 Tax Act. Under the 1996 Tax Act, the PTI Method was repealed for
savings institutions and the Bank will be required to use only the Experience
Method of computing additions to its bad debt reserves for taxable years
beginning with the taxable year beginning October 1, 1996. In addition, the Bank
will be required to recapture (i.e., take into income) over a six year period
the excess of the balance of its bad debt reserves for losses on nonqualifying
and qualifying loans as of September 30, 1996 over the greater of (a) the
balance of such reserves as of September 30, 1988 or (b) an amount that would
have been the balance of such reserves as of September 30, 1996 had the Bank
always computed the additions to its reserves using the Experience Method.
However, under the 1996 Act, such recapture requirements will be suspended for
each of the Bank's two successive taxable years beginning October 1, 1996 in
which the Bank originates a minimum amount of certain residential loans during
such years that is not less than the average of the principal amounts of such
loans made by the Bank during its six taxable years preceding October 1, 1996.
The Bank's post-September 30, 1988 nonqualifying and qualifying bad debt
reserves at September 30, 1996 was approximately $250,000 which will require the
Bank to report an additional tax liability of approximately $100,000. Since the
Bank has already provided a deferred income tax liability of this amount for
financial reporting purposes, there will be no adverse impact to the Bank's
financial condition or results of operations from the enactment of this
legislation.
Distributions. Under the 1996 Tax Act, if the Bank makes "non-dividend
distributions" to the Company following the consummation of the Reorganization,
such distributions will be considered to have been made from the Bank's
unrecaptured tax bad debt reserves (including the balance of its reserves as of
September 30, 1988) and then from the Bank's supplemental reserve for losses on
loans, to the extent thereof, and an amount based on the amount distributed (but
not in excess of the amount of such reserves) will be included in the Bank's
income. Non-dividend distributions include distributions in excess of the Bank's
current and accumulated earnings and profits, as calculated for federal income
tax purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or accumulated
earnings and profits will not be so included in the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Reorganization, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includible in income for federal
income tax purposes, assuming a 34% federal corporate income tax rate. See
"Regulation and Supervision" and "Dividend Policy" for limits on the payment of
dividends by the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss
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<PAGE>
carryovers of which the Bank currently has none. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, the Bank's AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2 million is imposed on corporations, including the Bank,
whether or not an AMT is paid. Under pending legislative proposals, the
environmental tax would be extended to taxable years beginning before January 1,
2007. The Bank does not expect to be subject to the AMT, but may be subject to
the environmental tax liability.
Elimination of Dividends; Dividends Received Deduction. Bancorp may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. A 70% dividends received deduction generally
applies with respect to dividends received from domestic corporations that are
not members of such affiliated group, except that an 80% dividends received
deduction applies if Bancorp and the Bank own more than 20% of the stock of a
corporation paying a dividend.
STATE TAXATION
Massachusetts Taxation. The Bank currently files a separate Massachusetts
excise tax return, based on net income. The Bank is currently taxed at a rate of
11.72% on net income, which is defined as "gross income from all sources,
without exclusion, less the deductions allowable by the federal Internal Revenue
Code in effect for the taxable year except for the dividends received deduction,
losses sustained in other taxable years and state, local, or foreign income,
franchise, or capital stock taxes." Under this definition, net income includes
any state or municipal bond interest income. The Massachusetts Bank excise tax
rate will decrease each year until reaching 10.50% for tax years beginning on or
after January 1, 1999.
The Bank and Bancorp are not permitted to file a combined Massachusetts
excise tax return. Bancorp will be subject to Massachusetts corporate excise
tax, which is determined by two measures: (1) the income measure, a tax of 9.5%
on net income attributable to Massachusetts; and (2) the non-income measure, a
tax of $2.60 per $1,000 imposed on either (a) tangible property, if the
corporation is a tangible property corporation, or (b) net worth, if the
corporation is an intangible property corporation. Unlike the definition of net
income for purposes of the Bank's taxation, net operating loss carryovers and a
95% dividends received deduction for intercompany dividends is permissible for
corporations.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, Bancorp is exempted from Delaware corporate income tax but is required
to file an annual report with and pay an annual franchise tax to the State of
Delaware.
REGULATION AND SUPERVISION
GENERAL
As a co-operative bank chartered by the Commonwealth of Massachusetts whose
deposits are insured by the BIF of the FDIC, the Bank is subject to extensive
regulation under state law with respect to many aspects of its banking
activities; this state regulation is administered by the Division of Banks. In
addition, the FDIC levies assessments or deposit insurance premiums and is
vested with authority to supervise the Bank and to exercise a broad range of
enforcement powers. Finally, the Bank is required to maintain reserves against
deposits according to a schedule established by the Federal Reserve System.
The following references to the laws and regulations under which the Bank is
regulated are brief summaries thereof, do not purport to be complete and are
qualified in their entirety by reference to such laws and regulations.
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<PAGE>
FEDERAL BANKING REGULATIONS
Capital Requirements. Under FDIC regulations, insured state-chartered banks
that are not members of the Federal Reserve System ("state non-member banks")
are required to maintain minimum levels of capital. State non-member banks must
satisfy a leverage capital ratio of Tier 1 capital to total assets of at least
3% if the FDIC determines that the institution is not anticipating or
experiencing significant growth and has well diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and is in general a strong banking organization, rated composite 1
under the Uniform Financial Institutions Ranking System (the CAMEL rating
system) established by the Federal Financial Institutions Examination Council.
For all but the most highly rated institutions meeting the conditions set forth
above, the minimum leverage capital ratio is 3% plus an additional "cushion"
amount of at least 100 to 200 basis points. Tier 1 capital is the sum of common
stockholders' equity, noncumulative perpetual preferred stock (including any
related surplus) and minority investments in certain subsidiaries, less most
intangible assets.
In addition to the leverage ratio, state non-member banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of a least
8.0%, of which at least 50% must be Tier 1 capital. Qualifying total capital
consists of Tier 1 capital plus Tier 2 or supplementary capital items, which
includes allowances for loan losses in an amount of up to 1.25% of risk-weighted
assets, cumulative perpetual preferred stock and long-term preferred stock
(original maturity of over 20 years) and certain other capital instruments. The
includable amount of Tier 2 capital cannot exceed the amount of the bank's Tier
1 capital. Qualifying total capital is reduced by the amount of the bank's
investments in banking and finance subsidiaries that are not consolidated for
regulatory capital purposes, reciprocal cross-holdings of capital securities
issued by other banks and certain other deductions.
The risk-based minimum capital requirement is measured against total
risk-weighted assets, which equals the sum of each on-balance-sheet asset and
the credit-equivalent amount of each off-balance-sheet item after being
multiplied by an assigned risk weight. Under the FDIC's risk-weighing system,
cash and securities backed by the full faith and credit of the U.S. government
are given a 0% risk weight. Mortgage-backed securities that are issued, or fully
guaranteed as to principal and interest, by the FNMA or FHLMC, are assigned a
20% risk weight. Single-family first mortgages not more than 90 days past due
with loan-to-value ratios under 80%, multi-family mortgages (maximum 36 dwelling
units) with loan-to-value ratios under 80% and average annual occupancy rates
over 80%, and certain qualifying loans for the construction of one- to
four-family residences pre-sold to home purchasers, are assigned a risk weight
of 50%. Consumer loans and commercial real estate loans, repossessed assets and
assets more than 90 days past due, as well as all other assets not specifically
categorized, are assigned a risk weight of 100%.
The FDICIA required each federal banking agency to revise its risk-based
capital standards for insured institutions to ensure that those standards take
adequate account of interest-rate risk ("IRR"), concentration of credit risk,
and the risk of nontraditional activities, as well as to reflect the actual
performance and expected risk of loss on multi-family residential loans.
Effective September 1, 1995, the FDIC, together with the other federal banking
agencies, amended their capital standards to require consideration of IRR and
other financial and operational risks (in addition to credit risk) as factors to
be considered in evaluating capital adequacy. The new standards require
consideration of the quality of a bank's process of managing its IRR, the
overall condition of the bank and the level of the bank's other risks for which
capital is needed. Institutions with significant IRR may be required to hold
additional capital. The FDIC, together with the other federal banking agencies,
issued a joint policy statement, effective June 26, 1996, providing guidance on
management of IRR, including a discussion of the critical factors affecting the
agencies evaluation of IRR in connection with capital adequacy. The agencies
also determined not to proceed with a previously issued proposal to develop a
supervisory framework for measuring IRR and, to impose an explicit capital
component for IRR.
The following table shows the Bank's leverage capital ratio, its Tier 1
risk-based capital ratio, and its total risk-based capital ratio, at September
30, 1996. The Bank exceeded the minimum capital adequacy requirements at the
date indicated.
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<PAGE>
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------------------------------------------
Capital Percent of Capital Percent of
Amount Assets(1) Requirement Assets(1)
------ --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tier 1 leverage capital $21,770 24.27% $2,691 3.00%
Tier 1 risk-based capital $21,770 54.56% $1,596 4.00%
Total risk-based capital $22,268 55.81% $3,192 8.00%
</TABLE>
- - -------------------
(1) For purposes of calculating the Tier 1 leverage capital ratio,
assets include adjusted total average assets. In calculating Tier 1
risk-based capital and total risk-based capital ratio, assets
include total risk-weighted assets.
ENFORCEMENT
Under the FDIA, the FDIC has enforcement responsibility over state non-member
banks, such as Falmouth, and has the authority to bring enforcement action
against all "institution-related parties," including controlling stockholders,
officers, directors and any attorneys, appraisers and accountants who knowingly
or recklessly participate in wrongful action likely to have an adverse effect on
a bank. Civil penalties cover a wide range of violations and actions and range
from up to $5,000 per day at the First Tier, $25,000 per day at the Second Tier,
and when a finding of the greatest culpability is made, up to $1 million per day
at the Third Tier. Criminal penalties for most financial institution crimes
include fines of up to $1.0 million and imprisonment for up to 30 years. In
addition, regulators have substantial discretion to take enforcement action
against an institution that fails to comply with its regulatory requirements,
particularly with respect to the capital requirements. Possible enforcement
actions range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
DEPOSIT INSURANCE
The Bank is charged an annual assessment by the FDIC for insurance of deposit
accounts up to applicable statutory limits. Under the risk-based system for
deposit insurance premiums that has been in effect since 1994, the assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, which is determined by
the institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups -- well capitalized, adequately
capitalized or undercapitalized -- based on the data reported to regulators for
the date closest to the last day of the seventh month preceding the semi-annual
assessment period. Well capitalized institutions are institutions satisfying the
following capital ratio standards: (i) total risk-based capital ratio of 10.0%
or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and (iii)
Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized institutions
are institutions that do not meet the standards for well capitalized
institutions but which satisfy the following capital ratio standards: (i) total
risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based capital
ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or greater.
Undercapitalized institutions consist of institutions that do not qualify as
either "well capitalized" or "adequately capitalized." Within each capital
group, institutions will be assigned to one of three subgroups on the basis of
supervisory evaluations by the institution's primary supervisory authority and
such other information as the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
fund. Subgroup A will consist of financially sound institutions with only a few
minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
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<PAGE>
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
On September 30, 1996, the Deposit Funds Insurance Act of 1996 (the
"1996 Act") was enacted into law, and it amended the FDIA in several ways to
recapitalize the Savings Association Insurance Fund, which primarily insures the
deposits of savings associations, and to reduce the disparity in the assessment
rates for the BIF and the SAIF that had developed in 1995. The 1996 Act
authorized the FDIC to impose a special assessment on all institutions with
SAIF-assessable deposits in the amount necessary to recapitalize the SAIF. In
addition, the 1996 Act expanded the assessment base for the payments on the FICO
bonds, which bonds had financed the resolution in the 1980s of failed savings
associations, to include the deposits of both BIF- and SAIF-insured institutions
beginning January 1, 1997. Until December 31, 1999, or such earlier date on
which the last savings association ceases to exist, the rate of assessment for
BIF-assessable deposits shall be one-fifth of the rate imposed on
SAIF-assessable deposits. It has been estimated that the rate of assessments for
the payments on the FICO bonds will be 0.0129% for BIF-assessable deposits and
0.0644% for SAIF- assessable deposits beginning on January 1, 1997.
The 1996 Act also provides that the FDIC cannot assess regular
insurance assessments for an insurance fund unless required to maintain or to
achieve the designated reserve ratio of 1.25%, except on those of its member
institutions that are not classified as "well capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank has not been so classified by the FDIC.
The 1996 Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the prior elimination
of the thrift charter. The Secretary of the Treasury is required to conduct a
study of relevant factors with respect to the development of a common charter
for all insured depository institutions and abolition of separate charters for
banks and thrifts and to report the Secretary's conclusions and findings to the
Congress on or before March 31, 1997.
FDIC regulations provide that any insured depository institution
with a ratio of Tier 1 capital to total assets of less than 2.0% will be deemed
to be operating in an unsafe or unsound condition, which would constitute
grounds for the initiation of termination of deposit insurance proceedings. The
FDIC, however, will not initiate termination of insurance proceedings if the
depository institution has entered into and is in compliance with a written
agreement with its primary regulator, and the FDIC is a party to the agreement,
to increase its Tier 1 capital to such level as the FDIC deems appropriate.
Insured depository institutions with Tier 1 capital equal to or greater than
2.0% of total assets may also be deemed to be operating in an unsafe or unsound
condition notwithstanding such capital level.
TRANSACTIONS WITH AFFILIATES AND INSIDERS
Transactions between state non-member banks and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any
company or entity which controls, is controlled by or is under common control
with the bank but does not include a subsidiary of the bank. Generally, Section
23A (i) limits the extent to which the bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
bank's capital and surplus, and contains an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital and
surplus and (ii) requires that all such transactions be on terms that are
consistent with safe and sound banking practices. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of guarantees and
similar other types of transactions. In addition, most extensions of credit by a
bank to any of its affiliates must be secured by collateral in amounts ranging
from 100 to 130 percent of the loan amounts, depending on the type of
collateral. Section 23B requires that any covered transaction, and certain other
transactions, including the bank's sale of assets and purchase of services from
an affiliate must be on terms that are substantially the same, or at least as
favorable, to the institution as those that would prevail in comparable
transaction with a non-affiliate.
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<PAGE>
Banks are also subject to the restrictions contained in Section 22(h) of the
Federal Reserve Act and the FRB's Regulation O thereunder on loans to executive
officers, directors and principal stockholders. Under Section 22(h), loans to a
director, an executive officer or a holder of more than 10% of the shares of a
bank, as well as certain affiliated interests of such persons, may not exceed,
together with all other outstanding loans to such person and affiliated
interests, the loans-to-one-borrower limit applicable to national banks
(generally 15% of an institution's unimpaired capital and surplus) and all loans
to all such persons in the aggregate may not exceed an institution's unimpaired
capital and unimpaired surplus. Regulation O also prohibits the making of loans
in an amount greater than the lesser of $25,000 or 5% of capital and surplus but
in any event over $500,000, to a director, executive officer and greater than
10% stockholder of a bank, and the respective affiliates of such a person,
unless such loans are approved in advance by a majority of the board of
directors of the bank, with any "interested" director not participating in the
voting. Further, the FRB pursuant to Regulation O requires that loans to
directors, executive officers and principal stockholders (a) be made on terms
substantially the same as those that are offered in comparable transactions to
persons not affiliated with the bank and (b) follow credit underwriting
procedures not less stringent than those prevailing for comparable transactions
with persons not affiliated with the bank. Regulation O also prohibits a
depository institution from paying, with certain exceptions, an overdraft of any
of the executive officers or directors of the institution or any of its
affiliates unless the overdraft is paid pursuant to written pre-authorized
extension of interest-bearing extension of credit or transfer of funds from
another account at the bank.
State chartered non-member banks are further subject to the requirements and
restrictions against certain tying arrangements and on extensions of credit
involving correspondent banks. Specifically, a depository institution is
prohibited from extending credit to or offering any other service, or fixing or
varying the consideration for such extension of credit or service, on the
condition that the customer obtain some additional service from the institution
or certain of its affiliates or not obtain services of a competitor of the
institution, subject to certain exceptions. In addition, a depository
institution with a correspondent banking relationship with another depository
institution is prohibited from extending credit to the executive officers,
directors, and holders of more than 10% of the stock of the other depository
institution, unless such extension of credit is on substantially the same terms
as those prevailing at the time for comparable transactions with other persons
and does not involve more than the normal risk of repayment or present other
unfavorable features.
REAL ESTATE LENDING POLICIES
Under FDIC regulations which became effective March 19, 1993, state-chartered
nonmember banks must adopt and maintain written policies that establish
appropriate limits and standards for extensions of credit that are secured by
liens or interest in real estate or are made for the purpose of financing
permanent improvements to real estate. These policies must establish loan
portfolio diversification standards, prudent underwriting standards, including
loan-to-value limits, that are clear and measurable, loan administration
procedures and documentation, approval and reporting requirements. The real
estate lending policies must reflect consideration of the Interagency Guidelines
for Real Estate Lending Policies (the "Interagency Guidelines") that have been
adopted by the federal bank regulators.
The Interagency Guidelines, among other things, call upon a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multi-family or other nonresidential property, the supervisory limit is 80%;
(iv) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and (v) for loans secured by other improved property
(e.g., farmland, completed commercial property and other income-producing
property including non-owner-occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one- to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination,
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an institution should require appropriate credit enhancement in the form of
either mortgage insurance or readily marketable collateral.
STANDARDS FOR SAFETY AND SOUNDNESS
Under FDICIA, each federal banking agency is required to prescribe, by
regulation, safety and soundness standards for institutions under its authority.
The federal banking agencies, including the FDIC, have adopted standards
covering internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
employee compensation, fees, and benefits, asset quality and earnings
sufficiency. These standards are in the form of broad guidelines for performance
that generally leave to each institution the methods for achieving the
objectives. The Bank believes it meets the FDIC's safety and soundness
standards.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of twelve regional
Federal Home Loan Banks subject to supervision and regulation by the Federal
Housing Finance Board ("FHFB"). The Federal Home Loan Banks provide a central
credit facility primarily for member institution. As a member of the FHLB of
Boston, the Bank is required to acquire and hold shares of capital stock in the
FHLB of Boston in an amount at least equal to 1.0% of the aggregate unpaid
principal of its home mortgage loans, home purchase contracts, and similar
obligations at the beginning of each year, or 5% of its advances (borrowings)
from the FHLB of Boston, whichever is greater. Falmouth was in compliance with
this requirement with an investment in FHLB of Boston stock at September 30,
1996, of $280,100.
The FHLB of Boston serves as a reserve or central bank for its member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It offers
policies and procedures established by the FHFB and the Board of Directors of
the FHLB of Boston. Long-term advances may only be made for the purpose of
providing funds for residential housing finance.
FEDERAL RESERVE SYSTEM
Pursuant to regulations of the FRB, a bank must maintain average daily
reserves equal to 3.0% on the first $52 million of net transaction accounts,
above an exempt amount of $4.3 million, plus 10% on the remainder. This
percentage is subject to adjustment by the FRB. Because required reserves must
be maintained in the form of vault cash or in a non-interest bearing account at
a Federal Reserve Bank, the effect of the reserve requirement is to reduce the
amount of the institution's interest-earning assets. As of September 30, 1996,
the Bank met its reserve requirements.
MASSACHUSETTS BANKING LAWS AND SUPERVISION
Massachusetts co-operative banks such as the Bank are also regulated and
supervised by the Division of Banks. The Division of Banks is required to
regularly examine each state-chartered bank. The approval of the Division of
Banks is required to establish or close branches, to merge with another bank, to
form a bank holding company, to issue stock or to undertake many other
activities. Any Massachusetts bank that does not operate in accordance with the
regulations, policies and directives of the Division of Banks is subject to
sanctions. The Division of Banks may under certain circumstances suspend or
remove directors or officers of a bank who have violated the law, conducted a
bank's business in a manner which is unsafe, unsound or contrary to the
depositors' interests, or been negligent in the performance of their duties.
All Massachusetts-chartered co-operative banks are required to be members of
the Co-operative Central Bank and are subject to its assessments. The
Co-operative Central Bank maintains the Share Insurance Fund, a private deposit
insurer, which insures all deposits in member banks in excess of FDIC deposit
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insurance limits. In addition, the Co-operative Central Bank acts as a source of
liquidity to its members in supplying them with low-cost funds, and purchasing
certain qualifying obligations from them.
Major changes in Massachusetts law in 1982 and 1983 substantially expanded
the powers of co-operative banks. Their powers were made virtually identical to
those of state-chartered commercial banks and interstate banking operations were
authorized throughout New England on a reciprocal basis with other New England
states. In 1990, Massachusetts law was amended to permit nationwide interstate
banking through the holding company structure and to restrict direct interstate
branching and merger by Massachusetts banks. The powers which
Massachusetts-chartered co-operative banks can exercise under these laws are
summarized below.
Lending Activities. A wide variety of mortgage loans may be made. Fixed-rate
loans, adjustable-rate loans, variable-rate loans, participation loans,
graduated payment loans, construction loans, condominium and co-operative loans,
second mortgage loans and other types of loans may be made in accordance with
applicable regulations. Mortgage loans may be made on real estate in
Massachusetts or in another New England state if he bank making the loan has an
office there or under certain other circumstances. In addition, certain mortgage
loans may be made on improved real estate located anywhere in the United States.
Commercial loans may be made to corporations and other commercial enterprises
with or without security. With certain exceptions, such loans may be made
without geographic limitations. Consumer and personal loans may be made with or
without security and without geographic limitations. Loans to individual
borrowers generally will be limited to 20% of the total of the Bank's capital
accounts and stockholders' equity.
Investments Authorized. Massachusetts-chartered co-operative banks have broad
investment powers under Massachusetts law, including so-called "leeway"
authority for investments that are not otherwise specifically authorized. The
investment powers authorized under Massachusetts law are restricted by federal
law to permit only investments of the kinds that would be permitted for national
banks. The Bank has authority to invest in all of the classes of loans and
investments that are permitted by its existing loan and investment policies.
Payment of Dividends. A co-operative bank only may pay dividends on its
capital stock if such payment would not impair the bank's capital stock and
surplus account. No dividends may be paid to stockholders of a bank if such
dividends would reduce stockholders' equity of the bank below the amount of the
liquidation account required by Massachusetts conversion regulations.
Branches. With the approval of the Division of Banks, bank branches may be
established in any city or town in Massachusetts. In addition, co-operative
banks may operate automated teller machines at any of their offices or, with the
approval of the Division of Banks, anywhere in Massachusetts. Sharing of ATMs or
"networking" is also permitted with the approval of the Division of Banks.
Massachusetts chartered co-operative banks may also operate ATMs outside of
Massachusetts if permitted to do so by the law of the jurisdiction in which the
ATM is located.
Interstate Acquisitions. Subject to various regulatory approvals, a
Massachusetts stock bank may be acquired by an out-of-state holding company and,
through its own holding company, may itself acquire out-of-state banks.
Other Powers. Massachusetts-chartered co-operative banks may also lease
machinery and equipment, act as trustee or custodian for tax qualified
retirement plans, establish trust departments and act as professional trustee or
fiduciary, provide payroll services for their customers, issue or participate
with others in the issuance of mortgage-backed securities and establish mortgage
banking companies and discount securities brokerage operations. Some of these
activities require the prior approval of the Division of Banks.
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<PAGE>
REGULATION OF HOLDING COMPANY
Federal Regulation. Following consummation of the Reorganization, Bancorp
will be subject to examination, regulation and periodic reporting under the
BHCA, as administered by the FRB. The FRB has adopted capital adequacy
guidelines for bank holding companies on a consolidated basis substantially
similar to those of the FDIC for the Bank.
Bancorp will be required to obtain the prior approval of the FRB to acquire
all, or substantially all, of the assets or any bank of bank holding company.
Prior FRB approval will be required for Bancorp to acquire direct or indirect
ownership or control of any voting securities of any bank or bank holding
company if, after giving effect to such acquisition, it would, directly or
indirectly, own or control more than 5% of any class of voting shares of such
bank or bank holding company.
Bancorp will be required to give the FRB prior written notice of any purchase
or redemption of its outstanding equity securities if the gross consideration
for the purchase or redemption, when combined with the net consideration paid
for all such purchases or redemptions during the preceding 12 months, is equal
to 10% or more of Bancorp's consolidated net worth. The FRB may disapprove such
a purchase or redemption if it determines that the proposal would constitute an
unsafe and unsound practice, or would violate any law, regulation, FRB order or
directive, or any condition imposed by, or written agreement with, the FRB. Such
notice and approval is not required for a bank holding company that would be
treated as "well capitalized" under applicable regulations of the FRB, that has
received a composite "1" or "2" rating at its most recent bank holding company
inspection by the FRB, and that is not the subject of any unresolved supervisory
issues.
The status of Bancorp as a registered bank holding company under the BHCA
will 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.
In addition, a bank holding company is prohibited generally from engaging in,
or acquiring 5% or more of any class of voting securities of any company engaged
in, non-banking activities. One of the principal exceptions to this prohibition
is for activities found by the FRB to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
principal activities that the FRB has determined by regulation to be so closely
related to banking as to be a proper incident thereto are: (i) making or
servicing loans; (ii) performing certain data processing services; (iii)
providing discount brokerage services; (iv) acting as fiduciary, investment or
financial advisor; (v) leasing personal or real property; (vi) making
investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.
Under FIRREA, depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law would have potential applicability
if Bancorp ever acquired as a separate subsidiary a depository institution in
addition to the Bank. There are no current plans for such an acquisition.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit on
behalf of, the bank holding company or its subsidiaries, and on the investment
in or acceptance of stocks or securities of such holding company or its
subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and FRB regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal stockholders of the Bank, Bancorp,
any subsidiary of Bancorp and related interests of such persons. Moreover,
subsidiaries of bank holding companies are prohibited from engaging in certain
tie-in arrangements (with the holding company or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or furnishing
of services.
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<PAGE>
FEDERAL SECURITIES LAWS
The Company has filed a registration statement with the SEC under the
Securities Act, for the registration of the Bancorp Common Stock to be exchanged
pursuant to the Reorganization. Upon completion of the Reorganization, Bancorp's
Common Stock will be registered with the SEC under the Exchange Act. The Company
will then be subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock to be
exchanged in the Reorganization does not cover the resale of such shares. Shares
of the Common Stock purchased by persons who are not affiliates of the Company
may be resold without registration. Shares purchased by an affiliate of the
Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Company meets the current public information requirements
of Rule 144 under the Securities Act, each affiliate of the Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (a) 1% of the outstanding
shares of the Company or (b) the average weekly volume of trading in such shares
during the preceding four calendar weeks. Provision may be made in the future by
the Company to permit affiliates to have their shares registered for sale under
the Securities Act under certain circumstances.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The business of the Bank consists of attracting deposits from the general
public and using these funds to originate mortgage loans secured by one- to
four-family residences located primarily in Falmouth, Massachusetts and
surrounding areas and to invest in United States Government and Agency
securities. To a lesser extent, the Bank engages in various forms of consumer
and home equity lending. The Bank's profitability depends primarily on its net
interest income, which is the difference between the interest income it earns on
its loans and investment portfolio and its cost of funds, which consists mainly
of interest paid on deposits. Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income.
The Bank's profitability is also affected by the level of noninterest income
and expense. Noninterest income or other income consists primarily of service
fees, late charges and other loan fees, and gain on sale of investment
securities. Noninterest expense or operating expenses consist of salaries and
benefits, deposit insurance premiums paid to the FDIC, occupancy related
expenses and other operating expenses.
The operations of the Bank, and banking institutions in general, are
influenced significantly by general economic conditions and related monetary and
fiscal policies of financial institutions' regulatory agencies. Deposit flows
and the cost of funds are influenced by interest rates on competing investments
and general market rates of interest. Lending activities are affected by the
demand for financing real estate and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered and other
factors affecting loan demand and the availability of funds.
BUSINESS STRATEGY
Falmouth's business strategy is to operate as a well-capitalized, profitable
and independent community bank dedicated to financing home ownership and
consumer needs in its market area and to provide quality service to its
customers. The Bank has implemented this strategy by: (i) closely monitoring the
needs of customers and providing quality service; (ii) emphasizing
consumer-oriented banking by originating residential
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mortgage loans and consumer loans, and by offering checking accounts and other
financial services and products; (iii) focusing on expanding lending activities
to produce moderate increases in loan originations; (iv) maintaining asset
quality; (v) maintaining capital in excess of regulatory requirements; and (vi)
producing stable earnings.
ASSET/LIABILITY MANAGEMENT
A principal operating objective of the Bank is to produce stable earnings by
achieving a favorable interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Since the Bank's principal
interest-earning assets have longer terms to maturity than its primary source of
funds, i.e., deposit liabilities, increases in general interest rates will
generally result in an increase in the Bank's cost of funds before the yield on
its asset portfolio adjusts upwards. Banking institutions generally have sought
to reduce their exposure to adverse changes in interest rates by attempting to
achieve a closer match between the periods in which their interest-bearing
liabilities and interest-earning assets can be expected to reprice through the
origination of adjustable-rate mortgages and loans with shorter terms and the
purchase of other shorter term interest-earning assets.
The term "interest rate sensitivity" refers to those assets and liabilities
which mature and reprice periodically in response to fluctuations in market
rates and yields. Thrift institutions historically have operated in a mismatched
position with interest-sensitive liabilities exceeding interest-sensitive assets
in the short-term time periods. As noted above, one of the principal goals of
the Bank's asset/liability program is to more closely match the interest rate
sensitivity characteristics of the asset and liability portfolios.
In order to properly manage interest rate risk, the Bank's Board of Directors
has an Executive Committee to monitor the difference between the Bank's maturing
and repricing assets and liabilities and to develop and implement strategies to
decrease the "negative gap" between the two. The primary responsibilities of the
committee are to assess the Bank's asset/liability mix, recommend strategies to
the Board of Directors that will enhance income while managing the Bank's
vulnerability to changes in interest rates and report to the Board of Directors
the results of the strategies used.
Since the mid 1980s, the Bank has stressed the origination of adjustable-rate
residential mortgage loans and adjustable-rate home equity loans. Historically,
the Bank did not retain fixed rate loans with terms in excess of 15 years in its
portfolio. Beginning in March, 1995, the Bank retained a portion of its fixed
rate loans with terms in excess of 15 years in the portfolio. At September 30,
1996, the Bank's loan portfolio included $19.3 million of adjustable-rate
mortgages and $1.7 million of adjustable-rate home equity loans which together
represent 50.1% of the Bank's total loans. See "Business of the Bank -- Lending
Activities."
In order to increase the interest rate sensitivity of its assets, the Bank
has also maintained a consistent level of investment securities and other assets
of maturities of three years or less. At September 30, 1996, the Bank had $27.2
million of investment securities maturing within one year or less and $11.3
million of investment securities maturing over one through five years.
In the future, in managing its interest rate sensitivity, the Bank intends to
continue to stress the origination of adjustable-rate mortgages and loans with
shorter maturities and the maintenance of a consistent level of short-term
securities.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate
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sensitive assets exceeds the amount of interest rate sensitive liabilities, and
is considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. Generally, during a period
of rising interest rates, a negative gap would adversely affect net interest
income while a positive gap would result in an increase in net interest income,
while conversely during a period of falling interest rates, a negative gap would
result in an increase in net interest income and a positive gap would negatively
affect net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996 which are
expected to mature or reprice in each of the time periods shown. The investment
securities and mortgage backed securities in the following table are presented
at amortized cost.
<TABLE>
<CAPTION>
At September 30, 1996
-------------------------------------------------------------------------
Over One Over Five
One Year Through Through Over Ten
or Less Five Years Ten Years Years Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities......... $25,905 $11,344 $ 1,004 $ 546 $38,799
Mortgage-backed securities.... 1,342 -- 31 1,485 2,858
Other interest-earning assets. 1,814 4,233 -- -- 6,047
Adjustable rate 1-4 family loans 12,160 7,906 1,001 -- 21,067
Fixed rate 1-4 family loans... 83 372 2,436 11,120 14,011
Commercial real estate loans.. 3,541 1,054 -- 47 4,642
Consumer loans................ 394 694 7 49 1,144
--- --- - -- -----
Total....................... 45,239 25,603 4,479 13,247 88,568
------ ------ ----- ------ ------
Interest-bearing liabilities:
Certificates of deposit....... 29,719 8,306 -- 41 38,066
Money market accounts......... 7,770 -- -- -- 7,770
NOW accounts.................. 5,674 -- -- -- 5,674
Passbook accounts............. 13,752 -- -- -- 13,752
ESOP loan..................... -- -- 829 -- 829
------- ------ --- ------ ------
Total....................... 56,915 8,306 829 41 66,091
------ ----- --- -- ------
Interest sensitivity gap...... (11,676) 17,297 3,650 13,206 22,477
------- ------ ----- ------ ------
Cumulative interest sensitivit
gap.........................y (11,676) 5,621 9,271 22,477 22,477
------- ----- ----- ------ ------
Ratio of cumulative gap to
total assets................ (12.9)% 6.2% 10.2% 24.8% 24.8%
----- --- ---- ---- ----
</TABLE>
Management believes the current one-year gap of negative 12.9% presents
a risk to net interest income should a sustained increase occur in the current
level of interest rates. If interest rates increase, the Bank's negative
one-year gap should cause the net interest margin to decrease. A conservative
rate-gap policy provides a stable net interest income margin. Accordingly,
management emphasizes a structured schedule of investments spread by term to
maturity with greater emphasis on maturities of one year or less. The preceding
table utilized no assumptions or adjustments regarding prepayment of loans and
decay rates based upon Falmouth's actual experience. Accordingly, it is possible
that the actual interest rate sensitivity of the Bank's assets and liabilities
could vary significantly from the information set forth in the table due to
market and other factors.
Certain shortcomings are inherent in the method of analysis presented
above. Although certain assets and liabilities may have similar maturity or
periods of repricing, they may react in different degrees to changes in the
market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
rates on other types of assets and liabilities may lag behind changes
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in market interest rates. Certain assets, such as adjustable-rate mortgages,
generally have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, prepayments and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Additionally, an
increased credit risk may result as the ability of many borrowers to service
their debt may decrease in the event of an interest rate increase. Virtually all
of the adjustable-rate loans in the Bank's portfolio contain conditions which
restrict the periodic change in interest rate.
Average Balances, Interest and Average Yields
The following tables set forth certain information relating to the
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average monthly balance of assets
or liabilities, respectively, for the periods presented. Average balances are
derived from monthly balances. Management does not believe that the use of
monthly balances instead of daily balances has caused any material difference in
the information presented. Interest earned on loan portfolios is net of reserves
for uncollected interest.
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<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------- --------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans, net:
Mortgages......................... $ 32,693 $ 2,573 7.87% $ 26,867 $ 2,113 7.86%
Consumer and Other................ 3,694 393 10.64 3,377 313 9.27
----- --- ----- ----- --- ----
Total loans, net................. 36,387 2,966 8.15 30,244 2,426 8.02
Investments....................... 37,086 2,154 5.81 34,096 2,031 5.96
Other earning assets.............. 7,203 456 6.33 5,633 358 6.36
----- --- ---- ----- --- ----
Total interest-earning assets.... 80,676 5,576 6.91 69,973 4,815 6.88
Cash and due from banks.............. 1,080 910
Other assets......................... 1,387 1,461
Total assets..................... $ 83,143 $ 72,344
======== ========
Liabilities:
Interest-bearing liabilities:
Deposits:
Savings deposits.................. 13,829 366 2.65 14,143 358 2.53
NOW and demand deposit accounts... 5,972 73 1.22 4,930 74 1.50
Money market deposits............. 8,081 259 3.21 8,879 288 3.24
Certificates of deposit........... 37,198 2,100 5.65 35,386 1,768 5.00
Borrowed money.................... 429 35 8.16 -- -- --
--- -- ----
Total interest-bearing liabilities 65,509 2,833 4.32 63,338 2,488 3.93
Non-interest bearing liabilities..... 1,375 1,008
----- -----
Total liabilities................ 66,884 64,346
Stockholders' equity................. 16,259 7,998
------ -----
Total liabilities and stockholder
equity..........................s' $ 83,143 $ 72,344
======== ========
Net interest and dividend income..... $ 2,743 $ 2,327
======== ========
Interest rate spread................. 2.59% 2.95%
==== ====
Net interest margin.................. 3.40% 3.33%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................ 123.15% 110.48%
======
</TABLE>
(CONTINUED)
Year Ended September 30,
------------------------------------------
1994
------------------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
Assets:
Interest-earning assets:
Loans, net:
Mortgages......................... $ 25,259 $ 1,838 7.28%
Consumer and Other................ 3,024 252 8.33
----- --- ----
Total loans, net................. 28,283 2,090 7.39
Investments....................... 37,286 2,196 5.89
Other earning assets.............. 5,816 343 5.90
----- --- ----
Total interest-earning assets.... 71,385 4,629 6.48
Cash and due from banks.............. 810
Other assets......................... 1,499
-----
Total assets..................... $ 73,694
========
Liabilities:
Interest-bearing liabilities:
Deposits:
Savings deposits.................. 15,707 397 2.53
NOW and demand deposit accounts... 5,337 81 1.52
Money market deposits............. 10,254 276 2.69
Certificates of deposit........... 33,972 1,382 4.07
-----
Borrowed money.................... -- -- --
----- -----
Total interest-bearing liabilities 65,270 2,136 3.27
Non-interest bearing liabilities..... 790
---
Total liabilities................ 66,060
Stockholders' equity................. 7,634
-----
Total liabilities and stockholders'
equity.......................... $ 73,694
========
Net interest and dividend income..... $ 2,493
========
Interest rate spread................. 3.21%
====
Net interest margin.................. 3.49%
====
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................ 109.37%
======
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RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); and (ii) changes in rates (change in
rate multiplied by old volume). Changes in rate-volume (changes in rate
multiplied by the changes in volume) are allocated between changes in rate and
changes in volume.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Due To Due To
----------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 494 $ 46 $ 540 $ 151 $ 185 $ 336
Investments 277 (56) 221 (201) 51 (150)
--- --- --- ---- -- ----
Total interest-earning assets 771 (10) 761 (50) 236 186
--- --- --- --- --- ---
Interest-bearing liabilities:
NOW and demand deposit 14 (15) (1) (6) (1) (7)
accounts
Savings deposits (8) 16 8 (39) 0 (39)
Money Market deposits (27) (2) (29) (41) 53 12
Certificates of Deposit 98 234 332 56 330 386
ESOP loan 35 -- 35 -- -- --
--- --- --- --- --- ---
Total interest-bearing
liabilities 112 233 345 (30) 382 352
--- --- --- --- --- ---
Net change in net interest income $ 659 $ (243) $ 416 $ (20) $ (146) $ (166)
======= ======= ======= ======= ======= =======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996 AND 1995
The Bank's total assets increased by $16.8 or 22.9% for the year ended
September 30, 1996 from $73.7 million in September 30, 1995 to $90.5 million at
September 30, 1996. Total assets increased primarily from the proceeds of the
Bank's mutual to stock conversion on March 28, 1996 and to a lesser extent from
the growth in deposits. Total net loans were $40.2 million or 60.7% of total
deposits at September 30, 1996 as compared to $32.5 million or 50.2% of total
deposits at September 30, 1995, representing an increase of $7.7 million.
Investment securities were $40.2 million or 44.5% of total assets at September
30, 1996 as compared to $32.5 million or 44.1% of total assets at September 30,
1995. The proceeds from maturing securities were in part allocated to fund an
increased volume of loan production, with the balance redeployed into short-term
securities investments. Total deposits were $66.4 million at September 30, 1996
as compared to $65.1 million at September 30, 1995. Total deposits increased by
$1.3 million for year ended September 30, 1996 despite the $2.5 million
transferred from deposits to purchase the Bank's initial public offering of
stock on March 28, 1996. Stockholders' equity was $21.9 million at September 30,
1996 as compared to a net worth of $8.4 million at September 30, 1995, an
increase of $13.5 million which was primarily the result of the conversion of
the Bank from mutual to stock form. The issuance of 1,454,750 common shares at a
par value of $.10 per share provided capital of $145,475 with additional paid-in
capital of $13.6 million and unearned ESOP shares costing $872,850.
Stockholders' equity reported at September 30, 1996 was $21.9 million which
included an unrealized gain in available-for-sale securities of $144,000 and
retained earnings of $8.9 million. The ratio of stockholders' equity to total
assets was 24.2% at September 30, 1996 and the
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book value per share of common stock was $15.06. Historical net income per share
of common stock from March 28, 1996 (date of conversion) to September 30, 1996
was $.32.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1995 AND 1994
The Bank's total assets decreased by $931,000 or 1.25% for the year
ended September 30, 1995, from $74.7 million at September 30, 1994 to $73.7
million at September 30, 1995. Total net loans were $27.6 million or 41.5% of
total deposits at September 30, 1994 as compared to $32.5 million or 50.2% of
total deposits at September 30, 1995, representing an increase of $4.9 million.
Investment securities held by the Bank decreased from $39.0 million in 1994 to
$31.8 million in 1995. The proceeds from maturing securities were in part
allocated to fund the increased volume of loan production as well as net deposit
withdrawals, with the balance redeployed in short-term securities investments.
While total deposits declined by $1.6 million or 2.5% from $66.4 million at
September 30, 1994 to $64.8 million at September 30, 1995, net worth increased
by 7.5% to $8.4 million at September 30, 1995 as a result of the transfer of
$439,000 from net income and the addition to net worth at September 30, 1995 of
$149,000 resulting from the unrealized gain on available- for-sale securities.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net Income. The Bank's net income for the twelve months ended September
30, 1996 was $570,000 as compared to $439,000 for twelve months ended September
30, 1995. The $131,000 increase in net income was primarily the result of a
$760,000 increase in interest and dividend income which was partly offset by a
$346,000 increase in interest expense on deposit and borrowed funds, $95,000
increase in operating expenses and a $148,000 increase in income taxes.
Net Interest Income. Net interest income for the twelve months ended
September 30, 1996 was $2,743,000 as compared to $2,328,000 for the twelve
months ended September 30, 1995. The $415,000 increase in net interest income
was the result of the increase in interest income on loans and securities that
more than off-setting the increase in interest expense on deposits. The net
interest margin for the twelve months ended September 30, 1996 was 3.40% an
increase of .07% as compared to 3.33% for the months ended September 30, 1995.
The return on average assets for the twelve months ended September 30, 1996 was
.69%, an increase of .08% as compared to .61% for the same period of the prior
year. The primary reason for the increase in the return on average assets was
the deployment of proceeds from maturing securities into an increased volume of
residential loan originations during the year ended September 30, 1996.
Interest Income. Total interest and dividend income for the twelve
months ended September 30, 1996 was $5,576,000, an increase of $761,000 as
compared to $4,815,000 for the twelve months ended September 30, 1995. The
increase in interest and dividend income was due primarily to a $518,000
increase in interest income on loans and a $242,000 increase in interest and
dividends on securities and short-term investments. The increases in interest
income on loans and securities was, for the most part, the result of an increase
in the volume of loans and securities held.
Interest Expense. Interest expense for the twelve months ended
September 30, 1996 was $2,833,000, an increase of $346,000 as compared to
$2,487,000 for the twelve months ended September 30, 1995. The increase in
interest expense was due to higher deposit rates paid on primarily certificates
of deposit accounts during the period.
Provision for Loan Losses. The provision for possible loan losses for
the twelve months ended September 30, 1996 was $51,000 was compared to zero for
the twelve months ended September 30, 1995. The increase in the amount of the
provision for possible loan losses was in response to the increase in the
balance of loans held by the Bank and the Bank's commitment to maintain general
loan loss reserves at adequate levels.
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Non-Interest Income. Non-interest income or other income for the twelve
months ended September 30, 1996 was $125,000 as compared to $115,000 for the
twelve months ended September 30, 1995. The $10,000 increase was due to modest
increases in income from service charges and other fee income coupled with a
moderate increase in other fee income that offset a decrease in gain on sales of
investment securities.
Operating Expense. Operating expenses for the twelve months ended
September 30, 1996 were $1,888,000 as compared to $1,793,000 for the twelve
months ended September 30, 1995. The $95,000 increase was primarily due to an
increase in salaries and employee benefits of $104,000, an increase in legal and
professional fees of $48,000 and an increase in other operating expenses of
$63,000 offset by a decrease in deposit insurance expense of $100,000 and a
decrease in director's fees of $10,000. It is expected that the leasehold
improvements and non-interest expenses will increase during fiscal 1997 as work
progresses on the new branch located in East Falmouth scheduled to be in
operation in February, 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
Net Income. The Bank's net income for the year ended September 30, 1995
was $439,000 as compared to $651,000 for the year ended September 30, 1994. This
$212,000 decrease in net income during the period was the result of a $164,000
decline in net interest income and an increase of $178,000 in operating
expenses, partially offset by a $236,000 decrease in the provision for income
taxes. During fiscal year ended September 30, 1995, the general level of
short-term interest rates experienced a gradual 60 basis point increase by
mid-year and a decline of approximately 90 basis points by year-end, resulting
in a net 30 basis point decrease during fiscal 1995. The general rise in
interest rates in the first half of fiscal 1995 coupled with a liability
sensitive interest rate exposure produced a $350,000 increase in interest
expense which was only partially offset by a $186,000 rise in interest income.
Interest Income. Total interest and dividend income increased by
$186,000 or 4.0% from $4.6 million for year ended September 30, 1994 to $4.8
million for year ended September 30, 1995. The increase in interest income was
in part the result of loan originations of $4.9 million funded by maturing lower
yield investment securities.
Interest Expense. Interest expense increased by approximately $350,000
or 16.4% from $2.1 million for the year ended September 30, 1994 to $2.5 million
for year ended September 30, 1995. The primary reason for the increase in
interest expense was the increase in the general level of interest rates driving
an increase in both the rollover rates for certificates of deposit and the rates
paid on money market deposit accounts. This rate increase offset a decline of
$1.6 million in total deposits from $66.4 million at September 30, 1994 to $64.8
million at September 30, 1995.
Net Interest Income. The net interest income for the year ended
September 30, 1995 was $2.3 million as compared to $2.5 million for the year
ended September 30, 1994, a decline of 6.6%. The $164,000 decrease in net
interest income can be attributed to a combination of the $186,000 increase in
interest and dividend income and the $350,000 increase in interest expense on
deposits. The average yield on interest earning assets increased by .40% to
6.88% for the year ended September 30, 1995. The average cost on
interest-bearing liabilities increased by .66% to 3.93% for the year ended
September 30, 1995. The return on average assets for the year ended September
30, 1995 was .61%, a decrease of .27% as compared to prior year.
Provision for Possible Loan Losses. The provision for loan losses for
the year ended September 30, 1995 was zero dollars as compared to $9,000 to the
year ended September 30, 1994.
At September 30, 1994, the balance for allowance for loan losses was
$310,000 or 1.1% of total loans. During the year ended September 30, 1995, zero
dollars were charged against the allowance for loan losses while $135,000 in
recoveries was credited to the allowance for loan losses. At September 30, 1995,
the balance of allowance for loan losses was $445,000, which was 1.4% of total
loans.
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Other Income. Non-interest income or other income was $97,000 for the
year ended September 30, 1995 as compared to $214,000 for the year ended
September 30, 1994. The $117,000 decrease was primarily the result of a $33,000
decrease in service fees, as the Bank reduced service charges on several of its
deposit products in an attempt to retain and attract accounts, a full cash
recovery of $34,000 in connection with a defalcation and a special dividend of
$24,000 from the Co-operative Central Bank during the year ended September 30,
1994. The net gain on sales of investment securities was $16,000 for each of the
years ended September 30, 1995 and September 30, 1994.
Operating Expenses. Operating expense increased from $1,615,000 for the
year ended September 30, 1994 to $1,793,000 for the year ended September 30,
1995. The increase of $178,000 or 10.9% mainly resulted from a $140,000 increase
in compensation primarily due to the addition of a commercial lending officer
and residential loan originator to the Bank's staff. The one time charges
associated with the conversion of the Bank's data processing to another provider
coupled with an increase in Bank's administrative deposit expense account for a
$28,000 increase over the prior year. Annual operating expenses are expected to
increase by approximately $210,000 in future periods due to the Bank's plans to
establish a new branch location.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgaged-backed securities, maturities of investments
and interest-bearing deposits, and funds provided from operations. While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition. The Bank uses its liquidity resources
principally to fund existing and future loan commitments, to fund net deposit
outflows, to invest in other interest-earning assets, to maintain liquidity, and
to meet operating expenses. Management believes that loan repayments and other
sources of funds will be adequate to meet the Bank's liquidity needs for fiscal
year 1997.
The Bank is required to maintain adequate levels of liquid assets. This
guideline, which may be varied depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
Bank has historically maintained a level of liquid assets in excess of
regulatory requirements.The Bank's liquidity ratio at September 30, 1996 was
72.4%.
A major portion of the Bank's liquidity consists of short-term U.S.
Government obligations. The level of these assets is dependent on the Bank's
operating, investing, lending and financing activities during any given period.
At September 30, 1996, regulatory liquidity totaled $48.2 million.
The primary investing activities of the Bank include origination of
loans and purchase of investment securities. During the year ended September 30,
1996, purchases of investment securities and mortgage-backed securities totaled
$43.2 million, while loan originations totaled $16.3 million. These investments
were funded primarily from loan repayments of $8.5 million and investment
security maturities of $33.3 million.
Liquidity management is both a daily and long-term function of
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank believes that it could borrow additional funds from the
FHLB of Boston. At September 30, 1996, the Bank had no outstanding advances from
the FHLB of Boston.
At September 30, 1996, the Bank had $1.5 million in outstanding
commitments to originate loans. The Bank anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificates of deposit which are scheduled to mature in one year or less
totaled $29.7 million at September 30, 1996. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Bank.
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At September 30, 1996, the Bank exceeded all of its regulatory capital
requirements.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars without considering changes in the relative purchasing
power of money over time because of inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of the Bank are monetary in nature.
As a result, interest rates have a more significant impact on the Bank's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
The Bank accounts for the ESOP under Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). SOP
93-6 measures compensation expense recorded by employers for leveraged ESOPs
using the fair value of ESOP shares. Under SOP 93-6, the Bank recognizes
compensation cost equal to the fair value of the ESOP shares during the periods
in which they become committed to be released. To the extent that the fair value
of the Bank's ESOP shares differs from the cost of such shares, this
differential is charged or credited to equity. Employers with internally
leveraged ESOPs do not report the loan receivable from the ESOP as an asset and
do not report the ESOP debt as a liability.
In March 1995, the Financial Accounting Standards Board the ("FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). Various assets are excluded from the scope of SFAS 121, including
financial instruments, which constitute most of the Bank's assets. For assets
included in the scope of SFAS 121, such as office property and equipment, an
impairment loss must be recognized when the estimate of total undiscounted
future cash flows attributable to the asset is less than the asset's carrying
value. Measurement of the impairment loss is based on the fair value of the
asset. SFAS 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. SFAS 121 did not have a material impact on
the Bank's results of operations or financial position.
In May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights," ("SFAS 122"),
which amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities." SFAS 122 is effective for the Bank for
fiscal years beginning after September 30, 1996. SFAS 122 requires that entities
recognize, as separate assets, rights to service mortgage loans for others
regardless of how those servicing rights are acquired. Additionally, SFAS 122
requires that the capitalized mortgage servicing rights be assesses for
impairment based on the fair value of those rights and that the impairment be
recognized through a valuation allowance. These requirements will accelerate the
income recognition associated with mortgage banking activities, increase future
operating expense due to the amortization of servicing rights and will also
result in greater earnings volatility for those institutions involved in
mortgage banking activities. Management of the Bank does not expect SFAS 122 to
have a material impact on the Bank's financial condition or results of
operations, because the Bank does not currently conduct any material mortgage
banking activities or purchase loan servicing rights.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
is effective for the Bank for the fiscal year ending September 30, 1997. This
statement established financial accounting standards for stock-based employee
compensation plans. SFAS 123 permits the Bank to choose either the new fair
value based method, or the current accounting prescribed by Accounting
Principles Board ("APB") Opinion 25, using the intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS 123 requires pro
forma disclosures of net earnings and earnings per share computed as if the fair
value based method had been applied in APB Opinion 25. SFAS 123 applies to all
stock-based employee compensation plans in which an
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employer grants shares of its stock or other equity instruments to employees
except for employee stock ownership plans. SFAS 123 also applies to plans in
which the employer incurs liabilities to employees in amounts based on the price
of the employer's stock, (e.g. stock option plans, stock purchase plans,
restricted stock plans and stock appreciation rights). SFAS 123 also specifies
the accounting for transactions in which a company issues stock options or other
equity instruments for services provided by nonemployees or to acquire goods or
services from outside suppliers or vendors. The recognition provisions of SFAS
123 for companies choosing to adopt the new fair value based method of
accounting for stock-based compensation arrangements may be adopted immediately
and will apply to all transactions entered into in fiscal years that begin after
December 15, 1995. The disclosure provisions of SFAS 123 are effective for
fiscal years beginning after December 15, 1995, however, disclosure of the pro
forma net earnings and earnings per share, as if the fair value method of
accounting for stock-based compensation had been elected, is required for all
awards granted in fiscal years beginning after December 31, 1994. The Company
and/or the Bank expect to account for stock-based compensation arrangements as
prescribed in APB Opinion 25, if such plans are implemented.
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125"), which supersedes FASB
Statements No. 76, "Extinguishments of Debt," and No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse." This statement amends
FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and amends and extends to all servicing assets and liabilities, the
accounting standards for mortgage servicing rights now set forth in SFAS 65, and
supersedes SFAS 122. SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
After a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered and derecognizes liabilities
when extinguished. SFAS 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange.
SFAS 125 further requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing assets
and other retained interests in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values on the date of the
transfer. SFAS 125 also requires that servicing assets and liabilities be
subsequently measured by (a) amortization in proportion to and over the period
of estimated net servicing income or loss and (b) assessment for asset
impairment or increased obligation based on their fair values. SFAS 125 requires
that debtors reclassify financial assets pledged as collateral and that secured
parties recognize those assets and their obligation to return them to certain
circumstances in which the secured party has taken control of those assets. SFAS
125 requires that a liability be derecognized if and only if either (i) the
debtor pays the creditor and is relieved of its obligation for the liability or
(ii) the debtor is legally released from being the primary obligor under the
liability either judicially or by the creditor. Therefore, a liability is not
considered extinguished by an in-substance defeasance.
