<PAGE>
As filed with the Securities and Exchange Commission on August , 1997.
REGISTRATION STATEMENT NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------
NORTHWAY FINANCIAL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEW HAMPSHIRE 6712 04-3368579
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification No.)
</TABLE>
9 MAIN STREET
BERLIN, NEW HAMPSHIRE 03570
(603) 752-1171
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Office)
DAVID J. O'CONNOR
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
NORTHWAY FINANCIAL, INC.
9 MAIN STREET
BERLIN, NEW HAMPSHIRE 03570
(603) 752-1171
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
------------
Copies to:
WILLIAM PRATT MAYER, ESQ. J.J. CRANMORE, ESQ.
GOODWIN, PROCTER & HOAR LLP CRANMORE, FITZGERALD & MEANEY
EXCHANGE PLACE 49 WETHERSFIELD AVENUE
BOSTON, MASSACHUSETTS 02109-2881 HARTFORD, CONNECTICUT 06114-1102
(617) 570-1000 (860) 522-9100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the BCB Reorganization (as defined below) and the Merger (as
defined below), both as described in the enclosed Joint Proxy
Statement/Prospectus.
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.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
Amount to be Proposed Maximum Proposed Maximum Amount of
Title of each Class of Registered(1) Offering Price Per Aggregate Offering Registration
Securities to be Registered Share(2) Price(2) Fee(3)
- ------------------------------- ----------------------- ------------------------ ------------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value 1,732,145 shares $19.66 $34,056,772 $3,509
==========================================================================================================================
(1) Based upon the estimated number of shares of common stock of Northway Financial, Inc. ("Northway") (i) to be issued to
the shareholders of The Berlin City Bank ("BCB"), Northway's parent, pursuant to the merger of a subsidiary of Northway
with and into BCB (the "BCB Reorganization") and (ii) to be issued to the shareholders of Pemi Bancorp, Inc. ("PEMI")
pursuant to the merger of PEMI with and into Northway (the "Merger").
(2) The proposed maximum aggregate offering price has been computed pursuant to Rule 457(f)(2) based on the sum of (i) the
book value per share of BCB common stock ($342.13 as of March 31, 1997) multiplied by 63,301 (the maximum number of
shares of BCB common stock to be converted in the BCB Reorganization), plus (ii) the book value per share of PEMI
common stock ($17.96 as of March 31, 1997) multiplied by 690,401 (the maximum number of shares of PEMI common stock to
be converted in the Merger). The proposed maximum offering price per share is determined by dividing the proposed
maximum aggregate offering price calculated above by the number of shares of Northway common stock to be registered.
(3) Pursuant to Rule 457(b), this amount does not include the fee of $6,812 previously paid in connection with the filing
of preliminary proxy materials on Schedule 14A relating to the transactions described herein on June 12, 1997.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
[LOGO]
August _, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting in Lieu of the
Annual Meeting of Stockholders of The Berlin City Bank ("BCB"), to be held at
the Town and Country Motor Inn, Route 2, Shelburne, New Hampshire, on Tuesday,
September 23, 1997, at 2:00 p.m. (the "BCB Meeting").
BCB has entered into an Agreement and Plan of Merger, dated as of March
14, 1997 (the "Merger Agreement"), by and among BCB, Northway Financial, Inc.
("Northway"), a wholly owned subsidiary of BCB, Pemi Bancorp, Inc. ("PEMI"), and
Pemigewasset National Bank ("PNB"), a wholly owned national bank subsidiary of
PEMI. Under the terms of the Merger Agreement, (i) Northway will organize a new
New Hampshire trust company, Berlin Interim Trust Company ("BITC"), (ii) BITC
will merge with and into BCB (the "BCB Reorganization"), as a result of which
BCB will become a wholly owned direct subsidiary of Northway, and (iii)
following the BCB Reorganization, PEMI will merge with and into Northway, with
Northway being the surviving corporation (the "Merger"). As a result of the
foregoing transactions, Northway will be the bank holding company for BCB and
PNB, and each of BCB and PNB will be wholly owned direct subsidiaries of
Northway.
In connection with the BCB Reorganization and the Merger (i) each
outstanding share of BCB common stock will be converted into 16 shares of
Northway common stock and (ii) each outstanding share of PEMI common stock will
be converted into 1.0419 shares of Northway common stock (the "Exchange Ratio").
Northway has applied to have the common stock to be issued to the BCB and PEMI
stockholders quoted on The Nasdaq Stock Market, Inc.'s National Market, which is
expected to provide all such stockholders with greater liquidity with respect to
their investments.
At the BCB Meeting, you will be asked to consider and vote upon
proposals to approve the BCB Reorganization and the Merger. Following the
consummation of such transactions, BCB and PNB will continue their present
banking businesses as wholly owned subsidiaries of Northway. With combined
assets of more than approximately $370 million, Northway will be the largest
independent banking organization in northern New Hampshire and the ninth largest
in the state. Following the Merger, the Board of Directors and executive
officers of Northway will be comprised of certain directors and executive
officers of BCB and PEMI, and the Boards of Directors and executive officers of
BCB and PNB will remain the same, although certain current members of the PNB
Board will be appointed to the BCB Board, and certain current members of the BCB
Board will be appointed to the PNB Board.
As a bank holding company, Northway generally will have more flexibility
in its corporate organization and its banking related activities than is
permitted banks under current law. For this and other reasons, the Board of
Directors of BCB believes that the combined company will be a more effective
competitor in the increasingly competitive financial services industry and that
the BCB Reorganization and the Merger are in the best interests of BCB, its
stockholders, and the communities in which BCB operates.
On behalf of the management and directors of BCB, I am pleased to be
able to send you the enclosed Joint Proxy Statement/Prospectus which includes
information about BCB, Northway, PEMI, and PNB and details about the proposed
BCB Reorganization and the Merger. I urge you to read these materials carefully.
THE BOARD OF DIRECTORS BELIEVES THAT THE BCB REORGANIZATION AND THE
MERGER ARE IN THE BEST INTERESTS OF BCB AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY
APPROVED THE BCB REORGANIZATION PLAN, THE MERGER AGREEMENT, AND THE AGREEMENTS
AND TRANSACTIONS CONTEMPLATED THEREBY.
In arriving at its decision, the Board of Directors considered a number
of factors, including the opinion of its financial advisor, Northeast Capital &
Advisory, Inc. ("NECA"), that the Exchange Ratio in the Merger is fair to BCB
stockholders from a financial point of view. The written opinion of NECA is
reproduced in full as Appendix B to the accompanying Joint Proxy
Statement/Prospectus, and I urge you to read the opinion carefully.
The BCB Meeting has also been called for the purpose of electing one
director to the Board of Directors of BCB for a two-year term and three
directors to the Board of Directors of BCB for three-year terms, and for
considering and voting upon such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors of BCB has fixed the close of business on August
11, 1997, as the record date for determining stockholders entitled to notice of
and to vote at the BCB Meeting.
The Board of Directors of BCB unanimously recommends that stockholders
vote "FOR" approval and adoption of the transactions and agreements relating to
the BCB Reorganization, "FOR" approval and adoption of the transactions and
agreements relating to the Merger, and "FOR" the election of its nominees to the
Board of Directors.
IN VIEW OF THE IMPORTANCE OF THE ACTIONS TO BE TAKEN AT THE BCB MEETING,
AND BECAUSE YOUR FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
BCB REORGANIZATION, THE MERGER, AND THE AGREEMENTS AND TRANSACTIONS CONTEMPLATED
THEREBY, WE URGE YOU TO COMPLETE, SIGN, AND DATE YOUR PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE BCB
MEETING. IF YOU ATTEND THE BCB MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU
PREVIOUSLY HAVE MAILED YOUR PROXY.
If the BCB Reorganization is completed, you will receive a letter of
transmittal providing instructions as to the procedures to be followed in
exchanging your BCB common stock certificates for certificates of Northway
common stock. Please do not send your stock certificates with the enclosed proxy
card to BCB or to the exchange agent until you receive the letter of
transmittal.
Along with the other members of the Board of Directors, I look forward
to greeting you personally at this very important meeting.
Very truly yours,
William J. Woodward
President, Chief Executive Officer, and
Chairman of the Board of Directors
Berlin, New Hampshire
August __, 1997
<PAGE>
THE BERLIN CITY BANK
9 MAIN STREET
BERLIN, NEW HAMPSHIRE 03570
TELEPHONE 603-752-1171
NOTICE OF SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, SEPTEMBER 23, 1997
NOTICE IS HEREBY GIVEN THAT a Special Meeting in Lieu of the Annual
Meeting of Stockholders of The Berlin City Bank ("BCB") will be held at the Town
and Country Motor Inn, Route 2, Shelburne, New Hampshire, on Tuesday, September
23, 1997, at 2:00 p.m. (the "BCB Meeting").
BCB has entered into an Agreement and Plan of Merger, dated as of March
14, 1997 (the "Merger Agreement"), by and among BCB, Northway Financial, Inc.
("Northway"), a wholly owned subsidiary of BCB, Pemi Bancorp, Inc. ("PEMI"), and
Pemigewasset National Bank ("PNB"), a wholly owned national bank subsidiary of
PEMI. Under the terms of the Merger Agreement, (i) Northway will organize a new
New Hampshire trust company, Berlin Interim Trust Company ("BITC"), (ii) BITC
will merge with and into BCB (the "BCB Reorganization"), as a result of which
BCB will become a wholly owned direct subsidiary of Northway, and (iii)
following the BCB Reorganization, PEMI will merge with and into Northway, with
Northway being the surviving corporation (the "Merger"). As a result of the
foregoing transactions, Northway will be the bank holding company for BCB and
PNB, and each of BCB and PNB will be wholly owned direct subsidiaries of
Northway.
At the BCB Meeting, you will be asked to consider and vote upon the
following proposals:
(1) To authorize BCB to petition the New Hampshire Banking Commissioner
for approval of a Plan of Reorganization, dated September 23, 1997
(the "BCB Reorganization Plan"), by and among BCB, Northway, and
BITC, pursuant to which each outstanding share of common stock, par
value $5.00 per share, of BCB ("BCB Common Stock") will be
converted into 16 shares of common stock, par value $1.00 per
share, of Northway ("Northway Common Stock"), and Northway will
become the holding company of BCB;
(2) To ratify the BCB Reorganization Plan at an adjournment of the BCB
Meeting (notice of the time and place of which will be given to all
BCB stockholders) to be held after receipt of the approval of the
New Hampshire Banking Commissioner;
(3) To approve the Merger Agreement, pursuant to which each outstanding
share of common stock, par value $1.00 per share, of PEMI will be
converted into 1.0419 shares of Northway Common Stock, and BCB and
PNB will become separate bank subsidiaries of Northway;
(4) To elect one director of BCB for a two-year term to continue until
the 1999 Annual Meeting of Stockholders and three directors of BCB
for three-year terms to continue until the 2000 Annual Meeting of
Stockholders, and until their successors are duly elected and
qualified; and
(5) To transact such other business as may properly come before the BCB
Meeting or any adjournments or postponements thereof.
If the proposals relating to the BCB Reorganization (proposals (1) and
(2) above) are approved and/or the proposal relating to the Merger (proposal (3)
above) is approved at the BCB Meeting, any stockholder of BCB (i) who delivers
to BCB, before the taking of the vote on each such proposal, written objection
to the BCB Reorganization or the Merger, stating that he intends to demand
payment for his shares of BCB Common Stock if the BCB Reorganization or the
Merger, as the case may be, becomes effective, and (ii) whose shares of BCB
Common Stock are not voted in favor of the BCB Reorganization proposals or the
Merger proposal, as the case may be, has or may have the right to demand in
writing from BCB, within 30 days after the date of mailing to him by BCB of
notice in writing that the BCB Reorganization and/or the Merger, as the case may
be, has become effective, payment for his shares of BCB Common Stock and an
appraisal of the value thereof. BCB and any such stockholder shall in such cases
have the rights and duties and shall follow the procedures set forth in Sections
293-A:13.01 through 293-A:13.31 of the New Hampshire Business Corporation Act,
and Section 388:13 of the New Hampshire Revised Statutes Annotated, the full
text of which Sections is attached as Appendix D to the accompanying Joint Proxy
Statement/Prospectus. See "The BCB Reorganization - Dissenters' Rights of BCB
Stockholders" and "The Merger and Related Transactions - Dissenters' Rights of
BCB Stockholders in the Merger" in the accompanying Joint Proxy
Statement/Prospectus.
THE BOARD OF DIRECTORS BELIEVES THAT THE BCB REORGANIZATION AND THE
MERGER ARE IN THE BEST INTERESTS OF BCB AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY
APPROVED THE BCB REORGANIZATION PLAN, THE MERGER AGREEMENTS, AND THE AGREEMENTS
AND TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors has fixed the close of business on August 11,
1997, as the record date for determining the holders of BCB Common Stock
entitled to notice of, and to vote at, the BCB Meeting (the "BCB Record Date")
or any adjournments or postponements thereof. The outstanding BCB Common Stock,
as of the BCB Record Date, consisted of 63,301 shares. The proposals to
authorize BCB to submit the BCB Reorganization Plan to the New Hampshire Banking
Commissioner for approval and to ratify the BCB Reorganization Plan upon receipt
of such approval each require the affirmative vote of two-thirds of the
outstanding shares of BCB Common Stock. The proposal to approve the Merger
Agreement requires the affirmative vote of a majority of the outstanding shares
of BCB Common Stock. The proposal to approve the election of the directors
requires the affirmative vote of a plurality of the shares of BCB Common Stock
represented in person or by proxy at the BCB Meeting.
Details of the proposed BCB Reorganization and the Merger and other
important information concerning BCB, Northway, BITC, PEMI, and PNB are
presented in the accompanying Joint Proxy Statement/Prospectus. Please give this
material your careful attention.
All stockholders are cordially invited to attend the BCB Meeting in
person; however, to ensure your representation at the BCB Meeting you are urged
to mark, sign, date, and return the enclosed proxy card as promptly as possible
in the postage prepaid envelope enclosed for that purpose.
By Order of the Board of Directors
Paul G. Campagna
Clerk
Berlin, New Hampshire
August __, 1997
================================================================================
IMPORTANT:
REGARDLESS OF THE NUMBER OF SHARES YOU MAY OWN, IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AT THE MEETING. PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. A
PREADDRESSED, POSTAGE PAID ENVELOPE IS PROVIDED FOR YOUR CONVENIENCE.
================================================================================
<PAGE>
[PEMI BANCORP, INC. LETTERHEAD]
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of PEMI Bancorp, Inc. ("PEMI"), to be held at Plymouth Regional Senior Center,
R.R. Depot Square, Plymouth, New Hampshire, on Monday, September 22, 1997, at
2:00 p.m. (the "PEMI Meeting").
PEMI has entered into an Agreement and Plan of Merger, dated as of
March 14, 1997 (the "Merger Agreement"), by and among PEMI, Pemigewasset
National Bank ("PNB"), a wholly owned national bank subsidiary of PEMI, The
Berlin City Bank ("BCB"), and Northway Financial, Inc. ("Northway"), a wholly
owned subsidiary of BCB. Under the terms of the Merger Agreement, (i) Northway
will organize a new New Hampshire trust company, Berlin Interim Trust Company
("BITC"), (ii) BITC will merge with and into BCB (the "BCB Reorganization"), as
a result of which BCB will become a wholly owned direct subsidiary of Northway,
and (iii) following the BCB Reorganization, PEMI will merge with and into
Northway, with Northway being the surviving corporation (the "Merger"). As a
result of the foregoing transactions, Northway will be the bank holding company
for PNB and BCB, and each of PNB and BCB will be wholly owned direct
subsidiaries of Northway.
In connection with the BCB Reorganization and the Merger, (i) each
outstanding share of BCB common stock will be converted into 16 shares of
Northway common stock and (ii) each outstanding share of PEMI common stock will
be converted into 1.0419 shares of Northway common stock (the "Exchange Ratio").
Northway has applied to have the common stock to be issued to the BCB and PEMI
stockholders quoted on The Nasdaq Stock Market, Inc.'s National Market, which is
expected to provide all such stockholders with greater liquidity with respect to
their investments.
At the PEMI Meeting, you will be asked to consider and vote upon a
proposal to approve the Merger. Following the consummation of the Merger, PNB
and BCB will continue their present banking businesses, as wholly owned
subsidiaries of Northway. With combined assets of more than approximately $370
million, Northway will be the largest independent banking organization in
northern New Hampshire and the ninth largest in the state. Following the Merger,
the Board of Directors and executive officers of Northway will be comprised of
certain directors and executive officers of PEMI and BCB, and the Boards of
Directors and executive officers of PNB and BCB will remain the same, although
certain current members of the BCB Board will be appointed to the PNB Board, and
certain current members of the PNB Board will be appointed to the BCB Board.
The Board of Directors of PEMI believes that the combined company will
be a more effective competitor in the increasingly competitive financial
services industry and that the Merger is in the best interests of PEMI, its
stockholders, and the communities in which it operates.
On behalf of the management and directors of PEMI, I am pleased to send
you the enclosed Joint Proxy Statement/Prospectus which includes information
about Northway, BCB, PEMI, and PNB and details about the proposed Merger. I urge
you to read these materials carefully.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF PEMI AND ITS STOCKHOLDERS AND HAS APPROVED THE MERGER AGREEMENT AND
THE AGREEMENTS AND TRANSACTIONS CONTEMPLATED THEREBY.
In arriving at its decision, the Board of Directors considered a number
of factors, including the opinion of its financial advisor, HAS Associates, Inc.
("HAS"), that the Exchange Ratio in the Merger is fair to PEMI stockholders from
a financial point of view. The written opinion of HAS is reproduced in full as
Appendix C to the accompanying Joint Proxy Statement/Prospectus, and I urge you
to read the opinion carefully.
The PEMI Meeting has also been called to consider and vote upon such
other business as may properly come before the meeting or any adjournments or
postponements thereof.
The Board of Directors of PEMI has fixed the close of business on
August 11, 1997, as the record date for determining stockholders entitled to
notice of and to vote at the PEMI Meeting.
The Board of Directors of PEMI recommends that stockholders vote "FOR"
approval and adoption of the transactions and agreements relating to the Merger.
IN VIEW OF THE IMPORTANCE OF THE ACTIONS TO BE TAKEN AT THE PEMI
MEETING, AND BECAUSE YOUR FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AND THE AGREEMENTS AND TRANSACTIONS CONTEMPLATED THEREBY, WE
URGE YOU TO COMPLETE, SIGN, AND DATE YOUR PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE PEMI MEETING. IF YOU
ATTEND THE PEMI MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU PREVIOUSLY HAVE
MAILED YOUR PROXY.
If the Merger is completed, you will receive a letter of transmittal
providing instructions as to the procedures to be followed in exchanging your
PEMI common stock certificates for certificates of Northway common stock. Please
do not send your stock certificates with the enclosed proxy card to PEMI or to
the exchange agent until you receive the letter of transmittal.
Along with the other members of the Board of Directors, I look forward
to seeing you at this very important meeting.
Very truly yours,
Fletcher W. Adams
President, Chief Executive Officer, and Director
Plymouth, New Hampshire
August __, 1997
<PAGE>
PEMI BANCORP, INC.
287 HIGHLAND STREET, P.O. BOX 29
WEST PLYMOUTH, NH 03264
TELEPHONE (603) 536-2733
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, SEPTEMBER 22, 1997
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Stockholders of PEMI
BANCORP, INC. ("PEMI") will be held at Plymouth Regional Senior Center, R.R.
Depot Square, Plymouth, New Hampshire, on Monday, September 22, 1997 at 2:00
p.m. (the "PEMI Meeting"):
PEMI has entered into an Agreement and Plan of Merger, dated as of
March 14, 1997 (the "Merger Agreement"), by and among PEMI, Pemigewasset
National Bank ("PNB"), a wholly owned national bank subsidiary of PEMI, The
Berlin City Bank ("BCB"), and Northway Financial, Inc. ("Northway"), a wholly
owned subsidiary of BCB. Under the terms of the Merger Agreement, (i) Northway
will organize a new New Hampshire trust company, Berlin Interim Trust Company
("BITC"), (ii) BITC will merge with and into BCB (the "BCB Reorganization"), as
a result of which BCB will become a wholly owned direct subsidiary of Northway,
and (iii) following the BCB Reorganization, PEMI will merge with and into
Northway, with Northway being the surviving corporation (the "Merger"). As a
result of the foregoing transactions, Northway will be the bank holding company
for PNB and BCB, and each of PNB and BCB will be wholly owned direct
subsidiaries of Northway.
At the PEMI Meeting, you will be asked to consider and vote upon the
following proposals:
(1) To approve the Merger Agreement, pursuant to which each outstanding
share of common stock, par value $1.00 per share, of PEMI ("PEMI
Common Stock") will be converted into 1.0419 shares of common
stock, par value $1.00 per share, of Northway, and PNB and BCB will
become separate bank subsidiaries of Northway.
(2) To transact such other business as may properly come before the
PEMI Meeting or any adjournments or postponements thereof.
If proposal (1) above is approved at the PEMI Meeting, any stockholder
of PEMI (i) who delivers to PEMI, before the taking of the vote on such
proposal, written objection to the Merger, stating that he intends to demand
payment for his shares of PEMI Common Stock if the Merger becomes effective, and
(ii) whose shares of PEMI Common Stock are not voted in favor of the Merger, has
or may have the right to demand in writing from PEMI, within 30 days after the
date of mailing to him by PEMI of notice in writing that the Merger has become
effective, payment for his shares of PEMI Common Stock and an appraisal of the
value thereof. PEMI and any such stockholder shall in such cases have the rights
and duties and shall follow the procedure set forth in Sections 293-A:13.01
through 293-A:13.31 of the New Hampshire Business Corporation Act, the full text
of which Sections is attached as Appendix D to the accompanying Joint Proxy
Statement/Prospectus. See "The Merger and Related Transactions - Dissenters'
Rights of PEMI Stockholders in the Merger" in the accompanying Joint Proxy
Statement/Prospectus.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF PEMI AND ITS STOCKHOLDERS AND HAS APPROVED THE MERGER AGREEMENT AND
THE AGREEMENTS AND TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors has fixed the close of business on August 11,
1997, as the record date for determining the holders of PEMI Common Stock
entitled to notice of, and to vote at, the PEMI Meeting (the "PEMI Record Date")
or any adjournments or postponements thereof. The outstanding PEMI Common Stock,
as of the PEMI Record Date, consisted of 690,401 shares. Approval of the Merger
Agreement requires the affirmative vote of a majority of the outstanding shares
of PEMI Common Stock.
Details of the proposed Merger and other important information
concerning PEMI, PNB, Northway, BCB, and BITC are presented in the accompanying
Joint Proxy Statement/Prospectus. Please give this material your careful
attention.
All stockholders are cordially invited to attend the PEMI Meeting in
person; however, to ensure your representation at the PEMI Meeting you are urged
to mark, sign, date, and return the enclosed proxy card as promptly as possible
in the postage prepaid envelope enclosed for that purpose.
By Order of the
Board of Directors
FLETCHER W. ADAMS
President, Chief Executive Officer,
and Director
Plymouth, New Hampshire
August __, 1997
================================================================================
IMPORTANT:
REGARDLESS OF THE NUMBER OF SHARES YOU MAY OWN, IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AT THE MEETING. PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. A
PREADDRESSED, POSTAGE PAID ENVELOPE IS PROVIDED FOR YOUR CONVENIENCE.
================================================================================
<PAGE>
JOINT PROXY STATEMENT
THE BERLIN CITY BANK
PEMI BANCORP, INC.
------------------
NORTHWAY FINANCIAL, INC.
PROSPECTUS
1,732,145 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to stockholders of The Berlin City Bank ("BCB") and Pemi
Bancorp, Inc. ("PEMI") in connection with the solicitation of proxies by the
respective Boards of Directors of such entities for use at stockholder meetings
(including any adjournments or postponements thereof) to be held on September 22
and 23, 1997, respectively. This Proxy Statement/Prospectus relates to: (i) with
respect to BCB only, (a) the proposed reorganization of BCB into a holding
company structure in accordance with applicable New Hampshire law (the "BCB
Reorganization") pursuant to a Plan of Reorganization, dated September 23, 1997
(the "BCB Reorganization Plan"), by and among BCB, Northway Financial, Inc.
("Northway"), a wholly owned subsidiary of BCB, and Berlin Interim Trust
Company, a newly formed subsidiary of Northway ("BITC"), and (b) the election of
four directors of BCB; and (ii) with respect to both BCB and PEMI, the proposed
merger (the "Merger") of PEMI with and into Northway pursuant to an Agreement
and Plan of Merger, dated March 14, 1997 (the "Merger Agreement"), by and among
BCB, Northway, PEMI, and Pemigewasset National Bank ("PNB"), a wholly owned
national bank subsidiary of PEMI.
This Proxy Statement/Prospectus also constitutes a prospectus of
Northway with respect to 1,732,145 shares of common stock, par value $1.00 per
share, of Northway ("Northway Common Stock"), issuable to BCB common
stockholders in connection with the BCB Reorganization and to PEMI common
stockholders in connection with the Merger. Following the consummation of the
BCB Reorganization and the Merger, former BCB stockholders will hold 58.5% and
former PEMI stockholders will hold 41.5% of the outstanding shares of Northway
Common Stock.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of BCB and PEMI on or about August __, 1997.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PROSPECTUS.
THE PROPOSED TRANSACTIONS ARE COMPLEX. STOCKHOLDERS ARE STRONGLY URGED TO READ
AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY.
SEE "RISK FACTORS" ON PAGE 13 OF THIS PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF
BCB AND PEMI WITH RESPECT TO THE BCB REORGANIZATION AND THE MERGER.
THE SHARES OF NORTHWAY COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF
NORTHWAY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENTS IN NORTHWAY ARE
SUBJECT TO RISK, INCLUDING LOSS OF INVESTMENT OR PRINCIPAL.
NEITHER THE TRANSACTIONS DESCRIBED HEREIN NOR THE NORTHWAY COMMON STOCK
OFFERED HEREBY HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION 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.
The date of this Proxy Statement/Prospectus is August , 1997.
<PAGE>
ADDITIONAL INFORMATION
BCB
BCB is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as administered by the
Federal Deposit Insurance Corporation ("FDIC") and in accordance therewith files
reports and other information with the FDIC. Such reports, proxy statements and
other information can be inspected and copied at the Registration, Disclosure
and Securities Operations Unit, Division of Supervision, Room F-640, 550
Seventeenth Street, N.W., Washington, D.C. 20429. Copies of such material can
also be obtained from the public reference section of the FDIC, 550 Seventeenth
Street, N.W., Washington, D.C. 20429, at prescribed rates.
PEMI
PEMI is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission" or "SEC") pursuant to
Section 15(d) of the Exchange Act. Reports and other information concerning PEMI
can be inspected and copied at the SEC's principal office at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the SEC's
regional offices in New York (7 World Trade Center, Suite 1300, New York, New
York 10048) and Chicago (Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago Illinois 60661). Copies of such material can also be
obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
WorldWide Web site (http://www.sec.gov) that contains reports and information
statements, and other information regarding registrants, such as PEMI, that file
electronically with the Commission.
NORTHWAY
Northway has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Northway Common Stock to
be issued in connection with the BCB Reorganization and the Merger. This Proxy
Statement/Prospectus constitutes a part of the Registration Statement and does
not contain all of the information set forth therein and in the exhibits
thereto, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to
Northway and the Northway Common Stock being issued hereby, reference is hereby
made to such Registration Statement and the exhibits thereto. Statements
contained in this Proxy Statement/Prospectus as to the contents of any document
are not necessarily complete and in each instance are qualified in their
entirety by reference to the copy of the appropriate document filed with the
Commission. The Registration Statement, including the exhibits thereto, may be
examined without charge at the Commission's public reference facility at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, copies of all or any part of the Registration Statement, including
such exhibits thereto, may be obtained from the Commission at its principal
office in Washington, D.C., upon payment of the fees prescribed by the
Commission.
The Registration Statement and the reports and other information to be
filed by Northway following the consummation of the BCB Reorganization and the
Merger in accordance with the Exchange Act, can be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, New York 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601. Copies of such material may be obtained from the Commission at
its principal office in Washington, D.C., upon payment of the fees prescribed by
the Commission. The Commission maintains a World Wide Web site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding registrants, such as Northway, that file
electronically with the Commission.
Northway intends to provide its stockholders with annual reports
containing audited consolidated financial statements that have been examined and
reported upon, with an opinion expressed by, independent certified public
accountants and quarterly reports for each of the first three fiscal quarters of
each fiscal year containing unaudited condensed, consolidated financial
information.
Northway has filed applications with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and the Commissioner of the
New Hampshire Department of Banking (the "New Hampshire Banking Commissioner")
with respect to the BCB Reorganization and the Merger.
All information in this Proxy Statement/Prospectus relating
specifically to Northway, BCB, and BITC has been supplied by BCB and all
information herein relating specifically to PEMI and PNB has been supplied by
PEMI.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY/STATEMENT PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE A SOLICITATION OF A PROXY OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH
SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE. NEITHER THE DELIVERY OF THIS
PROXY/STATEMENT PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF NORTHWAY, BCB, PEMI, OR PNB
SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
Page
Section
SUMMARY ............................................................... 1
The Parties to the Transactions ................................... 1
Description of the Transactions ................................... 1
Dates, Times, Places, and Purposes of Special Meetings; Record Dates 2
Votes Required .................................................... 2
The BCB Reorganization and the Merger; Conversion of Shares ....... 3
Conditions to the Merger .......................................... 3
Recommendations of the Boards of Directors of BCB and PEMI ........ 3
Fairness Opinions ................................................. 4
Management of Northway Following the Merger ....................... 4
Non-Solicitation and Termination Fee Agreements ................... 4
Reorganization Time and Effective Time ............................ 5
Exchange of Certificates .......................................... 5
Certain Federal Income Tax Consequences ........................... 5
Accounting Treatment .............................................. 6
Government and Regulatory Matters ................................. 6
Listing on the Nasdaq National Market ............................. 6
Dissenters' Rights ................................................ 6
Effects of the BCB Reorganization and the Merger on Rights of
Stockholders .................................................... 6
Interests of Certain Persons .................................. 7
Summary of Selected Financial Information of BCB .................. 8
Summary of Selected Financial Information of PEMI ................. 9
Pro Forma Comparative Per Share Data (Unaudited) .................. 10
Notes to Pro Forma Comparative Per Share Data (Unaudited) ......... 11
Market Prices of BCB Common Stock and PEMI Common Stock ........... 12
RISK FACTORS .......................................................... 13
Special Note Regarding Forward Looking Statements ................. 13
Risks Associated with Commercial Real Estate, Commercial, and
Construction Loans .............................................. 13
Risks Related to Geographic Concentration of Lending Operations ... 14
Effect of Changes in Interest Rates ............................... 14
Asset Quality ..................................................... 15
Risks Associated with the Merger .................................. 15
Competition ....................................................... 16
Laws and Regulations .............................................. 16
Certain Potential Anti-Takeover Provisions ........................ 16
Absence of Prior Market for Northway Common Stock; Possible
Volatility of Stock Prices ...................................... 16
Dependence Upon Key Personnel ..................................... 17
THE STOCKHOLDER MEETINGS .............................................. 17
The Meetings ...................................................... 17
Record Dates ...................................................... 17
Purposes of the Meetings .......................................... 17
Votes Required at the Meetings .................................... 18
Proxies; Revocations .............................................. 19
Solicitation Expenses ............................................. 19
THE BCB REORGANIZATION ................................................ 20
Description of the BCB Reorganization ............................. 20
Conversion of Shares of BCB Common Stock .......................... 20
Procedure for Voting on the BCB Reorganization Proposals .......... 21
Recommendation of the BCB Board; BCB's Reasons for the BCB
Reorganization .................................................. 21
Certain Federal Income Tax Consequences of the BCB Reorganization 22
Dissenters' Rights of BCB Stockholders ............................ 23
Other Matters ..................................................... 25
THE MERGER AND RELATED TRANSACTIONS ................................... 25
General ........................................................... 25
Background of the Merger .......................................... 26
Recommendation of the BCB Board; BCB's Reasons for the Merger ..... 28
Recommendation of the PEMI Board; PEMI's Reasons for the Merger ... 30
Fairness Opinion of BCB's Financial Advisor ....................... 32
Fairness Opinion of PEMI's Financial Advisor ...................... 36
Certain Federal Income Tax Consequences of the Merger ............. 39
Accounting Treatment .............................................. 40
Regulatory Matters ................................................ 40
Interests of Certain Persons in the Merger ........................ 42
Listing on the Nasdaq National Market ............................. 44
Deregistration of BCB Common Stock and PEMI Common Stock .......... 45
Resale of Northway Common Stock ................................... 45
Dissenters' Rights of BCB Stockholders in the Merger 46
Dissenters' Rights of PEMI Stockholders in the Merger ............. 46
CERTAIN TERMS OF THE MERGER AGREEMENT ................................. 48
Effective Time of the Merger; Closing Date ........................ 48
Conversion of Shares of PEMI Common Stock ......................... 48
Exchange of Northway Certificates for BCB and PEMI Certificates ... 49
Representations and Warranties Contained in the Merger Agreement .. 50
Conduct of Business Pending the Merger ............................ 50
No Solicitation ................................................... 51
Minimum Stockholders' Equity; Allowance for Possible Loan Losses .. 52
Conditions to Consummation of the Merger .......................... 52
Termination of the Merger Agreement ............................... 53
Expenses; Termination Fee ......................................... 53
Amendment and Waiver of the Merger Agreement ...................... 54
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF NORTHWAY ........ 55
SELECTED HISTORICAL FINANCIAL INFORMATION OF BCB ...................... 65
BCB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND
RESULTS OF OPERATIONS ............................................... 66
Results of Operations ............................................. 66
Three Months Ended March 31, 1997 Compared to Three Months Ended
March 31, 1996 .................................................. 70
Year Ended December 31, 1996 Compared to Year Ended December
31, 1995 ........................................................ 72
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994 ........................................................ 73
Changes in Financial Condition .................................... 74
Asset and Liability Management .................................... 74
Liquidity ......................................................... 76
Regulatory Capital Requirements ................................... 77
Impact of Inflation and Changing Prices ........................... 77
Change in Independent Auditors .................................... 77
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PEMI ........ 79
PEMI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND
RESULTS OF OPERATIONS ............................................... 80
Financial Condition and Results of Operations ..................... 80
Allowance For Possible Loan Losses and Non-Performing Assets ...... 81
Average Balances, Interest Income/Expense, and Average Yield/Rates 83
Liquidity and Capital Resources ................................... 85
Effects of Inflation .............................................. 86
Rate Volume Analysis .............................................. 86
Interest Rate Sensitivity Analysis ................................ 87
BUSINESS OF BCB ...................................................... 91
General .......................................................... 91
Market Area and Competition ...................................... 91
Lending Activities ............................................... 92
Asset Quality .................................................... 94
INVESTMENT ACTIVITIES ............................................ 97
Sources of Funds ................................................. 99
Government Regulation ............................................ 100
Properties ....................................................... 101
Legal Proceedings ................................................ 101
BCB MANAGEMENT ....................................................... 101
Directors and Executive Officers ................................. 101
Summary of Executive Compensation ................................ 102
Pension Plan ..................................................... 103
Employment Agreements ............................................ 104
Certain Relationships and Related Transactions ................... 104
PRINCIPAL HOLDERS OF BCB COMMON STOCK ................................ 105
BUSINESS OF PEMI ..................................................... 106
General .......................................................... 106
Market Area and Competition ...................................... 106
Loan Portfolio ................................................... 107
Allowance for Possible Loan Losses ............................... 109
Investment Securities ............................................ 110
Deposits ......................................................... 112
Employees ........................................................ 113
Properties ....................................................... 113
Legal Proceedings ................................................ 113
PEMI MANAGEMENT ...................................................... 114
Directors and Executive Officers ................................. 114
Summary of Executive Compensation ................................ 115
Employment Agreements ............................................ 115
Pension Plan ..................................................... 115
Compensation of Directors ........................................ 116
Certain Relationships and Related Transactions ................... 116
PRINCIPAL HOLDERS OF PEMI COMMON STOCK ............................... 117
BUSINESS OF NORTHWAY ................................................. 118
MANAGEMENT OF NORTHWAY FOLLOWING THE MERGER .......................... 119
Directors and Executive Officers ................................. 119
Committees of the Northway Board ................................. 120
Employment Agreements ............................................ 120
Transactions with Directors ...................................... 120
COMPARATIVE STOCK PRICES AND DIVIDENDS ............................... 121
BCB and PEMI ..................................................... 121
Northway ......................................................... 121
DESCRIPTION OF NORTHWAY CAPITAL STOCK ................................ 122
Northway Common Stock ............................................ 122
Northway Preferred Stock ......................................... 123
Certain Anti-Takeover Provisions ................................. 123
Transfer Agent and Registrar ..................................... 123
CERTAIN REGULATORY CONSIDERATIONS .................................... 123
Regulation of Northway ........................................... 123
Regulation of BCB and PNB ........................................ 125
New Hampshire Bank Regulation .................................... 129
Other Aspects of Federal and State Law ........................... 130
Government Policies and Legislative and Regulatory Proposals ..... 130
COMPARISON OF RIGHTS OF HOLDERS OF NORTHWAY COMMON STOCK,BCB COMMON
STOCK, AND PEMI COMMON STOCK ....................................... 130
Certain Anti-Takeover Effects of the Northway Articles and
the Northway By-laws ........................................... 131
Matters to Be Considered at Stockholder Meetings and Director
Nominations .................................................... 131
Special Meetings of Stockholders ................................. 132
Classification of the Board of Directors ......................... 132
Removal of Directors ............................................. 133
Vacancies on the Board of Directors .............................. 133
Indemnification and Exculpation of Directors and Officers ........ 134
Conflict of Interest Transactions ................................ 136
Business Combinations ............................................ 136
Amendments to Articles of Incorporation .......................... 138
Amendments to By-laws ............................................ 139
Financial Reports to Stockholders ................................ 140
Redemption of Shares ............................................. 140
Share Dividends .................................................. 140
Distributions to Stockholders .................................... 141
Stockholders' List for Meetings .................................. 141
Voting Entitlement of Shares ..................................... 141
Cumulative Voting and Preemptive Rights .......................... 142
Voting Trusts .................................................... 142
Voting Agreements ................................................ 142
Derivative Proceedings ........................................... 143
By-law Increasing Quorum or Voting Requirements for Directors .... 143
Inspection of Records by Stockholders ............................ 143
Qualification of Directors ....................................... 144
Dissenters' Rights ............................................... 144
BCB MEETING-- OTHER MATTERS .......................................... 144
The BCB Director Proposal ........................................ 144
Meetings of the BCB Board and Committees ......................... 145
Vote Required for Approval ....................................... 146
Stockholder Proposals ............................................ 146
Presence of Auditors at BCB Meeting .............................. 146
OTHER MATTERS ........................................................ 146
EXPERTS .............................................................. 147
LEGAL MATTERS ........................................................ 147
INDEX TO FINANCIAL STATEMENTS OF BCB, PEMI AND NORTHWAY .............. F-1
APPENDICES
A. Merger Agreement
B. Opinion of Northeast Capital & Advisory, Inc.
C. Opinion of HAS Associates, Inc.
D. Sections 293-A:13.01 through 293-A:13.31 of the New Hampshire Business
Corporation Act and Section 388:13 of the New Hampshire Revised Statutes
Annotated
E. BCB Reorganization Plan
<PAGE>
SUMMARY
The following is a brief summary of certain information contained in
this Proxy Statement/Prospectus and the Appendices attached hereto. This summary
does not contain a complete statement of all material information relating to
the proposed BCB Reorganization and the Merger and is subject to and qualified
in its entirety by reference to the more detailed information and financial
statements contained elsewhere in this Proxy Statement/Prospectus, including the
Appendices. Consummation of the BCB Reorganization is a condition to the
consummation of the Merger and all references and discussions relating to the
Merger give effect to the prior consummation of the BCB Reorganization.
Stockholders are urged to read this Proxy Statement/Prospectus and the
accompanying Appendices in their entirety.
THE PARTIES TO THE TRANSACTIONS
BCB. BCB is a New Hampshire chartered trust company. BCB has seven
offices located in the New Hampshire towns of Berlin, Groveton, Littleton,
Gorham (2), and North Conway (2) through which it provides a comprehensive range
of banking and related services. BCB's principal executive offices are located
at 9 Main Street, Berlin, New Hampshire 03570 and its telephone number is (603)
752-1171.
As of March 31, 1997, BCB had total assets of $243 million, total
deposits of $213 million, total net loans of $155 million, and stockholders'
equity of $22 million. Based on total deposits as of December 31, 1996, BCB
ranked thirteenth among New Hampshire banking and thrift institutions.
PEMI. PEMI is a New Hampshire corporation and a bank holding company
registered under the Bank Holding Company Act of 1956, as amended. PEMI's wholly
owned subsidiary, PNB, is a national bank with five offices located in the New
Hampshire towns of Plymouth (2), Ashland, Campton, and North Woodstock through
which it provides a comprehensive range of banking and related services. PEMI's
principal executive offices are located at 287 Highland Street, Plymouth, New
Hampshire 03264, and its telephone number is (603) 536-3339.
As of March 31, 1997, PEMI had total assets of $128 million, total
deposits of $104 million, total net loans of $88 million, and stockholders'
equity of $12 million. Based on total deposits as of December 31, 1996, PEMI
ranked 23rd among New Hampshire banking and thrift institutions.
Northway. Northway is a newly formed New Hampshire corporation
organized for the initial purpose of effecting the BCB Reorganization, as well
as to facilitate the Merger. Other than matters relating to corporate
organization and capitalization and other matters incidental to completion of
the BCB Reorganization and the Merger, Northway is not engaged, nor will it
engage, in any business activity prior to consummation of the BCB Reorganization
and the Merger. Following the consummation of such transactions, Northway's
business will be to own all of the BCB Common Stock and all of the common stock
of PNB, par value $1.00 per share ("PNB Common Stock"). Unless the context
otherwise requires, all references herein to Northway include Northway, BCB, and
PNB on a consolidated basis. Northway's principal executive offices are located
at 9 Main Street, Berlin, New Hampshire 03570 and its telephone number is (603)
752-1171.