SFAS 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
Management of the Bank has not evaluated the impact, if any, of the adoption of
SFAS 125 on the Bank's financial condition or results of operations.
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MANAGEMENT OF BANCORP
DIRECTORS
The Board of Directors of Bancorp currently consists of the eight
Continuing Directors of Falmouth and the three directors who are nominated for
re-election at the Annual Meeting. See "Proposal 1 -- Election of Directors --
Information with Respect to Nominees and Continuing Directors." The directors of
Bancorp are divided into three classes, with one class to be elected each year
at the annual meeting of stockholders of Bancorp. Directors elected at each
annual meeting will serve for a term of three years and until their successors
are duly elected and qualified. Approval of the Plan of Reorganization by the
holders of Bank Common Stock at the Annual Meeting will be deemed to be approval
of such persons as the directors of Bancorp without further action and without
changes in classes or terms. There are no arrangements or understandings between
Bancorp and any person pursuant to which such person was elected as a director.
EXECUTIVE OFFICERS
The executive officers of Bancorp are: Santo P. Pasqualucci, President
and Chief Executive Officer; George E. Young, III, Vice President and Chief
Financial Officer; and John A. DeMello, Secretary.
COMPENSATION
It is expected that until such time as the officers and directors of
Falmouth devote significant time to the separate management of Bancorp's
affairs, which is not expected to occur until Bancorp becomes actively involved
in additional businesses, no separate compensation will be paid for their
services to Bancorp. However, Bancorp may determine that such compensation is
appropriate in the future and may at such time enter into employment contracts
with certain key executive officers. See "Management of Falmouth -- Compensation
and Employee Benefit Plans."
EMPLOYEE BENEFIT PLANS
As the directors, officers and employees of Bancorp will not initially
be compensated by Bancorp but will continue to serve and be compensated by
Falmouth, no separate benefit plans for directors, officers and employees of
Bancorp are anticipated at this time. Falmouth will continue to maintain its
other benefit programs. See "Proposal 1 -- Election of Directors -- Certain
Employee Benefit Plans and Employment Agreement."
MANAGEMENT OF FALMOUTH
DIRECTORS
For information with respect to nominees for election as directors of
the Bank at the Annual Meeting and the other directors of the Bank, including
their age, business experience, compensation paid by the Bank, stock ownership,
and service on committees of the Board of Directors, see "Proposal 1 -- Election
of Directors."
EXECUTIVE OFFICERS
The Reorganization will not result in any change of the officers of
Falmouth. The age at November 1, 1996 and position held with the Bank of each
person currently serving as an executive officer of Falmouth is set forth below.
In addition, a brief biography of each individual is provided.
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Name Age Position
---- --- --------
Santo P. Pasqualucci 57 President and Chief Executive
Officer
George E. Young, III 51 Vice President and Chief
Financial Officer
Sharon L. Shoner 45 Vice President/Loan Production
Ronald Garcia 45 Vice President/Commercial
Lending
John A. DeMello 59 Secretary
SANTO P. PASQUALUCCI, age 57, has served as President of the
Bank since December, 1992. Prior to that time, he served as the President of a
savings bank for six years. He has served the banking community of Massachusetts
for 30 years.
GEORGE E. YOUNG, III, age 51, has served with the Bank since
1991. He was Treasurer and Auditor/Compliance Officer from 1973 to 1991 with
another savings institution. Mr. Young is currently Vice President and
Treasurer.
SHARON L. SHONER, age 45, has served with the Loan Department
of the Bank since 1977. She is currently Vice President/Loan Production.
RONALD GARCIA, age 45, has served as Vice President/Commercial
Lending since August, 1994. Prior thereto, he was a Vice President and
commercial loan officer for Falmouth National Bank/Bank of Boston.
JOHN A. DEMELLO, age 59, has served as Vice President/Loan
Officer of the Bank since 1972. He is currently Vice President/Compliance.
COMPENSATION AND EMPLOYEE BENEFIT PLANS
For a discussion of the compensation paid to certain executive officers
of Falmouth, employment agreements entered into with certain of Falmouth's
officers and a description of the material benefit plans and programs with
respect to Falmouth's executive officers, see "Proposal 1 -- Election of
Directors -- Summary Compensation Table," "-- Certain Employee Benefit Plans and
Employment Agreement."
OTHER MATTERS
As of the date of this Proxy-Statement Prospectus, the Board of
Directors knows of no business which will be presented for consideration at the
Annual Meeting other than as stated in the Notice of Annual Meeting of
Stockholders. If, however, other matters are properly brought before the Annual
Meeting, it is the intention of the Board of Directors to direct the vote of the
shares represented by proxy on such matters in accordance with their best
judgment.
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PROPOSALS FOR 1997 ANNUAL MEETING
Any stockholder wishing to have a proposal, including nominations to
the Board of Directors, considered for inclusion in Bancorp's proxy statement
and form of proxy relating to the 1998 Annual Meeting of stockholders must, in
addition to other applicable requirements, set forth such proposal in writing
and file it with the Corporate Secretary of Bancorp on or before August 19,
1997. If the Reorganization is not consummated, any such proposal must be set
forth in writing and filed with the Clerk of the Bank on or before September 17,
1997.
FINANCIAL STATEMENTS
A copy of the Annual Report containing financial statements at
September 30, 1996 and September 30, 1995, prepared in conformity with generally
accepted accounting principles, accompanies this Proxy Statement-Prospectus. The
financial statements for the fiscal years ended September 30, 1996 and September
30, 1995 have been audited by Shatswell MacLeod & Co., P.C. and Keith Hersey
Sheehan Benoit Dempsey & Oman, P.C., respectively. The reports of each
independent auditor thereon appear in this Proxy Statement- Prospectus and in
the Annual Report. An additional copy of the Annual Report will be furnished
without charge to stockholders upon request.
The Bank is required to file an annual report on Form F-2 for its
fiscal year ended September 30, 1996 with the FDIC. Stockholders may obtain,
free of charge, a copy of such annual report (excluding exhibits) by writing to
George E. Young, Falmouth Co-operative Bank, 20 Davis Straits, Falmouth,
Massachusetts 02540.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE POSTAGE-PAID
ENVELOPE PROVIDED.
By Order of the Board of Directors
John A. DeMello
Clerk
Falmouth, Massachusetts
December ___, 1996
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INDEX TO FINANCIAL STATEMENTS
OF FALMOUTH CO-OPERATIVE BANK
Independent Auditors' Report of Shatswell
MacLeod & Co., P.C....................................................F-2
Independent Auditors' Report of Keith Hersey Sheehan
Benoit Dempsey & Oman, P.C............................................F-3
Balance Sheet at September 30, 1996 and 1995.................................F-4
Statements of Income for the Years Ended September 30, 1996, 1995 and 1994...F-5
Statements of Changes in Stockholders' Equity at
September 30, 1996, 1995, 1994 and 1993...............................F-6
Statements of Cash Flows for the Years Ended September 30, 1996, 1995
and 1994..............................................................F-7
Notes to Financial Statements................................................F-9
F-1
<PAGE>
SHATSWELL, MacLEOD & COMPANY, P.C.
83 PINE STREET
WEST PEABODY, MASSACHUSETTS 01960-3635
(508) 535-0206
The Board of Directors
Falmouth Co-operative Bank
Falmouth, Massachusetts
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying balance sheet of Falmount Co-operative Bank as
of September 30, 1996 and the related statements of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's Management. Our responsibility
is to express an opinion on these financial statements based on our audit. The
financial statements of Falmouth Co-operative Bank as of September 30, 1995 and
1994, we audited by other auditors whose report dated November 20, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a resonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Falmouth Co-operative Bank
as of September 30, 1996, and the results of its operations and its cash flows
for the year ended, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" as of October 1, 1994.
SHATSWELL, MacLEOD & COMPANY, P.C.
October 18, 1996
except for Note 14,
as to which the
date is November 19, 1996
F-2
<PAGE>
15 Christy's Drive
Brockton, MA 02401
Tel 508-583-6519
Fax 508-586-7565
17 Accord Park Drive
Norwell, MA 02061
Tel 617-878-8850
Fax 617-871-0250
KEITH HERSEY SHEEHAN BENOIT DEMPSEY & OMAN, P.C.
INDEPENDENT AUDITOR'S REPORT
----------------------------
To The Finance Committee
The Falmouth Cooperative Bank
Falmouth, Massachusetts
We have audited the accompanying statements of financial condition of The
Falmouth Cooperative Bank as of September 30, 1995 and 1994, and the related
statements of income, changes in net worth and cash flows for each of the years
in the three-year period ended September 30, 1995. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statments. As audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statment presentation.
We believe that our audits provide a resonalble basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of The Falmouth Cooperative Bank as of
September 30, 1995 and 1994, and the results of its operations and cash flows
for each of the years in the three-year period ended September 30, 1995 in
conformity with generally accepted accounting principles.
November 20, 1995
F-3
<PAGE>
<TABLE>
<CAPTION>
FALMOUTH CO-OPERATIVE BANK
--------------------------
BALANCE SHEETS
--------------
September 30, 1996 and 1995
---------------------------
ASSETS 1996 1995
- - ------ -------------- ------------
<S> <C> <C>
Cash and due from banks $ 1,171,761 $ 3,597,614
Federal funds sold 1,583,437
------------- --------------
Total cash and cash equivalents 2,755,198 3,597,614
Investments in available-for-sale securities (at fair value) 22,713,053 19,541,740
Investments in held-to-maturity securities (fair values of $22,845,398
as of September 30, 1996 and $16,047,468 as of September 30, 1995) 22,839,596 16,034,740
Federal Home Loan Bank stock, at cost 300,900 280,100
Loans, net 40,236,846 32,502,902
Premises and equipment 526,061 531,247
Accrued interest receivable 746,601 519,793
Cooperative Central Bank Reserve Fund Deposit 285,680 285,680
Other assets 112,173 385,252
-------------- --------------
$90,516,108 $73,679,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 8,713,244 $ 9,142,238
Savings and NOW deposits 19,660,383 19,761,461
Time deposits 38,065,803 36,156,852
------------ --------------
Total deposits 66,439,430 65,060,551
Deferred income taxes 49,248 53,300
Other liabilities 123,608 95,151
Due to broker 1,000,000
Income taxes payable 156,027 26,427
Treasury tax and loan account 4,170 8,353
Employee Stock Ownership Plan loan 829,208
-------------- --------------
Total liabilities 68,601,691 65,243,782
------------ ------------
Stockholders' equity:
Preferred stock, par value $.10 per share, authorized 500,000 shares;
none issued
Common stock, par value $.10 per share, authorized 2,500,000 shares;
issued and outstanding 1,454,750 shares 145,475
Paid-in capital 13,598,174
Retained earnings 8,856,291
Surplus 8,286,070
Employee Stock Ownership Plan loan (829,208)
Net unrealized holding gain on available-for-sale securities 143,685 149,216
-------------- --------------
Total stockholders' equity 21,914,417 8,435,286
------------ -------------
$90,516,108 $ 73,679,068
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FALMOUTH CO-OPERATIVE BANK
--------------------------
STATEMENTS OF INCOME
--------------------
Years Ended September 30, 1996, 1995 and 1994
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $2,966,330 $2,448,193 $2,089,452
Interest and dividends on investment securities 2,457,953 2,289,648 2,484,210
Interest on short-term investments 151,549 77,540 55,052
------------ ------------- -------------
Total interest and dividend income 5,575,832 4,815,381 4,628,714
----------- ----------- -----------
Interest expense:
Interest expense on deposits 2,797,827 2,486,994 2,136,299
Interest expense on borrowings 35,060
------------- ------------- -------------
Total interest expense 2,832,887 2,486,994 2,136,299
----------- ----------- -----------
Net interest income 2,742,945 2,328,387 2,492,415
Provision for possible loan losses 51,000 9,000
------------- -------------- --------------
Net interest income after provision for possible
loan losses 2,691,945 2,328,387 2,483,415
----------- ------------ -----------
Other income:
Service charges 53,094 49,789 80,236
Other fee income 34,650 31,998 33,881
Other non-interest income 35,258 17,182 99,580
Gain on sales of investment securities, net 2,338 16,079 15,777
-------------- ------------- -------------
Total other income 125,340 115,048 229,474
------------ ------------ ------------
Other expense:
Salaries and employee benefits 1,165,167 1,061,389 891,177
Deposit insurance expense 7,666 107,554 150,828
Other real estate owned expense 2,447 1,833
Data processing expense 111,410 119,129 99,656
Director's fees 57,100 66,900 70,900
Legal and professional fees 58,485 9,884 29,538
Other operating expenses 488,636 425,996 371,550
------------ ------------ ------------
Total other expense 1,888,464 1,793,299 1,615,482
----------- ----------- -----------
Income before income taxes 928,821 650,136 1,097,407
Income taxes 358,600 210,900 446,800
------------ ------------ ------------
Net income $ 570,221 $ 439,236 $ 650,607
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FALMOUTH CO-OPERATIVE BANK
--------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------
Years Ended September 30, 1996, 1995 and 1994
---------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized Employee
Holding Stock
Gain on Ownership
Common Paid-in Retained Available-for- Plan
Stock Capital Earnings Surplus Sale Securities Loan Total
----- ------- -------- ------- --------------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $ $ $ $7,196,227 $ $ $7,196,227
Net income 650,607 650,607
------- ---------- ---------- ---------- ------- ---------- ----------
Balance, September 30, 1994 7,846,834 7,846,834
Net income 439,236 439,236
Net unrealized gain on
available-for-sale securities 149,216 149,216
------- ---------- ---------- ---------- ------- ---------- ----------
Balance, September 30, 1995 8,286,070 149,216 8,435,286
Transfer of surplus to retained
earnings 8,286,070 (8,286,070)
Issuance of common stock 145,475 13,598,174 13,743,649
Employee Stock Ownership
Plan loan (872,850) (872,850)
Principal payments on Employee
Stock Ownership Plan loan 43,642 43,642
Net income 570,221 570,221
Net change in unrealized
holding gain on available-
for-sale securities (5,531) (5,531)
------- ---------- ---------- ---------- ------- ---------- ----------
Balance, September 30, 1996 $145,475 $13,598,174 $8,856,291 $ $143,685 $(829,208) $21,914,417
======== =========== ========== ============= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
FALMOUTH CO-OPERATIVE BANK
--------------------------
STATEMENTS OF CASH FLOWS
------------------------
Years Ended September 30, 1996, 1995 and 1994
------------------------'---------------------
1996 1995 1994
----------------- ---------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 570,221 $ 439,236 $ 650,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 51,000 9,000
Net (accretion) amortization of investment
securities (51,206) (51,139) 75,402
Amortization of net deferred loan fees 22,246 20,264 (20,336)
Gain on sales of investment securities, net (2,338) (16,079) (15,777)
Deferred taxes (6,432) (3,000) 56,800
Depreciation 55,908 33,912 37,133
(Increase) decrease in other assets 46,271 (97,919) 21,510
Increase in other liabilities 1,160,306 6,719 15,331
------------- --------------- ---------------
Net cash provided by (used in) operating activities 1,845,976 331,994 829,670
------------- ------------- --------------
Cash flows from investing activities:
Purchases of available-for-sale securities (25,655,599)
Proceeds from sales of available-for-sale securities 237,841
Proceeds from maturities of available-for-sale securities 22,300,000
Purchases of held-to-maturity securities (17,564,866)
Proceeds from maturities of held-to-maturity securities 10,750,416
Purchase of Federal Home Loan Bank stock (20,800)
Proceeds from the sale of and maturity of investment
securities 22,973,324 16,034,737
Purchases of investment securities (15,095,206) (16,041,458)
Proceeds from principal repayment on mortgage-
backed investments 115,264 41,061
Purchases of mortgage-backed investments (1,059,919)
Net (increase) decrease in loans (7,807,190) (4,939,160) 1,383,277
Purchase of premises and equipment (50,722) (196,066) (19,931)
Proceeds from sale of other real estate owned 85,000
------------- --------------- ---------------
Net cash provided by (used in) investing activities (17,810,920) 2,858,156 422,767
------------ --------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock 14,547,500
Costs related to issuance of common stock (803,851)
Net decrease in deposits, excluding certificate accounts (530,072) (3,199,188) (1,075,465)
Proceeds from issuance of certificates of deposit, net
of payments for maturities 1,908,951 1,563,406 (68,380)
------------- -------------- ---------------
Net cash provided by (used in) financing activities 15,122,528 (1,635,782) (1,143,845)
------------ ------------- -------------
Increase (decrease) in cash and cash equivalents (842,416) 1,554,368 108,592
Cash and cash equivalents at beginning of period 3,597,614 2,043,246 1,934,654
------------- ------------- -------------
Cash and cash equivalents at end of period $ 2,755,198 $ 3,597,614 $ 2,043,246
============ ============ ============
</TABLE>
F-7
<PAGE>
FALMOUTH CO-OPERATIVE BANK
--------------------------
STATEMENTS OF CASH FLOWS
------------------------
Years Ended September 30, 1996, 1995 and 1994
---------------------------------------------
(continued)
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------- ----------------
<S> <C> <C> <C>
Supplemental disclosures:
Interest paid on deposits $2,832,887 $2,486,994 $2,136,299
Income taxes paid 229,000 213,762 380,968
Unrealized gain on securities available-for-sale, net of taxes 143,685 149,216
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
FALMOUTH CO-OPERATIVE BANK
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended September 30, 1996, 1995 and 1994
---------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
This summary of significant accounting policies of Falmouth Co-Operative Bank
(Bank) is presented to assist in understanding the Bank's financial statements.
These accounting policies conform to generally accepted accounting principles
and prevailing practices within the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported values of assets and liabilities at the balance sheet date and
income and expenses for the year. Actual results could differ from those
estimates. The estimates that are particularly susceptible to change in the near
term relate to the allowance for possible loan losses and the valuation of other
real estate owned.
The Bank's loans are principally secured by real estate located on Cape Cod. The
collectibility of the Bank's loans and the recovery of the full book value of
other real estate owned are dependent upon market conditions.
ORGANIZATION:
As of March 28, 1996, the Bank converted from a Massachusetts chartered
mutual co-operative bank to a Massachusetts chartered stock
co-operative bank. The Bank was organized in 1925. Its two offices are
in Falmouth, which is in the Cape Cod region of Massachusetts. The Bank
is monitored by two regulators, the Federal Deposit Insurance Corp.
(FDIC) and the bank commissioner for the Commonwealth of Massachusetts.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flow, cash and cash equivalents include
cash on hand, cash items, due from banks and federal funds sold.
INVESTMENT SECURITIES:
As of October 1, 1994, the Bank adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Statement establishes
standards for all debt securities and for equity securities that have
readily determinable fair values. As required under SFAS No. 115, prior
year financial statements were not restated.
SFAS No. 115 requires that investments in debt securities that
management has the positive intent and ability to hold-to-maturity be
classified as "held-to-maturity" and reflected at amortized cost.
Investments that are purchased and held principally for the purpose of
selling them in the near term are classified as "trading securities"
and reflected on the balance sheet at fair value, with unrealized gains
and losses included in earnings. Investments not classified as either
of the above are classified as "available-for-sale" and reflected on
the balance sheet at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of net
worth. The cumulative effect of the change in accounting principle as
of September 30, 1995, was to increase net worth, net of income tax
effects, by $149,216. There was no effect on 1995 net income relating
to the adoption of SFAS No. 115.
Prior to September 30, 1995, debt securities that management had the
intent and ability to hold until maturity were reflected at amortized
cost. Marketable equity securities were stated at the lower of
aggregate cost or fair value. Net unrealized losses applicable to
marketable equity securities were reflected as a charge to net worth.
For all years presented, restricted equity securities are reflected at
cost. Purchase premiums and discounts are amortized to earnings by a
method that approximates the interest method over the terms of the
investments. Declines in the value of investments that are deemed to be
other than temporary are reflected in earnings when identified. Gains
and losses on disposition of investments are computed by the specific
identification method.
F-9
<PAGE>
For regulatory capital purposes, unrealized gains or losses, after tax
effects, on securities available-for-sale are not recognized.
LOANS AND ACCRUED INTEREST RECEIVABLE:
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at
their outstanding principal balances reduced by unadvanced funds on
mortgage loans, net deferred loan fees and the allowance for possible
loan losses.
When a loan is put on non-accrual status, all interest previously
accrued, but not collected, is reversed against interest income in the
current period.
Net deferred loan fees are amortized on the interest method over the
contractual life of the loan.
The Bank's lending activities are conducted principally in the Greater
Falmouth Massachusetts area. The Bank grants single family residential
loans, commercial real estate loans, commercial loans, equity lines of
credit and installment loans. In addition, the Bank grants loans for
the construction of residential homes. Most loans granted by the Bank
are collateralized by real estate. A significant volume of the Bank's
loans have been associated with owner-occupied single family mortgages.
The ability and willingness of the single family residential and
consumer borrowers to honor their repayment commitments is generally
dependent on the level of overall economic activity within the
borrowers' geographic areas and real estate values. The ability and
willingness of commercial real estate, commercial and construction loan
borrowers to honor their repayment commitments is generally dependent
on the health of the real estate economic sector in the borrowers'
geographic areas and the general economy.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for loan losses has been established to absorb
foreseeable losses inherent in the loan portfolio. The provisions for
loan losses and the level of the allowance are evaluated periodically
by management and the Board of Directors. These provisions are the
results of the Bank's internal loan review, historical loan loss
experience, trends in delinquent and non-accrual loans, known and
inherent risks in the nature and volume of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, collateral
values, an estimate of potential loss exposure on significant credits,
concentrations of credit, and present and prospective economic
conditions based on facts then known.
Periodically, management reviews the portfolio, classifying each loan
into categories by assessing the degree of risk involved. Considering
this review, the Bank establishes the adequacy of its allowance and
necessary additions are charged to operations through the provision for
loan losses.
As of October 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118. According to SFAS No. 114 a
loan is impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. The Statement
requires that impaired loans be measured on a loan by loan basis by
either the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's observable market price,
or the fair value of the collateral if the loan is collateral
dependent.
The Statement is applicable to all loans, except large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of
cost or fair value, leases, and convertible or nonconvertible
debentures and bonds and other debt securities. The Bank considers its
residential real estate loans and consumer loans that are not
individually significant to be large groups of smaller balance
homogeneous loans.
F-10
<PAGE>
Factors considered by management in determining impairment include
payment status, net worth and collateral value. An insignificant
payment delay or an insignificant shortfall in payment does not in
itself result in the review of a loan for impairment. The Bank applies
SFAS No. 114 on a loan-by-loan basis. The Bank does not apply SFAS No.
114 to aggregations of loans that have risk characteristics in common
with other impaired loans. Interest on a loan is not generally accrued
when the loan becomes ninety or more days overdue. The Bank may place a
loan on nonaccrual status but not classify it as impaired, if (i) it is
probable that the Bank will collect all amounts due in accordance with
the contractual terms of the loan or (ii) the loan is an individually
insignificant residential mortgage loan or consumer loan. Impaired
loans are charged-off when management believes that the collectibility
of the loan's principal is remote.
The financial statement impact of adopting the provisions of this
Statement was not material.
PREMISES AND EQUIPMENT:
Land is carried at cost; bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is provided for over the
estimated useful lives of the assets computed on straight-line and
accelerated methods. Maintenance and repair costs are charged to
earnings when incurred while major expenditures for betterments are
capitalized and depreciated.
OTHER REAL ESTATE OWNED:
Other real estate owned (OREO) is held for sale and is comprised of
properties acquired through foreclosure proceedings or acceptance of a
deed in lieu of foreclosure and is reported at the lower of cost or
fair value less estimated costs to sell and an allowance for losses.
Expenses of holding properties are charged to operations in the current
period.
The recognition of gains and losses on the sale of real estate is
dependent upon whether the nature and terms of the sale and future
involvement of the Bank in the property sold meet certain requirements.
If the transaction does not meet these requirements, income recognition
is deferred and income is recognized when the requirements have been
met.
Beginning on October 1, 1995, in accordance with Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," the Bank classifies loans as in-substance repossessed or
foreclosed if the Bank receives physical possession of the debtor's
assets regardless of whether formal foreclosure proceedings take place.
DEPOSIT INSURANCE:
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation (FDIC). The FDIC provides deposit insurance up to $100,000
per depositor and normally charges member banks a premium based on
deposits. The premium increased to 26 cents per $100 of deposits on
June 1, 1993. However, those banks classified as well-capitalized were
permitted to retain the rate of 23 cents per $100 of deposits. As of
May 31, 1995, the premium charge was reduced to 4 cents per $100 of
deposits. The Bank carries additional insurance provided by the Share
Insurance Fund of The Cooperative Central Bank whereby deposits in
excess of $100,000 per depositor are insured in full.
COOPERATIVE CENTRAL BANK RESERVE FUND DEPOSIT:
The Reserve Fund was established for liquidity purposes and consists of
deposits required of all insured cooperative banks in Massachusetts.
The Fund is used by the Central Bank to advance funds to member banks,
but such advances generally are not made until Federal Home Loan Bank
and commercial bank sources of borrowings have been exhausted. The Bank
has not borrowed funds from the Central Bank since rejoining the
Federal Home Loan Bank on January 2, 1975.
F-11
<PAGE>
INCOME TAXES:
The Bank recognizes income taxes under the assets and liability method.
The objective of the asset and liability method is to establish
deferred tax assets and liabilities for the temporary differences
between the financial reporting basis and the tax basis of the Bank's
assets and liabilities at enacted tax rates expected to be in effect
when such. amounts are realized or settled. Deferred tax assets may be
recognized only where based on available evidence it is more likely
than not that the asset will ultimately be realized. Future taxable
income may be considered as a potential source of available evidence.
For regulatory capital purposes, the recognition of deferred tax
assets, when realization of such is dependent on an institution's
future taxable income is limited to the amount that can be realized
within one year or 10% of core capital, whichever is less.
RETIREMENT PLAN:
The compensation cost of an employee's pension benefit is recognized on
the net periodic pension cost method over the employee's approximate
service period. The aggregate cost method is used for funding purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Bank disclose
estimated fair value for its financial instruments. Fair value methods
and assumptions used by the Bank in estimating its fair value
disclosures are as follows:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and federal funds sold approximate those assets' fair
values.
Securities (including mortgage-backed securities): Fair values for
securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair
value.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings and money
market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Off-balance sheet instruments: The fair value of commitments to
originate loans is estimated using the fees currently charged to enter
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments and the unadvanced portion of loans, fair
value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligation
with the counterparties at the reporting date.
EARNINGS PER SHARE:
Because of the Bank's conversion in mid 1996 from mutual form to stock
ownership, a presentation of earnings per share for fiscal 1996 would
not be meaningful.
F-12
<PAGE>
NOTE 2 - INVESTMENTS IN SECURITIES
- - ----------------------------------
Debt and equity securities have been classified in the balance sheets according
to management's intent. The carrying amount of securities and their approximate
fair values are as follows as of September 30:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale:
September 30, 1996:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $10,345,434 $ 21,408 $ 9,823 $10,357,019
Other debt securities 4,082,553 19,826 1,421 4,100,958
Mortgage-backed securities 1,485,000 5,643 1,490,643
Equity securities 6,551,133 546,755 333,455 6,764,433
------------- --------- --------- -------------
$22,464,120 $593,632 $344,699 $22,713,053
=========== ======== ======== ===========
September 30, 1995:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 9,314,533 $ 41,226 $ 30,188 $ 9,325,571
Other debt securities 3,621,193 27,726 15,266 3,633,653
Equity securities 6,347,498 502,323 267,305 6,582,516
------------- --------- --------- -------------
$19,283,224 $571,275 $312,759 $19,541,740
=========== ======== ======== ===========
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Basis Gains Losses Value
---------- ----- ------ -----
Held-to-maturity:
September 30, 1996:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $15,128,466 $ 8,534 $25,437 $15,111,563
Other debt securities 6,338,239 8,026 7,460 6,338,805
Mortgage-backed securities 1,372,891 26,206 4,067 1,395,030
------------- -------- --------- -------------
$22,839,596 $42,766 $36,964 $22,845,398
=========== ======= ======= ===========
September 30, 1995:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 9,976,125 $ 26,968 $25,074 $ 9,978,019
Other debt securities 4,099,043 14,811 12,316 4,101,538
Mortgage-backed securities 1,959,572 23,535 15,196 1,967,911
------------- -------- -------- ------------
$16,034,740 $65,314 $52,586 $16,047,468
=========== ======= ======= ===========
</TABLE>
F-13
<PAGE>
The scheduled maturities of held-to-maturity securities and available-for-sale
securities (other than equity securities) were as follows as of September 30,
1996:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
securities: securities:
------------------------------- -------------------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Due within one year $14,469,782 $14,471,535 $ 9,058,672 $ 9,071,011
Due after one year through five years 6,996,923 6,978,833 4,347,736 4,365,076
Due after five years through ten years 1,021,579 1,021,890
Mortgage-backed securities 1,372,891 1,395,030 1,485,000 1,490,643
------------- ------------- ------------- -------------
$22,839,596 $22,845,398 $15,912,987 $15,948,620
=========== =========== =========== ===========
</TABLE>
For the year ended September 30, 1996, proceeds from sales of securities
available-for-sale amounted to $237,841. Gross realized gains and gross realized
losses on those sales amounted to $24,775 and $22,437, respectively. For the
year ended September 30, 1995, proceeds from sales of securities
available-for-sale amounted to $458,738. Gross realized gains and gross realized
losses on those sales amounted to $62,402 and $26,910, respectively. For the
year ended September 30, 1994, proceeds from the sales of securities were
$1,641,837. Gross realized gains and gross realized losses on those sales
amounted to $39,495 and $23,718, respectively.
The aggregate carrying amount and fair value of securities of issuers which
exceeded 10% of stockholders' equity were as follows as of September 30, 1996:
<TABLE>
<CAPTION>
Amortized
Cost Fair
Issuer Basis Value
------ ---------- ----------
<S> <C> <C>
Bank Investment Fund One $4,232,557 $3,949,279
========== ==========
NOTE 3 - LOANS
- - --------------
Loans consisted of the following as of September 30:
1996 1995
-------------- --------------
Mortgage Loans:
Residential $33,993,747 $26,093,790
Commercial 4,346,891 3,538,212
Equity lines of credit 1,682,916 1,889,816
------------ ------------
Total principal balances 40,023,554 31,521,818
Less: Unadvanced principal on construction loans (289,442) (102,191)
Net deferred loan fees (143,126) (120,880)
------------ ------------
Total mortgage loans 39,590,986 31,298,747
------------ ------------
Other Loans:
Commercial 372,836 830,122
Consumer 771,247 819,249
------------ -------------
Total other loans 1,144,083 1,649,371
------------ -------------
Total loans 40,735,069 32,948,118
Allowance for possible loan losses (498,223) (445,216)
------------ -------------
Loans, net $40,236,846 $32,502,902
=========== ===========
Interest accrued and unpaid on non-accrual loans as of September 30, 1994 was
$119,630.
</TABLE>
F-14
<PAGE>
Included in loans are amounts due to the Bank from certain officers, directors
and employees of the Bank. Loans to officers, directors and employees totaled
$552,088 as of September 30, 1996. During the year ended September 30, 1996
total payments amounted to $410,992 and principal advances totaled $427,567.
Changes in the allowance for possible loan losses were as follows for the years
ended September 30:
1996 1995 1994
----------- ----------- -------
Balance at beginning of period $445,216 $309,931 $276,842
Provision for loan losses 51,000 9,000
Recoveries 2,007 135,285 25,980
Loans charged off (1,891)
------------- -------------- -----------
Balance at end of period $498,223 $445,216 $309,931
======== ======== ========
As of September 30, 1996 there were no loans that met the definition of an
impaired loan in Statement of Financial Accounting Standards No. 114. There was
no investment in impaired loans or related interest-income recognized on
impaired loans during the year ended September 30, 1996.
NOTE 4 - PREMISES AND EQUIPMENT
- - -------------------------------
The following is a summary of premises and equipment as of September 30:
1996 1995
------------- -------------
Bank building $ 615,219 $ 591,035
Furniture, fixtures and equipment 459,492 432,954
Vehicle 25,071 25,071
-------------- -------------
1,099,782 1,049,060
Accumulated depreciation (573,721) (517,813)
------------ ------------
$ 526,061 $ 531,247
=========== ===========
NOTE 5 - DEPOSITS
- - -----------------
The aggregate amount of time deposit accounts (including CDs), each with a
minimum denomination of $100,000, was approximately $5,153,781 as of September
30, 1996.
For time deposits as of September 30, 1996, the aggregate amount of maturities
for each of the following five years ended September 30 and thereafter are as
follows:
(in thousands)
1997 $29,718
1998 6,117
1999 2,103
2000 86
2001 1
2002 and thereafter 41
-----------
$38,066
=======
F-15
<PAGE>
NOTE 6 - INCOME TAXES
- - ---------------------
The components of income tax expense are as follows for the years ended
September 30:
1996 1995 1994
---------- ----------- -------
Current:
Federal $241,168 $140,650 $265,000
State 111,000 73,250 125,000
--------- ---------- ---------
352,168 213,900 390,000
--------- --------- ---------
Deferred:
Federal 9,154 10,185 20,840
State 3,710 4,297 8,791
---------- ----------- -----------
12,864 14,482 29,631
---------- ---------- ----------
365,032 228,382 419,631
Changes in valuation allowance (6,432) (17,482) 27,169
---------- ---------- ----------
Total income tax expense $358,600 $210,900 $446,800
======== ======== ========
The deferred income tax provision is a result of certain income and expense
items being accounted for in different time periods for financial reporting
purposes than for income tax purposes.
The components of net deferred tax liability are as follows as of September 30:
1996 1995
---------- -------
Deferred tax asset:
Federal $179,442 $185,562
State 76,053 78,253
---------- ----------
255,495 263,815
Valuation allowance on asset (45,500) (55,984)
---------- ----------
209,995 207,831
--------- ---------
Deferred tax liability:
Federal (182,131) (183,674)
State (77,112) (77,457)
---------- ----------
(259,243) (261,131)
---------- ----------
Net deferred tax liability $ (49,248) $ (53,300)
========= =========
The tax effects of each type of item that gives rise to deferred taxes are as
follows as of September 30:
1996 1995
----------- -------
Allowance for loan losses $111,327 $119,647
Deferred income 60,006 51,108
Unrealized loss on securities (105,248) (109,300)
Reserve for contingencies 16,143 17,159
Excess depreciation (89,262) (83,262)
Other 7,332
----------- -----------
(7,034) 2,684
Valuation allowance (42,214) (55,984)
---------- ----------
Net deferred tax liability $ (49,248) $ (53,300)
========= =========
A summary of the change in the net deferred tax liability is as follows for the
years ended September 30:
1996 1995
--------- -------
Balance at beginning of year $ (53,300) $ 53,000
Deferred tax provision (6,432) (14,482)
Deferred tax liability on SFAS 115 unrealized
gain on available-for-sale securities 4,052 (109,300)
Utilization of valuation allowance 6,432 17,482
--------- ----------
Balance at end of year $ (49,248) $ (53,300)
========= =========
F-16
<PAGE>
The reasons for the differences between the tax at the statutory federal income
rate and the effective tax rate are summarized as follows for the years ended
September 30:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------
<S> <C> <C> <C> <C>
Tax at statutory rate of 34% $315,799 $221,046 $373,118
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 66,858 53,832 90,866
Utilization (provision) of deferred tax asset valuation reserve (6,432) (17,482) 27,169
Dividend received deduction (33,051) (33,504) (31,815)
Other, net 15,426 (12,992) (12,538)
---------- ---------- ----------
Income tax provision $358,600 $210,900 $446,800
======== ======== ========
</TABLE>
As part of the Adoption Tax Credit within the Minimum Wage Bill that was enacted
into law on August 20, 1996 the Section 593 tax additions to the reserve for bad
debts was repealed, effective for taxable years beginning after December 31,
1995. Thus, the Bank will be allowed a tax deduction for bad debts under the
experience method only starting with the year beginning October 1, 1996.
As part of this legislation the Bank will have to recapture into taxable income
the excess of the tax reserve for bad debts at September 30, 1996 over the tax
reserve at April 30, 1988. It is estimated that the recapture amount will be
approximately $250,000 resulting in Federal and Massachusetts income taxes of
approximately $100,000 which will be paid over a six year period starting with
the tax year beginning October 1, 1998. This tax has been provided for in past
years and will not result in any charge to earnings.
NOTE 7 - EMPLOYEE RETIREMENT, PENSION PLANS AND BENEFITS
- - --------------------------------------------------------
The Bank is a participant in the Cooperative Banks Employee Retirement
Association Defined Contribution and Defined Benefit Plans (a multi-employer
plan). The plans provide benefits to substantially all of the Bank's employees.
Benefits under the defined contribution plan are based on a percentage of
employee contributions while benefits under the defined benefit plan are based
primarily on years of service and employees' compensation. The Bank's funding
policy for the defined benefit plan is to fund amounts required by applicable
regulations and which are tax deductible. Amounts charged to retirement fund
expense for the years ending September 30, 1996, 1995 and 1994 totaled $93,870,
$84,144 and $72,551, respectively.
Effective March 1996 the Bank adopted the Falmouth Co-Operative Bank Employee
Stock Ownership Plan (ESOP).
On March 26, 1996 the ESOP borrowed $872,850 from Bridgewater Savings Bank to
purchase 87,285 shares of the stock of Falmouth Co-Operative Bank. The loan is
secured by a pledge of the stock purchased. The Bank will make annual
contributions to the ESOP in amounts determined by the Board of Directors.
Dividends received by the ESOP may be credited to participants' accounts or may
be used to repay the ESOP's debt.
Any shares of the Bank purchased by the ESOP are subject to the accounting
specified by the American Institute of CPA's Statement of Position 93-6. Under
the statement, as any shares are released from collateral, the Bank will report
compensation expense equal to the current market price of the shares and the
shares will be outstanding for earnings-per-share computations. Also, as the
shares are released, the related dividends will be recorded as a reduction of
retained earnings and dividends on the allocated shares will be recorded as a
reduction of debt and accrued interest.
F-17
<PAGE>
The shares purchased by the ESOP were pledged as collateral for its debt. As the
debt is repaid, shares are released from collateral and allocated to active
employees, based on the proportion of debt service paid in the year. The debt of
the ESOP is recorded as debt of the Bank and the shares pledged as collateral
are reported as unearned ESOP shares in the balance sheet. The ESOP shares were
as follows as of September 30, 1996:
Unreleased shares 87,285
------
Total ESOP shares 87,285
======
Estimated fair value of unreleased shares as of September 30: $1,091,063
==========
For the first five years of the ESOP debt, the interest rate per annum is 8.15%.
At the end of said five year period, the interest rate per annum shall be
adjusted to equal 2.65 percentage points above the weekly average yield on U.S.
Treasury Securities adjusted to a constant maturity of five years. Interest
expense on the note was $35,060 for the year ended September 30, 1996.
Although the Bank has guaranteed payment of the loan, and annual contributions
to the plan are discretionary, an implied guarantee exists as the only source of
income available to the Employee Stock Ownership Plan for payments on the loan
is from the normal retirement contributions made by the Bank to the plan.
Contributions to the ESOP Plan by the Bank were $78,702 for the year ended
September 30, 1996 and ESOP compensation expense was $43,642. The minimum
principal payments due on the loan are as follows as of September 30, 1996:
Principal
1997 $ 61,388
1998 66,582
1999 72,216
2000 78,327
2001 84,955
Years thereafter 465,740
---------
Total due $829,208
========
NOTE 8 - REGULATORY MATTERS
- - ---------------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
F-18
<PAGE>
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes:
------ ------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
As of September 30, 1996:
Total Capital (to Risk Weighted Assets) $22,268 55.81% $3,192 greater than or equal to 8.0%
Tier I Capital (to Risk Weighted Assets) $21,770 54.56% $1,596 greater than or equal to 4.0%
Tier I Capital (to Average Assets) $21,770 24.27% $3,588 greater than or equal to 4.0%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions :
-------------------
Amount Ratio
------ -----
<S> <C>
As of September 30, 1996:
Total Capital (to Risk Weighted Assets) $3,990 greater than or equal to 10.0%
Tier I Capital (to Risk Weighted Assets) $2,394 greater than or equal to 6.0%
Tier I Capital (to Average Assets) $4,485 greater than or equal to 5.0%
</TABLE>
As of September 30, 1995, the capital ratios of the Bank significantly exceeded
minimum applicable regulatory requirements with a capital ratio of 10.89% and a
risk-based capital ratio of 27.30% (unaudited).
The ability of the Bank to pay dividends on its common stock is restricted by
Massachusetts banking law. No dividends may be paid if such dividends would
reduce stockholders' equity of the Bank below the amount of the liquidation
account required by Massachusetts conversion regulations and described in Note
10. In addition, the Bank may not pay dividends in excess of current earnings
for three years following the conversion of the Bank from mutual to stock form.
NOTE 9 - FINANCIAL INSTRUMENTS
- - ------------------------------
The Bank is 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 originate loans. The instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets. The contract amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments is represented by the
contractual amounts of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but may include
secured interests in mortgages, accounts receivable, inventory, property, plant
and equipment and income-producing properties.
F-19
<PAGE>
The estimated fair values of the Bank's financial instruments, all of which are
held or issued for purposes other than trading, are as follows as of September
30:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------ -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,755,198 $ 2,755,198 $ 3,597,614 $ 3,597,614
Available-for-sale securities 22,713,053 22,713,053 19,541,740 19,541,740
Held-to-maturity securities 22,839,596 22,845,398 16,034,740 16,047,468
Federal Home Loan Bank stock 300,900 300,900 280,100 280,100
Loans 40,236,846 39,971,000 32,502,902 32,502,902*
Accrued interest receivable 746,601 746,601 519,793 519,793
Cooperative Central Bank Reserve Fund Deposit 285,680 285,680 285,680 285,680
Financial liabilities:
Deposits 66,205,112 66,298,000 64,781,669 64,781,669*
Employee Stock Ownership Plan loan 829,208 813,025
The carrying amounts of financial instruments shown in the above table are
included in the balance sheet under the indicated captions. Accounting policies
related to financial instruments are described in Note 1.
* At September 30, 1995, the carrying values of total loans and total deposit
liabilities approximated their estimated fair values.
Notional amounts of financial instrument liabilities with off-balance sheet
credit risk are as follows as of September 30:
</TABLE>
1996 1995
----------- ----------
Commitments to grant mortgage loans $1,781,455 385,000
Unadvanced funds on construction loans 289,442 102,191
Unadvanced funds on home equity lines of credit 2,361,777 1,396,384
Unadvanced funds on commercial lines of credit 292,500 205,000
------------ ----------
$4,725,174 $2,088,575
========== ==========
There is no material difference between the notional amount and the estimated
fair value of the off-balance sheet liabilities as of September 30, 1996.
The Bank has no derivative financial instruments subject to the provisions of
SFAS No. 119 "Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments."
NOTE 10 - CONVERSION
- - --------------------
On March 28, 1996, The Falmouth Co-Operative Bank converted from a mutual
cooperative bank to a Massachusetts-chartered capital stock cooperative bank.
The Bank issued 1,454,750 shares of common stock through a public offering which
provided net proceeds of $13,743,649 after conversion costs of $803,851.
At the time of conversion to stock form, the Bank established a liquidation
account in an amount equal to the Bank's net worth as of the date of the latest
financial statements included in the final Offering Circular used in connection
with the Conversion. In accordance with Massachusetts statutes, the liquidation
account is maintained for the benefit of Eligible Account Holders who continue
to maintain their accounts in the Bank after the conversion. The liquidation
account is reduced annually to the extent that Eligible Account Holders have
reduced their qualifying deposits. Subsequent increases will not restore an
Eligible Account Holder's interest in the liquidation account. In the event of a
complete liquidation, each Eligible Account Holder is entitled to receive a
distribution from the liquidation account in a proportionate amount to the
current adjusted qualifying balances for the account then held. The balance in
the liquidation account was $________ as of September 30, 1996.
F-20
<PAGE>
NOTE 11 - EMPLOYMENT AGREEMENTS
- - -------------------------------
The Bank has employment agreements with its President and Chief Executive
Officer and its Vice President and Treasurer. The employment agreements
generally provide for the continued payment of specified compensation and
benefits for specified periods after termination, unless the termination is for
"cause" as defined in the employment agreements. The employment agreements
provide for the payment, under certain circumstances, of lump-sum amounts upon
termination following a "change in control" as defined in the Agreements. The
employment agreements also provide for lump-sum payments in the event of the
officers' voluntary termination of employment on the occurrence of certain
specified events.
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
- - ------------------------------------------------
The Bank is obligated under certain agreements issued during the normal course
of business which are not reflected in the accompanying financial statements.
The Bank is obligated under a lease agreement covering the branch office located
in East Falmouth, Massachusetts. This agreement is considered to be an operating
lease. The lease term is for five years with three extension periods of five
years each. The total minimum rental due in future periods under this agreement
is as follows as of September 30, 1996:
1997 $ 20,000
1998 20,000
1999 20,000
2000 20,000
2001 20,000
----------
Total minimum lease payments $100,000
========
The lease contains provisions for escalation of minimum lease payments
contingent upon percentage increases in the consumer price index.
NOTE 13 - RECLASSIFICATION
- - --------------------------
Certain amounts in the prior years have been reclassified to be consistent with
the current year's statement presentation.
NOTE 14 - SUBSEQUENT EVENT, PLAN OF REORGANIZATION
- - --------------------------------------------------
As of November 19, 1996 the Bank entered into a Plan of Reorganization pursuant
to which the Bank will become a wholly-owned subsidiary of a bank holding
company which was newly formed for the purpose of effecting the Plan of
Reorganization. The Plan of Reorganization is subject of the approval of the
Bank's stockholders and regulators.
F-21
<PAGE>
APPENDIX A
================================================================================
1997 STOCK OPTION PLAN FOR
OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
OF FALMOUTH CO-OPERATIVE BANK
------------------------------
Adopted November 19, 1996
Effective as of January 21, 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
<S> <C> <C>
PURPOSE
Section 1.1 General Purpose of the Plan................................................. 1
ARTICLE II
DEFINITIONS
Section 2.1 Bank........................................................................ 1
Section 2.2 Board....................................................................... 1
Section 2.3 Change in Control........................................................... 1
Section 2.4 Code........................................................................ 2
Section 2.5 Committee................................................................... 2
Section 2.6 Company..................................................................... 2
Section 2.7 Disability.................................................................. 2
Section 2.8 Disinterested Board Member.................................................. 2
Section 2.9 Effective Date.............................................................. 3
Section 2.10 Eligible Director........................................................... 3
Section 2.11 Eligible Employee........................................................... 3
Section 2.12 Employer.................................................................... 3
Section 2.13 Exchange Act................................................................ 3
Section 2.14 Exercise Price.............................................................. 3
Section 2.15 Fair Market Value........................................................... 3
Section 2.16 Family Member............................................................... 3
Section 2.17 Incentive Stock Option...................................................... 3
Section 2.18 Non-Qualified Stock Option.................................................. 3
Section 2.19 Option...................................................................... 3
Section 2.20 Option Period............................................................... 4
Section 2.21 Person...................................................................... 4
Section 2.22 Plan........................................................................ 4
Section 2.23 Retirement.................................................................. 4
Section 2.24 Share....................................................................... 4
ARTICLE III
AVAILABLE SHARES
Section 3.1 Available Shares............................................................ 4
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee................................................................... 4
Section 4.2 Committee Action............................................................ 5
Section 4.3 Committee Responsibilities.................................................. 5
A-i
<PAGE>
Page
----
ARTICLE V
STOCK OPTIONS FOR ELIGIBLE DIRECTORS
Section 5.1 In General.................................................................. 5
Section 5.2 Exercise Price.............................................................. 6
Section 5.3 Option Period............................................................... 6
ARTICLE VI
STOCK OPTIONS FOR ELIGIBLE EMPLOYEES
Section 6.1 Size of Option.............................................................. 7
Section 6.2 Grant of Options............................................................ 7
Section 6.3 Exercise Price.............................................................. 7
Section 6.4 Option Period............................................................... 7
Section 6.5 Required Regulatory Provisions.............................................. 8
Section 6.6 Additional Restrictions on Incentive Stock Options.......................... 9
ARTICLE VII
OPTIONS -- IN GENERAL
Section 7.1 Method of Exercise.......................................................... 10
Section 7.2 Limitations on Options...................................................... 10
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination................................................................. 11
Section 8.2 Amendment................................................................... 11
Section 8.3 Adjustments in the Event of a Business Reorganization....................... 11
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan.......................................... 12
Section 9.2 No Right to Continued Employment............................................ 12
Section 9.3 Construction of Language.................................................... 12
Section 9.4 Governing Law............................................................... 12
Section 9.5 Headings.................................................................... 13
Section 9.6 Non-Alienation of Benefits.................................................. 13
Section 9.7 Taxes....................................................................... 13
Section 9.8 Required Approvals.......................................................... 13
Section 9.9 Notices..................................................................... 13
</TABLE>
A-ii
<PAGE>
1997 Stock Option Plan
for
Outside Directors, Officers and Employees
of
Falmouth Co-operative Bank
ARTICLE I
PURPOSE
Section 1.1 General Purpose of the Plan.
The purpose of the Plan is to promote the growth and
profitability of Falmouth Co-operative Bank, to provide eligible directors,
certain key officers and employees of Falmouth Co-operative Bank and its
affiliates with an incentive to achieve corporate objectives, to attract and
retain individuals of outstanding competence and to provide such individuals
with an equity interest in Falmouth Co-operative Bank.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this
Plan, unless a different meaning is plainly indicated by the context:
Section 2.1 Bank means Falmouth Co-operative Bank, a
cooperative bank chartered under the laws of the Commonwealth of Massachusetts,
and any successor thereto.
Section 2.2 Board means the board of directors of the Company.
Section 2.3 Change in Control means any of the following
events:
(a) the occurrence of any event upon which any "person" (as such
term is used in sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended ("Exchange Act")), other than (A) a trustee or
other fiduciary holding securities under an employee benefit plan
maintained for the benefit of employees of the Company; (B) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company; or (C) any group constituting a person in which
employees of the Company are substantial members, becomes the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities issued by the
Company representing 25% or more of the combined voting power of all
of the Company's then outstanding securities; or
(b) the occurrence of any event upon which the individuals who on
the date the Plan is adopted are members of the Board, together with
individuals whose election by the
A-1
<PAGE>
Board or nomination for election by the Company's stockholders was
approved by the affirmative vote of at least two-thirds of the members
of the Board then in office who were either members of the Board on the
date this Plan is adopted or whose nomination or election was
previously so approved, cease for any reason to constitute a majority
of the members of the Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of
directors of the Company (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
(i) a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation
following which both of the following conditions are
satisfied:
(A) either (I) the members of the Board of
the Company immediately prior to such merger or
consolidation constitute at least a majority of the
members of the governing body of the institution
resulting from such merger or consolidation; or (II)
the shareholders of the Company own securities of the
institution resulting from such merger or
consolidation representing 80% or more of the
combined voting power of all such securities of the
resulting institution then outstanding in
substantially the same proportions as their ownership
of voting securities of the Company immediately
before such merger or consolidation; and
(B) the entity which results from such
merger or consolidation expressly agrees in writing
to assume and perform the Company's obligations under
the Plan; or
(ii) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of its assets; or
(d) any event that would be described in section 2.3(a), (b) or
(c) if "the Bank" were substituted for "the Company" therein.
Section 2.4 Code means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
Section 2.5 Committee means the Committee described in section
4.1.
Section 2.6 Company means:
(a) for so long as Falmouth Co-operative Bank is not a wholly
owned subsidiary of a parent holding company, Falmouth Co-operative
Bank; and
(b) from and after the date on which Falmouth Co-operative Bank
becomes a wholly owned subsidiary of a parent holding company, such
parent holding company.
Section 2.7 Disability means a condition of total incapacity,
mental or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
Section 2.8 Disinterested Board Member means a member of the
Board who (a) is not a current employee of the Company or a subsidiary, (b) is
not a former employee of the Company who receives compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
taxable year, (c) has not been an officer of the Company, (d) does not receive
remuneration from the Company or a subsidiary, either directly or indirectly, in
any capacity other than as a director and (e) does
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not possess an interest in any other transaction, and is not engaged in a
business relationship, for which disclosure would be required pursuant to Item
404(a) or (b) of the proxy solicitation rules of the Securities and Exchange
Commission. The term Disinterested Board Member shall be interpreted in such
manner as shall be necessary to conform to the requirements of section 162(m) of
the Code and Rule 16b-3 promulgated under the Exchange Act.
Section 2.9 Effective Date means January 21, 1997, provided
that the Plan shall then or thereafter be approved by the Commissioner of Banks
of the Commonwealth of Massachusetts.
Section 2.10 Eligible Director means a member of the board of
directors of an Employer who is not also an employee or an officer of an
Employer.
Section 2.11 Eligible Employee means any employee whom the
Committee may determine to be a key officer or employee of an Employer and
select to receive a grant of an Option pursuant to the Plan.
Section 2.12 Employer means the Company, the Bank and any
successor thereto and, with the prior approval of the Board, and subject to such
terms and conditions as may be imposed by the Board, any other savings bank,
savings and loan association, bank, corporation, financial institution or other
business organization or institution.
Section 2.13 Exchange Act means the Securities Exchange Act of
1934, as amended.
Section 2.14 Exercise Price means the price per Share at which
Shares subject to an Option may be purchased upon exercise of the Option,
determined in accordance with section 5.4.
Section 2.15 Fair Market Value means, with respect to a Share
on a specified date:
(a) the final reported sales price on the date in question (or if
there is no reported sale on such date, on the last preceding date on
which any reported sale occurred) as reported in the principal
consolidated reporting system with respect to securities listed or
admitted to trading on the principal United States securities exchange
on which the Shares are listed or admitted to trading; or
(b) if the Shares are not listed or admitted to trading on any
such exchange, the closing bid quotation with respect to a Share on
such date on the National Association of Securities Dealers Automated
Quotations System, or, if no such quotation is provided, on another
similar system, selected by the Committee, then in use; or
(c) if sections 2.15(a) and (b) are not applicable, the fair
market value of a Share as the Committee may determine.
Section 2.16 Family Member means the spouse, parent, child or
sibling of an Eligible Director or Eligible Employee.
Section 2.17 Incentive Stock Option means a right to purchase
Shares that is granted to Eligible Employees pursuant to section 6.1, that is
designated by the Committee to be an Incentive Stock Option and that is intended
to satisfy the requirements of section 422 of the Code.
Section 2.18 Non-Qualified Stock Option means a right to
purchase Shares that is granted pursuant to sections 5.1 or 6.1. For Eligible
Employees, an Option will be a Non-Qualified Stock Option (a) if it is not
designated by the Committee to be an Incentive Stock Option, or (b) to the
extent that it does not satisfy the requirements of section 422 of the Code.
Section 2.19 Option means either an Incentive Stock Option or
a Non-Qualified Stock Option.
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Section 2.20 Option Period means the period during which an
Option may be exercised, determined in accordance with sections 5.3 and 6.4.
Section 2.21 Person means an individual, a corporation, a
bank, a savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
Section 2.22 Plan means the 1997 Stock Option Plan for Outside
Directors, Officers and Employees of Falmouth Co-operative Bank, as amended from
time to time.
Section 2.23 Retirement means retirement at or after the
normal or early retirement date set forth in any tax-qualified retirement plan
of the Bank.
Section 2.24 Share means a share of Common Stock, par value
$.10 per share, of Falmouth Co-operative Bank.
ARTICLE III
AVAILABLE SHARES
Section 3.1 Available Shares.
Subject to section 8.3, the maximum aggregate number of Shares
with respect to which Options may be granted at any time shall be equal to the
excess of:
(a) 145,475 Shares; over
(b) the sum of:
(i) the number of Shares with respect to which
previously granted Options may then or in the future be
exercised; plus
(ii) the number of Shares with respect to which
previously granted Options have been exercised.
A maximum aggregate of 101,833 Shares may be granted to Eligible Employees and a
maximum aggregate of 43,642 Shares may be granted to Eligible Directors. For
purposes of this section 3.1, an Option shall not be considered as having been
exercised to the extent that such Option terminates by reason other than the
purchase of related Shares; provided, however, that for purposes of meeting the
requirements of section 162(m) of the Code, no Eligible Employee who is a
covered employee under section 162(m) of the Code shall receive a grant of
Options in excess of the amount specified under this section 3.1, computed as if
any Option which is cancelled reduced the maximum number of Shares.
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee.
The Plan shall be administered by the members of the
Compensation Committee of the Company who are Disinterested Board Members. If
the Committee consists of fewer than two Disinterested
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Board Members, then the Board shall appoint to the Committee such additional
Disinterested Board Members as shall be necessary to provide for a Committee
consisting of at least two Disinterested Board Members.
Section 4.2 Committee Action.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
Section 4.3 Committee Responsibilities.
Subject to the terms and conditions of the Plan and such
limitations as may be imposed from time to time by the Board, the Committee
shall be responsible for the overall management and administration of the Plan
and shall have such authority as shall be necessary or appropriate in order to
carry out its responsibilities, including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all
questions that may arise under the Plan as to eligibility for
participation in the Plan, the number of Shares subject to the
Options, if any, to be granted, and the terms and conditions thereof;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions
of the Plan that it may deem necessary or appropriate.
ARTICLE V
STOCK OPTIONS FOR ELIGIBLE DIRECTORS
Section 5.1 In General.
(a) On the Effective Date, each Eligible Director shall be
granted an Option to purchase a number of Shares to be determined by the
Committee in consultation with an employee benefits consultant and not to exceed
7,273 for any individual Eligible Director and 43,642 for all Eligible Directors
in the aggregate.
(b) Any Option granted under this section 5.1 shall be
evidenced by a written agreement which shall specify the number of Shares
covered by the Option, the Exercise Price for the Shares subject to the Option
and the Option Period, all as determined pursuant to this Article V. The Option
agreement shall also set forth specifically or incorporate by reference the
applicable provisions of the Plan.
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Section 5.2 Exercise Price.
The price per Share at which an Option granted to an Eligible
Director under section 5.1 may be exercised shall be the Fair Market Value of a
Share on the date on which the Option is granted.
Section 5.3 Option Period.
(a) Subject to section 5.3(b), the Option Period during which
an Option granted to an Eligible Director under section 5.1 may be exercised
shall commence on the date the Option is granted and shall expire on the earlier
of:
(i) removal for cause in accordance with the Employer's bylaws;
or
(ii) the last day of the ten-year period commencing on the date
on which the Option was granted.
(b) During the Option Period, the maximum number of Shares as
to which an outstanding Option may be exercised shall be as follows:
(i) prior to the first anniversary of the date on which the Plan
is approved by shareholders pursuant to section 9.8, the Option shall
not be exercisable;
(ii) on and after the first anniversary, but prior to the second
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum
of twenty percent (20%) of the Shares subject to the Option;
(iii) on and after the second anniversary, but prior to the third
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum
of forty percent (40%) of the Shares subject to the Option when
granted, including in such number any optioned Shares purchased prior
to such second anniversary;
(iv) on and after the third anniversary, but prior to the fourth
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum
of sixty percent (60%) of the Shares subject to the Option when
granted, including in such number any optioned Shares purchased prior
to such third anniversary;
(v) on and after the fourth anniversary, but prior to the fifth
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum
of eighty percent (80%) of the Shares subject to the Option when
granted, including in such number any optioned Shares purchased prior
to such fourth anniversary; and
(vi) on and after the fifth anniversary of the date on which the
Plan is approved by shareholders pursuant to section 9.8 and for the
remainder of the Option Period, the Option may be exercised as to the
entire number of optioned Shares not theretofore purchased;
provided, however, that such an Option shall become fully exercisable, and all
optioned Shares not previously purchased shall become available for purchase, on
the date of the Option holder's death or Disability, Retirement or Change in
Control, in each case while the Option holder is an Eligible Director.
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ARTICLE VI
STOCK OPTIONS FOR ELIGIBLE EMPLOYEES
Section 6.1 Size of Option.
Subject to sections 6.2 and 6.5 and such limitations as the
Board may from time to time impose, the number of Shares as to which an Eligible
Employee may be granted Options shall be determined by the Committee, in its
discretion. Except as provided in section 6.5, the maximum number of Shares that
may be optioned to any one individual under this Plan during its entire duration
shall be the entire number of Shares available under section 3.1 of the Plan.
Section 6.2 Grant of Options.
(a) Subject to the limitations of the Plan, the Committee may,
in its discretion, grant to an Eligible Employee an Option to purchase Shares.
The Option for such Eligible Employee must be designated as either an Incentive
Stock Option or a Non-Qualified Stock Option and, if not designated as either,
shall be a Non-Qualified Stock Option.
(b) Any Option granted under this section 6.2 shall be
evidenced by a written agreement which shall:
(i) specify the number of Shares covered by the Option;
(ii) specify the Exercise Price, determined in accordance
with section 6.3, for the Shares subject to the Option;
(iii) specify the Option Period determined in accordance
with section 6.4;
(iv) set forth specifically or incorporate by reference the
applicable provisions of the Plan; and
(v) contain such other terms and conditions not inconsistent
with the Plan as the Committee may, in its discretion, prescribe
with respect to an Option granted to an Eligible Employee.
Section 6.3 Exercise Price.
The price per Share at which an Option granted to an Eligible
Employee may be exercised shall be determined by the Committee, in its
discretion; provided, however, that the Exercise Price shall not be less than
the Fair Market Value of a Share on the date on which the Option is granted.
Section 6.4 Option Period.
Subject to section 6.5, the Option Period during which an
Option granted to an Eligible Employee may be exercised shall commence on the
date specified by the Committee in the Option agreement and shall expire on the
date specified in the Option agreement or, if no date is specified, on the
earliest of:
(a) the close of business on the last day of the three-month
period commencing on the date of the Eligible Employee's termination of
employment with the Employer, other than on account of death or
Disability, Retirement or a Termination for Cause;
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(b) the close of business on the last day of the one-year period
commencing on the date of the Eligible Employee's termination of
employment with all Employers due to death, Disability or Retirement;
(c) the date and time when the Eligible Employee ceases to be an
employee of all Employers due to a Termination for Cause; and
(d) the last day of the ten-year period commencing on the date on
which the Option was granted.
Section 6.5 Required Regulatory Provisions.
Notwithstanding anything contained herein to the contrary:
(a) no Option shall be granted to an Eligible Employee under the
Plan prior to shareholder approval under section 9.8.
(b) no Eligible Employee may be granted Options to purchase more
than 36,368 Shares.
(c) each Option granted to an Eligible Employee shall become
exercisable as follows:
(i) prior to the first anniversary of the date on which the
Plan is approved by shareholders pursuant to section 9.8, the
Option shall not be exercisable;
(ii) on and after the first anniversary, but prior to the
second anniversary, of the date on which the Plan is approved by
shareholders pursuant to section 9.8, the Option may be exercised
as to a maximum of twenty percent (20%) of the Shares subject to
the Option when granted;
(iii) on and after the second anniversary, but prior to the
third anniversary, of the date on which the Plan is approved by
shareholders pursuant to section 9.8, the Option may be exercised
as to a maximum of forty percent (40%) of the Shares subject to
the Option when granted, including in such forty percent (40%)
any optioned Shares purchased prior to such second anniversary;
(iv) on and after the third anniversary, but prior to the
fourth anniversary, of the date on which the Plan is approved by
shareholders pursuant to section 9.8, the Option may be exercised
as to a maximum of sixty percent (60%) of the Shares subject to
the Option when granted, including in such sixty percent (60%)
any optioned Shares purchased prior to such third anniversary;
(v) on and after the fourth anniversary, but prior to the
fifth anniversary, of the date on which the Plan is approved by
shareholders pursuant to section 9.8, the Option may be exercised
as to a maximum of eighty percent (80%) of the Shares subject to
the Option when granted, including in such eighty percent (80%)
any optioned Shares purchased prior to such fourth anniversary;
and
(vi) on and after the fifth anniversary of the date on which
the Plan is approved by shareholders pursuant to section 9.8 and
for the remainder of the Option Period, the Option may be
exercised as to the entire number of optioned Shares not
theretofore purchased;
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provided, however, that such an Option shall become fully
exercisable, and all optioned Shares not previously purchased
shall become available for purchase, on the date of the Option
holder's death or Disability, Retirement or Change in Control, in
each case while the Option holder is an Eligible Employee.
Section 6.6 Additional Restrictions on Incentive Stock
Options.
In addition to the limitations of section 7.2, an Option
granted to an Eligible Employee designated by the Committee to be an Incentive
Stock Option shall be subject to the following limitations:
(a) If, for any calendar year, the sum of (i) plus (ii) exceeds
$100,000, where (i) equals the Fair Market Value (determined as of the date
of the grant) of Shares subject to an Option intended to be an Incentive
Stock Option which first become available for purchase during such calendar
year, and (ii) equals the Fair Market Value (determined as of the date of
grant) of Shares subject to any other options intended to be Incentive
Stock Options and previously granted to the same Eligible Employee which
first become exercisable in such calendar year, then that number of Shares
optioned which causes the sum of (i) and (ii) to exceed $100,000 shall be
deemed to be Shares optioned pursuant to a Non-Qualified Stock Option or
Non-Qualified Stock Options, with the same terms as the Option or Options
intended to be an Incentive Stock Option;
(b) The Exercise Price of an Incentive Stock Option granted to an
Eligible Employee who, at the time the Option is granted, owns Shares
comprising more than 10% of the total combined voting power of all classes
of stock of the Company shall not be less than 110% of the Fair Market
Value of a Share, and if an Option designated as an Incentive Stock Option
shall be granted at an Exercise Price that does not satisfy this
requirement, the designated Exercise Price shall be observed and the Option
shall be treated as a Non- Qualified Stock Option;
(c) The Option Period of an Incentive Stock Option granted to an
Eligible Employee who, at the time the Option is granted, owns Shares
comprising more than 10% of the total combined voting power of all classes
of stock of the Company, shall expire no later than the fifth anniversary
of the date on which the Option was granted, and if an Option designated as
an Incentive Stock Option shall be granted for an Option Period that does
not satisfy this requirement, the designated Option Period shall be
observed and the Option shall be treated as a Non-Qualified Stock Option;
(d) An Incentive Stock Option that is exercised during its designated
Option Period but more than:
(i) three (3) months after the termination of employment with the
Company, a parent or a subsidiary (other than on account of disability
within the meaning of section 22(e)(3) of the Code or death) of the
Eligible Employee to whom it was granted; and
(ii) one (1) year after such individual's termination of
employment with the Company, a parent or a subsidiary due to
disability (within the meaning of section 22(e)(3) of the Code);
may be exercised in accordance with its terms but shall at the time of
exercise be treated as a Non-Qualified Stock Option; and
(e) Except with the prior written approval of the Committee, no
individual shall dispose of Shares acquired pursuant to the exercise of an
Incentive Stock Option until after the later of (i) the second anniversary
of the date on which the Incentive Stock Option was granted, or (ii) the
first anniversary of the date on which the Shares were acquired.
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ARTICLE VII
OPTIONS -- IN GENERAL
Section 7.1 Method of Exercise.
(a) Subject to the limitations of the Plan and the Option
agreement, an Option holder may, at any time during the Option Period, exercise
his or her right to purchase all or any part of the Shares to which the Option
relates; provided, however, that the minimum number of Shares which may be
purchased at any time shall be 100, or, if less, the total number of Shares
relating to the Option which remain unpurchased. An Option holder shall exercise
an Option to purchase Shares by:
(i) giving written notice to the Committee, in such form and manner as
the Committee may prescribe, of his or her intent to exercise the Option;
(ii) delivering to the Committee full payment, consistent with section
7.1(b), for the Shares as to which the Option is to be exercised; and
(iii) satisfying such other conditions as may be prescribed in the
Option agreement.
(b) The Exercise Price of Shares to be purchased upon exercise
of any Option shall be paid in full in cash (by certified or bank check or such
other instrument as the Company may accept) or, if and to the extent permitted
by the Committee, by one or more of the following: (i) in the form of Shares
already owned by the Option holder having an aggregate Fair Market Value on the
date the Option is exercised equal to the aggregate Exercise Price to be paid;
(ii) by requesting the Company to cancel without payment Options outstanding to
such Person for that number of Shares whose aggregate Fair Market Value on the
date of exercise, when reduced by their aggregate Exercise Price, equals the
aggregate Exercise Price of the Options being exercised; or (iii) by a
combination thereof. Payment for any Shares to be purchased upon exercise of an
Option may also be made by delivering a properly executed exercise notice to the
Company, together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the purchase
price. To facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
(c) When the requirements of sections 7.1(a) and (b) have been
satisfied, the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership of such
Shares. The Person exercising the Option shall have no right to vote or to
receive dividends, nor have any other rights with respect to the Shares, prior
to the date as of which such Shares are transferred to such Person on the stock
transfer records of the Company, and no adjustments shall be made for any
dividends or other rights for which the record date is prior to the date as of
which such transfer is effected, except as may be required under section 8.3.
Section 7.2 Limitations on Options.
(a) An Option by its terms shall not be transferable by the
Option holder other than to Family Members or by will or by the laws of descent
and distribution and shall be exercisable, during the lifetime of the Option
holder, only by the Option holder or a Family Member. Any such transfer shall be
effected by written notice to the Company given in such form and manner as the
Committee may prescribe and shall be recognized only if such notice is received
by the Company prior to the death of the person giving it. Thereafter, the
transferee shall have, with respect to such Option, all of the rights,
privileges and obligations which would attach thereunder to the transferor if
the Option were issued to such transferor. If a privilege of the Option depends
on the life, employment or other status of the transferor, such privilege of the
Option for the transferee shall continue to depend on the life, employment or
other status of the transferor.
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The Committee shall have full and exclusive authority to interpret and apply the
provisions of this Plan to transferees to the extent not specifically described
herein. Notwithstanding the foregoing, an Incentive Stock Option is not
transferable by an Eligible Employee other than by will or the laws of descent
and distribution, and is exercisable, during his lifetime, solely by him.
(b) The Company's obligation to deliver Shares with respect to
an Option shall, if the Committee so requests, be conditioned upon the receipt
of a representation as to the investment intention of the Option holder to whom
such Shares are to be delivered, in such form as the Committee shall determine
to be necessary or advisable to comply with the provisions of applicable
federal, state or local law. It may be provided that any such representation
shall become inoperative upon a registration of the Shares or upon the
occurrence of any other event eliminating the necessity of such representation.
The Company shall not be required to deliver any Shares under the Plan prior to
(i) the admission of such Shares to listing on any stock exchange on which
Shares may then be listed, or (ii) the completion of such registration or other
qualification under any state or federal law, rule or regulation as the
Committee shall determine to be necessary or advisable.
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination.
The Board may suspend or terminate the Plan in whole or in
part at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee. Unless sooner
terminated, the Plan shall terminate automatically on the day preceding the
tenth anniversary of the Effective Date. In the event of any suspension or
termination of the Plan, all Options theretofore granted under the Plan that are
outstanding on the date of such suspension or termination of the Plan shall
remain outstanding and exercisable for the period and on the terms and
conditions set forth in the Option agreements evidencing such Options.
Section 8.2 Amendment.
The Board may amend or revise the Plan in whole or in part at
any time; provided, however, that, to the extent required to comply with section
162(m) of the Code, no such amendment or revision shall be effective if it
amends a material term of the Plan unless approved by the holders of a majority
of the voting shares of the Company.
Section 8.3 Adjustments in the Event of a Business
Reorganization.
(a) In the event of any merger, consolidation, or other
business reorganization in which the Company is the surviving entity, and in the
event of any stock split, stock dividend or other event generally affecting the
number of Shares held by each Person who is then a holder of record of Shares,
the number of Shares covered by each outstanding Option and the number of Shares
available pursuant to section 3.1 shall be adjusted to account for such event.
Such adjustment shall be effected by multiplying such number of Shares by an
amount equal to the number of Shares that would be owned after such event by a
Person who, immediately prior to such event, was the holder of record of one
Share, and the Exercise Price of the Options shall be adjusted by dividing the
Exercise Price by such number of Shares; provided, however, that the Committee
may, in its discretion, establish another appropriate method of adjustment.
(b) In the event of any merger, consolidation, or other
business reorganization in which the Company is not the surviving entity, any
Options granted under the Plan which remain outstanding may be cancelled as of
the effective date of such merger, consolidation, business reorganization,
liquidation or sale
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by the Board upon 30 days' written notice to the Option holder; provided,
however, that on or as soon as practicable following the date of cancellation,
each Option holder shall receive a monetary payment in such amount, or other
property of such kind and value, as the Board determines in good faith to be
equivalent in value to the Options that have been cancelled.
(c) In the event that the Company shall declare and pay any
dividend with respect to Shares (other than a dividend payable in Shares) which
results in a nontaxable return of capital to the holders of Shares for federal
income tax purposes or otherwise than by dividend makes a distribution of
property to the holders of its Shares, the Company shall make an equivalent
payment to each Person holding an outstanding Option as of the record date for
such dividend. Such payment shall be made at substantially the same time, in
substantially the same form and in substantially the same amount per optioned
Share as the dividend or other distribution paid with respect to outstanding
Shares; provided, however, that if any dividend or distribution on outstanding
Shares is paid in property other than cash, the Company, in its discretion
applied uniformly to all outstanding Options, may make such payment in a cash
amount per optioned Share equal in fair market value to the fair market value of
the non-cash dividend or distribution.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan.
This Plan is not intended to satisfy the requirements for
qualification under section 401(a) of the Code or to satisfy the definitional
requirements for an "employee benefit plan" under section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. It is intended to be a
non-qualified incentive compensation program that is exempt from the regulatory
requirements of the Employee Retirement Income Security Act of 1974, as amended.
The Plan shall be construed and administered so as to effectuate this intent.
Section 9.2 No Right to Continued Employment.
Neither the establishment of the Plan nor any provisions of
the Plan nor any action of the Board or the Committee with respect to the Plan
shall be held or construed to confer upon any Eligible Director or Eligible
Employee any right to a continuation of his or her position as a director or
employee of the Company. The Employers reserve the right to remove any Eligible
Director or dismiss any Eligible Employee or otherwise deal with any Eligible
Director or Eligible Employee to the same extent as though the Plan had not been
adopted.
Section 9.3 Construction of Language.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular,
and words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
Section 9.4 Governing Law.
The Plan shall be construed, administered and enforced
according to the laws of the Commonwealth of Massachusetts without giving effect
to the conflict of laws principles thereof, except to the extent that such laws
are preempted by federal law.
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Section 9.5 Headings.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
Section 9.6 Non-Alienation of Benefits.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, engagements or
torts, except to the extent provided in a qualified domestic relations order as
defined in section 414(p) of the Code.
Section 9.7 Taxes.
The Company shall have the right to deduct from all amounts
paid by the Company in cash with respect to an Option under the Plan any taxes
required by law to be withheld with respect to such Option. Where any Person is
entitled to receive Shares pursuant to the exercise of an Option, the Company
shall have the right to require such Person to pay the Company the amount of any
tax which the Company is required to withhold with respect to such Shares, or,
in lieu thereof, to retain, or to sell without notice, a sufficient number of
Shares to cover the amount required to be withheld.
Section 9.8 Required Approvals.
The Plan shall not be effective or implemented unless approved
by affirmative vote of the holders of a majority of the Shares present and
entitled to vote at a meeting duly called and held for such purpose. The
effectiveness of the Plan and any awards made hereunder shall be conditioned
upon approval of the Plan by the Commissioner of Banks of the Commonwealth of
Massachusetts.
Section 9.9 Notices.
Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below, or at such other
address as one such party may by written notice specify to the other party:
(a) If to the Committee:
Compensation Committee
c/o Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02340
Attention: Clerk
(b) If to an Option holder, to the Option holder's address
as shown in the Employer's records.
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<PAGE>
APPENDIX B
================================================================================
1997 RECOGNITION AND RETENTION PLAN FOR
OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
OF
FALMOUTH CO-OPERATIVE BANK
------------------------------
Adopted on November 19, 1996
Effective as of January 21, 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
<S> <C> <C>
PURPOSE
Section 1.1 General Purpose of the Plan.......................................................... 1
ARTICLE II
DEFINITIONS
Section 2.1 Award................................................................................ 1
Section 2.2 Award Date........................................................................... 1
Section 2.3 Bank................................................................................. 1
Section 2.4 Beneficiary.......................................................................... 1
Section 2.5 Board................................................................................ 1
Section 2.6 Change of Control.................................................................... 1
Section 2.7 Code................................................................................. 3
Section 2.8 Committee............................................................................ 3
Section 2.9 Company.............................................................................. 3
Section 2.10 Disability........................................................................... 3
Section 2.11 Disinterested Board Member........................................................... 3
Section 2.12 Effective Date....................................................................... 3
Section 2.13 Eligible Director.................................................................... 3
Section 2.14 Eligible Employee.................................................................... 3
Section 2.15 Employer............................................................................. 3
Section 2.16 Exchange Act......................................................................... 4
Section 2.17 Person............................................................................... 4
Section 2.18 Plan................................................................................. 4
Section 2.19 Share................................................................................ 4
Section 2.20 Trust................................................................................ 4
Section 2.21 Trust Agreement...................................................................... 4
Section 2.22 Trust Fund........................................................................... 4
Section 2.23 Trustee.............................................................................. 4
ARTICLE III
SHARES AVAILABLE UNDER PLAN
Section 3.1 Shares Available Under Plan.......................................................... 4
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Page
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ARTICLE IV
ADMINISTRATION
Section 4.1 Committee............................................................................ 5
Section 4.2 Committee Action..................................................................... 5
Section 4.3 Committee Responsibilities........................................................... 5
ARTICLE V
THE TRUST FUND
Section 5.1 Contributions........................................................................ 6
Section 5.2 The Trust Fund....................................................................... 6
Section 5.3 Investments.......................................................................... 6
ARTICLE VI
AWARDS
Section 6.1 To Eligible Directors................................................................ 6
Section 6.2 To Eligible Employees................................................................ 7
Section 6.3 Awards in General.................................................................... 7
Section 6.4 Share Allocations.................................................................... 7
Section 6.5 Dividend Rights...................................................................... 7
Section 6.6 Voting Rights........................................................................ 8
Section 6.7 Tender Offers........................................................................ 8
Section 6.8 Limitations on Awards................................................................ 9
ARTICLE VII
VESTING AND DISTRIBUTION OF SHARES
Section 7.1 Vesting of Shares Granted to Eligible Directors...................................... 10
Section 7.2 Vesting of Shares Granted to Eligible Employees...................................... 10
Section 7.3 Designation of Beneficiary........................................................... 10
Section 7.4 Manner of Distribution............................................................... 11
Section 7.5 Taxes................................................................................ 11
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination.......................................................................... 11
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Page
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Section 8.2 Amendment............................................................................ 12
Section 8.3 Adjustments in the Event of a Business Reorganization................................ 12
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan................................................... 12
Section 9.2 No Right to Continued Employment..................................................... 13
Section 9.3 Construction of Language............................................................. 13
Section 9.4 Governing Law........................................................................ 13
Section 9.5 Headings............................................................................. 13
Section 9.6 Non-Alienation of Benefits........................................................... 13
Section 9.7 Notices.............................................................................. 13
Section 9.8 Required Approvals................................................................... 14
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</TABLE>
<PAGE>
1997 RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
OF
FALMOUTH CO-OPERATIVE BANK
ARTICLE I
PURPOSE
Section 1.1 General Purpose of the Plan.
The purpose of the Plan is to promote the growth and
profitability of Falmouth Co-operative Bank and to provide eligible directors,
certain key officers and employees of Falmouth Co-operative Bank with an
incentive to achieve corporate objectives, to attract and retain directors, key
officers and employees of outstanding competence and to provide such directors,
officers and employees with an equity interest in Falmouth Co-operative Bank.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this
Plan, unless a different meaning is plainly indicated by the context:
Section 2.1 Award means a grant of Shares to an Eligible
Director or Eligible Employee pursuant to section 6.1 or 6.2.
Section 2.2 Award Date means, with respect to a particular
Award, the date specified by the Committee in the notice of the Award issued to
the Eligible Director or Eligible Employee by the Committee, pursuant to section
6.1 or 6.2.
Section 2.3 Bank means Falmouth Co-operative Bank, a stock
cooperative bank chartered under the laws of the Commonwealth of Massachusetts,
and any successor thereto.
Section 2.4 Beneficiary means the Person designated by an
Eligible Director or Eligible Employee pursuant to section 7.3, to receive
distribution of any Shares available for distribution to such Eligible Director
or Eligible Employee, in the event such Eligible Director or Eligible Employee
dies prior to receiving distribution of such Shares.
Section 2.5 Board means the Board of Directors of the Company.
Section 2.6 Change of Control means any of the following
events:
(a) the occurrence of any event upon which any "person" (as
such term is used in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended ("Exchange Act")), other than (A) a
trustee or other fiduciary holding securities under an employee benefit
plan maintained for the benefit of employees of the Company; (B) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same
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proportions as their ownership of stock of the Company; or (C) any
group constituting a person in which employees of the Company are
substantial members, becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities issued by the Company representing 25% or more of the
combined voting power of all of the Company's then outstanding
securities; or
(b) the occurrence of any event upon which the individuals who
on the date the Plan is adopted are members of the Board, together with
individuals whose election by the Board or nomination for election by
the Company's stockholders was approved by the affirmative vote of at
least two-thirds of the members of the Board then in office who were
either members of the Board on the date this Plan is adopted or whose
nomination or election was previously so approved, cease for any reason
to constitute a majority of the members of the Board, but excluding,
for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of directors of the Company (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act); or
(c) the shareholders of the Company approve either:
(i) a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation
following which both of the following conditions are
satisfied:
(A) either (I) the members of the Board of
the Company immediately prior to such merger or
consolidation constitute at least a majority of the
members of the governing body of the institution
resulting from such merger or consolidation; or (II)
the shareholders of the Company own securities of the
institution resulting from such merger or
consolidation representing 80% or more of the
combined voting power of all such securities of the
resulting institution then outstanding in
substantially the same proportions as their ownership
of voting securities of the Company immediately
before such merger or consolidation; and
(B) the entity which results from such
merger or consolidation expressly agrees in writing
to assume and perform the Company's obligations under
the Plan; or
(ii) a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all of its assets; or
(d) any event that would be described in section 2.6(a), (b)
or (c) if "the Bank" were substituted for "the Company" therein.
Section 2.7 Code means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
Section 2.8 Committee means the Committee described in section
4.1.
Section 2.9 Company means:
(a) for so long as Falmouth Co-operative Bank, is not a
wholly owned subsidiary of a parent holding company, Falmouth
Co-operative Bank; and
(b) from and after the date on which Falmouth Co-operative
Bank becomes a wholly owned subsidiary of a parent holding company,
such parent holding company.
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Section 2.10 Disability means a condition of total incapacity,
mental or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
Section 2.11 Disinterested Board Member means a member of the
Board who (a) is not a current employee of the Company or a subsidiary, (b) does
not receive remuneration from the Company or a subsidiary, either directly or
indirectly, in any capacity other than as a director and (c) does not possess an
interest in any other transaction, and is not engaged in a business
relationship, for which disclosure would be required pursuant to Item 404(a) or
(b) of the proxy solicitation rules of the Securities and Exchange Commission.
The term Disinterested Board Member shall be interpreted in such manner as shall
be necessary to conform to the requirements of Rule 16b-3 promulgated under the
Exchange Act.
Section 2.12 Effective Date means January 21, 1997, provided
that the Plan shall then or thereafter be approved by the Commissioner of Banks
of the Commonwealth of Massachusetts.
Section 2.13 Eligible Director means a member of the board of
directors of the Employer who is not also an employee of any Employer.
Section 2.14 Eligible Employee means any employee whom the
Committee may determine to be a key officer or employee of the Employer and
select to receive an Award pursuant to the Plan.
Section 2.15 Employer means the Company, the Bank and any
successor thereto and, with the prior approval of the Board, and subject to such
terms and conditions as may be imposed by the Board, any other savings bank,
savings and loan association, bank, corporation, financial institution or other
business organization or institution.
Section 2.16 Exchange Act means the Securities and Exchange
Act of 1934, as amended.
Section 2.17 Person means an individual, a corporation, a
bank, a savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
Section 2.18 Plan means the 1997 Recognition and Retention
Plan for Outside Directors, Officers and Employees of Falmouth Co-operative Bank
as amended from time to time.
Section 2.19 Share means a share of common stock of Falmouth
Co-operative Bank, par value $.10 per share.
Section 2.20 Trust means the legal relationship created by
the Trust Agreement pursuant to which the Trustee holds the Trust Fund in trust.
The Trust may be referred to as the "Recognition and Retention Plan Trust of
Falmouth Co-operative Bank."
Section 2.21 Trust Agreement means the agreement between
Falmouth Co-operative Bank and the Trustee therein named or its successor
pursuant to which the Trust Fund shall be held in trust.
Section 2.22 Trust Fund means the corpus (consisting of
contributions paid over to the Trustee, and investments thereof), and all
earnings, appreciations or additions thereof and thereto, held by the Trustee
under the Trust Agreement in accordance with the Plan, less any depreciation
thereof and any payments made therefrom pursuant to the Plan.
Section 2.23 Trustee means the Trustee of the Trust Fund from
time to time in office. The Trustee shall serve as Trustee until it is removed
or resigns from office and is replaced by a successor Trustee or Trustees
appointed by Falmouth Co-operative Bank.
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<PAGE>
ARTICLE III
SHARES AVAILABLE UNDER PLAN
Section 3.1 Shares Available Under Plan.
The maximum number of Shares under the Plan shall be 58,190.
An aggregate maximum of 17,457 Shares may be granted to Eligible Directors, with
a maximum of 2,909 granted to any one Eligible Director.
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee.
The Plan shall be administered by the members of the
Compensation Committee of Falmouth Co-operative Bank who are Disinterested Board
Members. If the Committee consists of fewer than two Disinterested Board
Members, then the Board shall appoint to the Committee such additional
Disinterested Board Members as shall be necessary to provide for a Committee
consisting of at least two Disinterested Board Members.
Section 4.2 Committee Action.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the Secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
Section 4.3 Committee Responsibilities.
Subject to the terms and conditions of the Plan and such
limitations as may be imposed by the Board, the Committee shall be responsible
for the overall management and administration of the Plan and shall have such
authority as shall be necessary or appropriate in order to carry out its
responsibilities, including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all
questions that may arise under the Plan as to eligibility for Awards
under the Plan, the amount of Shares, if any, to be granted pursuant to
an Award, and the terms and conditions of such Award;
(b) to adopt rules and regulations and to prescribe forms for
the operation and administration of the Plan; and
(c) to take any other action not inconsistent with the
provisions of the Plan that it may deem necessary or appropriate.
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<PAGE>
ARTICLE V
THE TRUST FUND
Section 5.1 Contributions.
The Company shall contribute, or cause to be contributed, to
the Trust, from time to time, such amounts of money or property as shall be
determined by the Board, in its discretion. No contributions by Eligible
Directors or Eligible Employees shall be permitted.
Section 5.2 The Trust Fund.
The Trust Fund shall be held and invested under the Trust
Agreement with the Trustee. The provisions of the Trust Agreement shall include
provisions conferring powers on the Trustee as to investment, control and
disbursement of the Trust Fund, and such other provisions not inconsistent with
the Plan as may be prescribed by or under the authority of the Board. No bond or
security shall be required of any Trustee at any time in office.
Section 5.3 Investments.
The Trustee shall invest the Trust Fund in Shares and in such
other investments as may be permitted under the Trust Agreement, including
savings accounts, time or other interest bearing deposits in or other interest
bearing obligations of the Company, in such proportions as shall be determined
by the Committee; provided, however, that in no event shall the Trust Fund be
used to purchase more than 58,190 Shares. Notwithstanding the immediately
preceding sentence, the Trustee may temporarily invest the Trust Fund in
short-term obligations of, or guaranteed by, the U.S. Government or an agency
thereof, or the Trustee may retain the Trust Fund uninvested or may sell assets
of the Trust Fund to provide amounts required for purposes of the Plan.
ARTICLE VI
AWARDS
Section 6.1 To Eligible Directors.
On the Effective Date, each Person who is then an Eligible
Director shall be granted an Award of a number of Shares to be determined by the
Committee in consultation with an employee benefits consultant and not to exceed
2,909 for any individual Eligible Director and 17,457 for all Eligible Directors
in the aggregate.
Section 6.2 To Eligible Employees.
Subject to section 6.8 and such limitations as the Board may
from time to time impose, the number of Shares as to which an Eligible Employee
may be granted an Award shall be determined by the Committee in its discretion;
provided however, that in no event shall the number of Shares allocated to an
Eligible Employee in an Award exceed the number of Shares then held in the Trust
and not allocated in connection with other Awards.
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<PAGE>
Section 6.3 Awards in General.
Any Award shall be evidenced by a written notice issued by the
Committee to the Eligible Director or Eligible Employee, which notice shall:
(a) specify the number of Shares covered by the Award;
(b) specify the Award Date;
(c) specify the dates on which such Shares shall become
available for distribution to the Eligible Director or Eligible
Employee, in accordance with sections 7.1 and 7.2; and
(d) contain such other terms and conditions not inconsistent
with the Plan as the Board may, in its discretion, prescribe.
Section 6.4 Share Allocations.
Upon the grant of an Award to an Eligible Director or Eligible
Employee, the Committee shall notify the Trustee of the Award and of the number
of Shares subject to the Award. Thereafter, until such time as the Shares
subject to such Award become vested or are forfeited, the books and records of
the Trustee shall reflect that such number of Shares are being held for the
benefit of the Award recipient.
Section 6.5 Dividend Rights.
(a) Any cash dividends or distributions declared and paid with
respect to Shares in the Trust Fund that are, as of the record date for such
dividend, allocated to an Eligible Director or Eligible Employee in connection
with an Award shall be promptly paid to such Eligible Director or Eligible
Employee. Any cash dividends declared and paid with respect to Shares that are
not, as of the record date for such dividend, allocated to any Eligible Director
or Eligible Employee in connection with any Award shall, at the direction of the
Committee, be held in the Trust or used to pay the administrative expenses of
the Plan, including any compensation due to the Trustee.
(b) Any dividends or distributions declared and paid with
respect to Shares in property other than cash shall be held in the Trust Fund.
If, as of the record date for such dividend or distribution, the Shares with
respect to which it is paid are allocated to an Eligible Director or Eligible
Employee in connection with an Award, the property so distributed shall be
similarly allocated such Eligible Director or Eligible Employee in connection
with such Award and shall be held for distribution or forfeiture in accordance
with the terms and conditions of the Award.
Section 6.6 Voting Rights.
(a) Each Eligible Director or Eligible Employee to whom an
Award has been made that is not fully vested shall have the right to direct the
manner in which all voting rights appurtenant to the Shares related to such
Award will be exercised while such Shares are held in the Trust Fund. Such a
direction shall be given by completing and filing, with the inspector of
elections, the Trustee or such other person who shall be independent of the
Company as the Committee shall designate in the direction, a written direction
in the form and manner prescribed by the Committee. If no such direction is
given by an Eligible Director or Eligible Employee, then the voting rights
appurtenant to the Shares allocated to him shall not be exercised.
(b) To the extent that the Trust Fund contains Shares that are
not allocated in connection with an Award, all voting rights appurtenant to such
Shares shall be exercised by the Trustee in such manner as the Committee shall
direct to reflect the voting directions given by Eligible Director or Eligible
Employees with respect to Shares allocated in connection with their Awards.
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(c) The Committee shall furnish, or cause to be furnished, to
each Eligible Director or Eligible Employee, all annual reports, proxy materials
and other information furnished by the Company, or by any proxy solicitor, to
the holders of Shares.
Section 6.7 Tender Offers.
(a) Each Eligible Director or Eligible Employee to whom an
Award has been made that is not fully vested shall have the right to direct,
with respect to the Shares related to such Award, the manner of response to any
tender offer, exchange offer or other offer made to the holders of Shares. Such
a direction shall be given by completing and filing, with the inspector of
elections, the Trustee or such other person who shall be independent of the
Company as the Committee shall designate in the direction, a written direction
in the form and manner prescribed by the Committee. If no such direction is
given by an Eligible Director or Eligible Employee, then the Shares shall not be
tendered or exchanged.
(b) To the extent that the Trust Fund contains Shares that are
not allocated in connection with an Award, all responses to tender, exchange and
other offers appurtenant to such Shares shall be given by the Trustee in such
manner as the Committee shall direct to reflect the responses given by Eligible
Director or Eligible Employees with respect to Shares allocated in connection
with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to
each Eligible Director or Eligible Employee, all information furnished by the
offeror to the holders of Shares.
Section 6.8 Limitations on Awards.
(a) Notwithstanding anything in the Plan to the contrary:
(i) No Award shall be granted under the Plan prior to the
earlier of the date on which the Plan is approved by shareholders
pursuant to section 9.8;
(ii) No Eligible Employee may be granted Awards covering in
excess of 14,547 Shares;
(iii) each Award shall become vested and distributable as
follows:
(A) prior to the February 1 following the first
anniversary of the date on which the Plan is approved by
shareholders pursuant to section 9.8, the Award shall not be
vested;
(B) on the February 1 following the first anniversary
of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Award will be vested as to twenty
percent (20%) of the Shares subject to the Award when granted;
(C) on the February 1 following the second
anniversary of the date on which the Award is granted, the
Award will be vested as to an additional twenty percent (20%)
of the Shares subject to the Award when granted;
(D) on the February 1 following the third anniversary
of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Award will be vested as to an
additional twenty percent (20%) of the Shares subject to the
Award when granted;
(E) on the February 1 following the fourth
anniversary of the date on which the Plan is approved by
shareholders pursuant to section 9.8, the Award will
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be vested as to an additional twenty percent (20%) of the
Shares subject to the Award when granted; and
(F) on the February 1 following the fifth anniversary
of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Award will be vested as to an
additional twenty percent (20%) of the Shares subject to the
Award when granted;
provided, however, that such an Award shall become fully vested on the
date of the Award holder's death, Disability, Retirement or Change in
Control.
(b) An Award by its terms shall not be transferable by the
Eligible Director or Eligible Employee other than by will or by the laws of
descent and distribution, and the Shares granted pursuant to such Award shall be
distributable, during the lifetime of the Recipient, only to the Recipient.
ARTICLE VII
VESTING AND DISTRIBUTION OF SHARES
Section 7.1 Vesting of Shares Granted to Eligible Directors.
The Shares subject to each Award granted to Eligible Directors
under the Plan shall become vested as follows: (i) twenty percent (20%) of such
Shares shall become vested upon the February 1 following the first anniversary
of the date the Plan is approved by shareholders pursuant to section 9.8; (ii)
20% of such Shares shall become vested upon the February 1 following the second
anniversary of the date the Plan is approved by shareholders pursuant to section
8.8; (iii) 20% of such Shares shall become vested upon the February 1 following
the third anniversary of the date the Plan is approved by shareholders pursuant
to section 8.8; (iv) 20% of such Shares shall become vested upon the February 1
following the fourth anniversary of the date the Plan is approved by
shareholders pursuant to section 8.8; and (v) 20% of such Shares shall become
vested upon the February 1 following the fifth anniversary of the date the Plan
is approved by shareholders pursuant to section 8.8; provided, however, that the
Eligible Director has remained a director of the Employer during the entire
period commencing with the date the Plan is approved by shareholders pursuant to
section 8.8 and ending on the applicable anniversary of the date of shareholder
approval; and provided, further, an Award shall become 100% vested upon the
Award holder's death, Disability, Retirement or Change in Control.
Section 7.2 Vesting of Shares Granted to Eligible Employees.
Subject to section 6.8 and the terms and conditions of the
Plan, each Award to an Eligible Employee made under the Plan shall become vested
at the times and upon the conditions specified by the Committee in the Award
notice; provided, however, that an Award shall become fully vested on the date
of the Award holder's death, Disability, Retirement or Change in Control.
Section 7.3 Designation of Beneficiary.
An Eligible Director or Eligible Employee who has received an
Award may designate a Beneficiary to receive any undistributed Shares that are,
or become, available for distribution on, or after, the date of his death. Such
designation (and any change or revocation of such designation) shall be made in
writing in the form and manner prescribed by the Committee. In the event that
the Beneficiary designated by an Eligible Director or Eligible Employee dies
prior to the Eligible Director or Eligible Employee, or in the event that no
Beneficiary has been designated, any undistributed Shares that are, or become,
available for distribution on, or after, the Eligible Director's or Eligible
Employee's death shall be paid to the executor or
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administrator of the Eligible Director's or Eligible Employee's estate, or if no
such executor or administrator is appointed within such time as the Committee,
in its sole discretion, shall deem reasonable, to such one or more of the spouse
and descendants and blood relatives of such deceased person as the Committee may
select.
Section 7.4 Manner of Distribution.
(a) As soon as practicable following the date any Shares
granted pursuant to an Award become vested pursuant to sections 7.1 and 7.2, the
Committee shall take such actions as are necessary to cause the transfer of
record ownership of the Shares that have become vested from the Trustee to the
Award holder and shall cause the Trustee to distribute to the Award holder all
property other than Shares then being held in connection with the Shares being
distributed.
(b) The Company's obligation to deliver Shares with respect to
an Award shall, if the Committee so requests, be conditioned upon the receipt of
a representation as to the investment intention of the Eligible Director or
Eligible Employee or Beneficiary to whom such Shares are to be delivered, in
such form as the Committee shall determine to be necessary or advisable to
comply with the provisions of applicable federal, state or local law. It may be
provided that any such representation shall become inoperative upon a
registration of the Shares or upon the occurrence of any other event eliminating
the necessity of such representation. The Company shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such Shares to
listing on any stock exchange on which Shares may then be listed, or (ii) the
completion of such registration or other qualification under any state or
federal law, rule or regulation as the Committee shall determine to be necessary
or advisable.
Section 7.5 Taxes.
The Company, the Committee or the Trustee shall have the right
to require any person entitled to receive Shares pursuant to an Award to pay the
amount of any tax which is required to be withheld with respect to such Shares,
or, in lieu thereof, to retain, or to sell without notice, a sufficient number
of Shares to cover the amount required to be withheld.
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination.
The Board may suspend or terminate the Plan in whole or in
part at any time by giving written notice of such suspension or termination to
the Committee; provided, however, that the Plan may not be terminated while
there are outstanding Awards that may thereafter become vested. Upon the
termination of the Plan, the Trustee shall make distributions from the Trust
Fund in such amounts and to such persons as the Committee may direct and shall
return the remaining assets of the Trust Fund, if any, to the Company.
Section 8.2 Amendment.
The Board may amend or revise the Plan in whole or in part at
any time.
Section 8.3 Adjustments in the Event of a Business
Reorganization.
(a) In the event of any merger, consolidation, or other
business reorganization (including but not limited to a Change of Control) in
which the Company is the surviving entity, and in the event of any
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stock split, stock dividend or other event generally affecting the number of
Shares held by each person who is then a holder of record of Shares, the number
of Shares held in the Trust Fund, including Shares covered by Awards, shall be
adjusted to account for such event. Such adjustment shall be effected by
multiplying such number of Shares by an amount equal to the number of Shares
that would be owned after such event by a person who, immediately prior to such
event, was the holder of record of one Share; provided, however, that the
Committee may, in its discretion, establish another appropriate method of
adjustment.
(b) In the event of any merger, consolidation, or other
business reorganization (including but not limited to a Change of Control) in
which the Company is not the surviving entity, the Trustee shall hold in the
Trust Fund any money, stock, securities or other property received by holders of
record of Shares in connection with such merger, consolidation, or other
business reorganization. Any Award with respect to which Shares had been
allocated to an Eligible Director or Eligible Employee shall be adjusted by
allocating to the Eligible Director or Eligible Employee receiving such Award
the amount of money, stock, securities or other property received by the Trustee
for the Shares allocated to such Eligible Director or Eligible Employee.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan.
This Plan is not intended to satisfy the requirements for
qualification under section 401(a) of the Code or to satisfy the definitional
requirements for an "employee benefit plan" under section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. It is intended to be a
non-qualified incentive compensation program that is exempt from the regulatory
requirements of the Employee Retirement Income Security Act of 1974, as amended.
The Plan shall be construed and administered so as to effectuate this intent.
Section 9.2 No Right to Continued Employment.
Neither the establishment of the Plan nor any provisions of
the Plan nor any action of the Board or the Committee with respect to the Plan
shall be held or construed to confer upon any Eligible Director or Eligible
Employee any right to a continuation of employment by the Company. The Employers
reserve the right to dismiss any Eligible Director or Eligible Employee or
otherwise deal with any Eligible Director or Eligible Employee to the same
extent as though the Plan had not been adopted.
Section 9.3 Construction of Language.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular,
and words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
Section 9.4 Governing Law.
The Plan shall be construed and enforced in accordance with
the laws of the Commonwealth of Massachusetts without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by the federal laws of the United States of America.
B-10
<PAGE>
Section 9.5 Headings.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
Section 9.6 Non-Alienation of Benefits.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, engagements or
torts, except to the extent provided in a qualified domestic relations order as
defined in section 414(p) of the Code.
Section 9.7 Notices.
Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is personally delivered or 5 days after mailing if mailed,
postage prepaid, by registered or certified mail, return receipt requested,
addressed to such party at the address listed below, or at such other address as
one such party may by written notice specify to the other:
(a) If to the Stock Compensation Committee:
Falmouth Co-operative Bank
c/o Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02340
Attention: Clerk
(b) If to an Eligible Director or Eligible Employee, to the
Eligible Director's or Eligible Employee's address as
shown in the Employer's records.
Section 9.8 Required Approvals.
The Plan shall not be effective or implemented unless approved
by affirmative vote of the holders of a majority of the Shares present and
entitled to vote at a meeting duly called and held for such purpose. The
effectiveness of the Plan and any awards made hereunder shall be conditioned
upon approval of the Plan by the Commissioner of Banks of the Commonwealth of
Massachusetts.
B-11
<PAGE>
APPENDIX C
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
FALMOUTH CO-OPERATIVE BANK
AND
FALMOUTH BANCORP, INC.
DATED AS OF NOVEMBER 25, 1996
================================================================================
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Pursuant to Section 26B of Chapter 172
of the General Laws of Massachusetts
This Agreement and Plan of Reorganization (the "Plan"), dated as of
November 25, 1996, is made by and between Falmouth Co-operative Bank, a stock
co-operative bank organized and existing under the laws of the State of
Massachusetts and having an office at 20 Davis Straits, Falmouth, Massachusetts
02540 ("Falmouth" or the "Bank") and Falmouth Bancorp, Inc., a corporation
organized and existing under the laws of the State of Delaware and having an
office at 20 Davis Straits, Falmouth, Massachusetts 02540 (the "Bancorp"). This
Plan constitutes the plan of acquisition between the Bank and Bancorp for
purposes of Section 26B of Chapter 172 of the General Laws of Massachusetts.
W I T N E S S E T H:
Whereas, as of the date of this Agreement, the authorized capital stock
of Falmouth consists of 3,000,000 shares, of which (i) 2,500,000 shares are
common stock of par value of $0.10 per share (the "Bank Common Stock"), of which
1,454,750 shares are issued and outstanding and (ii) 500,000 shares are serial
preferred stock, of par value $0.10 per share, issuable in classes and series,
none of which shares are issued and outstanding.
Whereas, Bancorp is a business corporation, having been incorporated on
November 25, 1996 pursuant to a Certificate of Incorporation filed with the
Secretary of State of the State of Delaware and recorded in the Office of the
Recorder of Deeds in the County of New Castle on that date. The registered
office of Bancorp is located at 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the registered agent at such office is The
Corporation Trust Company. As of the date of this Agreement, the authorized
capital stock of Bancorp consists of 5,500,000 shares, as follows: (a) 5,000,000
shares are common stock, par value $0.01 per share ("Bancorp Common Stock"), of
which 100 shares are issued and outstanding to Falmouth; and (b) 500,000 shares
are preferred stock, par value $0.01 per share, issuable in classes and series,
none of which shares are issued and outstanding.
Whereas, the parties are entering into this Plan in order to set forth
the terms and conditions pursuant to which Bancorp will acquire all of the
issued and outstanding shares of Bank Common Stock in exchange for shares of
Bancorp Common Stock pursuant to the provisions of Section 26B of Chapter 172 of
the General Laws of Massachusetts and of this Plan. This Plan has been adopted
and approved by a vote of at least a majority of all the members of the Board of
Directors of the Bank, and by a vote of at least a majority of all the members
of the Board of Directors of Bancorp. The officers of the Bank and of Bancorp
whose respective signatures appear below have been duly authorized to execute
and deliver this Plan.
Now, Therefore, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the Bank
and Bancorp hereto do hereby agree as follows:
C-1
<PAGE>
SECTION 1
APPROVAL AND FILING OF PLAN
---------------------------
1.1 This Plan shall be submitted for approval by the holders of Bank
Common Stock at a meeting to be duly called and held in accordance with the
Bylaws of the Bank and all applicable laws and regulations. Notice of such
meeting shall be mailed directly to all stockholders and published at least once
a week for two successive weeks in a newspaper of general circulation in the
County of Barnstable, Commonwealth of Massachusetts. Both of said newspaper
publications shall be at least fifteen days prior to the date of the meeting.
1.2 Subject to the approval of this Plan by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Bank Common Stock as
required by law, the Bank and Bancorp shall submit this Plan to the Commissioner
of Banks of the Commonwealth of Massachusetts (the "Bank Commissioner") for his
approval and filing in accordance with the provisions of Section 26B of Chapter
172 of the General Laws of Massachusetts. This Plan shall be accompanied by such
certificates of the respective officers of the Bank and Bancorp as may be
required by law and a written request from the Bank that this Plan not be filed
by the Bank Commissioner until such future time as the Bank Commissioner shall
have received from the Bank and Bancorp the written notice described in Section
2 hereof.
1.3 If the requisite approval of this Plan is obtained at the meeting
of holders of Bank Common Stock referred to in Subsection 1.1 hereof, thereafter
and until the Effective Time, as hereinafter defined, the Bank shall issue
certificates for Bank Common Stock, whether upon transfer or otherwise, only if
such certificates bear a legend indicating that this Plan has been approved and
that shares of Bank Common Stock evidenced by such certificates are subject to
the acquisition by Bancorp pursuant to this Plan.
SECTION 2
DEFINITION OF EFFECTIVE TIME
----------------------------
The transactions contemplated by this Plan shall become effective at
12:01 A.M. on the first business day following the date on which the Bank
Commissioner duly files this Plan in accordance with the provisions of Section
26B of Chapter 172 of the General Laws of Massachusetts, which filing shall be
preceded by written notice to the Bank Commissioner from the Bank and Bancorp
advising the Bank Commissioner that (i) all the conditions precedent to this
Plan becoming effective specified in Section 5 hereof, other than the condition
described in Subsection 5.2, have been satisfied and (ii) the Plan has not been
terminated by the Bank or Bancorp in accordance with the provisions of Section 6
hereof. Such time is hereinafter referred to as the "Effective Time."
SECTION 3
ACTIONS AT THE EFFECTIVE TIME
-----------------------------
3.1 At the Effective Time, Bancorp shall, without any further action on
its part or on the part of the holders of Bank Common Stock, automatically and
by operation of law acquire and become the owner for all purposes of all shares
of Bank Common Stock issued and outstanding immediately prior to the Effective
Time, and Bancorp shall be entitled to have issued to it by the Bank a
certificate or certificates representing such shares. Thereafter, Bancorp shall
have full and exclusive power to vote such shares of Bank Common Stock, to
receive dividends thereon and to exercise all rights of an owner thereof.
C-2
<PAGE>
3.2 At the Effective Time, any shares of Bancorp Common Stock which may
have been previously issued and are outstanding immediately prior to the
Effective Time shall be redeemed and retired and shall thereafter constitute
authorized and unissued shares of Bancorp Common Stock.
3.3 At the Effective Time, the holders of the shares of Bank Common
Stock issued and outstanding immediately prior to the Effective Time shall,
without any further action on their part or on the part of Bancorp,
automatically and by operation of law cease to own such shares and shall instead
become owners of one share of Bancorp Common Stock for each share of Bank Common
Stock held by them immediately prior to the Effective Time. Thereafter, such
persons shall have full and exclusive power to vote such shares of Bancorp
Common Stock, to receive dividends thereon, except as otherwise provided herein,
and to exercise all rights of an owner thereof.