DESCRIPTION OF THE TRANSACTIONS
BCB and PEMI have entered into a Merger Agreement, by and among BCB,
Northway, a wholly owned subsidiary of BCB, PEMI, and PNB, a wholly owned
national bank subsidiary of PEMI. Under the terms of the Merger Agreement, (i)
Northway will organize a new New Hampshire trust company, BITC, (ii) BITC will
merge with and into BCB, as a result of which BCB will become a wholly owned
direct subsidiary of Northway, and (iii) PEMI will merge with and into Northway,
with Northway being the surviving corporation. As a result of the foregoing
transactions, Northway will be the bank holding company for BCB and PNB, and
each of BCB and PNB will be wholly owned direct subsidiaries of Northway.
The BCB Reorganization is to be effected in accordance with the terms
and conditions of the BCB Reorganization Plan, pursuant to which each share of
common stock of BCB, par value $5.00 per share ("BCB Common Stock"), outstanding
immediately prior to the date and time at which the BCB Reorganization becomes
effective pursuant to the laws of the state of New Hampshire (the
"Reorganization Time") will be converted into the right to receive 16 shares of
Northway Common Stock, subject to dissenters' rights. A copy of the BCB
Reorganization Plan is attached hereto as Appendix E. See "The BCB
Reorganization."
The Merger is to be effected in accordance with the terms and
conditions of the Merger Agreement, pursuant to which each share of common stock
of PEMI, par value $1.00 per share ("PEMI Common Stock"), outstanding
immediately prior to the date and time at which the Merger becomes effective
pursuant to the laws of the state of New Hampshire (the "Effective Time") will
be converted into the right to receive 1.0419 shares of Northway Common Stock,
subject to dissenters' rights. A copy of the Merger Agreement is attached hereto
as Appendix A. See "The Merger and Related Transactions."
The number of shares of Northway Common Stock to be distributed to BCB
and PEMI stockholders are fixed under the terms of the Merger Agreement.
DATES, TIMES, PLACES, AND PURPOSES OF SPECIAL MEETINGS; RECORD DATES
BCB. The BCB Special Meeting in Lieu of the Annual Meeting of
Stockholders (the "BCB Meeting") will be held at 2:00 p.m. local time on
Tuesday, September 23, 1997 at the Town and Country Motor Inn, Route 2,
Shelburne, New Hampshire, to consider and vote upon proposals to authorize and
ratify the BCB Reorganization Plan and to approve the Merger Agreement. At the
BCB Meeting, stockholders will also consider and vote upon a proposal to elect
one director to serve a two-year term and three directors to serve three-year
terms. The Board of Directors of BCB (the "BCB Board") has fixed the close of
business on August 11, 1997 as the BCB Meeting record date (the "BCB Record
Date"). Only holders of record of BCB Common Stock on the books of BCB on the
close of business on the BCB Record Date are entitled to notice of and to vote
at the BCB Meeting. As of the BCB Record Date, there were 63,301 shares of BCB
Common Stock issued and outstanding, each of which is entitled to one vote. See
"The Stockholder Meetings."
PEMI. The PEMI Special Meeting of Stockholders (the "PEMI Meeting")
will be held at 2:00 p.m. local time on Monday, September 22, 1997 at the
Plymouth Regional Senior Center, R.R. Depot Square, Plymouth, New Hampshire, to
consider and vote upon a proposal to approve the Merger Agreement. The Board of
Directors of PEMI (the "PEMI Board") has fixed the close of business on August
11, 1997 as the PEMI Meeting record date (the "PEMI Record Date"). Only holders
of record of PEMI Common Stock on the books of PEMI at the close of business on
the PEMI Record Date are entitled to notice of and to vote at the PEMI Meeting.
As of the PEMI Record Date, there were 690,401 shares of PEMI Common Stock
issued and outstanding, each of which is entitled to one vote. See "The
Stockholder Meetings."
VOTES REQUIRED
BCB. Approval of the BCB Reorganization Plan requires (i) the
affirmative vote of the holders of two-thirds of the outstanding shares of BCB
Common Stock to authorize BCB to submit the BCB Reorganization Plan to the New
Hampshire Banking Commissioner for approval, (ii) the approval of the BCB
Reorganization Plan by the New Hampshire Banking Commissioner, and (iii) the
affirmative vote of the holders of two-thirds of the outstanding shares of BCB
Common Stock to ratify the BCB Reorganization. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of BCB Common Stock. At the BCB Record Date, the directors and executive
officers of BCB, and their affiliates, held approximately 14.7% of the
outstanding shares of BCB Common Stock. Each of the directors of BCB has
executed a voting agreement in which each has agreed to vote his shares in favor
of the BCB Reorganization and the Merger. See "The Stockholders Meetings - Votes
Required at the Meetings." Approval of the BCB Reorganization Plan is a
condition to the consummation of the Merger. Consequently, if the BCB
Reorganization is not approved, the Merger will not occur.
PEMI. Approval of the Merger Agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of PEMI Common Stock. At the
PEMI Record Date, the directors and executive officers of PEMI, and their
affiliates, held approximately 13.6% of the outstanding shares of PEMI Common
Stock. Eight of the nine directors of PEMI have executed voting agreements in
which they have agreed to vote their shares in favor of the Merger. See "The
Stockholder Meetings - Votes Required at the Meetings."
THE BCB REORGANIZATION AND THE MERGER; CONVERSION OF SHARES
If the transactions necessary to consummate the BCB Reorganization and
the Merger are authorized and approved, necessary regulatory approvals are
received, and certain other conditions are met, (i) BCB will cause the BCB
Reorganization to be effected pursuant to the BCB Reorganization Plan, and each
share of BCB Common Stock outstanding immediately prior to the Reorganization
Time will be converted into and become exchangeable for 16 shares of Northway
Common Stock, subject to dissenters' rights, and (ii) PEMI will merge with and
into Northway pursuant to the Merger Agreement, and each share of PEMI Common
Stock outstanding immediately prior to the Effective Time will be converted into
and become exchangeable for 1.0419 shares of Northway Common Stock, subject to
dissenters' rights. As a result of the foregoing transactions, BCB and PNB will
become wholly owned direct subsidiaries of Northway. See "The BCB Reorganization
- - Conversion of Shares of BCB Common Stock" and "Certain Terms of the Merger
Agreement - Conversion of Shares of PEMI Common Stock."
CONDITIONS TO THE MERGER
The obligation of each of BCB and PEMI to consummate the Merger is
subject to the satisfaction of certain conditions, including, among other
things, approval of the transactions necessary to consummate the Merger by the
Federal Reserve Board, the Federal Deposit Insurance Corporation (the "FDIC"),
the New Hampshire Board of Trust Company Incorporation, the New Hampshire
Banking Commissioner, and the stockholders of BCB and PEMI. See "The Merger and
Related Transactions Regulatory Matters" and "Certain Terms of The Merger
Agreement - Conditions to Consummation of the Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF BCB AND PEMI
BCB. The BCB Board believes the BCB Reorganization and the Merger are
in the best interests of BCB and its stockholders and has approved the BCB
Reorganization Plan and the Merger Agreement. THE BCB DIRECTORS RECOMMEND THAT
BCB STOCKHOLDERS VOTE "FOR" THE AUTHORIZATION AND RATIFICATION OF THE BCB
REORGANIZATION PLAN AND THE APPROVAL OF THE MERGER AGREEMENT. The BCB Board has
evaluated the financial, legal, and market considerations bearing on the BCB
Reorganization and the Merger and believes that the BCB Reorganization and the
Merger will provide BCB with greater capacity for expansion and diversification.
See "The BCB Reorganization - Recommendation of the BCB Board; BCB's Reasons for
the BCB Reorganization" and "The Merger and Related Transactions -
Recommendation of the BCB Board; BCB's Reasons for the Merger."
PEMI. The PEMI Board believes the Merger is in the best interests of
PEMI and its stockholders and has approved the Merger Agreement. THE PEMI
DIRECTORS RECOMMEND THAT PEMI STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT. The PEMI Board has evaluated the financial, legal, and market
considerations regarding the Merger and believes that the Merger will provide
PNB with greater capacity for expansion and diversification. See "The Merger and
Related Transactions - Recommendation of the PEMI Board; PEMI's Reasons for the
Merger."
FAIRNESS OPINIONS
The Merger Agreement, after giving effect to the BCB Reorganization in
which 16 shares of Northway Common Stock will be exchanged for each share of BCB
Common Stock, provides for the exchange of 1.0419 shares of Northway Common
Stock for each share of PEMI Common Stock (the "Exchange Ratio").
BCB. The BCB Board has received the written opinion of Northeast
Capital & Advisory, Inc. ("NECA"), BCB's financial advisor, that, as of the date
on which the BCB Board approved the Merger Agreement and the date of this Proxy
Statement/Prospectus and on the basis of the matters referred to therein, the
Exchange Ratio is fair to BCB's stockholders from a financial point of view. A
copy of the opinion of NECA delivered on the date of this Proxy
Statement/Prospectus is attached hereto as Appendix B and should be read in its
entirety by BCB stockholders. BCB has agreed to pay NECA fees of approximately
$230,000 which are in part contingent upon the consummation of the Merger. See
"The Merger and Related Transactions - Fairness Opinion of BCB's Financial
Advisor."
PEMI. The PEMI Board has received the written opinion of HAS
Associates, Inc. ("HAS"), PEMI's financial advisor, that, as of the date on
which the PEMI Board approved the Merger Agreement and the date of this Proxy
Statement/Prospectus and on the basis of the matters referred to therein, the
Exchange Ratio is fair to PEMI's stockholders from a financial point of view. A
copy of the opinion of HAS delivered on the date of this Proxy
Statement/Prospectus is attached hereto as Appendix C and should be read in its
entirety by PEMI stockholders. PEMI has agreed to pay HAS fees of approximately
$45,000. See "The Merger and Related Transactions - Fairness Opinion of PEMI's
Financial Advisor."
MANAGEMENT OF NORTHWAY FOLLOWING THE MERGER
The Merger Agreement provides that the Board of Directors of Northway
(the "Northway Board") will, as of the Effective Time, consist of ten persons,
six of whom will be designated, after consultation with PEMI, by BCB, and four
of whom will be designated, after consultation with BCB, by PEMI. The six
directors designated by BCB are William J. Woodward, currently the Chairman of
the Board, President and Chief Executive Officer of BCB, and Peter H. Bornstein,
Arnold P. Hanson, Jr., Barry J. Kelley, Randall G. Labnon, and John D. Morris,
all of whom are currently directors of BCB. The four directors designated by
PEMI are Fletcher W. Adams, currently the President and Chief Executive Officer
of PEMI, and Charles H. Clifford, Jr., Andrew L. Morse, and John H. Noyes, all
of whom are currently directors of PEMI. The Merger Agreement provides that such
persons (or other designees of BCB and PEMI, as the case may be) shall be
nominated for reelection on a staggered three year schedule, with certain
directors standing for reelection each year according to their respective
classifications. The Merger Agreement also provides that Mr. Woodward shall be
Chairman of the Board, President, and Chief Executive Officer of Northway and
that Mr. Adams shall be Vice Chairman of the Board of Northway. See "The Merger
and Related Transactions - Interests of Certain Persons in the Merger."
NON-SOLICITATION AND TERMINATION FEE AGREEMENTS
Under the terms of the Merger Agreement, BCB and PEMI each has agreed
that, unless and until the Merger Agreement is terminated, it will not hold
discussions or negotiations with, or assist or provide any information to, any
person, entity, or group concerning any merger, disposition of a significant
portion of its assets, acquisition of a significant portion of its capital
stock, or similar transactions. In addition, the Merger Agreement contains a
provision whereby, in the event the Merger Agreement is terminated, the
terminating or breaching party may be required under certain circumstances to
pay the other party a cash termination fee of $2,500,000. The parties agreed to
the termination fee provision as a method of reimbursing the non-terminating or
non-breaching party for incurring the costs and expenses related to entering
into the Merger Agreement. See "Certain Terms of the Merger Agreement -
Termination of the Merger Agreement." Nothing prohibits the parties from taking
and disclosing to their respective shareholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act or making other disclosures that may be required under
applicable law.
REORGANIZATION TIME AND EFFECTIVE TIME
If the BCB Reorganization Plan is authorized by the requisite vote of
the BCB stockholders, approved by the New Hampshire Banking Commissioner, and
ratified by the requisite vote of the BCB stockholders, and the parties receive
the necessary regulatory approvals, the BCB Reorganization will be consummated
and become effective at the time specified in the Articles of Merger to be filed
in accordance with the BCB Reorganization Plan with the Secretary of State of
the State of New Hampshire pursuant to the New Hampshire Business Corporation
Act (the "NHBCA"). See "The BCB Reorganization."
If the transactions necessary to consummate the Merger are approved and
authorized by the requisite vote of the stockholders of BCB and PEMI, as the
case may be, the parties receive the necessary regulatory approvals, and the
other conditions to the Merger are satisfied or waived, the Merger will be
consummated and become effective at the time specified in the Articles of Merger
to be filed in accordance with the Merger Agreement with the Secretary of State
of the State of New Hampshire pursuant to the NHBCA. See "Certain Terms of the
Merger Agreement - Effective Time of the Merger; Closing Date."
EXCHANGE OF CERTIFICATES
As soon as practicable after the Reorganization Time or the Effective
Time, as the case may be, The First National Bank of Boston, the exchange agent,
will mail to each holder of record of a certificate or certificates that,
immediately prior to the Reorganization Time or the Effective Time, as the case
may be, represented outstanding shares of BCB Common Stock or PEMI Common Stock,
a letter of transmittal and instructions for effecting the surrender and
cancellation of such certificates in exchange for certificates representing
shares of Northway Common Stock. After the Reorganization Time and the Effective
Time, each outstanding certificate or certificates that represented shares of
BCB Common Stock or PEMI Common Stock as of such time shall be deemed to
evidence only the right of the holder thereof to receive the number of whole
shares of Northway Common Stock to which such person is entitled and, in the
case of certificates representing PEMI Common Stock, cash in lieu of fractional
shares of Northway Common Stock into which the shares of PEMI Common Stock have
been converted. Stockholders should not send any stock certificates prior to
receipt of the letter of transmittal. See "The BCB Reorganization - Conversion
of Shares of BCB Common Stock" and "Certain Terms of The Merger Agreement -
Exchange of Northway Certificates for BCB and PEMI Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to BCB's and PEMI's respective obligations to
consummate the Merger that each of BCB and PEMI receive opinions from their
respective counsel, substantially to the effect that, on the basis of factual
and other representations consistent with the state of facts existing at the
respective times that the BCB Reorganization and the Merger are consummated, and
on certain assumptions, such transactions will each constitute one or more
reorganizations within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that, accordingly, no gain or loss
would be recognized by a BCB stockholder who exchanges his shares of BCB Common
Stock solely for shares of Northway Common Stock pursuant to the BCB
Reorganization by consummation of the BCB Reorganization Plan, and no gain or
loss would be recognized by a PEMI stockholder who exchanges his shares of PEMI
Common Stock solely for shares of Northway Common Stock pursuant to the Merger
by consummation of the Merger Agreement. Due to the individual nature of the tax
consequences to each stockholder, BCB and PEMI stockholders are urged to consult
their own tax advisors to determine the effect of the BCB Reorganization and the
Merger on them under federal, state, local and foreign tax laws. For a further
discussion of the federal income tax consequences of the BCB Reorganization and
the Merger, see "The BCB Reorganization - Certain Federal Income Tax
Consequences of the BCB Reorganization" and "The Merger and Related Transactions
- - Certain Federal Income Tax Consequences of the Merger."
ACCOUNTING TREATMENT
The Merger is intended and expected to qualify as a "pooling of
interests" for both accounting and financial reporting purposes, and all pro
forma financial information presented herein has been prepared on a "pooling of
interests" basis. See "The Merger Agreement and Related Transactions -
Accounting Treatment." In the event the requirements for a "pooling of
interests" are not met, the Merger will be accounted for as a "purchase" for
both accounting and financial reporting purposes. However, if such a change in
accounting treatment occurs subsequent to stockholder approval and such change
would materially and adversely affect the parties to the Merger Agreement, the
transaction would be re-submitted to the stockholders of BCB and PEMI for
approval or would be terminated.
GOVERNMENT AND REGULATORY MATTERS
It is a condition to the consummation of the Merger that the necessary
approvals of the requisite federal and state governmental agencies be obtained.
Applications for approval and other necessary filings and notices have been or
will be submitted to the Federal Reserve Board, the FDIC, the New Hampshire
Board of Trust Company Incorporation, and the New Hampshire Banking
Commissioner. There can be no assurance that necessary approvals will be
forthcoming or as to the conditions to or timing of such approvals. See "The
Merger and Related Transactions - Regulatory Matters" and "Certain Terms of the
Merger Agreement - Conditions to Consummation of the Merger."
LISTING ON THE NASDAQ NATIONAL MARKET
It is a condition to PEMI's obligation to consummate the Merger that
the Northway Common Stock be approved for quotation or listing on The Nasdaq
Stock Market, Inc.'s National Market (the "Nasdaq National Market") or on the
American Stock Exchange. Application has been made for quotation of the Northway
Common Stock on the Nasdaq National Market under the symbol "NWFI." See "The
Merger and Related Transactions - Listing on the Nasdaq National Market." There
can be no assurance that Northway's application will be approved. See "Certain
Terms of the Merger Agreement - Conditions to Consummation of the Merger."
DISSENTERS' RIGHTS
To exercise dissenters' rights under New Hampshire law ("Dissenter's
Rights"), both BCB and PEMI stockholders must (i) deliver to BCB or PEMI, as
applicable, before the taking of the necessary stockholder vote pertaining to
the transactions necessary to consummate the BCB Reorganization and the Merger,
as the case may be, written objection to such transactions stating that they
intend to demand payment for their shares if the transactions are effected, (ii)
not vote their shares in favor of the proposals relating to the BCB
Reorganization and the Merger, as the case may be, and (iii) within 30 days
after the date of the mailing to them of a notice in writing that the BCB
Reorganization and/or the Merger has become effective, demand in writing from
BCB, in the case of BCB stockholders, or Northway, in the case of PEMI
stockholders, payment for their shares of BCB Common Stock or PEMI Common Stock,
as applicable. See "The BCB Reorganization - Dissenters' Rights of BCB
Stockholders," "The Merger and Related Transactions - Dissenters' Rights of BCB
Stockholders in the Merger," "The Merger and Related Transactions - Dissenters'
Rights of PEMI Stockholders in the Merger," and Appendix D hereto. It is a
condition to BCB's obligation to consummate the Merger that the amount of cash
consideration paid to PEMI stockholders as a result of their exercise of
Dissenters' Rights not exceed 35% of the total consideration paid to such
stockholders. See "Certain Terms of the Merger Agreement - Conditions to
Consummation of the Merger."
EFFECTS OF THE BCB REORGANIZATION AND THE MERGER ON RIGHTS OF STOCKHOLDERS
For a comparison of applicable New Hampshire law and the charter and
by-law provisions of Northway, BCB, and PEMI governing the rights of Northway,
BCB, and PEMI stockholders, see "Comparison of Rights of Holders of Northway
Common Stock, BCB Common Stock, and PEMI Common Stock."
INTERESTS OF CERTAIN PERSONS
Pursuant to the terms of the Merger Agreement, at the Effective Time,
Northway will enter into employment agreements with William J. Woodward,
Chairman of the Board, President, and Chief Executive Officer of BCB, and
Fletcher W. Adams, President and Chief Executive Officer of PEMI. In addition,
certain members of the Boards of Directors of BCB and PEMI will become Directors
of Northway. See "The Merger and Related Transactions--Interests of Certain
Persons in the Merger."
<PAGE>
SUMMARY OF SELECTED FINANCIAL INFORMATION OF BCB
<TABLE>
<CAPTION>
THE BERLIN CITY BANK
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
At or For the Three
Months Ended March 31, At or For the Years Ended December 31,
---------------------- --------------------------------------
(Unaudited)
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $243,466 $241,586 $243,602 $240,594 $236,278 $214,033 $208,680
Investment securities (1) 65,908 81,142 70,395 77,063 85,781 73,037 68,143
Loans, net of unearned income 158,109 136,265 151,981 136,531 132,550 120,875 122,743
Allowance for possible loan losses 2,618 2,524 2,635 2,506 2,115 1,976 1,776
Real estate acquired by foreclosure
or substantively repossessed 246 422 148 430 442 832 1,202
Deposit purchase premium 1,229 1,719 1,300 1,800 2,122 -- --
Deposits 212,685 213,267 216,398 213,775 213,003 186,830 189,915
Securities sold under agreements to
repurchase 7,663 7,174 4,620 6,087 6,882 10,370 3,229
Stockholders' equity (2) 21,657 19,543 21,454 19,708 15,393 15,925 14,883
INCOME STATEMENT DATA:
Net interest and dividend income $ 2,305 $ 9,671 $ 9,684 $ 9,049 $ 7,660 $ 7,575 $ 2,569
Provision for possible loan losses 90 90 360 540 540 795 920
Noninterest income 374 202 948 584 702 1,164 688
Noninterest expense 1,779 1,456 6,333 6,146 5,931 5,104 5,289
Net income 799 622 2,580 2,321 2,125 1,943 1,555
PER COMMON SHARE DATA:
Net income (3) $ 9.83 $ 40.76 $ 36.66 $ 33.58 $ 30.69 $ 24.56 $ 12.63
Cash dividends paid (5) -- -- 7.00 6.60 6.30 6.00 5.00
Book value (2) 342.13 308.73 338.92 311.34 243.18 251.57 235.11
Tangible book value (4) 322.71 281.58 318.38 282.90 209.65 251.57 235.11
(1) Investment securities includes investment securities "available-for-sale" and investment securities
"held-to-maturity." Federal Home Loan Bank stock is excluded.
(2) Stockholders' equity as of March 31, 1997 and 1996, and as of December 31, 1996 and 1995 has been reduced by the
unrealized loss on investment securities "available-for-sale." Stockholders' equity as of December 31, 1994 and 1993
has been reduced by the unrealized loss on investment securities "available-for-sale" and the unrealized loss on
investment securities transferred to "held-to-maturity." See Note 3 to BCB's Financial Statements.
(3) Computed using the weighted average number of shares outstanding.
(4) Stockholders' equity as of March 31, 1997 and 1996, and as of December 31, 1996, 1995, and 1994 has been reduced by
the deposit purchase premium.
(5) Dividends are generally paid semi-annually as of July and December each year.
</TABLE>
<PAGE>
SUMMARY OF SELECTED FINANCIAL INFORMATION OF PEMI
<TABLE>
<CAPTION>
PEMI BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
At or For the Three
Months Ended March 31, At or For the Years Ended December 31,
---------------------- --------------------------------------
(Unaudited)
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $128,062 $118,322 $128,979 $117,323 $113,169 $115,450 $112,539
Investment securities (1) 28,993 28,510 30,432 23,113 19,001 23,558 18,935
Loans, net of unearned income 89,132 81,987 88,402 81,447 85,498 83,138 81,560
Allowance for possible loan losses 1,283 1,380 1,306 1,360 1,567 1,730 1,741
Real estate acquired by foreclosure
or substantively repossessed 109 257 54 62 223 519 1,359
Deposit purchase premium 158 -- 162 -- -- -- --
Deposits 103,602 95,039 105,685 96,416 91,766 93,770 97,982
FHLB and other borrowings 9,891 9,692 8,703 7,492 8,992 9,851 3,139
Stockholders' equity (2) 12,401 11,551 12,214 11,394 10,720 10,243 9,598
INCOME STATEMENT DATA:
Net interest and dividend income $ 1,473 $ 1,441 $ 6,046 $ 5,809 $ 5,472 $ 4,882 $ 5,083
Provision for possible loan losses 30 36 152 112 120 180 975
Noninterest income 163 157 673 680 724 684 782
Noninterest expense 1,189 1,126 4,662 4,474 4,373 4,423 4,426
Net income 279 294 1,277 1,275 1,151 832 440
PER COMMON SHARE DATA:
Net income (3) $0.40 $0.43 $1.85 $1.85 $1.53 $1.11 $0.58
Cash dividends paid (5) -- -- 0.65 0.50 0.40 0.25 0.20
Book value (2) 17.96 16.73 17.69 16.50 14.85 13.62 12.76
Tangible book value (4) 17.73 16.73 17.46 16.50 14.85 13.62 12.76
(1) Investment securities includes investment securities "available-for-sale" and investment securities
"held-to-maturity." Federal Home Loan Bank stock and Federal Reserve Bank stock are excluded.
(2) Stockholders' equity as of March 31, 1997 and 1996, and as of December 31, 1996, 1995, 1994, and 1993 has been
reduced or increased by the unrealized loss or gain on investment securities "available-for-sale." See Note 3 to
PEMI's Consolidated Financial Statements.
(3) Computed using the weighted average number of shares outstanding.
(4) Stockholders' equity as of March 31, 1997, and December 31, 1996, has been reduced by the deposit purchase premium.
See Note 8 to PEMI's Consolidated Financial Statements.
(5) Dividends are generally paid semi-annually as of July and December each year.
</TABLE>
<PAGE>
PRO FORMA COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table presents selected comparative unaudited per share
data for BCB and PEMI on a historical basis and for Northway on a consolidated
and a pro forma combined basis, giving effect to the Merger using the
pooling-of-interests method of accounting. The Northway consolidated pro forma
information reflects the consummation of the BCB Reorganization without giving
effect to the Merger. The information is derived from the consolidated
historical financial statements of BCB and PEMI, including the related notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus, and the pro
forma combined financial information giving effect to the Merger, including the
related notes thereto, appearing elsewhere herein. This information should be
read in conjunction with such historical and pro forma combined financial
statements and the related notes thereto. See "Unaudited Pro Forma Combined
Financial Information of Northway." The per share data included herein is not
necessarily indicative of the results of future operations of the combined
entity or the actual results that would have been achieved had the Merger been
consummated prior to the periods indicated.
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------------
Northway BCB PEMI
BCB PEMI Pro Forma Pro Forma Pro Forma
Historical Historical Combined Equivalent Equivalent
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Book value per share (1):
March 31, 1997 $342.13 $17.96 $19.66 $314.56 $20.48
December 31, 1996 338.92 17.69 19.43 310.88 20.24
Tangible book value per share:
March 31, 1997 $322.71 $17.73 $18.86 $301.76 $19.65
December 31, 1996 318.38 17.46 18.59 297.44 19.37
Dividends declared per share (2):
Quarter Ended:
March 31, 1997 -- -- -- -- --
March 31, 1996 -- -- -- -- --
Year Ended:
December 31, 1996 $7.00 $0.65 $0.51 $8.16 $0.53
December 31, 1995 6.60 0.50 0.44 7.04 0.49
December 31, 1994 6.30 0.40 0.39 6.24 0.41
Earnings before extraordinary items per share (3):
Quarter Ended:
March 31, 1997 $12.63 $0.40 $0.62 $9.92 $0.66
March 31, 1996 9.83 0.43 0.53 8.48 0.55
Year Ended:
December 31, 1996 $40.76 $1.85 $2.23 $35.68 $2.32
December 31, 1995 36.66 1.85 2.04 32.64 2.13
December 31, 1994 33.58 1.53 1.82 29.12 1.90
NOTES TO PRO FORMA COMPARATIVE PER SHARE DATA (UNAUDITED)
(1) The Northway pro forma combined book value per share figures as of March 31, 1997 and December 31, 1996, are
calculated by dividing the historical total stockholders' equity for BCB and PEMI by the total pro forma common
shares of the combined entity, after giving effect to (i) the exchange of each share of BCB Common Stock for 16
shares of Northway Common Stock pursuant to the BCB Reorganization Plan, and (ii) the exchange of each share of PEMI
Common Stock for 1.0419 shares of Northway Common Stock pursuant to the Merger Agreement. The Northway pro forma
combined book value per share is based upon total pro forma common shares of 1,732,145 shares at March 31, 1997 and
December 31, 1996.
(2) The Northway pro forma combined dividends declared per share figures for the three months ended March 31, 1997 and
1996 and for the years ended December 31, 1996, 1995, and 1994 are calculated by dividing the sum of total dividends
declared by BCB and PEMI during such periods by the average pro forma common shares of the combined entity.
(3) The Northway pro forma combined earnings per share figures for the three months ended March 31, 1997 and 1996 and
for the years ended December 31, 1996, 1995, and 1994 are calculated by dividing the combined historical net income
of BCB and PEMI by the average pro forma common shares of the combined entity.
</TABLE>
<PAGE>
MARKET PRICES OF BCB COMMON STOCK AND PEMI COMMON STOCK
The BCB Common Stock and the PEMI Common Stock are not traded on any
exchange nor in the over-the-counter market. On occasion, shares are traded
between individuals or through one or more local broker-dealers. Because there
is no established market for the BCB Common Stock and the PEMI Common Stock, the
following table sets forth, to the best knowledge and belief of BCB and PEMI
management, the respective highest and lowest prices paid in the isolated
transactions that have occurred during the past two years. However, the prices
set forth below may not be indicative of current value.
BCB PEMI
-------------------- ---------------
Year High Low High Low
- ----------------- -------------------- ---------------
1995 $260.00 $210.00 $11.50 $ 8.50
1996 $306.00 $270.00 $13.50 $ 9.50
1997 First Quarter $318.00 $307.00 $22.00 $13.50
1997 Second Quarter $323.00 $321.00 $22.00 $19.50
Northway
Pro Forma
Market Value per Share (1) BCB PEMI Equivalent(2)
- -------------------------- ------- ------ -------------
March 14, 1997 $312.00 $13.50 $16.78
July 31, 1997 $324.00 $19.50 $19.61
(1) The market values of BCB Common Stock and PEMI Common Stock represent, to
the best knowledge and belief of BCB and PEMI management, the purchase
prices paid in connection with the last sales of such shares (i) prior to
the first public announcement of the Merger on March 14, 1997 and (ii)
between March 14, 1997 and July 31, 1997, the latest practicable date prior
to the date of this Proxy Statement/Prospectus. See "Comparative Stock
Prices and Dividends."
(2) The Northway Pro Forma Equivalent figures are calculated by (i) multiplying
the market prices of BCB Common Stock and PEMI Common Stock set forth above
by the respective number of shares of such common stock then outstanding and
(ii) dividing the aggregate market value of the BCB Common Stock and the
PEMI Common Stock so determined by the number of shares of Northway Common
Stock to be outstanding following the Merger. No assurance can be given as
to future market prices for Northway Common Stock.
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Proxy
Statement/Prospectus, the following factors should be considered by the
stockholders of BCB and PEMI before voting on the proposals described herein.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Proxy Statement-Prospectus contains certain statements which are
other than statements of historical fact ("Forward-Looking Statements"). Such
Forward-Looking Statements may include, but may not be limited to, projections
of revenue, income or loss, plans for future operations and acquisitions, and
plans related to products or services of Northway, BCB, PEMI, or PNB, as well as
assumptions relating to the foregoing. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
Forward-Looking Statements, which speak only as of the date the statement was
made. Forward-Looking Statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or qualified. The following
important factors, among others, may have affected BCB and PEMI and could in the
future affect the actual results of operations of the combined company, and
could cause the actual results of operations for subsequent periods to differ
materially from those set forth in, contemplated by, or underlying any
Forward-Looking Statement made herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and regulations, with
which the combined company must comply, including the effect of the cost of such
compliance; (ii) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as by the Financial Accounting
Standards Board, or of changes in the combined company's organization,
compensation and benefit plans; (iii) the effect on the competitive position of
BCB or PEMI within its market area resulting from increased consolidation within
the banking industry and increased competition from larger regional and
out-of-state banking organizations, as well as from nonbank providers of various
financial services; (iv) the effect of unforeseen changes in interest rates; (v)
the effect of changes in the business cycle and downturns in the New Hampshire,
New England, and national economies; and (vi) other factors discussed herein,
including under the captions "Risk Factors," "BCB Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "PEMI
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE, COMMERCIAL, AND CONSTRUCTION LOANS
The operations of BCB and PEMI include the funding of commercial real
estate, commercial, and construction loans. Commercial real estate and
commercial lending involve significant additional risks compared with
one-to-four family residential mortgage lending, and therefore typically account
for a disproportionate share of delinquent loans and real estate owned through
foreclosure. Such lending generally involves larger loan balances to single
borrowers or groups of related borrowers than does residential lending, and
repayment of the loan depends in part on the underlying business and financial
condition of the borrower and is more susceptible to adverse future
developments. If the cash flow from an income-producing property is reduced (for
example, because leases are not obtained or renewed), the borrower's ability to
repay the loan may be materially impaired. These risks can be significantly
affected by considerations of supply and demand in the market for office,
manufacturing and retail space and by general economic conditions. As a result,
commercial real estate and commercial loans are likely to be subject, to a
greater extent than residential property loans, to adverse conditions in the
economy generally.
Construction loans are, in general, subject to the same risks as
commercial real estate loans, but involve additional risks due to uncertainties
inherent in estimating construction costs, delays arising from labor problems,
shortages of material, uncertain marketability of a completed project and other
unpredictable contingencies that make it relatively difficult to determine
accurately the total loan funds required to complete a project or the value of
the completed project. Construction loan funds are advanced on the security of
the project under construction, which is of uncertain value prior to the
completion of construction. When a construction project encounters cost overruns
or marketing or other problems, it may become necessary, in order to sustain the
project and to preserve collateral values, for the lender to advance additional
funds and to extend the maturity of its loan. In a declining market, there is no
assurance that this strategy will successfully enable the lender to recover
outstanding loan amounts and interest due. Moreover, foreclosing on such
properties results in administrative expense and substantial delays in recovery
of outstanding loan amounts and provides no assurance that the lender will
recover all monies due to it, either by developing the property (subject to
regulatory limitations and to the attendant risks of development) or by selling
the property to another developer.
As of March 31, 1997, BCB's loan portfolio totaled $158.7 million, or
65.2% of assets, of which $92.7 million, or 58.4%, consisted of one-to-four
family residential mortgages, $35.5 million, or 22.4%, consisted of commercial
real estate loans, $10.5 million, or 6.6%, consisted of of commercial loans, and
$9.2 million, or 5.8%, consisted of consumer loans. As of March 31, 1997, PNB's
loan portfolio totaled $89.2 million, or 69.7% of assets, of which $53.6
million, or 60.1%, consisted of residential real estate loans, $26.9 million, or
30.1%, consisted of commercial and commercial real estate loans, $7.3 million,
or 8.2%, consisted of consumer loans, and $1.2 million, or 1.4%, consisted of
municipal loans. See "Business of BCB - Lending Activities" and "Business of
PEMI - Loan Portfolio."
RISKS RELATED TO GEOGRAPHIC CONCENTRATION OF LENDING OPERATIONS
BCB's and PEMI's lending operations are concentrated primarily in New
Hampshire. As a result, the financial condition and results of operations of the
combined company will be subject to the effects of changes in the business cycle
and downturns in the economy of the state, regional, and national economies, as
well as other general economic conditions, particularly the conditions in the
single-family or multi-family residential real estate markets prevailing in New
Hampshire. In an economic downturn, there tends to be a run-off in deposits. If
economic conditions in New Hampshire or the New England region worsen or if the
market for residential real estate in particular declines, the combined company
may not be able to originate the volume of high quality single-family or
multi-family residential mortgage loans or achieve the level of deposits bearing
interest rates on which the Forward-Looking Statements are based. See "Business
of BCB - Lending Activities" and "Business of PEMI - Loan Portfolio."
During the past three years, the New Hampshire economy and its real
estate market showed signs of recovery from the recessionary levels of the early
1990s. The Forward-Looking Statements regarding BCB's and PEMI's results of
operations assume that the New Hampshire economy and real estate market will
continue to remain at least stable. A worsening of current economic conditions
or a significant decline in real estate values in New Hampshire could cause
actual results to vary materially from the Forward-Looking Statements.
EFFECT OF CHANGES IN INTEREST RATES
Northway's operating results will depend to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities, and may be adversely affected by rapid changes in interest rates.
Interest rates are highly sensitive to many factors, including governmental
monetary policies and domestic and international economic and political
conditions. Conditions such as inflation, recession, unemployment, money supply,
international disasters, and other factors beyond Northway's control may also
affect interest rates.
Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between repricing or maturity characteristics of assets and
liabilities and may be measured in terms of the ratio of the cumulative interest
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time frame is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time frame is considered liability-sensitive and is
reflected as a negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising interest rate environment and will
negatively impact earnings in a falling interest rate environment, while a
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment and negatively impact earnings
in a rising interest rate environment. Fluctuations in interest rates are not
predictable or controllable. At December 31, 1996, on a pro forma basis,
Northway's interest-earning assets which were estimated to mature or reprice
within one year exceeded Northway's interest-bearing liabilities which were
estimated to mature or reprice within one year by $20.0 million for a positive
one year gap position of 5.4%.
As of March 31, 1997 on a pro forma basis, Northway had $56.3 million
in mortgage-backed securities, substantially all of which bear interest at a
fixed rate. Such fixed rate securities will not reprice as interest rates
fluctuate. Furthermore, as interest rates decline the underlying fixed rate
mortgages tend to prepay and Northway generally will have to reinvest the funds
received from prepayments at lower interest rates. Conversely, as interest rates
rise, prepayments generally decline, and Northway will have less cash flow to
invest at the higher interest rates. While Northway, on a pro forma basis, is
asset-sensitive in the near term, it still faces interest rate risk which it
believes could adversely affect its net interest income if interest rates should
fall rapidly.
Northway intends to structure its asset and liability management
strategies to mitigate the impact of changes in interest rates and, in
particular, intends to manage its interest rate risk through investments in
adjustable-rate loans. Initially it is expected that BCB and PEMI will continue
their respective asset liability management strategies, including with respect
to the origination of adjustable rate loans. To date no further decision has
been made regarding such strategies for future periods. There can be no
assurances, however, of Northway's ability to continue to achieve positive net
interest income. See "BCB Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset and Liability Management" and "PEMI
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Sensitivity Analysis."
ASSET QUALITY
Industry experience indicates that a portion of a bank's loans will
become delinquent and that a portion of such delinquent loans will require
partial or entire charge-off. Regardless of the underwriting criteria that a
lender utilizes, losses may be experienced as a result of various factors beyond
the lender's control, including, among others, changes in market conditions
affecting the value of security and problems affecting the credit of the
borrower. BCB's and PNB's determination of the adequacy of their respective
allowances for possible loan losses is based on various considerations,
including an analysis of the risk characteristics of various classifications of
loans, previous loan loss experience, specific loans which would have loan loss
potential, delinquency trends, estimated fair value of the underlying
collateral, current economic conditions, the view of outside loan review
specialists and regulators, and geographic and industry loan concentration.
However, if delinquency levels were to increase as a result of adverse general
economic conditions, particularly in New Hampshire where BCB's and PNB's loan
operations are concentrated, the loan loss reserve so determined by such banks
may not be adequate. There can be no assurance that BCB's or PNB's allowance
will be adequate to cover loan losses or that either bank will not experience
losses in its loan portfolios which may require significant increases to its
allowance for possible loan losses in the future. See "Business of BCB -- Asset
Quality -- Allowance for Possible Loan Losses" and "Business of PEMI --
Allowance for Possible Loan Losses."
RISKS ASSOCIATED WITH THE MERGER
The Forward-Looking Statements include the expected benefits from the
proposed transactions (see "Recommendation of the BCB Board; BCB's Reasons for
the Merger" and "Recommendation of the PEMI Board; PEMI's Reasons for the
Merger"), pro forma financial data, and similar information relied upon as a
basis for the opinions of BCB's and PEMI's financial advisors. Such
Forward-Looking Statements utilize BCB's and PEMI's internal estimates of growth
and results of operations and generally make no provisions for any possible
negative effects of the Merger. In addition, the Forward-Looking Statements
estimate certain cost savings from the consolidation of operations which may not
materialize or which may be delayed as a result of difficulties in consolidating
operations. To the extent that events differ from the assumptions, Northway's
actual results of operations may vary materially from the Forward-Looking
Statements. The Forward-Looking Statements assume that the deposit base of both
BCB and PEMI will remain substantially intact pending the Merger and will grow
at historical rates following the Merger. To the extent that the reorganization
of BCB into a holding company structure, the change in ownership of PNB, or
other factors result in either a temporary or long-term loss of deposits for BCB
or PNB, Northway's actual results of operations may vary materially from the
results anticipated by the Forward-Looking Statements.
COMPETITION
BCB and PNB both face significant competition in their respective
markets. Increasing consolidation within the banking and financial services
industry, as well as increased competition from larger regional and out-of-state
banking organizations and nonbank providers of various financial services, may
adversely affect the combined company's ability to achieve the financial goals
reflected in the Forward-Looking Statements. Many of these large competitors
have significantly more financial resources, larger market share, and greater
name recognition in the market area to be served by the combined company. At
this time management has no intention to close or consolidate branch offices.
LAWS AND REGULATIONS
The businesses of Northway, BCB, and PNB are subject to extensive
federal and state supervision and regulation. Changes in (i) laws and
regulations, including federal and state banking laws and regulations, with
which the combined company and its subsidiaries must comply, and the associated
costs of compliance with such laws and regulations, (ii) accounting policies and
practices, as may be adopted by the relevant regulatory agencies as well as by
the Financial Accounting Standards Board, or (iii) Northway's organization,
compensation, and benefit plans, could cause actual results to vary from the
Forward-Looking Statements. See "Certain Regulatory Considerations."
CERTAIN POTENTIAL ANTI-TAKEOVER PROVISIONS
Certain provisions of Northway's Amended and Restated Articles of
Incorporation effective as of the Reorganization Time (the "Northway Articles")
and By-laws effective as of the Reorganization Time (the "Northway By-laws")
could delay or frustrate the removal of incumbent directors and could make more
difficult a merger, tender offer, or proxy contest involving Northway, even if
such events could be perceived as beneficial to the interests of Northway's
stockholders. See "Comparison of Rights of Holders of Northway Common Stock, BCB
Common Stock, and PEMI Common Stock."
ABSENCE OF PRIOR MARKET FOR NORTHWAY COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICES
Prior to the Effective Time of the Merger, there has been no public
trading market for the Northway Common Stock and there can be no assurance that
a regular trading market for the Northway Common Stock will develop after the
Merger or, if developed, that it will be sustained following the Merger. The
market price of the Northway Common Stock could be subject to significant
fluctuations in response to such factors as, among others, variations in the
anticipated or actual results of operations of Northway or other companies in
the financial services industry, changes in conditions affecting the economy
generally, analyst reports, general trends in the industry, and other events or
factors. Northway has applied for quotation of the Northway Common Stock on the
Nasdaq National Market under the symbol "NWFI." One requirement of such listing
is that two market makers agree to make a market in its stock. Northway will
seek to encourage at least three market makers to make a market in Northway
Common Stock. Although Northway does not anticipate difficulty in securing three
market makers, there can be no assurance that it will be able to do so. See "The
Merger and Related Transactions -- Listing on the Nasdaq National Market."