3.4 At the Effective Time, all previously issued and outstanding
certificates representing shares of Bank Common Stock shall automatically and by
operation of law cease to represent shares of Bank Common Stock or any interest
therein and each certificate shall instead represent the ownership by the holder
thereof of an equal number of shares of Bancorp Common Stock. No holder of a
certificate shall be entitled to vote the shares of Bank Common Stock formerly
represented by such certificate, or to receive dividends thereon, or to exercise
any other rights of ownership in respect thereof.
3.5 Notwithstanding any of the foregoing, any Dissenting Stockholder,
as such term is defined in Subsection 7.1 hereof, shall have such rights as are
provided by Subsection 7.2 hereof and by the laws of the Commonwealth of
Massachusetts.
SECTION 4
ACTIONS AFTER THE EFFECTIVE TIME
--------------------------------
In connection with the exchange of the issued and outstanding shares of
Bank Common Stock for shares of Bancorp Common Stock, it shall not be necessary
for non-Dissenting Stockholders, as such term is defined in Subsection 7.1
hereof, to exchange their existing certificates of Bank Common Stock for
certificates of Bancorp Common Stock. At the Effective Time, non-Dissenting
Stockholders shall automatically become holders of Bancorp Common Stock, and
their stock certificates shall automatically represent the same number and type
of shares of Bancorp Common Stock. After the Effective Time, as outstanding
certificates of Bank Common Stock are presented for transfer or, upon the
request of any holder of certificates of Bancorp Common Stock, new certificates
of Bancorp shall be issued by the registrar and transfer agent for Bank Common
Stock. Any certificate presented for transfer to a name other than that in which
the surrendered certificate is registered must be properly endorsed and
otherwise in proper form for transfer and accompanied by evidence of payment of
any applicable stock transfer or other taxes.
SECTION 5
CONDITIONS PRECEDENT
--------------------
This Plan and the transactions provided for herein shall not become
effective unless all of the following shall have occurred:
C-3
<PAGE>
5.1 This Plan and the transactions contemplated hereby shall have been
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Bank Common Stock at a meeting of such stockholders duly
called and held for such purpose in accordance with the Bylaws of the Bank and
all applicable laws and regulations.
5.2 This Plan shall have been approved by the Bank Commissioner and a
copy of this Plan with his approval endorsed thereon shall have been filed in
his office, all as provided in Section 26B of Chapter 172 of the General Laws of
Massachusetts.
5.3 Bancorp shall have provided notice of this Plan to the Federal
Reserve Bank of Boston (the "Reserve Bank") in accordance with 12 C.F.R. Section
225.15 and the Reserve Bank shall not have objected to the parties' consummation
of the transactions contemplated hereby within thirty days after the date of the
Reserve Bank's receipt of such notice or, alternatively, the Reserve Bank or the
Board of Governors of the Federal Reserve System, acting pursuant to Section
3(a)(1) of the Bank Holding Company Act of 1956, as amended, shall have approved
an application of Bancorp to become a bank holding company upon the consummation
of the transactions contemplated by this Plan and a period of thirty days shall
have elapsed after the date of such approval.
5.4 The Bank shall have received a favorable opinion from its counsel,
satisfactory in form and substance to the Bank, with respect to the federal
income tax consequences of this Plan and the transactions contemplated hereby,
to the effect that:
(a) No gain or loss will be recognized by stockholders of Falmouth upon
the transfer of their shares of Bank Common Stock to Bancorp solely in exchange
for shares of Bancorp Common Stock;
(b) No gain or loss will be recognized by Bancorp upon its receipt of
shares of Bank Common Stock in exchange for shares of Bancorp Common Stock;
(c) The aggregate basis of the shares of Bancorp Common Stock to be
received by each stockholder of Falmouth will be the same as the aggregate basis
of the shares of Bank Common Stock exchanged therefor; and
(d) The holding period of the shares of Bancorp Common Stock to be
received by each stockholder of Falmouth in the transaction will include the
holding period of the shares of Bank Common Stock exchanged therefor; provided,
that such stockholder held such shares of Bank Common Stock as a capital asset
at the Effective Time.
5.5 To the extent legally required, the shares of Bancorp Common Stock
to be issued to the holders of Bank Common Stock pursuant to this Plan shall
have been registered or qualified for such issuance under the Securities Act of
1933, as amended, and all applicable state securities laws.
5.6 The Bank and Bancorp shall have obtained all other consents,
permissions and approvals and taken all actions required by law and agreement,
or otherwise deemed necessary or appropriate by the Bank or Bancorp, prior to
the consummation of the transactions provided for by this Plan and Bancorp's
having and exercising all rights of ownership with respect to all of the
outstanding shares of Bank Common Stock to be acquired by it hereunder.
C-4
<PAGE>
SECTION 6
TERMINATION OF PLAN
-------------------
6.1 This Plan may be terminated by either the Bank or Bancorp at any
time before the Effective Time in the event that:
(a) The number of shares of Bank Common Stock owned by Dissenting
Stockholders, as defined in Subsection 7.1 hereof, shall make consummation of
the transactions contemplated by this Plan inadvisable in the opinion of the
Bank or Bancorp;
(b) Any action, suit, proceeding or claim has been instituted, made or
threatened relating to this Plan which shall make consummation of the
transactions contemplated by this Plan inadvisable in the opinion of the Bank or
Bancorp; or
(c) For any other reason consummation of the transactions contemplated
by this Plan is inadvisable in the opinion of the Bank or Bancorp.
Such termination shall be effected by written notice by either the Bank
or Bancorp to the other of them, and shall be authorized or approved by the
Board of Directors of the party giving such notice. Upon the giving of such
notice, this Plan shall be terminated and shall be of no further force or effect
and there shall be no liability hereunder or on account of such termination on
the part of the Bank or Bancorp or the Directors, officers, employees, agents or
stockholders of either of them. In the event of such termination of this Plan,
the Bank shall pay the fees and expenses incurred by itself and Bancorp in
connection with this Plan and the proposed transactions contemplated hereby. If
either party hereto gives written notice of termination to the other party
pursuant to this Section 6, the party giving such written notice shall
simultaneously furnish a copy thereof to the Bank Commissioner.
SECTION 7
RIGHTS OF DISSENTING STOCKHOLDERS
---------------------------------
7.1 The term "Dissenting Stockholders" shall mean those holders of Bank
Common Stock who file with the Bank before the taking of the vote on this Plan
written objection to this Plan, pursuant to Section 86 of Chapter 156B of the
General Laws of Massachusetts, stating that they intend to demand payment for
their shares of Bank Common Stock if this Plan is consummated and whose shares
are not voted in favor of this Plan.
7.2 Dissenting Stockholders who comply with the provisions of Sections
86 through 98, inclusive, of Chapter 156B of the General Laws of Massachusetts
and all other applicable provisions of law shall be entitled to receive from the
Bank payment of the fair value of their shares of Bank Common Stock upon
surrender by such holders of the certificates which previously represented such
shares of Bank Common Stock. Certificates so obtained by the Bank, upon payment
of the fair value of such shares as provided by law, shall be canceled. Shares
of Bancorp Common Stock, to which Dissenting Stockholders would have been
entitled had they not dissented, shall be deemed to constitute authorized and
unissued shares of Bancorp Common Stock and may thereafter be issued or
otherwise disposed of by Bancorp at the discretion of, and on such terms as may
be fixed by, its Board of Directors.
C-5
<PAGE>
SECTION 8
STOCK BASED COMPENSATION PLANS
------------------------------
At the Effective Time, Bancorp shall adopt and assume sponsorship of
the Falmouth Co-operative Bank Employee Stock Ownership Plan ("ESOP") and any
stock option plan or restricted stock plan of the Bank in effect at the
Effective Time, including all of the Bank's obligations with respect to any
outstanding options, stock or restricted stock granted pursuant to such plans.
All outstanding options to purchase Falmouth common stock granted pursuant to
any stock option plan of the Bank prior to the Reorganization will become
options to purchase the same number of shares of Bancorp common stock with the
same terms, conditions and exercise price as the original options granted, and
all grants of restricted shares of Falmouth common stock granted pursuant to any
restricted stock plan of the Bank prior to the Reorganization will become grants
of restricted shares of Bancorp common stock. In addition, all shares of
Falmouth common stock held by the trust established for the ESOP shall be
exchanged on a one-for-one basis for Bancorp common stock in accordance with the
terms of Section 3 of this Plan.
SECTION 9
AMENDMENT OF PLAN
-----------------
This Plan may be amended or modified at any time by mutual agreement of
the Boards of Directors of Bancorp and the Bank (i) prior to its approval by the
stockholders of the Bank, in any respect, and (ii) subsequent to such approval,
in any respect, provided that the Bank Commissioner shall approve of such
amendment or modification.
SECTION 10
GOVERNING LAW
-------------
This Plan shall be construed under and governed by the laws of the
Commonwealth of Massachusetts without giving effect to the principles of
conflict of laws thereof.
SECTION 11
NO THIRD PARTY BENEFICIARIES
----------------------------
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the parties
hereto and their respective stockholders, or any of them, any rights, remedies,
obligations or licenses under or by reason of this Plan.
SECTION 12
HEADINGS
--------
The headings of sections contained herein are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
C-6
<PAGE>
SECTION 13
COUNTERPARTS
------------
This Plan may be executed in one or more counterparts, each of which
when duly executed shall be deemed an original, and such counterparts shall
together constitute one and the same instrument.
SECTION 14
SEVERABILITY
------------
If any provision of this Plan or the application thereof to any person
or circumstance shall be invalid or unenforceable to any extent, the remainder
of this Plan and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
SECTION 15
GENERAL INTERPRETIVE PRINCIPLES
-------------------------------
For purposes of this Plan, except as otherwise expressly provided or
unless the context otherwise requires: (a) the terms defined in this Plan have
the meanings assigned to them in this Plan and include the plural as well as the
singular, and the words of any gender shall include each other gender where
appropriate; (b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(c) references herein to a "Section" or other subdivision without reference to a
document are to the designated Section or other subdivision of this Plan; (d)
the words "herein," "hereof," "hereto" and other words of similar import refer
to this Plan as a whole and not to any particular provision; and (f) the term
"include" or "including" shall mean without limitation by reason of enumeration.
C-7
<PAGE>
SECTION 16
ENTIRE AGREEMENT AND PARTIES IN INTEREST
----------------------------------------
This Plan, including the documents and other writings referred to
herein or delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to their subject matter. This Plan
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
SECTION 17
NOTICES
-------
Any notice, direction, request, demand, waiver or other communication
required or permitted to be given under this Plan shall be in writing and shall
be deemed to have been duly given if delivered personally or by telecopy, telex
or similar mode of transmission or, if mailed, by certified mail, return receipt
requested with first class postage prepaid, to the parties at the addresses
listed below, or to such other address as any party may, by written notice,
specify to the other parties:
If to Falmouth:
---------------
Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02540
Attention: Santo P. Pasqualucci, President and Chief
Executive Officer
If to Bancorp:
--------------
Falmouth Bancorp, Inc.
c/o Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02540
Attention: Santo P. Pasqualucci, President and Chief
Executive Officer
With a copy to:
---------------
Richard A. Schaberg, Esq.
Thacher Proffitt & Wood
1500 K. Street, N.W., Suite 200
Washington, D.C. 20005
C-8
<PAGE>
In Witness Whereof, Falmouth and Bancorp have each caused this
Agreement and Plan of Reorganization to be executed on their behalf.
FALMOUTH CO-OPERATIVE BANK
By/s/ Santo P. Pasqualucci
-------------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
Attest:
By/s/ John A. DeMello
-------------------------------------
John A. DeMello
Clerk
FALMOUTH BANCORP, INC.
By/s/ Santo P. Pasqualucci
-------------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
Attest:
By/s/ John A. DeMello
-------------------------------------
John A. DeMello
Secretary
I hereby approve this Agreement and Plan of Reorganization.
-------------------------------
Name:
Commissioner of Banks, Commonwealth
of Massachusetts
C-9
<PAGE>
APPENDIX D
DISSENTERS' APPRAISAL RIGHTS
PROVISIONS OF THE GENERAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS RELATING TO
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
(SECTIONS 86-98 OF CHAPTER 156B OF THE GENERAL LAWS OF MASSACHUSETTS)
86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF
MEETING; FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not voted
in favor of such action has or may have the right to demand in writing from the
corporation (or, in the case of a consolidation or merger, the name of the
resulting or surviving corporation shall be inserted), within twenty days after
the date of mailing to him of notice in writing that the corporate action has
become effective, payment for his shares and an appraisal of the value thereof.
Such corporation and any such stockholder shall in such cases have the rights
and duties and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts."
88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
D-1
<PAGE>
89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or any
such stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
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94. NOTATION ON STOCK CERTIFICATE OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertified shares held by such stockholder parties,
and may on motion dismiss the bill as to any stockholder who fails to comply
with such order.
95. COSTS; INTERESTS
The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his
objections to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to
the provisions of this chapter shall have the status of treasury stock, or in
the case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such consolidation
or merger shall have the status of treasury stock or securities.
98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for
his shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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APPENDIX E
================================================================================
CERTIFICATE OF INCORPORATION
OF
FALMOUTH BANCORP, INC.
UNDER SECTION 102 OF
THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
NAME................................. 1
ARTICLE II
REGISTERED OFFICE AND AGENT................... 1
ARTICLE III
PURPOSE............................... 1
ARTICLE IV
CAPITAL STOCK............................ 1
Section 1. Shares, Classes and Series Authorized..................... 1
Section 2. Designations, Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions Relating to the Capital Stock 1
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK................3
Section 1. Applicability of Article...................................3
Section 2. Prohibitions Relating to Beneficial Ownership of
Voting Stock.............................................. 3
Section 3. Excess Shares............................................. 3
Section 4. Powers of the Board of Directors.......................... 3
Section 5. Severability.............................................. 4
Section 6. Exclusions................................................ 4
ARTICLE VI
BOARD OF DIRECTORS............................ 5
Section 1. Number of Directors....................................... 5
Section 2. Classification of Board................................... 5
Section 3. Vacancies................................................. 5
Section 4. Removal of Directors...................................... 5
Section 5. Directors Elected by Preferred Stockholders............... 6
Section 6. Evaluation of Acquisition Proposals....................... 6
Section 7. Power to Call Special Meeting of Stockholders............. 6
ARTICLE VII
ACTION BY STOCKHOLDERS WITHOUT A MEETING................. 6
ARTICLE VIII
CERTAIN BUSINESS COMBINATIONS...................... 6
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Page
----
Section 1. Higher Vote Required for Certain Business Combinations... 6
Section 2. When Higher Vote is Not Required......................... 7
Section 3. Definitions.............................................. 9
Section 4. Powers of the Disinterested Directors.................... 12
Section 5. Effect on Fiduciary Obligations of Interested
Stockholders........................................... 12
Section 6. Amendment, Repeal, Etc................................... 13
ARTICLE IX
ANTI-GREENMAIL............................. 13
ARTICLE X
LIMITATION OF DIRECTOR LIABILITY.................... 13
ARTICLE XI
INDEMNIFICATION............................ 14
Section 1. Actions, Suits or Proceedings Other than by or in the
Right Corporation...................................... 14
Section 2. Actions or Suits by or in the Right of the Corporation... 14
Section 3. Indemnification for Costs, Charges and Expenses of a
Successful Party....................................... 15
Section 4. Indemnification for Expenses of a Witness................ 15
Section 5. Determination of Right to Indemnification................ 15
Section 6. Advancement of Costs, Charges and Expenses............... 16
Section 7. Procedure for Indemnification............................ 16
Section 8. Settlement............................................... 16
Section 9. Other Rights; Continuation of Right to Indemnification;
Individual Contracts................................... 17
Section 10. Savings Clause........................................... 17
Section 11. Insurance................................................ 17
Section 12. Definitions.............................................. 17
Section 13. Subsequent Amendment and Subsequent Legislation.......... 18
ARTICLE XII
AMENDMENTS............................... 18
Section 1. Amendments of Certificate of Incorporation............... 18
Section 2. Amendments of Bylaws..................................... 19
ARTICLE XII
NOTICES............................... 20
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CERTIFICATE OF INCORPORATION
OF
FALMOUTH BANCORP, INC.
THE UNDERSIGNED, for the purpose of forming a corporation
pursuant to Section 102 of the General Corporation Law of the State of Delaware,
does hereby certify that this Certificate of Incorporation of Falmouth Bancorp,
Inc. was duly adopted in accordance with the provisions of Section 102 of the
General Corporation Law of the State of Delaware, and further certifies as
follows:
ARTICLE I
NAME
----
The name of the corporation is Falmouth Bancorp, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
---------------------------
The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
PURPOSE
-------
The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Shares, Classes and Series Authorized. The total
number of shares of all classes of capital stock which the Corporation shall
have authority to issue is 5,500,000 shares, of which 500,000 shares shall be
preferred stock, par value one cent ($.01) per share (the "Preferred Stock"),
and 5,000,000 shares shall be common stock, par value one cent ($.01) per share
(the "Common Stock"). The Preferred Stock and Common Stock are sometimes
hereinafter collectively referred to as the "Capital Stock."
Section 2. Designations, Powers, Preferences, Rights,
Qualifications, Limitations and Restrictions Relating to the Capital Stock. The
following is a statement of the designations, powers, prefer- ences and rights
in respect of the classes of the Capital Stock, and the qualifications,
limitations or restrictions
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thereof, and of the authority with respect thereto expressly vested in the Board
of Directors of the Corporation (the "Board of Directors"):
(a) Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series, the number of shares and any designation of
each series and the powers, preferences and rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
The Board of Directors in any such resolution or resolutions is expressly
authorized to state for each such series:
(i) the voting powers, if any, of the holders of stock of such
series in addition to any voting rights affirmatively required by law;
(ii) the rights of stockholders in respect of dividends,
including, without limitation, the rate or rates per annum and the time
or times at which (or the formula or other method pursuant to which
such rate or rates and such time or times may be determined) and
conditions upon which the holders of stock of such series shall be
entitled to receive dividends and other distributions, and whether any
such dividends shall be cumulative or non-cumulative and, if
cumulative, the terms upon which such dividends shall be cumulative;
(iii) whether the stock of each such series shall be
redeemable by the Corporation at the option of the Corporation or the
holder thereof, and, if redeemable, the terms and conditions upon which
the stock of such series may be redeemed;
(iv) the amount payable and the rights or preferences to which
the holders of the stock of such series shall be entitled upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(v) the terms, if any, upon which shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock
of any other class or classes or of any other series of the same or any
other class or classes, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
and
(vi) any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, so far as they are not
inconsistent with the provisions of this Certificate of Incorporation
and to the full extent now or hereafter permitted by the laws of the
State of Delaware.
All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting a series, the Board of Directors may by resolution or
resolutions likewise adopted increase (but not above the total number of
authorized shares of Preferred Stock) or decrease (but not below the number of
shares of the series then outstanding) the number of shares of the series
subsequent to the issue of shares of that series; and in case the number of
shares of any series shall be so decreased, the shares constituting the decrease
shall resume that status that they had prior to the adoption of the resolution
originally fixing the number of shares constituting such series.
(b) Common Stock. All shares of Common Stock shall be
identical to each other in every respect. The shares of Common Stock shall
entitle the holders thereof to one vote for each share on
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all matters on which stockholders have the right to vote. The holders of Common
Stock shall not be permitted to cumulate their votes for the election of
directors.
Subject to the preferences, privileges and powers with respect
to each class or series of Preferred Stock having any priority over the Common
Stock, and the qualifications, limitations or restrictions thereof, the holders
of the Common Stock shall have and possess all rights pertaining to the Capital
Stock.
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
-------------------------------------------
Section 1. Applicability of Article. The provisions of this
Article V shall become effective upon the consummation of the reorganization
whereby Falmouth Bancorp, Inc. will become the holding company for Falmouth
Co-operative Bank, a co-operative bank organized under the laws of the
Commonwealth of Massachusetts (the "Bank"). All terms used in this Article V and
not otherwise defined herein shall have the meanings ascribed to such terms in
Section 3 of Article VIII, below.
Section 2. Prohibitions Relating to Beneficial Ownership of
Voting Stock. No Person (other than the Corporation, any Subsidiary, or any
pension, profit-sharing, stock bonus or other compensation plan maintained by
the Corporation or by a member of a controlled group of corporations or trades
or businesses of which the Corporation is a member for the benefit of the
employees of the Corporation and/or any Subsidiary, or any trust or custodial
arrangement established in connection with any such plan) shall directly or
indirectly acquire or hold the beneficial ownership of more than ten percent
(10%) of the issued and outstanding Voting Stock of the Corporation. Any Person
so prohibited who directly or indirectly acquires or holds the beneficial
ownership of more than ten percent (10%) of the issued and outstanding Voting
Stock in violation of this Section 2 shall be subject to the provisions of
Sections 3 and 4 of this Article V, below. The Corporation is authorized to
refuse to recognize a transfer or attempted transfer of any Voting Stock to any
Person who beneficially owns, or who the Corporation believes would become by
virtue of such transfer the beneficial owner of, more than ten percent (10%) of
the Voting Stock.
Section 3. Excess Shares. If, notwithstanding the foregoing
prohibition, a Person shall, voluntarily or involuntarily, become or attempt to
become the purported beneficial owner (the "Purported Owner") of shares of
Voting Stock in excess of ten percent (10%) of the issued and outstanding shares
of Voting Stock, the number of shares in excess of ten percent (10%) shall be
deemed to be "Excess Shares," and the holder thereof shall be entitled to cast
one hundredth (1/100) of one vote per share for each Excess Share.
The above restrictions set forth in this Article V shall be
noted conspicuously on all certificates evidencing ownership of Voting Stock.
Section 4. Powers of the Board of Directors.
(a) The Board of Directors may, to the extent permitted by
law, from time to time establish, modify, amend or rescind, by Bylaw or
otherwise, regulations and procedures not inconsistent with the express
provisions of this Article V for the orderly application, administration and
implementation of the provisions of this Article V. Such procedures and
regulations shall be kept on file with the Secretary of the Corporation and with
the Transfer Agent, shall be made available for inspection by the public and,
upon request, shall be mailed to any holder of Voting Stock of the Corporation.
(b) When it appears that a particular Person has become a
Purported Owner of Excess Shares in violation of Section 2 of this Article V, or
of the rules and regulations of the Board of Directors
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<PAGE>
with respect to this Article V, and that the provisions of this Article V
require application, interpretation, or construction, then a majority of the
directors of the Corporation shall have the power and duty to interpret all of
the terms and provisions of this Article V, and to determine on the basis of
information known to them after reasonable inquiry all facts necessary to
ascertain compliance with this Article V, including, without limitation, (i) the
number of shares of Voting Stock beneficially owned by any Person or Purported
Owner, (ii) whether a Person or Purported Owner is an Affiliate or Associate of,
or is acting in concert with, any other Person or Purported Owner, (iii) whether
a Person or Purported Owner has an agreement, arrangement or understanding with
any other Person or Purported Owner as to the voting or disposition of any
shares of the Voting Stock, (iv) the application of any other definition or
operative provision of this Article V to the given facts, or (v) any other
matter relating to the applicability or effect of this Article V.
The Board of Directors shall have the right to demand that any
Person who is reasonably believed to be a Purported Owner of Excess Shares (or
who holds of record Voting Stock beneficially owned by any Person reasonably
believed to be a Purported Owner in excess of such limit) supply the Corporation
with complete information as to (i) the record owner(s) of all shares of Voting
Stock beneficially owned by such Person or Purported Owner and (ii) any other
factual matter relating to the applicability or effect of this Article V as may
reasonably be requested of such Person or Purported Owner.
Any applications, interpretations, constructions or any other
determinations made by the Board of Directors pursuant to this Article V, in
good faith and on the basis of such information and assistance as was then
reasonably available for such purpose, shall be conclusive and binding upon the
Corporation and its stockholders and neither the Corporation nor any of its
stockholders shall have the right to challenge any such construction,
application or determination.
Section 5. Severability. In the event any provision (or
portion thereof) of this Article V shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or portions thereof) of
this Article V shall remain in full force and effect, and shall be construed as
if such invalid, prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the intent of this
Corporation and its stockholders that each such remaining provision (or portion
thereof) of this Article V remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including Purported Owners,
if any, notwithstanding any such finding.
Section 6. Exclusions. This Article V shall not apply to (a)
any offer or sale with a view towards public resale made exclusively by the
Corporation to any underwriter or underwriters acting on behalf of the
Corporation, or to the selling group acting on such underwriter's or
underwriters' behalf, in connection with a public offering of the Common Stock;
or (b) any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction or
reorganization that does not have the effect, directly or indirectly, of
changing the beneficial ownership interests of the Corporation's stockholders,
other than pursuant to the exercise of any dissenters' appraisal rights, except
as a result of immaterial changes due to fractional share adjustments, which
changes do not exceed, in the aggregate, one percent (1%) of the issued and
outstanding shares of such class of equity or convertible securities.
ARTICLE VI
BOARD OF DIRECTORS
------------------
Section 1. Number of Directors. The number of directors of the
Corporation shall be as determined only by resolution of the Board of Directors,
but shall not be less than seven (7) nor more than twenty-five (25).
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Section 2. Classification of Board. Subject to the rights of
any holders of any series of Preferred Stock that may be issued by the
Corporation pursuant to a resolution or resolutions of the Board of Directors
providing for such issuance and subject to the provisions hereof, the directors
of the Corporation shall be divided into three classes with respect to term of
office, each class to contain, as near as may be possible, one-third of the
entire number of the Board, with the terms of office of one class expiring each
successive year. One class of directors shall be initially elected for a term
expiring at the annual meeting of stockholders to be held in 1997, another class
shall be initially elected for a term expiring at the annual meeting of
stockholders to be held in 1998, and another class shall be initially elected
for a term expiring at the annual meeting of stockholders to be held in 1999. At
each annual meeting of stockholders, the successors to the class of directors
(other than directors elected by holders of shares of one or more series of
Preferred Stock) whose term expires at that time shall be elected by the
stockholders to serve until the annual meeting of stockholders held three years
next following and until their successors shall be elected and qualified.
In the event of any intervening changes in the authorized
number of directors (other than directors elected by holders of shares of one or
more series of Preferred Stock), only the Board of Directors shall designate the
class or classes to which the increases or decreases in directorships shall be
apportioned in order more nearly to achieve equality of number of directors
among the classes; provided, however, that no such apportionment or
redesignation shall shorten the term of any incumbent director.
Unless and to the extent that the Bylaws so provide, elections
of directors need not be by written ballot.
Section 3. Vacancies. Subject to the limitations prescribed by
law and this Certificate of Incorporation, all vacancies in the office of
director, including vacancies created by newly created directorships resulting
from an increase in the number of directors (subject to the provisions of
Article VI, Section 5 hereof relating to directors elected by holders of one or
more series of Preferred Stock), shall be filled only by a vote of a majority of
the directors then holding office, whether or not a quorum, and any director so
elected shall serve for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until his
successor shall be elected and qualified.
Section 4. Removal of Directors. Any or all of the directors
(subject to the provisions of Article VI, Section 5 hereof relating to directors
elected by holders of shares of one or more series of Preferred Stock) may be
removed at any time, but only for cause, and any such removal shall require the
vote, in addition to any vote required by law, of not less than eighty percent
(80%) of the total votes eligible to be cast by the holders of all outstanding
shares of Capital Stock entitled to vote generally in the election of directors
at a meeting of stockholders expressly called for that purpose. For purposes of
this Section 4, conduct worthy of removal for "cause" shall include (a) conduct
as a director of the Corporation or any subsidiary of the Corporation, which
conduct involves willful material misconduct, breach of fiduciary duty involving
personal pecuniary gain or gross negligence in the performance of duties, (b)
conduct, whether or not as a director of the Corporation or a subsidiary of the
Corporation, which conduct involves dishonesty or breach of fiduciary duty and
is punishable by imprisonment for a term exceeding one year under state or
federal law or (c) removal of such person from the Board of Directors of the
Bank, if such person is so serving, in accordance with the Charter and Bylaws of
the Bank.
Section 5. Directors Elected by Preferred Stockholders.
Notwithstanding anything set forth in the Bylaws to the contrary, the
qualifications, term of office and provisions governing vacancies, removal and
other matters pertaining to directors elected by holders of one or more series
of Preferred Stock shall be as set forth in a resolution or resolutions adopted
by the Board of Directors setting forth the designations, preferences and rights
relating to any such series of Preferred Stock pursuant to Article IV, Section 2
hereof.
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Section 6. Evaluation of Acquisition Proposals. The Board of
Directors of the Corporation, when evaluating any offer to the Corporation or to
the stockholders of the Corporation from another party to (a) purchase for cash,
or exchange any securities or property for, any outstanding equity securities of
the Corporation, (b) merge or consolidate the Corporation with another
corporation or (c) purchase or otherwise acquire all or substantially all of the
properties and assets of the Corporation, shall, in connection with the exercise
of its judgment in determining what is in the best interest of the Corporation
and its stockholders, give due consideration to the extent permitted by law not
only to the price or other consideration being offered, but also to all other
relevant factors including, without limitation, the financial and managerial
resources and future prospects of the other party, the possible effects on the
business of the Corporation and its subsidiaries and on the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries and
the effects on the communities in which the Corporation's and its subsidiaries'
facilities are located.
Section 7. Power to Call Special Meeting of Stockholders.
Special meetings of stockholders, for any purpose, may be called at any time
only by resolution of at least three-fourths of the Directors of the Corporation
then in office, by the Chairman of the Board or by the President and Chief
Executive Officer. At a special meeting, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of meeting
prescribed by the Bylaws of the Corporation.
ARTICLE VII
ACTION BY STOCKHOLDERS WITHOUT A MEETING
----------------------------------------
Except as otherwise provided for or fixed pursuant to the
provisions of Article IV of this Certificate of Incorporation relating to the
rights of holders of any series of Preferred Stock, no action that is required
or permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders.
ARTICLE VIII
CERTAIN BUSINESS COMBINATIONS
-----------------------------
Section 1. Higher Vote Required for Certain Business
Combinations. In addition to any affirmative vote required by law, by this
Certificate of Incorporation, or by the provisions of any series of Preferred
Stock that may at the time be outstanding, and except as otherwise expressly
provided for in Section 2 of this Article VIII, any Business Combination, as
hereinafter defined, shall require the affirmative vote of not less than eighty
percent (80%) (to the extent permitted by law, but in no event less than
two-thirds) of the total number of votes eligible to be cast by the holders of
all outstanding shares of Voting Stock, voting together as a single class (it
being understood that for purposes of this Article VIII each share of the Voting
Stock shall have the number of votes granted to it pursuant to Article IV and
Article V of this Certificate of Incorporation or in any resolution or
resolutions of the Board of Directors for issuance of shares of Preferred
Stock), together (to the extent permitted by law) with the affirmative vote of
at least fifty percent (50%) of the total number of votes eligible to be cast by
the holders of all outstanding shares of the Voting Stock not beneficially owned
by the Interested Stockholder involved or any Affiliate or Associate thereof,
voting together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
Section 2. When Higher Vote is Not Required. The provisions of
Section 1 of this Article VIII shall not be applicable to any particular
Business Combination, and such Business Combination
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shall require only such affirmative vote as is required by law or any other
provision of this Certificate of Incorporation, if the Business Combination
shall have been approved by a majority of the Disinterested Directors then in
office or if all of the conditions specified in the following subsections (a)
through (g) are met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealers' fees,
dealer-management compensation, and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees) paid by the Interested Stockholder for any shares of
Common Stock acquired by it (A) within the two year period immediately
prior to the Announcement Date, or (B) in the transaction in which it
became an Interested Stockholder, whichever is higher, plus interest
compounded annually from the Determination Date through the
Consummation Date at the prime rate of interest of Citibank, N.A. (or
other major bank headquartered in New York City selected by a majority
of the Disinterested Directors then in office) from time to time in
effect in New York City, less the aggregate amount of any cash
dividends paid and the Fair Market Value of any dividends paid, other
than in cash, per share of Common Stock from the Determination Date
through the Consummation Date in an amount up to but not exceeding the
amount of such interest payable per share of Common Stock; or
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of consideration other than cash to be received per
share by holders of shares of any class or series of outstanding Voting Stock,
other than Common Stock, in such Business Combination shall be at least equal to
the highest of the following (such requirement being applicable to each such
class or series of outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of such class or series of Voting
Stock):
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealers' fees,
dealer-management compensation, and other expenses, including, but not
limited to, costs of newspaper advertisements, printing expenses and
attorneys' fees) paid by the Interested Stockholder for any shares of
such class or series of Voting Stock acquired by it (A) within the two
year period immediately prior to the Announcement Date, or (B) in the
transaction in which it became an Interested Stockholder, whichever is
higher, plus interest compounded annually from the Determination Date
through the Consummation Date at the prime rate of interest of
Citibank, N.A. (or other major bank headquartered in New York City
selected by a majority of the Disinterested Directors then in office)
from time to time in effect in New York City, less the aggregate amount
of any cash dividends paid, and the Fair Market Value of any dividends
paid other than in cash, per share of such class or series of Voting
Stock from the Determination Date through the Consummation Date in an
amount up to but not exceeding the amount of such interest payable per
share of such class or series of Voting Stock;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class or series of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(iii) the Fair Market Value per share of such class or series
of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
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(c) The consideration to be received by holders of any
particular class or series of outstanding Voting Stock (including Common Stock)
in such Business Combination shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of such class or series of
Voting Stock. If the Interested Stockholder has paid for shares of any class or
series of Voting Stock with varying forms of consideration, the form of
consideration for such class or series of Voting Stock in such Business
Combination shall be either cash or the form used to acquire the largest number
of shares of such class or series of Voting Stock previously acquired by it.
(d) The holders of all outstanding shares of Voting Stock not
beneficially owned by the Interested Stockholder immediately prior to the
Consummation Date shall be entitled to receive in such Business Combination cash
or other consideration for their shares in compliance with subsections (a), (b)
and (c) of this Section 2.
(e) After the Determination Date and prior to the Consummation
Date:
(i) except as approved by a majority of the Disinterested
Directors then in office, there shall have been no failure to declare
and pay, or set aside for payment, at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock;
(ii) there shall have been (A) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a majority
of the Disinterested Directors then in office, and (B) an increase in
such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of
reducing the number of outstanding shares of the Common Stock, unless
the failure so to increase such annual rate is approved by a majority
of the Disinterested Directors then in office; and
(iii) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock except (a) as
part of the transaction that results in such Interested Stockholder
becoming an Interested Stockholder, (b) as the result of a stock
dividend paid by the Corporation or (c) upon the exercise or conversion
of securities of the Corporation issued pro rata to all holders of
Common Stock which are exercisable for or convertible into shares of
Voting Stock.
(f) After the Determination Date, the Interested Stockholder
shall not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees, pledges
or other financial assistance or any tax credits or other tax advantages
provided by or through the Corporation or an Affiliate of the Corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
(g) A proxy or information statement describing the proposed
Business Combination in accordance with the requirements of the Securities
Exchange Act of 1934, as amended, whether or not the Corporation is then subject
to such requirements, and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be mailed
to stockholders of the Corporation at least thirty (30) days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions). The first page of such proxy or information statement
shall prominently display the recommendation, if any, that a majority of the
Disinterested Directors then in office may choose to make to the holders of
Voting Stock regarding the proposed Business Combination. Such proxy or
information statement shall also contain, if a majority of the Disinterested
Directors then in office so requests, an opinion of a reputable investment
banking firm (which firm shall be engaged solely on behalf of the stockholders
of the Corporation other than the Interested Stockholder and shall be selected
by a majority of the Disinterested Directors then in office, furnished with all
information it reasonably requests, and paid a reasonable fee for its services
by the Corporation upon the
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Corporation's receipt of such opinion) as to the fairness (or lack of fairness)
of the terms of the proposed Business Combination from the point of view of the
holders of Voting Stock other than the Interested Stockholder.
Section 3. Definitions. For purposes of this Article VIII,
the following terms shall have the following meanings:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, as in effect
on the date of filing by the Secretary of State of the State of Delaware of this
Certificate of Incorporation, whether or not the Corporation was then subject to
such rule.
(b) "Announcement Date" shall mean the date of the first
public announcement of the proposal of the Business Combination.
(c) A Person shall be deemed the "beneficial owner," or to
have "beneficial ownership," of any shares of Voting Stock that:
(i) such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) such Person or any or its Affiliates or Associates,
directly or indirectly, has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (but a Person
shall not be deemed to be the beneficial owner of any Voting Stock
solely by reason of an agreement, arrangement or understanding with the
Corporation to effect a Business Combination) or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote, or to direct the vote of, pursuant to any
agreement, arrangement or understanding; or
(iii) is beneficially owned, directly or indirectly, by any
other Person with which such first mentioned Person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock;
provided, however, that no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) (y) shall, solely by
reason of any or all of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any Voting Stock
of the Corporation beneficially owned by any other such director or officer (or
any Affiliate or Associate thereof) or (z) shall be deemed to beneficially own
any Voting Stock of the Corporation owned by any pension, profit-sharing, stock
bonus or other compensation plan maintained by the Corporation or by a member of
a controlled group of corporations or trades or businesses of which the
corporation is a member for the benefit of employees of the Corporation and/or
any Subsidiary, or any trust or custodial arrangement established in connection
with any such plan, not specifically allocated to such Person's personal
account.
(d) The term "Business Combination" shall mean any transaction
that is referred to in any one or more of the following paragraphs (i) through
(vi):
(i) any merger or consolidation of the Corporation or any
Subsidiary (other than a merger pursuant to Section 253 of the General
Corporation Law of the State of Delaware) with (A) any Interested
Stockholder, or (B) any other entity (whether or not such other entity
is itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate of any Interested
Stockholder; or
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(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value equal to five percent
(5%) or more of the total assets of the Corporation or the Subsidiary
in question, as of the end of its most recent fiscal year ending prior
to the time the determination is being made; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder
other than (A) on a pro rata basis to all holders of Voting Stock, (B)
in connection with the exercise or conversion of securities issued pro
rata that are exercisable for, or convertible into, securities of the
Corporation or any Subsidiary of the Corporation or (C) the issuance or
transfer of such securities having an aggregate Fair Market Value equal
to less than one percent (1%) of the aggregate Fair Market Value of all
of the outstanding Capital Stock; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of equity or convertible securities of
the Corporation or any Subsidiary that is directly or indirectly owned
by any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder, except as a result of immaterial changes due to
fractional share adjustments, which changes do not exceed, in the
aggregate, 1% of the issued and outstanding shares of such class or
series of equity or convertible securities; or
(vi) the acquisition by the Corporation or a Subsidiary of any
securities of an Interested Stockholder or its Affiliates or
Associates.
(e) "Consummation Date" shall mean the date of the
consummation of the Business Combination.
(f) "Determination Date" shall mean the date on which the
Interested Stockholder became an Interested Stockholder.
(g) "Disinterested Director" shall mean any member of the
Board of Directors of the Corporation who is not an Affiliate or Associate of,
or otherwise affiliated with, the Interested Stockholder and who either was a
member of the Board of Directors prior to the Determination Date, or was
recommended for election by a majority of the Disinterested Directors in office
at the time such director was nominated for election. If there is no Interested
Stockholder, each member of the Board of Directors shall be a Disinterested
Director.
(h) "Fair Market Value" shall mean (i) in the case of stock,
the highest closing price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange listed stocks, or, if such stock is not quoted on the Composite
Tape, the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934, as amended, on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest closing bid
quotation with respect
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to a share of such stock during the 30-day period preceding the date in question
on the Nasdaq Stock Market or any system then in use, or if no such quotation is
available, the fair market value on the date in question of a share of such
stock as determined in good faith by a majority of the Disinterested Directors
then in office, in each case with respect to any class of stock, appropriately
adjusted for any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a greater
number of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such stock;
and (ii) in the case of property other than cash or stock, the fair market value
of such property on the date in question as determined in good faith by a
majority of the Disinterested Directors then in office.
(i) References to "highest per share price" shall in each case
with respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification of outstanding
shares of such stock into a smaller number of shares of such stock.
(j) "Interested Stockholder" shall mean any Person (other than
the Corporation, any Subsidiary, or any pension, profit-sharing, stock bonus or
other compensation or employee benefit plan maintained by the Corporation or by
a member of a controlled group of corporations or trades or businesses of which
the corporation is a member for the benefit of employees of the Corporation
and/or any Subsidiary, or any trust or custodial arrangement established in
connection with any such plan) who or which:
(i) is the beneficial owner of ten percent (10%) or more of
the Voting Stock; or
(ii) is an Affiliate or Associate of the Corporation and at
any time within the two-year period immediately prior to the date in
question was the beneficial owner of ten percent (10%) or more of the
then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock that were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
other Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933, as amended, and not executed on any exchange or in the
over-the-counter market through a registered broker or dealer.
In determining whether a Person is an Interested Stockholder pursuant to this
subsection (j), the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of subsection (c) of this
Section 3 but shall not include any other shares of Voting Stock that may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(k) "Person" shall mean any corporation, partnership, trust,
unincorporated organization or association, syndicate, any other entity or a
natural person, together with any Affiliate or Associate of such person or any
other person acting in concert with such person.
(l) "Subsidiary" shall mean any corporation or entity of which
a majority of any class or series of equity securities is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in subsection (j) of this Section
3, the term "Subsidiary" shall mean only a corporation or entity of which a
majority of each class or series of outstanding voting securities is owned,
directly or indirectly, by the Corporation.
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(m) "Voting Stock" shall mean all of the outstanding shares of
Capital Stock entitled to vote generally in the election of directors.
Section 4. Powers of the Disinterested Directors. When it
appears that a particular Person may be an Interested Stockholder and that the
provisions of this Article VIII need to be applied or interpreted, then a
majority of the directors of the Corporation who would qualify as Disinterested
Directors shall have the power and duty to interpret all of the terms and
provisions of this Article VIII, and to determine on the basis of information
known to them after reasonable inquiry of all facts necessary to ascertain
compliance with this Article VIII, including, without limitation, (a) whether a
Person is an Interested Stockholder, (b) the number of shares of Voting Stock
beneficially owned by any Person, (c) whether a Person is an Affiliate or
Associate of another, (d) the Fair Market Value of (i) the assets that are the
subject of any Business Combination, (ii) the securities to be issued or
transferred by the Corporation or any Subsidiary in any Business Combination,
(iii) the consideration other than cash to be received by holders of shares of
any class or series of Common Stock or Voting Stock other than Common Stock in
any Business Combination, (iv) the outstanding Capital Stock, or (v) any other
item the Fair Market Value of which requires determination pursuant to this
Article VIII, and (e) whether all of the applicable conditions set forth in
Section 2 of this Article VIII have been met with respect to any Business
Combination.
Any constructions, applications, or determinations made by the
Board of Directors or the Disinterested Directors pursuant to this Article VIII,
in good faith and on the basis of such information and assistance as was then
reasonably available for such purpose, shall be conclusive and binding upon the
Corporation and its stockholders, and neither the Corporation nor any of its
stockholders shall have the right to challenge any such construction,
application or determination.
Section 5. Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Article VIII shall be construed to
relieve any Interested Stockholder from any fiduciary obligations imposed by
law.
Section 6. Amendment, Repeal, Etc. Notwithstanding any other
provisions of this Certificate of Incorporation or the Bylaws (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the Bylaws of the Corporation), in addition to
any affirmative vote required by applicable law and any voting rights granted to
or held by holders of Preferred Stock, any amendment, alteration, repeal or
rescission of any provision of this Article VIII must also be approved by either
(i) a majority of the Disinterested Directors, or (ii) the affirmative vote of
not less than eighty percent (80%) of the total number of votes eligible to be
cast by the holders of all outstanding shares of the Voting Stock, voting
together as a single class, together with the affirmative vote of not less than
fifty percent (50%) of the total number of votes eligible to be cast by the
holders of all outstanding shares of the Voting Stock not beneficially owned by
any Interested Stockholder or Affiliate or Associate thereof, voting together as
a single class.
ARTICLE IX
ANTI-GREENMAIL
--------------
Any direct or indirect purchase or other acquisition by the
Corporation of any Voting Stock (as defined in Article VIII, Section 3(m)
hereof) from any Significant Stockholder (as hereinafter defined) who has been
the beneficial owner (as defined in Article VIII, Section 3(c) hereof) of such
Voting Stock for less than two years prior to the date of such purchase or other
acquisition shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of the total number of
outstanding shares of Voting Stock, excluding in calculating such affirmative
vote and the total number of outstanding shares all Voting Stock beneficially
owned by such Significant Stockholder. Such affirmative vote shall be
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required notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law, but no such affirmative vote shall be
required (i) with respect to any purchase or other acquisition of Voting Stock
made as part of a tender or exchange offer from all holders of the same class of
Voting Stock and complying with the applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder or
(ii) with respect to any purchase of Voting Stock, where the Board of Directors
has determined that the purchase price per share of the Voting Stock does not
exceed the fair market value of the Voting Stock. Such fair market value shall
be calculated on the basis of the average closing price or the mean of the bid
and ask prices of a share of Voting Stock for the 20 trading days immediately
preceding the execution of a definitive agreement to purchase the Voting Stock
from a Significant Stockholder.
For the purpose of this Article IX, "Significant Stockholder"
shall mean any person (other than the Corporation or any Subsidiary) who or
which is the beneficial owner, directly or indirectly, of five percent (5%) or
more of the voting power of the outstanding Voting Stock.
ARTICLE X
LIMITATION OF DIRECTOR LIABILITY
--------------------------------
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is expressly prohibited by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended.
Any amendment, termination or repeal of this Article X or any
provisions hereof shall not adversely affect or diminish in any way any right or
protection of a director of the Corporation existing with respect to any act or
omission occurring prior to the time of the final adoption of such amendment,
termination or repeal.
In addition to any requirements of law or of any other
provisions of this Certificate of Incorporation, the affirmative vote of the
holders of not less than eighty percent (80%) of the total number of votes
eligible to be cast by the holders of all outstanding shares of Capital Stock
entitled to vote thereon shall be required to amend, alter, rescind or repeal
any provision of this Article X.
ARTICLE XI
INDEMNIFICATION
---------------
Section 1. Actions, Suits or Proceedings Other than by or in
the Right of the Corporation. To the fullest extent permitted by the General
Corporation Law of the State of Delaware, the Corporation shall indemnify any
person who is or was or has agreed to become a director or officer of the
Corporation who was or is made a party to or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was or has
agreed to become a director or officer of the Corporation, or by reason of any
action alleged to have been taken or omitted in such capacity, and the
Corporation may indemnify any other person who is or was or has agreed to become
an employee or agent of the Corporation who was or is made a party to or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was or has agreed to become an employee or agent of
the Corporation, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges, expenses (including
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attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her or on his or her behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he or she acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the Corporation and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful. Notwithstanding anything contained in this Article
XI, but subject to Section 7 hereof, the Corporation shall not be obligated to
indemnify any director or officer in connection with an action, suit or
proceeding, or part thereof, initiated by such person against the Corporation
unless such action, suit or proceeding, or part thereof, was authorized or
consented to by the Board of Directors.
Section 2. Actions or Suits by or in the Right of the
Corporation. To the fullest extent permitted by the General Corporation Law of
the State of Delaware, the Corporation shall indemnify any person who is or was
or has agreed to become a director or officer of the Corporation who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was or has
agreed to become a director or officer of the Corporation, or by reason of any
action alleged to have been taken or omitted in such capacity, and the
Corporation may indemnify any other person who is or was or has agreed to become
an employee or agent of the Corporation who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Corporation, or by reason of any action alleged to have been
taken or omitted in such capacity, against costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him or her or on
his or her behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such costs, charges and expenses which the
Court of Chancery or such other court shall deem proper. Notwithstanding
anything contained in this Article XI, but subject to Section 7 hereof, the
Corporation shall not be obligated to indemnify any director or officer in
connection with an action or suit, or part thereof, initiated by such person
against the Corporation unless such action or suit, or part thereof, was
authorized or consented to by the Board of Directors.
Section 3. Indemnification for Costs, Charges and Expenses of
a Successful Party. To the extent that a director, officer, employee or agent of
the Corporation has been successful, on the merits or otherwise (including,
without limitation, the dismissal of an action without prejudice), in defense of
any action, suit or proceeding referred to in Section 1 or 2 of this Article XI,
or in defense of any claim, issue or matter therein, such person shall be
indemnified against all costs, charges and expenses (including at- torneys'
fees) actually and reasonably incurred by such person or on such person's behalf
in connection therewith.
Section 4. Indemnification for Expenses of a Witness. To the
extent that any person who is or was or has agreed to become a director or
officer of the Corporation is made a witness to any action, suit or proceeding
to which he or she is not a party by reason of the fact that he or she was, is
or has agreed to become a director or officer of the Corporation, or is or was
serving or has agreed to serve as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
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enterprise, at the written request of the Corporation, such person shall be
indemnified against all costs, charges and expenses actually and reasonably
incurred by such person or on such person's behalf in connection therewith.
To the extent that any person who is or was or has agreed to
become an employee or agent of the Corporation is made a witness to any action,
suit or proceeding to which he or she is not a party by reason of the fact that
he or she was, is or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, at the written request of the Corporation, such person may be
indemnified against all costs, charges and expenses actually and reasonably
incurred by such person or on such person's behalf in connection therewith.
Section 5. Determination of Right to Indemnification. Any
indemnification under Section 1 or 2 of this Article XI (unless ordered by a
court) shall be made, if at all, by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper under the circumstances because he or she
has met the applicable standard of conduct set forth in Section 1 or 2 of this
Article XI. Any indemnification under Section 4 of this Article XI (unless
ordered by a court) shall be made, if at all, by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper under the circumstances. Such
determinations shall be made by (a) a majority vote of directors who were not
parties to such action, suit or proceeding even though less than a quorum of the
Board of Directors, or (b) if there are no such directors, or if such directors
so direct, by independent counsel in a written opinion or (c) by the
stockholders of the Corporation. To obtain indemnification under this Article
XI, any person referred to in Section 1, 2, 3 or 4 of this Article XI shall
submit to the Corporation a written request, including therewith such documents
as are reasonably available to such person and are reasonably necessary to
determine whether and to what extent such person is entitled to indemnification.
Section 6. Advancement of Costs, Charges and Expenses. Costs,
charges and expenses (including attorneys' fees) incurred by or on behalf of a
director or officer in defending a civil or criminal action, suit or proceeding
referred to in Section 1 or 2 of this Article XI shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding; provided, however, that the payment of such costs, charges and
expenses incurred by or on behalf of a director or officer in advance of the
final disposition of such action, suit or proceeding shall be made only upon
receipt of a written undertaking by or on behalf of the director or officer to
repay all amounts so advanced in the event that it shall ultimately be
determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article XI or by law. No security shall be
required for such undertaking and such undertaking shall be accepted without
reference to the recipient's financial ability to make repayment. The majority
of the directors who were not parties to such action, suit or proceeding may,
upon approval of such director or officer of the Corporation, authorize the
Corporation's counsel to represent such person, in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
Section 7. Procedure for Indemnification. Any indemnification
under Section 1, 2, 3 or 4 of this Article XI or advancement of costs, charges
and expenses under Section 6 of this Article XI shall be made promptly, and in
any event within sixty (60) days (except indemnification to be determined by
stockholders which will be determined at the next annual meeting of
stockholders), upon the written request of the director or officer. The right to
indemnification or advancement of expenses as granted by this Article XI shall
be enforceable by the director, officer, employee or agent in any court of
competent jurisdiction, if the Corporation denies such request, in whole or in
part, or if no disposition of such request is made within sixty (60) days of the
request. Such person's costs, charges and expenses incurred in connection with
successfully establishing his or her right to indemnification or advancement, to
the extent successful, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advancement of costs, charges and expenses
under Section 6 of
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this Article XI where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Section 1 or 2 of this Article XI, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1 or 2 of this Article XI,
nor the fact that there has been an actual determination by the Corporation
(including its directors, its independent legal counsel and its stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 8. Settlement. The Corporation shall not be obligated
to reimburse the costs, charges and expenses of any settlement to which it has
not agreed. If in any action, suit or proceeding (including any appeal) within
the scope of Section 1 or 2 of this Article XI, the person to be indemnified
shall have unreasonably failed to enter into a settlement thereof offered or
assented to by the opposing party or parties in such action, suit or proceeding,
then, notwithstanding any other provision of this Article XI, the
indemnification obligation of the Corporation to such person in connection with
such action, suit or proceeding shall not exceed the total of the amount at
which settlement could have been made and the expenses incurred by or on behalf
of such person prior to the time such settlement could reasonably have been
effected. For purposes of this Section 8, whether a person shall have
"unreasonably failed to enter into a settlement" shall be as determined by the
Board.
Section 9. Other Rights; Continuation of Right to
Indemnification; Individual Contracts. The indemnification and advancement of
costs, charges and expenses provided by or granted pursuant to this Article XI
shall not be deemed exclusive of any other rights to which those persons seeking
indemnification or advancement of costs, charges and expenses may be entitled
under law (common or statutory) or any Bylaw, agreement, policy of
indemnification insurance or vote of stockholders or directors or otherwise,
both as to action in his or her official capacity and as to action in any other
capacity while holding office, and shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
the legatees, heirs, distributees, executors and administrators of such person.
Nothing contained in this Article XI shall be deemed to prohibit the Corporation
from entering into, and the Corporation is specifically authorized to enter
into, agreements with directors, officers, employees and agents providing
indemnification rights and procedures different from those set forth herein. All
rights to indemnification under this Article XI shall be deemed to be a contract
between the Corporation and each director, officer, employee or agent of the
Corporation who serves or served in such capacity at any time while this Article
XI is in effect.
Section 10. Savings Clause. If this Article XI or any portion
shall be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify each director or officer, and may
indemnify each employee or agent, of the Corporation as to any costs, charges,
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Corporation), to the full extent permitted by any applicable
portion of this Article XI that shall not have been invalidated and to the full
extent permitted by applicable law.
Section 11. Insurance. The Corporation may purchase and
maintain insurance, at its expense, to protect itself and any person who is or
was a director, officer, employee or agent of the Corporation against any costs,
charges or expenses, liability or loss incurred by such person in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify such person against such costs, charges or
expenses, liability or loss under the Certificate of Incorporation or applicable
law; provided, however, that such insurance is available on acceptable terms as
determined by the Board. To the extent that any director, officer, employee or
agent is reimbursed by an insurance company under an indemnification insurance
policy for any costs, charges, expenses (including at-
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torneys' fees), judgments, fines and amounts paid in settlement to the fullest
extent permitted by any applicable portion of this Article XI, the Bylaws, any
agreement, the policy of indemnification insurance or otherwise, the Corporation
shall not be obligated to reimburse the person to be indemnified in connection
with such proceeding.
Section 12. Definitions. For purposes of this Article XI, the
following terms shall have the following meanings:
(a) "The Corporation" shall include, in addition to the
resulting corporation, any constituent corporation or entity (including any
constituent of a constituent) absorbed by way of an acquisition, consolidation,
merger or otherwise, which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, employee or agent
so that any person who is or was a director, officer, employee or agent of such
constituent corporation or entity, or is or was serving at the written request
of such constituent corporation or entity as a director or officer of another
corporation, entity, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article XI with
respect to the resulting or surviving corporation or entity as he would have
with respect to such constituent corporation or entity if its separate existence
had continued;
(b) "Other enterprises" shall include employee benefit plans,
including, but not limited to, any employee benefit plan of the Corporation;
(c) "Director or officer" of the Corporation shall include any
director, officer, partner or trustee who is or was or has agreed to serve at
the request of the Corporation as a director, officer, partner or trustee of
another corporation, partnership, joint venture, trust or other enterprise;
(d) "Serving at the request of the Corporation" shall include
any service that imposes duties on, or involves services by a director, officer,
employee or agent of the Corporation with respect to an employee benefit plan,
its participants or beneficiaries, including acting as a fiduciary thereof;
(e) "Fines" shall include any penalties and any excise or
similar taxes assessed on a person with respect to an employee benefit plan;
(f) To the fullest extent permitted by law, a person shall be
deemed to have acted in "good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful," if his or her action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to him or her by the officers of the Corporation or another
enterprise in the course of their duties, or on the advice of legal counsel for
the Corporation or another enterprise or on information or records given or
reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise; and
(g) A person shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as referred to in Sections 1
and 2 of this Article XI if such person acted in good faith and in a manner he
or she reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan.
Section 13. Subsequent Amendment and Subsequent Legislation.
Neither the amendment, termination or repeal of this Article XI or of relevant
provisions of the General Corporation Law of the State of Delaware or any other
applicable laws, nor the adoption of any provision of this Certificate of
Incorporation or the Bylaws of the Corporation or of any statute inconsistent
with this Article XI shall eliminate, affect or diminish in any way the rights
of any director, officer, employee or agent of the Corpora-
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tion to indemnification under the provisions of this Article XI with respect to
any action, suit or proceeding arising out of, or relating to, any actions,
transactions or facts occurring prior to the final adoption of such amendment,
termination or repeal.
If the General Corporation Law of the State of Delaware is
amended to expand further the indemnification permitted to directors and
officers of the Corporation, then the Corporation shall indemnify such persons
to the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
ARTICLE XII
AMENDMENTS
Section 1. Amendments of Certificate of Incorporation. In
addition to any affirmative vote required by applicable law and any voting
rights granted to or held by holders of any Series of Preferred Stock, any
alteration, amendment, repeal or rescission (collectively, any "Change") of any
provision of this Certificate of Incorporation must be approved by a majority of
the directors of the Corporation then in office and by the affirmative vote of
the holders of a majority (or such greater proportion as may otherwise be
required pursuant to any specific provision of this Certificate of
Incorporation) of the total votes eligible to be cast by the holders of all
outstanding shares of Capital Stock entitled to vote thereon; provided, however,
that if any such Change relates to Section 13 of Article XI or Articles V, VI,
VII or XII of this Certificate of Incorporation, such Change must also be
approved either (i) by not less than a majority of the authorized number of
directors and, if one or more Interested Stockholders (as defined in Article
VIII hereof) exist, by not less than a majority of the Disinterested Directors
(as defined in Article VIII hereof), or (ii) by the affirmative vote of the
holders of not less than two-thirds of the total votes eligible to be cast by
the holders of all outstanding shares of Capital Stock entitled to vote thereon
and, if the Change is proposed by or on behalf of an Interested Stockholder or a
director who is an Affiliate or Associate (as such terms are defined in Article
VIII hereof) of an Interested Stockholder, by the affirmative vote of the
holders of not less than a majority of the total votes eligible to be cast by
holders of all outstanding shares of Capital Stock entitled to vote thereon not
beneficially owned by an Interested Stockholder or an Affiliate or Associate
thereof. Notwithstanding the foregoing, any provision of the Certificate of
Incorporation that contains a supermajority voting requirement shall only be
altered, amended, rescinded, or repealed by a vote of the Board or holders of
shares of Capital Stock entitled to vote thereon that is not less than the
supermajority specified in such provision. Subject to the foregoing, the
Corporation reserves the right to amend this Certificate of Incorporation from
time to time in any and as many respects as may be desired and as may be
lawfully contained in an original certificate of incorporation filed at the time
of making such amendment.
Except as may otherwise be provided in this Certificate of
Incorporation, the Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and to add or insert herein any other provisions
authorized by the laws of the State of Delaware at the time in force, in the
manner now or hereafter prescribed by law, and all rights, preferences and
privileges of any nature conferred upon stockholders, directors or any other
persons whomsoever by and pursuant to this Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this Section 1.
Section 2. Amendments of Bylaws. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors of the
Corporation is expressly authorized to make, alter, amend, rescind or repeal
from time to time any of the Bylaws of the Corporation in accordance with the
terms thereof; provided, however, that any Bylaw made by the Board may be
altered, amended, rescinded, or repealed in accordance with the terms thereof by
the holders of shares of Capital Stock entitled to vote thereon at any annual
meeting or at any special meeting called for that purpose. Notwithstanding the
foregoing, any
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provision of the Bylaws that contains a supermajority voting requirement shall
only be altered, amended, rescinded, or repealed by a vote of the Board or
holders of shares of Capital Stock entitled to vote thereon that is not less
than the supermajority specified in such provision.
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<PAGE>
ARTICLE XII
NOTICES
-------
The name and mailing address of the incorporator of this
Corporation is:
Falmouth Co-operative Bank
20 Davis Straits
Falmouth, Massachusetts 02540
Falmouth Co-operative Bank caused this Certificate of
Incorporation to be signed by Santo P. Pasqualucci, President and Chief
Executive Officer, and attested to by John A. DeMello, Clerk of Falmouth
Co-operative Bank, this 25th day of November, 1996.
FALMOUTH CO-OPERATIVE BANK
By: /s/ Santo P. Pasqualucci
----------------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
Attest:
/s/ John A. DeMello
- - -----------------------------------------
John A. DeMello
Clerk
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<PAGE>
APPENDIX F
================================================================================
BYLAWS
OF
FALMOUTH BANCORP, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
OFFICES................................ 1
Section I Registered Office........................................ 1
Section II Additional Offices....................................... 1
ARTICLE II
STOCKHOLDERS.............................. 1
Section I Place of Meetings........................................ 1
Section II Annual Meetings.......................................... 1
Section III Special Meetings......................................... 1
Section IV Notice of Meetings....................................... 1
Section V Waiver of Notice......................................... 2
Section VI Fixing of Record Date.................................... 2
Section VII Quorum................................................... 2
Section VIII Conduct of Meetings...................................... 2
Section IX Voting; Proxies.......................................... 3
Section X Inspectors of Election................................... 3
Section XI Procedure for Nominations................................ 3
Section XII Substitution of Nominees................................. 4
Section XIII New Business............................................. 4
ARTICLE III
CAPITAL STOCK............................. 5
Section I Certificates of Stock.................................... 5
Section II Transfer Agent and Registrar............................. 6
Section III Registration and Transfer of Shares...................... 6
Section IV Lost, Destroyed and Mutilated Certificates............... 6
Section V Holder of Record......................................... 6
ARTICLE IV
BOARD OF DIRECTORS........................... 6
Section I Responsibilities; Number of Directors.................... 6
Section II Qualifications........................................... 7
Section III Regular and Annual Meetings.............................. 7
Section IV Special Meetings......................................... 7
Section V Notice of Meetings; Waiver of Notice..................... 7
Section VI Conduct of Meetings...................................... 7
Section VII Quorum and Voting Requirements........................... 7
Section VIII Informal Action by Directors............................. 8
Section IX Resignation.............................................. 8
Section X Vacancies................................................ 8
Section XI Compensation............................................. 8
Section XII Amendments Concerning the Board.......................... 8
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Page
ARTICLE V
COMMITTEES............................... 8
Section I Standing Committees...................................... 8
Section II Nominating Committee..................................... 9
Section III Other Committees......................................... 9
ARTICLE VI
OFFICERS................................ 9
Section I Number................................................... 9
Section II Term of Office and Removal............................... 9
Section III President and Chief Executive Officer.................... 9
Section IV Vice Presidents.......................................... 10
Section V Treasurer................................................ 10
Section VI Secretary................................................ 10
Section VII Other Officers and Employees............................. 10
Section VIII Compensation of Officers and Others...................... 10
ARTICLE VII
DIVIDENDS............................... 10
ARTICLE VIII
AMENDMENTS............................... 11
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BYLAWS
OF
FALMOUTH BANCORP, INC.
ARTICLE I
OFFICES
Section I Registered Office. The registered office of Falmouth
Bancorp, Inc. (the "Corporation") in the State of Delaware shall be in the City
of Wilmington, County of New Castle.
Section II Additional Offices. The Corporation may also have
offices and places of business at such other places, within or without the State
of Delaware, as the Board of Directors (the "Board") may from time to time
designate or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section I Place of Meetings. Meetings of stockholders of the
Corporation shall be held at such place, within or without the State of
Delaware, as may be fixed by the Board and designated in the notice of meeting.
If no place is so fixed, they shall be held at the principal administrative
office of the Corporation.
Section II Annual Meetings. The annual meeting of stockholders
of the Corporation for the election of directors and the transaction of any
other business which may properly come before such meeting shall be held each
year on the third Tuesday in January at 5:00 p.m., unless a different hour or
place is designated by the Board.
Section III Special Meetings. Special meetings of
stockholders, for any purpose, may be called at any time only by the Chairman of
the Board, the President and Chief Executive Officer or by resolution of at
least three-fourths of the directors then in office. Special meetings shall be
held on the date and at the time and place as may be designated by the Board. At
a special meeting, no business shall be transacted and no corporate action shall
be taken other than that stated in the notice of meeting.
Section IV Notice of Meetings. Except as otherwise required by
law, written notice stating the place, date and hour of any meeting of
stockholders and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered to each stockholder of record
entitled to vote at such meeting, either personally or by mail not less than ten
(10) nor more than sixty (60) days before the date of such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the U.S. mail,
with postage thereon prepaid, addressed to the stockholder at his or her address
as it appears on the stock transfer books or records of the Corporation as of
the record date prescribed in Section 6 of this Article II, or at such other
address as the stockholder shall have furnished in writing to the Secretary.
Notice of any special meeting shall indicate that the notice is being issued by
or at the direction of the person or persons calling such meeting. When any
meeting of stockholders, either annual or special, is adjourned to another time
or place, no notice of the adjourned meeting need be given, other than an
announcement at the
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meeting at which such adjournment is taken giving the time and place to which
the meeting is adjourned; provided, however, that if the adjournment is for more
than thirty (30) days, or if after adjournment, the Board fixes a new record
date for the adjourned meeting, notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
Section V Waiver of Notice. Notice of any annual or special
meeting need not be given to any stockholder who submits a signed waiver of
notice of any meeting, in person or by proxy or by his or her duly authorized
attorney-in-fact, whether before or after the meeting. The attendance of any
stockholder at a meeting, in person or by proxy, shall constitute a waiver of
notice by such stockholder, except where a stockholder attends a meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
Section VI Fixing of Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or stockholders entitled to receive
payment of any dividend or other distribution or the allotment of any rights, or
in order to make a determination of stockholders for any other proper purpose,
the Board shall fix a date as the record date for any such determination of
stockholders, which date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board. Such date in any case shall be
not more than sixty (60) days and, in the case of a meeting of stockholders, not
less than ten (10) days prior to the date on which the particular action
requiring such determination of stockholders is to be taken. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this Section 6, such determination shall, unless
otherwise provided by the Board, also apply to any adjournment thereof. If no
record date is fixed, (a) the record date for determining stockholders entitled
to notice of or vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which the notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and (b) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section VII Quorum. The holders of record of a majority of the
total number of votes eligible to be cast in the election of directors generally
by the holders of the outstanding shares of the capital stock of the Corporation
entitled to vote thereat, represented in person or by proxy, shall constitute a
quorum for the transaction of business at a meeting of stockholders, except as
otherwise provided by law, these Bylaws or the Certificate of Incorporation. If
less than a majority of such total number of votes are represented at a meeting,
a majority of the number of votes so represented may adjourn the meeting from
time to time without further notice, provided, that if such adjournment is for
more than thirty days, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned meeting
at which a quorum is present, any business may be transacted that might have
been transacted at the meeting as originally called. When a quorum is once
present to organize a meeting of stockholders, such quorum is not broken by the
subsequent withdrawal of any stockholders.
Section VIII Conduct of Meetings. The President shall serve as
chairman at all meetings of the stockholders. If the President is absent or
otherwise unable to so serve, the ranking Vice-President shall serve as chairman
at any meeting of stockholders held in such absence. If both the President and
the ranking Vice-President are absent or otherwise unable to serve, such other
person as shall be appointed by the Board of Directors shall serve as chairman
at any meeting of stockholders held in such absence. The Secretary or, in his or
her absence, such other person as the chairman of the meeting shall appoint,
shall serve as secretary of the meeting. The chairman of the meeting shall
conduct all meetings of the stockholders in accordance with the best interests
of the Corporation and shall have the authority and discretion to establish
reasonable procedural rules for the conduct of such meetings, including such
regulation of the manner of voting and the conduct of discussion as he or she
shall deem appropriate.
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Section IX Voting; Proxies. Each stockholder entitled to vote
at any meeting may vote either in person or by proxy. Unless otherwise specified
in the Certificate of Incorporation or in a resolution, or resolutions, of the
Board providing for the issuance of preferred stock, each stockholder entitled
to vote shall be entitled to one vote for each share of capital stock registered
in his or her name on the transfer books or records of the Corporation. Each
stockholder entitled to vote may authorize another person or persons to act for
him or her by proxy. All proxies shall be in writing, signed by the stockholder
or by his or her duly authorized attorney-in-fact, and shall be filed with the
Secretary before being voted. No proxy shall be valid after three (3) years from
the date of its execution unless otherwise provided in the proxy. The attendance
at any meeting by a stockholder who shall have previously given a proxy
applicable thereto shall not, as such, have the effect of revoking the proxy.
The Corporation may treat any duly executed proxy as not revoked and in full
force and effect until it receives a duly executed instrument revoking it, or a
duly executed proxy bearing a later date. If ownership of a share of voting
stock of the Corporation stands in the name of two or more persons, in the
absence of written directions to the Corporation to the contrary, any one or
more of such stockholders may cast all votes to which such ownership is
entitled. If an attempt is made to cast conflicting votes by the several persons
in whose names shares of stock stand, the vote or votes to which those persons
are entitled shall be cast as directed by a majority of those holding such stock
and present at such meeting. If such conflicting votes are evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery or such other court as may have jurisdiction to
appoint an additional person to act with the persons so voting the shares, which
shall then be voted as determined by a majority of such persons and the person
appointed by the Court. Except for the election of directors or as otherwise
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of stockholders, all matters shall be determined by a vote of the
holders of a majority of the number of votes eligible to be cast by the holders
of the outstanding shares of capital stock of the Corporation present and
entitled to vote thereat. Directors shall, except as otherwise required by law,
these Bylaws or the Certificate of Incorporation, be elected by a plurality of
the votes cast by each class of shares entitled to vote at a meeting of
stockholders, present and entitled to vote in the election.
Section X Inspectors of Election. In advance of any meeting of
stockholders, the Board shall appoint one or more persons, other than officers,
directors or nominees for office, as inspectors of election to act at such
meeting or any adjournment thereof. Such appointment shall not be altered at the
meeting. If inspectors of election are not so appointed, the chairman of the
meeting shall make such appointment at the meeting. If any person appointed as
inspector fails to appear or fails or refuses to act at the meeting, the vacancy
so created may be filled by appointment by the Board in advance of the meeting
or at the meeting by the chairman of the meeting. The duties of the inspectors
of election shall include determining the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, receiving votes, ballots or
consents, hearing and deciding all challenges and questions arising in
connection with the right to vote, counting and tabulating all votes, ballots or
consents, determining the results, and doing such acts as are proper to the
conduct of the election or the vote with fairness to all stockholders. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them. Each inspector shall be entitled to
a reasonable compensation for his or her services, to be paid by the
Corporation.
Section XI Procedure for Nominations. Subject to the
provisions hereof, the Board of Directors shall act as a Nominating Committee to
select nominees for election as directors. Except in the case of a nominee
substituted as a result of the death, incapacity, withdrawal or other inability
to serve of a nominee, the Nominating Committee shall deliver written
nominations to the Secretary at least twenty (20) days prior to the date of the
annual meeting. Provided the Nominating Committee makes such nominations, no
nominations for directors except those made by the Nominating Committee shall be
voted upon at the annual meeting of stockholders unless other nominations by
stockholders are made in accordance with the provisions of this Section 11.
Nominations of individuals for election to the Board at a meeting of
stockholders may be made by any stockholder of record of the Corporation
entitled to vote for the election of directors at such
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meeting who provides timely notice in writing to the Secretary as set forth in
this Section 11. To be timely, a stockholder's notice must be delivered to or
received by the Secretary not later than the following dates: (i) with respect
to an election of directors to be held at an annual meeting of stockholders,
sixty (60) days in advance of such meeting if such meeting is to be held on a
day which is within thirty (30) days preceding the anniversary of the previous
year's annual meeting, or ninety (90) days in advance of such meeting if such
meeting is to be held on or after the anniversary of the previous year's annual
meeting; and (ii) with respect to an election to be held at an annual meeting of
stockholders held at a time other than within the time periods set forth in the
immediately preceding clause (i), or at a special meeting of stockholders for
the election of directors, the close of business on the tenth (10th) day
following the date on which notice of such meeting is first given to
stockholders. For purposes of this Section 11, notice shall be deemed to first
be given to stockholders when disclosure of such date of the meeting of
stockholders is first made in a press release reported to Dow Jones News
Services, Associated Press or comparable national news service, or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as
amended. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) such person's
written consent to serve as a director, if elected, and (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission (whether or not the Corporation is
then subject to such rules); and (b) as to the stockholder giving the notice (i)
the name and address of such stockholder, (ii) the class and number of shares of
the Corporation which are owned of record by such stockholder and the dates upon
which he or she acquired such shares, (iii) a description of all arrangements or
understandings between the stockholder and nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (iv) the identification of any person employed,
retained, or to be compensated by the stockholder submitting the nomination or
by the person nominated, or any person acting on his or her behalf to make
solicitations or recommendations to stockholders for the purpose of assisting in
the election of such director, and a brief description of the terms of such
employment, retainer or arrangement for compensation. At the request of the
Board, any person nominated by the Board for election as a director shall
furnish to the Secretary that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee together with
the required written consent. No person shall be elected as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 11.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not properly brought
before the meeting in accordance with the provisions hereof and, if he should so
determine, he shall declare to the meeting that such nomination was not properly
brought before the meeting and shall not be considered.
Section XII Substitution of Nominees. In the event that a
person is validly designated as a nominee in accordance with Section 11 of this
Article II and shall thereafter become unwilling or unable to stand for election
to the Board, the Nominating Committee may designate a substitute nominee upon
delivery, not fewer than five (5) days prior to the date of the meeting for the
election of such nominee, of a written notice to the Secretary setting forth
such information regarding such substitute nominee as would have been required
to be delivered to the Secretary pursuant to Section 11 of this Article II had
such substitute nominee been initially proposed as a nominee. Such notice shall
include a signed consent to serve as a director of the Corporation, if elected,
of each such substituted nominee.
Section XIII New Business. Any new business to be taken up at
the annual meeting at the request of the Chairman of the Board, the President
and Chief Executive Officer or by resolution of at least three-fourths of the
directors then in office shall be stated in writing and filed with the Secretary
at least fifteen (15) days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting, but, except as provided in this Section 13, no other proposal shall be
acted upon
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at the annual meeting. Any proposal offered by any stockholder may be made at
the annual meeting and the same may be discussed and considered, but unless
properly brought before the meeting such proposal shall not be acted upon at the
meeting. For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must be a stockholder of record and have given
timely notice thereof in writing to the Secretary. To be timely, a stockholder's
notice must be delivered to or received by the Secretary not later than the
following dates: (i) with respect to an annual meeting of stockholders, sixty
(60) days in advance of such meeting if such meeting is to be held on a day
which is within thirty (30) days preceding the anniversary of the previous
year's annual meeting, or ninety (90) days in advance of such meeting if such
meeting is to be held on or after the anniversary of the previous year's annual
meeting; and (ii) with respect to an annual meeting of stockholders held at a
time other than within the time periods set forth in the immediately preceding
clause (i), the close of business on the tenth (10th) day following the date on
which notice of such meeting is first given to stockholders. For purposes of
this Section 13, notice shall be deemed to first be given to stockholders when
disclosure of such date of the meeting of stockholders is first made in a press
release reported to Dow Jones News Services, Associated Press or comparable
national news service, or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended. A stockholder's notice to the
Secretary shall set forth as to the matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting; (b) the name and address of the stockholder
proposing such business; (c) the class and number of shares of the Corporation
which are owned of record by the stockholder and the dates upon which he or she
acquired such shares; (d) the identification of any person employed, retained,
or to be compensated by the stockholder submitting the proposal, or any person
acting on his or her behalf, to make solicitations or recommendations to
stockholders for the purpose of assisting in the passage of such proposal, and a
brief description of the terms of such employment, retainer or arrangement for
compensation; and (e) such other information regarding such proposal as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission or required to be delivered to the
Corporation pursuant to the proxy rules of the Securities and Exchange
Commission (whether or not the Corporation is then subject to such rules). This
provision shall not prevent the consideration and approval or disapproval at an
annual meeting of reports of officers, directors and committees of the Board or
the management of the Corporation, but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided. This provision shall not constitute a waiver of any right of
the Corporation under the proxy rules of the Securities and Exchange Commission
or any other rule or regulation to omit a stockhol- der's proposal from the
Corporation's proxy materials.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that any new business was not properly
brought before the meeting in accordance with the provisions hereof and, if he
should so determine, he shall declare to the meeting that such new business was
not properly brought before the meeting and shall not be considered.
ARTICLE III
CAPITAL STOCK
Section I Certificates of Stock. Certificates representing
shares of stock shall be in such form as shall be determined by the Board. Each
certificate shall state that the Corporation will furnish to any stockholder
upon request and without charge a statement of the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each class or series of stock and the qualifications or restrictions
of such preferences and/or rights, or shall set forth such statement on the
certificate itself. The certificates shall be numbered in the order of their
issue and entered in the books of the Corporation or its transfer agent or
agents as they are issued. Each certificate shall state the registered
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<PAGE>
holder's name and the number and class of shares, and shall be signed by the
Chairman of the Board or the President and Chief Executive Officer, and the
Secretary or any Assistant Secretary, and may, but need not, bear the seal of
the Corporation or a facsimile thereof. Any or all of the signatures on the
certificates may be facsimiles. In case any officer who shall have signed any
such certificate shall cease to be such officer of the Corporation, whether
because of death, resignation or otherwise, before such certificate shall have
been delivered by the Corporation, such certificate may nevertheless be adopted
by the Corporation and be issued and delivered as though the person or persons
who signed such certificate or certificates had not ceased to be such officer or
officers of the Corporation.
Section II Transfer Agent and Registrar. The Board shall have
the power to appoint one or more Transfer Agents and Registrars for the transfer
and registration of certificates of stock of any class, and may require that
stock certificates be countersigned and registered by one or more of such
Transfer Agents and Registrars.
Section III Registration and Transfer of Shares. Subject to
the provisions of the Certificate of Incorporation of the Corporation, the name
of each person owning a share of the capital stock of the Corporation shall be
entered on the books of the Corporation together with the number of shares held
by him or her, the numbers of the certificates covering such shares and the
dates of issue of such certificates. Subject to the provisions of the
Certificate of Incorporation of the Corporation, the shares of stock of the
Corporation shall be transferable on the books of the Corporation by the holders
thereof in person, or by their duly authorized attorneys or legal
representatives, on surrender and cancellation of certificates for a like number
of shares, accompanied by an assignment or power of transfer endorsed thereon or
attached thereto, duly executed, with such guarantee or proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require and with proper evidence of payment of any applicable transfer taxes.
Subject to the provisions of the Certificate of Incorporation of the
Corporation, a record shall be made of each transfer.
Section IV Lost, Destroyed and Mutilated Certificates. The
holder of any shares of stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificates
therefor. The Corporation may issue, or cause to be issued, a new certificate of
stock in the place of any certificate theretofore issued by it alleged to have
been lost, stolen or destroyed upon evidence satisfactory to the Corporation of
the loss, theft or destruction of the certificate, and in the case of
mutilation, the surrender of the mutilated certificate. The Corporation may, in
its discretion, require the owner of the lost, stolen or destroyed certificate,
or his or her legal representatives, to give the Corporation a bond sufficient
to indemnify it against any claim that may be made against it on account of the
alleged loss, theft, destruction or mutilation of any such certificate and the
issuance of such new certificate, or may refer such owner to such remedy or
remedies as he or she may have under the laws of the State of Delaware.
Section V Holder of Record. Subject to the provisions of the
Certificate of Incorporation of the Corporation, the Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder thereof in fact and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
ARTICLE IV
BOARD OF DIRECTORS
Section I Responsibilities; Number of Directors. The business
and affairs of the Corporation shall be under the direction of the Board. The
Board shall consist of not less than seven (7) nor more than twenty-five (25)
directors. Within the foregoing limits, the number of directors shall be
determined only by resolution of the Board. A minimum of three (3) directors
shall be persons other than officers or employees of the Corporation or its
subsidiaries and shall not have a relationship which, in the opinion of the
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Board (exclusive of such persons), could interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. No more
than two directors shall be officers or employees of the Corporation or its
subsidiaries.
Section II Qualifications. Each director shall be at least
eighteen (18) years of age.
Section III Regular and Annual Meetings. An annual meeting of
the Board for the election of officers shall be held, without notice other than
these Bylaws, immediately after, and at the same place as, the annual meeting of
the stockholders, or, with notice, at such other time or place as the Board may
fix by resolution. The Board may provide, by resolution, the time and place,
within or without the State of Delaware, for the holding of regular meetings of
the Board without notice other than such resolution.
Section IV Special Meetings. Special meetings of the Board may
be called for any purpose at any time by or at the request of the Chairman of
the Board or the President and Chief Executive Officer. Special meetings of the
Board shall also be called by the Secretary upon the written request, stating
the purpose or purposes of the meeting, of at least a majority of the directors
then in office. The persons authorized to call special meetings of the Board
shall give notice of such meetings in the manner prescribed by these Bylaws and
may fix any place, within or without the Corporation's regular business area, as
the place for holding any special meeting of the Board called by such persons.
No business shall be conducted at a special meeting other than that specified in
the notice of meeting.
Section V Notice of Meetings; Waiver of Notice. Except as
otherwise provided in Section 4 of this Article IV, at least twenty-four (24)
hours notice of meetings shall be given to each director if given in person, by
same-day courier or by telephone, telegraph, telex, facsimile or other
electronic transmission and at least five (5) days notice of meetings shall be
given if given in writing and delivered by courier (other than same-day) or by
postage prepaid mail. The purpose of any special meeting shall be stated in the
notice. Such notice shall be deemed given when sent or given to any mail or
courier service (other than same-day) or company providing electronic
transmission service. Any director may waive notice of any meeting by submitting
a signed waiver of notice with the Secretary, whether before or after the
meeting. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
Section VI Conduct of Meetings. Meetings of the Board shall be
presided over by the President, and in the absence or incapacity of the
President, the presiding officer shall be the ranking Vice- President. In the
absence or disability of both the President and the ranking Vice-President, a
majority of the entire Board shall designate a director who shall preside over
meetings of the Board. The Secretary or, in his absence, a person appointed by
the President (or other presiding person), shall act as secretary of the
meeting. The President (or other person presiding) shall conduct all meetings of
the Board in accordance with the best interests of the Corporation and shall
have the authority and discretion to establish reasonable procedural rules for
the conduct of Board meetings. At the discretion of the President, any one or
more directors may participate in a meeting of the Board or a committee of the
Board by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at any
such meeting.
Section VII Quorum and Voting Requirements. A quorum at any
meeting of the Board shall consist of not less than a majority of the directors
then in office or such greater number as shall be required by law, these Bylaws
or the Certificate of Incorporation, but not less than one-third (1/3) of the
total number. If less than a required quorum is present, the majority of those
directors present shall adjourn the meeting to another time and place without
further notice. At such adjourned meeting at which a quorum shall be
represented, any business may be transacted that might have been transacted at
the meeting as originally
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<PAGE>
noticed. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, a majority vote of the directors present at a meeting, if a
quorum is present, shall constitute an act of the Board.
Section VIII Informal Action by Directors. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
Section IX Resignation. Any director may resign at any time by
sending a written notice of such resignation to the principal office of the
Corporation addressed to the Chairman of the Board or the President and Chief
Executive Officer. Unless otherwise specified therein, such resignation shall
take effect upon receipt thereof.
Section X Vacancies. To the extent not inconsistent with the
Certificate of Incorporation and subject to the limitations prescribed by law
and the rights of holders of Preferred Stock, vacancies in the office of
director, including vacancies created by newly created directorships resulting
from an increase in the number of directors, shall be filled only by a vote of a
majority of the directors then holding office, whether or not a quorum, at any
regular or special meeting of the Board called for that purpose. Subject to the
rights of holders of Preferred Stock, no person shall be so elected a director
unless nominated by the Nominating Committee. Subject to the rights of holders
of Preferred Stock, any director so elected shall serve for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until his or her successor shall be elected and
qualified.
Section XI Compensation. From time to time, as the Board deems
necessary, the Board shall fix the compensation of directors and officers of the
Corporation in such one or more forms as the Board may determine.
Section XII Amendments Concerning the Board. The number of
directors and other restrictions and qualifications for directors of the
Corporation as set forth in these Bylaws may be altered only by a vote, in
addition to any vote required by law, of two-thirds of the entire Board or by
the affirmative vote of the holders of record of not less than eighty percent
(80%) of the total votes eligible to be cast by holders of all outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors at a meeting of the stockholders called for that purpose.
ARTICLE V
COMMITTEES
Section I Standing Committees. At each annual meeting of the
Board, upon recommendation by the Chairman of the Board, the directors shall
designate from their own number, by resolution, the following committees:
(a) Executive Committee
(b) Audit Committee
(c) Compensation Committee
(d) Nominating Committee
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<PAGE>
which shall be standing committees of the Board. The Chairman of the Board shall
appoint a director to fill any vacancy on any committee of the Board. The
members of the committees shall serve at the pleasure of the Board.
Section II Nominating Committee. The Board of Directors shall
act as the Nominating Committee for selecting nominees for election as
directors. Notwithstanding the foregoing, no director shall serve on the
Nominating Committee in any capacity in any year during which such director's
term as a director is scheduled to expire. The Nominating Committee shall review
qualifications of and interview candidates for the Board and shall make
nominations for election of board members in accordance with the provisions of
these Bylaws in relation to those suggestions to the Board. The Chairman of the
Board shall designate one member of the Committee to serve as chairman of the
Nominating Committee. A quorum shall consist of at least a majority of the
members of the Committee.
Section III Other Committees. The Board may by resolution
authorize such other committees as from time to time it may deem necessary or
appropriate for the conduct of the business of the Corporation. The members of
each committee so authorized shall be appointed by the Board from members of the
Board and/or employees of the Corporation. Each such committee shall exercise
such powers as may be assigned by the Board to the extent not inconsistent with
law, these Bylaws, the Certificate of Incorporation, or resolutions of the
Board.
ARTICLE VI
OFFICERS
Section I Number. The Board shall, at each annual meeting,
elect a Chairman of the Board, a President and Chief Executive Officer, a
Secretary and may elect a Vice Chairman, one or more Vice Presidents and such
other officers as the Board from time to time may deem necessary or the business
of the Corporation may require. Any number of offices may be held by the same
person except that no person may simultaneously hold the offices of President
and Chief Executive Officer and Secretary.
The election of all officers shall be by a majority of the
directors then in office. If such election is not held at the meeting held
annually for the election of officers, such officers may be so elected at any
subsequent regular meeting or at a special meeting called for that purpose, in
the same manner above provided. Each person elected shall have such authority,
bear such title and perform such duties as provided in these Bylaws and as the
Board may prescribe from time to time. All officers elected or appointed by the
Board shall assume their duties immediately upon their election and shall hold
office at the pleasure of the Board. Whenever a vacancy occurs among the
officers, it may be filled at any regular or special meeting called for that
purpose, in the same manner as above provided.
Section II Term of Office and Removal. Each officer shall
serve until his or her successor is elected and duly qualified, the office is
abolished, or he or she is removed. Except for the Chairman of the Board, the
President and Chief Executive Officer, any officer may be removed at any regular
meeting of the Board with or without cause by an affirmative vote of a majority
of the directors then in office. The Board may remove the Chairman of the Board
or the President and Chief Executive Officer at any time, with or without cause,
only by the unanimous vote of the non-officer directors then holding office at
any regular or special meeting of the Board called for that purpose.
Section III President and Chief Executive Officer. The
President shall be the Chief Executive Officer of the Corporation and shall,
subject to the direction of the Board, oversee all the major activities of the
Corporation and its subsidiaries and be responsible for assuring that the policy
decisions of the Board are implemented as formulated. The President and Chief
Executive Officer shall be responsible, in consultation with such Officers and
members of the Board as he deems appropriate, for planning the growth
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<PAGE>
of the Corporation. The President and Chief Executive Officer shall be
responsible for stockholder relations and relations with investment bankers or
other similar financial institutions, and shall be empowered to designate
officers of the Corporation and its subsidiaries to assist in such activities.
The President and Chief Executive Officer shall be principally responsible for
exploring and reporting to the Board all opportunities for mergers, acquisitions
and new business. The President and Chief Executive Officer, under authority
given to him, shall have the authority to sign instruments in the name of the
Corporation. The President and Chief Executive Officer shall have general
supervision and direction of all of the Corporation's officers and personnel,
subject to and consistent with policies enunciated by the Board. Unless
otherwise provided by the Board, the President and Chief Executive Officer shall
preside as Chairman, when present, at all meetings of stockholders and of the
Board. The President and Chief Executive Officer shall have such other powers as
may be assigned to him by the Board or its committees.
Section IV Vice Presidents. Vice Presidents may be appointed
by the Board of Directors to perform such duties as may be prescribed by these
Bylaws, the Board or the President and Chief Executive Officer as permitted by
the Board.
Section V Treasurer. The Treasurer shall be the chief
accounting officer of the Corporation and shall be responsible for the
maintenance of adequate systems and records. The Treasurer shall also keep a
record of all assets, liabilities, receipts, disbursements, and other financial
transactions, and shall see that all expenditures are made in accordance with
procedures duly established from time to time by the Board. The Treasurer shall
make such reports as may be required by the Board or as are required by law.
Section VI Secretary. The Secretary shall attend all meetings
of the Board and of the stockholders, and shall record, or cause to be recorded,
all votes and minutes of all proceedings of the Board and of the stockholders in
a book or books to be kept for that purpose. The Secretary shall perform such
executive and administrative duties as may be assigned by the Board, the
Chairman of the Board or the President and Chief Executive Officer. The
Secretary shall have charge of the seal of the Corporation, shall submit such
reports and statements as may be required by law or by the Board, shall conduct
all correspondence relating to the Board and its proceedings and shall have such
other powers and duties as are generally incident to the office of Secretary and
as may be assigned to him or her by the Board, the Chairman of the Board or the
President and Chief Executive Officer.
Section VII Other Officers and Employees. Other officers and
employees appointed by the Board shall have such authority and shall perform
such duties as may be assigned to them, from time to time, by the Board or the
President and Chief Executive Officer.
Section VIII Compensation of Officers and Others. The
compensation of all officers and employees shall be fixed from time to time by
the Board, or by any committee or officer authorized by the Board to do so, upon
the recommendation and report by the Compensation Committee. The compensation of
agents shall be fixed by the Board, or by any committee or officer authorized by
the Board to do so, upon the recommendation and report of the Compensation
Committee.
ARTICLE VII
DIVIDENDS
The Board shall have the power, subject to the provisions of
law and the requirements of the Certificate of Incorporation, to declare and pay
dividends out of surplus (or, if no surplus exists, out of net profits of the
Corporation, for the fiscal year in which the dividend is declared and/or the
preceding fiscal year, except where there is an impairment of capital stock), to
pay such dividends to the stockholders in cash, in property, or in shares of the
capital stock of the Corporation, and to fix the date or dates for the payment
of such dividends.
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ARTICLE VIII
AMENDMENTS
These Bylaws, except as provided by applicable law or the
Certificate of Incorporation, or as otherwise set forth in these Bylaws, may be
amended or repealed at any regular meeting of the entire Board by the vote of
two-thirds of the Board; provided, however, that (a) a notice specifying the
change or amendment shall have been given at a previous regular meeting and
entered in the minutes of the Board; (b) a written statement describing the
change or amendment shall be made in the notice mailed to the directors of the
meeting at which the change or amendment shall be acted upon; and (c) any Bylaw
made by the Board may be altered, amended, rescinded, or repealed by the holders
of shares of capital stock entitled to vote thereon at any annual meeting or at
any special meeting called for that purpose in accordance with the percentage
requirements set forth in the Certificate of Incorporation and/or these Bylaws.
Notwithstanding the foregoing, any provision of these Bylaws that contains a
supermajority voting requirement shall only be altered, amended, rescinded, or
repealed by a vote of the Board or holders of capital stock entitled to vote
thereon that is not less than the supermajority specified in such provision.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Similar indemnity is authorized for such person against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the shareholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
Article X of the Company's Certificate of Incorporation provides that a
director shall not be personally liable to the Company or its stockholders for
damages for breach of his fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is expressly prohibited by
the DGCL. Article XI of the Company's Certificate of Incorporation requires the
Company, among other things, to indemnify to the fullest extent permitted by the
DGCL, any person who is or was or has agreed to become a director or officer of
the Company, who was or is made a party to, or is threatened to be made a party
to, or has become a witness in, any threatened, pending or completed action,
suit or proceeding, including actions or suits by or in the right of the
Company, by reason of such agreement or service or the fact that such person is,
was or has agreed to serve as a director, officer, employee or agent of another
corporation or organization at the written request of the Company.
Article XI also empowers the Company to purchase and maintain insurance to
protect itself and its directors and officers, and those who were or have agreed
to become directors or officers, against any liability, regardless of whether or
not the Company would have the power to indemnify those persons against such
liability under the law or the provisions set forth in the Certificate of
Incorporation. The Company is also authorized by its Certificate of
Incorporation to enter into individual indemnification contracts with directors
and officers. The Bank currently maintains and the Company expects to purchase
directors' and officers' liability insurance consistent with the provisions of
the Certificate of Incorporation as soon as practicable.
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Item 21. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits. (Filed herewith unless otherwise noted.)
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - ----------- ----------- --------
<S> <C>
2.1 Agreement and Plan of Reorganization by and among Falmouth Co-operative Bank and
Falmouth Bancorp, Inc. (included as Appendix C to the Proxy Statement-Prospectus)
3.1 Certificate of Incorporation of Falmouth Bancorp, Inc. (included as Appendix E to the
Proxy Statement-Prospectus)*
3.2 Bylaws of Falmouth Bancorp, Inc. (included as Appendix F to the Proxy Statement-
Prospectus)
3.3 Charter of Falmouth Co-operative Bank
3.4 Bylaws of Falmouth Co-operative Bank
4.1 Form of Stock Certificate of Falmouth Bancorp, Inc.
5.1 Opinion of Thacher Proffitt & Wood re: legality*
8.1 Opinion of Thacher Proffitt & Wood re: federal tax matters*
8.2 Opinion of John P. Conroy, P.C. re: Massachusetts tax matters*
10.1 1997 Stock Option Plan for Outside Directors, Officers and Employees of Falmouth
Co-operative Bank (included as Appendix A to the Proxy Statement-Prospectus)
10.2 1997 Recognition and Retention Plan for Outside Directors, Officers and Employees
of Falmouth Co-operative Bank (included as Appendix B to the Proxy Statement-
Prospectus)
10.3 Employment Agreement by and between Falmouth Co-operative Bank and Santo
Pasqualucci, effective as of March 27, 1996
10.4 Employment Agreement by and between Falmouth Co-operative Bank and George
Young, effective as of March 27, 1996
10.5 Falmouth Co-operative Bank Employee Stock Ownership Plan, effective as of March
28, 1996
10.6 Falmouth Co-operative Bank Employee Stock Ownership Trust, effective as of March
28, 1996
16.1 Letter regarding Change in Certifying Accountant
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and 8.1 to this
Registration Statement)*
23.2 Consent of Shatswell MacLeod & Co., P.C.
23.3 Consent of Keith Hersey Sheehan Benoit Dempsey & Oman, P.C.
27.1 Financial Data Schedule (only filed in EDGAR format)*
- - -----------------
*To be filed by amendment.
</TABLE>
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<PAGE>
(b) Financial Statement Schedules.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes as follows:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Falmouth, State of Massachusetts, on November 26,
1996.
Falmouth Bancorp, Inc.
By: /s/ Santo P. Pasqualucci
----------------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Santo P. Pasqualucci and Richard A. Schaberg as
their true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign the Form S-4 Registration Statement
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
and any rules and regulations promulgated thereunder, this Registration
Statement, or amendment thereto, has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Santo P. Pasqualucci Director, President and Chief November 26, 1996
- - ------------------------ Executive Officer
Santo P. Pasqualucci (Principal executive officer)
/s/ George E. Young, III Vice President and Treasurer November 26, 1996
- - ----------------------- (Principal financial officer)
George E. Young, III
/s/ John W. Holland, Jr. Director November 26, 1996
- - ----------------------
John W. Holland, Jr.
/s/ James A. Keefe Director November 26, 1996
- - ------------------
James A. Keefe
/s/ Gardner L. Lewis Director November 26, 1996
- - --------------------
Gardner L. Lewis
/s/ John J. Lynch, Jr. Director November 26, 1996
- - ---------------------
John J. Lynch, Jr.
/s/ Ronald L. McLane Director November 26, 1996
- - --------------------
Ronald L. McLane
/s/ Eileen C. Miskell Director November 26, 1996
- - ---------------------
Eileen C. Miskell
/s/ Robert H. Moore Director November 26, 1996
- - -------------------
Robert H. Moore
II-4
<PAGE>
<CAPTION>
Name Title Date
---- ----- ----
/s/ Walter A. Murphy Director November 26, 1996
- - --------------------
Walter A. Murphy
/s/ William E. Newton Director November 26, 1996
- - ---------------------
William E. Newton
/s/ Armand Ortins Director November 26, 1996
- - -----------------
Armand Ortins
</TABLE>
II-5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO THE
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
FALMOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)
<PAGE>
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- - ----------- ----------- --------
<S> <C>
2.1 Agreement and Plan of Reorganization by and among Falmouth Co-operative Bank and
Falmouth Bancorp, Inc. (included as Appendix C to the Proxy Statement-Prospectus)
3.1 Certificate of Incorporation of Falmouth Bancorp, Inc. (included as Appendix E to the
Proxy Statement-Prospectus)*
3.2 Bylaws of Falmouth Bancorp, Inc. (included as Appendix F to the Proxy Statement-
Prospectus)
3.3 Charter of Falmouth Co-operative Bank
3.4 Bylaws of Falmouth Co-operative Bank
4.1 Form of Stock Certificate of Falmouth Bancorp, Inc.
5.1 Opinion of Thacher Proffitt & Wood re: legality*
8.1 Opinion of Thacher Proffitt & Wood re: federal tax matters*
8.2 Opinion of John P. Conroy, P.C. re: Massachusetts tax matters*
10.1 1997 Stock Option Plan for Outside Directors, Officers and Employees of Falmouth Co-
operative Bank (included as Appendix A to the Proxy Statement-Prospectus)
10.2 1997 Recognition and Retention Plan for Outside Directors, Officers and Employees of
Falmouth Co-operative Bank (included as Appendix B to the Proxy Statement-
Prospectus)
10.3 Employment Agreement by and between Falmouth Co-operative Bank and Santo
Pasqualucci, effective as of March 27, 1996
10.4 Employment Agreement by and between Falmouth Co-operative Bank and George
Young, effective as of March 27, 1996
10.5 Falmouth Co-operative Bank Employee Stock Ownership Plan, effective as of March
28, 1996
10.6 Falmouth Co-operative Bank Employee Stock Ownership Trust, effective as of March
28, 1996
16.1 Letter regarding Change in Certifying Accountant
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and 8.1 to this
Registration Statement)*
23.2 Consent of Shatswell MacLeod & Co., P.C.
23.3 Consent of Keith Hersey Sheehan Benoit Dempsey & Oman, P.C.
27.1 Financial Data Schedule (only filed in EDGAR format)
- - -----------------
*To be filed by amendment.
</TABLE>
CHARTER
FOR
FALMOUTH CO-OPERATIVE BANK
SECTION 1. Corporate Title. The full corporate title of the Bank is
"Falmouth Co-operative Bank."
SECTION 2. Office. The main office of the Bank shall be located in the
Town of Falmouth, County of Barnstable, Commonwealth of Massachusetts, or such
other location as the Board of Directors may lawfully designate, subject to the
written consent of the Commissioner and pursuant to the requirements of Chapter
167C, Section 2 of the Massachusetts General Laws.
SECTION 3. Powers. The Bank is a capital stock co-operative chartered
under Chapter 170 of the Massachusetts General Laws and has and may exercise all
the express, implied and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto.
SECTION 4. Duration. The duration of the Bank is perpetual.
SECTION 5. Capital Stock. The total number of shares of all classes of
the capital stock which the Bank has authority to issue is 3,000,000 of which
2,500,000 shall be common stock, par value $0.10 per share, and 500,000 shall be
serial preferred stock. The shares may be issued by the Bank from time to time
as approved by its Board of Directors, subject to applicable law, without the
approval of its stockholders except as otherwise provided in this Section 5. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the stated value per share and otherwise
shall comply with all requirements set forth in Chapter 172, Section 24
Subsection C of the Massachusetts General Laws. Neither promissory notes nor
future services shall constitute payment or part payment for the issuance of
shares of the Bank. The consideration for the shares shall be cash, tangible or
intangible property, labor or services actually performed for the Bank or any
combination of the foregoing. In the absence of actual fraud in the transaction,
the value of such property, labor or services, as determined by the Board of
Directors of the Bank, shall be conclusive. Upon payment of such consideration
such shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Bank which is transferred to
stated capital upon the issuance of the shares as a stock dividend shall be
deemed to be the consideration for their issuance.
A description of the different classes and series of the Bank's capital
stock and a statement of the designations, and the relative rights, preferences
and limitations of the shares of each class of and series of capital stock are
as follows:
A. Common Stock. Except as provided in this Section 5 (or in
any supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the Board of Directors.
1
<PAGE>
Subject to Section 6 of this Charter in the event of any liquidation,
dissolution or winding up of the Bank, after there shall have been paid to or
set aside for the holders of any class having preference over the common stock
in the event of liquidation, dissolution or winding up the full preferential
amounts to which they are respectively entitled, the holders of the common
stock, and of any class or series of stock entitled to participate therewith in
whole or in part, as to distribution of assets, shall be entitled after payment
or provision for payment of all debts and liabilities of the Bank, to receive
the remaining assets of the Bank available for distribution, in cash or in kind,
in proportion to their holdings.
Each share of common stock shall have the same relative rights as and
be identical in all respects with all the other shares of common stock.
B. Serial Preferred Stock. Subject to the approval of the
provisions of any series of preferred stock by the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Commissioner"), if required by law, the
Board of Directors of the Bank is authorized by resolution or resolutions from
time to time adopted, to provide for the issuance of serial preferred stock in
series and to fix and state the voting powers, designations, preferences and
relative participating, optional or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof,
including, but not limited to, determination of any of the following:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Bank;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Bank and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are converted shall have
the status of authorized but unissued shares of serial preferred stock and
whether such shares may be reissued as shares of the same or any other series of
serial preferred stock. Any such resolution shall become effective when the Bank
files with the Secretary of State of the Commonwealth of Massachusetts a
certificate of
2
<PAGE>
establishment of series of preferred stock, signed under the penalties of
perjury by the president or any vice president and by the clerk, assistant
clerk, secretary or assistant secretary of the Bank, setting forth a copy of the
resolution of the Board of Directors.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
SECTION 6. Preemptive Rights. Holders of the capital stock of the Bank
shall not be entitled to preemptive rights with respect to any shares of the
Bank which may be issued.
SECTION 7. Liquidation Account. The Bank shall establish and maintain a
liquidation account for the benefit of its deposit account holders as of April
30, 1993 ("Eligible Account Holders") and its deposit account holders as of June
30, 1995 ("Supplemental Eligible Account Holders"). In the event of a complete
liquidation of the Bank it shall comply with such rules and regulations of the
Commissioner with respect to the amount and the priorities on liquidation of
each of the Bank's Eligible Account Holder's and Supplemental Eligible Account
Holder's inchoate interests in the liquidation account to the extent it is still
in existence; provided, however, that an Eligible Account Holder's and
Supplemental Eligible Account Holder's inchoate interest in the liquidation
account shall not entitle such Eligible Account Holder or Supplemental Eligible
Account Holder to any voting rights at meetings of the Bank's stockholders.
SECTION 8. Certain Provisions Applicable for Three Years.
Notwithstanding anything contained in the Bank's charter or bylaws to the
contrary, for a period of three years from the date of consummation of the
conversion of the Bank from mutual to stock form, the following provisions shall
apply.
A. Beneficial Ownership Limitation. Without the prior approval by a
two-thirds vote of the Bank's Board of Directors, no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10
percent of any class of an equity security of the Bank. This limitation shall
not apply to a transaction in which the Bank forms a holding company without
change in the respective beneficial ownership interests of its stockholders
other than pursuant to the exercise of any dissenter and appraisal rights or the
purchase of shares by underwriters in connection with a public offering.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent shall be
considered "excess shares" and shall not be counted as shares entitled to vote
and shall not be voted by any person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of the
equity securities of the Bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
3
<PAGE>
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
B. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the Bank or amendments to its charter shall be called
only upon direction of a majority of the Board of Directors.
SECTION 9. Certain Requirements for Business Combinations. In addition
to any affirmative vote required by law or this Charter, the vote of
stockholders of the Bank required to approve any Business Combination (as
defined below) shall be as set forth in this Section 9.
A. None of the following Business Combinations shall be consummated
without the affirmative vote of the holders of at least two-thirds of the shares
entitled to vote thereon ("Voting Stock"):
1. any merger or consolidation of the Bank with or into (i)
any Interested Shareholder or (ii) any other corporation or entity (whether or
not itself an Interested Shareholder) which is, or after each merger or
consolidation would be, an Affiliate of an Interested Shareholder;
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Shareholder or any Affiliate of any Interested Shareholder of
assets of the Bank having an aggregate Fair Market Value of $100,000 or more;
3. the issuance or transfer by the Bank (in one transaction or
a series of transactions) of any securities of the Bank to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange for cash,
securities or other property (or a combination thereof) having an aggregate Fair
Market Value of $100,000 or more, other than the issuance of securities upon the
conversion of any class or series of stock or securities convertible into stock
of the Bank which were not acquired by such Interested Shareholder or such
Affiliate from the Bank;
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Bank proposed by or on behalf of an Interested Shareholder or
any Affiliate of any Interested Shareholder; or
5. any reclassification of securities (including any reverse
stock split), or any recapitalization of the Bank, or any merger or
consolidation of the Bank or any other transaction (whether or not with or into
or otherwise involving an Interested Shareholder) which in any such case (i) has
the effect, directly or indirectly of increasing the proportionate share of the
outstanding shares of any class or series of stock of the Bank which is directly
or indirectly beneficially owned by any Interested Shareholder or any Affiliate
of any Interested Shareholder or (ii) would have the effect of increasing such
proportionate share upon conversion of any class or series of stock or
securities convertible into stock of the Bank.
B. The provisions of paragraph A hereof shall not be applicable to any
Business Combination in respect of which the conditions specified in either of
the following subparagraphs 1 and 2 are met. Any
4
<PAGE>
such Business Combination shall require the affirmative vote of only the holders
of a majority of the Voting Stock.
1. Such Business Combination shall have been approved by a
majority of the Disinterested Directors, or
2. All of the following conditions relating to minimum price
and consideration for stock shall have been met:
(a) Common Stock. The aggregate amount of the cash and the
Fair Market Value as of the "Consummation Date" of any consideration other than
cash to be received by holders of the common stock of the Bank in such Business
Combination shall be at least equal to the higher of the following:
(i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of such common stock beneficially owned by the
Interested Shareholder which were acquired beneficially by such Interested
Shareholder within the two-year period immediately prior to the Announcement
Date or in the transaction in which it became an Interested Shareholder,
whichever is higher; or
(ii) the Fair Market Value per share of such common
stock on the Announcement Date or the Determination Date, whichever is higher;
and
(b) Other Stock. The aggregate amount of the cash and the Fair
Market Value as of the Consummation Date of any consideration other than cash to
be received per share by holders of shares of any class or series of outstanding
Voting Stock other than common stock shall be at least equal to the highest of
the following (it being intended that the requirements of this subparagraph (b)
shall be required to be met with respect to every class and series of such
Voting Stock, whether or not the Interested Shareholder beneficially owns any
shares of a particular class or series of such Voting Stock):
(i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of such class or series of Voting Stock beneficially
owned by the Interested Shareholder which were acquired beneficially by such
Interested Shareholder within the two-year period immediately prior to the
Announcement Date or in the transaction in which it became an Interested
Shareholder, whichever is higher;
(ii) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock are entitled
in the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Bank; or
(iii) the Fair Market Value per share of such class
or series of Voting Stock on the Announcement date or the determination Date,
whichever is higher; and
(c) Form of Consideration. The consideration to be received by
holders of a particular class or series of outstanding Voting Stock shall be in
cash or in the same form as was previously paid in order to acquire beneficially
shares of such class or series of Voting Stock that are beneficially owned by
the Interested Shareholder and, if the Interested Shareholder beneficially owns
shares of any class or series of Voting Stock that were acquired with varying
forms of consideration, the form of consideration to be received by the holders
of such class or series of Voting Stock shall be either
5
<PAGE>
cash or the form used to acquire beneficially the largest number of shares of
such class or series of Voting Stock beneficially acquired by it prior to the
Announcement Date; and
(d) Prohibited Conduct. After the Determination Date, and
prior to the Consummation Date:
(i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to declare and pay at
regular dates therefor the full amount of any dividends (whether or not
cumulative), payable on any class or series having a preference over the common
stock of the Bank as to dividends, or upon liquidation;
(ii) there shall have been no reduction in the annual
rate of dividends paid on the common stock of the Bank (except as necessary to
reflect any division of the common stock) except as approved by a majority of
the Disinterested Directors; and there shall have been an increase in such
annual rate of dividends as necessary to prevent any such reduction in the event
of any reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the common stock, unless the failure so to
increase such annual rate was approved by a majority of the Disinterested
Directors;
(iii) an Interested Shareholder shall not have become
the beneficial owner of any additional shares of Voting Stock except as part of
the transaction in which it became an Interested Shareholder; and
(iv) after an Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a shareholder), of
any loans, advances, guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by the corporation, whether in
anticipation of or in connection with such Business Combination or otherwise;
and
(e) Informational Requirements. A proxy or information
statement describing the proposed Business Combination and complying with the
then current regulatory requirements shall be mailed to holders of Voting Stock
at least 30 days prior to the shareholder vote on such Business Combination
(whether or not such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions).