DEPENDENCE UPON KEY PERSONNEL
Northway's future success will depend upon the continued services of
its senior management as well as its ability to attract additional members to
its management team with experience in the financial services industry. The
unexpected loss of the services of any of Northway's key management personnel,
or its inability to attract new management personnel when necessary, could have
a material adverse effect upon Northway. At the Effective Time, Northway intends
to enter into employment agreements (which include non-competition provisions)
with Mr. William J. Woodward, who will be Northway's Chairman of the Board,
President, and Chief Executive Officer, and Mr. Fletcher W. Adams, who will be
Northway's Vice Chairman of the Board. See "The Merger and Related Transactions
- - Interests of Certain Persons in the Merger - Employment Agreements" and
"Management of Northway Following the Merger - Employment Agreements."
THE STOCKHOLDER MEETINGS
THE MEETINGS
BCB. The BCB Meeting will be held on Tuesday, September 23, 1997 at
2:00 p.m. at the Town and Country Motor Inn, Route 2, Shelburne, New Hampshire.
PEMI. The PEMI Meeting will be held on Monday, September 22, 1997 at
2:00 p.m. at Plymouth Regional Senior Center, R.R. Depot Square, Plymouth, New
Hampshire.
RECORD DATES
BCB. The BCB Board has fixed the close of business on August 11, 1997
as the BCB Record Date. Only the holders of shares of BCB Common Stock of record
at the close of business on the BCB Record Date will be entitled to notice of
and to vote at the BCB Meeting and any adjournments or postponements thereof.
Stockholders of BCB are entitled to one vote at the BCB Meeting for each share
of BCB Common Stock held of record at the close of business on the BCB Record
Date. At the BCB Record Date, 63,301 shares of BCB Common Stock were outstanding
and entitled to vote.
PEMI. The PEMI Board has fixed the close of business on August 11, 1997
as the PEMI Record Date. Only the holders of shares of PEMI Common Stock of
record at the close of business on the PEMI Record Date will be entitled to
notice of and to vote at the PEMI Meeting and any adjournments or postponements
thereof. Stockholders of PEMI are entitled to one vote at the PEMI Meeting for
each share of PEMI Common Stock held of record at the close of business on the
PEMI Record Date. At the PEMI Record Date, 690,401 shares of PEMI Common Stock
were outstanding and entitled to vote.
PURPOSES OF THE MEETINGS
BCB. At the BCB Meeting, BCB stockholders will consider and vote upon:
(i) a proposal to authorize BCB to petition the New Hampshire Banking
Commissioner for approval of the BCB Reorganization Plan; (ii) following receipt
of the approval of the New Hampshire Banking Commissioner, a proposal to ratify
the BCB Reorganization Plan (proposals (i) and (ii) are sometimes referred to
herein collectively as the "BCB Reorganization Proposals"); (iii) a proposal to
approve the Merger Agreement (the "BCB Merger Proposal"); (iv) a proposal to
elect one director for a two-year term, to continue until the 1999 Annual
Meeting of Stockholders, and three directors for three-year terms, to continue
until the 2000 Annual Meeting of Stockholders, and until their successors are
duly elected and qualified (the "BCB Director Proposal"); and (v) such other
business as may properly come before the BCB Meeting and any adjournments or
postponements thereof.
THE BCB BOARD HAS APPROVED THE BCB REORGANIZATION PROPOSALS AND THE BCB
MERGER PROPOSAL AND RECOMMENDS A VOTE "FOR" THE BCB REORGANIZATION PROPOSALS AND
THE BCB MERGER PROPOSAL. THE BCB BOARD HAS ALSO APPROVED AND RECOMMENDS A VOTE
"FOR" THE BCB DIRECTOR PROPOSAL.
PEMI. At the PEMI Meeting, PEMI stockholders will consider and vote
upon a proposal to approve the Merger Agreement (the "PEMI Merger Proposal");
and (ii) such other business as may properly come before the PEMI Meeting and
any adjournments or postponements thereof.
THE PEMI BOARD HAS APPROVED THE PEMI MERGER PROPOSAL AND RECOMMENDS A
VOTE "FOR" THE PEMI MERGER PROPOSAL.
VOTES REQUIRED AT THE MEETINGS
BCB. The presence in person or by proxy of the holders of a majority of
the issued and outstanding shares entitled to vote at the BCB Meeting is
required to constitute a quorum. Abstentions and "broker non-votes" (as defined
below) will be counted as present for purposes of determining the presence or
absence of a quorum for the transaction of business at the BCB Meeting. A
"broker non-vote" is a proxy from a broker or other nominee indicating that such
person has not received instructions from the beneficial owner or other person
entitled to vote the shares which are the subject of the proxy on a particular
matter with respect to which the broker or other nominee does not have
discretionary voting power.
The affirmative vote of the holders of two-thirds of the outstanding
shares of BCB Common Stock entitled to vote at the BCB Meeting will be required
to approve the BCB Reorganization Proposals. The affirmative vote of the holders
of a majority of the outstanding shares of BCB Common Stock entitled to vote at
the BCB Meeting will be required to approve the BCB Merger Proposal. Abstentions
and broker non-votes will not be counted as votes "for" the BCB Reorganization
Proposals and the BCB Merger Proposal and, therefore, will have the effect of
votes against such proposals.
The affirmative vote of a plurality of the votes cast is required for
the election of BCB directors pursuant to the BCB Director Proposal. Abstentions
and broker non-votes will not be counted as "votes cast" for purposes of
electing BCB directors and, therefore, will not affect the election of the
directors.
At the BCB Record Date, the directors and executive officers of BCB,
and their affiliates, held approximately 9,332 shares, or approximately 14.7%,
of the 63,301 outstanding shares of BCB Common Stock. See "Principal Holders of
BCB Common Stock." Each of the directors of BCB has executed a voting agreement
pursuant to which each has agreed to vote his shares in favor of the BCB
Reorganization and the Merger. Assuming that each director and executive officer
of BCB votes in favor of the BCB Reorganization Proposals and the BCB Merger
Proposal, the affirmative vote of holders of approximately 32,869 and 22,318
additional shares of BCB Common Stock, respectively, representing approximately
51.9% and 35.2%, respectively, of the shares issued and outstanding and entitled
to vote at the BCB Meeting on the BCB Record Date, will be required to approve
such proposals.
PEMI. The presence in person or by proxy of the holders of a majority
of the issued and outstanding shares entitled to vote at the PEMI Meeting is
required to constitute a quorum. Abstentions and broker non-votes will be
counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business at the PEMI Meeting.
The affirmative vote of the holders of a majority of the outstanding
shares of PEMI Common Stock entitled to vote at the PEMI Meeting will be
required to approve the PEMI Merger Proposal. Abstentions and broker non-votes
will not be counted as votes "for" the PEMI Merger Proposal and, therefore, will
have the effect of votes against such proposal.
At the PEMI Record Date, the directors and executive officers of PEMI,
and their affiliates, held approximately 93,877 shares, or approximately 13.6%,
of the 690,401 outstanding shares of PEMI Common Stock. See "Principal Holders
of PEMI Common Stock." Eight of the nine directors of PEMI have executed voting
agreements pursuant to which they have agreed to vote their shares in favor of
the Merger. Assuming that each director and executive officer of PEMI votes in
favor of the PEMI Merger Proposal, the affirmative vote of holders of
approximately 252,324 additional shares of PEMI Common Stock, representing
approximately 36.5% of the shares issued and outstanding and entitled to vote at
the PEMI Meeting on the PEMI Record Date, will be required to approve the PEMI
Merger Proposal.
PROXIES; REVOCATIONS
BCB. The proxies of holders of BCB Common Stock are being solicited by
the BCB Board. Stockholders are requested to complete, date, sign, and promptly
return the accompanying proxy card in the enclosed envelope. Shares represented
by a properly executed proxy received prior to the vote at the BCB Meeting and
not revoked will be voted at the BCB Meeting as directed in the proxy. IF A
PROXY IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED "FOR"
THE APPROVAL OF THE PROPOSALS TO BE CONSIDERED AT THE BCB MEETING.
The persons named as proxies by a BCB stockholder may propose and vote
for one or more adjournments or postponements of the BCB Meeting to permit
further solicitation of proxies; provided, however, that a proxy voted against
the BCB Reorganization Proposals or the BCB Merger Proposal, as the case may be,
will not be voted in favor of such adjournments.
A holder of record of BCB Common Stock may revoke a proxy by filing an
instrument of revocation with Paul G. Campagna, Clerk, The Berlin City Bank, 9
Main Street, Berlin, New Hampshire 03570. Any such holder may also revoke a
proxy by filing a duly executed proxy bearing a later date, or by appearing at
the BCB Meeting in person, notifying the Clerk, and voting by ballot at the BCB
Meeting. Any stockholder of record attending the BCB Meeting may vote in person
whether or not a proxy has been previously given, but the mere presence (without
notifying the Clerk) of a stockholder at the BCB Meeting will not constitute
revocation of a previously given proxy.
PEMI. The proxies of holders of PEMI Common Stock are being solicited
by the PEMI Board. Stockholders are requested to complete, date, sign, and
promptly return the accompanying proxy card in the enclosed envelope. Shares
represented by a properly executed proxy received prior to the vote at the PEMI
Meeting and not revoked will be voted at the PEMI Meeting as directed in the
proxy. IF A PROXY IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE
VOTED "FOR" THE APPROVAL OF THE PROPOSAL TO BE CONSIDERED AT THE PEMI MEETING.
The persons named as proxies by a PEMI stockholder may propose and vote
for one or more adjournments or postponements of the PEMI Meeting to permit
further solicitation of proxies; provided, however, that a proxy voted against
the PEMI Merger Proposal will not be voted in favor of such adjournments.
A holder of record of PEMI Common Stock may revoke a proxy by filing an
instrument of revocation with Charles H. Clifford, Jr., Secretary, Pemi Bancorp,
Inc., 287 Highland Street, Plymouth, New Hampshire 03264. Any such holder may
also revoke a proxy by filing a duly executed proxy bearing a later date, or by
appearing at the PEMI Meeting in person, notifying the Secretary, and voting by
ballot at the PEMI Meeting. Any stockholder of record attending the PEMI Meeting
may vote in person whether or not a proxy has been previously given, but the
mere presence (without notifying the Secretary) of a stockholder at the PEMI
Meeting will not constitute revocation of a previously given proxy.
SOLICITATION EXPENSES
Each of BCB and PEMI will bear the cost of soliciting proxies from
their respective stockholders, including mailing costs, and each will pay their
proportionate share of all printing costs in connection with this Proxy
Statement/Prospectus. In addition to the use of the mails, proxies may be
solicited by the directors, officers, and certain employees of BCB and PEMI, and
by personal interview, telephone, or facsimile. Such directors, officers, and
employees will not receive additional compensation for such solicitation but may
be reimbursed for reasonable out-of-pocket expenses incurred in connection
therewith. BCB and PEMI may also make arrangements with brokerage houses and
other custodians, nominees, and fiduciaries for the forwarding of solicitation
material to the beneficial owners of their Common Stock. BCB and PEMI may
reimburse such custodians, nominees, and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith. BCB and PEMI have
retained Corporate Investor Communications, Inc. to assist in the solicitation
of proxies for the BCB Meeting and the PEMI Meeting at an aggregate fee
estimated to be approximately $9,000 plus reimbursement of reasonable
out-of-pocket expenses, which fee and expense reimbursement shall be shared
equally between BCB and PEMI.
THE BCB REORGANIZATION
DESCRIPTION OF THE BCB REORGANIZATION
The BCB Board has unanimously approved the proposed BCB Reorganization
whereby the business of BCB will be conducted under a holding company structure.
BCB, Northway, and BITC have entered into the BCB Reorganization Plan under the
terms of which BITC will merge with and into BCB, as a result of which BCB will
become a wholly owned subsidiary of Northway. For purposes of this section only,
because the identities and businesses of both BCB and BITC will be merged into
one entity that will continue after the BCB Reorganization as one bank, the bank
surviving the BCB Reorganization is referred to in this section as the
"Continuing Bank." BCB will be the Continuing Bank pursuant to the BCB
Reorganization.
At the Reorganization Time: (i) BITC will be merged with and into BCB,
and Northway will, without any further action on its part or on the part of any
other party, automatically and by operation of law acquire and become the owner
for all purposes of all of the issued and outstanding shares of BCB Common
Stock; (ii) each share of BCB Common Stock issued and outstanding immediately
prior to the Reorganization Time (other than shares of BCB Common Stock held as
treasury stock by BCB or by a dissenting stockholder) will automatically and by
operation of law be converted into 16 shares of Northway Common Stock; (iii) any
shares of BCB Common Stock held immediately prior to the Reorganization Time as
treasury stock of BCB will be canceled, retired, and cease to exist, and no
payment or exchange will be made with respect thereto; (iv) BCB's Articles of
Agreement and By-laws will remain the Articles of Agreement and By-laws of the
Continuing Bank; and (v) the Continuing Bank will continue to conduct business
under the name of "The Berlin City Bank." In conjunction with the conversion of
BCB Common Stock into Northway Common Stock, and to evidence the BCB
Reorganization, (i) Northway will issue and deliver to BCB a certificate
evidencing the number of shares of Northway Common Stock into which the shares
of BCB Common Stock held by stockholders of BCB immediately prior to the
Reorganization Time have been converted, and (ii) the 1,000 shares of Northway
Common Stock issued to and held by BCB will be canceled and retired to the
status of authorized and unissued shares of Northway Common Stock.
The Continuing Bank will conduct its business in the same manner as it
did prior to the BCB Reorganization. In addition, the Continuing Bank will
succeed to and hold all the rights, franchises, and interests in and to every
type of property (real, personal, and mixed) that were held by both BCB and BITC
immediately prior to the BCB Reorganization. The Continuing Bank also will be
liable for all liabilities of BCB and BITC at the time of the BCB Reorganization
(BITC will not incur any significant liabilities pursuant to the BCB
Reorganization nor will it open for business prior to the BCB Reorganization).
The officers and personnel of BCB will continue in their same capacity with the
Continuing Bank.
CONVERSION OF SHARES OF BCB COMMON STOCK
Each share of BCB Common Stock outstanding immediately prior to the
Reorganization Time (other than shares of BCB Common Stock owned by dissenting
stockholders) will, by virtue of the BCB Reorganization and without any further
action by the holder thereof, be converted into and become exchangeable for the
right to receive 16 shares of Northway Common Stock. Each certificate (other
than certificates representing shares owned by dissenting stockholders) which
immediately prior to the Reorganization Time represented outstanding shares of
BCB Common Stock, will on and after the Reorganization Time be deemed for all
purposes to represent the right to receive 16 shares of Northway Common Stock
for each share of BCB Common Stock formerly represented by such certificate.
In addition, notwithstanding anything in the BCB Reorganization Plan to
the contrary and unless otherwise provided by applicable law, shares of BCB
Common Stock that are owned by any dissenting stockholder with respect to which
such dissenting stockholder (i) has filed his notice with BCB in accordance with
the provisions of Sections 293-A:13.01 through 293-A:13.31 of the NHBCA of his
intention to object to the BCB Reorganization Proposals and to demand payment
for his shares if the BCB Reorganization is effected, and (ii) has not voted in
favor of the BCB Reorganization Proposals at the BCB Meeting, will not be
converted into and exchangeable for Northway Common Stock, unless and until such
dissenting stockholder fails to perfect or effectively withdraws or loses his
right of appraisal and payment under applicable law. Each such dissenting
stockholder will be entitled to demand payment for his shares of BCB Common
Stock. If any such dissenting stockholder fails to perfect or withdraws or loses
such right of appraisal, however, each share of BCB Common Stock owned by such
dissenting stockholder will thereupon be deemed to have been converted into and
become exchangeable for the right to receive, at the Reorganization Time, the
shares of Northway Common Stock into which such shares would have been
ultimately converted had he or she not been a dissenting stockholder.
As a result of the BCB Reorganization, Northway will be, as of the
Reorganization Time, the only owner of issued and outstanding shares of BCB
Common Stock and the former stockholders of BCB, as of the Reorganization Time,
will be stockholders of Northway. Upon the Reorganization Time, the stockholders
of BCB will receive or have a right to obtain a certificate or certificates
representing the shares of Northway Common Stock into which such stockholder's
shares of BCB Common Stock are converted. See "The Merger and Related Agreements
- - Exchange of Northway Certificates for BCB and PEMI Certificates."
BCB will pay all expenses incurred in connection with the BCB
Reorganization, including the costs of organizing Northway and BITC.
PROCEDURE FOR VOTING ON THE BCB REORGANIZATION PROPOSALS
The first order of business at the BCB Meeting will be the taking of
the vote on the proposal to authorize BCB to submit the BCB Reorganization Plan
to the New Hampshire Banking Commissioner for approval. Stockholder approval for
such authorization requires the affirmative vote of the holders of two-thirds of
the outstanding shares of BCB Common Stock (Northway, as the sole stockholder of
BITC, will effect the necessary stockholder approval with respect to BITC). If
such proposal is approved, the BCB Meeting will be adjourned briefly while the
BCB Reorganization Plan is presented to the New Hampshire Banking Commissioner
for approval. Upon receiving such approval, it is expected that the BCB Meeting
will be reconvened that day, and a vote will be taken on the ratification of the
BCB Reorganization Plan. Stockholder approval for such ratification also
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of BCB Common Stock. Following the approval of the BCB Reorganization
Proposals, votes will be taken on the approval of the BCB Merger Proposal and
the BCB Director Proposal and such other business as may properly come before
the BCB Meeting and any adjournments thereof.
Approval of the BCB Reorganization Proposals is a condition to the
consummation of the Merger. Consequently, if the BCB Reorganization Proposals
are not approved, votes will be taken on the BCB Director Proposal and such
other business as may properly come before the BCB Meeting and any adjournments
thereof, but a vote will not be taken on the BCB Merger Proposal.
RECOMMENDATION OF THE BCB BOARD; BCB'S REASONS FOR THE BCB REORGANIZATION
General. The BCB Board believes the BCB Reorganization is in the best
interest of BCB and its stockholders and has approved the BCB Reorganization
Plan and the transactions contemplated thereby. The BCB Board also believes the
BCB Reorganization is in the best interests of its customers, employees, and
other constituencies. THE BCB DIRECTORS RECOMMEND THAT BCB STOCKHOLDERS VOTE
"FOR" THE BCB REORGANIZATION PROPOSALS AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The BCB Reorganization. The financial services industry is one of the
most rapidly changing segments of the American economy. Historical distinctions
between various types of financial institutions are eroding rapidly as a result
of legislative changes and changing regulatory philosophies. In addition,
traditional restrictions on branch banking have given way to multi-state banking
and multi-bank holding companies. Accordingly, banks are subject to aggressive
competition from a wide variety of institutions offering an expansive array of
financial products and services. As a result of current laws and regulation,
however, banks have limited ability to supplement the traditional financial
services and products they offer, or to enter into other banking-related
ventures, in response to this increasing competition and rapidly changing
customer needs.
The laws and regulations applicable to bank holding companies, on the
other hand, provide such entities with potentially greater flexibility in
expanding the variety of services and products they and their subsidiaries offer
their customers. Consequently, such holding companies are in a potentially
better position to expand their customer bases and effectively compete with
other types of financial services providers. The BCB Board has determined that
the reorganization of BCB into a holding company structure will enable it to
take advantage of such flexibility and, thus, is in the best interests of BCB,
its stockholders, and the communities in which it operates. In making this
determination, the BCB Board considered, among other factors, the benefits that
a holding company structure would be expected to yield, including the
facilitation of possible acquisitions of other financial institutions (such as
PEMI) and greater flexibility with respect to possible acquisitions of different
types of financial institutions. In addition, the BCB Board considered that the
NHBCA would be the principal corporate law governing Northway, reducing the
burden of certain restrictions under New Hampshire banking laws relating to
BCB's charter, capital stock, and governance.
Currently, neither BCB nor Northway has made any commitment to expand
significantly its market through the acquisition of existing banks or to engage
in activities other than those currently conducted by BCB and, following
consummation of the Merger, PNB. If the BCB Reorganization is approved, the BCB
Board anticipates that, even if the Merger is not approved, the new holding
company structure will provide a mechanism to facilitate future combinations
with other financial institutions, should suitable opportunities arise for
acquisition, expansion, or affiliation. In addition, this structure may provide
opportunities to engage in new activities related to banking.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE BCB REORGANIZATION
The following is a general description of the material federal income
tax consequences of the BCB Reorganization to a stockholder of BCB whose shares
of BCB Common Stock are converted into shares of Northway Common Stock pursuant
to the BCB Reorganization Plan. The discussion does not address all aspects of
federal income taxation that may be important to particular stockholders and may
not be applicable to stockholders who are not citizens or residents of the
United States. The effects of any applicable foreign, state, local, or other tax
laws are not addressed. This discussion assumes that BCB stockholders hold their
shares of BCB Common Stock as capital assets as defined in the Internal Revenue
Code of 1986, as amended (the "Code"). BCB stockholders should consult their own
tax advisors as to the particular tax consequences of the BCB Reorganization to
them.
BCB and Northway do not intend to seek a ruling from the Internal
Revenue Service ("IRS") with respect to the tax consequences of the BCB
Reorganization. Based upon the opinion of Goodwin, Procter & Hoar LLP, counsel
to BCB and Northway, BCB believes that (i) the BCB Reorganization, consisting of
Northway's acquisition of BCB as a wholly owned subsidiary, effected by the
exchange of Northway Common Stock for all outstanding BCB Common Stock (other
than shares held by dissenting BCB stockholders, if any) in accordance with the
terms of the BCB Reorganization Plan, should constitute, for federal income tax
purposes, one or more reorganizations within the meaning of section 368(a)(1) of
the Code, and (ii), accordingly, no gain or loss should be recognized by BCB
stockholders who exchange their shares of BCB Common Stock solely for shares of
Northway Common Stock pursuant to and in accordance with the BCB Reorganization
Plan. In rendering such opinion, counsel to BCB and Northway has relied upon,
among other things, certain factual assumptions. Prior to the closing of the BCB
Reorganization, certain of such factual assumptions are to be confirmed in
writing by BCB and Northway.
The principal federal income tax consequences of the BCB Reorganization
to BCB stockholders will be as set forth below.
Consequences to Holders of BCB Common Stock. No gain or loss will be
recognized by holders of BCB Common Stock upon the receipt of Northway Common
Stock in the BCB Reorganization, and the tax basis of the Northway Common Stock
received will be equal to the tax basis of the BCB Common Stock surrendered in
exchange therefor. For federal income tax purposes, the holding period of the
Northway Common Stock received will include the holding period of the BCB Common
Stock surrendered.
Consequences to Northway. Northway will recognize no gain or loss on
the issuance of Northway Common Stock to the BCB stockholders in the BCB
Reorganization.
EACH BCB STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH REGARD TO ANY FEDERAL, STATE, OR LOCAL TAX CONSEQUENCES OF THE BCB
REORGANIZATION.
DISSENTERS' RIGHTS OF BCB STOCKHOLDERS
Sections 293-A:13.01 through 293-A:13.31 of the NHBCA and Section
388:13 of the New Hampshire Revised Statutes Annotated (copies of which are
attached hereto as Appendix D) may entitle any holder of record of shares of BCB
Common Stock who delivers a written objection to the BCB Reorganization
Proposals or the BCB Merger Proposal before the votes to approve the BCB
Reorganization Proposals or the BCB Merger Proposal are taken at the BCB
Meeting, and who does not vote his or her shares in favor of the BCB
Reorganization Proposals or the BCB Merger Proposal, to receive in cash the fair
value of such shares plus accrued interest. For purposes of the discussion
below, a dissent from the BCB Reorganization Proposals and a dissent from the
BCB Merger Proposal are treated as separate matters.
Any stockholder of record contemplating making a demand for appraisal
is urged to review carefully the provisions of Sections 293-A:13.01 through
293-A:13.31 the NHBCA, particularly the procedural steps necessary to perfect
Dissenter's Rights thereunder. Dissenters' Rights will be lost if the procedural
requirements of Sections 293-A:13.01 through 293-A:13.31 of the NHBCA are not
fully satisfied.
Set forth below is a summary of the procedures relating to the exercise
of Dissenters' Rights. The following summary does not purport to be a complete
statement of the provisions of Sections 293-A:13.01 through 293-A:13.31 of the
NHBCA and is qualified in its entirety by reference to Appendix D hereto and to
any amendments to such sections as may be adopted after the date of this Proxy
Statement/Prospectus.
Filing Written Objection. Before the stockholders' votes are taken on
the BCB Reorganization Proposals or the BCB Merger Proposal, a stockholder who
intends to exercise Dissenters' Rights with respect to any of such proposals
must deliver to BCB a written notice of his or her intention to demand payment
for the shares held by the stockholder if the BCB Reorganization or the Merger,
as the case may be, becomes effective. Such written notice should be addressed
to The Berlin City Bank, 9 Main Street, Berlin, New Hampshire 03570, Attention:
Clerk. The written objection to the BCB Reorganization Proposals and the BCB
Merger Proposal must be in addition to and separate from any proxy or vote
against the such proposals.
No Vote in Favor of the BCB Reorganization Proposals or the BCB Merger
Proposal. Shares of BCB Common Stock for which the holders thereof desire to
exercise Dissenters' Rights must not be voted in favor of the proposals to
approve the BCB Reorganization or the proposal to approve the Merger. By
properly executing a proxy card with no voting instructions indicated thereon, a
BCB stockholder will vote in favor of the approval and adoption of the BCB
Reorganization Proposals and the BCB Merger Proposal, and accordingly, will not
be entitled to exercise Dissenters' Rights in connection with the BCB
Reorganization or the Merger.
Dissenters' Notice. Within 10 days after the BCB Reorganization becomes
effective, BCB will notify each holder of record of shares of BCB Common Stock
who has purported to comply with the provisions of Section 293-A:13.21 of the
NHBCA and whose shares were not voted in favor of the BCB Reorganization
Proposals that the BCB Reorganization has become effective. Within 10 days after
the Merger becomes effective, BCB will notify each holder of record of shares of
BCB Common Stock who has purported to comply with the provisions of Section
293-A:13.21 of the NHBCA and whose shares were not voted in favor of the BCB
Merger Proposal that the Merger has become effective. In either case, such
notice shall (i) state where the payment demand shall be sent and where and when
certificates for certificated shares of BCB Common Stock shall be deposited,
(ii) inform holders of uncertificated shares of BCB Common Stock, if any, to
what extent transfer of the shares will be restricted after the payment demand
is received, (iii) supply a form for demanding payment that includes the date of
the first announcement to news media or to BCB stockholders of the terms of the
BCB Reorganization or the Merger, as the case may be, and requires that the
person asserting Dissenters' Rights certify whether or not he or she acquired
beneficial ownership of the shares before that date, (iv) set a date by which
BCB shall receive the payment demand, which date shall not be fewer than 30 nor
more than 60 days after the date the notice is delivered, and (v) be accompanied
by a copy of the sections of the NHBCA regarding Dissenters' Rights. The giving
of such notice shall not be deemed to create any rights in the stockholder
receiving the same to demand payment for such holder's shares of BCB Common
Stock. The notice shall be sent by registered or certified mail, addressed to
the stockholder at such stockholder's last known address as it appears on the
records of BCB immediately prior to the effective time of the BCB Reorganization
or the Merger, as the case may be, and shall contain certain specified
information.
Duty to Demand Payment. A BCB stockholder who receives a dissenters'
notice shall demand payment, certify whether he or she acquired beneficial
ownership of the shares of BCB Common Stock before the date set forth in the
dissenters' notice, and deposit his or her certificates in accordance with the
terms of the notice. BCB stockholders who demand payment and deposit their share
certificates as required retain all other rights of a stockholder until these
rights are canceled or modified by the consummation of the BCB Reorganization or
the Merger, as the case may be. Any BCB stockholders who do not demand payment
or deposit their share certificates where required, each by the date set in the
dissenters' notice, are not entitled to payment for their shares.
Payment. Except as hereinafter provided, as soon as the BCB
Reorganization or the Merger, as the case may be, is consummated, or upon
receipt of a payment demand, BCB shall pay each dissenter who complied with the
procedures described above the amount BCB estimates to be the fair value of his
or her shares, plus accrued interest. Such payment shall be accompanied by (i)
BCB's balance sheet as of the end of the fiscal year ended December 31, 1996, an
income statement for that year, a statement of changes in stockholders' equity
for that year, and the latest available interim financial statements, if any,
(ii) a statement of BCB's estimate of the fair value of the shares, (iii) an
explanation of how the interest was calculated, (iv) a statement of the
dissenter's right to demand payment; and (v) a copy of the NHBCA sections
relating to Dissenters' Rights. If the BCB Reorganization or the Merger, as the
case may be, is not consummated within 60 days after the date set for demanding
payment and depositing share certificates, BCB shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares. If after returning deposited certificates and releasing transfer
restrictions, the BCB Reorganization or the Merger, as the case may be, is
consummated, BCB shall send a new dissenters' notice and repeat the payment
demand procedure.
After-Acquired Shares. BCB may elect to withhold payment required from
a dissenting stockholder, unless such stockholder was the beneficial owner of
the shares before the date set forth in the dissenters' notice as the date of
the first announcement to news media or to stockholders of the terms of the BCB
Reorganization or the Merger, as the case may be. To the extent BCB elects to
withhold payment, after consummation of the BCB Reorganization or the Merger, as
the case may be, it shall estimate the fair value of the shares, plus accrued
interest, and shall pay this amount to each dissenter who agrees to accept it in
full satisfaction of his demand. BCB shall send with its offer a statement of
its estimate of the fair value of the shares, an explanation of how the interest
was calculated, and a statement of the dissenter's right to demand payment.
Payment Demand. A dissenter may notify BCB in writing of such
stockholder's own estimate of the fair value of such shares and the amount of
interest due, and demand payment of such estimate, less any payment previously
made by BCB, or reject BCB's offer and demand payment of the fair value of such
shares and interest due, if (i) the dissenter believes that the amount paid or
offered is less than the fair value of such stockholder's shares or that the
interest due is incorrectly calculated, (ii) BCB fails to make payment within 60
days after the date set for demanding payment, or (iii) the BCB Reorganization
or the Merger, as the case may be, having failed to be consummated, BCB does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment. A dissenter waives the right to demand payment under this section
unless he or she notifies BCB of his or her demand in writing within 30 days
after BCB made or offered payment for his or her shares.
Settlement or Appraisal. If BCB and any stockholder exercising
Dissenters' Rights have not agreed on the fair value of such holder's shares of
BCB Common Stock and the interest due within such 30-day period, BCB must
commence a proceeding in the Coos County Superior Court within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest of any such stockholder who has complied with
Section 293-A:13.21 of the NHBCA. If BCB does not commence such a proceeding
within such 60-day period, it must pay to each such dissenter whose demand
remains unsettled the amount demanded. Upon the commencement of such proceeding,
a copy of the petition shall be delivered to all stockholders who have demanded
payment for their shares and with whom agreements as to the fair value of their
shares have not been reached. After the hearing on such petition, the court will
determine the stockholders who have complied with the provisions of Section
293-A:13.21 of the NHBCA and who have become entitled to exercise Dissenters'
Rights. After determining those stockholders entitled to exercise Dissenters'
Rights, the court (which may appoint one or more appraisers to receive evidence
and recommend decisions on the question of the fair value of such shares) shall
determine the fair value of the shares as of the day preceding the BCB Meeting,
plus accrued interest. Such determination shall be binding on all such
stockholders. BCB has no present intention to make any offer or offers after the
effective time of the BCB Reorganization or the Merger, as the case may be, to
stockholders who have demanded Dissenters' Rights, other than to make payment in
the form of shares of Northway Common Stock as provided in the BCB
Reorganization Plan and the Merger Agreement, respectively, or to commence a
proceeding for determination of fair value within the statutory provision.
Payment and Costs. When the value is so determined, the court will
direct payment by BCB, plus accrued interest, if any, as the court determines,
to the stockholders entitled to receive the same upon surrender to Northway by
such stockholders of the certificates representing their shares of BCB Common
Stock. The court shall assess all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court,
against BCB, except that the court may assess costs against all or some of the
dissenting stockholders, in amounts the court finds equitable, to the extent the
court finds such dissenting stockholders acted arbitrarily, vexatiously, or not
in good faith in demanding payment for their shares.
ANY HOLDER OF BCB COMMON STOCK WHO DESIRES TO EXERCISE DISSENTERS'
RIGHTS SHOULD CAREFULLY REVIEW THE NHBCA AND IS ADVISED TO CONSULT SUCH
STOCKHOLDER'S LEGAL ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH
RIGHTS.
OTHER MATTERS
For information regarding the proposed listing of the Northway Common
Stock to be received by BCB stockholders in exchange for their shares of BCB
Common Stock on the Nasdaq National Market, as well as the ability of BCB
stockholders to resell such shares of Northway Common Stock, see "The Merger and
Related Transactions - Listing on the Nasdaq National Market" and "The Merger
and Related Transactions - Resale of Northway Common Stock."
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger Agreement provides that, subject to the satisfaction of
certain conditions, including, among other things, the receipt of all necessary
regulatory approvals, the expiration of all waiting periods in respect thereof,
the approval by the stockholders of BCB and PEMI, and the consummation of the
BCB Reorganization, PEMI will merge with and into Northway, with Northway being
the survivor. As a result of the Merger, the separate corporate existence of
PEMI will cease, the stockholders of PEMI will become stockholders of Northway
along with the stockholders of BCB, and each of BCB and PNB will continue its
business as a wholly owned subsidiary of Northway. The date and time when the
Merger will become effective is herein referred to as the "Effective Time." See
"Certain Terms of the Merger Agreement - Effective Time of the Merger; Closing
Date."
The description of the Merger Agreement and the related agreements
included in the Proxy Statement/Prospectus is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached hereto as
Appendix A and which is incorporated herein by this reference.
BACKGROUND OF THE MERGER
Over the past several years, the Boards of Directors and managements of
BCB and PEMI, individually, have considered a variety of strategic alternatives,
including remaining independent, acquiring other smaller institutions, and, in
the case of PEMI, being acquired by a larger banking organization. During this
period neither BCB nor PEMI received any offers regarding possible business
combinations, nor did they solicit any such offers.
In April 1996, William J. Woodward, Chairman of the Board, President,
and Chief Executive Officer of BCB, and other senior members of BCB management
first discussed the possibility of approaching PEMI regarding a possible
business combination between BCB and PEMI. Shortly thereafter, Mr. Woodward
contacted BCB's financial advisor, NECA, regarding BCB's initial interest in
PEMI. At that time, NECA expressed to Mr. Woodward its view that certain
financial and strategic benefits that would accrue to BCB as a result of a
combination with PEMI, and it was decided that Mr. Woodward would contact Mr.
Fletcher W. Adams, the President and Chief Executive Officer of PEMI, to explore
generally the possibility of PEMI entering into a business combination with BCB.
In May and June 1996, Mr. Woodward met with Mr. Adams and the two spoke
in general terms about the business philosophies of BCB and PEMI, their
complementary geographic and product franchises, and the rationale for a
potential business combination between the two companies. Following this initial
meeting, Messrs. Woodward and Adams met several more times with one another and
further discussed the possibility of a business combination that would be
consistent with a community-based banking strategy. The parties noted that both
BCB and PEMI had strong local identities in their respective communities, and
they agreed on the value of avoiding disruption of the strong relationships that
each had with its customers and community. Consequently, Messrs. Woodward and
Adams agreed that any transaction between the two companies should be structured
in a manner that could enable BCB and PNB to draw upon the strengths of their
individual organizations.
In late June 1996, Messrs. Woodward and Adams met with a representative
of NECA, BCB's financial advisor, to discuss certain business and financial
aspects of a possible combination between BCB and PEMI, and later met with their
respective senior management teams. At this meeting with NECA, the discussion
centered around the strategic alternatives available to both BCB and PEMI and
the advantages and disadvantages to both organizations of the acquisition by BCB
of PEMI. The acquisition analysis included a discussion of accounting methods,
the manner in which the companies might be combined, and a detailed financial
analysis of the possible combination. In July, the regular meetings of the BCB
Board and PEMI Board were held, at which time Messrs. Woodward and Adams
apprised their respective boards of their discussions. At these meetings, the
BCB Board and the PEMI Board concluded that it would be in the best interests of
their respective companies to explore further the possibility of a business
combination, and authorized Messrs. Woodward and Adams, respectively, to
continue their preliminary discussions regarding the same. The BCB Board and the
PEMI Board evaluated a range of potential strategies, including the potential
for growth and expansion into contiguous markets through acquisition or de novo
branches, strategic combinations with comparably sized institutions, and, in the
case of the PEMI Board, opportunities to sell the franchise to large,
out-of-market institutions. Subsequent to its July 1996 board meeting, the PEMI
Board met with several advisers and consultants regarding the potential range of
consideration that PEMI stockholders could expect to receive in a business
combination. The range included the form of consideration (stock, cash or a
combination of both) as well as the amount of consideration, stated as a
multiple of book value and earnings, based upon the consideration paid to
shareholders of banks and bank holding companies in other recent transactions in
New England.
In October 1996, representatives of PEMI contacted BCB and expressed
interest in continuing discussions. Mr. Woodward convened further meetings with
senior management of BCB, NECA, and Mr. Adams to discuss the feasibility of a
transaction. At their regular November 1996 meetings, the BCB Board and the PEMI
Board, following their receipt of updates on the discussions between the two
companies, authorized BCB and PEMI, respectively, to enter into a
confidentiality agreement for the purpose of sharing information necessary to
discuss and evaluate a transaction involving the operation of the two
institutions within a multi-bank holding company structure.
A special meeting of the BCB Board was held on December 4, 1996, for
the purpose of discussing the business and financial aspects of merger and
acquisition transactions generally. At this meeting, among other things, NECA
gave a presentation to the BCB Board regarding the financial and strategic
benefits that would accrue to BCB as a result of a combination with a company
possessing the characteristics of PEMI. Later that month, PEMI retained HAS as
its financial advisor, and BCB and PEMI began sharing information for the
purpose of conducting due diligence reviews of one another. Messrs. Woodward and
Adams kept their respective boards apprised of developments regarding the
potential business combination throughout the entire process.
Discussions continued during January 1997, and the managements of BCB
and PEMI reached a consensus on the Exchange Ratio after considering the ratio
of each party's contribution to assets, recurring earnings per share, book
value, and market share. During the first two weeks of February 1997, the
parties conducted on-site due diligence investigations of one another and
discussed many of the issues relating to a possible transaction. In early March
1997, during meetings and discussions between BCB and PEMI management and their
respective representatives, drafts of a definitive agreement were circulated and
negotiated. BCB and PEMI scheduled special board meetings to take place in March
1997 in order to discuss the complete terms of the transaction with their
respective Boards of Directors, followed by additional meetings to vote upon the
transaction.
On March 10, 1997, the BCB Board and the PEMI Board met separately to
review the terms of the Merger and to consult with their respective financial
and legal advisors. On March 11, 1997, the BCB Board again met and unanimously
approved the BCB Reorganization Plan, the Merger Agreement, and the related
agreements necessary to facilitate such transactions and voted to recommend
approval of the BCB Reorganization Plan, the Merger Agreement, and such related
agreements to the BCB stockholders. All seven BCB directors were present and
voted at the March 11, 1997, meeting of the BCB Board.
The PEMI Board also met again on March 11, 1997, and certain PEMI Board
members expressed concerns regarding the proposed transaction with respect to
the following: the size and composition of the Northway Board following the
Merger; the proposed break-up fee set forth in the definitive agreement; the
number of shares to be issued by Northway to BCB pursuant to the BCB
Reorganization; and certain aspects of the proposed employment arrangements
involving Mr. Adams. In addition, certain members of the PEMI Board sought
further confirmation regarding certain elements of the combined entity's
strategic mission following the Merger. Consequently, the PEMI Board directed
representatives of PEMI to pursue further discussions with BCB.
Mr. Woodward and BCB's financial and legal representatives met to
continue discussions with Mr. Adams and PEMI's financial and legal
representatives. In accordance with the authorization previously received from
the BCB Board, BCB agreed to: (i) increase the Northway Board from eight to ten
members, with six (rather than five) members to be appointed by BCB and four
(rather than three) to be appointed by PEMI; (ii) reduce the break-up fee to be
paid by one party to the other in certain circumstances following such party's
termination of the Merger Agreement from $3.25 million to $2.5 million; (iii)
increase from 15 to 16 the number of shares of Northway Common Stock to be
issued in exchange for each outstanding share of BCB Common Stock pursuant to
the BCB Reorganization Plan (which change did not result in any change in the
value of the aggregate or individual consideration being paid to PEMI
stockholders, but increased from 0.9767 to 1.0419 the number of shares of
Northway Common Stock to be issued in exchange for each outstanding share of
PEMI Common Stock pursuant to the Merger Agreement), and (iv) confirm certain
employment arrangements. In addition, Mr. Woodward offered to make a
presentation to the PEMI Board and to respond to any questions regarding the
strategic mission of Northway following consummation of the Merger. At the
conclusion of this meeting, Mr. Adams agreed to call another PEMI Board meeting,
which was held on March 14, 1997.
At the March 14, 1997, meeting of the PEMI Board, Mr. Woodward made a
presentation to the PEMI Board and responded to questions regarding the benefits
of the transaction to BCB, PEMI, and their respective stockholders and
communities. After reviewing the terms of the Merger, including the revised
terms agreed to by BCB following the previous PEMI Board meeting, and consulting
with its financial advisors and legal counsel, the PEMI Board approved by an
eight-to-one vote the Merger Agreement and the related agreements necessary to
implement the Merger and voted to recommend approval of the Merger Agreement and
such related agreements to its stockholders. The lone dissenting director cited
reservations regarding the commitment of the combined entity following the
Merger to continuing to serve the communities currently served by PEMI, the
future career opportunities for current PEMI employees within the combined
entity, and whether the consolidation taking place in the banking industry was
in the best long term interests of consumers, small businesses, and the
commuties served by community-based banks, as his reasons for not voting to
approve the Merger. All PEMI directors were present in person or by
teleconference and voted at the March 14, 1997, meeting.