C. For the purpose of this Section 9:
1. The term "Business Combination" shall mean any transaction
that is referred to in any one or more subsections 1 through 5 of paragraph A
hereof.
2. A "person" shall mean any individual, firm, corporation or
other entity.
3. "Interested Shareholder" shall mean any person (other than
the Bank) who or which:
a. is the beneficial owner, directly or indirectly,
of more than 10 percent of the combined voting power of the then outstanding
shares of Voting Stock;
6
<PAGE>
b. is an Affiliate of the Bank and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10 percent or more of the combined voting
power of the then outstanding shares of Voting Stock; or
c. is an assignee of or has otherwise succeeded to
the beneficial ownership of any shares of Voting Stock that were at any time
within the two-year period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
4. A person shall be a "Beneficial Owner" of any Voting
Stock:
a. which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly;
b. which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote or direct
the vote pursuant to any agreement, arrangement or understanding; or
c. which is beneficially owned, directly or
indirectly, by any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
5. For the purposes of determining whether a person is an
Interested Shareholder pursuant to subparagraph 3 of this paragraph C, the
number of shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of subparagraph 4 of this paragraph C.
6. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
7. "Subsidiary" means any corporation more than 50 percent of
whose outstanding stock having ordinary voting power in the election of
directors is owned, directly or indirectly, by the corporation or by a
Subsidiary thereof or by the corporation and one or more Subsidiaries thereof;
provided, however, that for the purposes of the definition of Interested
Shareholder set forth in subparagraph 3 of this paragraph C, the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Bank.
8. "Disinterested Director" means any member of the Board of
Directors of the Bank who is unaffiliated with, and not a nominee of, the
Interested Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, the
Interested Shareholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
9. "Fair Market Value" means:
7
<PAGE>
a. in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, of a share of such
stock. Such price shall be the higher of (1) the closing sales price or bid
quotation with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined by a majority of the Disinterested Directors
in good faith; and (2) in the case of stock of any class or series which is not
traded on any United States registered securities exchange nor in the
over-the-counter market or in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by a
majority of the Disinterested Directors in good faith.
10. In the event of any Business Combination in which the
corporation survives, the phrase "any consideration other than cash" as used in
subparagraph 2.a. of paragraph B hereof shall include the shares of common stock
and/or the shares of any class or series of outstanding Voting Stock other than
common stock of the corporation retained by the holders of such shares.
11. "Announcement Date" means the date of first public
announcement of the proposed Business Combination.
12. "Consummation Date" means the date of consummation of a
Business Combination.
13. "Determination Date" means the date on which the
Interested Shareholder became an Interested Shareholder.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with this
Section 9, including, without limitation, (i) whether a person is an Interested
Shareholder, (ii) the number of shares of Voting Stock beneficially owned by a
person, (iii) whether a person is an Affiliate or Associate of another person,
(iv) whether the requirements of paragraph B hereof have been met with respect
to any Business Combination, and (v) whether the assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the corporation or any subsidiary in any
Business Combination has, an aggregate Fair Market Value of $100,000 or more.
The good faith determination of a majority of the Disinterested Directors on
such matters shall be conclusive and binding for all purposes of this Section 9.
E. Nothing contained in this Section 9 shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
F. This Section 9 may be amended only by the vote of holders of
two-thirds of the Voting Stock, unless the amendment is approved by a majority
of the Disinterested Directors, in which event it may be amended by the vote of
holders of a majority of the Voting Stock.
8
<PAGE>
SECTION 10. Standards for Board of Directors Evaluation of Offers. The
Board of Directors of the Bank, when evaluating any offer of another person (as
defined in Section 9 hereof) to (i) make a tender or exchange offer for any
equity security of the Bank, (ii) merge or consolidate the Bank with another
institution, or (iii) purchase or otherwise acquire all or substantially all of
the properties and assets of the Bank, shall, in connection with the exercise of
its judgment in determining what is in the best interests of the Bank and its
stockholders, give due consideration to all relevant factors, including without
limitation the social and economic effects of acceptance of such offer on (a)
its depositors, borrowers and employees and on the communities in which the Bank
operates or is located and (b) the ability of the bank to fulfill the objectives
of a Massachusetts-chartered co-operative bank under applicable statutes and
regulations.
SECTION 11. Directors. The Bank shall be under the direction of a Board
of Directors. The number of directors, as stated in the Bank's Bylaws, shall not
be less than seven or more than 25.
The Board of Directors or the stockholders may adopt, alter, amend or
repeal the Bylaws of the Bank. Such action by the Board of Directors shall
require the affirmative vote of at least two-thirds of the directors then in
office at a duly constituted meeting of the Board of Directors called expressly
for such purpose. Such action by the stockholders shall require the affirmative
vote of at least two-thirds of the total votes eligible to be cast by
stockholders at a duly constituted meeting of stockholders called expressly for
such purpose.
SECTION 12. Amendment of Charter. No amendment, addition, alteration,
change or repeal of this Charter shall be made, unless such is first proposed by
the Board of Directors of the Bank and thereafter approved by the stockholders
by a majority of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change or repeal so acted upon shall be
effective on the date it is filed with the Secretary of State of the
Commonwealth of Massachusetts or on such other date as the Secretary of State
may specify.
9
BYLAWS
OF
FALMOUTH CO-OPERATIVE BANK
ARTICLE I
ORGANIZATION
The name of this Bank shall be "Falmouth Co-operative Bank." Its main
office shall be in the Town of Falmouth, Massachusetts, or such other location
as the Board of Directors may designate. The Bank shall conduct the business of
a co-operative bank and shall have and may exercise all the powers, privileges
and authority now or hereafter conferred by applicable law.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders for
elections of directors and other purposes shall be held on the third Tuesday in
January at 5:00 p.m., commencing with January 21, 1997, at the main office of
the Bank, unless a different hour or place within Massachusetts (or if permitted
by applicable law, elsewhere in the United States) is fixed by the Board of
Directors, the chairman of the board or the president. The purposes for which
the annual meeting is to be held, in addition to those prescribed by law, by the
Charter or by these Bylaws, may be specified by the Board of Directors, the
chairman of the board or the president. If no annual meeting has been held on
the date fixed above, a special meeting in lieu thereof may be held, or there
may be action by unanimous written consent of the stockholders on matters to be
voted on at the annual meeting, and such special meeting or written consent
shall have for the purposes of these Bylaws or otherwise all the force and
effect of an annual meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time only by the chairman of the
board, the president or a majority of the directors then in office unless
otherwise provided by law.
SECTION 3. Notice of Meetings. A written notice of all regular and
special meetings of stockholders shall state the place, date, hour and purposes
of such meetings, and shall be given by the clerk or an assistant clerk (or
other person authorized by these Bylaws or by law) by mailing notice thereof, at
least seven days before the meeting, to each stockholder as of the record date
for the meeting. When any stockholders' meeting, either annual or special, is
adjourned for thirty (30) days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting. It shall not be necessary to give
any notice of the time and place of any meeting adjourned for less than thirty
days or of the business to be transacted thereat, other than an announcement at
the meeting at which such adjournment is taken.
SECTION 4. Quorum. The holders of a majority in interest of all stock
issued, outstanding, and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If a quorum is not
present, a lesser number may adjourn the meeting from time to time and the
meeting may be held as adjourned without further notice.
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At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 5. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Bank, and no vote for a fractional share. Stockholders may vote
either in person or by written proxy dated not more than six months before the
meeting named therein. Proxies shall be filed with the clerk of the meeting, or
of any adjournment thereof, before being voted. Except as otherwise limited
therein, proxies shall entitle the persons authorized thereby to vote at any
adjournment of such meeting, but they shall not be valid after final adjournment
of such meeting. A proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of the proxy the Bank receives a specific written notice to the contrary from
any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger.
SECTION 6. Action of Meeting. When a quorum is present, any matter
before the meeting shall be decided by vote of the holders of a majority of the
shares of stock voting on such matter, except where a larger vote is required by
law, by the Charter or by these Bylaws. Any election by stockholders shall be
determined by a plurality of the votes cast, except where a larger vote is
required by law, by the Charter or by these Bylaws. No ballot shall be required
for any election unless requested by a stockholder entitled to vote in the
election. The Bank shall not directly or indirectly vote any share of its own
stock, provided however, that no provision of these Bylaws shall be construed to
limit the voting rights and powers relating to shares of stock held pursuant to
a plan which is intended to be an "employee stock ownership plan" as defined in
section 409A of the Internal Revenue Code, as now or hereafter in effect.
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business and affairs of the Bank shall be
managed by a Board of Directors who may exercise all the powers of the Bank
except as otherwise provided by law, by the Charter or by these Bylaws.
SECTION 2. Composition and Term. The Board of Directors shall be
composed of: (i) those persons serving as directors of the Bank immediately
prior to the effective date of these Bylaws until the respective expiration
dates of their terms and until their successors are elected and qualified; and
(ii) as such terms expire, those persons who are elected as directors from time
to time as provided herein. At least three-fourths of the directors shall be
citizens of the Commonwealth of Massachusetts and resident therein. Each
director, when appointed or elected, shall take an oath that he or she will
faithfully perform the duties of his or her office and that he or she is the
owner, in his or her own right and free from any lien or encumbrance, of the
amount of stock required by this section. The oath shall be taken before a
Notary Public or Justice of the
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Peace, who is not an officer of such corporation, and a record of the oath shall
be made a part of the records of such corporation. The Board of Directors shall
consist of not less than seven (7) nor more than twenty-five (25) individuals,
the exact number to be fixed from time to time by a two-thirds vote of the
stockholders at an annual meeting or special meeting in lieu thereof, and until
determined by the stockholders at the first annual meeting of the converted Bank
shall consist of twelve (12) individuals. The Board of Directors shall be
divided into three classes as nearly equal in number as possible. The
appropriate class of directors shall be elected annually by the holders of the
Bank's common and voting preferred stock, if any. Except as otherwise provided
in these Bylaws, the members of each class shall be elected for a term of three
years and until their successors are elected and qualified.
SECTION 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw at the same place
as the annual meeting of stockholders, or the special meeting held in lieu
thereof, following such meeting of stockholders. The Board of Directors may
provide, by resolution, the time and place for the holding of regular meetings
without other notice than such resolution. The Board of Directors shall meet at
least once in each calendar month at a place or places fixed from time to time
by the Board of Directors.
SECTION 4. Qualification. Each director shall have such qualifications
as are required by applicable law. Each director shall own, in his own right and
free of any lien or encumbrance, common stock of such corporation, having a par
value, or a fair market value on the date the person became a director, of not
less than one thousand dollars. Any director who ceases to be the owner of the
required number of shares of stock, or who becomes in any other manner
disqualified, shall vacate his office forthwith.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, the president,
or a majority of the directors. The persons authorized to call special meetings
of the Board of Directors may fix the place for holding any special meeting of
the Board of Directors elected by such persons.
SECTION 6. Notice. Notice of any special meeting shall be given to each
director in person or by telephone or sent to his business or home address by
telegram at least 24 hours in advance of the meeting or by written notice mailed
to his business or home address at least 48 hours in advance of such meeting.
Such notice shall be deemed to be delivered when deposited in the mail so
addressed, with postage thereon prepaid if mailed, or when delivered to the
telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the clerk of the meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meetings
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. Quorum. A majority of the number of directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time.
When any Board of Directors' meeting either regular or special is adjourned for
30 days or more, notice of the adjourned meeting shall be given as in the case
of
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<PAGE>
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted thereat, other than an announcement at the meeting at which such
adjournment is taken.
SECTION 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by governing law, by the
Charter or by these Bylaws.
SECTION 9. Action by Consent. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the main office of the Bank addressed to
the chairman of the board or the president. Unless otherwise specified therein
such resignation shall take effect upon receipt thereof by the chairman of the
board or the president.
SECTION 11. Removal. Any director may be removed, but only for cause,
at the special meeting of stockholders by the affirmative vote of at least
two-thirds (2/3) in number of shares of the stockholders present in person or
represented by proxy at such meeting and entitled to vote for the election of
such director; provided, however, that notice of intention to act upon such
matter shall have been given in the notice calling such meeting.
SECTION 12. Vacancies. Any vacancy occurring on the Board of Directors
as a result of resignation, removal or death may be filled by the affirmative
vote of a majority of the remaining directors. A director elected to fill such a
vacancy shall be elected to serve until the next election of directors by the
stockholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the Board of Directors for a
term of office continuing until the next election of directors by the
stockholders.
SECTION 13. Compensation. The members of the Board of Directors and the
members of either standing or special committees may be allowed such
compensation as the Board of Directors may determine.
SECTION 14. Presumption of Assent. A director of the Bank who is
present at a meeting of the Board of Directors at which action on any Bank
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file a written dissent to such action with the person
acting as the clerk of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the clerk of the Bank within five
days after the date of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 15. Committees. The Board of Directors, by vote of a majority
of the directors then in office, shall elect from its number, not less than
three members in each case to serve as an Executive Committee. The Board of
Directors may also elect a Security Committee, an Audit Committee, or other
committees and may delegate thereto some or all of its powers except those which
by law, by the Charter, or by these Bylaws may not be delegated. Except as the
Board
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of Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these Bylaws for the Board of Directors. All members of
such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time,
subject to any applicable requirements of law. Any committee to which the Board
of Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
SECTION 16. Nominating Committee. The Board of Directors shall act as a
nominating committee for selecting nominees for election as directors. Except in
the case of a management nominee substituted as a result of the death or other
incapacity of a management nominee, the nominating committee shall deliver
written nominations to the secretary at least 20 days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the Bank. No nominations for directors except those made
by the nominating committee shall be voted upon at the annual meeting unless
other nominations by shareholders are made in writing and delivered to the
secretary of the Bank at least five days prior to the date of the annual
meeting. Upon delivery such nominations shall be posted in a conspicuous place
in each office of the Bank. Ballots bearing the names of all persons nominated
by the nominating committee and by shareholders shall be provided for use at the
annual meeting. However, if the nominating committee shall fail or refuse to act
at least 20 days prior to the annual meeting, nominations for directors may be
made at the annual meeting by any shareholder entitled to vote and shall be
voted upon.
ARTICLE IV
OFFICERS
SECTION 1. Enumeration. The officers of the Bank shall consist of a
president, a treasurer, a clerk or secretary and such other officers, including
a chairman of the board, one or more vice presidents and such other officers as
the Board of Directors may determine as necessary for the management of the
Bank.
SECTION 2. Election. The clerk or secretary shall be elected by the
stockholders at their annual meeting or at a special meeting of the
stockholders. The president shall be elected by and from the Board of Directors
and shall be chairman thereof unless the Board of Directors designates a
director in lieu of the president to be chairman. The Board of Directors shall
elect the treasurer and such other officers as may be required or permitted by
law or these Bylaws. Other officers may be chosen by the Board of Directors at
such first meeting of the Board of Directors or at any other meeting.
SECTION 3. Qualification. No officer need be a stockholder. Any two
offices may be held by any person. The clerk shall be a resident of the
Commonwealth of Massachusetts unless the Bank has a resident agent appointed for
the purpose of service of process. Any officer may be required by the Board of
Directors to give bond for the faithful performance of his or her duties in such
amount and with such sureties as the Commissioner of Banks may determine.
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<PAGE>
SECTION 4. Tenure. Except as otherwise provided by law by the Charter
or by these Bylaws the president and treasurer shall hold office until the first
meeting of the Board of Directors following the next annual meeting of
stockholders and until their respective successors are chosen and qualified. The
clerk shall hold office until the next annual meeting of stockholders and until
his successor is chosen and qualified. All other officers shall hold office
until the first meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors are chosen and qualified or
for such shorter term as the Board of Directors may fix at the time such
officers are chosen. Any officer may resign by delivering his written
resignation to the Bank at its main office addressed to the president, clerk or
secretary and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Election or appointment of an officer employee or agent shall not of
itself create contract rights. The Board of Directors may authorize the Bank to
enter into an employment contract with any officer in accordance with governing
law or regulation but no such contract right shall impair the right of the Board
of Directors to remove any officer at any time in accordance with Section 5 of
this Article IV.
SECTION 5. Removal. The Board of Directors may remove any officer with
or without cause by a vote of two-thirds of the entire number of directors then
in office; provided however that such removal other than for cause shall be
without prejudice to the contract rights if any of the persons involved.
SECTION 6. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 7. Chief Executive Officer. The chief executive officer shall,
subject to the direction of the Board of Directors, have general supervision and
control of the Bank's business.
SECTION 8. President and Vice Presidents. The president shall have such
powers and shall perform such duties as the Board of Directors may from time to
time designate and shall serve as the chief executive officer of the Bank.
Unless otherwise provided by the Board of Directors, he shall preside as
chairman, when present, at all meetings of stockholders and of the Board of
Directors. Any vice president shall have such powers and shall perform such
duties as the Board of Directors may from time to time designate.
SECTION 9. Treasurer and Assistant Treasurers. The treasurer shall,
subject to the direction of the Board of Directors and the Executive Committee,
have general charge of the financial affairs of the Bank and shall cause to be
kept accurate books of account. He or she shall have custody of all funds,
securities and valuable documents of the Bank, except as the Board of Directors
may otherwise provide. Any assistant treasurer shall have such powers and
perform such duties as the Board of Directors may from time to time designate.
SECTION 10. Clerk and Assistant Clerks. The clerk shall keep a record
of the meetings of stockholders and meetings of the Board of Directors. In the
absence of the clerk from any meeting of stockholders, an assistant clerk if one
be elected, otherwise a temporary clerk designated by the person presiding at
the meeting, shall perform the duties of the clerk.
SECTION 11. Other Powers and Duties. Subject to these Bylaws, each
officer of the
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Bank shall have in addition to the duties and powers specifically set forth in
these Bylaws, such duties and powers as are customarily incident to his office,
and such duties and powers as may be designated from time to time by the Board
of Directors.
ARTICLE V
CAPITAL STOCK
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate of the capital stock of the Bank in such form as may from time to
time be prescribed by the Board of Directors. Such certificate shall be signed
by the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the Bank. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Bank with the same effect as if
he were such officer at the time of its issue.
SECTION 2. Transfers. Subject to any restrictions on transfer, shares
of stock may be transferred on the books of the Bank by the surrender to the
Bank's transfer agent of the certificate therefor properly endorsed or
accompanied by a written assignment and power of attorney properly executed with
transfer stamps (if necessary) affixed, and with such proof of the authenticity
of signature as the transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may be otherwise required by law,
by the Charter or by these Bylaws, the Bank shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Bank in accordance
with the requirements of these Bylaws. It shall be the duty of each stockholder
to notify the Bank of his post office address.
SECTION 4. Record Date. The Board of Directors may fix in advance a
time of not more than sixty days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or the making of any
distribution to stockholders, or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Bank after the record
date. Without fixing such record date the Board of Directors may for any of such
purposes close the transfer books for all or any part of such period. If no
record date is fixed and the transfer books are not closed, (a) the record date
for determining stockholders having the right to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
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SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 6. Issuance of Capital Stocks. The Board of Directors shall
have the authority, subject to applicable law, to issue or reserve for issue
from time to time the whole or any part of the capital stock of the Bank which
may be authorized from time to time, to such persons or organizations, for such
consideration whether cash, property, services or expenses, and on such terms as
the Board of Directors may determine, including without limitation the granting
of options, warrants, or conversion or other rights to subscribe to said capital
stock.
SECTION 7. Dividends. Subject to applicable law, the Charter and these
Bylaws, the Board of Directors may from time to time declare, and the Bank may
pay, dividends on the outstanding shares of its capital stock.
ARTICLE VI
CERTAIN OPERATING PROVISIONS
SECTION 1. Withdrawals. Any notice by a depositor of his intention to
withdraw the whole or any part of his deposit or accounts filed with the Bank
pursuant to a requirement of notice under applicable provisions of law, shall be
null and void if the depositor does not, within twenty-one days after notice
from the Bank that funds are available for such withdrawal, withdraw the funds
made available for such purpose. Withdrawals may be made by presentation by the
depositor, his or her legally appointed representative, or another person, of
such instruments, in writing or otherwise, as may be from time to time approved
by the Board of Directors.
SECTION 2. Transfer. Deposits or accounts may be transferred by the
owner to one or more other persons, subject to applicable provisions of law, and
a charge therefor may be imposed as the Board of Directors from time to time may
prescribe, provided that such charge shall not exceed the maximum amount
permitted by law. No transfer shall be valid as against the Bank until recorded
on the books of the Bank.
SECTION 3. Loans and Investments. Funds of the Bank shall be loaned or
invested in such manner, upon such terms and conditions, in such amounts and at
such rates of interest, as from time to time may be authorized or approved by
the Board of Directors or appropriate officers of the Bank in accordance with
applicable provisions of law.
SECTION 4. Attorneys. The Board of Directors or the president may
appoint one or more attorneys to examine titles to property offered as security
for loans and to prepare papers of a legal nature required in connection
therewith. The Board of Directors or the president may approve the appointment
of the same or such other attorneys in general or special matters, as from time
to time the board or such officer may deem necessary or advisable.
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<PAGE>
SECTION 5. Execution of Instruments. All conveyances of real estates
and all assignments, extensions, discharges and releases in whole or in part of
mortgages, and all other instruments to which the Bank may be a party, shall be
executed by the president, a vice president, the treasurer or an assistant
treasurer or by such other officer or officers as from time to time may be
authorized by the Board of Directors.
SECTION 6. Charges on Overdue Payment. The Board of Directors shall fix
the rate of charges to be imposed upon delinquent payments due the Bank within
the limits prescribed by law and shall determine the circumstances under which
and the periods in which such charges may be waived by the president, a vice
president, the treasurer or other officer authorized by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Bank shall be the twelve months ending
September 30 of each year. The Bank shall be subject to an annual audit as of
the end of its fiscal year by independent public accountants appointed by the
Board of Directors.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Bank.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the Bank in
the ordinary course of its business without Board of Directors action may be
executed on behalf of the Bank by the president, any vice president, the
treasurer or any other officer, employee, or agent of the Bank as the Board of
Directors may authorize.
SECTION 4. Indemnification. The Bank shall indemnify each director or
officer of the Bank to the fullest extent now or hereafter permitted by law
against all expenses (including attorneys' fees and disbursements), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative to which he
or she is or is threatened to be made a party by reason of the fact that he or
she is or was a director, officer, employee or agent of the Bank or of a
subsidiary of the Bank, or is or was a director, custodian, administrator,
committeeman or fiduciary of any employee benefit plan established and
maintained by the Bank or by a subsidiary of the Bank, or is or was serving
another enterprise in any such capacity at the written request of the Bank. To
the extent authorized at any time by the Board of Directors of the Bank, the
Bank may similarly indemnify other persons against liability incurred in any
capacity, or arising out of any status, of the character described in the
immediately preceding sentence. At the discretion of the Board of Directors, any
indemnification hereunder may include payment by the Bank of expenses incurred
in defending a civil or criminal action or proceeding in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by the
person indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under this section or applicable laws. In no event,
however, shall the
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Bank indemnify any director, officer, or other person hereunder with respect to
any matter as to which he or she 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 interests of the Bank. The Bank may purchase and maintain insurance to
protect itself and any present or former director, officer or other person
against any liability of any character asserted against and incurred by the Bank
or any such director, officer or other person in any capacity, or arising out of
any status, whether or not the Bank would have the power to indemnify such
person against such liability by law or under the provisions of this Section 4.
The provisions of this Section 4 shall be applicable to persons who shall have
ceased to be directors or officers of the Bank, and shall inure to the benefit
of the heirs, executors and administrators of persons entitled to indemnity
hereunder. Nothing herein shall be deemed to limit the Bank's authority to
indemnify any person pursuant to any contract or otherwise.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board
of Directors, the president, any vice president or the treasurer may waive
notice of and act on behalf of the Bank, or appoint another person or persons to
act as proxy or attorney in fact for the Bank with or without discretionary
power and/or power of substitution, at any meeting of stockholders or
shareholders of any other organization, any of whose securities are held by the
Bank.
SECTION 6. Resident Agent. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Bank. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, a corporation organized
under the laws of any other state of the United States, which has qualified to
do business in, and has an office in, Massachusetts.
SECTION 7. Bank Records. The original, or attested copies, of the
Charter, Bylaws and records of all meetings of the directors or stockholders and
the stock and transfer records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each, shall
be kept in Massachusetts at the main office of the Bank, or at an office of its
transfer agent, clerk or resident agent.
SECTION 8. Charter. All references in these Bylaws to the Charter shall
be deemed to refer to the Charter of the Bank, as amended and in effect from
time to time.
SECTION 9. Monthly Bank Day. The Monthly Bank Day shall be the last
business day of each month. No notice shall be required of the Monthly Bank Day.
SECTION 10. Amendments. These Bylaws may be altered, amended or
repealed as provided in the Charter.
SECTION 11. Effective Date. These Bylaws shall become effective on the
date of the conversion of the Bank to a Massachusetts-chartered stock form
co-operative bank.
10
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No. 1 100 Shares
FALMOUTH BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that FALMOUTH CO-OPERATIVE BANK is the owner of one hundred (100)
fully paid and non-assessable Shares, par value $.01 per share, of the COMMON
STOCK of
FALMOUTH BANCORP, INC.
(the "Corporation"), a corporation formed under the laws of the State of
Delaware. The shares represented by this Certificate are transferable only on
the stock transfer books of the Corporation by the holder of record hereof, in
person or by his duly authorized attorney or legal representative, upon the
surrender of this Certificate properly endorsed. The shares represented by this
Certificate are not insured by the Federal Deposit Insurance Corporation or by
any other government agency.
In Witness Whereof, the Corporation has caused this Certificate to be executed
by the signature of its duly authorized officers and has caused its corporate
seal to be hereunto affixed.
Dated
Seal John A. DeMello Santo P. Pasqualucci
Corporate Secretary President and Chief
Executive Officer
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
FALMOUTH BANCORP, INC.
The shares represented by this certificate are issued subject to all
the provisions of the Certificate of Incorporation and Bylaws of Falmouth
Bancorp, Inc. (the "Corporation") as from time to time amended (copies of which
are on file at the principal office of the Corporation), to all of which the
holder by acceptance hereof assents. The following description constitutes a
summary of certain provisions of, and is qualified in its entirety by reference
to, the Certificate of Incorporation.
The Certificate of Incorporation of the Corporation contains certain
provisions, applicable upon the consummation of the reorganization whereby the
Corporation will become the holding company for Falmouth Co-operative Bank, a
stock co-operative bank organized under the laws of the State of Massachusetts,
that restrict persons from directly or indirectly acquiring or holding, or
attempting to acquire or hold, the beneficial ownership of, in excess of 10% of
the issued and outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors ("Voting Stock"). The Certificate
of Incorporation contains a provision pursuant to which the holders of shares in
excess of 10% of the Voting Stock of the Corporation are limited to one
hundredth (1/100) of one vote per share with respect to such shares in excess of
the 10% limitation. In addition, the Corporation is authorized to refuse to
recognize a transfer or attempted transfer of any shares of Voting Stock to any
person who beneficially owns, or who the Corporation believes would become by
virtue of such transfer the beneficial owner of, in excess of 10% of the Voting
Stock. These restrictions are not applicable to underwriters in connection with
a public offering of the common stock, certain reorganization transactions
described in the Certificate of Incorporation or to acquisitions of Voting Stock
by the Corporation, any majority-owned subsidiary of the Corporation, or any
pension, profit-sharing, stock bonus or other compensation plan maintained by
the Corporation or by a member of a controlled group of corporations or trades
or businesses of which the Corporation is a member for the benefit of the
employees of the Corporation and for any subsidiary, or any trust or custodial
arrangement established in connection with any such plan.
The Certificate of Incorporation of the Corporation contains provisions
providing that the affirmative vote of the holders of at least 80% of the Voting
Stock of the Corporation may be required to approve certain business
combinations and other transactions with persons who directly or indirectly
acquire or hold the beneficial ownership of in excess of 10% of the Voting Stock
of the Corporation.
The Corporation will furnish to any stockholder upon written request
and without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or to its
transfer agent and registrar.
-------------------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 27, 1996, by and
between FALMOUTH CO-OPERATIVE BANK (the "Bank"), and SANTO P. PASQUALUCCI (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of
the Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive
agrees to serve as President and Chief Executive Officer of the Bank. During
said period, Executive also agrees to serve, if elected, as a director of the
Bank and/or as an officer and director of any subsidiary or affiliate of the
Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have
commenced as of the date first above written and shall continue for a period of
forty-eight (48) full calendar months thereafter. Commencing on the first
anniversary date, and continuing at each anniversary date thereafter, the Board
of Directors of the Bank (the "Board") may extend the Agreement for an
additional year. Prior to the extension of the Agreement as provided herein, the
Board of Directors of the Bank will conduct a formal performance evaluation of
the Executive for purposes of determining whether to extend the Agreement, and
the results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant
<PAGE>
to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall
constitute the salary and benefits paid for the duties described in Sections 1
and 2. The Bank shall pay Executive as compensation a salary of $115,000 per
year ("Base Salary"). Such Base Salary shall be payable weekly. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by a Committee designated
by the Board. Executive's salary may be increased annually as of the first
payroll period ending in ________ each year during the term of this Agreement by
such additional amount as may be determined by the Board. The salary of the
Employee shall not be decreased at any time during the term of this Agreement
from the amount then in effect, unless the Employee otherwise agrees in writing.
The Employee shall not be entitled to receive fees for serving as a director of
the Bank or any subsidiary of the Bank, or for serving as a member of any
committee of the Board of Directors of the Bank or of any subsidiary of the
Bank. In addition to the Base Salary provided in this Section 3(a), Executive
shall be entitled to participate in an equitable manner with all other executive
officers in discretionary bonuses as may be authorized, declared and paid by the
Board to executive officers during the term of this Agreement. The Bank shall
also provide Executive at no cost to Executive with all such other benefits as
are provided uniformly to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any material changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including, but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health and accident plan, medical coverage or any other employee benefit
plan or arrangement made available by the Bank in the future to its senior
executives and key management employees, subject to, and on a basis consistent
with, the terms, conditions and overall administration of such plans and
arrangements. Executive will be entitled to incentive compensation and bonuses
as provided in any plan, or pursuant to any arrangement of the Bank, in which
Executive is eligible to participate. Nothing paid to the Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement, except as provided under
Section 5(e).
(c) In addition to the Base Salary provided for by paragraph
(a) of this Section 3, the Bank shall pay or reimburse Executive for all
reasonable travel and other obligations under this Agreement and may provide
such additional compensation in such form and such
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amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or for Cause, as defined in Section 8 hereof; (ii) Executive's
resignation from the Bank's employ, upon (A) unless consented to by the
Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, (C) the liquidation or dissolution of the Bank, or (D) any
breach of this Agreement by the Bank. Upon the occurrence of any event described
in clauses (A), (B), (C), or (D), above, Executive shall have the right to elect
to terminate his employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within a reasonable period of
time not to exceed, except in case of a continuing breach, four calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank
shall pay Executive or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Bank as of the Date of Termination), to the Executive for the
term of the Agreement provided, however, that if the Bank is not in compliance
with its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. All
payments made pursuant to this Section 4(b) shall be paid in substantially equal
monthly installments over the remaining term of this Agreement following the
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of the Executive's Date of
Termination), such payments and benefits shall be paid to the Executive in a
lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Bank
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage
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<PAGE>
maintained by the Bank for Executive prior to his termination. Such coverage
shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless
there shall have occurred a Change in Control of the Bank, as set forth below.
For purposes of this Agreement, a "Change in Control" of the Bank shall mean an
event of a nature that: (i) it would be required to be reported in response to
Item l(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) it results in a Change in Control of the Bank within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Agency ("FDIC") or the
Massachusetts Division of Banks, as in effect on the date hereof (provided that
in-applying the definition of change in control as set forth in the rules and
regulations of the FDIC, the Board of the Bank shall substitute its judgment for
that of the FDIC); or (iii) without limitation, such a Change in Control shall
be deemed to have occurred at such time as (a) any "person" (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank representing 20% or more of the Bank's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who constitute the
Board of the Bank on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Bank's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or similar transaction in which
the Bank is not the resulting entity occurs. Notwithstanding the foregoing, a
"Change of Control" shall not include the formation by the Bank of a holding
company at any time subsequent to the effective date of this Agreement.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred or the Board of the Bank has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d) and (e) of this Section 5 upon his
subsequent termination of employment at any time during the term of this
Agreement (regardless of whether such termination results from his dismissal or
his resignation at any time during the term of this Agreement), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 2.99 times the Executive's "base amount," within
4
<PAGE>
the meaning of s. 280G(b)(3) of the Internal Revenue Code of 1986. Such payment
shall be made in a lump sum paid within ten (10) days of the Executive's Date of
Termination.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Bank as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of forty-eight (48) months.
(e) Upon the occurrence of a Change in Control, the Executive
shall be entitled to receive benefits due him under, or contributed by the Bank
on his behalf, pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
the Executive's behalf to the extent that such benefits are not otherwise paid
to the Executive upon a Change in Control.
6. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical
or mental illness, he shall have been absent from his duties with the Bank on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given, he shall not have
returned to the full-time performance of his duties, the Bank may terminate
Executive's employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a payment
equal to three-quarters (3/4) of Executive's weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
65; (iv) Executive's death; or (v) the expiration of the term of this Agreement.
The disability pay shall be reduced by the amount, if any, paid to the Executive
under any plan of the Bank providing disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental
and disability coverage substantially identical to the coverage maintained by
the Bank for Executive prior to his termination for Disability. This coverage
and payments shall cease upon the earlier of (i) the date Executive returns to
the full-time employment of the Bank, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive's attaining the age of 65; (iv) the Executive's death;
or (v) the expiration of the
5
<PAGE>
term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction
in the compensation otherwise payable to Executive during any period during
which Executive is incapable of performing his duties hereunder by reason of
temporary disability.
7. TERMINATION UPON RETIREMENT; DEATH OF THE EXECUTIVE.
Termination by the Bank of the Executive based on "Retirement"
shall mean retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a party. Upon
the death of the Executive during the term of this Agreement, the Bank shall pay
to the Executive's estate the compensation due to the Executive through the last
day of the calendar month in which his death occurred.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination upon
intentional failure to perform stated duties, personal dishonesty which results
in loss to the Bank or one of its affiliates, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses), or final
cease and desist order concerning conduct which results in substantial loss to
the Bank or one of its affiliates, or any material breach of this Agreement. For
purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Bank or its affiliates. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying termination for Cause and specifying
the reasons thereof. The Executive shall not have the right to receive
compensation or other benefits for any period after termination for Cause. Any
stock options granted to Executive within the twelve months prior to termination
for Cause under any stock option plan or any unvested awards granted under any
other stock benefit plan of the Bank, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any
time, but any termination by the Bank, other than Termination for Cause, shall
not prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to
6
<PAGE>
receive compensation or other benefits for any period after Termination for
Cause as defined in Section 8 herein.
(b) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may, in its discretion, (i) pay the Executive all or part of the compensation
withheld while its contract obligations were suspended and (ii) reinstate (in
whole or in part) any of its obligations that were suspended.
(c) If the Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default (as defined in Section 3(x)(1)
of the FDIA), all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement may be terminated:
(i) by the Commissioner of Banks (the "Commissioner") or his or her designee at
the time the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the FDIA and (ii) by the Commissioner, or his or her designee
at the time the Director or such designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Commissioner or the FDIC to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(f) Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon compliance with 12
U.S.C. ss.1828 (k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the Bank or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
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(b) "Date of Termination" shall mean (A) if Executive's
employment is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) days
period), and (B) if his employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a Termination for
Cause, shall not be less than thirty (30) days from the date such Notice of
Termination is given).
(c) If, within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, except upon
the occurrence of a Change in Control and voluntary termination by the Executive
in which case the Date of Termination shall be the date specified in the Notice,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
11. CONFIDENTIALITY.
Executive recognizes and acknowledges that the knowledge of
the business activities and plans for business activities of the Bank and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Bank. Executive will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Bank. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
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12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid
in cash or check from the general funds of the Bank.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior employment agreement between the Bank or
any predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any such action shall
be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the
benefit of, Executive and, the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any
part of any provision, is held invalid, such invalidity shall not affect any
other provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
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17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, unless otherwise specified herein.
19. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable settlements.
20. SUCCESSORS TO THE BANK.
The Bank shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
21. GENERAL PROVISIONS.
The parties hereto acknowledge that this Agreement was drafted
by the law firm of Thompson & Mitchell which at various times has served a
special counsel to the Bank. Executive acknowledges that he is sophisticated in
business matters (including, but not limited to, employment agreements) and that
he has had the opportunity to seek independent legal advice. Executive
specifically waives any actual or apparent conflict of interest of Thompson &
Mitchell in connection with the preparation and negotiation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and their seal to be affixed hereunto by its duly
authorized officers and directors, and Executive has signed this Agreement, on
the 27th day of March, 1996.
ATTEST: FALMOUTH CO-OPERATIVE BANK
BY: /s/ George E. Young, III
-------------------------
[SEAL]
WITNESS:
/s/ John A. DeMello /s/ Santo P. Pasqualucci
- - ----------------------------- -------------------------
SANTO P. PASQUALUCCI
11
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 27, 1996, by and
between FALMOUTH CO-OPERATIVE BANK (the "Bank"), and GEORGE E. YOUNG, III (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of
the Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive
agrees to serve as Treasurer of the Bank. During said period, Executive also
agrees to serve, if elected, as a director of the Bank and/or as an officer and
director of any subsidiary or affiliate of the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have
commenced as of the date first above written and shall continue for a period of
twenty-four (24) full calendar months thereafter. Commencing on the first
anniversary date, and continuing at each anniversary date thereafter, the Board
of Directors of the Bank (the "Board") may extend the Agreement for an
additional year. Prior to the extension of the Agreement as provided herein, the
Board of Directors of the Bank will conduct a formal performance evaluation of
the Executive for purposes of determining whether to extend the Agreement, and
the results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall
constitute the salary and benefits paid for the duties described in Sections 1
and 2. The Bank shall pay Executive as compensation a salary of $57,000 per year
("Base Salary"). Such Base Salary shall be payable weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board. Executive's salary may be increased annually as of the first payroll
period ending in ____________________ of each year during the term of this
Agreement by such additional amount as may be determined by the Board. The
Employee shall not be entitled to receive fees for serving as a director of the
Bank or any subsidiary of the Bank, or for serving as a member of any committee
of the Board of Directors of the Bank or of any subsidiary of the Bank. In
addition to the Base Salary provided in this Section 3(a), Executive shall be
entitled to participate in an equitable manner with all other executive officers
in discretionary bonuses as may be authorized, declared and paid by the Board to
executive officers during the term of this Agreement. The Bank shall also
provide Executive at no cost to Executive with all such other benefits as are
provided uniformly to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health and accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the Bank, in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph
(a) of this Section 3, the Bank shall pay or reimburse Executive for all
reasonable travel and other obligations under this Agreement and may provide
such additional compensation in such form and such amounts as the Board may from
time to time determine.
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<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or for Cause, as defined in Section 8 hereof; (ii) Executive's
resignation from the Bank's employ, upon (A) unless consented to by the
Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, (C) the liquidation or dissolution of the Bank, or (D) any
breach of this Agreement by the Bank. Upon the occurrence of any event described
in clauses (A), (B), (C), or (D), above, Executive shall have the right to elect
to terminate his employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within a reasonable period of
time not to exceed, except in case of a continuing breach, four calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank
shall pay Executive or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Bank as of the Date of Termination), to the Executive for the
term of the Agreement provided, however, that if the Bank is not in compliance
with its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. All
payments made pursuant to this Section 4(b) shall be paid in substantially equal
monthly installments over the remaining term of this Agreement following the
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of the Executive's Date of
Termination), such payments and benefits shall be paid to the Executive in a
lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Bank
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
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5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless
there shall have occurred a Change in Control of the Bank, as set forth below.
For purposes of this Agreement, a "Change in Control" of the Bank shall mean an
event of a nature that: (i) it would be required to be reported in response to
Item l(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) it results in a Change in Control of the Bank within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Agency ("FDIC") or the
Massachusetts Division of Banks, as in effect on the date hereof (provided that
in applying the definition of change in control as set forth in the rules and
regulations of the FDIC, the Board of the Bank shall substitute its judgment for
that of the FDIC); or (iii) without limitation, such a Change in Control shall
be deemed to have occurred at such time as (a) any "person" (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Bank representing 20% or more of the Bank's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who constitute the
Board of the Bank on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Bank's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or similar transaction in which
the Bank is not the resulting entity occurs. Notwithstanding the foregoing, a
"Change of Control" shall not include the formation by the Bank of a holding
company at any time subsequent to the effective date of this Agreement.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred or the Board of the Bank has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d) and (e) of this Section 5 upon his
subsequent termination of employment at any time during the term of this
Agreement (regardless of whether such termination results from his dismissal or
his resignation at any time during the term of this Agreement), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to two times the Executive's "base amount," within the meaning of s. 280G(b)(3)
of the Internal Revenue Code of 1986. Such payment shall be made in a lump sum
paid within ten (10) days of the Executive's Date of Termination.
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<PAGE>
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Bank as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of twenty-four (24) months.
(e) Upon the occurrence of a Change in Control, the Executive
shall be entitled to receive benefits due him under, or contributed by the Bank
on his behalf, pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
the Executive's behalf to the extent that such benefits are not otherwise paid
to the Executive upon a Change in Control.
6. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical
or mental illness, he shall have been absent from his duties with the Bank on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given, he shall not have
returned to the full-time performance of his duties, the Bank may terminate
Executive's employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a payment
equal to three-quarters (3/4) of Executive's weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
65; (iv) Executive's death; or (v) the expiration of the term of this Agreement.
The disability pay shall be reduced by the amount, if any, paid to the Executive
under any plan of the Bank providing disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental
and disability coverage substantially identical to the coverage maintained by
the Bank for Executive prior to his termination for Disability. This coverage
and payments shall cease upon the earlier of (i) the date Executive returns to
the full-time employment of the Bank, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive's attaining the age of 65; (iv) the Executive's death;
or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction
in the
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<PAGE>
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF THE EXECUTIVE.
Termination by the Bank of the Executive based on "Retirement"
shall mean retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a party. Upon
the death of the Executive during the term of this Agreement, the Bank shall pay
to the Executive's estate the compensation due to the Executive through the last
day of the calendar month in which his death occurred.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination upon
intentional failure to perform stated duties, personal dishonesty which results
in loss to the Bank or one of its affiliates, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses), or final
cease and desist order concerning conduct which results in substantial loss to
the Bank or one of its affiliates, or any material breach of this Agreement. For
purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Bank or its affiliates. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying termination for Cause and specifying
the reasons thereof. The Executive shall not have the right to receive
compensation or other benefits for any period after termination for Cause. Any
stock options granted to Executive within the twelve months prior to termination
for Cause under any stock option plan or any unvested awards granted under any
other stock benefit plan of the Bank, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any
time, but any termination by the Bank, other than Termination for Cause, shall
not prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 8
herein.
6
<PAGE>
(b) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may, in its discretion, (i) pay the Executive all or part of the compensation
withheld while its contract obligations were suspended and (ii) reinstate (in
whole or in part) any of its obligations that were suspended.
(c) If the Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default (as defined in Section 3(x)(1)
of the FDIA), all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement may be terminated:
(i) by the Commissioner of Banks (the "Commissioner") or his or her designee at
the time the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the FDIA and (ii) by the Commissioner, or his or her designee
at the time the Director or such designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Commissioner or the FDIC to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(f) Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon compliance with 12
U.S.C. s.1828 (k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the Bank or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's
employment is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to the
performance of his duties on a full-time basis during such thirty
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<PAGE>
(30) days period), and (B) if his employment is terminated for any other reason,
the date specified in the Notice of Termination (which, in the case of a
Termination for Cause, shall not be less than thirty (30) days from the date
such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, except upon
the occurrence of a Change in Control and voluntary termination by the Executive
in which case the Date of Termination shall be the date specified in the Notice,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
11. CONFIDENTIALITY.
Executive recognizes and acknowledges that the knowledge of
the business activities and plans for business activities of the Bank and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Bank. Executive will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Bank. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
8
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12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid
in cash or check from the general funds of the Bank.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior employment agreement between the Bank or
any predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any such action shall
be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the
benefit of, Executive and, the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any
part of any provision, is held invalid, such invalidity shall not affect any
other provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9
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17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, unless otherwise specified herein.
19. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable settlements.
20. SUCCESSORS TO THE BANK.
The Bank shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
21. GENERAL PROVISIONS.
The parties hereto acknowledge that this Agreement was drafted
by the law firm of Thompson & Mitchell which at various times has served a
special counsel to the Bank. Executive acknowledges that he is sophisticated in
business matters (including, but not limited to, employment agreements) and that
he has had the opportunity to seek independent legal advice. Executive
specifically waives any actual or apparent conflict of interest of Thompson &
Mitchell in connection with the preparation and negotiation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and their seal to be affixed hereunto by its duly
authorized officers and directors, and Executive has signed this Agreement, on
the 27th day of March, 1996.
ATTEST: FALMOUTH CO-OPERATIVE BANK
BY: /s/ Santo P. Pasqualucci
-----------------------------
[SEAL]
WITNESS:
/s/ John A. DeMello /s/ George E. Young, III
----------------------------- -----------------------------
GEORGE E. YOUNG, III
11
FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP PLAN
3/96
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1.............................................................................................. 1
INTRODUCTION.................................................................................. 1
1.1 Plan; Purpose............................................................... 1
1.2 Qualified Profit Sharing Plan; ESOP......................................... 1
1.3 Effective Date.............................................................. 1
1.4 Administrator; Trustee...................................................... 1
1.5 Adopting Employers.......................................................... 1
1.6 Appendices.................................................................. 2
ARTICLE 2.............................................................................................. 2
DEFINITIONS AND CONSTRUCTION.................................................................. 2
2.1 Definitions................................................................. 2
2.2 Gender and Number........................................................... 6
2.3 Headings.................................................................... 6
ARTICLE 3.............................................................................................. 6
ELIGIBILITY AND PARTICIPATION................................................................. 6
3.1 Eligibility................................................................. 6
3.2 Participation............................................................... 7
3.3 Duration of Participation................................................... 7
3.4 Transfer.................................................................... 7
ARTICLE 4.............................................................................................. 8
PARTICIPANT CONTRIBUTIONS..................................................................... 8
ARTICLE 5.............................................................................................. 8
EMPLOYER CONTRIBUTIONS........................................................................ 8
5.1 Employer Contributions...................................................... 8
5.2 Statutory Limit on Contributions............................................ 8
5.3 Top-Heavy Minimum Benefit................................................... 9
5.4 Allocation Among Employers.................................................. 9
5.5 Transfer to Trust........................................................... 9
ARTICLE 6.............................................................................................. 10
PLAN ACCOUNTING............................................................................... 10
6.1 Participant Plan Accounts................................................... 10
6.2 Balance of Accounts......................................................... 10
6.3 Adjustments to Reflect Distributions........................................ 10
6.4 Adjustment to Reflect Top-Heavy Contributions............................... 10
6.5 Adjustment to Reflect Employer Contribution................................. 11
6.6 Adjustments to Reflect Trust Fund Experience................................ 11
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6.7 Adjustments to Reflect Dividends............................................ 11
6.8 Maximum Allocations......................................................... 12
ARTICLE 7.............................................................................................. 12
TRUST INVESTMENT FUNDS........................................................................ 12
7.1 Trust Investment Funds...................................................... 12
7.2 Investment of Employer Contribution......................................... 13
7.3 Investment of Cash Dividends................................................ 13
7.4 Appointment of Trustee...................................................... 13
ARTICLE 8.............................................................................................. 14
TRUST SUSPENSE FUNDS.......................................................................... 14
8.1 Suspense Funds.............................................................. 14
8.2 Release from Suspense Funds................................................. 14
8.3 Allocation of Released Shares............................................... 15
8.4 Fair Market Value........................................................... 15
ARTICLE 9.............................................................................................. 16
VESTING....................................................................................... 16
ARTICLE 10............................................................................................. 16
INVESTMENT DIVERSIFICATION.................................................................... 16
10.1 Eligibility................................................................. 16
10.2 Diversification............................................................. 16
10.3 Election Procedures......................................................... 17
10.4 Distribution of Company Stock............................................... 17
ARTICLE 11............................................................................................. 17
PAYMENT OF ACCOUNTS........................................................................... 17
11.1 Benefit Payments - In General............................................... 17
11.2 Benefits Paid Upon Normal Retirement........................................ 17
11.3 Benefits Paid Upon Disability............................................... 18
11.4 Benefits Paid Upon Death.................................................... 18
11.5 Benefits Paid Upon Termination.............................................. 18
11.6 Method of Distribution...................................................... 18
11.7 Payment of Small Amounts.................................................... 18
11.8 Medium of Payment........................................................... 19
11.9 Required Distributions...................................................... 19
11.10 Earnings on Plan Accounts........................................... 20
11.11 Life Expectancies................................................... 20
ARTICLE 12............................................................................................. 20
BENEFICIARIES................................................................................. 20
12.1 Designated Beneficiaries.................................................... 20
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12.2 Spousal Consent Requirements................................................ 21
12.3 Absence of Designated Beneficiary........................................... 21
ARTICLE 13............................................................................................. 21
PARTICIPANT LOANS............................................................................. 21
ARTICLE 14............................................................................................. 21
RELATING TO COMPANY STOCK..................................................................... 21
14.1 Investment in Company Stock; ESOP........................................... 21
14.2 Conversion to Cash.......................................................... 22
14.3 Voting of Company Stock..................................................... 22
14.4 Tender of Company Stock..................................................... 23
14.5 Non-Publicly Traded Shares.................................................. 23
14.6 Restriction of Stock Certificates........................................... 26
14.7 Share Acquisition Loan...................................................... 26
ARTICLE 15............................................................................................. 27
FORMER EMPLOYEES/PARTICIPANTS................................................................. 27
15.1 Participation............................................................... 27
15.2 Cessation of Distributions.................................................. 27
ARTICLE 16............................................................................................. 27
AMENDMENT AND TERMINATION..................................................................... 27
16.1 Amendment................................................................... 27
16.2 Termination................................................................. 28
16.3 Vesting on Termination...................................................... 28
16.4 Termination Distributions................................................... 29
ARTICLE 17............................................................................................. 29
MERGERS, TRANSFERS, AND ROLLOVERS............................................................. 29
17.1 Plan Merger, Consolidation or Benefit Transfer.............................. 29
17.2 Transfers Between Plans..................................................... 29
17.3 Rollover Contributions...................................................... 30
ARTICLE 18............................................................................................. 30
PLAN ADMINISTRATION........................................................................... 30
18.1 Administrative Committee.................................................... 30
18.2 Committee Powers............................................................ 30
18.3 Benefit Payments............................................................ 31
18.4 Committee Officers.......................................................... 31
18.5 Committee Actions........................................................... 31
18.6 Committee Member Who Is Participant......................................... 32
18.7 Resignation or Removal...................................................... 32
18.8 Information Required from Employer.......................................... 32
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18.9 Information Required from Employees......................................... 33
18.10 Uniform Rules and Administration.................................... 33
ARTICLE 19............................................................................................. 33
CLAIMS PROCEDURE.............................................................................. 33
19.1 Written Claim for Benefits.................................................. 33
19.2 Initial Review of Claim..................................................... 33
19.3 Claim Review Procedure...................................................... 34
19.4 Review Decisions Final...................................................... 34
ARTICLE 20............................................................................................. 34
GENERAL PROVISIONS............................................................................ 34
20.1 Prohibited Inurement........................................................ 34
20.2 Special Valuation Dates..................................................... 35
20.3 No Employment Rights........................................................ 35
20.4 Interests Not Transferable.................................................. 35
20.5 Absence of Guarantee........................................................ 35
20.6 Actions by Employer......................................................... 36
20.7 Expenses.................................................................... 36
20.8 Facility of Payment......................................................... 36
20.9 Missing Participants........................................................ 36
20.10 Applicable Law...................................................... 36
APPENDIX A.............................................................................................A-1
SERVICE CREDITING RULES.......................................................................A-1
APPENDIX B.............................................................................................B-1
TOP-HEAVY PROVISIONS..........................................................................B-1
APPENDIX C.............................................................................................C-1
IDENTIFYING HIGHLY COMPENSATED EMPLOYEES......................................................C-1
</TABLE>
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FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE 1
INTRODUCTION
1.1 Plan; Purpose.
The FALMOUTH CO-OPERATIVE BANK EMPLOYEE STOCK OWNERSHIP PLAN is adopted
by FALMOUTH CO-OPERATIVE BANK for the exclusive benefit of its eligible
employees and the eligible employees of each other corporation that
adopts the Plan. The purpose of the Plan is to provide a method for the
accumulation of a fund to assist eligible employees to attain financial
security in case of retirement or disability, and to assist
beneficiaries in case of an eligible employee's death.
1.2 Qualified Profit Sharing Plan; ESOP.
The Plan is a profit sharing plan that is intended to satisfy all
requirements of section 401(a) of the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income Security Act of 1974, as
amended.
A portion of the Plan is designed to invest primarily in the common
stock of the Company. This portion is intended to satisfy all
requirements of Code section 4975(e)(7) and therefore constitute an
employee stock ownership plan, as defined therein.
1.3 Effective Date.
The Plan shall be effective as of March 27, 1996.
1.4 Administrator; Trustee.
The Plan shall be administered by a committee appointed by the Board
under Article 18, and all assets of the Plan shall be held in trust by
one or more trustees appointed by the Board under a separate trust
agreement between the Trustee and the Company.
1.5 Adopting Employers.
With the approval of the Company, any corporation within the same
affiliated group (as defined in Code section 1504(a)) that includes the
Company may adopt the Plan for the benefit of its eligible employees.
The eligible employees of each corporation which adopts the Plan shall
participate under the same terms and conditions as the eligible
employees of each other such corporation.
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1.6 Appendices.
The Plan may be amplified or modified from time to time by appendices.
Each Appendix forms a part of the Plan and its provisions shall
supersede Plan provisions as necessary to eliminate any
inconsistencies.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
2.1 Definitions.
For purposes of this Plan, the following words and phrases, whether or
not capitalized, have the meanings specified below, unless the context
plainly requires a different meaning:
(a) "Active Participant" means an Employee who has become an Active
Participant under Section 3.2, but is not a Former Participant.
(b) "Adopting Employer" means a corporation that has adopted the Plan
for the benefit of its eligible employees pursuant to Section
1.5.
(c) "Beneficiary" means a person (including an estate or personal
representative) to whom all or a portion of the Participant's
Distributable Benefit is to be paid if he dies before the
complete payment of such benefit.
(d) "Benefit Payment Date" means the date specified in Article 12 or
properly elected by the Participant (or his Beneficiary) on which
his Distributable Benefit is to be paid or commence, determined
without regard to any delay in payment caused for administrative
reasons.
(e) "Board" means the Board of Directors of the Company.
(f) "Cash Account" means a cash account maintained on behalf of the
Participant under Section 6.1, including all subaccounts
thereunder.
(g) "Code" means the Internal Revenue Code of 1986, as amended, and
all valid regulations thereunder.
(h) "Committee" means the committee appointed by the Board under
Article 18 to administer the Plan.
(i) "Company" means FALMOUTH CO-OPERATIVE BANK, a Massachusetts stock
co-operative bank.
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(j) "Company Stock" means the shares of common stock of the Employer
as described in Section 4975(e)(8) of the Code which are readily
tradeable on an established securities market, or if not readily
tradeable, meet the following criteria:
(1) common stock issued by the Company (or by a corporation
which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or
in excess of that class of common stock having the greatest
voting power, and
(2) that class of common stock having the greatest dividend
rights.
Noncallable preferred stock shall be deemed to be "Company
Stock" if such stock is convertible at any time into stock
which constitutes "Company Stock" hereunder and if such
conversion is at a conversion price which (as of the date of
the acquisition by the Trust) is reasonable.
(k) "Compensation" means the amount of the regular wages or salary,
including bonuses, cash incentives, overtime and commissions,
paid to an Employee by the Company within a Plan Year beginning
from the Employee's date of participation in the Plan. Company
contributions for pensions, profit sharing or insurance benefits
are excluded from Compensation. Compensation includes the taxable
value of automobiles and expense allowances reported on federal
Form W-2. Compensation also shall include all payments from a
cafeteria plan described in Code Section 125 to the extent such
payments are includible in gross income. Only the first $150,000
(or such other amount as determined under Code Section
401(a)(17)) of the Participant's annual compensation shall be
treated as Compensation for purposes of the Plan.
For purposes of Sections 5.1 and 6.5 (relating to Employer
Contributions), each Extended Family Group shall be treated as
one Participant with Compensation equal to the aggregate
Compensation of each member of such Extended Family Group
(determined after applying the Compensation limitation above).
For purposes of this Section, "Extended Family Group" means a
group consisting of the following Employees: (i) a Highly
Compensated Employee who is either a five percent (5%) owner or a
member of the group consisting of the top ten (10) Employees when
ranked by Compensation received during the determination year or
the look back year; (ii) the spouse of such Highly Compensated
Employee; (iii) a lineal ascendent or descendant; or (iv) a
spouse of such lineal ascendent or descendant; provided that, an
Employee shall be included in the group only if he is an Active
Participant for the Plan Year.
(l) "Disability" means a physical or mental disability which, in the
opinion of a physician selected by the Plan Administrator, will
prevent a Participant for an
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<PAGE>
indefinite period from performing the duties of his customary
position and which is likely to be of long continued duration.
(m) "Employer Contribution" means a contribution made to the Trust
Fund by the Employer under Section 5.1.
(n) "Distributable Benefit" means the vested and nonforfeitable
portion of the Participant's Plan Account as of his Benefit
Payment Date (determined based upon the vested interest that the
Participant has or would have in his Plan Account at the end of
the Plan Year that includes his Benefit Payment Date), as
adjusted to reflect any gain or loss allocable to his Plan
Account for periods after his Benefit Payment Date and before
complete distribution from the Plan.
(o) "Effective Date" means March 27, 1996, the effective date of the
Plan.
(p) "Employee" means any common-law employee or Leased Employee (as
defined in Code section 414(n)) of the Employer, other than a
person who is a nonresident alien who has no earned income
(within the meaning of Section 911(d)(2) of the Code) which
constitutes income from sources within the United States (within
the meaning of Section 861(a)(3) of the Code.)
(q) "Employer" means, collectively, the Company and any corporation
that is a member of a controlled group that includes the Company
(as defined in Code section 414(b)); any trade or business under
common control with the Company (as defined in Code section
414(c)); and any organization that is a member of an affiliated
service group that includes the Company (as defined in Code
section 414(m)).
To determine the maximum allocation permitted to a Participant
under Section 6.8, "Employer" also includes any entity required
to be aggregated with the Company under Code section 414(o).
(r) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all valid regulations thereunder.
(s) "Former Participant" means a Participant who has become a Former
Participant under Section 3.3, but who has not received full
payment of his Distributable Benefit or again become an Active
Participant.
(t) "General Trust Fund" mean the portion of the Trust Fund invested
at the discretion of the Trustee in assets other than Company
Stock.
(u) "Highly Compensated Employee" means an Employee identified as
such under Appendix C.
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<PAGE>
(v) "Hour of Service" means each hour specified as such under
Appendix A.
(w) "Late Retirement Date" means the last day of the Plan Year
coincident with or next following a Participant's actual
retirement date after having reached his Normal Retirement Date.
(x) "Normal Retirement Age" means the date on which an individual
attains (or would have attained) age sixty-five (65).
(y) "Normal Retirement Date" means the later of (i) the date upon
which the Participant attains his Normal Retirement Age or (ii)
the first anniversary of the date he became an Active Participant
in the Plan as provided in Section 3.2.
(z) "One-Year Break-in-Service" means a Plan Year during which the
Participant is credited with 500 or fewer Hours of Service.
(aa) "Participant" means an Active Participant or Former Participant.
(ab) "Plan" means the FALMOUTH CO-OPERATIVE BANK Employee Stock
Ownership Plan, as set forth in this document.
(ac) "Plan Account" means the account maintained by the Committee on
behalf of a Participant under Section 6.1 and includes the Cash
Account and the Stock Account thereunder.
(ad) "Plan Year" means the twelve (12) consecutive month period that
begins October 1 of each year and ends the following September
30.
(ae) "Share Purchase Loan" means a loan or other extension of credit,
the proceeds of which are used to acquire Company Stock.
(af) "Stock Account" means a stock account maintained on behalf of the
Participant under Section 6.1.
(ag) "Stock Fund" means the portion of the Trust Fund which is
invested primarily in Company Stock.
(ah) "Suspense Fund" means the portion (or a portion) of the Stock
Fund which reflects the shares of Company Stock not allocated to
Participants' Stock Accounts.
(ai) "Trust Agreement" means the Trust Agreement made and entered into
by the Company with the Trustee pursuant to the Plan, as said
Agreement is amended from time to time.
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<PAGE>
(aj) "Trust Fund" means the assets held in the trust established
between the Company and the Trustee, which shall consist of the
General Trust Fund and the Stock Fund.
(ak) "Trustee" means the person(s) or corporation(s) appointed by the
Board to administer the Trust, and any successor trustee
appointed under the terms of the trust.
(al) "Valuation Date" means the last business day of each Plan Year
and each special valuation date designated by the Committee under
Section 20.2.
(am) "Year of Vesting Service" means a Plan Year during which an
Employee completes 1,000 Hours of Service. For purposes of the
Plan, all Years of Vesting Service prior to the date the
Participant attained age eighteen (18) shall be disregarded.
A definition introduced later in the Plan also applies for all Plan
purposes unless the context plainly requires a different meaning.
2.2 Gender and Number.
Pronouns in the Plan stated in the masculine gender include the
feminine gender, words in the singular include the plural, and words in
the plural include the singular.
2.3 Headings.
All headings in the Plan are included solely for ease of reference and
do not bear on the interpretation of the text. As used in the Plan, the
terms "Article," "Section," and "Appendix" mean the text that
accompanies the specified Article, Section, or Appendix of the Plan.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility.
An Employee who is employed by an Adopting Employer shall be eligible
to participate in the Plan unless (i) he has not attained age
twenty-one (21), (ii) he is a person who is paid by the Adopting
Employer as an independent contractor, or (iii) he is covered under a
collective bargaining agreement, and the agreement does not provide
that he is eligible to participate in the Plan. The Committee shall
notify each Employee of the date he becomes eligible to participate in
the Plan and the necessary actions that may be required on his part to
obtain or participate in all benefits of the Plan.
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<PAGE>
3.2 Participation.
Each Employee shall become an Active Participant on the October 1 or
April 1 coincident with or next following the later of the date which
is six (6) months after the date on which he is first employed by the
Company or the date on which he satisfies the eligibility conditions of
Section 3.1. Each Employee who has satisfied the eligibility conditions
of Section 3.1 and the six month requirement of the preceding sentence
and who is an Employee on the Effective Date shall become an Active
Participant on the Effective Date. Notwithstanding the foregoing, an
Employee shall not become or remain an Active Participant if he does
not satisfy the eligibility conditions of Section 3.1 on the entry date
specified above, but may later become an Active Participant in
accordance with Article 15.
3.3 Duration of Participation.
An Active Participant shall become a Former Participant on the first to
occur of the following:
(a) The date on which his employment with the Employer terminates or
he otherwise fails to satisfy the eligibility conditions of
Section 3.1; or
(b) The date on which the Plan terminates.
A Former Participant shall remain such until he receives full payment
of his Distributable Benefit or again becomes an Active Participant
under Article 15.
3.4 Transfer.
In the event that a Participant is transferred to employment with a
member of the controlled group (as defined in Code sections 414(b), (c)
or (m)) that includes the Company, which has not adopted the Plan or to
employment with the Employer in a status other than as an Employee, or
in the event that a person is transferred from employment with a member
of the controlled group which has not adopted the Plan or from other
employment with the Employer in a status other than Employee to
employment with the Employer under circumstances making such person an
Employee, then the following provisions of this Subsection shall apply:
(a) Transfer to employment (i) with a member of the controlled
group which has not adopted the Plan or (ii) with the Employer
not as an Employee shall not be considered termination of
employment with the Employer, and such transferred person
shall continue to be entitled to the benefits provided in the
Plan, as modified by this Subsection.
7
<PAGE>
(b) No amounts earned from a member of the controlled group at a
time when it has not adopted the Plan or from the Employer not
as an Employee, shall constitute Compensation hereunder.
(c) Termination of employment with a member of the controlled
group which has not adopted The Plan by a person entitled to
benefits under this Plan (other than to transfer to employment
with the Company or another member of the controlled group)
shall be considered as termination of employment with the
Employer.
(d) All other terms and provisions of this Plan shall fully apply
to such person and to any benefits to which he may be entitled
hereunder.
ARTICLE 4
PARTICIPANT CONTRIBUTIONS
A Participant is neither required nor allowed to make contributions to
the Trust Fund under this Plan.
ARTICLE 5
EMPLOYER CONTRIBUTIONS
5.1 Employer Contributions.
The Employer shall make a contribution under this Section to the Trust
Fund for each Plan Year of an amount determined by the Board; provided
that, for any Plan Year in which a Share Purchase Loan remains
outstanding, the contribution under this Section shall not be less than
the amount needed to provide the Trustee with cash sufficient to pay
any currently maturing obligations under such loan. Employer
Contributions shall be made in cash or in Company Stock as the Board
may from time to time determine.
The contribution made by the Employer under this Section shall be
allocated among the Plan Accounts of Participants under Section 6.5,
and shall be identified as an "Employer Contribution" for purposes of
this Plan.
5.2 Statutory Limit on Contributions.
Any contrary provision of the Plan notwithstanding, Employer
Contributions for a Plan Year shall be limited as necessary to satisfy
the following:
8
<PAGE>
(a) Subject to the minimum specified in Section 5.1, the Employer
Contribution shall not exceed an amount that can be fully
credited to the Participants' Plan Accounts without resulting in
an annual addition to the Plan Account of any Participant in
excess of the maximum permitted under Section 6.8.
(b) Unless this provision is waived by the Company for a Plan Year,
the Employer Contribution shall not exceed an amount that can be
fully deducted by the Employer for federal income tax purposes
for the taxable year of the Employer that ends with or within the
Plan Year. The Committee shall prescribe uniform and
nondiscriminatory rules to implement this limitation.
5.3 Top-Heavy Minimum Benefit.
If the Plan is Top-Heavy for a Plan Year (as determined under Appendix
B), a top-heavy minimum contribution shall be made on behalf of each
Participant who is a non-key employee for the Plan Year and who is an
Employee on the last day of the Plan Year. Such top-heavy minimum
contribution shall equal the lesser of the following:
(a) Three percent (3%) of the Participant's 415 Compensation (as
defined in Appendix B) for the Plan Year; or
(b) A percentage of the Participant's 415 Compensation (as defined in
Appendix B) for the Plan Year equal to the percentage of 415
Compensation received as an Employer Contribution by the key
employee who received the greatest such percentage.
The top-heavy contribution made by the Employer under this Section
shall be reduced by the Employer Contribution otherwise allocated to
the Plan Account of the Participant for the Plan Year under Section 6.4
and shall be identified as a "Top-Heavy Contribution" for purposes of
the Plan.
5.4 Allocation Among Employers.
An Adopting Employer shall contribute that portion of the Employer and
Top-Heavy Contributions for the Plan Year that is attributable to
services performed while in the employ of the Adopting Employer;
provided that, any Adopting Employer may make all or any part of the
contribution for any other Adopting Employer, if each is a member of
the same group which files a consolidated federal income tax return for
the year.
5.5 Transfer to Trust.
The Employer shall transfer the Employer and Top-Heavy Contributions
for each Plan Year to the Trust Fund not later than the time prescribed
by law (including extensions) for filing the federal income tax return
for its taxable year that ends with such Plan Year.
9
<PAGE>
ARTICLE 6
PLAN ACCOUNTING
6.1 Participant Plan Accounts.
The Committee shall maintain a Plan Account for each Participant and
such number of accounts and subaccounts within the Plan Account as the
Committee deems appropriate to adequately disclose the interest of the
Participant in the Trust. At a minimum, each Plan Account shall consist
of the Cash Account and the Stock Account.
(a) "Cash Account" shall reflect the Participant's interest in the
Trust Fund attributable to net gain (or loss) of Plan,
Employer and Top-Heavy Contributions in other than Company
Stock.
(b) "Stock Account" shall reflect the Participant's interest in
the Trust Fund attributable to Company Stock which has been
allocated to the Participant.
6.2 Balance of Accounts.
The balance of a Cash Account or Stock Account as of any date is the
balance of the account after the immediately preceding Valuation Date,
less amounts thereafter properly debited, and plus amounts thereafter
properly credited, to the account under this Article. The balance of
each Cash Account shall be expressed in United States dollars, and the
balance of each Stock Account shall be expressed in a number of shares
(whole or fractional) of Company Stock.
The balance of a Participant's Plan Account as of any date is the
aggregate balance of all Cash and Stock Accounts within the Plan
Account (expressed in United States dollars and a number of shares
(whole and fractional) of Company Stock, as appropriate) as of such
date.
6.3 Adjustments to Reflect Distributions.
The distributions from the Trust Fund which are drawn from a Cash
Account or Stock Account shall be debited to such account as of the
distribution date.
6.4 Adjustment to Reflect Top-Heavy Contributions.
The Top-Heavy Contributions made on behalf of a Participant for a Plan
Year shall be credited to the appropriate Cash Account or Stock Account
of the Participant as of the last Valuation Date of such Plan Year,
irrespective of whether such contributions actually have been paid to
the Trustee by such date.
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<PAGE>
6.5 Adjustment to Reflect Employer Contribution.
The Employer Contribution for each Plan Year shall be allocated among
the Plan Accounts of the Participants specified below, and the portion
allocated to each Participant shall be credited to the Cash Account or
the Stock Account of the Participant as of the last Valuation Date of
such Plan Year, irrespective of whether such contribution actually has
been paid to the Trustee by such date.
The Employer Contribution shall be allocated among the Plan Accounts of
the following Participants:
(a) Those Participants who are Active Participants on the last day of
the Plan Year; and
(b) Those Participants who ceased to be Active Participants during
the Plan Year by reason of death, Disability, or Retirement.
The portion of the Employer Contribution allocated to the Plan Account
of each such Participant shall equal an amount determined by
multiplying the Employer Contribution by a fraction, the numerator of
which is the Participant's Compensation, and the denominator of which
is the aggregate Compensation of all such Participants.
For purposes of this Section, a Participant's Compensation includes all
Compensation he received during that portion of the Plan Year during
which he was an Active Participant.
6.6 Adjustments to Reflect Trust Fund Experience.
The net gain (or loss) of the General Trust Fund for each Plan Year
shall be allocated among all Cash Accounts, and the portion allocated
to each shall be credited (or debited) to such Cash Account as of the
Valuation Date for such Plan Year. The portion of the net gain (or
loss) of the General Trust Fund allocated to each such Cash Account
shall be the pro rata share of the net gain (or loss) based on the
change in fair market value of assets therein since the last adjustment
and computed in accordance with uniform valuation procedures
established by the Trustee.
To determine net gain (or loss), all assets of the General Trust Fund
shall be valued at their fair market value as of the Valuation Date.
6.7 Adjustments to Reflect Dividends.
Cash dividends paid on shares of Company Stock allocated to a
Participant's Stock Account as of the dividend record date shall be
credited to the Cash Account of the Participant as of such date.
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<PAGE>
6.8 Maximum Allocations.
Anything contained herein to the contrary notwithstanding, the
Participant's annual additions (as defined in Code section 415(c))
shall not exceed the limitations imposed under Code section 415. The
provisions of Code section 415 are hereby incorporated herein by
reference.
Notwithstanding the foregoing, the otherwise permissible benefits under
Code section 415 for any Participant may be further reduced to the
extent necessary to prevent disqualification of the Plan under Code
section 415.
If a Participant is participating or has participated in a defined
benefit plan maintained by the Employer, and the combined Plan
limitation under Code section 415 is exceeded in any Plan Year, the
Committee shall determine whether the Participant's benefit under the
Plan or under such defined benefit plan shall be limited as necessary
to satisfy the combined limit under Code section 415.
ARTICLE 7
TRUST INVESTMENT FUNDS
7.1 Trust Investment Funds.
All contributions made under the Plan, and all earnings and increments
thereon, shall be held by the Trustee in the Trust Fund, which shall
consist of the following funds:
(a) "General Trust Fund" which shall be invested at the discretion of
the Trustee in accordance with the Trust Agreement.
(b) "Stock Fund" which shall be invested primarily in Company Stock,
which fund shall be segregated into: (i) one or more "Suspense
Funds," which shall reflect Company Stock purchased with the
proceeds of a Share Purchase Loan and not yet allocated to
Participants' Stock Accounts (a separate Suspense Fund to be
maintained with respect to each Share Purchase Loan), (ii) one or
more "Loan Purchase Funds," which shall reflect Company Stock
purchased with the proceeds of a Share Purchase Loan and
allocated to Participants' Stock Accounts (a separate Loan
Purchase Fund to be maintained with respect to each Share
Purchase Loan), and (iii) a "Cash Purchase Fund," which shall
reflect Company Stock otherwise acquired and allocated to
Participants' Stock Accounts.
The Trustee shall manage and maintain all assets of the Trust Fund in
accordance with the Trust Agreement between the Company and the
Trustee, and no Participant or Beneficiary shall be allowed to direct
the Trustee as to the investment of any assets of the Trust Fund.
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<PAGE>
7.2 Investment of Employer Contribution.
Trust Assets under the Plan will be invested primarily in Company
Stock, as provided in the Trust Agreement. Trust assets may be used to
purchase shares of Company Stock from Company shareholders or from the
Company. The Trustee may also invest Trust assets in savings accounts,
certificates of deposit, high-grade short-term securities, equity
stocks, bonds, or other investments, or Trust assets may be held in
cash. All investments of Trust assets shall be made by the Trustee only
upon the direction of the Committee, and all purchases of Company Stock
made by the Trustee shall be made at prices which do not exceed the
fair market value of such shares, as determined in good faith by the
Committee. The Committee may direct the Trustee to invest and hold up
to 100% of the Trust assets in Company Stock.
7.3 Investment of Cash Dividends.
The cash dividends paid to the Trust Fund on Company Stock held therein
shall be applied as follows:
(a) Loan Purchase Fund Shares: At the direction of the Committee,
cash dividends on Company Stock held within a Loan Purchase Fund
shall be invested in the General Trust Fund.
(b) Cash Purchase Fund Shares: At the direction of the Committee,
cash dividends on Company Stock held within the Cash Purchase
Fund shall be invested in the General Trust Fund.
(c) Suspense Fund Shares: Cash dividends on shares of Company Stock
held within a Suspense Fund shall be applied to pay principal and
interest on the corresponding Share Purchase Loan.
All cash dividends applied under this Section to pay principal and
interest on a Share Purchase Loan shall be so applied annually together
with the Employer and Top-Heavy Contributions for the Plan Year. All
cash dividends applied under this Section to acquire Company Stock
shall be so applied at such time as the Trustee may determine.
7.4 Appointment of Trustee.
All contributions to the Plan shall be committed in trust to the
Trustees. The Trustees shall be appointed from time to time by the
Board by appropriate instrument, with such powers in the Trustees as to
investment, reinvestment control and disbursement of the funds as the
Board shall approve and as shall be in accordance with the Plan. The
Board may remove any Trustee at any time, upon reasonable notice, and
upon such removal or upon the resignation of any Trustee, the Board
shall designate a successor Trustee.
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ARTICLE 8
TRUST SUSPENSE FUNDS
8.1 Suspense Funds.
The portion of the Stock Fund reflecting shares of Company Stock which
were acquired with the proceeds of a Share Purchase Loan and which have
not been allocated to Participants' Stock Accounts shall be identified
as a Suspense Fund. which holds such Company Stock pending their
release and allocation to the Participants' Stock Accounts under the
terms and conditions of this Article. A separate Suspense Fund shall be
maintained to reflect Company Stock acquired with the proceeds of each
separate Share Purchase Loan.
8.2 Release from Suspense Funds.
Shares of Company Stock shall be released from a Suspense Fund only
once with respect to each Plan Year and upon release shall be allocated
among the Participants' Stock Accounts under Section 8.3.
The number of shares of Company Stock released from a Suspense Fund
with respect to each Plan Year shall equal the number of shares of
Company Stock held in the Suspense Fund immediately before the release
multiplied by a fraction, the numerator of which is the amount of
principal and interest paid on the corresponding Share Purchase Loan
for the Plan Year, and the denominator of which is the sum of (i) the
numerator, and (ii) the amount of principal and interest that will be
paid on the corresponding Share Purchase Loan in all future Plan Years
(determined without regard to any possible renewal or extension of the
Share Purchase Loan). For this purpose, if a variable interest rate
applies under a Share Purchase Loan, the interest that will be paid on
the Share Purchase Loan in future Plan Years shall be computed by using
the interest rate in effect at the end of the then current Plan Year.
Notwithstanding anything contained herein to the contrary, the number
of shares of Company Stock released from a Suspense Fund with respect
to each Plan Year may be determined solely with reference to principal
payments if the following three (3) conditions are satisfied: (i) the
Share Purchase Loan must provide for annual payments of principal and
interest at a cumulative rate that is not less rapid than level
payments over ten (10) years; (ii) the Share Purchase Loan term does
not exceed the ten (10) years; and (iii) the portion of each Share
Purchase Loan payment which is disregarded as interest does not exceed
the amount of the payment that would be treated as interest under
standard loan amortization tables.
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8.3 Allocation of Released Shares.
Shares of Company Stock released from a Suspense Fund for the Plan Year
shall be allocated among the Participants' Stock Accounts as follows:
Allocation Based on Employer/Top-Heavy Contribution: The
number of shares of Company Stock released shall be allocated
among the Plan Accounts of those Participants who were
allocated a portion of the Employer Contribution (or received
a Top-Heavy Contribution) for the Plan Year.
The number of shares of Company Stock allocated to the Plan
Account of each such Participant shall equal the number
determined by multiplying the total number of shares of
Company Stock to be allocated under this Subsection by a
fraction, the numerator of which is the dollar amount of the
Employer Contribution allocated to the Participant (plus the
dollar amount of the Top-Heavy Contribution received by the
Participant), and the denominator of which is the dollar
amount of the Employer Contribution (plus the aggregate dollar
amount of all Top-Heavy Contributions) for the Plan Year.
For purposes of this Section, the number of shares of Company Stock
released as a result of applying any specified amount to pay principal
and interest on the Share Purchase Loan shall equal the number
determined by multiplying the total number released for the Plan Year
by a fraction, the numerator of which is the specified amount so
applied, and the denominator of which is the total amount applied to
pay principal and interest on the Share Purchase Loan for the year.
8.4 Fair Market Value.
For purposes of the Plan, the "fair market value" of a share of Stock
means, for any particular date, (i) for any period during which the
Stock shall not be listed for trading on a national securities
exchange, but when prices for the Stock shall be reported by the
National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the last transaction
price per share as quoted by National Market System of NASDAQ, (ii) for
any period during which the Stock shall not be listed for trading on a
national securities exchange or its price reported by the National
Market System of NASDAQ, but when prices for the Stock shall be
reported by NASDAQ, the closing bid price as reported by the NASDAQ,
(iii) for any period during which the Stock shall be listed for trading
on a national securities exchange, the closing price per share of Stock
on such exchange as of the close of such trading day or (iv) the market
price per share of Stock as determined by a nationally recognized
investment banking firm selected by the Board of Directors in the event
neither (i), (ii) or (iii) above shall be applicable. If fair market
value is to be determined as of a day
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when the securities markets are not open, the fair market value on that
day shall be the fair market value on the preceding day when the
markets were open.
ARTICLE 9
VESTING
A Participant (or in case of death, his Beneficiary) shall have a fully
vested and nonforfeitable interest in his entire Plan Account balance
at all times.
ARTICLE 10
INVESTMENT DIVERSIFICATION
10.1 Eligibility
A Participant shall be eligible for the diversification election
available under this Article if he has attained age fifty-five (55) and
completed ten (10) years of participation in the Plan.
10.2 Diversification.
A Participant who is eligible under Section 10.1, shall be permitted,
for each Plan Year within his diversification election period (as
defined below), to diversify his Stock Account the following portion of
such accounts in accordance with Section 10.4:
(a) For the first five (5) Plan Years within his diversification
election period, any whole number of shares of Company Stock
up to twenty-five percent (25%) of the number of shares of
Company Stock credited to his Stock Account as of the last day
of the Plan Year, less the number of shares of Company Stock
previously diversified under this Section.
(b) For the final Plan Year within his diversification election
period, any whole number of shares of Company Stock up to
fifty percent (50%) of the number of shares of Company Stock
credited to his Stock Account as of the last day of the Plan
Year, less the number of shares of Company Stock previously
diversified under this Section.
For purposes of this Section, the "diversification election period" is
the six (6) Plan Year period that begins with the Plan Year in which
the Participant satisfies the eligibility requirements of Section 10.1.
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10.3 Election Procedures.
To diversify his Stock Account, a Participant must file a
diversification election with the Committee not later than ninety (90)
days after the end of the Plan Year on a form provided by the Committee
for this purpose. If a Participant fails to file a timely election, the
Participant shall be deemed to have elected not to diversify any
portion of his Stock Account for such year.
10.4 Distribution of Company Stock.
If a Participant files a timely diversification election, the Committee
shall direct the Trustee to distribute the number of shares of Company
Stock properly specified by the Participant. Such distribution shall be
made as soon as practicable, but not later than ninety (90) days, after
the close of the election period specified in Section 10.3.
ARTICLE 11
PAYMENT OF ACCOUNTS
11.1 Benefit Payments - In General.
A Participant (or in case of death, his Beneficiary) shall be paid his
Distributable Benefit under the terms and conditions of this Article
after his employment with the Employer has terminated. To the extent
that an option is available with respect to the time or form of
payment, a Participant (or Beneficiary) may select any such option by
filing a written selection with the Committee on such form and in
accordance with such rules as shall be prescribed by the Committee for
this purpose.
Anything contained herein to the contrary, if the benefit payable to a
Participant is greater than $3,500 and the date of distribution is
prior to the Participant's Mandatory Benefit Distribution Date, the
Participant must consent to the distribution. In the event the
Participant does not consent to such distribution prior to his
Mandatory Benefit Distribution Date, distribution shall be made to such
Participant and without his consent on the earlier of (i) a date within
ninety (90) days after the end of the Plan Year which ends on or after
the date such Participant consents in writing to the Committee to such
distribution, or (ii) his Mandatory Benefit Distribution Date. For
purposes of this Section 11.1, "Mandatory Benefit Distribution Date"
means the date the Participant attains age sixty-five (65).
11.2 Benefits Paid Upon Normal Retirement.
A Participant who retires from service with the Employer on or after
his Normal Retirement Date shall have a nonforfeitable interest in his
Plan Account and, subject to Section 11.1, shall be entitled to receive
a distribution of his Plan Account as soon as
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practicable following the end of the Plan Year coincident with or next
following his date of retirement.
11.3 Benefits Paid Upon Disability.
A Participant who retires from the service of the Employer on account
of his Disability shall have a nonforfeitable interest in his Plan
Account and, subject to Section 11.1, shall be entitled to receive a
distribution of his Plan Account as soon as practicable following the
end of the Plan Year coincident with or next following the
determination of his Disability.
11.4 Benefits Paid Upon Death.
Upon the death of a Participant while in active employment with the
Employer, or upon such Participant's death after the date the
Participant's service terminates on account of his Disability or
retirement and prior to the date distribution of his benefit commences,
the Participant shall have a nonforfeitable interest in his Plan
Account and his Beneficiary shall be entitled to receive a distribution
of the Plan Account as soon as practicable following the end of the
Plan Year coincident with or next following his date of death.
11.5 Benefits Paid Upon Termination.
A Participant whose employment with the Employer terminates prior to
his Normal Retirement Date for reasons other than death or Disability,
shall be entitled to receive a distribution of the vested balance of
his Plan Account. Such distribution shall be based on Years of Vesting
Service as of the date of termination and, subject to Section 11.1,
shall be paid as soon as practicable following the end of the Plan Year
coincident with or next following his date of termination.
11.6 Method of Distribution.
A Participant (or in the case of death, his Beneficiary) shall be paid
the vested portion of his Plan Account in a single lump-sum.
A Participant shall accrue earnings (or losses) on the Plan Account
until the date of distribution.
11.7 Payment of Small Amounts.
Any contrary provision of this Article notwithstanding, if a
Participant's Distributable Benefit does not exceed $3,500 (and the
balance of his Plan Account has not exceeded $3,500 immediately prior
to any distribution), a single-sum payment of the full amount of his
Distributable Benefit shall be made to the Participant (or in case of
death, his Beneficiary) thirty (30) days after the date on which his
employment with the Employer
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terminates, or as soon as practicable thereafter, and the Participant
shall not be permitted to elect any option otherwise available under
this Article.
11.8 Medium of Payment.
All payments under this Article shall be in the form of cash and, to
the extent that the Participant's Plan Account consists of Company
Stock, whole shares; provided that, (i) a Participant or Beneficiary
who would otherwise receive Company Stock may instead elect to have
such Company Stock converted to cash and the proceeds thereof
distributed, and (ii) a Participant or Beneficiary who would otherwise
receive cash may instead elect to have such cash converted to Company
Stock (whole shares only) and distributed. Any fractional interest in
Company Stock shall be converted to cash and distributed. A conversion
of Company Stock to cash under this Section shall be made in accordance
with Section 14.2.
Notwithstanding the foregoing, if the Company's charter or bylaws
restrict ownership of substantially all shares of Company Stock to
Employees and the Trust Fund, the distribution of a Participant's Plan
Account shall be made pursuant to this Section without granting the
Participant the right to demand distribution in shares of Company
Stock.
11.9 Required Distributions.
Any contrary provision of this Section notwithstanding, payments shall
be made with respect to each Participant under the following rules:
(a) A minimum payment shall be made to a Participant for the
calendar year in which he attains age 70-1/2 and each
subsequent calendar year. The minimum payment for the calendar
year in which he attains age 70-1/2 shall be made by the
Participant's Required Beginning Date, and the minimum payment
for each subsequent calendar year shall be made by the
December 31 of such year.
(b) If a Participant dies before his Required Beginning Date, a
minimum payment will be made to each designated Beneficiary
for each calendar year beginning with the following:
(i) If the Participant's spouse is the Beneficiary, the
later of the calendar year that follows the year of the
Participant's death, or the calendar year in which the
participant would have attained age 70-1/2.
(ii) If the Participant's spouse is not the Beneficiary, the
calendar year that follows the year of the
Participant's death.
The minimum payment for each calendar year will be made by the
December 31 of such year.
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(c) If a Participant dies before his Required Beginning Date, full
payment of all amounts due to a Beneficiary who is not a
designated Beneficiary shall be made not later than the
December 31 of the calendar year in which occurs the fifth
(5th) anniversary of the Participant's death.
(d) If a Participant dies on or after his Required Beginning Date,
all payments to a Beneficiary after the Participant's death
shall be made at least as rapidly as the payments made to the
Participant before his death.
All payments required under this Section shall be determined under Code
section 401(a)(9), including the minimum distribution incidental
benefit requirements thereunder.
For purposes of this section, "Required Beginning Date" means, except
as provided by law, the April 1 of the calendar year after the calendar
year in which the Participant attains age 70-1/2.
11.10 Earnings on Plan Accounts.
If a Participant's employment with the Employer terminates and he does
not elect to receive immediate payment of his Distributable Benefit,
the Participant's Plan Account shall continue to be credited to reflect
investment return and dividends in accordance with Sections 6.6 and
6.7.
11.11 Life Expectancies.
When necessary under this Article, the life expectancy of a Participant
or his Beneficiary shall be determined by the use of "the expected
return multiples in Tables V and VI of Treasury Regulation Section
1.72-9. Life expectancies shall not be recalculated annually for any
purpose under this Article.
ARTICLE 12
BENEFICIARIES
12.1 Designated Beneficiaries.
A Participant may designate one or more persons to whom his
Distributable Benefit shall be paid if he dies before he receives
complete payment of such benefit; provided that, the sole designated
Beneficiary of a Participant who is lawfully married shall be his
spouse unless his spouse properly consents to the designation of an
additional or another person or persons as Beneficiary.
A Beneficiary designation must be made on a form provided by the
Committee for this purpose. It shall be effective on the date the
designation form actually is received by the
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Committee, shall revoke all prior designations made by the Participant,
and itself may be revoked by the Participant at any time.
A Beneficiary designation form received by the Committee after a
Participant's death shall be null and void, and during a Participant's
life, a Beneficiary designation form may be filed only by the
Participant.
12.2 Spousal Consent Requirements.
The spouse of a Participant who designates a person or persons other
than such spouse as a Beneficiary must consent in writing to the
specific person or persons designated. The written consent must
acknowledge the effect of the designation, and must be witnessed by a
member of the Committee or a notary public. The designation of a
Beneficiary cannot be changed without spousal consent to the new
designation unless the prior consent of the spouse expressly permits
future designations by the Participant without further spousal consent.
12.3 Absence of Designated Beneficiary.
If no designated Beneficiary survives the Participant, then his estate
shall be his Beneficiary for purposes of this Plan.
ARTICLE 13
PARTICIPANT LOANS
No loans from the Trust Fund to a Participant are permitted under the
Plan.
ARTICLE 14
RELATING TO COMPANY STOCK
14.1 Investment in Company Stock; ESOP.
The Employer Contribution made to the Trust Fund shall be invested by
the Trustee to provide Participants with whole and fractional interests
in shares of Company Stock, subject to minimum fractional interests
established by the Trustee from time to time. For any period in which
such contributions are not invested in Company Stock they shall, at the
discretion of the Trustee, be held within the Trust in cash or invested
in savings accounts, certificates of deposit, high-grade short-term
securities, equity stocks, bonds or other investments. Subject to
applicable law, the Trustee may acquire Company Stock
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on the open market, through private purchases, purchases from the
Company (including purchases of treasury shares or authorized but
unissued shares), or otherwise.
The portion of the Plan and Trust Fund which is invested in Company
Stock and is attributable to Employer Contribution is intended to
satisfy all requirements of Code section 4975(e)(7) and therefore
constitutes an employee stock ownership plan, as defined therein.
14.2 Conversion to Cash.
If it is necessary to convert Company Stock held within the Stock Fund
to cash to provide for a distribution to a Participant or Beneficiary,
or for any other reason required under the Plan, the following shall
apply:
(a) The Trustee shall purchase such shares with the cash amounts
(if any) then reflected in the Participant's Stock Accounts;
provided that, if a Share Purchase Loan is outstanding, such
cash amounts shall be so applied only if so directed by the
Committee.
(b) To the extent that Company Stock cannot be purchased under
(a), the Trustee shall sell such shares on the open market, or
to any other employee benefit plan or program maintained by
the Employer, or to the Company; provided that, any sales to
any such employee benefit plan or program or to the Company
must satisfy the prohibited transaction exemption requirements
set forth in ERISA section 408(e).
14.3 Voting of Company Stock.
The Company shall use its reasonable best efforts to cause to be
delivered to each Participant (or in case of death, his Beneficiary)
such notices and informational statements as are furnished to the
Company's stockholders with respect to the exercise of voting rights on
Company Stock, together with forms by which the Participant (or
Beneficiary) may confidentially instruct the Trustee with respect to
the voting of Company Stock allocated to his Account. The Trustee shall
vote Company Stock held within the Trust as follows:
(a) The Trustee shall vote shares of Company Stock credited to a
Participant's Stock Account with respect to which the Trustee
has received timely direction, as directed by the Participant
(or Beneficiary) (or abstain if so directed).
(b) The Trustee shall vote (i) all Company Stock not credited to
any Participant's Stock Account, and (ii) all Company Stock
credited to a Participant's Stock Account with respect to
which the Trustee has not received timely direction, in the
same proportion as the Company Stock specified in (a).
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All voting directions received by the Trustee shall be held in
confidence by the Trustee and shall not be divulged or released to any
person, including an Employee or any officer or director of any
corporation that makes up the Employer, except to the extent that such
Employee, officer or director is also a Trustee.
14.4 Tender of Company Stock.
Any contrary provision of the Plan notwithstanding, if there is a
tender or exchange offer for, or a request or invitation for the tender
or exchange of, Company Stock, the Trustee promptly shall furnish to
each Participant (or in case of death, his Beneficiary) a notice of
such offer, request, or invitation, and shall request direction from
the Participant (or Beneficiary) as to the tender or exchange of
Company Stock allocated to the Participant's Stock Accounts. The
Trustee shall tender or exchange, or retain, Company Stock held within
the Trust as follows:
(a) The Trustee shall tender or exchange, or retain, Company Stock
credited to a Participant's Stock Accounts with respect to
which the Trustee has received timely direction, as directed
by the Participant (or Beneficiary).
(b) The Trustee shall retain Company Stock credited to a
Participant's Stock Accounts with respect to which the Trustee
has not received timely direction.
(c) The Trustee shall tender or exchange, or retain, Company Stock
not credited to any Participant's Stock Accounts, in the same
proportion as the Company Stock specified in (a) and (b) is
tendered or exchanged, or retained.
All tender or exchange directions received by the Trustee shall be held
in confidence by the Trustee and shall not be divulged or released to
any person, including an Employee or any officer or director of any
corporation that makes up the Employer, except to the extent that such
Employee, officer or director is also a Trustee.
14.5 Non-Publicly Traded Shares.
For any period during which Company Stock is not readily tradable on an
established securities market, the following provisions shall apply:
(a) Put Option: When shares of Company Stock are distributed to a
Participant (or in case of death, his Beneficiary), the
Company shall grant the recipient an option to put the shares
to the Company; provided that, the Company may allow the
Trustee to assume the Company's rights and obligations at the
time the put is exercised. A put option shall provide that,
for a period of sixty (60) days after such shares are
distributed, the recipient shall have the right to require the
Company to purchase such shares at their fair market value. If
the put is not exercised within such sixty (60) day period,
the put shall be available for an
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additional period of sixty (60) days beginning with the first
day of the Plan Year following the year of the distribution. A
put option can be exercised by notifying the Company in
writing.
The terms of payment for the purchase of shares of Company
Stock subject to a put shall be as set forth in the put,
subject to the following:
(i) In the case of Company Stock distributed as part of a
total distribution (as defined below), payment shall
be made in substantially equal periodic payments (not
less frequently than annually) over a period that
begins not later than thirty (30) days after the put
is exercised, and that does not exceed five (5)
years. If payment is made in installments, adequate
security and a reasonable rate of interest shall be
provided to the recipient.
(ii) In the case of Company Stock that is not distributed
as part of a total distribution, payment shall be
made within thirty (30) days after the put is
exercised.
For purposes of this subsection, a "total distribution" means
a distribution within one (1) calendar year of the balance to
the credit of the Participant's Plan Account.
Except as otherwise provided in this subsection, or as
otherwise required by applicable law, no Company Stock held
within or distributed from the Trust shall be subject to a
put, call, or other option, or buy-sell or similar
arrangement.
(b) Distribution of Company Stock: Any contrary provision of
Article 11 notwithstanding, unless a Participant elects that
the special distribution provisions of this Section 14.5(b)
not apply, the portion of his Distributable Benefit
attributable to Company Stock credited to his Stock Account
shall be distributed as follows:
(i) Such portion shall be paid in substantially equal
periodic payments (not less frequently than annually)
over a period not longer than five (5) years, or, if
the value of such accounts exceeds $500,000 (or such
greater amount as may be in effect under Code section
409(o)(1)(C)), five (5) years plus one (1) additional
year (but not more than five (5) additional years) for
each $100,000 (or such greater amount as may be in
effect under Code section 409(o)(1)(C)) or fraction
thereof by which the value of such accounts exceeds
$500,000 (or such greater amount as may be in effect
under Code section 409(o)(1)(C)).
(ii) Except as provided below, payments under (i) shall
commence not later than one (l) year after the end of
the following:
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(A) In the case of a Participant whose
employment with the Employer terminates
after his Normal Retirement Age, or at any
age by reason of death or Disability, the
Plan Year in which his employment
terminates.
(B) In the case of a Participant whose
employment with the Employer terminates
under circumstances not described in (A),
the fifth (5th) Plan Year following the year
in which his employment terminates, provided
that, this Subsection shall not apply if the
Participant is reemployed with the Employer
before the end of such fifth (5th) Plan
Year.
Commencement prior to the date on which a Participant
attains Normal Retirement Age shall be subject to the
Participant's consent, and, if a Participant does not
consent, commencement shall occur soon as practicable
after the Participant's Normal Retirement Age.
Distributions of Company Stock otherwise required under this
Section shall not include any Company Stock acquired with the
proceeds of a Share Purchase Loan until the close of the Plan
Year in which the loan is repaid in full, except where no
other securities are available for such distribution.
(c) Distribution Limitation: Any contrary provision of Article 11
notwithstanding, if Company Stock is subject to a put option
under (a), any Company Stock is acquired with the proceeds of
a Share Purchase Loan which are held within the Trust Fund and
credited to a Participant's Stock Accounts shall not be
distributed until such Share Purchase Loan is fully repaid.
(d) Right of First Refusal: Shares of Company Stock distributed by
the Trustee shall be subject to a "right of first refusal."
The right of first refusal shall provide that, prior to any
subsequent transfer, such Company Stock must first be offered
in writing to the Company, and then, if refused by the
Company, to the Trust, at the then fair market value. The
Company and the Committee (on behalf of the Trust) shall have
a total of fourteen (14) days (from the date the Company
receives the offer) to exercise the right of first refusal on
the same terms offered by a prospective buyer. A Participant
(or beneficiary) entitled to a distribution of Company Stock
may be required to execute an appropriate stock transfer
agreement (evidencing the right of first refusal) prior to
receiving a certificate for such stock.
For purposes of this Section, whether Company Stock is "readily
tradable on an established securities market" shall be determined in
accordance with regulations or interpretations adopted by the Internal
Revenue Service under Code section 409(h).
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14.6 Restriction of Stock Certificates.
Shares of Company Stock held or distributed by the Trustee may include
such legend restrictions on transferability as a Company may reasonably
require in order to assure compliance with applicable Federal and State
securities law and with the provisions of this paragraph. Except as
otherwise provided in Section 14.5, no shares of Company Stock held or
distributed by the Trustee may be subject to a put, call or other
option or buy-sell similar arrangement. The provisions of Section 14.5
shall continue to be applicable to shares of such Company Stock, even
if the Plan ceases to be an employee stock ownership plan under Section
4975(e)(7) of the Code.
14.7 Share Acquisition Loan.
The Committee may direct the Trustee to incur a Share Purchase Loan
from time to time to finance the acquisition of Company Stock (Financed
Shares) for the Trust or to repay a prior Share Purchase Loan. An
installment obligation incurred in connection with the purchase of
Company Stock shall constitute a Share Purchase Loan. A Share Purchase
Loan shall be for a specific term, shall bear a reasonable rate of
interest and shall not be payable on demand except in the event of
default. A Share Purchase Loan may be secured by a collateral pledge of
the Financed Shares so acquired and any other collateral permitted
under the Treasury Regulations promulgated under Code section 4975
including contributions that are made under the Plan to meet its
obligations under the Share Purchase Loan. No other Trust asset may be
pledged as collateral for a Share Purchase Loan, and no lender shall
have recourse against any other such Trust assets. Any pledge of
Financed Shares must provide for the release of shares so pledged on
pro-rata basis as principal and interest on the Share Purchase Loan are
repaid by the Trustee and such Financed Shares are allocated to
Participants' Company Stock Accounts. Repayments of principal and
interest on any Share Purchase Loan shall be made by the Trustee (as
directed by the Committee) only from Company contributions paid in cash
to enable the Trustee to repay such Loan, from earnings attributable to
such Company Contributions and from cash dividends received by the
Trust. Should the Company Contributions, earnings attributable to such
Company Contributions and cash dividends received by the Trust on
Financed Shares be insufficient to meet the obligations created by the
Share Purchase Loan, then the Trustee shall so advise the Committee.
The Committee may recommend certain actions including but not limited
to, refinancing the original loan, amendment of the original loan
agreement, or the entering into of an additional Share Purchase Loan to
repay a prior Share Purchase Loan.
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ARTICLE 15
FORMER EMPLOYEES/PARTICIPANTS
15.1 Participation.
If an individual's employment with the Employer terminates, and later
he is reemployed with the Employer, he shall become (or again become)
an Active Participant after his reemployment in accordance with the
following rules:
(a) If he was not an Active Participant prior to his termination
of employment, he shall become an Active Participant on the
first entry date specified in Section 3.2 that coincides with
or next follows the date on which the satisfies the
eligibility conditions of Section 3.1.
(b) If he was an Active Participant prior to his termination of
employment, he again shall become an Active Participant on the
first date on which he again satisfies the eligibility
conditions of Section 3.1.
If an Active Participant becomes a Former Participant by reason of his
failure to satisfy the eligibility conditions of Section 3.1, but his
employment with the Employer has not terminated, he again shall become
an Active Participant on the date on which he again satisfies the
eligibility conditions of Section 3.1.
15.2 Cessation of Distributions.
Subject to Section 11.9, any distributions from the Trust Fund which
have not been made to a Former Participant shall be cancelled as of the
date he again becomes an Active Participant.
ARTICLE 16
AMENDMENT AND TERMINATION
16.1 Amendment.
The Company reserves the right to amend the Plan from time to time
subject to the following limitations:
(a) No amendment shall substantively change the duties and
liabilities of the Committee unless the Committee consents to the
amendment;
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(b) No amendment shall result in the return to the Employer of any
part of the Trust or the income therefrom, or result in the
distribution of the Trust to or for the benefit of anyone other
than a Participant or Beneficiary;
(c) No amendment shall reduce the amount or the nonforfeitable
portion of a Participant's Plan Account balance as determined as
of the later of the effective date or the adoption date of the
amendment; and
(d) No amendment shall eliminate an optional form of distribution
with respect to a Participant's existing Plan Account balance as
determined as of the later of the effective date or the adoption
date of the amendment except as permitted under Code section
411(d)(6).
If the Plan is amended such that Company Stock is not the main
investment, then, the proceeds of a Share Purchase Loan will be used
within a reasonable time after receipt by the Plan either to acquire
Company Stock or to repay the loan or a prior Share Purchase Loan. Even
if it ceases as an ESOP, any Company Stock acquired with the proceeds
of a Share Purchase Loan will be subject to a put option if it is not
publicly traded when distributed, or if subject to a trading limitation
when distributed. The put option must be exercisable at least during a
15-month period which begins on the date the security subject to the
put option is distributed by the Plan. The price at which the put
option will be exercisable will be the value of the security as of the
date of exercise or as of the most recent Valuation Date. If the
transaction takes place between the Plan and a disqualified person,
value will be determined as of the date of the transaction.
16.2 Termination.
Although each Adopting Employer intends to maintain the Plan
indefinitely, the Plan is entirely voluntary on the part of each
Adopting Employer and the continuation of the Plan and the
contributions hereunder should not be construed as a contractual
obligation of any Adopting Employer. Accordingly, the Company reserves
the right to terminate the Plan in its entirety and to suspend or
discontinue (in whole or in part) all contributions to the Trust under
the Plan, and each Adopting Employer reserves the right to withdraw
from participation.
The Plan shall terminate in its entirety on any date specified by the
Company if advance written notice is given to the Committee, the
Trustee, and each Adopting Employer.
16.3 Vesting on Termination.
If the Plan terminates or if contributions made by the Employer are
completely discontinued under the Plan, the Plan Account balance of all
Active Participants and all Former Participants shall remain fully
vested and nonforfeitable. If a partial termination (within the meaning
of Code section 411(d)(3)) of the Plan occurs as to any group of
28
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Participants, the Plan Account balance of such Participants shall
remain fully vested and nonforfeitable.
16.4 Termination Distributions.
If the Plan terminates, the Committee shall direct a final accounting
and distribution of all amounts then held in the Trust to the
Participants or Beneficiaries. A distribution shall be made to each
Participant or Beneficiary of the Plan Account balance payable to each
such person in a single-sum payment. Such distribution shall be made as
soon as practicable after the Company receives a favorable
determination from the Internal Revenue Service as to the qualified
status of the Plan under Code section 401(a) upon its termination, but
not later than one (1) year after the Plan terminates.
ARTICLE 17
MERGERS, TRANSFERS, AND ROLLOVERS
17.1 Plan Merger, Consolidation or Benefit Transfer.
This Plan shall not merge or consolidate with any other qualified plan,
nor shall assets or liabilities be transferred to any other qualified
plan, unless each Participant would (if the other Plan then terminated)
receive a benefit immediately after the merger, consolidation, or
transfer that is equal to or greater than the benefit that he would
have received immediately before the merger, consolidation, or transfer
(if this Plan then terminated).
This Plan shall not merge or consolidate with any defined benefit
pension plan.
17.2 Transfers Between Plans.
A Participant who is eligible to receive a distribution from this Plan
may direct the Trustee to transfer a specified amount equal to all or
any portion of his distribution which would otherwise be includible in
the Participant's taxable income to the trustee of another eligible
retirement plan. For purposes of distributions made pursuant to Section
8.1, "eligible retirement plan" shall mean:
(a) an individual retirement account described in Code Section
408(a), or
(b) an individual retirement annuity described in Code Section 408(b)
(other than an endowment contract), or
(c) a qualified trust described in Code Section 401(a) and exempt
from tax under Code Section 501(a); provided, such trust is a
defined contribution plan the terms of which permit the
acceptance of rollover distributions, or
29
<PAGE>
(d) an annuity plan described in Code Section 403(a).
For purposes of distributions made to the surviving spouse of a
Participant pursuant to Section 8.2, "eligible retirement plan" shall
mean only items (i) and (ii) described above.
The Participant shall provide such direction to the Trustee in writing
on a form provided by the Committee and shall clearly specify on such
form the eligible retirement plan to which such distribution shall be
transferred. The Committee may rely on the information provided by the
Participant and shall not be subject to penalties or liability due to
such reliance. The Committee shall provide a written explanation of
this distribution option to the Participant in accordance with rules
prescribed by the Internal Revenue Service.
17.3 Rollover Contributions.
The Trustee shall not accept any amounts distributed from any other
qualified plan or conduit individual retirement account for any
Participant.
ARTICLE 18
PLAN ADMINISTRATION
18.1 Administrative Committee.
The Plan shall be administered by a committee of at least two (2)
members appointed by the Board for this purpose. Each member of such
committee is a "named fiduciary" within the meaning of Section 402(e)
of the ERISA with respect to the administration of the Plan.