RECOMMENDATION OF THE BCB BOARD; BCB'S REASONS FOR THE MERGER
General. The BCB Board believes the Merger is in the best interests of
BCB and its stockholders and has approved the Merger Agreement and the
transactions contemplated thereby. The BCB Board also believes the Merger is in
the best interests of its customers, employees, and other constituencies. THE
BCB DIRECTORS RECOMMEND THAT BCB STOCKHOLDERS VOTE "FOR" THE BCB MERGER PROPOSAL
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The BCB Board, after careful study and evaluation of financial, market,
and other factors, including the impact of the Merger on its customers,
employees, and the communities in which it operates, and after consultation with
its outside financial and legal advisors, believes that the Merger will provide
BCB with increased financial and other resources and greater opportunity and
flexibility for expansion and diversification. As a result, the BCB Board
believes the Merger is in the best interests of BCB and its stockholders, both
in the immediate future and in the long run, and voted unanimously to recommend
approval of the Merger Agreement and related agreements to BCB stockholders. The
primary factors impacting the BCB Board's decision are discussed below.
Community Bank Philosophy. The BCB Board believes that the proposed
structure of the Merger, whereby BCB and PNB will operate as independent
community bank subsidiaries of Northway, presents the combined entity with a
valuable market opportunity. As a result of mergers among New England's regional
banks, and the consolidation of smaller financial institutions into the branch
networks of such regional banks, many customers of these small financial
institutions have been forced into banking relationships with a small number of
very large, centralized banking organizations. The BCB Board believes that these
centralized banking organizations have difficulty maintaining the close
relationships that smaller financial institutions enjoy with the businesses and
residents in the communities they serve. The BCB Board's objective in
structuring the transaction to retain the independence of BCB and PNB is not
only to maintain but to enhance the ability of each individual bank to satisfy
its local community's banking needs. The BCB Board believes that both banks
benefit from a true community bank image in their respective markets, which is
reinforced through the personalized products and services they offer, their
knowledge of and involvement in the community, and their commitment to their
employees. By preserving the personalized approach to servicing customers,
keeping the decision making at the local level, and maintaining close contacts
with the community in general, the BCB Board believes that Northway has the
opportunity to continue to fill an important niche in the existing market for
financial services in northern New England.
Enhanced Competitiveness. The BCB Board believes the combined entity
will be a more effective competitor in the rapidly changing financial services
industry. By retaining local identity at the bank board and management level,
the BCB Board believes that BCB and PNB will maintain the community reputations
necessary to compete against other community-based financial institutions in
their respective markets. In addition, by combining the capital and other
resources of both BCB and PNB, by providing a larger revenue base over which to
spread needed expenditures on such items as management information systems,
regulatory compliance, improved products and services, and a more sophisticated
marketing program, and by providing the opportunity to realize cost savings
through consolidation of various "back office" functions and other economies of
scale, the Merger will, in the opinion of the BCB Board, place the combined
entity in a stronger position to meet the financial needs of customers, respond
to technological changes, and compete more effectively against the larger, more
centralized banking organizations. Furthermore, the BCB Board believes that
Northway's status as the third largest independent banking organization in New
Hampshire and ninth largest in the state overall will enable it to better
attract, develop, and retain management personnel, thereby further strengthening
BCB's position in the marketplace. The BCB Board views a strengthening of BCB's
competitive posture as especially important at this time in light of the fact
that the New Hampshire banking and financial services industry is becoming
increasingly concentrated and competitive.
Geographic and Economic Diversification. The BCB Board believes that
the Merger will provide both BCB and PNB with needed geographic and economic
diversification. The banks currently serve contiguous markets in northern New
Hampshire, although their customer bases differ. Although BCB has already
expanded to some extent by the acquisition of certain branches of HomeBank from
the Resolution Trust Corporation in 1994, the Merger will significantly expand
the geographic market of the combined organization throughout northern New
Hampshire. Such added diversity is expected to assist Northway in addressing
economic downturns in its constituent communities, decrease the reliance of BCB
and PNB on certain industries, and enable the combined entity to market its
products and services to a greater variety of demographic groups.
Expected Consolidation Economies. The BCB Board believes that the
Merger provides opportunities for earnings growth through the advantages of
economies of scale in certain non-customer functions. By consolidating such
functions, the BCB Board anticipates that the combined entity could realize
pre-tax cost savings of approximately $500,000 during the first twelve months
after the Effective Time, on a consolidated basis. The areas contributing to
these potential cost savings include management information systems; legal,
accounting, and other professional services and activities, including audit and
regulatory compliance; investor relations; marketing; investment management;
asset-liability management; planning; data processing; corporate overhead; and
merger and acquisition activities. At this time it is not expected that any
branch offices of PEMI or BCB will be closed or consolidated.
Factors Considered by the BCB Board. In the course of its deliberations
concerning the approval of the Merger Agreement, the BCB Board considered all of
the factors which it believed to be material. The material factors considered by
the Board were the companies' similarities in operating philosophy and business
and management style, the reputation of PNB in its market, the proposed members
of the Board of Directors and management of Northway, possible uses of
Northway's capital, the relative size and competitive position of each company,
the outlook for each company in the current market environment, and the social
and economic effects of the Merger on the companies' employees, customers, and
the communities in which they operate. In considering the terms of the Merger,
the BCB Board, in consultation with its financial advisor, also considered the
amount and source of earnings of each company and the expected pro forma
earnings per share for Northway, the financial condition and risk profile of
each company, each company's relative contribution to the combined entity's
assets, liabilities, and income, the possibility that the market for Northway
Common Stock will be more liquid than that of BCB because of its listing on the
Nasdaq National Market, as well as the greater number of shares outstanding and
total market value capitalization, the tax-free nature of the Merger, and the
accounting treatment of the Merger.
The BCB Board also considered management's belief that the Merger will
be accretive to earnings as a result of the consolidation economies discussed
above. In addition, the BCB Board considered the advice of NECA and received
from NECA a written opinion to the effect that the Exchange Ratio is fair to the
BCB stockholders from a financial point of view. NECA has confirmed its opinion
as to the fairness of the Exchange Ratio in writing as of the date of this Proxy
Statement/Prospectus.
The BCB Board did not identify any material disadvantages to the
Merger, although certain potentially negative considerations were identified and
discussed. These included the resulting dilution to BCB's shareholders, BCB
management's relative lack of familiarity with the PEMI market, the adequacy of
PEMI's loan loss reserves, increased regulatory compliance burden and the
additional demand on BCB's management resources resulting from the Merger and
the BCB Reorganization. See "PEMI Management's Discussion and Analysis of
Financial Condition and Results of Operations - Allowance for Possible Loan
Losses and Non-Performing Assets."
Structure of Northway Following the Merger; Liquidity. Upon
consummation of the Merger, the Northway Board will be comprised of ten persons,
six of whom will have been designated, after consultation with PEMI, by BCB and
four of whom will have been designated, after consultation with BCB, by PEMI.
See "Management of Northway Following the Merger." Because Northway's Board,
management, and functional positions will be filled from the managements and
employees of the two companies, no net additions to employment are anticipated
as a result of the Merger. Stockholders of both companies will have a
substantial equity ownership interest in Northway (approximately 58.5% for the
existing BCB stockholders and approximately 41.5% for the existing PEMI
stockholders) on a fully diluted basis, assuming no stockholders of BCB or PEMI,
as the case may be, exercise Dissenters' Rights to receive the fair value of
their BCB Common Stock or PEMI Common Stock in cash. See "The BCB Reorganization
- - Dissenters' Rights of BCB Stockholders," "The Merger and Related Transactions
- - Dissenters' Rights of BCB Stockholders in the Merger," and "The Merger and
Related Transactions - Dissenters' Rights of PEMI Stockholders in the Merger."
Upon consummation of the Merger, the current stockholders of BCB and PEMI will
together own a bank holding company with assets in excess of $370 million. In
addition, Northway's listing on the Nasdaq National Market will provide such
stockholders with much greater liquidity than their investments in BCB and PEMI
individually currently provide.
Conclusion. The BCB Board has concluded that the Merger will provide
BCB with greater flexibility to compete under existing laws and regulations and
to respond effectively to changing market conditions. In addition, the BCB Board
has concluded that the Merger will afford BCB improved potential for long-term
growth and will offer enhanced abilities to meet the needs of the communities
served by BCB and PNB. The combined organization will expand the geographic
scope of the areas currently served by each while providing needed economic
diversity with respect to their customer bases. BCB and PNB expect to reduce
their combined costs by consolidating and integrating various functional areas,
eliminating redundant corporate expenses such as professional and other fees,
and achieving certain operating efficiencies. The larger size of the combined
company, together with increased efficiencies in operations, are expected to
enhance BCB's and PNB's ability to serve customers, to attract quality
borrowers, depositors, and employees, and to remain a strong, independent
competitor, better positioned to face ongoing changes in the current market
conditions in New Hampshire and New England.
Based on the foregoing, the BCB Board believes that the Merger is in
the best interests of BCB and its stockholders and other constituencies. See "-
Background of the Merger," "- Fairness Opinion of BCB's Financial Advisor," and
Appendix B hereto.
RECOMMENDATION OF THE PEMI BOARD; PEMI'S REASONS FOR THE MERGER
General. The PEMI Board believes the Merger is in the best interest of
PEMI and its stockholders and has approved the Merger Agreement and the
transactions contemplated thereby. The PEMI Board also believes the Merger is in
the best interests of its customers, employees and other constituencies. THE
PEMI DIRECTORS RECOMMEND THAT PEMI STOCKHOLDERS VOTE "FOR" THE PEMI MERGER
PROPOSAL AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The PEMI Board considered a number of factors in determining that the
Merger was in the best interest of PEMI stockholders and in voting to recommend
the Merger to PEMI stockholders. The material factors considered by the PEMI
Board are discussed below.
The management of PEMI and the PEMI Board believe that the banking
industry will continue to undergo changes as banks respond to increasing
competition and continuing demand for technological improvements in the nature
and delivery of financial services. Competition for financial products and
services continues to intensify within a consolidating banking industry and
among financial service providers outside of the traditional banking industry.
While large banks have very large customer bases over which to spread
their investments and costs relating to technology, compliance, advertising, and
similar functions, community banks like PEMI and BCB must look for alternatives
which will allow them to continue to serve their customers while controlling
costs. A multi-bank holding company structure offers some solutions to these
problems. By joining together under a single bank holding company, two or more
community banks can "pool" their resources to gain the economies of scale
otherwise available only to the larger institutions.
Some of the savings potential offered by joining together will be
derived by more efficiently utilizing resources owned by one of the member
institutions. For example, by utilizing the "in-house" data processing facility
of PEMI to service the accounts and customers of BCB, BCB can hopefully reduce
its costs and PEMI can benefit from the utilization of some of its excess
capacity. This efficiency reduces the cost of servicing the accounts of all the
member banks of a multi-bank holding company, helping them to remain competitive
and keeping costs down for their customers. The management of PEMI believes
there are many such opportunities for savings which can be achieved through
joining with another institution as a multi-bank organization.
Within a multi-bank holding company, member banks maintain their
identities and charters. Each individual bank's directors and managers continue
to be responsible for the prudent and profitable operation of the bank. While it
is difficult to project the cost savings associated with the Merger, the
management teams of PEMI and BCB anticipate savings resulting from combining
aspects of operations and data processing related expenses, as well as from
improving efficiencies and economies in purchasing goods and services such as
insurance and professional services. Economies may also arise from the sharing
of specialized resources such as compliance, marketing, advertising, audit, and
finance, and from reduced aggregate costs for regulatory reporting.
The PEMI Board believes that prudently operated, well-capitalized
community banks can continue to be successful providers of financial services in
the communities in which they operate, but such banks must continually evaluate
ways in which they can achieve efficiencies and economies of scale without
sacrificing their community focus and localized decision making. It was this
shared opinion that generated the interest within both PEMI and BCB to explore
potential operations within a multi-bank holding company structure.
The PEMI Board, with input from its financial advisor, determined that
the terms of the Merger Agreement are in the best interests of the stockholders
of PEMI. Among other things, stockholders are expected to benefit, following the
Merger, from the opportunity to participate in the performance of a larger and
more diversified institution with its common stock listed for trading on the
Nasdaq National Market.
In the course of considering and approving the Merger Agreement, the
PEMI Board consulted with its legal and financial advisor, as well as its
management, and considered numerous factors including, without limitation, the
following:
(i) the oral and written presentations of its financial advisor that
the Exchange Ratio is fair to the stockholders of PEMI from a
financial point of view, as more fully discussed below under
"Fairness Opinion of PEMI's Financial Advisor";
(ii) the terms of comparable transactions involving other financial
institutions based, among other things, on information supplied
by its financial advisor;
(iii) the PEMI Board's familiarity with and review of the business,
results of operations, financial conditions, and prospects of
BCB on a separate and pro forma combined basis, as well as
industry conditions generally and the changing environment for
banking and financial services, including the trend towards
increasing industry consolidation and efficiencies;
(iv) the effect of the proposed Merger on the employees, customers,
and the communities in which PEMI operates;
(v) the PEMI Board's views, based in part on presentations by
management and advisors regarding the due diligence review of
business, operations, earnings, and financial condition of BCB
on both an historical and a prospective basis, regarding the
enhanced opportunities for growth in stockholder values that the
Merger would make possible, and the customer bases, product
lines, and other contributions the respective institutions would
bring to a combined institution;
(vi) the likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay; and
(vii) the PEMI Board's beliefs, based upon its analysis of the
anticipated financial effects of the Merger, that, upon
consummation of the Merger, PNB would continue to be well
managed and well-capitalized, and able to continue to serve the
banking needs of its customers and the communities in which it
operates.
The PEMI Board did not assign any specific or relative weight to the
specific factors considered in reaching its determinations. Further, the PEMI
Board did not identify any material disadvantages to the Merger, although
certain potentially negative considerations were identified and discussed. These
included the current lack of an active and liquid trading market for BCB stock,
the possibility that PEMI shareholders might receive a higher premium or cash
consideration in connection with an acquisition by another party at some point
in the future, and the uncertain economic prospects for BCB's market area. In
addition, the PEMI Board considered the fact that a new Board of Directors
consisting of directors predominantly of BCB rather than PEMI would control the
combined bank holding company and that the executive management of Northway
could also possibly be comprised of persons who, with the exception of Fletcher
W. Adams, are not members of the current executive management team of PEMI.
Based on the foregoing, the PEMI Board believes that the terms of the
Merger Agreement are in the best interests of PEMI and its stockholders and
other constituencies. See "- Background of the Merger," "- Fairness Opinion of
PEMI's Financial Advisor," and Appendix C hereto.
FAIRNESS OPINION OF BCB'S FINANCIAL ADVISOR
For a number of years, BCB has engaged NECA on an annual retainer basis
to provide financial advisory services to BCB in connection with possible
business combination and other strategic matters, including BCB's acquisition of
certain branches of HomeBank from the Resolution Trust Corporation in 1994, and
certain personnel of NECA have advised BCB on various matters since 1989. In
February 1997, BCB made specific arrangements to engage NECA with respect to a
possible combination with PEMI.
NECA is an investment banking firm that specializes in the commercial
banking, thrift institution, and mortgage banking business. As part of NECA's
investment banking business, NECA is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate, and other purposes. BCB selected NECA because
of its expertise in merger and acquisition matters, and its particular knowledge
of and experience in working with BCB. In connection with its financial advisory
services with respect to the Merger, NECA assisted BCB in conducting an analysis
of different transaction structures and helped negotiate the transaction between
the parties. Other than as described in this section, neither NECA nor any of
its affiliates has any material relationship with BCB or PEMI, or any of BCB's
or PEMI's affiliates. In addition, neither NECA nor any of its affiliates is an
affiliate of either BCB or PEMI, or any affiliate of BCB or PEMI.
On March 10, 1997, NECA delivered to the BCB Board its oral opinion,
which it subsequently confirmed in writing dated as of March 14, 1997 and as of
the date of this Proxy Statement/Prospectus, that the Exchange Ratio is fair,
from a financial point of view, to holders of BCB Common Stock. The full text of
NECA's opinion, dated the date of this Proxy Statement/Prospectus, which sets
forth the assumptions made, matters considered, and limits on the review
undertaken, is attached hereto as Appendix B. The summary set forth in this
Proxy Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion, and stockholders are urged to read such opinion for a
description of the procedures followed, matters considered, and limitations on
the review undertaken in connection therewith.
In forming its March 14, 1997, opinion, NECA reviewed, among other
things: (i) a draft of the Merger Agreement, which draft was substantially
similar to and contained no material changes from the definitive Merger
Agreement; (ii) BCB's Annual Report to Stockholders on Form F-2 and related
financial information for the fiscal year ended December 31, 1995; (iii) PEMI's
Annual Reports on Form 10-K and related financial information for each fiscal
year in the three-year period ended December 31, 1995; (iv) certain of BCB's
Quarterly Reports on Form F-4; (v) certain of PEMI's Quarterly Reports on Form
10-Q; (vi) certain unaudited interim reports and press releases to the
respective stockholders of BCB and PEMI; (vii) financial information furnished
to NECA by BCB and PEMI management, including forecasts of earnings, cash flow,
and assets, which NECA discussed with senior management of BCB and PEMI; (viii)
historical market price and trading data for BCB Common Stock and PEMI Common
Stock, to the extent available; (ix) the financial performance and condition of
BCB and PEMI and similar data for other New England banking companies which NECA
believed to be relevant; (x) the financial terms of the Merger contemplated by
the Merger Agreement and the financial terms of other mergers and acquisitions,
which NECA believed to be relevant; (xi) the pro forma effect of the Merger on
Northway earnings (including projected cost savings and merger synergies),
tangible book value and book value per share, capitalization, market value,
dividends, franchise, market share, and asset growth; (xii) the relative
contributions of BCB and PEMI to the combined company, including 1996 earnings,
estimated 1997 earnings, tangible book value, and market value; (xiii) the
sensitivity of the Exchange Ratio to changes in certain assumptions, including
merger cost savings and future earnings; and (xiv) such other matters as NECA
deemed necessary. NECA also met with certain senior officers of BCB and PEMI,
separately and on a combined basis, to discuss the foregoing as well as other
matters relevant to NECA's opinion, including the past and current business
operations, financial condition, and future prospects of BCB and PEMI. NECA also
considered such additional financial and other factors as it deemed relevant,
including its assessment of economic, market, and financial conditions, its
experience in similar transactions, its experience in securities valuations, and
its knowledge of the commercial banking and thrift industries.
In conducting its review and preparing its opinion, NECA relied upon,
and assumed the accuracy and completeness of all of, the financial and other
information provided to it or publicly available and did not attempt
independently to verify any such information. NECA generally relied upon the
management of BCB and PEMI as to the reasonableness and achievability of the
financial and operating forecasts and projections (and their assumptions and
bases therefor) provided to NECA, and generally assumed that such forecasts and
projections reflected the best currently available estimates and judgments of
BCB and PEMI management and that such forecasts and projections will generally
be realized in the amounts and in the time periods currently estimated by such
managements. Management of BCB and PEMI, respectively, believe that NECA's
reliance upon the information provided by each of them, respectively, is
justified and that the information is reasonably complete and accurate for the
purposes required. In addition, NECA assumed, without independent verification,
that the aggregate allowances for loan losses at BCB and PEMI were adequate to
cover such losses. NECA did not inspect any properties, assets, or liabilities
of BCB or PEMI and did not make or obtain any evaluations or appraisals of any
properties, assets, or liabilities of BCB or PEMI. NECA did examine
independently certain individual loan credit files of PEMI and did produce
independently certain projections and operating forecasts to assure that the
assumptions generated by management of BCB and PEMI did not materially or
adversely alter the adequacy of the financial consideration being exchanged by
BCB stockholders from a financial point of view.
NECA's opinions are directed solely to the Exchange Ratio and do not
constitute a recommendation to any BCB stockholder as to how such stockholder
should vote at the BCB Meeting. NECA did not make any recommendation to the BCB
Board with respect to any approval of the transaction. NECA received no
instructions from BCB or any of its affiliates, and neither BCB nor any of its
affiliates imposed any limitation on NECA or on the scope of NECA's
investigation in connection with the preparation or rendering of its opinion.
In connection with rendering its opinions to the BCB Board, NECA
performed a variety of financial analyses that are summarized below. The summary
of NECA's analyses is not a complete description thereof. Because the
preparation of a fairness opinion is a complex process involving subjective
judgments and quantitative analysis, NECA believes that its analyses and the
summary set forth herein must be considered as a whole and that selecting
portions of such analyses and the factors considered therein, without
considering all factors and analyses, creates an incomplete view of the analyses
and processes underlying NECA's opinion. In its analyses, NECA made numerous
assumptions with respect to industry performance, business and economic
conditions, and other matters, many of which are beyond the control of BCB and
PEMI. Any estimates used in NECA's analyses are not necessarily indicative of
actual future value or results, which may be significantly more or less
favorable than as suggested by such estimates. Estimates of value are not
appraisals and may not necessarily reflect the prices at which companies or
their securities may be sold. No company or previous transaction used in NECA's
analyses was identical to BCB or PEMI or Northway. Accordingly, such analyses
are not based solely upon arithmetic calculations, but involve complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and transactions, and other factors
that could affect the companies concerned.
In connection with its opinion and the presentation of its opinion to
BCB's Board, NECA performed (i) an analysis of publicly traded comparable
companies, (ii) an analysis of comparable prices and terms of recent
transactions involving banks and bank holding companies, (iii) a discounted cash
flow analysis, and (iv) certain other analyses of the combined company described
below. The following is a summary of such analyses:
Comparable Company Analysis. In performing the comparable company
analysis, NECA analyzed the operating performance of BCB and PEMI relative to
(i) 29 publicly traded banks and thrifts in New England with assets between $100
million and $400 million, (ii) 12 publicly traded banks in New England with
similar asset size, and (iii) seven publicly traded banks and thrifts in New
England with a comparable loan portfolio composition with assets between $100
million and $400 million. NECA also analyzed ten major regional banks
nationally, with assets in excess of $10 billion. The purpose of this latter
analysis was to identify the amount of liquidity discount in the smaller,
comparably sized banks and thrifts in New England.
NECA analyzed the relative performance and outlook for BCB and PEMI by
comparing certain financial and market trading information of BCB and PEMI with
the comparable companies. Among the financial information compared was
profitability, loan mix composition, trading volume, and trading multiples.
In considering an adequate value to better reflect the absence of a
liquid trading market for the BCB Common Stock, NECA considered banks of similar
size to BCB. NECA reviewed the price to earnings multiple, the price to tax
adjusted earnings multiple, the price to tangible book value multiple, and the
core deposit premium multiple. The table below reflects the data and imputed
value for the BCB Common Stock:
Price to Market
Tax Price to Cap to
Price to Adjusted Tangible Core
Earnings Earnings Book Value Deposits
---------------------------------------------------
$100-$400 Million Assets
Banks and Thrifts $546.47 $583.09 $463.12 $488.97
Banks Only 542.14 577.25 512.72 517.72
Banks and Thrifts 437.34 528.67 483.25 501.17
(similar loans)
Overall Median $515.22 (19.8% above $430)
Market
Price to Cap to
Price to Price to Tangible Core
Earnings Book Value Book Value Deposits
---------------------------------------------------
Major Regional
($10 Billion + Assets) 13.39x 193.47% 236.05% 25.00%
Implied BCB $545.59 $615.96 $751.18 $800.22
23% Discount (125.49) (141.67) (172.77) (184.05)
Implied BCB $420.10 $474.29 $578.41 $616.17
(net of discount)
Overall Median $526.34 (22.4% above $430)
The imputed value in the table ranges between $515.00 and $526.00 per
share. NECA considered that this value would normally be discounted
approximately 15% to 20% in connection with an initial public offering. Based on
this analysis, NECA calculated an imputed value for BCB of approximately $416.00
to $442.00 per share. As a result of extensive arm's length negotiations between
BCB and PEMI, an imputed value of $430.00 per share for BCB Common Stock was
agreed upon by both parties.
Comparable Transaction Analysis. NECA performed an analysis of
multiples paid for 15 selected banks in New England involved in transactions
announced since January 1, 1995, in which the seller's assets were under $250
million. In addition, NECA performed a similar analysis on a national basis for
153 bank transactions publicly announced since January 1, 1996, where the
sellers' total assets averaged $109.1 million. NECA compared price to earnings,
core deposit premiums, and price to tangible book value multiples along with
such performance characteristics as return on average assets of buyer and
seller, capital adequacy of buyer and seller, and asset size of buyer and
seller. Set forth below are the deal multiples presented by NECA to the BCB
Board.
Core Price to Deal
Price to Deposit Tangible Value
Earnings Premium Book Value (Millions)
-----------------------------------------------
Average National Bank
Acquisitions 18.94x 11.35% 193.97% $18.9
Average Northeast Bank
Acquisitions 22.67 7.76 174.84 23.1
Median Northeast Bank & Thrift
Acquisitions 12.75 7.26 169.14 18.0
BCB/PEMI 15.3x 6.75% 161.10% $19.3
No company or transaction used in the comparable company and comparable
transaction analyses is identical to BCB, PEMI, or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of BCB and PEMI and other factors that could affect the public
trading value or the acquisition of the companies to which BCB and PEMI are
being compared.
Discounted Cash Flow Analysis. NECA performed a series of discounted
cash flow analyses of PEMI. The two factors that varied were the discount rate,
which ranged between 12.5% and 17.5%, and the projected level of fully phased in
annual savings, which ranged between $0 and $800,000 before tax.
The discount rate varied to reflect assumptions concerning the required
rate of return of holders or prospective buyers of PEMI Common Stock. The
projected fully phased in annual savings represents up to approximately 17.5% of
PEMI's 1996 non-interest expense levels. This compares to cost savings projected
in certain comparable transactions, which when fully phased in ranged from
10%-25% of the non-interest expense of the seller. These savings, if any, are
expected to occur at both BCB and PEMI.
Based on the projected earnings, any relevant savings, and the various
discount rates, the imputed per share value of PEMI Common Stock ranged between
$24.96 and $33.96 per share.
Combined Company Analysis. NECA analyzed certain balance sheet and
income statement data for BCB and PEMI on a stand alone basis and on a pro forma
combined basis. Such analysis reviewed the composition of income, loans, and
deposits at each bank and the profitability, capital, credit quality, and market
niches of BCB and PEMI. The analyses showed that, among other things, the
combined company would have combined assets of approximately $373 million and
stockholders' equity of nearly $34 million.
NECA also analyzed the effect of the Merger on the capital, earnings,
and tangible book value of BCB. Based on BCB's financial condition and results
of operations for the fiscal year ended December 31, 1996, the $28.00 imputed
per share value for PEMI Common Stock, the $430.00 imputed per share value for
BCB Common Stock, and a 100% stock exchange, NECA calculated an 8.66% pro forma
tangible equity to assets ratio, a 5.20% earnings per share dilution (assuming
$500,000 in pre-tax savings), and a 6.72% tangible book value per share
dilution.
Contribution Analysis. NECA considered the contribution of each of BCB
and PEMI to the pro forma combined entity. Based on the $28.00 imputed per share
value for PEMI Common Stock, the $430.00 imputed per share value for BCB Common
Stock, and a 100% stock exchange, BCB contributes 62.7% of the pro forma equity,
65.4% of the pro forma assets, and 66.9% of the pro forma earnings (assuming no
savings). Based on the foregoing, PEMI stockholders will receive 41.5% of the
pro forma Northway Common Stock and BCB stockholders will receive 58.5% of the
pro forma Northway Common Stock.
In connection with its opinion dated as of the date of this Proxy
Statement/Prospectus, NECA confirmed the appropriateness of its reliance on the
analyses done in connection with its oral opinion and written opinion dated as
of March 14, 1997, by performing procedures to update certain of such analyses
and by reviewing the assumptions on which such analyses were based and the
factors considered in connection therewith. In addition, NECA reviewed (i) BCB's
Annual Report on Form F-2 and related financial information for the fiscal year
ended December 31, 1996, and BCB's Quarterly Report on Form F-4 for the fiscal
quarter ended March 31, 1997, and (ii) PEMI's Annual Report on Form 10-K and
related financial information for the fiscal year ended December 31, 1996, and
PEMI's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1997.
NECA and BCB entered into a letter agreement dated February 10, 1997,
relating to the services NECA is providing in connection with the Merger. Under
this agreement, BCB agreed to pay NECA a fee of approximately $230,000, 30% of
which was payable upon execution of the Merger Agreement and the remainder of
which is payable upon consummation of the Merger. In such letter agreement, BCB
agreed to reimburse NECA for its reasonable out-of-pocket expenses and to
indemnify NECA against certain liabilities related to its engagement, including
liabilities under the federal securities laws.
FAIRNESS OPINION OF PEMI'S FINANCIAL ADVISOR
PEMI retained HAS to provide it with an opinion on the proposed Merger.
HAS is a regional bank consulting firm which, as part of its business, is
engaged in the valuation of banks and bank holding companies' securities in
connection with mergers and acquisitions and for various other purposes.
On March 14, 1997, HAS delivered its written opinion to the PEMI Board
to the effect that, as of March 14, 1997, the consideration being offered in the
Merger Agreement was fair, from a financial point of view, to the holders of
PEMI Common Stock. This opinion was reconfirmed in writing as of the date of
this Proxy Statement/Prospectus. The full text of the HAS opinion is attached as
Appendix C to this Proxy Statement/Prospectus and is incorporated herein by
reference. The description of the opinion set forth herein is qualified in its
entirety by reference to Appendix C.
In connection with its opinion, HAS reviewed, analyzed, and relied upon
material relating to the financial and operating conditions of PEMI including,
among other things, the following: (i) the Merger Agreement; (ii) Annual Reports
to Stockholders and Annual Reports on Form 10-K for the three years ended
December 31, 1994, 1995 and 1996, of PEMI; (iii) certain Quarterly Reports on
Form 10-Q, proxy solicitation material of PEMI, and certain other communications
from PEMI to its stockholders; (iv) other financial information concerning the
business and operations of PEMI furnished to HAS by PEMI for purposes of its
analysis, including certain internal financial analyses and forecasts for PEMI
prepared by senior management of PEMI; (v) corporate minutes of PEMI for three
years; (vi) audit reports certified by the independent accountants of PEMI for
three years; (vii) regulatory filings of PEMI for three years; (viii) PEMI
policies and procedures, certain loan files, and its investment portfolio; and
(ix) certain publicly available information with respect to banking companies
and the nature and terms of certain other transactions HAS considered relevant
to its inquiry. In addition, HAS reviewed certain market information concerning
BCB, analyzed data concerning private and publicly owned banks in New England,
reviewed stock market data of other banks generally deemed comparable whose
securities are publicly traded, publicly available information concerning
certain recent business combinations, and such additional financial and other
information as HAS deemed necessary. In addition, HAS reviewed certain internal
reports and documents of PEMI, including loan lists grouped by risk rating, past
due and non-accrual loan reports, internal loan watch lists, loan relationship
reports, restructured loan reports, OREO and ISF reports, loan loss reserve
analysis reports, securities portfolio-book value and market value reports, and
a schedule of threatened or pending litigations. HAS also held discussions with
senior management of PEMI concerning its past and current operations, financial
condition, and prospects, as well as the results of regulatory examinations.
In conducting its review and arriving at its opinion, HAS relied upon,
and assumed the accuracy and completeness of, all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of PEMI. HAS relied upon the accuracy and opinion of
the audit reports prepared by PEMI's independent accountants. HAS assumes no
responsibility for the accuracy and completeness of the financial and other
information relied upon.
The preparation of a fairness opinion involves various methods and
determinations which vary from bank to bank and the use of different factors
depending upon location, size, method of operation, etc. The determination of
the opinion is a subjective process which uses qualitative judgments, but does
not rely solely upon one approach. The analyses should be considered as a whole
and HAS believes that considering any portion of such analyses and of the
factors considered without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the process of
developing a fairness opinion.
The fairness opinion process made numerous assumptions concerning the
economy, banking industry performance, and general business conditions which may
or may not have an impact on PEMI. Any estimates considered in these analyses
are not necessarily indicative of actual value or predictive of future result or
value, which may be significantly more or less favorable than is set forth
therein.
The following is a summary of certain of the analyses performed by HAS
in connection with its opinion dated March 14, 1997, and reconfirmed as of the
date of this Proxy Statement/Prospectus.
(1) Stock Price and Trading History. The PEMI Common Stock is not
listed on the Nasdaq National Market or any other major stock exchange. As a
result, accurate trading history is not available and trades that have occurred
may not reflect fair value.
(2) Selected Group Analysis. Using publicly available information, HAS
compared the financial performance of PEMI with the nine selected New Hampshire
financial institutions with assets of between $90 million and $160 million
deemed relevant by HAS (the "Comparable Group"). Indications of financial
performance evaluated by HAS included profitability expressed as a return on
average assets of 1.04% for the Comparable Group and 1.05% for PEMI; return on
average equity of 11.06% for the Comparable Group and 10.90% for PEMI; the ratio
of equity capital to average assets of 10.18% for the Comparable Group and 9.43%
for PEMI; the ratio of non-performing assets to equity plus loan loss reserve of
10.72% for the Comparable Group and 9.43% for PEMI; a net interest margin of
4.42% for the Comparable Group and 5.14% for PEMI; the loan to deposit ratio of
81.09% for the Comparable Group and 83.31% for PEMI; non-interest income as a
percent of average assets of 0.43% for the Comparable Group and 0.55% for PEMI;
and non-interest expense as a percent of average assets of 2.92% for the
Comparable Group and 3.81% for PEMI.
The above ratios are based on the most recent publicly available
financial information for the Comparable Group. In this comparison, HAS
concluded that PEMI compares favorably in return on average assets, loan to
deposit ratio, net interest margin, the ratio of non-performing assets to equity
plus loan loss reserves, and non-interest income as a percent of average assets.
HAS further concluded that PEMI compares less favorably in return on average
equity, ratio of equity capital to average assets, and non-interest expense as a
percent of average assets.
Because of the differences in product mix and number of banking offices
between the operations of PEMI and the Comparable Group, HAS believed that a
purely quantitative comparable analysis should not be the sole criteria in
developing its opinion in the context of the proposed merger. HAS believed that
an appropriate use of the comparable analysis in this instance should involve
qualitative judgments concerning differences between the financial and operating
characteristics of PEMI and the selected companies which could affect the market
value of PEMI and the selected companies. The qualitative judgments made by HAS
in connection with its opinion included HAS' views as to business conditions and
prospects in various markets in which these selected companies operate, as well
as such companies' business mix, sources of revenue, and risk profile.
(3) Comparable Transaction Analysis. Using publicly available
information, HAS reviewed certain terms and financial characteristics of sixteen
bank merger and acquisition transactions completed in 1996 and 1997 (the
"1996-1997 Comparable Transaction Group") and ten pending bank merger and
acquisition transactions announced in 1996 and 1997 but not yet concluded (the
"1996-1997 Comparable Pending Group"), which HAS deemed to be comparable to the
Merger. The price to twelve months earning ratio for the Merger amounted to
15.1, which was slightly below, but within a reasonable range of, the mid-points
of such ratios for both the 1996-1997 Comparable Transactions Group and the
1996-1997 Comparable Pending Group which had mid-points of 16.1 and 17.4,
respectively, and which ranged from 7.2 to 29.1 and 5.7 to 26.5, respectively.
Similarly, the price to book value of the Merger of 1.6 was slightly below, but
within a reasonable range of, the mid-points of such ratios for both the 1996 -
1997 Comparable Transactions Group and the 1996-1997 Comparable Pending Group,
which had mid-points of 1.8 and 1.7, respectively, and which ranged from 1.4 to
2.6 and 1.1 to 2.3, respectively. Because the reasons for and circumstances
surrounding each of the transactions analyzed were so diverse and because of the
differences between the operations of PEMI and the selected companies, HAS
believed that a purely quantitative comparable analysis should not be the sole
criteria in developing its opinion in the context of the Merger. HAS believed
that an appropriate use of a comparable transaction analysis in this instance
should involve qualitative judgments concerning differences between the
characteristics of these transactions and the Merger which could affect the
acquisition value of PEMI. The qualitative judgments made by HAS in connection
with its opinion included HAS' views as to the universe of potential buyers in
each of these transactions, their potential levels of interest in an acquisition
of these companies, and the ability of the acquirers to implement cost savings
at, and business synergies with, the acquired companies and, in addition, HAS'
views as to the business conditions and prospects in the various markets in
which these acquired companies operate and business mix, sources of revenues,
risk profile, and prospects for these acquired companies.
(4) Imputed Value of BCB Common Stock. The BCB Common Stock is not
listed on the Nasdaq National Market or other national exchanges. The lack of
liquidity and trading history required HAS to develop an imputed value for the
BCB Common Stock. HAS performed certain analyses on 20 publicly traded New
England banks and thrifts with assets between $100 and $300 million. HAS
analyzed the price to book value, price to tangible book value, price to current
earnings and price to last twelve month earnings for the selected banks and
thrifts with the following results:
Average Market Price to Book Value 148.10%
Average Market Price to Tangible Book Value 151.80%
Average Price to Current Earnings 12.31x
Average Price to Last Twelve Month Earnings 13.72x
The above values applied to the BCB Common Stock resulted in the
following valuations:
Price to Book Value $501.94
Price to Tangible Book Value 483.30
Price to Current Earnings 505.98
Price to Last Twelve Month Earnings 563.48
The calculated average of the above is $513.68. HAS applied a discount
factor of 10% to 20% to account for the historical illiquidity of the BCB Common
Stock resulting in an imputed valuation in the range of $410.94 to $462.31. The
imputed value of $430.00 is below the mid-point of the imputed value range.
(5) Discounted Cash Flow Analysis. HAS discounted projected dividends
on PEMI Common Stock and an estimated terminal value of PEMI Common Stock for
five years, using a discount rate of 10% which was chosen to reflect assumptions
regarding the required rates of return of holders or prospective buyers of the
PEMI Common Stock. In connection with this analysis, PEMI management provided
HAS with net income, book value, and dividend projections, and HAS applied
premiums and discounts to net income projections to reflect different
assumptions concerning the achievability of management's forecasts. This
analysis, following the application of such premiums and discounts to net income
projections, yielded a value of PEMI Common Stock of approximately $27.61 per
share, using a terminal price to earnings multiple of approximately 12 times.
(6) Contribution Analysis. HAS analyzed the pro forma contribution of
BCB and PEMI to the combined company, assuming a 100% stock exchange at 1.0419
shares of Northway Common Stock for each share of PEMI Common Stock with the
following results:
PEMI BCB
---- ---
Assets 34.6% 65.4%
Equity 36.2% 63.8%
Earnings 33.3% 66.7%
Northway Common Stock 41.5% 58.5%
(7) Summary of Analysis. The exchange of 1.0419 shares of Northway
Common Stock for each share of PEMI Common Stock results in the following
valuations:
Per share value of BCB Common Stock $430.00
Per share value of Northway Common Stock
following BCB Reorganization 26.875
Per share value received for each share of
PEMI Common Stock 28.00
The valuations resulting from any particular analysis described above
should not be taken to be HAS' view of the actual value of PEMI. The fact that
any specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, HAS made numerous assumptions with respect
to industry performance, general business and economic conditions, and other
matters, many of which are beyond the control of PEMI. The analyses performed by
HAS are not necessarily indicative of actual values of actual future results,
which may be significantly different than those suggested by analyses. Such
analyses were prepared solely as part of HAS' analysis of the fairness of the
Exchange Ratio and were provided to the PEMI Board in connection with the
delivery of HAS' opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company actually might be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In addition, as described above, HAS' opinion, along with its presentations to
the PEMI Board, is one of the factors taken into consideration by the PEMI
Board.
The HAS opinion is directed to the PEMI Board and does not constitute a
recommendation to any PEMI stockholder as to how such stockholder should vote at
the PEMI Meeting. HAS received no instructions from PEMI or any of its
affiliates, and neither PEMI nor any of its affiliates imposed any limitation on
HAS or on the scope of HAS' investigation in connection with the preparation or
rendering of its opinion.
In connection with its opinion dated as of the date of this Proxy
Statement/Prospectus, HAS confirmed the appropriateness of its reliance on the
analyses done in connection with its oral opinion and written opinion dated as
of March 14, 1997, by performing procedures to update certain of such analyses
and by reviewing the assumptions on which such analyses were based and the
factors considered in connection therewith. In addition, HAS reviewed (i) PEMI's
Annual Report on Form 10-K and related financial information for the fiscal year
ended December 31, 1996, and PEMI's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997, and (ii) BCB's Annual Report on Form F-2 and
related financial information for the fiscal year ended December 31, 1996, and
BCB's Quarterly Report on Form F-4 for the fiscal quarter ended March 31, 1997.
HAS and PEMI entered into a letter agreement dated December 6, 1996,
relating to the services HAS is providing in connection with the Merger. Under
this agreement, PEMI agreed to pay HAS a fee of approximately $45,000. In such
letter agreement, PEMI agreed to indemnify HAS against certain liabilities
related to its engagement, including liabilities under the federal securities
laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general description of the material federal income
tax consequences of the Merger to a stockholder of PEMI whose shares of PEMI
Common Stock are converted into shares of Northway Common Stock pursuant to the
Merger Agreement. The discussion does not address all aspects of federal income
taxation that may be important to particular stockholders and may not be
applicable to stockholders who are not citizens or residents of the United
States. The effects of any applicable foreign, state, local, or other tax laws
are not addressed. This discussion assumes that PEMI stockholders hold their
shares of PEMI Common Stock as capital assets as defined in the Code. PEMI
stockholders should consult their own tax advisors as to the particular tax
consequences of the Merger to them.
Northway and PEMI do not intend to seek a ruling from the IRS with
respect to the tax consequences of the Merger. Based upon the opinions of
Goodwin, Procter & Hoar LLP and Cranmore, FitzGerald & Meaney, counsel to
Northway and PEMI, respectively, Northway and PEMI believe (i) that the
transactions constituting the Merger, consisting of Northway's acquisition of
PNB as a wholly owned subsidiary, effected by the exchange of Northway Common
Stock for all outstanding PEMI Common Stock (other than PEMI shares held by
dissenting PEMI stockholders, if any) in accordance with the terms of the Merger
Agreement, should constitute, for federal income tax purposes, one or more
reorganizations within the meaning of section 368(a)(1) of the Code, and (ii)
that, accordingly, no gain or loss should be recognized by PEMI stockholders who
exchange their shares of PEMI Common Stock solely for shares of Northway Common
Stock pursuant to and in accordance with the Merger Agreement. In rendering such
opinions, such counsel have relied upon, among other things, certain factual
assumptions. Prior to the closing of the Merger, certain of such factual
assumptions are to be confirmed in writing by Northway and PEMI.
The principal federal income tax consequences of the Merger to PEMI
stockholders and Northway will be as set forth below.
Consequences to Holders of PEMI Common Stock. No gain or loss will be
recognized by holders of PEMI Common Stock upon the receipt of Northway Common
Stock in the Merger, and the tax basis of the Northway Common Stock received
will be equal to the tax basis of the PEMI Common Stock surrendered in exchange
therefor. For federal income tax purposes, the holding period of the Northway
Common Stock received will include the holding period of the PEMI Common Stock
surrendered.
Consequences to Northway. Northway will recognize no gain or loss on
the issuance of Northway Common Stock to the PEMI stockholders in the Merger.
EACH PEMI STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH REGARD TO ANY FEDERAL, STATE, OR LOCAL TAX CONSEQUENCES OF THE MERGER.
For a general description of the federal income tax consequences to a
stockholder of BCB whose shares of BCB Common Stock are converted into shares of
Northway Common Stock pursuant to the BCB Reorganization Plan, see "The BCB
Reorganization - Certain Federal Income Tax Consequences of the BCB
Reorganization."
ACCOUNTING TREATMENT
Under generally accepted accounting principles, it is expected that the
Merger, including the interim steps involving the reorganization of BCB into a
holding company structure and the merger of PEMI with and into Northway, will
qualify as a "pooling of interests" transaction for accounting and financial
reporting purposes. Under the pooling of interests method of accounting, the
recorded amounts of the assets and liabilities of Northway and PEMI will be
carried forward at their previously recorded historical amounts. Revenues and
expenses will be retroactively combined as if Northway and PEMI were combined
for the entire fiscal period in which the Merger occurs and for all periods
prior to the Merger at previously recorded amounts.
BCB and PEMI each have agreed to use all reasonable efforts to cause
the Merger to qualify for pooling of interests accounting treatment. See
"Unaudited Pro Forma Combined Financial Information of Northway." In the event
the requirements for a "pooling of interests" are not met, the Merger will be
accounted for as a "purchase" for both accounting and financial reporting
purposes. Under the purchase method of accounting, the book value of the assets
and liabilities of PEMI, as reported on its balance sheet, would be increased or
decreased to their fair market value at the Effective Time and goodwill would be
recorded to the extent that the purchase price exceeds the fair market value of
the net assets and liabilities. However, if such a change in accounting
treatment occurs subsequent to stockholder approval and such change would
materially and adversely affect the parties to the Merger Agreement, the
transaction would be re-submitted to the stockholders of BCB and PEMI for
approval or would be terminated.
REGULATORY MATTERS
Under the Merger Agreement, it is a condition to each party's
obligation to effect the Merger that all regulatory approvals, authorizations,
and consents required to consummate the Merger (collectively, the "Requisite
Regulatory Approvals") shall have been obtained and shall be in full force and
effect and all waiting periods in respect thereof shall have expired. BCB and
PEMI have agreed to use all reasonable efforts to obtain the approvals discussed
below. There can be no assurance that such regulatory approvals will be
obtained, and, if obtained, there can be no assurance as to the date of any such
approvals or the absence of any litigation challenging such approvals or that
none of the Requisite Regulatory Approvals will impose a condition or
restriction that would materially adversely affect the benefits to BCB, PEMI, or
Northway or their stockholders so as to render the consummation of the Merger
inadvisable.
Approvals Required for Consummation of the BCB Reorganization. BCB must
submit an application (the "FDIC Application") to the FDIC pursuant to Section
18(c) of the Federal Deposit Insurance Act (the "FDIA") seeking the prior
approval of the FDIC to consummate the merger of BITC with and into BCB. Under
applicable law, the FDIC may not approve any transaction under Section 18(c) of
the FDIA: (i) that would result in a monopoly or which would be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States; or (ii) the effect of
which in any section of the United States may be substantially to lessen
competition, or to tend to create a monopoly, or result in a restraint of trade,
unless the FDIC finds that the anti-competitive effects of the transaction are
clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
In addition, the FDIC must also take into consideration the financial
and managerial resources and future prospects of BCB and BITC, and the
convenience and needs of the communities to be served. Under the FDIA, BCB must
publish public notice of the FDIC Application. A merger subject to Section 18(c)
of the FDIA may not be consummated before thirty days following approval by the
FDIC or such shorter period as the FDIC may permit, during which period the
Attorney General of the United States may object to the merger on antitrust
grounds.
BCB and Northway must also submit applications (the "New Hampshire
Applications") to the New Hampshire Board of Trust Company Incorporation and the
New Hampshire Banking Commissioner, respectively, (i) seeking authority to
organize BITC as a de novo New Hampshire-chartered interim trust company, and
(ii) seeking approval to consummate the merger of BITC with and into BCB. Under
New Hampshire law, the New Hampshire Board of Trust Company Incorporation may
only approve an application to form a trust company after considering the
adequacy of the proposed trust company's capital structure, the earnings
prospects of the proposed trust company, and the convenience and needs of the
community. Likewise, the New Hampshire Banking Commissioner may only approve a
merger application upon finding that the public convenience and advantage and
the interest of the merging institutions and their depositors will be promoted.
Approvals Required for Consummation of the Merger. In order to
consummate the merger of PEMI with and into Northway, Northway must submit an
application (the "FRB Application") to the Federal Reserve Board pursuant to
Sections 3(a)(1) and 3(a)(5) of the Bank Holding Company Act of 1956, as amended
(the "BHCA") (i) seeking the prior approval of the Federal Reserve Board for
Northway to become a bank holding company by virtue of its acquisition of BCB,
and (ii) seeking the prior approval of the Federal Reserve Board to consummate
the merger of PEMI with and into Northway. Assuming the Federal Reserve Board
approves the FRB Application, the Merger may not be consummated for up to 30
days after such approval, during which time the Department of Justice ("DOJ")
may challenge the Merger on antitrust grounds.
The Federal Reserve Board is prohibited from approving any acquisition
or merger pursuant to Section 3 of the BHCA: (i) that would result in a monopoly
or that would be in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize the business of banking in any part of the United
States; or (ii) the effect of which in any section of the United States may be
substantially to lessen competition, or to tend to create a monopoly, or result
in a restraint of trade, unless the Federal Reserve Board finds that the
anti-competitive effects of the transaction are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served.
Additionally, in reviewing the FRB Application, the Federal Reserve
Board will consider the financial condition and future prospects of Northway,
BCB, and PEMI as well as the competency, experience, and integrity of their
respective officers and directors. In addition, the Federal Reserve Board's
Regulation Y provides that the Federal Reserve Board may not approve an
application if the applicant has failed to provide the Federal Reserve Board
with adequate assurances it will make available information about its operations
and activities to permit the Federal Reserve Board to determine and enforce
compliance with the BHCA. As part of, or in addition to, consideration of the
above factors, it is anticipated that the Federal Reserve Board will consider
the regulatory status of the parties, current and projected economic conditions
in the New England region, and the overall capital and safety and soundness
considerations established by Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). Both BCB and PNB are currently considered "well
capitalized" institutions under the framework established by FDICIA.
In addition, under the Community Reinvestment Act of 1977, as amended
(the "CRA"), the Federal Reserve Board must take into account the records of
performance of BCB and PNB in meeting the convenience and needs of their entire
communities, including the low and moderate income neighborhoods existing
therein. BCB and PNB both received CRA ratings of "satisfactory" after their
most recent CRA regulatory examinations.
Regulation Y, which is the implementing Federal Reserve Board
regulation under the BHCA, requires the Federal Reserve Board to furnish notice
and a copy of the FRB Application to the primary banking supervisor of the bank
or banks to be acquired, which in BCB's case is the FDIC, and in PNB's case is
the Office of the Comptroller of the Currency ("OCC"). The primary banking
supervisor has 30 days to submit its views and recommendations to the Federal
Reserve Board. The Federal Reserve Board is required to hold a public hearing in
the event it receives a written recommendation of disapproval of the application
from the primary banking supervisor within such 30-day period.
Furthermore, the BHCA and Regulation Y require publication of notice
of, and the opportunity for public comment on, the FRB Application and authorize
the Federal Reserve Board to permit interested parties to intervene in the
proceedings and to hold a public hearing in connection therewith if the Federal
Reserve Board determines that such a hearing would be appropriate. Any such
intervention by third parties could prolong the period during which the FRB
Application is subject to review by the Federal Reserve Board.
As noted above, the Merger may not be consummated until up to 30 days
after Federal Reserve Board approval, during which time the DOJ may challenge
the Merger on antitrust grounds. The commencement of an antitrust action by the
DOJ would stay the effectiveness of Federal Reserve Board approval unless a
court specifically orders otherwise. In reviewing the Merger, the DOJ could
analyze the Merger's effect on competition differently than the Federal Reserve
Board, and thus it is possible that the DOJ would reach a different conclusion
than the Federal Reserve Board regarding the Merger's competitive effects.
Furthermore, failure of the DOJ to object to the Merger does not prevent the
filing of antitrust actions by private persons.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Employee Benefits Generally. It is contemplated that, following the
Effective Time, BCB and PNB will continue to provide employee benefit plans,
programs, and arrangements for their respective employees that are substantially
equivalent, in the aggregate, to the benefits provided by BCB and PNB,
respectively, as of the date of the Merger Agreement, to the extent feasible and
consistent with tax requirements.
Employment Agreements. Pursuant to the terms of the Merger Agreement,
at the Effective Time, Northway will enter into employment agreements with
William J. Woodward, Chairman of the Board, President, and Chief Executive
Officer of BCB, and Fletcher W. Adams, President and Chief Executive Officer of
PEMI (each an "Employment Agreement," and, together, the "Employment
Agreements"). Under the terms of such Employment Agreements, Mr. Woodward will
become the Chairman of the Board, President, and Chief Executive Officer of
Northway, while retaining the same positions with BCB, and Mr. Adams will become
the Vice Chairman of Northway, while retaining the positions of President and
Chief Executive Officer of PNB.
Pursuant to the Employment Agreements, Messrs. Woodward and Adams will
provide ongoing services to Northway on a full-time basis through the third
anniversary of the Effective Time, subject to earlier termination in certain
circumstances; provided, however, that it is contemplated that Mr. Woodward,
subject to the approval of the Northway Board, will continue to serve as
treasurer and provide consulting services to Vaillancourt & Woodward, Inc., an
independent insurance agency in which Mr. Woodward has retained an ownership
interest and for which he formerly served as President. The Employment
Agreements will provide for base salaries of between approximately $180,000 and
$227,000 for Mr. Woodward and between $126,000 and $157,000 for Mr. Adams,
respectively, during the term of such agreements (with the actual base salaries
to be recommended by an independent compensation consultant and approved by the
Northway Board following the Effective Time), subject to increase from time to
time in the discretion of the Northway Board. As a result of the increased
responsibilities of the respective executives, these base salary ranges provide
for higher base salaries than each of Messrs. Woodward and Adams would have
received in 1997 under their existing compensation arrangements (approximately
$156,000 and $97,000, respectively). The Employment Agreements also provide that
each of Messrs. Woodward and Adams will be entitled to participate in any
incentive or bonus program established by the Northway Board, as well as other
employee benefit plans which Northway may from time to time have in effect for
all or most of its senior executives.
The Employment Agreements contain confidentiality and non-compete
provisions. If either Mr. Woodward or Mr. Adams is terminated from full-time
employment with Northway without cause prior to the third anniversary of the
Effective Time, then he will be entitled to receive payments equal to his base
salary under the Employment Agreement for the remainder of the term and to
continue to receive group health benefits; provided, that in the event such
executive commences any employment or self-employment during the period during
which he is entitled to receive the termination payments, the remainder of such
payments, for the period from the commencement of such employment or
self-employment to the end of the termination period, will be reduced by
one-half of the salary such executive receives from such employment or
self-employment. In addition, if such executive receives benefits from such
employment or self-employment comparable to those benefits provided by Northway,
the continuation of group health benefits shall cease. If the termination
without cause provisions in the proposed Employment Agreements were triggered,
it is anticipated that Mr. Woodward would receive a maximum of between $538,200
and $678,730 and Mr. Adams would receive a maximum of between $376,740 and
$469,430 (an aggregate of between $914,940 and $1,148,160).
The Employment Agreements also provide for termination benefits if the
executives' employment with Northway is terminated under certain circumstances
following a "change of control." If, within 18 months following a change of
control, Mr. Woodward's or Mr. Adam's employment is terminated by Northway or by
such executive following the occurrence of certain adverse actions taken with
respect to such executive's employment, or if such executive's employment is
terminated without cause, Northway must, in lieu of any other termination
payments described above, pay to such executive (or such executive's estate, if
applicable) a lump-sum payment equal to 2.99 times such executive's base salary
preceding the change of control. If the change of control provisions in the
proposed Employment Agreements were triggered, it is anticipated that Mr.
Woodward would receive a maximum of between $538,200 and $678,730 and Mr. Adams
would receive a maximum of between $376,740 and $469,430 (an aggregate of
between $914,940 and $1,148,160).
Management of Northway. As provided in the Merger Agreement, the
Northway Board will initially be fixed at ten members, composed of six directors
designated, after consultation with PEMI, by BCB and four directors designated,
after consultation with BCB, by PEMI. In addition, certain executive officers of
BCB and PEMI will become executive officers of Northway. The Merger Agreement
and By-laws of Northway provide that, until the third anniversary of the
Effective Time, vacancies occurring on the Northway Board will be filled solely
by the affirmative vote of two-thirds of the remaining directors then in office,
even if less than a quorum of the Northway Board. The executive officers of
Northway will be as follows: William J. Woodward, Chairman of the Board,
President, and Chief Executive Officer; Fletcher W. Adams, Vice Chairman of the
Board; David J. O'Connor, Executive Vice President, Chief Financial Officer, and
Treasurer; and Paul G. Campagna, Senior Vice President and Clerk. See
"Management of Northway Following the Merger - Directors and Executive
Officers."
Continuation of Rights to Indemnification. All rights to
indemnification and all limitations on personal liability existing in favor of
the directors, officers, and employees of BCB and PEMI as provided in such
companies' respective charter documents and bylaws or otherwise in effect prior
to the Merger will continue in full force and effect after the Merger.
Limitation of Liability of Directors; Indemnification by Northway. The
Northway Articles contain a provision limiting or eliminating the personal
liability of directors or officers to Northway or its stockholders for money
damages for any action taken, or any failure to take any action, as a director
or an officer, except liability for: (i) the amount of a financial benefit
received by such director or officer to which he is not entitled; (ii) an
intentional infliction of harm on Northway or its stockholders; (iii) a
violation of Section 293-A.8.33 of the NHBCA regarding unauthorized
distributions to stockholders; or (iv) an intentional violation of criminal law.
The Northway Articles further provide that if the NHBCA is amended after the
effective date of the Northway Articles or any amendments thereto to authorize
corporate action further eliminating or limiting the personal liability of
directors or officers, then the liability of a director or officer of Northway
will be eliminated or limited to the fullest extent permitted by the NHBCA. In
addition, any repeal or modification of Northway Articles with respect to such
limitation of liability by stockholders of Northway shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director or officer of Northway for acts or omissions occurring prior to the
effective date of such repeal or modification.
The Northway By-laws require Northway to indemnify and hold harmless
each director and officer of Northway to the fullest extent authorized by the
NHBCA, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits Northway to
provide broader indemnification rights than such law permitted Northway to
provide prior to such amendment) against any and all expenses and liabilities
that are incurred by such director or officer or on such director or officer's
behalf in connection with any proceeding or any claim, issue, or matter therein,
which such director or officer is a party to or participant in by reason of such
director or officer's status as a director or officer, if such director or
officer acted in good faith and in a manner such director or officer reasonably
believed to be in, or not opposed to, the best interests of Northway and, with
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The Northway By-Laws further provide that the rights
of indemnification provided therein shall continue as to a director or officer
after he or she has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. Notwithstanding the foregoing, Northway shall indemnify any
director or officer seeking indemnification in connection with a proceeding
initiated by such director or officer only if such proceeding was authorized by
the Northway Board.
The Northway By-laws also provide that Northway shall advance all
expenses incurred by or on behalf of any director in connection with any
proceeding in which such director is involved by reason of such director's
status as a director within ten days after the receipt by Northway of a written
statement from such director requesting such advance or advances from time to
time, whether prior to or after final disposition of such proceeding, provided,
that such director shall affirm his or her good faith belief that he or she has
met the standard of conduct set forth above, and shall undertake in writing to
repay any expenses so advanced if it shall ultimately be determined that such
director is not entitled to be indemnified against such expenses. The Northway
By-laws further provide that such indemnification rights are contract rights and
that any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Northway By-laws further provide that
Northway may maintain insurance, at its expense, to protect itself and any
director, officer, or non-officer employee against any liability of any
character asserted against or incurred by Northway or such person, or arising
out of any such person's status as such, whether or not Northway would have the
power to indemnify such person against such liability under the NHBCA or the
provisions of the By-laws.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Northway
pursuant to the foregoing provisions, or otherwise, Northway has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
LISTING ON THE NASDAQ NATIONAL MARKET
The BCB Common Stock and PEMI Common Stock are not traded on any
exchange or in the over-the-counter market. Northway was formed recently and,
other than 1,000 shares of Northway Common Stock issued to BCB in connection
with its formation, has never issued capital stock. Application has been made
for quotation of the Northway Common Stock on the Nasdaq National Market under
the symbol "NWFI" and Northway will seek to encourage at least three market
makers to make a market in the Northway Common Stock.
Making a market involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. A public trading market having the desirable characteristics of
depth, liquidity, and orderliness depends upon the existence of willing buyers
and sellers at any given time, the presence of which is dependent upon the
individual decisions of buyers and sellers over which neither Northway nor any
market maker has control. Accordingly, there can be no assurance that an active
and liquid trading market for Northway Common Stock will develop or, if
developed, will continue. See "Risk Factors - Absence of Prior Market for
Northway Common Stock; Possible Volatility of Stock Prices."
DEREGISTRATION OF BCB COMMON STOCK AND PEMI COMMON STOCK
If the Merger is consummated, the BCB Common Stock and PEMI Common
Stock will cease to be traded, and BCB and PEMI intend to seek the
deregistration of their Common Stock from the provisions of the Exchange Act.
Accordingly, neither BCB nor PEMI would continue to file reports and other
documents with the FDIC or the Commission, respectively, or with their
respective stockholders. However, the Northway Common Stock would be registered
with the Commission and Northway has applied for quotation of the Northway
Common Stock on the Nasdaq National Market. See "Additional Information."
RESALE OF NORTHWAY COMMON STOCK
The Northway Common Stock issued pursuant to the BCB Reorganization and
the Merger will be freely transferable under the Securities Act, except for
shares issued to any BCB or PEMI stockholder who may be deemed to be an
affiliate (an "Affiliate") of BCB or PEMI, as the case may be, for purposes of
Rule 145 under the Securities Act. Affiliates are generally defined as persons
(generally executive officers and directors) who control, are controlled by, or
are under common control with (i) BCB or PEMI at the time of their respective
stockholder meetings or (ii) Northway at or after the Effective Time.
Rules 144 and 145 promulgated by the Commission under the Securities
Act restrict the sale of Northway Common Stock received in the BCB
Reorganization and the Merger by Affiliates and certain of their family members
and related interests. Generally speaking, during the one-year period following
the Effective Time, Affiliates of BCB and PEMI, provided they are not Affiliates
of Northway, may publicly resell the Northway Common Stock received by them in
the BCB Reorganization and the Merger, subject to certain limitations as to the
amount of Northway Common Stock sold by them in any three-month period and as to
the manner of sale. Following the initial one-year period, Affiliates of BCB and
PEMI who are not Affiliates of Northway may resell their shares without such
restrictions so long as there is adequate current public information with
respect to Northway as required by Rule 144. Persons who become Affiliates of
Northway prior to, at, or after the Effective Time may publicly resell the
Northway Common Stock received by them in the BCB Reorganization and the Merger
subject to similar limitations and subject to certain filing requirements
specified in Rule 144. The ability of Affiliates to resell shares of Northway
Common Stock received in the BCB Reorganization and the Merger under Rule 144 or
145 as summarized herein generally will be subject to Northway's having
satisfied its Exchange Act reporting requirements for specified periods prior to
the time of sale. Affiliates also would be permitted to resell Northway Common
Stock received in the BCB Reorganization and the Merger pursuant to an effective
registration statement under the Securities Act or another available exemption
from the Securities Act registration requirements.
This Proxy Statement/Prospectus does not cover any resales of Northway
Common Stock received by persons who may be deemed to be Affiliates of BCB,
PEMI, or Northway. The Merger Agreement provides that BCB and PEMI shall use all
reasonable efforts to cause each such Affiliate of BCB and PEMI to deliver,
prior to the date of their respective stockholder meetings, a written agreement
providing that such Affiliate will not (i) sell, pledge, transfer, or otherwise
dispose of any shares of Northway Common Stock received in the BCB
Reorganization or the Merger, as the case may be, except in compliance with the
Securities Act, and (ii) in addition, to protect the pooling-of-interests
accounting treatment of the Merger, sell, pledge, transfer, or otherwise dispose
of BCB Common Stock, PEMI Common Stock, or Northway Common Stock during the
period commencing 30 days prior to the Effective Time through the date on which
financial results have been published covering at least 30 days of combined
operations of the companies after the Merger.
DISSENTERS' RIGHTS OF BCB STOCKHOLDERS IN THE MERGER
Sections 293-A:13.01 through 293-A:13.31 of the NHBCA and Section
388:13 of the New Hampshire Revised Statutes Annotated (a copy of which sections
are attached hereto as Appendix D) may entitle any holder of record of shares of
BCB Common Stock who delivers a written objection to the BCB Merger Proposal
before the vote to approve the BCB Merger Proposal is taken at the BCB Meeting,
and who does not vote his or her shares in favor of the BCB Merger Proposal, to
receive in cash the fair value of such shares plus accrued interest.
Any stockholder of record contemplating making a demand for appraisal
is urged to review carefully the provisions of Sections 293-A:13.01 through
293-A:13.31 of the NHBCA, particularly the procedural steps necessary to perfect
Dissenter's Rights thereunder. Dissenters' Rights will be lost if the procedural
requirements of Sections 293-A:13.01 through 293-A:13.31 of the NHBCA are not
fully satisfied.
For a summary of the procedures relating to the exercise of Dissenters'
Rights by BCB stockholders, see "The BCB Reorganization - Dissenters' Rights of
BCB Stockholders."
DISSENTERS' RIGHTS OF PEMI STOCKHOLDERS IN THE MERGER
Sections 293-A:13.01 through 293-A:13.31 of the NHBCA (a copy of which
is attached hereto as Appendix D) of the NHBCA may entitle any holder of record
of shares of PEMI Common Stock who delivers a written objection to the PEMI
Merger Proposal before the vote to approve the PEMI Merger Proposal is taken at
the PEMI Meeting, and who does not vote his or her shares in favor of the PEMI
Merger Proposal, to receive in cash the fair value of such shares plus accrued
interest.
Any stockholder of record contemplating making a demand for appraisal
is urged to review carefully the provisions of Sections 293-A:13.01 through
293-A:13.31 of the NHBCA, particularly the procedural steps necessary to perfect
Dissenter's Rights thereunder. Dissenters' Rights will be lost if the procedural
requirements of Sections 293-A:13.01 through 293-A:13.31 of the NHBCA are not
fully satisfied.
Set forth below is a summary of the procedures relating to the exercise
of Dissenters' Rights. The following summary does not purport to be a complete
statement of the provisions of Sections 293-A:13.01 through 293-A:13.31 of the
NHBCA and is qualified in its entirety by reference to Appendix D hereto and to
any amendments to such sections as may be adopted after the date of this Proxy
Statement/Prospectus.
Filing Written Objection. Before the stockholders' vote is taken on the
PEMI Merger Proposal, a stockholder who intends to exercise Dissenters' Rights
with respect to such proposal must deliver to PEMI a written notice of his or
her intention to demand payment for the shares held by the stockholder if the
Merger becomes effective. Such written notice should be addressed to Pemi
Bancorp, Inc., 287 Highland Street, Plymouth, New Hampshire 03264, Attention:
Secretary. The written objection to the PEMI Merger Proposal must be in addition
to and separate from any proxy or vote against the PEMI Merger Proposal.
No Vote in Favor of the PEMI Merger Proposal. Shares of PEMI Common
Stock for which the holders thereof desire to exercise Dissenters' Rights must
not be voted in favor of the PEMI Merger Proposal. By properly executing a proxy
card with no voting instructions indicated thereon, a PEMI stockholder will vote
in favor of the PEMI Merger Proposal, and, accordingly, will not be entitled to
exercise Dissenters' Rights in connection with the Merger.
Dissenters' Notice. Within 10 days after the Merger becomes effective,
Northway, the surviving corporation in the merger of PEMI with and into
Northway, will notify each holder of record of shares of PEMI Common Stock who
has purported to comply with the provisions of Section 293-A:13.21 of the NHBCA
and whose shares were not voted in favor of the PEMI Merger Proposal that the
Merger has become effective. Such notice shall (i) state where the payment
demand shall be sent and where and when certificates for certificated shares of
PEMI Common Stock shall be deposited, (ii) inform holders of uncertificated
shares of PEMI Common Stock to what extent transfer of the shares will be
restricted after the payment demand is received, (iii) supply a form for
demanding payment that includes the date of the first announcement to news media
or to PEMI stockholders of the terms of the Merger and requires that the person
asserting dissenters' rights certify whether or not he or she acquired
beneficial ownership of the shares before that date, (iv) set a date by which
PEMI shall receive the payment demand, which date shall not be fewer than 30 nor
more than 60 days after the date the notice is delivered, and (v) be accompanied
by a copy of the sections of the NHBCA regarding Dissenters' Rights. The giving
of such notice shall not be deemed to create any rights in the stockholder
receiving the same to demand payment for such holder's shares of PEMI Common
Stock. The notice shall be sent by registered or certified mail, addressed to
the stockholder at such stockholder's last known address as it appears on the
records of PEMI immediately prior to the Effective Time of the Merger and shall
contain certain specified information.
Duty to Demand Payment. A PEMI stockholder who receives a dissenters'
notice shall demand payment, certify whether he or she acquired beneficial
ownership of the shares of PEMI Common Stock before the date set forth in the
dissenters' notice, and deposit his or her certificates in accordance with the
terms of the notice. PEMI stockholders who demand payment and deposit their
share certificates as required retain all other rights of a stockholder until
these rights are canceled or modified by the consummation of the Merger. Any
PEMI stockholders who do not demand payment or deposit their share certificates
where required, each by the date set in the dissenters' notice, are not entitled
to payment for their shares.
Payment. Except as hereinafter provided, as soon as the Merger is
consummated, or upon receipt of a payment demand, PEMI shall pay each dissenter
who complied with the procedures described above the amount PEMI estimates to be
the fair value of his or her shares, plus accrued interest. Such payment shall
be accompanied by (i) PEMI's balance sheet as of the end of the fiscal year
ended December 31, 1996, an income statement for that year, a statement of
changes in stockholders' equity for that year, and the latest available interim
financial statements, if any, (ii) a statement of PEMI's estimate of the fair
value of the shares, (iii) an explanation of how the interest was calculated,
(iv) a statement of the dissenter's right to demand payment; and (v) a copy of
the NHBCA sections relating to Dissenters' Rights. If the Merger is not
consummated within 60 days after the date set for demanding payment and
depositing share certificates, PEMI shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares. If after
returning deposited certificates and releasing transfer restrictions, the Merger
is consummated, PEMI shall send a new dissenters' notice and repeat the payment
demand procedure.
After-Acquired Shares. PEMI may elect to withhold payment required from
a dissenting stockholder, unless such stockholder was the beneficial owner of
the shares before the date set forth in the dissenters' notice as the date of
the first announcement to news media or to stockholders of the terms of the
Merger. To the extent PEMI elects to withhold payment, after consummation of the
Merger, it shall estimate the fair value of the shares, plus accrued interest,
and shall pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. PEMI shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment.
Payment Demand. A dissenter may notify PEMI in writing of such
stockholder's own estimate of the fair value of such shares and the amount of
interest due, and demand payment of such estimate, less any payment previously
made by PEMI, or reject PEMI's offer and demand payment of the fair value of
such shares and interest due, if (i) the dissenter believes that the amount paid
or offered is less than the fair value of such stockholder's shares or that the
interest due is incorrectly calculated, (ii) PEMI fails to make payment within
60 days after the date set for demanding payment, or (iii) the Merger having
failed to be consummated, PEMI does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares within 60
days after the date set for demanding payment. A dissenter waives his right to
demand payment under this section unless he or she notifies PEMI of his or her
demand in writing within 30 days after the corporation made or offered payment
for his shares.
Settlement or Appraisal. If PEMI and any stockholder exercising
Dissenters' Rights have not agreed on the fair value of such holder's shares of
PEMI Common Stock and the interest due within such 30-day period, PEMI must
commence a proceeding in the Grafton County Superior Court within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest of any such stockholder who has complied with
Section 293-A:13.21 of the NHBCA. If PEMI does not commence such a proceeding
within such 60-day period, it must pay to each such dissenter whose demand
remains unsettled the amount demanded. Upon the commencement of such proceeding,
a copy of the petition shall be delivered to all stockholders who have demanded
payment for their shares and with whom agreements as to the fair value of their
shares have not been reached. After the hearing on such petition, the court will
determine the stockholders who have complied with the provisions of Section
293-A:13.21 of the NHBCA and who have become entitled to exercise Dissenters'
Rights. After determining those stockholders entitled to exercise Dissenters'
Rights, the court (which may appoint one or more appraisers to receive evidence
and recommend decisions on the question of the fair value of such shares) shall
determine the fair value of the shares as of the day preceding the PEMI Meeting,
plus accrued interest. Such determination shall be binding on all such
stockholders. Northway has no present intention to make any offer or offers
after the Effective Time to stockholders who have demanded Dissenters' Rights,
other than to make payment in the form of shares of Northway Common Stock as
provided in the Merger Agreement, or to commence a proceeding for determination
of fair value within the statutory provision.
Payment and Costs. When the value is so determined, the court will
direct payment by PEMI, plus accrued interest, if any, as the court determines,
to the stockholders entitled to receive the same upon surrender to Northway by
such stockholders of the certificates representing their shares of PEMI Common
Stock. The court shall assess all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court,
against Northway, except that the court may assess costs against all or some of
the dissenting stockholders, in amounts the court finds equitable, to the extent
the court finds such dissenting stockholders acted arbitrarily, vexatiously, or
not in good faith in demanding payment for their shares.
ANY HOLDER OF PEMI COMMON STOCK WHO DESIRES TO EXERCISE DISSENTERS'
RIGHTS SHOULD CAREFULLY REVIEW THE NHBCA AND IS ADVISED TO CONSULT SUCH
STOCKHOLDER'S LEGAL ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH
RIGHTS.
It is a condition to the obligation of BCB and Northway to effect the
Merger that the amount of cash consideration to be paid to the stockholders of
PEMI in the Merger (pursuant to the exercise of Dissenter's Rights) as a
percentage of the total consideration to be paid to the stockholders of PEMI not
exceed 35%. See "Certain Terms of the Merger Agreement - Conditions to
Consummation of the Merger."
CERTAIN TERMS OF THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Effective Time will be the date and time at which the Merger
becomes effective pursuant to the laws of the state of New Hampshire. The Merger
Agreement provides that the closing will occur within five business days after
the date on which all of the Requisite Regulatory Approvals have been obtained,
including the expiration of all required waiting periods, or at such other date
or time as BCB and PEMI mutually agree upon.
CONVERSION OF SHARES OF PEMI COMMON STOCK
Each share of PEMI Common Stock outstanding immediately prior to the
Effective Time (other than shares of PEMI Common Stock owned by dissenting
stockholders) will, by virtue of the Merger and without any further action by
the holder thereof, be converted into and become exchangeable for the right to
receive 1.0419 shares of Northway Common Stock. Each certificate (other than
certificates representing shares owned by dissenting stockholders) which
immediately prior to the Effective Time represented outstanding shares of PEMI
Common Stock, will on and after the Effective Time be deemed for all purposes to
represent the right to receive 1.0419 shares of Northway Common Stock for each
share of PEMI Common Stock formerly represented by such certificate.
In addition, notwithstanding anything in the Merger Agreement to the
contrary and unless otherwise provided by applicable law, shares of PEMI Common
Stock that are owned by any dissenting stockholder with respect to which such
dissenting stockholder (i) has filed his notice with PEMI in accordance with the
provisions of Sections 293-A:13.01 through 293-A:13.31 of the NHBCA of his
intention to object to the PEMI Merger Proposal and to demand payment for his
shares if the Merger is effected, and (ii) has not voted in favor of the PEMI
Merger Proposal at the PEMI Meeting, will not be converted into and exchangeable
for Northway Common Stock, unless and until such dissenting stockholder fails to
perfect or effectively withdraws or loses his right of appraisal and payment
under applicable law. Each such dissenting stockholder will be entitled to
demand payment for his shares of PEMI Common Stock. If any such dissenting
stockholder fails to perfect or withdraws or loses such right of appraisal,
however, each share of PEMI Common Stock owned by such dissenting stockholder
will thereupon be deemed to have been converted into and become exchangeable for
the right to receive, at the Effective Time, the shares of Northway Common Stock
into which such shares would have been ultimately converted had he or she not
been a dissenting stockholder.
EXCHANGE OF NORTHWAY CERTIFICATES FOR BCB AND PEMI CERTIFICATES
On or prior to the Reorganization Time and the Effective Time, Northway
will deposit, or cause to be deposited, with The First National Bank of Boston,
or another bank which is mutually acceptable to BCB and PEMI (the "Exchange
Agent"), for the benefit of holders of certificates representing BCB Common
Stock and PEMI Common Stock, certificates representing the shares of Northway
Common Stock to be issued in exchange for outstanding shares of BCB Common Stock
and PEMI Common Stock.
Within three business days after the Reorganization Time and the
Effective Time, the Exchange Agent will mail to each holder of record of a
certificate or certificates which immediately prior to the Reorganization Time
and the Effective Time represented BCB Common Stock (the "BCB Certificates") or
PEMI Common Stock (the "PEMI Certificates" and together with the BCB
Certificates, the "Certificates"), as the case may be, a form letter of
transmittal (which will specify that delivery will be effected, and risk of loss
and title to the Certificates will pass, only upon delivery of the Certificates
to the Exchange Agent). Upon surrender of Certificates for exchange and
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the holders of such Certificates will be entitled promptly to
receive in exchange therefore a certificate representing the number of shares of
Northway Common Stock to which such holders of BCB Common Stock and PEMI Common
Stock will have become entitled, and the Certificates so surrendered will be
canceled. Lost Certificates will be treated in accordance with existing
procedures of BCB and PEMI, respectively, and will generally require the posting
of an indemnity bond by the stockholder at the stockholders' expense. Northway
will not be liable for any shares of Northway Common Stock (or dividends or
distributions with respect thereto) properly delivered to a public official
pursuant to any applicable abandoned property, escheat, or similar law.
Subject to the effect, if any, of applicable law, after the surrender
and exchange of any Certificates, the record holder will be entitled to receive
any dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Northway Common Stock
represented by such Certificates.
If any certificate representing shares of Northway Common Stock is to
be issued in a name other than that in which the Certificate surrendered is
registered, it will be a condition of the issuance thereof that the Certificate
so surrendered be properly endorsed (or accompanied by an appropriate instrument
of transfer) and otherwise in proper form of transfer, and that the person
requesting such exchange pay to the Exchange Agent, in advance, any transfer or
other taxes required by reason of the issuance of a certificate representing
shares of Northway Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or required for any other reason, or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
After the Reorganization Time and the Effective Time, as the case may
be, there will be no transfers on the stock transfer books of either BCB or PEMI
of the shares of BCB Common Stock or PEMI Common Stock that were outstanding
immediately prior to the Reorganization Time and the Effective Time. If, after
the Reorganization Time and the Effective Time, any Certificates representing
such shares are presented for transfer to the Exchange Agent, they will be
canceled and exchanged for certificates representing shares of Northway Common
Stock. After the Reorganization Time and the Effective Time, each outstanding
Certificate shall be deemed to evidence only the right of the holder thereof to
receive the number of whole shares of Northway Common Stock to which such person
is entitled and, in the case of PEMI Certificates, cash in lieu of fractional
shares of Northway Common Stock into which the shares of PEMI Common Stock have
been converted.
REPRESENTATIONS AND WARRANTIES CONTAINED IN THE MERGER AGREEMENT
The Merger Agreement contains customary representations and warranties,
including, without limitation, representations by each of BCB, on behalf of
itself and Northway, and PEMI, on behalf of itself and PNB, as to due
organization and corporate good standing, capitalization, corporate authority
with respect to the execution, delivery, and consummation of the Merger
Agreement and related transactions, certain reports and financial statements,
absence of certain changes or events, adequacy of reserves for possible loan
losses, absence of certain legal proceedings, employee benefit plans, compliance
with laws, environmental matters (such as material compliance with all
applicable environmental laws and regulations and suits, claims or actions for
alleged noncompliance with environmental laws or regulations or relating to
releases or presence of hazardous materials), and tax matters.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each party agreed that, during the
period from the date of execution of the Merger Agreement and continuing until
the Effective Time, except as expressly contemplated or permitted by the Merger
Agreement or with the prior written consent of the other parties thereto, such
party would carry on its respective business in the ordinary course consistent
with past practice and with prudent banking practice. Each of BCB, PEMI, and PNB
also agreed to use all reasonable efforts to (i) preserve its business
organization, (ii) keep available to itself the present services of its
employees, and (iii) preserve for itself and each other party the goodwill of
its customers and others with whom business relationships exist.
In addition, the Merger Agreement provides that, between the date of
execution of the Merger Agreement and the Effective Time, neither BCB nor PEMI
nor their respective subsidiaries, except as otherwise specifically permitted or
required by the Merger Agreement or consented to by the other party, will, among
other things: (i) declare or pay any dividends on, or make other distributions
in respect of, any of its capital stock, except for its regular semi-annual cash
dividends to a specified limit if the closing of the Merger has not yet occurred
by the respective date on which such dividend is payable; (ii)(a) split,
combine, or reclassify any shares of its capital stock or issue or authorize or
propose the issuance of any other securities in respect thereof, in lieu of or
in substitution for shares of its capital stock, except upon the exercise or
fulfillment of rights or options issued or existing pursuant to employee benefit
plans, programs, or arrangements, all to the extent outstanding and in existence
on the date of the Merger Agreement, or (b) repurchase, redeem, or otherwise
acquire any shares of capital stock, or any securities convertible into or
exercisable for any shares of capital stock; (iii) issue, deliver, or sell, or
authorize or propose the issuance, delivery, or sale of any shares of its
capital stock or any securities convertible into or exercisable for, or any
rights, warrants, or options to acquire, any such shares, or enter into any
agreement with respect to any of the foregoing; (iv) amend its Articles of
Agreement or Articles of Incorporation, as the case may be, or By-Laws, or elect
or appoint any new directors; (v) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner any business or any
corporation, partnership, association, or other business organization or
division thereof or otherwise acquire any assets, other than in connection with
foreclosures, settlements in lieu of foreclosure, or troubled loan or debt
restructurings in the ordinary course of business, which would be material; (vi)
take any action that is intended or would result in any of its representations
and warranties set forth in the Merger Agreement being or becoming untrue in any
material respect, or in any of the conditions to the Merger set forth in the
Merger Agreement not being satisfied, or in a violation of any provision of the
Merger Agreement, except, in every case, as may be required by applicable law;
(vii) change its methods of accounting in effect at December 31, 1996, except as
required by changes in generally accepted accounting principles or regulatory
accounting principles as concurred to by its independent auditors; (viii) (a)
except as required by applicable law or to maintain qualification pursuant to
the Code, (x) adopt, amend, renew, or terminate any employee benefit plan or any
agreement, arrangement, plan, or policy between such party and one or more of
its current or former directors, officers, or employees or (y) except for normal
increases in the ordinary course of business consistent with past practice,
increase in any manner the compensation or fringe benefits of any director,
officer, or employee or pay any benefit not required by any plan or agreement as
in effect as of the date hereof or (b) enter into, modify, or renew any
employment, severance, or other agreement with any director, officer, or
employee, or establish, adopt, enter into, or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance,
or other plan, agreement, trust, fund, policy, or arrangement providing for any
benefit to any director, officer, or employee; (ix) take or cause to be taken
any action which would disqualify the Merger as a "pooling of interests" for
accounting purposes or a tax free reorganization under Section 368 of the Code;
(x) foreclose upon or take deed or title to any commercial real estate without
first conducting a Phase I environmental assessment of the property or foreclose
upon such commercial real estate if such Phase I environmental assessment
indicates the presence of hazardous material in amounts which, if such
foreclosure were to occur, would be reasonably likely to result in a Material
Adverse Effect (as defined in the Merger Agreement); (xi) make any loan other
than in accordance with loan and credit policies and customary terms,
conditions, and standards, and in accordance with applicable law and consistent
with prudent banking practices; (xii) waive any material right, whether in
equity or at law, that it has with respect to any loan, except in the ordinary
course of business consistent with prudent banking practices; or (xiii) agree to
do any of the foregoing.
In addition to the above, PEMI and PNB have agreed that, between the
date of execution of the Merger Agreement and the Effective Time, except as
otherwise specifically permitted or required by the Merger Agreement or
consented to by BCB, neither will, among other things: (i) enter into any real
property lease for a term longer than one year, or extend the term of any lease
currently in effect; (ii) make any capital expenditures in excess of $10,000
individually, or $50,000 in the aggregate; (iii) enter into any new line of
business or offer deposit and loan pricing which is materially different
relative to its competitors in the local market; (iv) other than in the ordinary
course of business consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse, or otherwise as an accommodation
become responsible for the obligations of any other individual, corporation, or
other entity; (v) file any application to open, relocate, or terminate the
operations of any banking or other office or facility; (vi) make any equity
investment or commitment to make such an investment in real estate or in any
real estate development project, other than in connection with foreclosure,
statements in lieu of foreclosure, or troubled loan or debt restructurings in
the ordinary course of business; (vii) sell, lease, encumber, assign, or
otherwise dispose of, or agree to sell, lease, encumber, assign, or otherwise
dispose of any of its material assets, properties, or other rights or agreements
or purchase or sell any loans in bulk; (viii) make any tax election or settle or
compromise any material federal, state, local, or foreign tax liability; (ix)
pay, discharge, or satisfy any claim, liability, or obligation, other than the
payment, discharge, or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities reflected or reserved against in
the balance sheet for the fiscal year ended December 31, 1996, or subsequently
incurred in the ordinary course of business and consistent with past practice;
(x) sell any securities in its investment portfolio, except in the ordinary
course of business; (xi) change its loan policies or procedures in effect at
December 31, 1996; or (xii) enter into or renew, amend, or terminate, or give
notice of a proposed renewal, amendment, or termination or make any commitment
with respect to, (a) any contract, agreement, or lease for office space,
operations space, or branch space to which PEMI or PNB is a party or by which
PEMI or PNB or their respective properties is bound; (b) any lease, contract, or
agreement other than in the ordinary course of business consistent with past
practices, or (c) regardless of whether consistent with past practices, any
lease, contract, agreement, or commitment involving an aggregate payment by or
to PEMI or PNB of more than $25,000 or having a term of one year or more from
the time of execution.