18.2 Committee Powers.
The Committee shall have such powers as are not specifically reserved
to the Company, the Trustee or the Participants which are appropriate
to administer the Plan, including, but not limited to, the following,
all of which powers shall be exercised in the absolute discretion of
the Committee:
(a) To determine all questions arising under the Plan, including the
power to determine the rights or eligibility of Employees or
Participants and their Beneficiaries, and the amount of any
benefits due such persons under the Plan;
(b) To construe the terms of the Plan and to remedy ambiguities,
inconsistencies or omissions;
(c) To adopt such rules of procedure as it considers appropriate for
the proper administration of the Plan and are consistent with the
Plan;
30
<PAGE>
(d) To enforce the Plan provisions and the rules of procedure which
it adopts;
(e) To direct payments or distributions from the Trust Fund under the
provisions of the Plan;
(f) To furnish the Employer with such information relating to the
Plan as may be required by it for tax or other purposes;
(g) To employ agents, attorneys, accountants, actuaries or other
persons, and to allocate or delegate to them such powers, rights
and duties as it considers appropriate for the proper
administration of the Plan;
(h) To initiate such amendments to the Plan as may be in substance
authorized by the Board of Directors of the Company;
(i) To make equitable adjustments for any mistakes or errors made in
the administration of the Plan;
(j) To request an audit of the Trust Fund to be made at reasonable
times (but at least annually) by a certified public accountant,
subject to the approval of the Company.
The Committee shall have such further powers and duties as may be
elsewhere specified in the Plan or trust agreement between the Company
and the Trustee, and shall have total discretion in the exercise of the
powers granted hereunder.
18.3 Benefit Payments.
The Committee shall determine the manner in which the funds of the Plan
shall be disbursed in accordance with the Plan and provisions of the
Trust Agreement, including the form of voucher or warrant to be used in
making distributions and the qualifications of persons authorized to
approve and sign the same and any other matters incident to the
disbursements of such funds.
18.4 Committee Officers.
The Committee shall appoint a Chairman from among its members, and
shall select a Secretary who may be, but need not be, a member of the
Committee.
18.5 Committee Actions.
The Committee shall act by a majority of its members, subject to the
following:
31
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(a) The Committee may delegate authority to a specific member(s) of
the Committee to carry out such duties as the Committee may
assign;
(b) A member of the Committee may by writing delegate any or all his
rights, powers, duties and discretions to any other member of the
Committee, with the consent of the latter;
(c) The Committee may retain counsel, employ agents, and provide for
such clerical and accounting services as it may require to
administer the Plan; and
(d) When there is an even division of opinion among the members of
the Committee as to a matter, the Board shall decide the matter.
A majority of the members of the Committee at the time in once shall
constitute a quorum for the transaction of business. All resolutions or
other actions taken by the Committee shall be by vote of a majority of
those present at a meeting, but not less than two, or in writing by all
the members at the time in office, if they act without a meeting.
18.6 Committee Member Who Is Participant.
If a member of the Committee is a Participant, he may not decide any
matter relating to his participation or Plan Account or how his Plan
Account or any portion thereof is to be paid to him that he would not
have the right to decide were he not a member of the Committee, and he
shall not receive any compensation for his services in the
administration of the Plan.
18.7 Resignation or Removal.
A member of the Committee may resign at any time by giving advance
written notice to the Board and to the Secretary of the Committee. The
Company may remove a member of the Committee with or without cause by
giving advance written notice to such member and each other member of
the Committee.
A member of the Committee who is an Employee shall cease to be a member
of the Committee as of the date his employment with the Employer
terminates for any reason unless the Board acts to continue him as a
member.
18.8 Information Required from Employer.
The Employer shall furnish the Committee with such data and information
as the Committee deems appropriate to administer the Plan. The records
of the Employer as to an Employee's period(s) of employment and
Compensation shall be conclusive on all persons unless determined by
the Committee to be clearly incorrect.
32
<PAGE>
18.9 Information Required from Employees.
Each person entitled to benefits under the Plan must furnish the
Committee from time to time in writing such person's post office
address, each change of post office address, and such other data and
information as the Committee deems appropriate to administer the Plan.
Any communication, statement or notice addressed to any person at the
last post office address filed with the Committee shall be binding upon
such person for all purposes of the Plan.
18.10 Uniform Rules and Administration.
The Committee shall administer the Plan on a reasonable and
nondiscriminatory basis and shall apply uniform rules to all persons
similarly situated.
ARTICLE 19
CLAIMS PROCEDURE
19.1 Written Claim for Benefits.
A Participant, Beneficiary or any other person who believes that he is
entitled to, but has been improperly denied, a distribution or benefit
under the Plan may file a claim for such distribution or benefit with
the Committee. Such claim must be filed on such form and with such
documentation as the Committee shall prescribe.
19.2 Initial Review of Claim.
The Committee shall consider all properly filed claims for distribution
or benefit and shall notify the claimant in writing within sixty (60)
days of receipt of the claim as to whether the claim is allowed or
denied. If the Committee denies a claim, the written notice informing
the claimant of the denial shall include the following:
(a) The specific reason(s) for the denial of the claim;
(b) The pertinent Plan provision(s) on which the denial is based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(d) An explanation of the claim review procedure available to the
claimant.
33
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The Committee may deny a claim in whole or in part and shall notify the
claimant of the extent of the denial.
19.3 Claim Review Procedure.
A claimant who receives notice that his claim for distribution or
benefit is denied in whole or in part may, within sixty (60) days after
the receipt of the notice, apply to the Committee for a review of the
decision. Such application must be made on a form provided by the
Committee for this purpose.
A claimant who files a claim for review with the Committee shall have
the following rights:
(a) Upon reasonable notice to the Committee, the claimant may examine
documents in the possession of the Committee that are pertinent
to the decision under review; and
(b) The claimant may submit written comments and issues to the
Committee relating to the decision under review.
The Committee shall notify the claimant in writing within sixty (60)
days of the later of the receipt of the application for review or the
receipt of written comments and issues from the claimant as to whether
the claim is allowed or denied. If the application is denied, the
written notice informing the claimant of the denial shall include the
information specified in Section 19.2.
19.4 Review Decisions Final.
A decision by the Committee on an application for review shall be final
and binding on all parties.
ARTICLE 20
GENERAL PROVISIONS
20.1 Prohibited Inurement.
The principal or income of the Trust Fund shall not be paid or revert
to the Employer or be used for any purpose other than the exclusive
benefit of the Participants and Beneficiaries and the payment of the
reasonable and necessary expenses of the Trust Fund.
This Section shall not prohibit the return, upon demand of the
Employer, of a contribution made by the Employer to the Trust Fund if:
34
<PAGE>
(a) The contribution is made as a result of a mistake of fact and the
return is within one year of the payment of the contribution; or
(b) The deduction for the contribution is disallowed under Code
section 404 and the return (to the extent that a deduction is
disallowed) is within one year of the disallowance; or
(c) The Plan receives an adverse determination with respect to its
initial qualification and the return is within one year after
such determination.
Any contribution returned to the Employer under this Section shall be
reduced by any portion of such contribution that previously was
distributed and by any losses of the Trust Fund allocable to such
contribution.
In no event shall the return of any contribution cause any
Participant's Plan Account balance to be less than the amount of such
balance had the contribution not been made.
20.2 Special Valuation Dates.
The Committee may designate a special valuation date to avoid prejudice
either to Active Participants or to a Former Participant whose
employment with the Employer has terminated. Such special Valuation
Date shall be treated as a regular Valuation Date only for purposes of
Section 6.6.
20.3 No Employment Rights.
The Plan is not a contract of employment, and participation in the Plan
shall not confer upon any Employee the right to be retained in the
employ of the Employer.
20.4 Interests Not Transferable.
Subject to Code section 401(a)(13)(B), and except as may be required by
application of the withholding provisions of the Code or of any state's
tax laws, no benefit or interest under the Plan shall be subject to
assignment or alienation, either voluntary or involuntary.
20.5 Absence of Guarantee.
Benefits under the Plan shall be paid only out of the Trust Fund and
the Employer has no legal obligation or liability to make any direct
payment of benefits due under the Plan. Neither the Committee nor the
Employer in any way guarantees the Trust Fund from loss or
depreciation, nor in any way guarantees any payment to any person
except as may be required under law.
35
<PAGE>
20.6 Actions by Employer.
Any action taken by any corporation that makes up the Employer with
respect to the Plan shall be by resolution of its Board of Directors or
by a person or persons authorized by resolution of its Board of
Directors to take such action.
20.7 Expenses.
All costs of Plan administration shall be paid either by the Company or
by the Trustee out of Trust Fund assets and if paid from Trust Fund
assets, shall be allocated among all Plan Accounts in an equitable
manner determined by the Committee.
20.8 Facility of Payment.
If any person entitled to receive any benefit payment under the Plan
is, in the sole judgment of the Committee, under a legal disability or
is incapacitated in such a way as to be unable to handle his financial
affairs, the Committee may cause all payments due to such person to be
made for the benefit of such person to any other person designated by
the Committee. Any such payment shall operate as a complete discharge
to the Employer, the Committee, and the Trustee.
20.9 Missing Participants.
The Committee need not search for or locate any Participant or
Beneficiary. If the Committee notifies a Participant or Beneficiary
that he is entitled to a benefit, and such person fails to file a claim
for benefit or otherwise make his whereabouts known to the Committee
within a reasonable period of time after the notification, the payment
to which he is entitled shall be disposed of in an equitable manner as
permitted by law. Notification by the Committee mailed to the last post
office address filed with the Committee shall be sufficient notice of
benefit entitlement for this purpose.
20.10 Applicable Law.
The Plan shall be governed by the internal laws of the state of
Massachusetts the extent that federal law does not preempt such laws.
36
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IN WITNESS WHEREOF, FALMOUTH CO-OPERATIVE BANK has caused this
instrument to be executed by its duly authorized officer, this 27th day of
March, 1996.
FALMOUTH CO-OPERATIVE BANK
By /s/ Santo P. Pasqualucci
------------------------
Its President
37
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APPENDIX A
SERVICE CREDITING RULES
A.1 Introduction.
This Appendix applies to determine the Hours of Service of an Employee
for purposes of the Plan.
To the extent that this Appendix does not contain all rules in section
2530.200b-2 of the Code of Federal Regulations that apply for this
purpose, such rules are incorporated herein by reference and shall
supplement this Appendix.
A.2. Hours of Service.
An Employee shall be credited with an Hour of Service for each of the
following:
(a) Each hour for which he is paid, or entitled to a payment, by the
Employer for a period during which he performs services for the
Employer;
(b) Each hour for which he is paid, or entitled to a payment, by the
Employer for a period during which he does not perform services
for the Employer (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity, layoff, jury duty, military duty, or leave of
absence; and
(c) Each hour for which he is awarded back pay or for which the
Employer agrees to back pay (irrespective of the mitigation of
damages) unless an hour has been credited for the same period
under (a) or (b) above.
Hours credited under (c) shall be credited for the period to which the
award or agreement pertains rather than the period in which the award,
agreement or payment is made.
A.3. Special Rule for Periods When No Services Rendered.
In crediting hours to an Employee for a period during which he does not
perform services for the Employer, no credit shall be given for the
following:
(a) Hours in excess of 501 on account of any single continuous period
during which the Employee does not perform services for the
Employer;
(b) Hours for which the Employee is paid, directly or indirectly, if
such payment is made or due under a plan maintained solely for
the purpose of complying with applicable workmen's compensation,
unemployment compensation, or disability insurance law; and
A-1
<PAGE>
(c) For a payment which is solely to reimburse the Employee for
medical or medically related expenses.
An hour shall not be credited for accrued but unused vacation time, if
any, for which the Employee is paid upon his termination of employment.
A.4. Special Rule for Maternity/Paternity Absences.
Solely to determine whether an Employee has a One-Year
Break-in-Service, if he is absent from service by reason of a
"maternity or paternity absence," he shall be credited with an Hour of
Service for each hour he would have worked but for the absence (or for
eight (8) hours for each day of the absence if the number of hours he
normally worked cannot be determined); provided that no more than 501
Hours of Service shall be credited under this Section.
Hours of Service credited under this Section shall be credited to the
following periods:
(a) Hours of Service shall be credited to the year in which the
Employee's maternity or paternity absence begins if the credit
would prevent him from incurring a One-Year Break-in-Service
for such year.
(b) Hours of Service shall be credited to the year following the
year in which the Employee's maternity or paternity absence
begins in all cases not described in (a).
For purposes of this Section, a "maternity or paternity absence" is an
absence caused by reason of the pregnancy of the Employee, the birth of
a child of the Employee, the placement of a child with the Employee in
connection with the adoption of the child, or an absence for purposes
of caring for such child for a period immediately following such birth
or placement.
A-2
<PAGE>
APPENDIX B
TOP-HEAVY PROVISIONS
B.1. Introduction.
This Appendix applies to determine whether the Plan is a Top-Heavy Plan
for a Plan Year.
To the extent that this Appendix does not contain all rules in Code
section 416 (and the regulations thereunder) that apply for this
purpose, such rules are incorporated herein by reference and shall
supplement this Appendix.
B.2. Top-Heavy Plan.
For purposes of Sections 6.4 and 9.4 and this Appendix, the Plan is
Top-Heavy for a Plan Year if, as of the determination date, the
adjusted accrued benefit of key-employees under all qualified plans
within the aggregation group is more than sixty percent (60%) of the
adjusted accrued benefit of all non-key employees under all qualified
plans within the aggregation group.
B.3. Key-Employees; Non-Key Employees.
A "key-employee" is any Employee who at any time during the Plan Year
or any of the four (4) preceding Plan Years was:
(a) An officer of any corporation that makes up the Employer with
415 Compensation of more than $45,000 (or such amount as
equals fifty percent (50%) of the amount in effect under Code
section 415(b)(1)(A) for such Plan Year); provided that, no
more than fifty (50) Employees (or, if lesser, the greater of
three (3) Employees or ten percent (10%) of all Employees)
shall be treated as officers;
(b) One of the ten (10) Employees with 415 Compensation of more
than $90,000 (or such amount in effect under Code section
415(c)(1)(A) for the Plan Year) who owns the largest interest
in the Employer; provided that, an Employee who owns not more
than a one-half percent (1/2%) interest in value shall not be
counted, and if two (2) Employees have the same interest, the
Employee with the greater 415 Compensation for the Plan Year
shall be treated as owning a larger interest;
(c) A five percent (5%) owner of any corporation that makes up the
Employer; and
B-1
<PAGE>
(d) A one percent (1%) owner of any corporation that makes up the
Employer with 415 Compensation for the Plan Year of more than
$150,000.
A "non-key employee" is any Employee who is not a key-employee.
For purposes of this Appendix, 415 Compensation means compensation as
defined in Code section 415(c)(3).
B.4. Determination Date.
The "determination date" is the last day of the immediately preceding
Plan Year, or for the first Plan Year, the last day of such Plan Year.
B.5. Adjusted Accrued Benefit.
The "adjusted accrued benefit" of an Employee is the sum of the
Employee's adjusted account balance under this Plan plus his adjusted
accrued benefit under any other qualified plan within the aggregation
group in which the Employee participates or has participated.
An Employee's "adjusted account balance" under this Plan is his Account
balance as of the determination date, adjusted as follows:
(a) The Employee's Account is increased by the total amount of all
distributions made from the Account during the five (5) year
period ending on the determination date;
(b) The Employee's Account is disregarded if he has not performed
services for the Employer at any time during the five (5) year
period ending on the determination date;
(c) The Employee's Account is disregarded if he was a key-employee
for a prior Plan Year but is not a key-employee for the
current Plan Year;
(d) The Employee's Account does not include the amount of any
contribution actually paid to the Trust after the
determination date (except with respect to the first Plan
Year); and
(e) The Employee's Account is increased or decreased by the amount
of any rollover or transfer in which the Plan is the recipient
or distributor as provided in Code section 416(g)(4)(A).
An Employee's adjusted accrued benefit under each other qualified plan
within the aggregation group shall be determined under such plan and
Code section 416.
B-2
<PAGE>
B.6. Aggregation Group.
The "aggregation group" includes the following qualified plans:
(a) Each qualified plan of the Employer in which a key-employee
participated in the Plan Year containing the determination date
or any of the four (4) preceding Plan Years;
(b) Each qualified plan of the Employer which enabled a plan
described in (a) to satisfy the requirements of Code section
401(a)(4) or 410; and
(c) At the election of the Employer, any qualified plan of the
Employer that is not described in (a) or (b) but that satisfies
the requirements of Code sections 401(a)(4) or 410 when
considered together with such plans.
The plans described in (a) and (b) together constitute the "required
aggregation group." The plans described in (a), (b) and (c) together
constitute the "permissive aggregation group."
B.7. Adjustment to Benefit Limitations.
If the Plan is Top-Heavy for a Plan Year and, as of the determination
date, the adjusted accrued benefit of key-employees under all qualified
plans within the aggregation group is more than ninety percent (90%) of
the adjusted accrued benefit of all non-key-employees under all
qualified plans within the aggregation group then a factor of 1.0 shall
be used in the denominator of the defined benefit fraction and defined
contribution fraction used to determine the combined plan limit under
Code section 415 instead of a factor of 1.25.
B-3
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APPENDIX C
IDENTIFYING HIGHLY COMPENSATED EMPLOYEES
C.1. Introduction.
This Appendix applies to determine the identity of Highly Compensated
Employees for a Plan Year.
To the extent that this Appendix does not contain all rules in Code
section 414(q) (and the regulations thereunder) that apply for this
purpose, such rules are incorporated herein by reference and shall
supplement this Appendix.
C.2. Highly Compensated Employee.
An Employee is a "Highly Compensated Employee" for a Plan Year if he
performs services for the Employer during the Plan Year and any of the
following conditions is satisfied:
(a) The Employee is a 5-percent owner of any corporation that makes
up the Employer at any time during the prior Plan Year or current
Plan Year;
(b) The Employee received 415 Compensation of more than $50,000 (or
such greater amount in effect under Code section 414(q)(1)(C) for
the prior Plan Year and was a member of the group consisting of
the top 20-percent of the Employees when ranked by 415
Compensation;
(c) The Employee received 415 Compensation of more than $75,000 (or
such greater amount in effect under Code section 414(q)(1)(B))
for the prior Plan Year;
(d) The Employee received 415 Compensation of more than $45,000 (or
such greater amount as equals 50-percent of the amount in effect
under Code section 415(b)(l)(A)) for the prior Plan Year and was
an officer of the Employer at any time during such year.
An Employee also is a Highly Compensated Employee for the current Plan
Year if he is one of the top 100 Employees when ranked by Compensation
received for the current Plan Year and is described in (b), (c) or (d)
when such paragraphs are applied based on the current Plan Year
(determined based on the applicable dollar limitations above that are
in effect for the current Plan Year).
C-1
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C.3. Employee Percentages.
To determine the number of Employees for purposes of C.2(b) and C.5(a),
all Employees who perform services for the Employer during a Plan Year
shall be counted as Employees except the following:
(a) An Employee who has not completed six (6) months of service by
the end of the Plan Year (including service completed in the
immediately preceding Plan Year);
(b) An Employee who normally works less than seventeen and one-half
(17-1/2) hours per week;
(c) An Employee who normally works less than six (6) months during
any Plan Year;
(d) An Employee who has not attained age twenty-one (21) by the end
of the Plan Year.
The Employer can modify the exclusions under (a), (b), (c) or (d) above
by substituting any shorter period of service or lower age than that
specified; provided that such modification must be made on a uniform
and consistent basis for all employee benefit plans maintained by the
Employer.
C.4. Special Rules for Officers.
To determine whether an Employee is a Highly Compensated Employee by
reason of his position as an officer of a corporation that makes up the
Employer, the following rules apply:
(a) No more than fifty (50) Employees (or, if lesser, the greater
of three (3) Employees or ten percent (10%) of all Employees)
shall be treated as officers; and
(b) If for any year no officer is described in C.2(d) above, then
the highest paid officer shall be treated as a Highly
Compensated Employee.
If the number of Employees who are treated as officers is limited under
(a) above, then the officers with the greatest 415 Compensation for the
year shall be treated as Highly Compensated Employees.
C.5 Tie-Breaking Elections.
To determine the identity of Highly Compensated Employees, the Employer
shall adopt rounding and tie-breaking rules that are reasonable,
nondiscriminatory, and uniformly and consistently applied.
C-2
FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.............................................................................................. 1
TRUST; TRUST FUND............................................................................. 1
1.1 Name of Trust............................................................... 1
1.2 Trust Fund.................................................................. 2
1.3 Qualification under Internal Revenue Code................................... 2
1.4 Entire Understanding........................................................ 2
1.5 Administration of Plan...................................................... 2
1.6 Named Fiduciary............................................................. 2
ARTICLE II............................................................................................. 2
CONTRIBUTIONS TO TRUST FUND................................................................... 2
ARTICLE III............................................................................................ 2
PAYMENTS FROM TRUST FUND...................................................................... 2
3.1 Instructions from Committee................................................. 2
3.2 Trustee Expenses............................................................ 3
3.3 Trustee Compensation........................................................ 3
ARTICLE IV............................................................................................. 3
INVESTMENT OF TRUST FUND...................................................................... 3
4.1 Investment Powers - In General.............................................. 3
4.2 Investment of ESOP Contributions............................................ 3
4.3 Investment of non-ESOP Contributions - Powers of Trustee.................... 3
4.4 Investment of non-ESOP Contributions - Powers of Committee.................. 5
4.5 Voting of Company Stock..................................................... 5
4.6 Tender of Company Stock..................................................... 6
ARTICLE V.............................................................................................. 7
INVESTMENT MANAGERS........................................................................... 7
5.1 Appointment by Company...................................................... 7
5.2 Relationship to Trustee..................................................... 7
5.3 Fiduciary Responsibility.................................................... 8
5.4 Investment Authority........................................................ 8
ARTICLE VI............................................................................................. 9
RECORDKEEPING................................................................................. 9
6.1 Recordkeeping............................................................... 9
6.2 Fiscal Year................................................................. 9
6.3 Reports..................................................................... 9
i
<PAGE>
ARTICLE VII............................................................................................ 9
AMENDMENT AND TERMINATION..................................................................... 9
7.1 Amendment................................................................... 9
7.2 Termination................................................................. 9
ARTICLE VIII........................................................................................... 10
SUCCESSION OF TRUSTEES........................................................................ 10
8.1 Removal by Company.......................................................... 10
8.2 Resignation of Trustee...................................................... 10
8.3 Appointment of Successor Trustee............................................ 10
8.4 Transfer of Assets to Successor Trustee..................................... 10
8.5 Reorganization of Trustee................................................... 10
ARTICLE IX............................................................................................. 10
GENERAL ADMINISTRATIVE POWERS................................................................. 11
9.1 Plan Administration......................................................... 11
9.2 Reliance upon Committee..................................................... 11
9.3 Reliance upon Company....................................................... 11
9.4 Reliance upon Counsel....................................................... 11
9.5 No Implied Powers or Obligations............................................ 11
9.6 Parties to Court Proceedings................................................ 11
9.7 Notices..................................................................... 12
ARTICLE X.............................................................................................. 13
MISCELLANEOUS................................................................................. 13
10.1 Third Parties............................................................... 13
10.2 Reorganization of Company................................................... 13
10.3 Prohibition Against Assignment.............................................. 13
10.4 Governing Law............................................................... 14
10.5 Severability of Provisions.................................................. 14
10.6 Headings.................................................................... 14
10.7 Co-Trustees................................................................. 14
10.8 Exclusive Benefit Rule...................................................... 15
10.9 Unclaimed Benefits................................................................... 15
</TABLE>
ii
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FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP TRUST
This agreement ("Agreement") is entered into this 13th day of March, 1996,
effective as of March 27, 1996, by and between FALMOUTH CO-OPERATIVE BANK (the
"Company"), and John J. Lynch, Jr., Gardner L. Lewis, and Armand Ortins (the
"Trustee").
RECITALS
1. The Company maintains the FALMOUTH CO-OPERATIVE BANK Employee
Stock Ownership Plan (the "Plan") for the exclusive benefit of
its eligible employees and the eligible employees of its
affiliated corporations, if any (the "Employer"), which plan
is effective December 1, 1992.
2. The Plan is intended to satisfy all requirements of section
401(a) of the Internal Revenue Code of 1986, as amended
("Code"), and the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
3. A portion of the Plan is designed to invest primarily in
common or convertible preferred stock of the Company ("Company
Stock"), which portion is intended to satisfy all requirements
of Code section 4975(e)(7) and therefore constitute an
employee stock ownership plan ("ESOP").
4. The Plan provides for a trustee to receive and hold
contributions made under the Plan in trust, which trust is
intended to be tax-exempt under Code sections 401(a) and
501(a).
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
TRUST; TRUST FUND
1.1 Name of Trust. The Company hereby establishes with the Trustee a
trust to carry out the purposes of the Plan, which trust shall be known as the
"FALMOUTH CO-OPERATIVE BANK Employee Stock Ownership Trust" (the "Trust").
<PAGE>
1.2 Trust Fund. The "Trust Fund" as of any date means all property
then held in trust under this Agreement.
1.3 Qualification under Internal Revenue Code. Unless otherwise advised
to the contrary, the Trustee shall assume that the Trust is entitled to tax
exemption under Code section 501(a) as part of an employee benefit plan which is
qualified under Code section 401(a).
1.4 Entire Understanding. The rights, powers, titles, duties,
discretions, and immunities of the Trustee shall be governed solely by this
Agreement, the Plan, and applicable law.
1.5 Administration of Plan. The Plan shall be administered by a
committee appointed by the Company (the "Committee"), which shall have such
authority and responsibility as is provided in the Plan and this Agreement.
1.6 Named Fiduciary. The Trustee shall be a "named fiduciary" within
the meaning of Section 402(e) of ERISA with respect to the investment,
management, custody, and control of the Trust Fund, except to the extent that
the Company has appointed an investment manager pursuant to Article V, and
except to the extent that the Committee directs the Trustee with respect to the
investment of Trust Fund assets pursuant to Section 4.4, or a participant (or
beneficiary) directs the Trustee with respect to the voting or tendering of
Company stock pursuant to Sections 4.5 or 4.6.
ARTICLE II
CONTRIBUTIONS TO TRUST FUND
The Trustee shall receive and hold contributions made under the Plan by
the Employer and participants, together with the income and increments thereon,
in trust for the exclusive benefit of participants and their beneficiaries, and
without distinction between principal and income. The Trustee shall not be
required nor have any duty to take any action to collect or enforce payment of
any contribution under the Plan required to be made by the Employer or a
participant.
ARTICLE III
PAYMENTS FROM TRUST FUND
3.1 Instructions from Committee. The Trustee shall make such
distributions and payments from the Trust Fund to such persons, in such manner,
at such times, and in such amounts, as the Committee from time to time shall
direct. The Trustee shall not be responsible for ascertaining whether any
distribution or payment directed by the Committee complies with
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<PAGE>
the terms of the Plan, or see to its application, and, accordingly, shall be
fully protected in making payments in accordance with such directions.
3.2 Trustee Expenses. The expenses incurred by the Trustee in the
performance of its duties under this Agreement, including (but not limited to)
reasonable fees for legal, accounting, administrative, or actuarial services
rendered to the Trustee, and expenses incident thereto, shall be paid by the
Employer or out of the Trust Fund. All proper charges upon or in respect of the
Trust Fund, including (but not limited to) real and personal property taxes,
income taxes, transfer taxes, and other taxes of any kind, levied or assessed
under current or future law shall be paid by the Trustee out of the Trust Fund.
3.3 Trustee Compensation. The Employer shall pay the Trustee such
compensation as may be agreed upon in writing from time to time between the
Company and the Trustee.
ARTICLE IV
INVESTMENT OF TRUST FUND
4.1 Investment Powers - In General. Except as otherwise provided in
this Agreement, the Trustee shall have exclusive authority and discretion to
hold, manage, care for, and protect the Trust Fund.
4.2 Investment of ESOP Contributions. The purpose of that portion of
the Plan that is an ESOP is to invest primarily in and hold Company Stock, and,
accordingly, the Trustee shall invest and reinvest contributions made under the
ESOP portion of the Plan in Company Stock, subject to minimum fractional
interests established by the Trustee from time to time, and (subject to the Code
and ERISA) is authorized to borrow from any lender (including a
"party-in-interest" as defined in ERISA section 3(14)) to finance the
acquisition of Company Stock. For any period in which contributions under the
ESOP portion of the Plan are not invested in Company Stock, they shall, at the
discretion of the Trustee, be held within the Trust Fund in cash or invested in
short-term investments pursuant to Section 4.3. Subject to applicable law, the
Trustee may acquire Company Stock on the open market, through private purchases,
purchases from the Company (including purchases of treasury shares or authorized
by unissued shares), or otherwise.
4.3 Investment of non-ESOP Contributions - Powers of Trustee. Except
for any portion of the Trust Fund which has been invested at the direction of
the Committee (or a participant or beneficiary) pursuant to Section 4.4, or at
the direction of an investment manager pursuant to Article V, the Trustee shall
have the following rights, powers, and duties with respect to the investment of
contributions made under the non-ESOP portion of the Plan, in addition to those
provided elsewhere in this Agreement, the Plan, or by law:
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<PAGE>
(a) To retain, without liability for depreciation or loss, any and
all stocks, bonds, notes, or other securities, including those
issued by the Employer, and those issued by a foreign
corporation, or any variety of real or personal property,
including that which it may receive as a contribution from the
Employer.
(b) To sell, lease, pledge, mortgage, transfer, exchange, convert, or
otherwise dispose of, or grant options with respect to, any and
all property at any time that forms part of the Trust Fund, in
such manner, at such time or times, for such purposes, for such
prices, and upon such terms and conditions as it may decide. Any
sale may be made by private contract or by public auction and no
person who deals with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or other
disposition.
(c) To borrow money for any purpose connected with the protection,
preservation, or improvement of any assets of the Trust Fund,
whenever, in its judgment, it appears advisable and, as security,
to mortgage or pledge any real estate or personal property of the
Trust Fund, upon such terms and conditions as it may deem
advisable.
(d) Subject to Section 4.5, to vote, in person or by general or
limited proxy, any shares of stock or other securities held by
it; to consent, directly or through an agent, to the
reorganization, consolidation, merger, dissolution, or
liquidation of any corporation in which the Trustee may have any
interest, or to the sale, pledge, lease, or mortgage of any
property by or to any such corporation; and to make any payments
and to take any steps which it may deem necessary or proper to
enable it to obtain the benefit of any such transaction.
(e) To acquire, dispose of, or exercise all options, rights, and
privileges to convert stocks, bonds, notes, mortgages, or other
property into other stocks, bonds, mortgages, or other property;
to subscribe for addition or other stocks, bonds, notes,
mortgages, or other property; to make such conversions and
subscriptions and to make payments therefor; and to hold such
stocks, bonds, notes, mortgages, or other property so acquired as
investments of the Trust Fund.
(f) To keep any of the securities or other property belonging to the
Trust Fund registered or recorded in the name of the Trust Fund
or in the name of the Trustee as nominee, without disclosing said
Trust Fund.
(g) To pay, compromise, compound, adjust, submit to arbitration,
settle, or release any claims or demands of the Trust as it may
deem advisable, including the acceptance of deeds of real
property in satisfaction of bonds and mortgages, and to make any
payments in connection therewith which it may deem advisable.
4
<PAGE>
(h) To reduce the interest rate at any time and from time to time on
any note or mortgage constituting a portion of the Trust Fund and
to extend or renew notes and mortgages upon or after maturity,
with or without reference to the value of the mortgage security
at the time of such extension or renewal.
(i) To employ agents, attorneys, and other persons whose services may
reasonably be required in connection with the administration of
the Trust Fund from time to time, and to pay reasonable
compensation therefor.
(j) To deposit in its banking department any or all cash held in the
Trust Fund; provided that, if this power is exercised, its
banking department shall not be obligated to pay to the Trust
Fund or to any beneficiary thereof, any interest, earnings, or
profit whatsoever accruing to or deriving to it from such money
on deposit with it, except for such rate of interest as under its
current practices it may be obligated to pay upon demand deposit
of individuals.
(k) To execute and deliver any and all instruments in writing which
it may deem advisable to carry out any of the foregoing powers.
No party to any such instrument in writing, signed by the
Trustee, shall be obliged to inquire into its validity or be
bound to see to the application of any money or other property
paid or delivered to the Trustee pursuant to the terms of such
instrument.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not acquire or dispose of any asset or engage in any transaction
if such acquisition, disposition, or transaction would cause a tax to be imposed
upon any person under Code section 4975.
4.4 Investment of non-ESOP Contributions - Powers of Committee. The
Committee may direct the Trustee as to the investment of any or all assets of
the Trust Fund, or may direct the Trustee to maintain or make available within
the Trust Fund a diversified group of at least two (2) investment funds in which
the assets of the Trust Fund may be invested at the direction of participants or
beneficiaries. An "investment fund" may be any common or collective trust fund
or pooled investment fund maintained by the Trustee or an affiliate of the
Trustee. All directions of the Committee, or a participant or beneficiary, to
the Trustee in this regard shall be in writing, and the Trustee shall be under
no duty to question any such direction or to review any securities or other
property in connection with such direction. The Trustee shall not be liable or
responsible in any way for any losses or unfavorable results that arise from its
compliance with such directions.
4.5 Voting of Company Stock. The Company shall use its reasonable best
efforts to cause to be delivered to each participant (or in case of death, his
beneficiary) such notices and informational statements as are furnished to the
Company's stockholders with respect to the exercise of voting rights on Company
Stock, together with a form by which the participant (or beneficiary) may
confidentially instruct the Trustee with respect to the voting of Company Stock
5
<PAGE>
allocated to his account under the Plan. The Trustee shall vote Company Stock
held within the Trust Fund as follows:
(a) The Trustee shall vote Company Stock credited to a participant's
account under the Plan with respect to which the Trustee has
received timely direction, as directed by the participant (or
beneficiary) (or abstain if so directed).
(b) The Trustee shall vote (i) all Company Stock not credited to any
participant's account under the Plan, and (ii) all Company Stock
credited to a participant's account under the Plan with respect
to which the Trustee has not received timely direction, in the
same proportion as the Company Stock specified in (a)
(disregarding any shares specified in (a) with respect to which
the Trustee has received a direction to abstain).
All voting direction received by the Trustee shall be held in
confidence by the Trustee and shall not be divulged or released to any person,
including an employee or any officer or director of the Company.
4.6 Tender of Company Stock. If there is a tender or exchange offer
for, or a request or invitation for the tender or exchange of, Company Stock,
the Trustee promptly shall furnish to each participant (or in case of death, his
beneficiary) a notice of such offer, request, or invitation, and shall request
direction from the participant (or beneficiary) as to the tender or exchange of
Company Stock allocated to the participant's account under the Plan. The Trustee
shall tender or exchange, or retain, Company Stock held within the Trust as
follows:
(a) The Trustee shall tender or exchange, or retain, Company Stock
credited to a participant's account under the Plan with respect
to which the Trustee has received timely direction, as directed
by the participant (or beneficiary).
(b) The Trustee shall retain Company Stock credited to a
participant's account under the Plan which respect to which the
Trustee has not received timely direction.
(c) The Trustee shall tender or exchange, or retain, Company Stock
not credited to any participant's account under the Plan, in the
same proportion as the Company Stock specified in (a) and (b) are
tendered or exchanged, or retained.
All tender or exchange directions received by the Trustee shall be held
in confidence by the Trustee and shall not be divulged or released to any
person, including an employee or any officer or director of the Company.
6
<PAGE>
ARTICLE V
INVESTMENT MANAGERS
5.1 Appointment by Company. The Company may transfer to one or more
"investment managers" (as defined below) the authority and responsibility to
direct the investment and management, and/or to have custody and control, of all
or part of the Trust Fund by advance written notice to the Trustee. Any such
notice shall include the name and a specimen signature of each such investment
manager. Any such transfer of the Trustee's authority to an investment manager
may be revoked in whole or in part by the Company by delivery to the investment
manager and to the Trustee of reasonable advance written notice to that effect,
whereupon such authority shall be restored to the Trustee unless a successor
investment manager is appointed by the Company. For purposes of this Agreement,
an "investment manager" is a fiduciary that has fully complied with the
provisions of section 3(38) of ERISA and has provided the Trustee with a written
acknowledgment that it has done so and that it is a fiduciary with respect to
the Trust Fund.
5.2 Relationship to Trustee. During such period of time as an
investment manager is authorized to direct the investment and management of all
or part of the Trust Fund which remains in the custody of the Trustee, the
following shall apply:
(a) No Liability for Losses. The Trustee shall not be liable or in
any way responsible for any losses or other unfavorable results
arising from the Trustee's compliance with investment or
management directions received by the Trustee from the investment
manager.
(b) Communications to Trustee. All directions concerning investments
made by an investment manager shall be signed by such person or
persons, acting on behalf of the investment manager, as may be
duly authorized in writing; provided that, the transmission to
the Trustee of such directions by photostatic teletransmission
with duplicate or facsimile signature or signatures shall be
considered a delivery in writing of the aforesaid directions
until the Trustee is notified in writing that the use of such
devices with duplicate or facsimile signatures is no longer
authorized.
(c) Compliance with Instructions. The Trustee shall comply with any
written directions given by an investment manager as promptly as
possible, and shall be entitled to presume that any directions so
given are fully authorized.
(d) Absence of Instructions. The Trustee shall not be liable for its
failure to invest any or all of the Trust Fund in the absence of
written directions from the investment manager.
(e) Rights with Respect to Securities. The Trustee shall have no
obligation to determine the existence of any conversion,
redemption, exchange, subscription, or
7
<PAGE>
other right relating to any securities purchases, of which notice
was given prior to the purchase of such securities, unless the
Trustee is informed of the existence of the right and is
instructed to exercise such right, in writing, by the investment
manager, within a reasonable time prior to the expiration of such
right.
(f) Common Trust Fund of Investment Managers. The investment manager
is permitted to instruct the Trustee to invest that portion of
the Trust Fund subject to the investment manager's control in any
common or collective trust fund or pooled investment fund
maintained by the investment manager or any affiliate of the
investment manager. The investment manager also may transfer, and
temporarily hold for less than two (2) days, assets under his
control. The Company and investment manager shall hold the
Trustee harmless with respect to any group trust investment
directed by the investment manager.
5.3 Fiduciary Responsibility. The Company intends by this Article to
allocate to an investment manager all fiduciary responsibility with respect to
the assets of the Trust Fund that are invested, managed, and controlled by, and
under the custody of the investment manager. Unless the Trustee, by action or
failure to act, participates in or undertakes to conceal an act or omission of
an investment manager, the Trustee shall incur no liability for any loss of any
kind which may result solely (i) by reason of any action taken by it in
accordance with any direction of such investment manager, or (ii) by reason of
any act or omission of an investment manager, and, except where the Trustee has
failed fully to perform and discharge all of its duties and obligations under
this Agreement, the Company shall indemnify and hold harmless the Trustee for
any legal liability judicially imposed by a court of competent jurisdiction on
the Trustee solely as a result of complying with the instructions of an
investment manager appointed by the Company or solely as a result of any act or
omission of the investment manager. The Trustee shall not be deemed to be a
party to or to have any obligations under any agreement with any investment
manager, except as otherwise provided for herein. On receipt of directions from
an investment manager, the trustee promptly shall make, execute, acknowledge,
and deliver any and all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to carry out such
directions. The Trustee shall not be deemed to have participated in any act or
omission of the investment manager solely by reason of acting or failing to act
in accordance with the direction of the investment manager.
5.4 Investment Authority. An investment manager shall have the
investment powers and duties otherwise granted to or imposed upon the Trustee,
except as otherwise limited by agreement or by investment objectives provided by
the Company or Committee.
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ARTICLE VI
RECORDKEEPING
6.1 Recordkeeping. The Trustee shall keep accurate and detailed
accounts of all its investments, receipts, disbursements, and other transactions
involving the Trust Fund, and all accounts, books, and records relating thereto
shall be open to inspection and audit by any person designated by the Company at
all reasonable times during business hours.
6.2 Fiscal Year. The fiscal year of the Trust shall be the twelve
month period beginning October 1 and ending the following September 30.
6.3 Reports. Within seventy-five (75) days following the close of each
fiscal year of the Trust, and as soon as practicable, but not later than sixty
(60) days, after the removal or resignation of the Trustee, the Trustee shall
file with the Company a written report that sets forth all investments,
receipts, disbursements, and other transactions effected by it during such
fiscal year, or portion thereof. Such report shall contain a description of all
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or received being shown separately), and showing
the investments held at the end of the period for which the report is submitted.
Neither the Company, nor any participant in the Plan, nor any other person shall
have the right to demand or be entitled to any further or different accounting
by the Trustee. The foregoing provisions, however, shall not preclude the
Trustee from having its accounts judicially settled if it so desires.
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 Amendment. The Company shall have the right at any time and from
time to time to amend this Agreement, in whole or in part, on a prospective or
retroactive basis; provided that, no amendment shall be effective if it causes
any part of the Trust Fund to be used for, or diverted to, purposes other than
the exclusive benefit of employees and their beneficiaries, and no amendment
shall be effective without the Trustee's consent if it materially changes the
rights, duties, and responsibilities of the Trustee. An amendment shall become
effective upon the date therein so stated.
7.2 Termination. If the Plan is terminated, this Agreement nevertheless
shall continue in effect until all assets have been distributed from the Trust
Fund, at which time the Trust and this Agreement shall terminate. The Committee
shall notify the Trustee of the termination of the Plan, and the Trustee shall
dispose of Trust Fund assets in accordance with the directions of the Committee,
subject to the receipt of such determination from the Internal Revenue Service
as to the qualified status of the Plan and Trust under Code sections 401(a) and
501(a) as may reasonably be required by the Trustee.
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ARTICLE VIII
SUCCESSION OF TRUSTEES
8.1 Removal by Company. The Company may remove the Trustee at any time
upon written notice to the Trustee. Such removal shall be effective immediately
upon the Trustee's receipt of such notice or at such later date as the parties
may agree.
8.2 Resignation of Trustee. The Trustee may resign as trustee at any
time upon written notice to the Company. Such resignation shall be effective as
of the date the Company appoints a successor trustee; provided that, if no
successor trustee is appointed within sixty (60) days after the Company's
receipt of the Trustee's notice of resignation, the Trustee may apply to a court
of competent jurisdiction for appointment of a successor trustee and such
resignation shall be effective as of the date the court appoints a successor
trustee.
8.3 Appointment of Successor Trustee. To appoint a successor trustee,
the Company shall deliver to the Trustee and to the successor trustee an
instrument, executed by the Company, appointing such successor trustee, and
deliver to the Trustee a written acceptance executed by the successor trustee so
appointed. Unless and until superseded by a subsequent trust agreement, all of
the provisions of this Agreement shall apply to any successor trustee with the
same force and effect as if such successor trustee originally had been named
herein as the Trustee.
8.4 Transfer of Assets to Successor Trustee. Upon the appointment of a
successor trustee, the Trustee shall, without requiring any release or agreement
from any party other than the Company, render a final accounting in writing to
the Company and transfer and deliver the assets of the Trust Fund to such
successor trustee after reserving such reasonable amount as it shall deem
necessary to provide for any fees, expenses, or taxes then chargeable against
the Trust Fund. The receipt of assets by a successor trustee and the approval of
the Company to the final accounting of the Trustee shall be a full and complete
acquittal and discharge of the Trustee except as otherwise provided under ERISA.
A successor trustee shall have no liability whatsoever for the acts or omissions
of the Trustee. If the Company fails to object to such accounting by delivery to
the Trustee within one hundred and twenty (120) days from the date of receipt by
the Company of such final accounting, such accounting shall be deemed to be
approved by the Company.
8.5 Reorganization of Trustee. If, at any time, the Trustee merges or
consolidates with another entity, or sells or transfers substantially all of its
assets and business to another entity, the entity resulting from such merger or
consolidation, or the entity into which it is converted, or to which such sale
or transfer is made, shall thereupon become and be the Trustee under this
Agreement, with the same effect as though originally so named.
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ARTICLE IX
GENERAL ADMINISTRATIVE POWERS
9.1 Plan Administration. The Plan shall be administered by the
Committee, the individual members of which have been duly appointed under the
Plan. The Committee shall have all administrative authority and responsibility
with respect to the Plan as is provided in the Plan, and the Trustee shall have
no obligations with respect to the administration.
9.2 Reliance upon Committee. The Trustee shall be fully protected in
relying upon any instruction, direction, or approval of the Committee furnished
to the Trustee if such instruction, direction, or approval is (i) signed by a
majority of the members of the Committee, or (ii) signed by one or more of its
members as may be authorized by the Committee in accordance with the Plan to
execute such instructions, directions, or approvals. The Trustee may rely upon a
certification by any Company officer as to the identity of the members of the
Committee until advised to the contrary. The Company agrees to indemnify and
hold the Trustee harmless against any liabilities it may incur in acting in
accordance with any such written instruction, direction, or approval delivered
by the Committee.
9.3 Reliance upon Company. The Trustee shall be fully protected in
acting upon any instrument, certificate, or paper signed on behalf of the
Company, provided that the Trustee reasonably believes that such instrument,
certificate, or paper is genuine and signed by the proper person. The Trustee
shall be under no duty to make any investigation or inquiry as to any statement
of fact contained in such writing, but may accept the same as conclusive
evidence of the truth and accuracy thereof, including any statement that any
amendment or modification of this Agreement under the provisions of Article VII
complies with the requirements and restrictions set forth therein. The Company
agrees to indemnify and hold the Trustee harmless against any liabilities it may
incur in acting in accordance with any such written instructions delivered by
the Company.
9.4 Reliance upon Counsel. The Trustee may consult with counsel, who
may or may not be counsel for the Company, in respect of any of its duties or
obligations hereunder and shall be fully protected in acting or refraining from
acting in accordance with the written advice of such counsel.
9.5 No Implied Powers or Obligations. Nothing shall be deemed to impose
any powers, duties, or responsibilities on the Trustee other than those
expressly set forth in the Plan, this Agreement, or under ERISA.
9.6 Parties to Court Proceedings. Except as otherwise required by
ERISA, only the Company, the Committee, and the Trustee shall be necessary
parties to any court proceeding involving the Trustee or the Trust, and no
employee, former employee, or beneficiary shall be entitled to any notice or
process. Any final judgment entered in any such proceeding shall be
11
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conclusive upon the Company, the Committee, the Trustee, employees, former
employees, and beneficiaries of employees or former employees.
9.7 Notices. All notices, orders, authorizations, directions, or other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered personally or mailed to the following address, marked for
attention as indicated, or such other address or marked for such other attention
as may from time to time be furnished in writing to the other party to this
Agreement by any such addressee:
If to the Company or Committee:
FALMOUTH CO-OPERATIVE BANK
20 Davis Straits
Falmouth, MA 02541
Attention: President
If to the Trustee:
Attention:
ARTICLE X
MISCELLANEOUS
10.1 Third Parties. No person dealing with the Trustee shall be
obligated to see to the application of any money paid or property delivered to
the Trustee; nor shall any such person be required to take cognizance of the
provisions of this Agreement or the Plan, or to question the authority of the
Trustee to do any act as respects the Trust or the authority of the Trustee to
receive any money becoming due and payable, nor be obligated to inquire as to
whether the Trustee has secured the direction, consent, or approval of the
Company, the Committee or of any participant or beneficiary to any proposed
action. In general, each person dealing with the Trustee may act upon any
advice, request, or representation in writing by the Trustee or the Trustee's
duly authorized agent and shall not be liable to any person in so doing.
10.2 Reorganization of Company. If the Company consolidates or merges
with or into any other corporation, or sells substantially all of its property,
the successor corporation formed
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and resulting from any such consolidation, merger, or purchase of assets
automatically shall become a party to this Agreement.
10.3 Prohibition Against Assignment. Except as may be required or
permitted under ERISA and the Code, no interest in any payments under the Trust
Fund shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt so to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge shall be void.
Neither shall the Trust nor the Trustee be in any manner liable for or subject
to any debts, contracts, liabilities, engagements, or torts of any person
entitled to any payment or distribution from the Trust Fund.
10.4 Governing Law. This Agreement shall be governed by the internal
laws of the state of Massachusetts to the extent that federal law does not
preempt such laws.
10.5 Severability of Provisions. If any provision of this Agreement is
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of this Agreement, but shall be fully severable,
and this Agreement shall be construed and enforced as if the illegal or invalid
provision had never been included herein.
10.6 Headings. All headings in this Agreement are included solely for
ease of reference and do not bear on the interpretation of the text.
10.7 Co-Trustees. With the consent of the Trustee, the Company may
appoint one or more co-trustees. During any period of time when two or more
persons (whether individuals, corporations, or otherwise) make up the Trustee,
the following provisions shall apply:
(a) Joint Management. Except as otherwise provided in this Agreement,
(i) each such person shall use reasonable care to prevent a
co-trustee from committing a breach, and (ii) each such person
shall jointly manage and control the assets of the Trust Fund;
provided that, this provision shall not preclude any agreement
(and the co-trustees are hereby authorized to agree in a written
document executed by all co-trustees) to allocate specific
responsibilities, obligations, or duties among themselves, in
which case a co-trustee to whom certain responsibilities,
obligations, or duties have not been allocated shall not be
liable by reason of this provision, either individually or as a
trustee, for any loss resulting to the Trust Fund arising from
acts or omission on the part of another co-trustee to whom such
responsibilities, obligation, or duties have been allocated.
(b) Fiduciary Status. Nothing in this Section shall limit any
liability that any fiduciary may have under ERISA.
(c) Majority Action. The Trustee shall act by a majority of such
persons at the time in office, and such action may be taken
either by vote at a meeting or in writing without a meeting.
13
<PAGE>
(d) Signatures. Persons serving as co-trustees may unanimously
designate any one or more co-trustee(s) to execute any instrument
or document on behalf of all, including but not limited to the
signing or endorsement of any check and the signing of any
application or insurance contract, and the action of such
designated co-trustee shall have the same force and effect as if
taken by all the co-trustees. In the event of such authorization,
all the co-trustees shall in writing notify the Committee, the
Company, and any insurer, and such parties shall be entitled to
rely upon such notification until one or more co-trustees gives
written notification to the contrary.
10.8 Exclusive Benefit Rule. The assets of the Trust Fund shall never
inure to the benefit of the Company and shall be held for the exclusive purpose
of providing benefits under the Plan and defraying reasonable expenses of
administration. The Company shall not be entitled to receive or recover any part
of its contributions to the Trust or the earnings thereon except as follows:
(a) Contributions Conditioned on Deductibility. All Company
contributions to the Trust Fund are conditioned upon
deductibility under Code section 404, unless otherwise expressly
stated by the Company. Accordingly, if and to the extent that
such a deduction is disallowed within the meaning of section
403(c)(2) of ERISA, the contribution in question shall be repaid
to the Company upon demand (but subject to paragraph (c) below
and only to the extent disallowed) within one (1) year after such
disallowance. If the Company contribution for any taxable year
exceeds the amount deductible for the taxable year under the
Code, but is not repaid pursuant to the foregoing sentence, the
portion not so deductible shall in like amount reduce the
contribution required in respect of the subsequent taxable year
during which the disallowance or other determination of
nondeductibility is made and, to the extent not thereby consumed,
any subsequent taxable year or years.
(b) Contributions Made by Mistake. If and to the extent that a
contribution to the Trust Fund is made as a result of a good
faith mistake of facts or circumstances, the same shall be repaid
to the Company upon demand of the Committee (but subject to
paragraph (c) below and only to the extent of such mistake)
within one (1) year after the contribution was made.
(c) Repayments. Any repayment of a contribution under paragraphs (a)
or (b), above, shall be subject to the condition that (i) such
repayment shall not include any earnings attributable to that
portion of the contribution that qualifies for repayment under
paragraph (a) or (b) above, unless the repayment is being made to
avoid a detrimental tax effect under Code section 401(k), 401(m),
or 402(g), (ii) there shall be deducted from the amount of such
repayment any losses attributable to that portion of the
contribution which qualifies for repayment under paragraph (a) or
(b) above, and (iii) in no event shall such repayment result in
any participant's account being reduced to a balance which is
less than the balance which would have been
14
<PAGE>
in his account had the amount contributed not been contributed,
and the amount of the repayment shall be adjusted accordingly.
10.9 Unclaimed Benefits. If any benefit is unclaimed for a period of
seven years following termination of the Plan, it shall escheat in accordance
with applicable law to the extent permissible under ERISA.
15
<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Agreement to be duly executed as of the day and year first above written.
FALMOUTH CO-OPERATIVE BANK
By /s/ Santo P. Pasqualucci /s/ Armand Ortins
----------------------------- --------------------------
Its President Trustee
/s/ John J. Lynch, Jr.
--------------------------
Trustee
/s/ Gardner L. Lewis
--------------------------
Trustee
16
15 Christy's Drive
Brockton, MA 02401
Tel 508-583-6519
Fax 508-586-7565
17 Accord Park Drive
Norwell, MA 02061
Tel 617-878-8850
Fax 617-871-0256
KEITH HERSEY SHEEHAN BENOIT DEMPSEY & OMAN, P.C.
November 22, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Falmouth Co-operative Bank
Ladies and Gentlemen:
We have read the section "Proposal 2 -- Ratification of Appointment of
Independent Auditors" in the Proxy Statement-Prospectus of Falmouth Co-operative
Bank and Falmouth Bancorp, Inc. and agree with the statements contained therein.
Very truly yours,
Keith Hersey Sheehan Benoit
Dempsey & Oman, P.C.
Shatswell MacLeod & Co., P.C.
83 Pine St.
W. Peabody, MA 09160
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Falmouth Bancorp, Inc.
Falmouth, MA 02540
We consent to the use of our report dated October 18, 1996, except for Note
14, as to which the date is November 19, 1996, included herein relating to the
financial condition of Falmouth Bancorp, Inc. as of September 30, 1996 and the
related statements of income, changes in stockholders' equity and cash flows for
the year ended September 30, 1996.
Shatswell MacLeod & Co., P.C.
November 26, 1996
West Peabody, Massachusetts
15 Christy's Drive
Brockton, MA 02401
Tel 508-583-6519
Fax 508-586-7565
17 Accord Park Drive
Norwell, MA 02061
Tel 617-878-8850
Fax 617-871-0256
KEITH HERSEY SHEEHAN BENOIT DEMPSEY & OMAN, P.C.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Falmouth Bancorp, Inc.
Falmouth, MA 02540
We consent to the use of our independent auditor's report dated
November 20, 1995 included herein relating to the financial condition of
Falmouth Co-operative Bank as of September 30, 1995 and the related statements
of income, changes in net worth and cash flows for each of the three years in
the three-year period ended September 30, 1995.
Keith Hersey Sheehan Benoit Dempsey & Oman, P.C.
November 22, 1996
Brockton, Massachusetts
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and the statement of earnings of Falmouth Co-operative Bank for
the period at and ending September 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> SEP-30-1996
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<CASH> 1,172
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0
0
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</TABLE>