NO SOLICITATION
Pursuant to the Merger Agreement, the parties have agreed that neither
they nor any of their respective directors, officers, employees,
representatives, agents, and advisors or other persons controlled by such
parties will, except to the extent required by applicable law relating to
fiduciary obligations of directors, upon advice of counsel, solicit or hold
discussions or negotiations with, or assist or provide any information to, any
person, entity, or group (other than parties to the Merger Agreement) concerning
any merger, disposition of a significant portion of their assets, or acquisition
of a significant portion of their capital stock or similar transaction. Nothing
prohibits the parties or their respective Boards of Directors from taking and
disclosing to their respective stockholders a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act or making such other disclosure to their respective stockholders
which, in the judgement of such party, based upon the advice of counsel, may be
required under applicable law. Each party has also agreed that it will promptly
communicate to the other party, upon receipt, the terms of any proposal,
discussion, negotiation, or inquiry relating to a merger or disposition of a
significant portion of its capital stock or similar transaction and the identity
of the party making such proposal or inquiry.
MINIMUM STOCKHOLDERS' EQUITY; ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Merger Agreement provides that, at the Effective Time, (i) PEMI
shall have (a) consolidated stockholders' equity (exclusive of unrealized
investment losses) at least equal to that reflected in PEMI's audited financial
statements for the year ended December 31, 1996 and (b) an allowance for
possible loan and lease losses at least equal to 95% of that reflected in PEMI's
audited financial statements for December 31, 1996, and (ii) BCB shall have (a)
consolidated stockholders' equity (exclusive of unrealized investment losses) at
least equal to that reflected in BCB's audited financial statements for the year
ended December 31, 1996 and (b) an allowance for possible loan and lease losses
at least equal to 95% of that reflected in BCB's audited financial statements
for December 31, 1996, less $500,000.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party under the Merger Agreement
will be subject to the fulfillment at or prior to the Effective Time of the
following conditions, none of which may be waived: (i) the Merger Agreement and
the transactions contemplated thereby, including the BCB Reorganization, will
have been approved in accordance with applicable law by the requisite vote of
the stockholders, as applicable, of each of BCB and PEMI, (ii) none of the
parties will be subject to any order, decree, or injunction of a court or agency
of competent jurisdiction which enjoins or prohibits the consummation of the
Merger, or any other transaction contemplated thereby, (iii) all necessary
approvals, authorizations, and consents of all governmental agencies and
authorities required to consummate the Merger as contemplated in the Merger
Agreement will have been obtained and remain in full force and effect and all
statutory waiting periods relating to any such approvals, authorizations, or
consents will have expired or been terminated, and (iv) with respect to the
shares of Northway Common Stock that will be issued to holders of BCB Common
Stock and PEMI Common Stock, the Registration Statement will have become
effective under the Securities Act and will not be subject to a stop order or
threatened stop order, all necessary state securities and "blue sky" permits and
other authorizations will have been received, and the Northway Common Stock will
have been approved for listing on the Nasdaq National Market or the American
Stock Exchange.
In addition, the respective obligations of BCB and PEMI under the
Merger Agreement will be further subject to the satisfaction, at or prior to the
Effective Time, of the following conditions: (i) the representations and
warranties of the parties set forth in the Merger Agreement will be true and
correct in all material respects as of the date of the Merger Agreement and as
of the closing date, (ii) the obligations of each of BCB, Northway, PEMI, and
PNB required to be performed at or prior to the closing pursuant to the terms of
the Merger Agreement will have been duly performed and complied with in all
material respects, (iii) no events or circumstances will have occurred which
would have caused a material adverse effect on PEMI and PNB or BCB and Northway,
respectively, in each case taken as a whole, (iv) with respect to PEMI and PNB,
all permits, consents, waivers, clearances, approvals, and authorizations of all
nongovernmental and nonregulatory third parties required to be obtained by PEMI
and PNB to consummate the Merger and all other transactions contemplated by the
Merger Agreement will have been obtained and will remain in full force and
effect, (v) BCB and PEMI will have received opinions from their respective
counsel, subject to customary conditions and qualifications, to the effect that,
for federal income tax purposes, the Merger will be treated as a tax-free
reorganization under Section 368(a) of the Code, (vi) none of the Requisite
Regulatory Approvals will have imposed any condition or restriction upon any of
Northway, BCB, PEMI, or PNB that in the reasonable opinion of such party's Board
of Directors, would result in a "burdensome condition," as such term is defined
in the Merger Agreement, (vii) each of BCB and PEMI will have used all
reasonable efforts to deliver to the other party prior to the date of the other
party's stockholder meeting, a letter identifying the "affiliates" of such party
for purposes of Rule 145 and for purposes of qualifying the Merger for "pooling
of interests" accounting treatment and executed agreements from such affiliates
pertaining to restrictions on their trading of shares of BCB Common Stock, PEMI
Common Stock, and Northway Common Stock prior to and after the Effective Time,
(viii) BCB and PEMI will have received letters with respect to the Merger in
form and substance satisfactory to both parties from the independent public
accountants of BCB and PEMI, and lastly, (ix) BCB and PEMI will have received
opinions from their respective financial advisors, dated as of the date of this
Proxy Statement/Prospectus to the effect that, as of such date, the Exchange
Ratio is fair to BCB and PEMI stockholders from a financial point of view.
In addition to the foregoing, the obligation of BCB and Northway to
effect the Merger is also subject to the condition that the amount of cash
consideration to be paid the stockholders of PEMI in the Merger (pursuant to the
exercise of Dissenters' Rights) as a percentage of the total consideration to be
paid to the stockholders of PEMI not exceed 35%.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event that the Merger is not deemed to be a tax free
reorganization under 368(a) of the Code and this condition is waived by either
BCB or PEMI, shareholders' approvals will be resolicited. In the event the
Merger is not effected on or before February 15, 1998, the Merger Agreement may
be terminated and the Merger abandoned. See "Certain Terms of the Merger
Agreement -- Termination of the Merger Agreement."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of PEMI: (i) by mutual consent of
BCB and PEMI approved by a vote of a majority of the members of their respective
Boards of Directors; (ii) by either BCB or PEMI upon written notice to the other
party (a) ninety days after the date on which any request or application for a
Requisite Regulatory Approval required to consummate the Merger has been denied
or withdrawn at the request or recommendation of the governmental entity which
must grant such Requisite Regulatory Approval, unless within the ninety day
period following such denial or withdrawal a petition for rehearing or an
amended application has been filed with the applicable governmental entity,
provided, however, that no party has the right to terminate the Merger Agreement
pursuant to this provision if such denial or request or recommendation for
withdrawal is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe the covenants and agreements of such party set
forth therein, or (b) if any governmental entity of competent jurisdiction has
issued a final nonappealable order enjoining or otherwise prohibiting the
consummation of any of the transactions contemplated by the Merger Agreement;
(iii) by either BCB or PEMI if the Merger has not been consummated on or before
February 15, 1998, unless the failure of the closing of the Merger to occur by
such date is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe in any material respect the covenants and
agreements of such party set forth therein; (iv) by either BCB or PEMI (provided
that the terminating party shall not be in material breach of any of its
obligations under the Merger Agreement) if any approval of the stockholders of
BCB or PEMI required for the consummation of the Merger has not been obtained by
reason of the failure to obtain the required vote at their respective meetings
of stockholders or at any adjournment or postponement thereof; (v) by either BCB
or PEMI (provided that the terminating party is not then in material breach of
any representation, warranty, covenant, or other agreement contained in the
Merger Agreement) if there has been a material breach of any of the
representations, warranties, covenants, or agreements set forth in the Merger
Agreement on the part of the other party, which breach is not cured within
forty-five days following written notice to the party committing such breach, or
which breach, by its nature, cannot be cured prior to the closing; (vi) by BCB,
if the PEMI Board does not publicly recommend in the Proxy Statement/Prospectus
that PEMI's stockholders approve and adopt the Merger Agreement, or if after
recommending in the Proxy Statement/Prospectus that PEMI stockholders approve
and adopt the Merger Agreement, the PEMI Board withdraws, modifies, or amends
such recommendation in any respect materially adverse to BCB; or (vii) by PEMI,
if the BCB Board does not publicly recommend in the Proxy Statement/Prospectus
that BCB's stockholders approve and adopt the Merger Agreement, or if after
recommending in the Proxy Statement/Prospectus that BCB stockholders approve and
adopt the Merger Agreement, the BCB Board withdraws, modifies, or amends such
recommendation in any respect materially adverse to PEMI.
EXPENSES; TERMINATION FEE
Pursuant to the Merger Agreement, the parties have agreed that, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated hereby are to be
paid by the party incurring such expense, except that the costs and expenses of
printing and mailing the Proxy Statement/Prospectus, and all filing and other
fees paid to the Commission or any other governmental entity in connection with
the Merger and the other transactions contemplated hereby, are to be shared
evenly by PEMI and BCB.
As an inducement to enter into the Merger Agreement and to provide
reimbursement for incurring the costs and expenses related to entering into the
Merger Agreement and consummating the transaction contemplated thereby, each
party has agreed to make a cash payment to the other party of $2,500,000 as
liquidated damages if and only if: (i) the other party terminates the Merger
Agreement pursuant to a breach of a representation, warranty, covenant, or
agreement which was caused by the action, failure to take action, or an
occurrence which is within the control of the paying party; or (ii) the paying
party terminates the Merger Agreement and at the time of such termination any
person other than the non-terminating party or any subsidiary or affiliate of
the non-terminating party has made a bona fide proposal to the paying party or
its stockholders to engage in an Acquisition Transaction (as defined in the
Merger Agreement) by public announcement or written communication, or at the
time of or within six months of any such termination, the paying party enters
into an agreement to engage in an Acquisition Transaction with any person other
than the non-terminating party or any subsidiary or other affiliate of the
non-terminating party, or the Board of Directors of the paying party approves an
Acquisition Transaction or recommends that their stockholders approve or adopt
any Acquisition Transaction with any person other than the non-terminating party
or any subsidiary or other affiliate of the non-terminating party.
AMENDMENT AND WAIVER OF THE MERGER AGREEMENT
Subject to compliance with applicable law, the Merger Agreement may be
amended by the parties hereto, by action taken or authorized by their respective
Boards of Directors, at any time before or after approval of the matters
presented in connection with the Merger by the stockholders of BCB and PEMI. The
Merger Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto. If BCB and PEMI were to mutually agree to
amend or change the Merger Agreement subsequent to stockholder approval, and
such change would materially and adversely affect the rights of the BCB or PEMI
stockholders, the Merger Agreement, as so amended, would again be submitted to a
vote of the BCB and PEMI stockholders for approval.
At any time prior to the Effective Time, the parties, by action taken
or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties thereto, (ii) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto, and (iii) waive compliance with any of the
agreements or conditions contained therein. Any agreement on the part of a party
to any such extension or waiver is valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver will not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF NORTHWAY
The following unaudited pro forma combined financial statements assume
a business combination between BCB and PEMI (in the form of the Merger)
accounted for on a pooling of interests basis. The pro forma combined balance
sheets combine BCB's March 31, 1997, and December 31, 1996, balance sheets with
PEMI's March 31, 1997, and December 31, 1996, consolidated balance sheets,
respectively, giving effect to the Merger as if such transaction had occurred as
of such dates. The pro forma combined statements of income combine BCB's
historical statements of income for the unaudited three month periods ended
March 31, 1997 and 1996, and the three fiscal years ended December 31, 1996,
1995, and 1994, with the corresponding PEMI historical consolidated statements
of income for such periods, giving effect to the Merger as if such transaction
had happened at the beginning of the respective periods.
The unaudited historical financial statement data of BCB as of March
31, 1997, and for the three month periods ended March 31, 1997 and 1996, and the
unaudited historical consolidated financial statement data of PEMI as of March
31, 1997, and for the three month periods ended March 31, 1997 and 1996, have
been prepared on the same basis as the historical information derived from
audited financial statements, and, in the opinion of their respective
managements, reflect all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for such periods.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the actual operating results or financial
position of the combined entity that would have been achieved had the Merger
been consummated at the dates presented, nor is it necessarily indicative of the
combined entity's future operating results or financial position. The unaudited
pro forma combined financial statements do not incorporate any benefits from
cost savings or synergies of operations of the combined entity that may occur.
BCB and PEMI anticipate incurring direct transaction costs and integration costs
related to the Merger.
The pro forma combined financial statements are based on the historical
financial statements of BCB and notes thereto and the historical consolidated
financial statements of PEMI and the notes thereto, and should be read in
conjunction with the financial statements of BCB and PEMI included elsewhere in
this Proxy Statement/Prospectus.
<PAGE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BCB PEMI NORTHWAY
--- ---- --------
Assets (Historical) (Historical) (Pro Forma
- ------ Combined)
<S> <C> <C> <C>
Cash and due from banks.............................. $ 8,149 $ 4,474 $ 12,623
Federal funds sold................................... 3,000 -- 3,000
Interest bearing deposits............................ 80 -- 80
Investment securities available-for-sale............. 61,684 17,389 79,073
Investment securities held-to-maturity............... 4,224 11,604 15,828
Federal Reserve Bank stock, at cost.................. -- 80 80
Federal Home Loan Bank stock, at cost................ 1,082 740 1,822
Loans held for sale.................................. 147 -- 147
Loans................................................ 158,678 89,233 247,911
Unearned income................................... (569) (101) (670)
Allowance for possible loan losses................ (2,618) (1,283) (3,901)
---------- --------- ------------
Loans, net...................................... 155,491 87,849 243,340
Real estate acquired by foreclosure or
substantively repossessed......................... 246 109 355
Accrued interest receivable.......................... 1,376 828 2,204
Deferred income tax asset, net....................... 2,115 374 2,489
Premises and equipment, net.......................... 4,380 4,099 8,479
Deposit purchase premium, net........................ 1,229 158 1,387
Other assets......................................... 263 358 621
---------- --------- ------------
Total assets.................................... $ 243,466 $ 128,062 $ 371,528
========== ========= ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits.......................................... $ 212,685 $ 103,221 $ 315,906
Federal Home Loan Bank advances................... -- 9,891 9,891
Securities sold under agreements to repurchase.... 7,663 -- 7,663
Mortgagors' escrow accounts....................... 402 381 783
Other liabilities................................. 1,059 2,168 3,227
---------- --------- ------------
Total liabilities.............................. 221,809 115,661 337,470
---------- --------- ------------
Stockholders' equity:
Preferred stock................................... -- -- --
Common stock...................................... 317 752 1,732(a)
Surplus........................................... 1,000 2,384 2,106(a)
Retained earnings................................. 21,747 9,993 31,740
Treasury stock.................................... -- (615) __
Unrealized loss on investment securities
available-for-sale, net of tax.................. (1,407) (113) (1,520)
---------- --------- ------------
Total stockholders' equity.................... 21,657 12,401 34,058
---------- --------- ------------
Total liabilities and stockholders' equity.... $ 243,466 $ 128,062 $ 371,528
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BCB PEMI NORTHWAY
--- ---- --------
Assets (Historical) (Historical) (Pro Forma
- ------ Combined)
<S> <C> <C> <C>
Cash and due from banks.............................. $ 9,277 $ 4,980 $ 14,257
Federal funds sold................................... 3,025 -- 3,025
Interest bearing deposits............................ 279 -- 279
Investment securities available-for-sale............. 70,171 18,457 88,628
Investment securities held-to-maturity............... 224 11,975 12,199
Federal Reserve Bank stock, at cost.................. -- 80 80
Federal Home Loan Bank stock, at cost................ 1,082 740 1,822
Loans held for sale.................................. 58 -- 58
Loans................................................ 152,587 88,515 241,102
Unearned income................................... (606) (113) (719)
Allowance for possible loan losses................ (2,635) (1,306) (3,941)
---------- --------- ------------
Loans, net...................................... 149,346 87,096 236,442
Real estate acquired by foreclosure or
substantively repossessed......................... 148 54 202
Accrued interest receivable.......................... 1,748 863 2,611
Deferred income tax asset, net....................... 1,740 308 2,048
Premises and equipment, net.......................... 4,786 3,979 8,765
Deposit purchase premium, net........................ 1,300 162 1,462
Other assets......................................... 418 285 703
---------- --------- ------------
Total assets.................................... $ 243,602 $ 128,979 $ 372,581
========== ========= ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits.......................................... $216,398 $ 105,599 $ 321,997
Federal Home Loan Bank advances................... -- 8,703 8,703
Securities sold under agreements to repurchase.... 4,620 -- 4,620
Mortgagors' escrow accounts....................... 232 86 318
Other borrowings.................................. 221 -- 221
Other liabilities................................. 677 2,377 3,054
---------- --------- ------------
Total liabilities.............................. 222,148 116,765 338,913
---------- --------- ------------
Stockholders' equity:
Preferred stock................................... -- -- --
Common stock...................................... 317 752 1,732(a)
Surplus........................................... 1,000 2,384 2,106(a)
Retained earnings................................. 20,948 9,714 30,662
Treasury stock, at cost........................... -- (615) --
Unrealized loss on investment securities
available-for-sale, net of tax.................. (811) (21) (832)
---------- --------- ------------
Total stockholders' equity.................... 21,454 12,214 33,668
---------- --------- ------------
Total liabilities and stockholders' equity.... $ 243,602 $ 128,979 $ 372,581
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BCB PEMI NORTHWAY
--- ---- --------
(Pro Forma
(Historical) (Historical) Combined)
<S> <C> <C> <C>
Interest and dividend income:
Loans............................................. $ 3,394 $ 1,993 $ 5,387
Interest and dividend income on investments....... 999 490 1,489
Federal funds sold................................ 69 12 81
Interest bearing deposits......................... 3 -- 3
---------- --------- ------------
Total interest and dividend income.............. 4,465 2,495 6,960
---------- --------- ------------
Interest expense:
Deposits.......................................... 1,806 885 2,691
Borrowed funds.................................... 90 137 227
---------- --------- ------------
Total interest expense.......................... 1,896 1,022 2,918
---------- --------- ------------
Net interest and dividend income................ 2,569 1,473 4,042
Provision for possible loan losses................... 90 30 120
---------- --------- ------------
Net interest and dividend income after
provision for possible loan losses............. 2,479 1,443 3,922
---------- --------- ------------
Noninterest income:
Service charges on deposit accounts and fees...... 92 111 203
Securities gains (losses), net.................... 220 -- 220
Other............................................. 62 52 114
---------- --------- ------------
Total noninterest income........................ 374 163 537
---------- --------- ------------
Noninterest expense:
Salaries and employee benefits.................... 767 605 1,372
Office occupancy and equipment.................... 209 242 451
Merger related expenses........................... 276 -- 276
Foreclosed real estate, net....................... 9 6 15
Amortization of deposit purchase premium.......... 71 4 75
Other............................................. 447 332 779
---------- --------- ------------
Total noninterest expense....................... 1,779 1,189 2,968
---------- --------- ------------
Income before income tax expense................ 1,074 417 1,491
Income tax expense................................... 275 138 413
---------- --------- ------------
Net income...................................... $ 799 $ 279 $ 1,078
========== ========= ============
Earnings per common share............................ $ 12.63 $ .40 $ .62
========== ========= ============
Weighted average number of common shares
outstanding..................................... 63,301 690,401 1,732,145(a)
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BCB PEMI NORTHWAY
--- ---- --------
(Pro Forma
(Historical) (Historical) Combined)
<S> <C> <C> <C>
Interest and dividend income:
Loans....................................... $ 3,096 $ 1,973 $ 5,069
Interest and dividend income on investments....... 1,143 411 1,554
Federal funds sold................................ 124 12 136
Interest bearing deposits......................... 34 21 55
---------- --------- ------------
Total interest and dividend income.............. 4,397 2,417 6,814
---------- --------- ------------
Interest expense:
Deposits.......................................... 1,997 861 2,858
Borrowed funds.................................... 95 115 210
---------- --------- ------------
Total interest expense.......................... 2,092 976 3,068
---------- --------- ------------
Net interest and dividend income................ 2,305 1,441 3,746
Provision for possible loan losses................... 90 36 126
---------- --------- ------------
Net interest and dividend income after
provision for possible loan losses............. 2,215 1,405 3,620
---------- --------- ------------
Noninterest income:
Service charges on deposit accounts and fees...... 86 108 194
Securities gains (losses), net.................... 62 -- 62
Other............................................. 54 49 103
---------- --------- ------------
Total noninterest income........................ 202 157 359
---------- --------- ------------
Noninterest expense:
Salaries and employee benefits.................... 714 583 1,297
Office occupancy and equipment.................... 220 209 429
Foreclosed real estate, net....................... 18 -- 18
Amortization of deposit purchase premium.......... 81 -- 81
Other............................................. 423 334 757
---------- --------- ------------
Total noninterest expense....................... 1,456 1,126 2,582
---------- --------- ------------
Income before income tax expense................ 961 436 1,397
Income tax expense................................... 339 142 481
---------- --------- ------------
Net income...................................... $ 622 $ 294 $ 916
========== ========= ============
Earnings per common share............................ $ 9.83 $ .43 $ .53
========== ========= ============
Weighted average number of common shares
outstanding..................................... 63,301 690,401 1,732,145(a)
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BCB PEMI NORTHWAY
--- ---- --------
(Pro Forma
(Historical) (Historical) Combined)
<S> <C> <C> <C>
Interest and dividend income:
Loans............................................. $ 12,822 $ 8,257 $ 21,079
Interest and dividend income on investments....... 4,581 1,866 6,447
Federal funds sold................................ 273 52 325
Interest bearing deposits......................... 99 25 124
---------- --------- ------------
Total interest and dividend income.............. 17,775 10,200 27,975
---------- --------- ------------
Interest expense:
Deposits.......................................... 7,746 3,632 11,378
Borrowed funds.................................... 358 522 880
---------- --------- ------------
Total interest expense.......................... 8,104 4,154 12,258
---------- --------- ------------
Net interest and dividend income................ 9,671 6,046 15,717
Provision for possible loan losses................... 360 152 512
---------- --------- ------------
Net interest and dividend income after
provision for possible loan losses............. 9,311 5,894 15,205
---------- --------- ------------
Noninterest income:
Service charges on deposit accounts and fees...... 385 438 823
Securities gains (losses), net.................... 306 -- 306
Other............................................. 257 235 492
---------- --------- ------------
Total noninterest income........................ 948 673 1,621
---------- --------- ------------
Noninterest expense:
Salaries and employee benefits.................... 3,033 2,390 5,423
Office occupancy and equipment.................... 892 867 1,759
Foreclosed real estate, net....................... 29 41 70
Amortization of deposit purchase premium.......... 500 13 513
Other............................................. 1,879 1,351 3,230
---------- --------- ------------
Total noninterest expense....................... 6,333 4,662 10,995
---------- --------- ------------
Income before income tax expense................ 3,926 1,905 5,831
Income tax expense................................... 1,346 628 1,974
---------- --------- ------------
Net income...................................... $ 2,580 $ 1,277 $ 3,857
========== ========= ============
Earnings per common share............................ $ 40.76 $ 1.85 $ 2.23
========== ========= ============
Weighted average number of common shares
outstanding..................................... 63,301 690,401(d) 1,732,145(a)
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BCB PEMI NORTHWAY
(Pro Forma
(Historical) (Historical) Combined)
<S> <C> <C> <C>
Interest and dividend income:
Loans............................................. $ 12,243 $ 8,123 $ 20,366
Interest and dividend income on investments....... 4,706 1,251 5,957
Federal funds sold................................ 476 127 603
Interest bearing deposits......................... 47 1 48
---------- --------- ------------
Total interest and dividend income.............. 17,472 9,502 26,974
---------- --------- ------------
Interest expense:
Deposits.......................................... 7,475 3,079 10,554
Borrowed funds.................................... 313 614 927
---------- --------- ------------
Total interest expense.......................... 7,788 3,693 11,481
---------- --------- ------------
Net interest and dividend income................ 9,684 5,809 15,493
Provision for possible loan losses................... 540 112 652
---------- --------- ------------
Net interest and dividend income after
provision for possible loan losses............. 9,144 5,697 14,841
---------- --------- ------------
Noninterest income:
Service charges on deposit accounts and fees...... 433 432 865
Securities gains (losses), net.................... (75) -- (75)
Other............................................. 226 248 474
---------- --------- ------------
Total noninterest income........................ 584 680 1,264
---------- --------- ------------
Noninterest expense:
Salaries and employee benefits.................... 2,764 2,376 5,140
Office occupancy and equipment.................... 889 743 1,632
Foreclosed real estate, net....................... (79) 93 14
Amortization of deposit purchase premium.......... 322 -- 322
Other............................................. 2,250 1,262 3,512
---------- --------- ------------
Total noninterest expense....................... 6,146 4,474 10,620
---------- --------- ------------
Income before income tax expense................ 3,582 1,903 5,485
Income tax expense................................... 1,261 628 1,889
---------- --------- ------------
Net income...................................... $ 2,321 $ 1,275 $ 3,596
========== ========= ============
Earnings per common share............................ $ 36.66 $ 1.85 $ 2.04
========== ========= ============
Weighted average number of common shares
outstanding..................................... 63,301 691,188(d) 1,765,173(b)
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
<TABLE>
NORTHWAY FINANCIAL, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
BCB PEMI NORTHWAY
--- ---- --------
(Pro Forma
(Historical) (Historical) Combined)
<S> <C> <C> <C>
Interest and dividend income:
Loans............................................. $ 10,496 $ 7,190 $ 17,686
Interest and dividend income on investments....... 4,540 1,299 5,839
Federal funds sold................................ 367 34 401
Interest bearing deposits......................... 4 1 5
---------- --------- ------------
Total interest and dividend income.............. 15,407 8,524 23,931
---------- --------- ------------
Interest expense:
Deposits..................................... 6,012 2,628 8,640
Borrowed funds.................................... 346 424 770
---------- --------- ------------
Total interest expense.......................... 6,358 3,052 9,410
---------- --------- ------------
Net interest and dividend income................ 9,049 5,472 14,521
Provision for possible loan losses................... 540 120 660
---------- --------- ------------
Net interest and dividend income after
provision for possible loan losses............. 8,509 5,352 13,861
---------- --------- ------------
Noninterest income:
Service charges on deposit accounts and fees...... 416 428 844
Securities gains (losses), net.................... 90 22 112
Other............................................. 196 274 470
---------- --------- ------------
Total noninterest income........................ 702 724 1,426
---------- --------- ------------
Noninterest expense:
Salaries and employee benefits.................... 2,851 2,282 5,133
Office occupancy and equipment.................... 838 716 1,554
Foreclosed real estate, net....................... (95) 91 (4)
Amortization of deposit purchase premium.......... 134 -- 134
Other............................................. 2,203 1,284 3,487
---------- --------- ------------
Total noninterest expense....................... 5,931 4,373 10,304
---------- --------- ------------
Income before income tax expense................ 3,280 1,703 4,983
Income tax expense................................... 1,155 552 1,707
---------- --------- ------------
Net income..................................... $ 2,125 $ 1,151 $ 3,276
========== ========= ============
Earnings per common share............................ $ 33.58 $ 1.53 $ 1.82
========== ========= ============
Weighted average number of common shares
outstanding........................................ 63,301 751,020(d) 1,796,222(c)
========== ========= ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
NORTHWAY FINANCIAL, INC.
NOTES TO THE PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
(a) The following indicates the computation of the pro forma combined shares of
Northway Common Stock that will be outstanding following consummation of
the BCB Reorganization and the Merger and the related pro forma combined
common stock and surplus at March 31, 1997 and 1996, and December 31, 1996:
Number of shares of BCB Common Stock outstanding prior to
consummation of BCB Reorganization 63,301
=========
Number of shares of Northway Common Stock that will be
outstanding following exchange of 16 shares of Northway
Common Stock for each share of BCB Common Stock pursuant
to the BCB Reorganization 1,012,816
Number of shares of Northway Common Stock that will be issued
to holders of PEMI Common Stock in the Merger at the
Exchange Ratio (690,401 shares at the rate of 1.0419) 719,329
Pro forma number of shares of Northway Common Stock to be
outstanding following consummation of the BCB
Reorganization and the Merger 1,732,145
=========
Historical capital (dollars in thousands):
Common stock BCB $ 317
PEMI 752
Surplus BCB 1,000
PEM I 2,384
Treasury stock BCB --
PEMI (615)
-------
Total historical capital 3,838
Less Pro forma Northway
Common Stock (1,732,145
shares, par value $1.00 per share) 1,732
-------
Difference in Northway pro forma surplus $ 2,106
=======
<PAGE>
(b) The following indicates the computation of the weighted average Northway
pro forma combined shares that would have been outstanding in 1995 if the
Merger had taken place on January 1, 1995:
Number of shares of BCB Common Stock outstanding prior to
consummation of BCB Reorganization 63,301
=========
Number of shares of Northway Common Stock outstanding following
exchange of 16 shares of Northway Common Stock for each
share of BCB Common Stock pursuant to the BCB
Reorganization 1,012,816
Number of shares of Northway Common Stock issued to holders
of PEMI Common Stock in the Merger at the Exchange Ratio 752,357
(722,101 shares at the rate of 1.0419)
Pro forma weighted average number of shares of Northway
Common Stock outstanding following consummation
of the BCB Reorganization and the Merger 1,765,173
=========
(c) The following indicates the computation of the weighted average Northway
pro forma combined shares that would have been outstanding in 1994 if the
Merger had taken place on January 1, 1994:
Number of shares of BCB Common Stock outstanding prior to
consummation of BCB Reorganization 63,301
=========
Number of shares of Northway Common Stock outstanding
following exchange of 16 shares of Northway Common
Stock for each share of BCB Common Stock pursuant to
the BCB Reorganization 1,012,816
Number of shares of Northway Common Stock issued to holders
of PEMI Common Stock in the Merger at the Exchange Ratio 783,406
(751,901 shares at the rate of 1.0419)
Pro forma weighted average number of shares of Northway
Common Stock outstanding following consummation
of the BCB Reorganization and the Merger 1,796,222
=========
(d) In the fourth quarter of 1994, PEMI repurchased an aggregate of 61,500
shares of its outstanding common stock for gross aggregate price of
$298,000. No debt was incurred by PEMI in connection with this transaction.
In the first quarter of 1995, PEMI repurchased a total of 31,700 shares of
its common stock for a gross aggregate price of $317,000. No debt was
incurred by PEMI in connection with this transaction.
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF BCB
The following table sets forth selected historical financial
information of BCB for the three month periods ended March 31, 1997 and 1996,
and for each of the years in the five-year period ended December 31, 1996. Such
data has been derived from the unaudited financial statements (including related
notes thereto) of BCB for the three months ended March 31, 1997 and 1996, and
the audited financial statements (including related notes thereto) of BCB for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992. All adjustments in
the unaudited interim period are of a normal and recurring nature, which in the
opinion of management are necessary for a fair presentation of the results for
the interim periods presented.
<TABLE>
<CAPTION>
At or For the Three Months
Ended March 31, At or for the years ended December 31,
--------------------------- --------------------------------------------------------------
(Dollars in thousands, except per share data)
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets........................ $243,466 $241,586 $243,602 $240,594 $236,278 $214,033 $208,680
Investment securities
available-for-sale................ 61,684 76,640 70,171 76,686 22,285 53,930 4,845
Investments securities
held-to-maturity.................. 4,224 4,502 224 377 63,496 19,107 63,298
Loans, net of unearned income....... 158,109 136,265 151,981 136,531 132,550 120,875 122,743
Allowance for possible loan losses.. 2,618 2,524 2,635 2,506 2,115 1,976 1,776
Total nonperforming loans .......... 2,461 2,210 2,343 2,605 2,317 2,128 3,383
Total nonperforming assets.......... 2,751 2,677 2,536 3,080 2,853 3,221 4,917
Real estate acquired by foreclosure
or substantively repossessed...... 246 422 148 430 442 832 1,202
Deposit purchase premium............ 1,229 1,719 1,300 1,800 2,122 -- --
Deposits............................ 212,685 213,267 216,398 213,775 213,003 186,830 189,915
Securities sold under agreements
to repurchase..................... 7,663 7,174 4,620 6,087 6,882 10,370 3,229
Stockholders' equity (1)............ 21,657 19,543 21,454 19,708 15,393 15,925 14,883
Income Statement Data:
Net interest and dividend income.... $ 2,569 $ 2,305 $ 9,671 $ 9,684 $ 9,049 $ 7,660 $ 7,575
Provision for possible loan losses.. 90 90 360 540 540 795 920
Noninterest income.................. 374 202 948 584 702 1,164 688
Noninterest expense ................ 1,779 1,456 6,333 6,146 5,931 5,104 5,289
Net income.......................... 799 622 2,580 2,321 2,125 1,943 1,555
Per Common Share Data:
Net income (2)...................... $ 12.63 $ 9.83 $ 40.76 $ 36.66 $ 33.58 $ 30.69 $ 24.56
Cash dividends paid................. -- -- 7.00 6.60 6.30 6.00 5.00
Book value (1)...................... 342.13 308.73 338.92 311.34 243.18 251.57 235.11
Tangible book value (3)............. 322.71 281.58 318.38 282.90 209.65 251.57 235.11
Selected Ratios:
Return on average assets (4)........ 1.31% 1.02% 1.06% 0.97% 0.93% 0.90% 0.76%
Return on average equity (4)........ 14.61 12.46 12.78 13.52 13.76 12.27 10.76
Dividend payout..................... -- -- 17.17 18.00 18.76 19.55 20.36
Interest rate spread.............. 4.12 3.70 3.88 4.03 3.97 3.61 3.82
Net interest margin................. 4.56 4.08 4.29 4.35 4.24 3.88 4.07
Operating expenses to average
assets (5) ....................... 2.47 2.39 2.60 2.58 2.60 2.37 2.57
Average interest earning assets to
average interest bearing
liabilities ...................... 111.84 109.11 111.53 109.28 108.92 108.38 106.09
Efficiency ratio ................... 63.26 59.12 61.15 60.86 63.38 62.19 58.69
Tier 1 leverage capital ratio....... 8.93 7.89 8.63 7.65 6.77 7.69 7.13
Tier 1 risk-based capital ratio..... 16.56 15.80 16.19 15.12 13.76 14.99 15.17
Total risk-based capital ratio...... 17.81 17.05 17.44 16.37 15.01 16.24 16.42
Asset Quality Ratios:
Non-performing loans to total loans 1.56% 1.62% 1.54% 1.91% 1.75% 1.76% 2.76%
Non-performing assets to total assets 1.13 1.11 1.04 1.28 1.21 1.51 2.36
Allowance for possible loan losses to
non-performing loans.............. 106.38 114.21 112.46 96.20 91.28 92.86 52.50
Allowance for possible loan losses
as a percentage of loans......... 1.66 1.85 1.73 1.84 1.60 1.63 1.45
- ----------------
(1) Stockholders' equity as of March 31, 1997 and 1996, and as of December 31, 1996 and 1995 has been reduced by the unrealized
loss on investment securities "available-for-sale." Stockholders' equity as of December 31, 1994 and 1993 has been reduced
by the unrealized loss on investment securities "available-for-sale" and the unrealized loss on investment securities
transferred to "held-to-maturity."
(2) Computed using the weighted average number of shares outstanding.
(3) Stockholders' equity as of March 31, 1997 and 1996, and as of December 31, 1996, 1995, and 1994 has been reduced by the
deposit purchase premium.
(4) Results for the three months ended March 31, 1997 and 1996, are calculated on an annualized basis.
(5) Excludes expenses related to the Merger.
</TABLE>
<PAGE>
BCB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding
BCB's financial position as of March 31, 1997 and 1996, and as of December 31,
1996 and 1995, and its results of operations for the three months ended March
31, 1997 and 1996, and for the years ended December 31, 1996, 1995, and 1994.
This discussion should be read in conjunction with the preceding "Selected
Historical Financial Information of BCB" and BCB's Financial Statements and
related Notes thereto and other financial data appearing elsewhere in this Proxy
Statement/Prospectus. In the opinion of management, unaudited interim data
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present BCB's financial position and results of operations
for the periods presented. The results of operations for any interim period are
not necessarily indicative of results to be expected for a full fiscal year. For
information relating to factors that could affect future operating results, see
"Risk Factors." Any forward-looking statements included in this Proxy
Statement/Prospectus should be considered in light of such factors, as well as
the information set forth below.
RESULTS OF OPERATIONS
Net Interest Income. The largest component of BCB's operating income is
net interest income, which is the difference between the interest and dividend
income received from interest-earning assets and the interest expense paid on
its interest-bearing liabilities. For purposes of this discussion, interest
income earned on tax-exempt loans and securities is adjusted to a fully-taxable
equivalent basis to facilitate comparison with interest earned which is subject
to statutory taxation. Net interest income is determined by an institution's net
interest spread (i.e., the difference between the yield earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities),
the relative balances and amount of interest-earning assets and interest-bearing
liabilities, and the degree of mismatch in the maturity and repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
Changes in nonperforming assets together with interest lost and recoveries on
those assets also impact comparisons of net interest income.
Yields Earned and Rates Paid. The following tables set forth, for the
periods indicated, information regarding the total amount of income from
interest-earning assets, and the resultant average yields, the interest expense
associated with interest-bearing liabilities, expressed in dollars and rates,
and the net interest spread and net interest margin. All yield and rate
information is calculated on an annualized basis. Yield and rate information for
a period is average information for the period calculated by dividing the income
or expense item for the period by the average balances during the period of the
appropriate balance sheet item. Net interest spread is the yield on
interest-earning assets less the rate paid on interest-bearing liabilities. Net
interest margin is net interest income divided by average interest-earning
assets. Non-accrual loans are included in asset balances for the appropriate
periods, whereas recognition of interest on such loans is discontinued and any
remaining accrued interest receivable is reversed, in conformity with federal
regulations. The yields and net interest margins appearing in the following
table have been calculated on a pre-tax basis.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
--------------------------- -----------------------------
Average Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
Federal funds sold............... $ 5,347 $ 69 5.22% $ 9,270 $ 124 5.39%
Interest bearing deposits........ 210 3 5.86 2,289 34 5.90
Investment and mortgage-backed
securities (1)(2) .......... 71,110 1,023 5.77 81,971 1,162 5.67
Loans, net (1)(3) ............... 152,728 3,399 9.03 134,153 3,099 9.29
--------- ------- --------- ------
Total interest-earning assets (1) 229,395 4,494 7.92% 227,683 4,419 7.79%
------- ------
Cash and due from banks.......... 6,762 6,843
Premises and equipment........... 4,484 4,596
Other assets..................... 3,066 4,283
--------- ---------
Total assets................ $ 243,707 $ 243,405
========= =========
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY:
Regular savings accounts......... $ 49,442 $ 281 2.31% $ 49,678 $ 295 2.39%
NOW and Super NOW accounts....... 28,358 79 1.13 28,348 93 1.32
Money market accounts............ 9,921 66 2.68 8,900 60 2.68
Certificates of deposit.......... 107,286 1,380 5.22 111,941 1,549 5.55
Borrowed funds................... 7,435 90 4.91 6.954 95 5.47
--------- ------- --------- ------
Total interest-bearing
liabilities .............. 202,442 1,896 3.80% 205,821 2,092 4.09%
------- ------
Noninterest bearing deposits..... 18,282 16,318
Other liabilities................ 1,105 1,296
--------- ---------
Total liabilities .......... 221,829 223,435
Stockholders' equity............. 21,878 19,970
--------- ---------
Total liabilities and
stockholders' equity...... $ 243,707 $ 243,405
========= =========
Net interest income (1).......... $ 2,598 $ 2,327
======= =======
Net interest spread ............ 4.12% 3.70%
==== ====
Net interest margin ............. 4.56% 4.08%
==== ====
- ----------------
(1) Reported on a tax equivalent basis.
(2) The average balance of investment and mortgage-backed securities is calculated using the
adjusted cost basis.
(3) Net of unearned income and allowance for possible loan losses.
</TABLE>
Net interest income increased by $271,000, or 11.6%, to $2.6 million
for the three months ended March 31, 1997 from $2.3 million for the three months
ended March 31, 1996, primarily due to the lower cost of interest-bearing
liabilities as a result of lower interest rates. The net interest spread
increased by 42 basis points to 4.12% for the three months ended March 31, 1997,
from 3.70% for the three months ended March 31, 1996. The net interest margin
for the 1997 period increased by 48 basis points to 4.56% from 4.08% for the
1996 period.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- --------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
Federal funds sold.............. $ 5,116 $ 273 5.34% $ 8,201 $ 476 5.80% $ 8,516 $ 367 4.31%
Interest bearing deposits........ 1,678 99 5.90 771 47 6.01 67 4 6.59
Investment and mortgage-backed
securities (1)(2)........... 82,749 4,698 5.68 82,396 4,741 5.75 82,518 4,607 5.58
Loans, net (1)(3)................ 139,022 12,837 9.23 132,480 12,267 9.26 124,192 10,505 8.46
--------- -------- --------- -------- --------- --------
Total interest-earning assets (1) 228,565 17,907 7.83% 223,848 17,531 7.83% 215,293 15,483 7.19%
-------- -------- --------
Cash and due from banks.......... 6,847 6,866 6,580
Premises and equipment........... 4,657 4,697 4,239
Other assets..................... 3,792 2,954 2,285
-------- -------- ---------
Total assets................ $243,861 $238,365 $228,397
======== ======== ========
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY:
Regular savings accounts......... $ 49,696 $1,157 2.33% $ 52,342 $1,255 2.40% $ 57,128 $1,375 2.41%
NOW and Super NOW accounts....... 28,340 336 1.19 29,057 482 1.66 27,669 476 1.72
Money market accounts............ 9,733 254 2.61 9,279 260 2.80 8,465 204 2.41
Certificates of deposit.......... 110,591 5,999 5.42 107,965 5,478 5.07 96,245 3,957 4.11
Borrowed funds................... 6,568 358 5.45 6,203 313 5.05 8,148 346 4.25
--------- -------- --------- -------- --------- --------
Total interest-bearing
liabilities .............. 204,928 8,104 3.95% 204,846 7,788 3.80% 197,655 6,358 3.22%
-------- -------- --------
Noninterest bearing deposits..... 17,523 15,312 14,088
Other liabilities................ 1,229 1,042 1,218
--------- --------- ---------
Total liabilities........... 223,680 221,200 212,961
Stockholders' equity............. 20,181 17,165 15,436
--------- --------- ---------
Total liabilities and
stockholders' equity..... $ 243,861 $238,365 $228,397
==+====== ======== ========
Net interest income (1).......... $ 9,803 $ 9,743 $9,125
======= ======= ======
Net interest spread ............ 3.88% 4.03% 3.97%
==== ==== ====
Net interest margin.............. 4.29% 4.35% 4.24%
==== ==== ====
- ----------------------------
(1) Reported on a tax equivalent basis.
(2) The average balance of investment and mortgage-backed securities is calculated using the adjusted cost basis.
(3) Net of unearned income and allowance for possible loan losses.
</TABLE>
Net interest income increased by $60,000, or .6%, to $9.8 million for
the year ended December 31, 1996, from $9.7 million for the year ended December
31, 1995. The net interest spread decreased by 15 basis points to 3.88% for the
year ended December 31, 1996, from 4.03% for the year ended December 31, 1995,
although this decline was offset by an increase in the volume of earning assets.
The net interest margin for 1996 decreased by six basis points to 4.29% from
4.35% for 1995, primarily due to the increase in the cost of interest-bearing
liabilities.
Net interest income increased by $618,000, or 6.8%, to $9.7 million for
the year ended December 31, 1995, from $9.1 million for the year ended December
31, 1994, primarily due to an increase in average earning assets of $8.6
million, or 4.0%, to $223.8 million for the year ended December 31, 1995, from
$215.3 for the year ended December 31, 1994. The net interest spread increased
by six basis points to 4.03% for the year ended December 31, 1995, from 3.97%
for the year ended December 31, 1994. The net interest margin for 1995 increased
by 11 basis points to 4.35% from 4.24% for 1994, primarily due to the rise in
interest rates in 1995, which enabled the yield on earning assets to outpace the
increased cost of funding sources.
Rate/Volume Analysis. The following tables describe the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected BCB's interest income and interest
expense during the periods indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (change in volume multiplied by prior
rate), (ii) changes in rate (change in rate multiplied by prior volume), and
(iii) total change in rate and volume. Changes attributable to both rate and
volume have been allocated proportionately to the change due to volume and the
change due to rate.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 Compared
to Three Months Ended March 31, 1996
Increase/(Decrease) Due to Change In
--------------------------------------------
Volume Rate Mix One Day Total
------ ---- --- ------- -----
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ (52) $ (4) $ 2 $ (1) $ (55)
Interest bearing deposits (31) -- -- -- (31)
Investment and mortgage-backed
securities (154) 18 (3) -- (139)
Loans, net 433 (84) (12) (37) 300
----- ----- ---- ---- -----
Total interest-earning assets 196 (70) (13) (38) 75
----- ----- ---- ---- -----
Interest-Bearing Liabilities:
Regular savings accounts (1) (10) -- (3) (14)
NOW and Super NOW accounts -- (13) -- (1) (14)
Money market accounts 7 -- -- (1) 6
Certificates of deposit (64) (94) 4 (15) (169)
Borrowed funds 7 (10) (1) (1) (5)
----- ----- ---- ---- -----
Total interest-bearing liabilities (51) (127) 3 (21) (196)
----- ----- ---- ---- -----
Increase (decrease) in net interest income $ 247 $ 57 $(16) $(17) $ 271
===== ===== ==== ==== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Compared
to Year Ended December 31, 1995
Increase/(Decrease) Due to Change In
------------------------------------
Volume Rate Mix One Day Total
------ ---- --- ------- -----
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ (179) $ (39) $ 15 $ -- $(203)
------ ------ ------ ------ -----
Interest bearing deposits 54 (1) (1) -- 52
Investment and mortgage-backed
securities 20 (63) -- -- (43)
Loans, net 658 (117) (6) 35 570
------ ------ ------ ------ -----
Total interest-earning assets 553 (220) 8 35 376
------ ------ ------ ------ -----
Interest-Bearing Liabilities:
Regular savings accounts (63) (40) 2 3 (98)
NOW and Super NOW accounts (17) (136) 6 1 (146)
Money market accounts 13 (18) (1) -- (6)
Certificates of deposit 133 363 9 16 521
Borrowed funds 14 25 5 1 45
------ ------ ------ ------ -----
Total interest-bearing liabilities 80 194 21 21 316
------ ------ ------ ------ -----
Increase (decrease) in net interest income $ 473 $ (414) $ (13) $ 14 $ 60
====== ====== ====== ====== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Interest and Dividend Income. Interest and dividend income increased by
$68,000, or 1.5%, to $4.5 million for the three months ended March 31, 1997,
from $4.4 million for the three months ended March 31, 1996. Average earning
assets increased by $1.7 million, or 0.7%, to $229.4 million for the three
months ended March 31, 1997, from $227.7 million for the three months ended
March 31, 1996. Average loans increased by $18.5 million, or 13.8%, to $152.7
million for the three months ended March 31, 1997, from $134.2 million for the
three months ended March 31, 1996. Increases in the level of residential
adjustable-rate mortgages, and commercial real estate, commercial business, and
consumer loans accounted for the increase in loan interest income of $298,000.
The average balance of investment securities (including mortgage-backed
securities) decreased by $10.9 million, or 13.3%, to $71.1 million for the three
months ended March 31, 1997, from $82.0 million for the three months ended March
31, 1996. The average level of federal funds sold decreased by $3.9 million, or
42.3%, to $5.4 million for the three months ended March 31, 1997, from $9.3
million for the three months ended March 31, 1996. The decrease in the average
balance of investment securities and the average level of federal funds sold,
which caused a decrease in interest income on investment securities and federal
funds sold of $199,000, reflects the increased investment of available
short-term funds in loans over the past twelve months.
Interest Expense. Interest expense decreased by $196,000, or 9.4%, to
$1.9 million for the three months ended March 31, 1997, from $2.1 million for
the three months ended March 31, 1996. Average interest-bearing liabilities
decreased by $3.4 million, or 1.7%, to $202.4 million for the three months ended
March 31, 1997, from $205.8 million for the three months ended March 31, 1996.
Average time deposits decreased $4.6 million, or 4.1%, to $107.3 million for the
three months ended March 31, 1997, from $111.9 million for the three months
ended March 31, 1996, while the average balances for NOW, Super NOW, and savings
accounts decreased by $226,000 to $77.8 million for the three months ended March
31, 1997, from $78.0 million for the three months ended March 31, 1996. For the
current year, lower interest rates prevailed for certificates of deposit as BCB
was not as aggressively priced in its marketplace.
Provision for Possible Loan Losses. The provision for possible loan
losses was $90,000 for the three months ended March 31, 1997 and 1996. Net
charge offs increased by $35,000, or 48.6%, to $107,000 for the three months
ended March 31, 1997, from $72,000 for the three months ended March 31, 1996.
Management evaluates the provision and the level of the allowance on a regular
basis based on such factors as the previous loss experience, current economic
conditions and their effect on borrowers and the market area in general, and the
performance of individual credits in relation to contract terms. Loan losses are
charged to earnings when management believes that the collectability of the loan
balance is unlikely. For a detailed discussion of BCB's asset quality and
allowance for possible loan losses, see "Business of BCB - Asset Quality."
Noninterest Income. Noninterest income increased $172,000, or 85.1%, to
$374,000 for the three months ended March 31, 1997, from $202,000 for the three
months ended March 31, 1996. The results for the 1997 period reflected a net
gain of $220,000 from the sale of securities compared to a net gain of $62,000
from securities sales during the 1996 period. Other noninterest income (sources
of which include automated teller fees, and safe deposit fees) increased by
$14,000, or 10.0%, to $154,000 for the three months ended March 31, 1997, from
$140,000 for the three months ended March 31, 1996.
Noninterest Expense. Noninterest expense increased $323,000, or 22.2%,
to $1.8 million for the three months ended March 31, 1997, from $1.5 million for
the three months ended March 31, 1996. Salaries and employee benefits increased
$53,000, or 7.4%, to $767,000 for the quarter ended March 31, 1997, from
$714,000 for the three months ended March 31, 1996, reflecting staff additions
in the lending function and the addition of a new retail office in Littleton,
New Hampshire, as well as a slight increase in normal salary and benefit
increases. Office occupancy and equipment expense decreased $11,000, or 5.0%, to
$209,000 for the three months ended March 31, 1997, from $220,000 for the three
months ended March 31, 1996, as the result of BCB's sale of the former Berlin,
New Hampshire, office of HomeBank, which was one of the branches of HomeBank
purchased by BCB in 1994. Amortization of the deposit purchase premium
associated with the purchase of HomeBank's deposits decreased by $10,000, or
12.3%, to $71,000 for the three months ended March 31, 1997, from $81,000 for
the three months ended March 31, 1996, as a result of BCB's previous
acceleration of the amortization of this premium.
During the three months ended March 31, 1997, BCB incurred $276,000 of
expenses related to the BCB Reorganization and the Merger, including legal and
advisory fees.
BCB pays deposit insurance and other assessment expenses to the FDIC
for deposits insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Deposit insurance and other assessment
expenses decreased $5,000, or 33.3%, to $10,000 for the three months ended March
31, 1997, from $15,000 for the three months ended March 31, 1996. These figures
continue to reflect the decrease in BIF insurance premiums from $0.23 per $100
of deposits to $0.04 per $100 of deposits in June 1995 to $0.00 beginning
January 1996.
For detailed information regarding the principal components of BCB's
noninterest expense during the periods discussed herein, see Note 13 to BCB's
Financial Statements.
Income Tax Expense. Income tax expense decreased by $64,000, or 18.9%,
to $275,000 for the three months ended March 31, 1997, from $339,000 for the
three months ended March 31, 1996. This decrease reflects a decrease in BCB's
effective income tax rate to 25.6% for the 1997 period from 35.3% for the 1996
period, resulting from BCB's application of a charitable contribution deduction
received on its sale of the HomeBank branch.
Net Income. Net income increased by $177,000, or 28.5%, to $799,000, or
$12.63 per share, for the three months ended March 31, 1997, from $622,000, or
$9.83 per share, for the three months ended March 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Interest and Dividend Income. Interest and dividend income increased by
$303,000, or 1.7%, to $17.8 million for the year ended December 31, 1996, from
$17.5 million for the year ended December 31, 1995. Average earning assets
increased by $4.8 million, or 2.1%, to $228.6 million for the year ended
December 31, 1996, from $223.8 million for the year ended December 31, 1995.
Average loans increased by $6.5 million, or 4.9%, to $139.0 million for the year
ended December 31, 1996, from $132.5 million for the year ended December 31,
1995. Increases in the level of consumer, residential adjustable, commercial
real estate, and commercial business loans accounted for this increase, which
growth is consistent with BCB's focus on lending to small- and medium-sized
businesses within its geographical markets. The average balance of investment
securities (including mortgage-backed securities) increased by $353,000 to $82.7
million for the year ended December 31, 1996, from $82.4 million for the year
ended December 31, 1995. The average level of federal funds sold for the year
ended December 31, 1996, decreased by $3.1 million, or 37.6%, to $5.1 million
for the year ended December 31, 1996, from $8.2 million for the year ended
December 31, 1995. The decrease in the average level of federal funds sold
reflects the increased investment of available short-term funds in loans over
the past twelve months.
Interest Expense. Interest expense increased by $316,000, or 4.1%, to
$8.1 million for the year ended December 31, 1996, from $7.8 million for the
year ended December 31, 1995. Average interest-bearing liabilities increased by
$82,000 to $204.9 million for the year ended December 31, 1996, from $204.8
million for the year ended December 31, 1995. Average time deposits increased
$2.6 million, or 2.4%, to $110.6 million for the year ended December 31, 1996,
from $108.0 million for the year ended December 31, 1995, while the average
balances for NOW, Super NOW, and savings accounts decreased by $3.4 million, or
4.1%, to $78.0 million for the year ended December 31, 1996, from $81.4 million
for the year ended December 31, 1995. Lower market rates prevailed for
certificates of deposit as BCB was not as aggressively priced in its
marketplace.
Following a period of rapid downward movement in 1995, interest rates
moved moderately upward in the first half of 1996 and then moved moderately
downward in the fourth quarter. To satisfy liquidity needs and in response to
competition for deposits, BCB adopted a more aggressive deposit pricing policy
in the first half of 1996. Beginning in the third quarter of 1996, however, and
continuing through the remainder of the year, BCB moved to a less competitive
pricing policy. The result was a rising cost of deposits earlier in 1996, which
subsided during the latter half of the year.
Provision for Possible Loan Losses. The provision for possible loan
losses decreased by $180,000, or 33.3%, to $360,000 for the year ended December
31, 1996, from $540,000 for the year ended December 31, 1995. Net charge offs
increased by $82,000, or 55.0%, to $231,000 for the year ended December 31,
1996, from $149,000 for the year ended December 31, 1995.
Noninterest income. Noninterest income increased $364,000, or 62.3%, to
$948,000 for the year ended December 31, 1996, from $584,000 for the year ended
December 31, 1995. The results for 1996 reflected net gains of $306,000 from the
sale of securities during 1996 compared to a net loss of $75,000 from securities
sales during 1995. Other noninterest income (sources of which include credit
card merchant and fee income, automated teller fees, and safe deposit fees)
decreased by $17,000, or 2.6%, to $642,000 for the year ended December 31, 1996,
from $659,000 for the year ended December 31, 1995.
Noninterest Expense. Noninterest expense increased $187,000, or 3.0%,
to $6.3 million for the year ended December 31, 1996, from $6.1 million for the
year ended December 31, 1995. Salaries and employee benefits increased $269,000,
or 9.7%, to $3.0 million for the year ended December 31, 1996, from $2.8 million
for the year ended December 31, 1995, reflecting staff additions in the lending
function and the addition of a new retail office in Littleton, New Hampshire, as
well as a slight increase in normal salary and benefit increases. Office
occupancy and equipment expense increased $3,000, or 0.3%, to $892,000 for the
year ended December 31, 1996, from $889,000 for the year ended December 31,
1995. Amortization of the deposit purchase premium increased by $178,000, or
55.3%, to $500,000 for the year ended December 31, 1996, from $322,000 for the
year ended December 31, 1995, as a result of BCB's decision to accelerate the
amortization of the premium associated with the purchase of HomeBank's deposits.
Deposit and other assessment expenses decreased by $432,000, or 96.6%,
to $15,000 for the year ended December 31, 1996, from $447,000 for the year
ended December 31, 1995. This decrease is directly attributable to the reduction
in BIF insurance premiums from $0.23 per $100 of deposits to $0.04 per $100 of
deposits in June 1995 to $0.00 beginning January 1996. During the fourth quarter
of 1995, BCB accrued an estimated one-time assessment on SAIF insured deposits
of $167,000. During the second half of 1996, BCB was actually assessed $137,000
for this one-time assessment, which resulted in a credit to the accrual of
$30,000.
Income Tax Expense. Income tax expense increased by $85,000, or 6.7%,
to $1.4 million for the year ended December 31, 1996, from $1.3 million for the
year ended December 31, 1995. This increase primarily reflected the difference
in the amount of BCB's taxable income. BCB's effective income tax rate was 34%
in 1996 and 35% in 1995.
Net Income. Net income increased by $259,000, or 11.2%, to $2.6
million, or $40.76 per share, for the year ended December 31, 1996, from $2.3
million, or $36.66 per share, for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Interest and Dividend Income. Interest and dividend income increased by
$2.1 million, or 13.4%, to $17.5 million for the year ended December 31, 1995,
from $15.4 million for the year ended December 31, 1994. Average earning assets
increased by $8.5 million, or 4.0%, to $223.8 million for the year ended
December 31, 1995, from $215.3 million for the year ended December 31, 1994.
Average loans increased by $8.3 million, or 6.7%, to $132.5 million for the year
ended December 31, 1995, from $124.2 million for the year ended December 31,
1994. The average balance of investment securities (including mortgage-backed
securities) decreased by $122,000 to $82.4 million for the year ended December
31, 1995, from $82.5 million for the year ended December 31, 1994. The average
level of federal funds sold decreased by $315,000, or 3.7%, to $8.2 million for
the year ended December 31, 1995, from $8.5 million for the year ended December
31, 1994.
Interest Expense. Interest expense increased by $1.4 million, or 22.5%,
to $7.8 million for the year ended December 31, 1995, from $6.4 million for the
year ended December 31, 1994. Average interest-bearing liabilities increased by
$7.1 million, or 3.6%, to $204.8 million for the year ended December 31, 1995,
from $197.7 million for the year ended December 31, 1994. Average time deposits
increased $11.8 million, or 12.2%, to $108.0 million for the year ended December
31, 1995, from $96.2 million for the year ended December 31, 1994, while the
average balances for NOW, Super NOW, and savings accounts decreased by $3.4
million, or 4.0%, to $81.4 million for the year ended December 31, 1995, from
$84.8 million for the year ended December 31, 1994.
Provision for Possible Loan Losses. The provision for possible loan
losses was $540,000 for the years ended December 31, 1995 and 1994. Net charge
offs decreased by $252,000, or 62.8%, to $149,000 for the year ended December
31, 1995, from $401,000 for the year ended December 31, 1994.
Noninterest income. Noninterest income decreased $118,000, or 16.8%, to
$584,000 for the year ended December 31, 1995, from $702,000 for the year ended
December 31, 1994. The results for 1995 reflected a net loss of $75,000 from the
sale of securities during 1995 compared to a net gain of $90,000 from securities
sales during 1994. Other noninterest income (sources of which include automated
teller fees, and safe deposit fees) increased by $47,000, or 7.7%, to $659,000
for the year ended December 31, 1995, from $612,000 for the year ended December
31, 1994.
Noninterest expense. Noninterest expense increased $215,000, or 3.6%,
to $6.1 million for the year ended December 31, 1995, from $5.9 million for the
year ended December 31, 1994. This increase was predominantly due to an increase
in the amortization of deposit purchase premium and increased regulatory
assessments arising from BCB's purchase of certain branches of HomeBank.
Salaries and employee benefits decreased $87,000, or 3.1%, to $2.8 million for
the year ended December 31, 1995, from $2.9 million for the year ended December
31, 1994. Office occupancy and equipment expense increased $51,000, or 6.1%, to
$889,000 for the year ended December 31, 1995, from $838,000 for the year ended
December 31, 1994. Amortization of the deposit purchase premium increased by
$188,000, or 140.3%, to $322,000 for the year ended December 31, 1995, from
$134,000 for the year ended December 31, 1994, as a result of taking a full-year
of amortization charge in 1995 versus a partial year charge in 1994.
Deposit and other assessment expenses increased by $28,000, or 6.7%, to
$447,000 for the year ended December 31, 1995, from $419,000 for the year ended
December 31, 1994, reflecting a reduction in the insurance premium paid to the
FDIC for deposit insurance of $140,000 offset by the accrual of a one-time
expense of $167,000 in anticipation of an assessment to strengthen the SAIF
fund.
Income Tax Expense. Income tax expense increased by $106,000, or 9.2%,
to $1.3 million for the year ended December 31, 1995, from $1.2 million for the
year ended December 31, 1994. This increase primarily reflected the difference
in the amount of taxable income. BCB's effective income tax rate was 35% in 1995
and 1994.
Net Income. Net income increased by $196,000, or 9.2%, to $2.3 million,
or $36.66 per share, for the year ended December 31, 1995, from $2.1 million, or
$33.58 per share, for the year ended December 31, 1994. This increase reflected
an increase in net interest income due to favorable interest rate spreads offset
by a decrease in noninterest income.
CHANGES IN FINANCIAL CONDITION
BCB had total assets of $243.5 million at March 31, 1997, and $243.6
million and $240.6 million at December 31, 1996 and 1995, respectively. Average
earning assets were $229.4 million for the three months ended March 31, 1997,
including average loans of $152.7 million and average investment securities of
$71.1 million, and average earning assets were $228.6 million and $223.8 million
for the years ended December 31, 1996 and 1995, respectively, including average
loans of $139.0 million and $132.5 million and average investment securities of
$82.7 million and $82.4 million, respectively. BCB had nonperforming assets
totaling $2.8 million at March 31, 1997, including impaired loans of $2.5
million and real estate acquired by foreclosure or substantively repossessed of
$246,000, and nonperforming assets of $2.5 million and $3.1 million for the
years ended December 31, 1996 and 1995, respectively, including impaired loans
of $2.3 million and $2.6 million, respectively, and real estate acquired by
foreclosure or substantively repossessed of $148,000 and $430,000, respectively.
ASSET AND LIABILITY MANAGEMENT
BCB attempts to structure its balance sheet to maximize net interest
income while controlling its exposure to interest rate risk. BCB's
Asset/Liability Committee formulates strategies to manage interest rate risk by
evaluating the impact on earnings and capital of such factors as current
interest rate forecasts and economic indicators, potential changes in such
forecasts and indicators, liquidity, and various business strategies. BCB's
Asset/Liability Committee's methods for evaluating interest rate risk include an
analysis of BCB's interest-rate sensitivity "gap," which provides a static
analysis of the maturity and repricing characteristics of BCB's entire balance
sheet, and a simulation analysis, which calculates projected net interest income
based on alternative balance sheet and interest rate scenarios, including "rate
shock" scenarios involving immediate substantial increases or decreases in
market rates of interest.
Interest Rate Sensitivity "Gap" Analysis. An interest rate sensitivity
"gap" is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to affect
net interest income adversely. Because different types of assets and liabilities
with the same or similar maturities may react differently to changes in overall
market interest rates or conditions, changes in interest rates may affect net
interest income positively or negatively even if an institution were perfectly
matched in each maturity category.
The following table sets forth the estimated maturity or repricing of
BCB's interest-earning assets and interest-bearing liabilities at March 31,
1997. BCB prepares its interest rate sensitivity "gap" analysis by scheduling
assets and liabilities into periods based upon the next date on which such
assets and liabilities could mature or reprice. The amounts of assets and
liabilities shown within a particular period were determined in accordance with
the contractual terms of the assets and liabilities, except (i) adjustable-rate
loans, securities, and Federal Home Loan Bank of Boston ("FHLB") advances are
included in the period when they are first scheduled to adjust and not in the
period in which they mature, (ii) fixed-rate mortgage-related securities reflect
estimated prepayments, which were estimated based on analyses of broker
estimates, the results of a prepayment model utilized by BCB, and empirical
data, (iii) fixed-rate loans reflect scheduled contractual amortization, with no
estimated prepayments, and (iv) NOW, Super NOW, money market, and savings
deposits, which do not have contractual maturities, reflect estimated levels of
attrition, which are based on detailed studies by BCB of the sensitivity of each
such category of deposit to changes in interest rates. Management believes that
these assumptions approximate actual experience and considers them reasonable.
However, the interest rate sensitivity of BCB's assets and liabilities in the
table could vary substantially if different assumptions were used or actual
experience differs from the historical experience on which the assumptions are
based.
<TABLE>
<CAPTION>
March 31, 1997
--------------
Cumulative Repriced within
----------------------------------------------------------------------
3 Months 4 to 12 12 to 24 2 to 5 After 5
Dollars in thousands, by repricing date or Less Months Months Years Years Total
- --------------------------------------- ------- ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Federal Funds Sold $ 3,000 $ -- $ -- $ -- $ -- $ 3,000
Investments available for sale 2,220 13,252 9,638 9,478 27,176 61,764
Investments held to maturity -- 4,100 59 65 -- 4,224
FHLB Stock -- -- -- -- 1,082 1,082
Loans (fixed and adjustable rate)(1) 63,030 47,072 10,463 29,945 5,858 156,368
------- ------- -------- -------- -------- ---------
Total interest sensitive assets 68,250 64,424 20,160 39,488 34,116 226,438
======= ======= ======== ======== ======== =========
Interest sensitive liabilities:
Certificates of deposit 25,403 56,936 19,430 5,779 -- 107,548
Other deposits 9,071 16,061 16,061 6,990 38,039 86,222
Borrowed funds 1,178 2,975 3,510 -- -- 7,663
------- ------- -------- -------- -------- ---------
Total interest sensitive
liabilities 35,652 75,972 39,001 12,769 38,039 201,433
======= ======= ======== ======== ======== =========
Net interest rate sensitivity gap 32,598 (11,548) (18,841) 26,719 (3,923) 25,005
Cumulative net interest rate
sensitivity gap 32,598 21,050 2,209 28,928 25,005 --
Cumulative net interest rate
sensitivity gap as a
percentage of total assets 13.39% 8.65% 0.91% 11.88% 10.27%
Cumulative interest sensitivity gap
as a percentage of total
interest-earning assets 14.40% 9.30% 0.98% 12.78% 11.04%
Cumulative net interest earning
assets as a percentage of
cumulative interest-bearing
liabilities 191.43% 118.86% 101.47% 117.70% 112.41%
- -----------------
(1) Includes loans held for sale of $147,000 and excludes non-accrual loans of $2,457,000.
</TABLE>
Simulation Analysis. In its simulation analyses, BCB uses computer
simulations to determine the impact on net interest income and capital of
various interest rate scenarios, balance sheet trends, and strategies. These
simulations incorporate assumptions about balance sheet dynamics such as loan
and deposit growth, loan and deposit pricing, changes in funding mix, and asset
and liability repricing and maturity characteristics. Based on the results of
these simulations, BCB is able to quantify its interest rate risk and develop
and implement appropriate strategies.
LIQUIDITY
Liquidity is a measurement of BCB's ability to meet potential cash
requirements, including ongoing commitments to fund deposit withdrawals, repay
borrowings, fund investment and lending activities, and for other general
business purposes. BCB's principal sources of funds are deposits, amortization
and prepayment of loans and securities, maturities of investment securities and
other short-term investments, sales of securities available-for-sale, and
earnings and funds provided from operations. In addition, as a member of the
FHLB, BCB has access to a pre-approved line of credit up to 2% of total assets
and the capacity to borrow an amount up to 30% of total assets less other
borrowings.
While scheduled loan and securities payments and FHLB advances are
relatively predictable sources of funds, deposit flows and prepayments on loans
and mortgage-backed securities are greatly influenced by general interest rates,
economic conditions, and competition. BCB's liquidity is actively managed on a
daily basis, monitored by the Asset/Liability Committee, and reviewed
periodically with the Board of Directors. BCB's Asset/Liability Committee sets
liquidity targets based on BCB's financial condition and existing and projected
economic and market conditions. The committee measures BCB's marketable assets
and credit available to fund liquidity requirements and compares the adequacy of
that aggregate amount against the aggregate amount of BCB's sensitive or
volatile liabilities, such as brokered deposits, core deposits in excess of
$100,000, term deposits with short maturities, and credit commitments
outstanding. The committee's primary objective is to manage BCB's liquidity
position and funding sources in order to ensure that it has the ability to meet
its ongoing commitment to its depositors, to fund loan commitments, and to
maintain a portfolio of investment securities.
BCB's operating activities provided cash flows of $1.7 million and $1.6
million during the three months ended March 31, 1997 and 1996, respectively, and
cash flows of $3.3 million, $3.2 million, and $3.0 million during the years
ended December 31, 1996, 1995, and 1994, respectively. During the foregoing
periods, cash resources were provided primarily by net income.
BCB's cash flows from investing activities utilized $2.1 million and
$4.9 million during the three months ended March 31, 1997 and 1996,
respectively, and $7.5 million and $31.8 million during years ended December 31,
1996 and 1994, respectively, while investing activities provided cash flows of
$5.9 million during the year ended December 31, 1995. During the foregoing
periods, purchases of investment securities available-for-sale aggregated
$802,000 and $11.6 million during the three months ended March 31, 1997 and
1996, respectively, and $10.8 million, $10.0 million, and $33.4 million during
the years ended December 31, 1996, 1995, and 1994, respectively, and were the
principal reasons why net cash was used in investing activities during each
period except 1995. During the year ended December 31, 1995, proceeds from sales
of securities available-for-sale provided $11.4 million, offsetting the
purchases during that period.
BCB's financing activities used $721,000 and $458,000 during the three
months ended March 31, 1997, and the year ended December 31, 1995, respectively,
and provided cash flows of $687,000, $969,000, and $22.3 million during the
three months ended March 31, 1996, and the years ended December 31, 1996 and
1994, respectively. Cash flows from financing activities primarily relate to
changes in BCB's deposits and, to a lesser extent, borrowings. During the year
ended December 31, 1994, significant cash was provided by financing activities
as a result of BCB's acquisition of $33.2 million in deposits in connection with
its purchase of certain branches of HomeBank.
BCB management monitors current and projected cash flows and adjusts
positions as necessary to maintain adequate levels of liquidity. Although
approximately 75% of BCB's certificates of deposit will mature within twelve
months, management believes, based upon past experience, that BCB will retain a
substantial portion of these deposits, and management expects to implement a
pricing strategy to facilitate such retention. Any reduction in total deposits
could be offset by purchases of federal funds, borrowing on a term basis from
the Federal Home Loan Bank, or liquidating investment securities. Such steps
could result in an increase in BCB's cost of funds.
REGULATORY CAPITAL REQUIREMENTS
A bank's capital serves to support growth and provide protection
against loss to depositors and creditors. Equity capital represents the
stockholders' investment in BCB. Management strives to maintain an optimal level
of capital on which an attractive return to the stockholders will be realized
over both the short-term and long-term while serving depositors' and creditors'
needs. Federally insured banks, such as BCB, must also maintain capital at
levels specified by applicable minimum capital ratios. For a detailed discussion
of these requirements, see "Certain Regulatory Considerations."
As of March 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized BCB as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, BCB must maintain minimum total risk-based and Tier I
risk-based capital and minimum Tier I leverage ratios. There are no conditions
or events since that notification that management believes have changed BCB's
category. The following table sets forth BCB's actual capital amounts and ratios
against the amounts and ratios required by the capital adequacy guidelines and
the amounts and ratios necessary to be categorized as well-capitalized (dollars
in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
Total Capital (to
Risk Weighted Assets) $23,371 18.10% $10,330 (+-)8.0% $12,913 (+-)10.0%
Tier 1 Capital (to
Risk Weighted Assets) $21,745 16.71% $ 5,205 (+-)4.0% $ 7,807 (+-) 6.0%
Tier 1 Capital (to
Average Assets) $21,745 8.92% $ 9,752 (+-)4.0% $12,190 (+-) 5.0%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
BCB's Financial Statements presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurements of financial position and results of operations in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. Banks have asset and liability structures
that are essentially monetary in nature, and their general and administrative
costs constitute relatively small percentages of total expenses. Thus, increases
in the general price levels for goods and services have a relatively minor
effect on BCB's total expenses. Interest rates have a more significant impact on
BCB's financial performance than the effect of general inflation. Interest rates
do not necessarily move in the same direction or change in the same magnitude as
the prices of goods and services, although periods of increased inflation may
accompany a rising interest rate environment.
CHANGE IN INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("KPMG") served as the independent auditors for
BCB for the fiscal years ending December 31, 1995 and 1994. Effective April 17,
1996, BCB terminated KPMG's engagement and engaged Shatswell, MacLeod & Company,
P.C., as BCB's independent auditing firm. BCB's decision to change auditors was
approved by the BCB Board and the Audit Committee.
In connection with the audit of BCB's financial statements as of and
for the years ended December 31, 1995 and 1994, and for the period from January
1, 1996 through April 17, 1997, there were no disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused KPMG to make reference in connection
with its report to the subject matter of the disagreement. KPMG's report on
BCB's financial statements as of and for the years ended December 31, 1995 and
1994, contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PEMI
The following table sets forth selected historical consolidated
financial information of PEMI for the three month periods ended March 31, 1997
and 1996, and for each of the years in the five-year period ended December 31,
1996. Such data has been derived from the unaudited consolidated financial
statements (including related notes thereto) of PEMI for the three months ended
March 31, 1997 and 1996, and the audited consolidated financial statements
(including related notes thereto) of PEMI for the years ended December 31, 1996,
1995, 1994, 1993 and 1992. All adjustments in the unaudited interim periods are
of a normal and recurring nature, which in the opinion of management are
necessary for a fair presentation of the results for the interim periods
presented.
<TABLE>
<CAPTION>
At or For the Three
Months Ended March 31, At or For the Year Ended December 31,
-------------------------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets .............. $128,062 $118,322 $128,979 $117,323 $113,169 $115,450 $112,539
Interest bearing deposits
with other banks .......... -- 1 -- -- -- -- 99
Net loans ................. 87,849 80,607 87,096 80,087 83,93 181,408 79,819
Allowance for possible loan
losses .................. 1,283 1,380 1,306 1,360 1,567 1,730 1,741
Total non-performing loans 1,385 463 618 542 827 434 911
Total non-performing assets 1,494 720 672 604 1,050 953 2,270
Investments in securities . 29,813 29,330 31,252 23,933 19,678 24,187 19,529
Deposits .................. 103,602 95,039 105,685 96,416 91,766 93,770 97,982
Borrowings ................ 9,891 9,692 8,703 7,492 8,992 9,851 3,139
Stockholders' equity (1) .. 12,401 11,551 12,214 11,394 10,720 10,243 9,598
Income Statement Data:
Net interest and
dividend income ......... $ 1,473 $ 1,441 $ 6,046 $ 5,809 $ 5,472 $ 4,882 $ 5,083
Provision for possible
loan losses ............. 30 36 152 112 120 180 975
Other income .............. 163 157 673 680 724 684 782
Other expense ............. 1,189 1,126 4,662 4,474 4,373 4,423 4,426
Net income ................ 279 294 1,277 1,275 1,151 832 440
Per Common Share Data:
Net income (2) ............ $ .40 $ .43 $ 1.85 $ 1.85 $ 1.53 $ 1.11 $ .58
Dividends declared
per share ............... -- -- .65 .50 .40 .25 .20
Book value (1) ............ 17.96 16.73 17.69 16.50 14.85 13.62 12.76
Selected Ratios:
Net yield on interest
earnings assets ......... 5.15% 5.49% 5.39% 5.60% 5.30% 4.94% 5.15%
Interest rate margin ...... 4.44 4.80 4.70 4.97 4.80 4.46 4.62
Net income as a
percentage of
Average assets ............ .22 .25 1.02 1.10 1.00 .74 .39
Average equity (1) ........ 2.26 2.54 10.77 11.46 11.04 8.33 4.58
Dividend payout ratio ..... N/A N/A 35.13 27.07 26.13 22.60 34.21
Operating expenses to
average assets .......... .92 .96 3.73 3.88 3.79 3.95 3.93
Average interest-earning
assets to average
interest-bearing
liabilities ............. 120.39 119.11 119.41 118.23 117.17 114.49 112.61
Efficiency ratio .......... 72.68 70.46 69.39 68.95 70.58 79.46 75.48
Tier 1 leverage capital
ratio ................... 9.59 10.19 9.50 9.91 9.39 8.51 8.12
Tier 1 risk-based capital
ratio ................... 16.29 16.62 16.08 16.45 14.57 13.83 12.81
Total risk-based capital
ratio ................... 17.61 17.87 17.41 17.82 15.97 15.26 14.23
Asset Quality Ratios:
Non-performing loans to
total loans ............. 1.55% .56% .70% .66% .96% .52% 1.11%
Non-performing assets to
total assets ............ 1.17 .61 .52 .51 .93 .83 2.02
Allowance for possible
loan losses to
non-performing loans .... 92.63 298.06 211.33 250.92 189.48 398.62 191.11
Allowance for possible
loan losses as a
percentage of loans ..... 1.44 1.68 1.48 1.66 1.83 2.07 2.13
- -------------------
(1) Stockholders' equity as of March 31, 1997 and 1996, and as of December 31, 1996, 1995, 1994, and 1993 has been reduced or
increased by the unrealized loss or gain on investment securities "available-for-sale."
(2) Computed using the weighted average number of shares outstanding.
N/A - Not applicable.
</TABLE>
<PAGE>
PEMI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding
PEMI's financial position as of March 31, 1997 and 1996, and as of December 31,
1996 and 1995, and its results of operations for the three months ended March
31, 1997 and 1996, and for the years ended December 31, 1996, 1995, and 1994.
This discussion should be read in conjunction with the preceding "Selected
Historical Financial Information of PEMI" and PEMI's Financial Statements and
related Notes thereto and other financial data appearing elsewhere in this Proxy
Statement/Prospectus. In the opinion of management, unaudited interim data
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present PEMI's financial position and results of operations
for the periods presented. The results of operations for any interim period are
not necessarily indicative of results to be expected for a full fiscal year. For
information relating to factors that could affect future operating results, see
"Risk Factors." Any forward-looking statements included in this Proxy
Statement/Prospectus should be considered in light of such factors, as well as
the information set forth below.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three months ended March 31, 1997, PEMI reported net income of
$279,000, or $.40 per share, a decrease of $.03 per share from net income of
$294,000, or $.43 per share, reported for the same period in 1996. Fees and
expenses associated with the conversion of PEMI's data processing systems as
well as expenses relating to the Merger Agreement were responsible for the
decrease in the net income compared to the first quarter of 1996.
PEMI had total assets of $128.1 million at March 31, 1997.
Non-performing loans at March 31, 1997, totaled $1.4 million.
Interest and Dividend Income. For the quarter ended March 31, 1997,
total interest and dividend income amounted to $2.5 million, compared to $2.4
million for the same period in 1996. For the same period, average earnings
assets were $119.0 million compared to $108.9 million in the prior year period.
Average loans for the quarter ended March 31, 1997, amounted to $87.2 million
versus $80.0 million for the quarter ended March 31, 1996. Increases in the
level of consumer and commercial business loans accounted for the gain in loan
interest income. The average balance of investment securities for the quarter
ended March 31, 1997, was $30.8 million versus $26.4 million in the prior year
period. The average level of federal funds sold for the quarter ended March 31,
1997, decreased to $978,000 from $2.4 million for the quarter ended March 31,
1996.
Interest Expense. For the quarter ended March 31, 1997, total interest
expense was $1.0 million, an increase of $46,000 from $976,000 reported for the
quarter ended March 31, 1996. Average interest bearing deposits for the quarter
ended March 31, 1997, were approximately $89.9 million as compared to
approximately $83.6 million for the same quarter in the prior year. Average time
deposits for the quarter ended March 31, 1997, increased to approximately $46.2
million from approximately $42.5 million for the quarter ended March 31, 1996.
Noninterest Income. Noninterest income for the quarter ended March 31,
1997, increased $6,000 or 3.8% to $163,000 from $157,000 for the comparable
quarter in 1996. This increase is primarily attributable to increases in service
charges and fee income.
Noninterest Expense. Total noninterest expense for the three months
ended March 31, 1997, was $1.2 million reflecting an increase of $63,000 from
the $1.1 million in the corresponding period in fiscal year 1996. This increase
stems primarily from higher personnel costs and increased operating expense.
Office occupancy and equipment expense amounted to $242,000 for the
three months ended March 31, 1997, and represented an increase of $33,000 or
15.8% from the three months ended March 31, 1996. This increase was the result
of fees and expenses associated with the data processing conversion.
Income Tax Expense. For the three months ended March 31, 1997 and 1996,
PEMI's effective income tax rate was 32.6%.
PEMI reported net income for the fiscal year ended December 31, 1996 of
$1.3 million and declared dividends amounting to $449,000, or $.65 per share.
PNB's capital ratios and reserves are considered to be healthy, the lending
staff is seasoned, PNB's traditional, conservative practices will continue, and
PNB's facilities are modern, with ample space for any foreseeable growth. As a
community bank, PNB's health and profitability is somewhat dependent upon the
local economy and other pressures on community banks, such as the increasing
costs of regulation and FDIC insurance premiums. PNB's market area is reasonably
stable with no business concentrations other than the resort business.
Net income for the fiscal year ended December 31, 1996 was $1.3 million
as compared with $1.3 million for the year ended 1995 and $1.2 million for the
year ended 1994. Interest and fees on loans, PEMI's primary source of income,
for the year ended December 31, 1996 amounted to $8.3 million, $8.1 million in
1995 and $7.2 million in 1994. This represents an increase of 1.65% from 1995 to
1996. An increase in loan rates is the primary reason for this increase. Total
interest expense for the fiscal year ended December 31, 1996 was $4.2 million as
compared with $3.7 million for 1995 and $3.1 million for 1994. These increases
reflect an increase in short term rates.
For the fiscal year ending December 31, 1996 other income decreased by
$7,000 or 1.0% from December 31, 1995 and decreased $44,000 or 6.1% from
December 31, 1994 to December 31, 1995. Other expense in 1996 increased by
$188,000 or 4.2% compared to an increase of $101,000 or 2.3% from 1994 to 1995.
An increase in equipment expenses primarily contributed to this result.
ALLOWANCE FOR POSSIBLE LOAN LOSSES AND NON-PERFORMING ASSETS
At March 31, 1997, PNB's Allowance for Possible Loan Losses ("APLL")
amounted to $1.3 million, or 1.4% of total loans, which was $97,000 less than
the $1.4 million balance, representing 1.7% of total loans, at March 31, 1996.
During the first quarter of 1997, PNB made provisions to the APLL of $30,000 as
compared to $36,000 the first quarter of March 1996. Provisions are based on the
evaluation by management and the board of directors of current and anticipated
economic conditions, changes in character and size of the loan portfolio and
other indicators. The balance in the APLL is considered adequate by management
and the board to absorb the risk of loss inherent in PNB's loan portfolio.
As of March 31, 1997, non-performing loans (non-accrual loans and loans
past due 90 days or more) totaled $1.4 million, or 1.6% of total loans, an
increase of $922,000 as compared to $463,000, or .6%, at March 31, 1996. Most of
the increase in non-performing loans is attributable to four separate loan
relationships. In two of these instances, the deaths of the borrowers have
resulted in a disruption to the scheduled repayment of the loans and the loans
are considered to be non-performing. However, based upon the appraised value of
the collateral that secures such loans, management has established specific
reserves and does not expect PNB to incur additional material losses from these
loans when the administration of the estates is completed and the properties
sold and/or the loans are repaid. In two other instances, borrowers have
experienced personal tragedies which have effected their business and resulted
in their commencement of bankruptcy proceedings. In light of the pending
bankruptcy proceedings, the loans are considered to be non-performing. However,
based upon the appraised values of the collateral which secures such loans and
the terms of a purchase and sale agreement with a third party which would
substantially protect PNB's interest with regard to the largest of these two
credit relationships, management has established specific reserves and does not
anticipate that PNB will experience any further material losses in the ultimate
resolution of these loans. See Note 4 to PEMI's Consolidated Financial
Statements. The largest of these credit relationships, which amounted to
approximately one-half of the total increase in non-performing loans, was fully
performing through March 31, 1997. However, in early April 1997, upon the
commencement of the bankruptcy proceeding, PNB placed the loan on non-accrual
status retroactively through the first calendar quarter of 1997.
Management is concerned regarding the increase in non-performing loans
and is working aggressively to obtain repayment of these credits. Management
remains optimistic regarding PNB's ability to significantly reduce
non-performing loans and does not consider these credits to reflect any economic
trend affecting PNB's loan portfolio, market area or customer base generally.
The ratio of non-performing assets (non-performing loans and OREO) to
total assets for March 31, 1997 was 1.2% as compared to .6% for March 31, 1996.
Net charge-offs totaled $53,000, or .1% of total loans as of March 31,
1997 as compared to $16,000 as of March 31, 1996.
At December 31, 1996, PNB's Allowance for Possible Loan Losses ("APLL")
amounted to $1.3 million, which was $54,000 less than the $1.4 million balance
at December 31, 1995. During 1996, PNB made provisions to the APLL of $152,000
for loan losses as compared to $112,000 in 1995. This compares with provisions
of $120,000 in 1994. Increased provisions during 1996 reflect the growth of the
loan portfolio.
As of December 31, 1996, non-performing loans (nonaccrual loans and
loans past due 90 days or more) totaled $618,000, or .7% of total loans as
compared to $542,000 or .7% at December 31, 1995. This represents an increase of
$77,000.
The ratio of APLL to nonaccrual loans for December 31, 1996 was 246.1%
as compared to 274.3% for December 31, 1995.
The ratio of APLL to nonaccrual loans plus loans which are past due
ninety (90) days or more for December 31, 1996 was 211.4% as compared to 251.2%
for December 31, 1995.
The ratio of nonperforming assets (non-performing loans and OREO) to
total assets for December 31, 1996 was .52% as compared to .51% for December 31,
1995. Nonaccrual loans totaled $531,000 as of December 31, 1996, as compared
with $496,000 at December 31, 1995.
Net charge-offs totaled $206,000 or .23% of total loans as of December
31, 1996 as compared to $319,000 or .39% of total loans as of December 31, 1995.
PEMI's assets increased to $129.0 million at year end December 31, 1996
as compared to $117.3 million at year end December 31, 1995 and $113.2 million
at year end 1994. This represents a 10.0% increase from December 31, 1995. Net
loans increased by 8.8% from December 31, 1995 to the period ended December 31,
1996 and deposits increased by 9.6% for the same period.
The average yield on interest earning assets for 1996, 1995 and 1994
was 9.0%, 9.1% and 8.2%, respectively. For 1996, this represents a 6 basis point
decrease in yield on assets. The cost of interest bearing liabilities was 4.3%
in 1996, 4.1% in 1995 and 3.4% in 1994. For 1996, this represents a 20 basis
point increase in cost of funds.
<PAGE>
AVERAGE BALANCES, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATES
The tables that follow present the average balances, the amount of
interest income from earning assets, and the interest paid on interest-bearing
liabilities (expressed both in dollars and rates) for the three months ended
March 31, 1997 and 1996, and for the years ended December 31, 1996, 1995 and
1994 (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 Three Months Ended March 31, 1996
--------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
------- ----------- ---- ------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earnings assets:
Interest bearing deposits......... $ -- $ -- -- % $ -- $ -- -- %
Federal funds sold................ 978 12 5.21 2,448 33 5.46
Taxable investment securities..... 26,293 428 6.60 21,965 349 6.39
Tax-exempt investment securities.. 4,547 94 8.42 4,480 94 8.42
Loans (net of unearned
income((2)(3)................... 87,185 2,000 9.30 80,046 1,986 9.98
--------- -------- ---------- ---------
Total interest earning assets. 119,003 2,534 8.64 108,939 2,462 9.09
-------- ---------
Non-interest earning assets....... 9,665 8,871
--------- ----------
Total assets.................. $ 128,668 $ 117,810
========= ==========
Interest bearing liabilities:
NOW and money market accounts..... $ 27,164 $ 136 2.03 $ 27,446 $ 145 2.60
Savings deposits.................. 16,403 102 2.52 13,718 89 5.98
Time deposits $100,000 and over... 5,490 76 5.65 5,205 77 5.93
Other time deposits............... 40,742 571 5.68 37,277 550 5.89
Short-term borrowings............. 3,837 58 6.11 7,321 107 6.13
Long-term borrowings.............. 5,210 79 6.16 491 8 4.29
--------- -------- ---------- ---------
Total interest bearing
liabilities................. 98,846 1,022 4.20 91,458 976 4.27
--------- -------- ---------- ---------
Non-interest bearing liabilities:
Demand deposits................... 15,389 12,863
Other............................. 2,101 1,901
--------- ----------
Total non-interest bearing
liabilities..................... 17,490 14,764
--------- ----------
Stockholders' equity.............. 12,332 11,588
--------- ----------
Total liabilities and stockholders'
equity.......................... $ 128,668 $ 117,810
========= ==========
Net interest income/interest
rate margin....................... $ 1,512 4.44% $ 1,486 4.82%
======== =========
Earning balance/net yield on
interest earning assets........... $ 20,157 5.08% $ 17,481 5.46%
========= ==========
- -------------
(1) Tax effect increases in interest income on municipal loans and securities were $39,000 and $45,000 for
three months ended March 31, 1997 and 1996, respectively.
The federal tax rate of 34% was used for the three months ended March 31, 1997 and 1996.
(2) Included in interest on loans are loan fees which totaled $36,000 and $66,000 for three months ended
March 31, 1997 and 1996, respectively.
(3) Includes nonaccruing loan balances and interest received on such loans.
</TABLE>
<PAGE>
<TABLE>
Period Ended December 31, 1996 Period Ended December 31, 1995 Period Ended December 31, 1994
-----------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate Balance Interest(1) Rate
------- ----------- ---- ------- ----------- ---- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earnings assets:
Interest bearing deposits.... $ -- $ -- --% $ 12 $ 1 5.95% $ 23 $ 1 3.69%
Federal funds sold........... 1,385 77 5.53% 2,263 127 5.63 922 34 3.71
Taxable investment securities 25,156 1,617 6.43 17,261 1,094 6.34 18,954 1,139 6.01
Tax-exempt investment
securities ................ 4,538 378 8.33 2,558 239 9.35 2,558 243 9.49
Loans (net of unearned
income((2)(3).............. 84,284 8,306 9.85 84,357 8,190 9.71 83,667 7,255 8.67
--------- -------- ---------- -------- --------- ------
Total interest earning
assets ................. 115,363 10,378 9.00% 106,451 9,651 9.07% 106,124 8,672 8.17%
Non-interest earning assets.. 9,495 8,970 9,266
--------- ---------- ---------
Total assets............. $ 124,858 $ 115,421 $ 115,390
========= ========== =========
Interest bearing liabilities:
Now and Money Market......... $ 27,793 587 2.11 $ 28,301 626 2.21 $ 32,797 712 2.17
Savings deposit.............. 15,338 394 2.57 13,677 366 2.67 14,670 362 2.47
Time $100,000 and over....... 5,192 309 5.95 4,168 235 5.63 3,979 183 4.60
Other time................... 39,439 2,342 5.94 33,678 1,852 5.50 30,557 1,371 4.49
Short-term borrowings........ 7,500 437 5.82 7,202 451 6.27 962 48 4.92
Long-term borrowings......... 1,348 85 6.31 3,015 163 5.39 7,605 376 4.95
--------- -------- ---------- -------- --------- ------
Total interest bearing
liabilities.............. 96,610 4,154 4.30% 90,041 3,693 4.10% 90,570 3,052 3.37%
--------- -------- ---------- -------- --------- ------
Non-interest bearing
liabilities:
Demand deposits.............. 14,366 12,665 12,891
Other........................ 2,024 1,591 1,501
--------- ---------- ---------
Total non-interest bearing
liabilities................ 16,390 14,256 14,392
--------- ---------- ---------
Stockholders' equity......... 11,858 11,124 10,428
--------- ---------- ---------
Total liabilities and
stockholders' equity....... $ 124,858 $ 115,421 $ 115,390
========= ========== =========
Net interest income/interest
rate margin.................. $ 6,224 4.70% $ 5,958 4.97% $ 5,620 4.80%
======== ==== ======== ==== ========= ====
Earning balance/net yield on
interest earning assets...... $ 18,753 5.39% $ 16,410 5.60% $ 15,554 5.30%
========= ==== ========== ==== ========= ====
- --------------
(1) Tax effect increases in interest income on municipal loans and 9 securities were $178,000 for 1996, $148,000 for 1995 and
$147,000 for 1994. The federal tax rate of 34% was used for the years ended December 31, 1996, 1995 and 1994.
(2) Included in interest on loans are loan fees which totaled $320,000 for 1996, $199,000 for 1995 and $203,000 for 1994.
(3) Includes nonaccruing loan balances and interest received on such loans.
</TABLE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Banking institutions measure liquidity as the ability to meet
unexpected deposit withdrawals of a short-term nature and to meet increased loan
demand. It is management's objective to ensure a continuous ability to meet cash
needs as they arise. As of December 31, 1996 PNB's liquidity ratio stood at
14.1% as compared to 11.6% at December 31, 1995. With available FHLB Advances
included, these ratios become 32.8% and 35.5%, respectively.
The liquidity ratio is determined by the use of PNB's Basic Surplus
Model which represents a static analysis of the relationship between liquid
assets and short-term liabilities which are vulnerable to non-replacement under
abnormally stringent conditions. This controlled level of liquidity reflects the
efforts of PNB to redeploy its assets into loans to respond to the credit needs
of the community and hopefully improve PNB's return on assets. Management
believes PNB's liquidity to be adequate to meet the needs of PNB.
Liquidity is measured by PNB's ability to raise cash when needed at a
reasonable cost and with a minimum of loss. PNB must be capable of meeting all
obligations to customers at any time and, therefore, the active management of
liquidity is important.
Given the uncertain nature of customers' demands as well as PNB's
desire to take advantage of earnings enhancement opportunities, PNB must have
available adequate sources of on and off balance sheet funds that can be
acquired in time of need. Accordingly, in addition to the liquidity provided by
balance sheet cash flows, liquidity must be supplemented with alternative
sources such as Fed Funds and Lines of Credit, FHLB Advances, and wholesale and
retail repurchase agreements.
Accordingly, when making investments and loans, their marketability and
collateral value must be considered. When the necessity for pledging arises, the
least marketable should generally be used.
Two methods of measuring liquidity are generally utilized. The first is
a static analysis of the relationship between liquid assets and short-term
liabilities which are vulnerable to non-replacement under abnormally stringent
conditions. The second measure of liquidity operationalizes the static analysis.
It is a cash-flow forecast expressed in terms of the relationship between
identified funding needs and the estimated level of cash in flows over a 90-day
horizon. Monitoring and managing both liquidity measurements is important in
developing prudent and effective deposit pricing and investment strategies.
The equity capital of PEMI as of March 31, 1997, amounted to $12.4
million, or 9.7% of total assets, as compared to $11.6 million, or 9.8% of total
assets as of March 31, 1996. The equity capital of PEMI as of December 31, 1996
amounted to $12.2 million. This represents a 7.2% increase over the equity
capital at December 31, 1995. The increase is attributable to a 9.3% increase in
retained earnings. Equity capital as a percent of total assets amounted to 9.5%
as of December 31, 1996, a decrease of approximately .24% from year end 1995 of
9.7%.
PEMI and PNB are required to maintain capital levels consistent with
the "risk-based capital guidelines" adopted by the OCC and the Federal Reserve
Board. The OCC's capital guidelines require a ratio of Total Capital (consisting
of capital, surplus and the allowance for possible loan losses up to 1.25% of
risk weighted assets), to be equal to at least 8.0%. Additionally, PNB must
maintain Tier 1 capital (which under the regulations, consists of common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries) in amounts not less than 4.00% of adjusted total assets (or 100 to
200 basis points higher in the case of banks that do not receive the best
composite ratings). At March 31, 1997, the actual Risk Based Capital of PNB was
16.2% for Tier 1 and 17.6% for Total Capital and the Leverage Ratio was 9.6%. At
December 31, 1996, the actual Risk Based Capital of PNB was 16.0% for Tier 1 and
17.4% for Total Capital and the Leverage Ratio was 9.5%. In each case, this
substantially exceeded current applicable and any known future minimum
regulatory requirements.
EFFECTS OF INFLATION
Inflation affects the growth of total assets by increasing the level of
loan demand and creating the need to increase equity capital at higher than
normal rates in order to maintain an appropriate ratio of equity to assets.
Interest rates in particular are significantly affected by inflation. In
addition to its effects on interest rates, inflation directly affects PEMI by
increasing PEMI's cost of funds and operating expenses.
RATE VOLUME ANALYSIS
The following table presents the changes in interest income and
interest expense for the three months ended March 31, 1997 as compared to the
three months ended March 31, 1996 (dollars in thousands). The changes indicated
are attributable to a change in interest rates and the change in the volume of
earning assets and interest-bearing liabilities as well as the change
attributable to a change in interest rates and the change in the volume of
earning assets and interest-bearing liabilities as well as the change
attributable to both volume and rate. The combined effect of changes in both
volume and rate which cannot be separately identified has been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
March 31,
1997 as compared to 1996
Increase (decrease) due to change in
------------------------------------------
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest and dividend income:
Interest bearing deposits....................... $ -- $ -- $ --
Federal funds sold.............................. (19) (2) (21)
Taxable investment securities................... 68 11 79
Loans (net of unearned income).................. 58 (44) 14
-------- -------- --------
Total interest and dividend income........... 107 (35) 72
-------- -------- --------
Interest and dividend expense:
Now and money market............................ (2) (8) (10)
Regular savings................................. 16 (3) 13
Time deposits, $100,000 and over................ 66 (67) (1)
Other time...................................... 38 (17) 21
Short-term borrowings........................... (54) 5 (49)
Long-term borrowings............................ 72 -- 72
-------- -------- --------
Total interest and dividend expense.......... 136 (90) 46
-------- -------- --------
Net interest income................................ $ (29) $ 55 $ 26
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31,
1996 as compared to 1995 1995 as compared to 1994
Increase (decrease) due to change in Increase (decrease) due to a change in
------------------------------------ --------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest bearing deposits........... $ (1) $ -- $ (1) $ -- $ -- $ --
Federal funds sold.................. (49) (2) (51) 69 24 93
Taxable investment securities....... 507 16 523 (105) 60 (45)
Tax-exempt investment securities.... 168 (29) 139 (1) (2) (3)
Loans (net of earned income)........ (7) 123 116 60 875 935
------- ------ ------- ------ ------ ------
Total interest and dividend
income......................... 618 108 726 23 957 980
------- ------ ------- ------ ------ ------
Interest and dividend expense:
Now and money market................ (11) (28) (39) (99) 13 (86)
Regular savings..................... 43 (15) 28 (25) 29 4
Time deposits, $100,000 and over.... 60 14 74 9 43 52
Other time.......................... 334 156 490 150 331 481
Short-term borrowings............... 18 (33) (15) 388 16 404
Long-term borrowings................ (102) 24 (78) (245) 31 (214)
------- ------ ------- ------ ------ ------
Total interest and dividend
expense....................... 342 118 460 178 463 641
------- ------ ------- ------ ------ ------
Net interest income.................... $ 276 $ (10) $ 266 $ (155) $ 494 $ 339
======= ====== ======= ====== ====== ======
</TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
The following discussion of Interest Rate Sensitivity Analysis should
be read in conjunction with the GAP Table set forth following the discussion
which reflects how the timing and repricing of assets and liabilities would
impact liquidity and interest rate spread.
PNB's rate sensitivity analysis format is divided into four (4)
sections. The first section details information concerning various maturities of
rate sensitive assets. The second section identifies rate sensitive liabilities.
The third section identifies interval GAPS and the fourth, cumulative GAP
analysis.
Rate sensitive assets can be divided into two component parts:
Investments in Securities and Loans. Investments have various maturities, are
normally fixed rates, and when they mature, the proceeds are available for
reinvestment. As these securities approach maturity, it is important for the
investment officer to be aware of the rate on the maturing investment, current
rates available on similar investments and liquidity requirements of PNB. As the
securities mature, the proceeds will be invested in rates higher or lower than
the maturing security, thus affecting the rate of return.
The final section of rate sensitive assets consists of commercial
loans, real estate loans and consumer loans. Commercial loans are comprised of
both maturing loans that will be paid off, and loans that mature but will in all
likelihood be rewritten. Real estate loans are comprised of those loans whose
rates will be repriced at maturity and consumer loans are those that will be
repriced and paid in full at maturity.
Rate Sensitive Liabilities are primarily time deposits. As the savings
instruments reach maturity, PNB, in order to retain the deposits, will need to
offer competitive rates or be faced with disintermediation. Falling rates
indicate it may cost PNB less to retain these funds, thus increasing profits.
Conversely, rising rates may adversely affect profits.
The section on interval GAPS indicate the difference between Rate
Sensitive Assets and Rate Sensitive Liabilities at different maturity intervals.
It is a snapshot of the GAPS at specific time periods. The ratios measure a
tolerance range for various time periods.
The final section on Cumulative GAPS measure the overall GAP position
at different time periods.
In analyzing PNB's GAP, several general principles should be
considered. First, in a more risky interest rate environment, you would expect a
smaller GAP tolerance range associated with a given appetite for interest rate
risk. Conversely, the greater the tolerance range, the greater the expected
return and risk.
The GAPS at time intervals indicate the timing of the effect of
interest rate changes on income. The Cumulative GAP indicates the overall
magnitude and direction of rate risk exposure.
The GAP measures interest rates risk exposure, not liquidity of funding
risk.
It may be less costly to adjust the GAP in a negative direction than in
a positive direction because capital losses may be generated if the maturity of
the investment portfolio is shortened to move the GAP in a positive direction.
However, the greater PNB's ability to replace short-term liabilities with
long-term liabilities, the easier it is to adjust the GAP in a positive
direction.
Prudent adjustment of the GAP to capitalize on expected interest rate
trends will usually result in a negative impact on short term earnings. For
example, if rates are expected to rise by more than the consensus rate forecast,
a somewhat positive GAP is appropriate.
Generally, the smaller the GAP, the smaller the fluctuation in the net
interest margin resulting from changes in levels of interest rates.
If Risk Sensitivity Analysis indicated that PNB was Asset Sensitive
(meaning that it had more rate sensitive assets than rate sensitive
liabilities), then rising rates will have a positive impact on earnings;
however, falling rates will negatively affect earnings.
Should the analysis indicate liability sensitivity, then rising rates
will tend to reduce earnings and falling rates will tend to have a positive
impact on earnings.
PNB's primary tool in managing Interest Rate Risk will be
asset/liability funding matrix reports. Income simulation will be utilized to
quantify the potential impact on earnings of changes in interest rates. A
standard gap report will also be utilized to provide supporting detailed
information. Management has monitored deposit runoff in both rising and falling
rate environments, and based upon this analysis, has developed simulation models
of interest rate risk as well as liquidity cash flows that reflect the results
of assumptions.
The following table sets forth PEMI's rate sensitivity analysis as of
March 31, 1997, and as of December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------------------------
0-3 3 months 6 months 1 year to Over 5
Months to 6 months to 1 year 5 years years Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 17,362 $ 8,701 $ 21,756 $ 23,023 $ 18,391 $ 89,233
FHLB/FRB Bank stock 740 -- -- -- 80 820
Available-for-sale
securities* 427 170 472 1,935 14,570 17,574
Held-to-maturity
securities* 963 162 1,329 2,819 6,331 11,604
--------- --------- ---------- ----------- ---------- ----------
Total interest-
earning assets $ 19,492 $ 9,033 $ 23,557 $ 27,777 $ 39,372 $ 119,231
========= ========= ========== =========== ========== ==========
Interest bearing
liabilities:
Time CD's $100,000 and
over $ 1,350 $ 946 $ 1,441 $ 1,712 $ -- $ 5,449
Other time deposits 7,468 6,623 15,396 10,855 -- 40,342
Money market accounts 12,265 -- -- -- -- 12,265
Regular savings -- -- 4,490 -- 12,141 16,631
NOW accounts 143 -- -- -- 14,201 14,344
FHLB advances 4,400 196 2,041 3,254 -- 9,891
--------- --------- ---------- ----------- ---------- ----------
Total interest-
bearing liabilities $ 25,626 $ 7.765 $ 23,368 $ 15,821 $ 26,342 $ 98,922
========= ========= ========== =========== ========== ==========
Period sensitivity gap $ (6,134) $ 1,268 $ 189 $ 11,956 $ 13,030 $ 20,309
========= ========= ========== =========== ========== ==========
Cumulative sensitivity gap $ (6,134) $ (4,866) $ (4,677) $ 7,279 $ 20,309
========= ========= ========== =========== ==========
Period sensitivity gap
as a percentage of
interest earning assets (5.1)% 1.1% .2% 10.0% 10.9%
Cumulative sensitivity
gap as a percentage
of interest earning
assets (5.1)% (4.1)% (3.9)% 6.1% 17.0%
- ------------------
* Amortized cost
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------------
0-3 3 months 6 months 1 year to Over 5
Months to 6 months to 1 year 5 years years Total
------ ----------- --------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 18,951 $ 8,528 $ 15,326 $ 27,692 $ 17,619 $ 88,116
FHLB/FRB Bank stock 740 -- -- -- 80 820
Available-for-sale
securities* 501 -- 170 2,705 15,116 18,492
Held-to-maturity
securities* -- 500 300 2,356 8,819 11,975
--------- --------- ---------- ----------- ---------- ----------
Total interest-
earning assets $ 20,192 $ 9,028 $ 15,796 $ 32,753 $ 41,634 $ 119,403
========= ========= ========== =========== ========== ==========
Interest bearing
liabilities:
Time CD's $100,000 and
over $ 1,467 $ 1,019 $ 501 $ 2,405 $ -- $ 5,392
Other time deposits 9,924 5,945 10,770 13,962 35 40,636
Money market accounts 13,493 -- -- -- -- 13,493
Regular savings -- -- 4,227 -- 11,412 15,639
NOW accounts 128 -- -- -- 14,281 14,409
FHLB advances 1,211 3,500 197 3,795 -- 8,703
--------- --------- ---------- ----------- ---------- ----------
Total interest-
bearing liabilities $ 26,223 $ 10,464 $ 15,695 $ 20,162 $ 25,728 $ 98,272
========= ========= ========== =========== ========== ==========
Period sensitivity gap $ (6,031) $ (1,436) $ 101 $ 12,591 $ 15,906 $ 21,131
========= ========= ========== =========== ========== ==========
Cumulative sensitivity gap $ (6,031) $ (7,467) $ (7,366) $ 5,225 $ 21,131
========= ========= ========== =========== ==========
Period sensitivity gap
as a percentage of
interest earning assets (5.1)% (1.2)% .1% 10.5% 13.3%
Cumulative sensitivity
gap as a percentage
of interest earning
assets (5.1)% (6.3)% (6.2)% 4.4% 17.7%
</TABLE>
- -----------------
* Amortized cost
<PAGE>
BUSINESS OF BCB
GENERAL
BCB was organized and chartered as a national bank in 1891 under the
name "Berlin National Bank." In December 1971, The Berlin City National Bank
entered into a Plan of Reorganization with the City Savings Bank. Effective May
1, 1974, BCB converted its national charter to a state charter under the laws of
the state of New Hampshire and changed its name to The Berlin City Bank. In
September 1981, BCB purchased the net assets of The People's National Bank of
Groveton, New Hampshire. In July 1994, BCB purchased from the Resolution Trust
Corporation the three northern branches of HomeBank located in the New Hampshire
city of Berlin and the towns of Gorham and North Conway.
BCB provides customary commercial banking services from its seven
banking offices. BCB's business has traditionally consisted of attracting
savings, time, demand, NOW, and money market deposit accounts and using those
deposit accounts, together with borrowings and other funds, to purchase and
originate residential and commercial real estate mortgages, and commercial,
construction, and line of credit loans. BCB also offers a variety of branch
services, including travelers checks, safe deposit boxes, credit card accounts,
overdraft lines of credit, and wire transfer services. BCB has seven automatic
teller machines to allow customers limited banking services on a 24-hour basis.
BCB's income is derived principally from interest and dividends earned on loans
and investments and its primary expenses arise from interest paid on deposits
and borrowings and overhead expenses incurred in its operations.
Deposits maintained with BCB are insured by the Bank Insurance Fund of
the FDIC up to FDIC limits (generally $100,000 per depositor). As a New
Hampshire-chartered commercial bank, BCB is subject to regulation, examination,
and supervision by the New Hampshire Banking Commissioner, the FDIC, and the
Federal Reserve Board. The regulations promulgated by these authorities govern
certain of the operations of BCB, including the levels of capital it must
maintain, its ability to pay dividends, the nature and amount of loans that it
can originate and the rate of interest that it can charge thereon, its
investment policies, and other activities.
MARKET AREA AND COMPETITION
BCB's primary service area includes the New Hampshire communities of
Berlin, Gorham, Conway, Groveton, and Littleton. The larger area of Coos County,
the northern portion of Carroll County (including the New Hampshire towns of
Jackson and Chatham), and the northern section of Grafton County (including the
New Hampshire towns of Franconia and Whitefield) are considered a secondary
service area. At December 31, 1996, these areas had a total of approximately
$795 million in deposits in commercial banks and savings institutions (5.7% of
the total of approximately $14 billion of deposits in New Hampshire).
BCB faces substantial competition in its market area from local
commercial banks, savings banks, credit unions, and financial services
affiliates of bank holding companies, and BCB anticipates continued strong
competition from such financial institutions in the foreseeable future. Within
BCB's market areas are branches of several commercial banks and savings
associations that are substantially larger and that have more extensive
operations than does BCB. In addition, many financial institutions based in New
Hampshire have recently been acquired by larger institutions based in other
parts of the state or based out of state. BCB's goal is to compete for savings
and other deposits by offering depositors a higher level of personal service and
local area expertise, together with a wide range of financial services offered
at competitive rates.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies, and other savings
associations. BCB competes for loan originations primarily through the interest
rates and loan fees it charges, the types of loans it offers, and the efficiency
and quality of services it provides. While BCB has been, and intends to continue
to be, primarily a residential lender, BCB also emphasizes commercial real
estate, construction, and commercial lending. Factors that effect competition in
lending include general and local economic conditions, current interest rates,
and volatility of the mortgage markets. As with its deposit products, BCB's
strategy is to promote its greater level of personal service and community
knowledge and to position itself as a small- to middle-market lender to
businesses left under served by larger institutions.
Management's strategy has included and continues to include evaluation
of market needs and offering products to meet those needs. BCB will continue to
offer products and services that will allow it to control the growth of its
assets and liabilities. These new products and services will allow BCB to
continue to position itself to customers as a community bank.
LENDING ACTIVITIES
General. BCB conducts its lending activities principally in New
Hampshire and focuses on purchasing and originating single family residential
loans, commercial real estate loans, including loans on resorts and motels,
vacation condominium loans, time share loans, commercial loans, and a variety of
consumer loans. In addition, BCB originates loans for the construction of
residential homes, vacation condominiums, commercial real estate properties, and
for land development. Most loans originated by BCB are secured by real estate
collateral. The ability and willingness of the single family residential,
vacation condominium, and consumer borrowers to honor their repayment
commitments is generally dependent on the level of overall economic activity
within such 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 such borrowers' geographic areas
and the general economy.
Loan Portfolio. BCB's loan portfolio primarily consists of adjustable-
and fixed-rate mortgage loans secured by one-to-four family residential and
commercial real estate. As of March 31, 1997, BCB's loan portfolio totaled
$158.7 million, or 65.2%, of assets, of which $92.7 million, or 58.4%, consisted
of one-to-four family residential mortgages and $35.5 million, or 22.4%,
consisted of commercial real estate loans. BCB's loan portfolio also consisted
of $10.5 million of commercial loans (6.6% of total loans) and $9.2 million of
consumer loans (5.8% of total loans).
The following table sets forth information with respect to the
composition of BCB's loan portfolio, excluding loans held for sale, as of March
31, 1997, and December 31, 1996, 1995, and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
-------- -----------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate:
Residential $ 92,675 $ 92,604 $ 89,814 $ 91,580
Commercial 35,499 31,692 25,890 19,771
Construction 2,630 1,447 -- --
Commercial 10,501 9,671 8,256 8,189
Line of credit 3,866 3,872 3,664 3,662
Installment 9,168 8,727 5,881 4,581
Collateral 2,347 2,566 2,571 2,509
Other 1,992 2,008 1,207 3,143
-------- -------- -------- --------
Total loans 158,678 152,587 137,283 133,435
Less: Unearned income (569) (606) (752) (885)
Allowance for
possible loan losses (2,618) (2,635) (2,506) (2,115)
-------- -------- -------- --------
Loans, net $155,491 $149,346 $134,025 $130,435
======== ======== ======== ========
</TABLE>
<PAGE>
The following table represents the maturity distribution of BCB's
commercial real estate, line of credit, and commercial loans at March 31, 1997
(dollars in thousands):
Percent of
Amount Total
------ -----
Within one year $ 1,372 2.75%
One to five years 8,419 16.88
Over five years 40,075 80.37
------- ------
$49,866 100.00%
======= ======
BCB's commercial real estate, line of credit, and commercial loans due
after one year at March 31, 1997, were comprised of the following (dollars in
thousands):
Amount
------
Fixed interest rate $ 3,950
Adjustable interest rate 44,544
-------
$48,494
=======
Residential Mortgage Loan Originations and Purchases. BCB's primary
lending activities involve originating and purchasing loans secured by first
mortgages on real estate improved with single-family dwellings. BCB's
residential real estate mortgages, whether originated or purchased, carry fixed
or adjustable rates and are generally repayable over 15 or 30 years. Residential
loans typically remain outstanding for shorter periods than their contractual
maturities because borrowers prepay the loans in full upon sale of the mortgaged
property or upon refinancing of the original loan.
BCB's adjustable-rate mortgage loans generally have interest rates that
adjust annually at a margin over the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of one year published by the Federal
Reserve or the FHLB cost-of-funds index published by the FHLB. The maximum
adjustment above or below the initial interest rate on BCB's adjustable-rate
mortgage loans is generally 1% or 2% annually and 5% or 6% over the life of the
loan. BCB sometimes purchases or originates loans with "teaser" rates that are
below market rates during an initial period after the loan is originated. For
loans with teaser rates, the borrower's ability to repay is determined upon
fully indexed rates.
Applicable regulations permit BCB to lend up to 100% of the appraised
value of the real property securing a loan ("loan-to-value ratio"). BCB,
however, generally does not originate or purchase loans with loan-to-value
ratios that exceed 80% at origination. When terms are favorable, BCB will
originate or purchase single-family mortgage loans with loan-to value ratios
between 80% and 95%. In most of these cases, BCB will, as a matter of policy,
require the borrower to obtain private mortgage insurance that insures that
portion of the loan exceeding the 80% loan-to-value ratio, thereby reducing the
risk to no more than 80% of appraised value.
In determining whether to originate or purchase a residential mortgage
loan, BCB reviews information concerning the income, financial condition,
employment, and credit history of the applicant in order to assess the
applicant's ability to repay the loan. In addition, BCB examines the adequacy of
proposed collateral by obtaining independent third party appraisals of the
property securing an originated loan or reviewing the appraisal obtained by the
loan seller or originator and arranging for an updated appraisal with respect to
a purchased loan. Borrowers are required to obtain casualty insurance and, if
applicable, flood insurance in amounts at least equal to the outstanding loan
balance or the maximum amount allowed by law. BCB also requires that a survey be
conducted and title insurance be obtained, insuring the priority of its mortgage
lien.
All loans are reviewed by BCB's underwriters to ensure that its
guidelines are met or that waivers are obtained in limited situations where
offsetting factors exist. With regard to loan purchases, a legal review of every
loan file is conducted to determine the adequacy of the legal documentation. BCB
receives various representations and warranties from the sellers of the loans
regarding the quality and characteristics of the loans, and generally reserves
the right to reject particular loans from a loan package being purchased that do
not meet its underwriting criteria
BCB has adopted written, non-discriminatory underwriting standards for
use in the underwriting and review of every loan considered for origination or
purchase. These underwriting standards are reviewed and approved annually by
BCB's Board of Directors. BCB's underwriting standards for residential mortgage
loans generally conform to standards established by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
Commercial Real Estate Lending. BCB originates and purchases
multi-family and commercial real estate loans. Through its commercial real
estate lending, BCB seeks to develop long-term relationships with select
businesses, real estate borrowers, and professionals. BCB's commercial real
estate loan portfolio includes loans secured by apartment buildings, office
buildings, warehouses, retail stores, and other properties, which are located in
BCB's primary market area. Commercial real estate loans generally are originated
in amounts up to 80% of the appraised value of the property securing the loan.
In determining whether to originate or purchase multi-family or commercial real
estate loans, BCB also considers such factors as the financial condition of the
borrower and the debt service coverage of the property. A substantial majority
of BCB's commercial real estate loans carry adjustable interest rates and are
for terms of over five years.
Appraisals on properties securing commercial real estate loans
originated by BCB are performed at the time the loan is made by an independent
appraiser. In addition, BCB's underwriting procedures generally require
verification of the borrower's credit history, income and financial statements,
banking relationships, references, and income projections for the property, as
well as a personal guarantee.
While BCB's commercial real estate lending activities enable it to earn
interest at rates higher than those generally available from one-to-four-family
residential lending, such loans are generally larger and involve a greater
degree of risk. Because payments on loans secured by commercial real estate
properties are often dependent on the successful operation or management of the
properties, repayment of such loans may be subject to a greater extent than
residential loans to adverse conditions in the real estate market or the
economy. If the cash flow from a project is reduced (for example, if leases are
not obtained or renewed), the borrower's ability to repay the loan may be
impaired. In addition, adjustable-rate commercial real estate loans are subject
to increased risk of delinquency or default as interest rates increase. BCB
attempts to minimize these risks through its underwriting standards.
Real Estate Construction Lending. BCB makes real estate construction
loans to individuals for the construction of their residences, as well as to
builders and real estate developers for the construction of one-to-four-family
residences and commercial and multi-family real estate. Such residential
construction loans are generally underwritten pursuant to the same guidelines
used for originating permanent residential loans. BCB's construction loans
typically have terms of up to six months at which time they convert to permanent
one-to-four-family loans. During the construction phase, the borrower pays
interest only. Generally, the maximum loan-to-value ratio of owner-occupied,
single-family construction loans is 80%.
Commercial Business Lending. In its commercial business loan
underwriting, BCB evaluates the value of the collateral securing the loan and
assesses the borrower's creditworthiness and ability to repay. While commercial
business loans generally are made for shorter terms and at higher yields than
one-to-four-family residential loans, such loans generally involve a higher
level of risk because the risk of borrower default is greater and the collateral
may be more difficult to liquidate and more likely to decline in value.
ASSET QUALITY
BCB, like all financial institutions, is exposed to certain credit
risks related to the value of the collateral that secures its loans and the
ability of borrowers to repay their loans. Management of BCB closely monitors
BCB's loan and investment portfolios and BCB's real estate owned for potential
problems on a periodic basis and reports to the BCB Board at regularly scheduled
meetings.
Non-Performing Loans. BCB's policy is to discontinue the accrual of
interest on loans when in management's judgment the payment of principal or
interest is considered to be in doubt. This will generally occur when a loan has
become 90 days past due, unless the loan is well secured and in the process of
collection. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is reversed by a charge to interest income. See Note 1 to the
BCB Financial Statements. BCB had no loans 90 days or more past due and still
accruing interest at March 31, 1997, or at December 31, 1996, 1995, and 1994.
BCB had loans on non-accrual totaling $2.5 million at March 31, 1997,
and $2.3 million, $2.6 million, and $2.3 million at December 31, 1996, 1995, and
1994, respectively. Interest income not recognized on such loans amounted to
$22,000 for the period ending March 31, 1997, and $71,000, $213,000, and
$207,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Prior to cessation of accrual, BCB recognized interest income in the amount of
$1,000 for the period ending March 31, 1997, and in the amounts of $76,000,
$79,000, and $155,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.
At March 31, 1997 BCB had internally classified certain loans totaling
$691,000. Such loans represent a higher degree of risk and could become
non-performing loans in the future. While still on a performing status, in
accordance with BCB's credit policy, loans are internally classified when a
review indicates any of the following conditions making the likelihood of
collection highly questionable: the financial condition of the borrower is
unsatisfactory, the repayment terms have not been met, the borrower has
sustained losses that are sizable either in absolute terms or relative to net
worth, confidence is diminished, loan covenants have been violated, collateral
is inadequate, or other unfavorable factors are present.
BCB had restructured troubled debt totaling $1.4 million at March 31,
1997, and $1.4 million, $1.4 million, and $1.2 million at December 31, 1996,
1995, and 1994, respectively. All restructured troubled debt was performing
under the restructured terms at March 31, 1997. Foregone interest on
restructured debt totaled $9,000 for the period ending March 31, 1997, and
$38,000, $46,000, and $25,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
Real Estate Owned. Real estate acquired by foreclosure is comprised of
properties acquired either through foreclosure proceedings or acceptance of a
deed in lieu of foreclosure, and for which BCB has taken physical possession.
BCB classifies loans as in-substance repossessed or foreclosed if BCB receives
physical possession of the debtor's assets, regardless of whether or not
foreclosure proceedings take place.
Both in-substance foreclosures and real estate formally acquired in
settlement of loans are initially recorded at the lower of amortized cost or
fair value. Subsequent to foreclosure or classification as in-substance
foreclosure, such assets are carried at the lower of amortized cost or fair
value less estimated costs to sell. Gains and losses upon disposition are
reflected in operations as realized. Holding and maintenance costs related to
properties are recorded as expenses in the period incurred. Deficiencies
resulting from valuation adjustments to real estate owned subsequent to
acquisition are recognized as a valuation allowance. Subsequent increases
related to the valuation of real estate owned are reflected as a reduction in
the valuation allowance, but not below zero. Increases and decreases in the
valuation allowance are charged or credited to income, respectively.
At March 31, 1997, BCB had acquired by foreclosure or through
in-substance repossession real estate worth $246,000, including condominiums
worth $46,000 and residential homes worth $200,000.
Allowance for Possible Loan Losses. Certain of BCB's loan customers
ultimately do not make all of their contractually scheduled payments, requiring
BCB to charge off the remaining principal balance due. BCB maintains an
allowance for possible loan losses to absorb such losses. Management determines
the level of BCB's allowance based on its analysis of certain factors, including
the risk characteristics of its loan portfolio, trends in loan delinquencies,
and an assessment of existing economic conditions. To fund this allowance, a
direct charge to earnings is recorded through the provision for possible loan
losses. Realized losses, net of recoveries, are charged directly to the
allowance. While management uses available information in establishing the
allowance, future additions to the allowance may be necessary if economic
conditions differ substantially from the estimates used in making the
evaluations. While BCB allocates the allowance for possible loan losses based on
the percentage category to total loans, the portion of the allowance for
possible loan losses allocated to each category does not represent the total
available for future losses which may occur within the loan category since the
total allowance for possible loan losses is a valuation reserve applicable to
the entire portfolio.
The following table reflects activity in the allowance for the three
months ended March 31, 1997 and 1996, and for the years ended December 31, 1996,
1995, and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at the beginning of period $2,635 $2,506 $2,506 $2,115 $1,976 $1,776 $1,560
Charge-offs:
Real estate (115) (104) (391) (285) (433) (621) (624)
Commercial -- (2) (5) -- (1) -- (6)
Installment loans to individuals -- -- (2) (16) (8) (26) (42)
Credit card -- (7) (11) (21) (30) (48) (39)
------- ----- ------ ------ ------ ------ ------
Total charge-offs (115) (113) (409) (322) (472) (695) (711)
------ ----- ------ ------ ------ ------ ------
Recoveries:
Real estate 2 35 147 154 8 80 --
Commercial -- 4 -- -- -- -- --
Installment loans to individuals 4 2 17 7 5 5 5
Credit card 2 -- 14 12 58 15 2
------ ----- ----- ----- ----- ----- -----
Total recoveries 8 41 178 173 71 100 7
------ ----- ----- ----- ----- ----- -----
Net charge-offs (107) (72) (231) (149) (401) (595) (704)
Provision charged to expense 90 90 360 540 540 795 920
------ ----- ------ ------ ------ ------ ------
Balance at the end of period $2,618 $2,524 $2,635 $2,506 $2,115 $1,976 $1,776
====== ====== ====== ====== ====== ====== ======
Net charge-offs as % of average loans 0.07% 0.05% 0.17% 0.11% 0.32% 0.49% 0.56%
</TABLE>
The following table sets forth the breakdown of BCB's allowance for
possible loan losses on BCB's loan portfolio by category of loan and the
percentage of loans in each category to total loans in the respective portfolios
at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------
March 31, 1997 1996 1995 1994 1993 1992
---------------- ---------------- ------------------ ----------------- ---------------- ----------------
Percent Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans of loans
in each in each in each in each in each in each
category category category category category category
to total to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans Amount loans
------ -------- ------ -------- ------ -------- ------ -------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 100 6.6% $ 100 6.3% $ 100 6.0% $ 100 6.2% $ 100 7.4% $ 75 5.8%
Real estate:
Commercial 800 24.0 800 21.7 600 18.9 300 14.8 200 13.4 150 11.6
Residential 850 58.4 850 60.7 931 65.4 850 68.7 800 69.5 750 72.2
Line of credit 75 2.5 75 2.6 75 2.7 75 2.7 75 2.8 75 2.9
Installment 150 5.8 150 5.7 100 4.3 100 3.4 100 3.2 100 3.6
Other 50 2.7 50 3.0 50 2.7 50 4.2 -- 3.7 -- 3.9
Unallocated 593 N/A 610 N/A 650 N/A 640 N/A 701 N/A 626 N/A
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ----- -----
$2,618 100.0% $2,635 100.0% $2,506 100.0% $2,115 100.0% $1,976 100.0% 1,776 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ===== =====
</TABLE>
INVESTMENT ACTIVITIES
BCB structures its investment policy to complement its asset and
liability management policy and to provide the liquidity necessary to meet
anticipated deposit outflows and normal working capital needs, and to expand the
loan portfolio within guidelines approved by the BCB Board. The policy is also
designed to mitigate the adverse effects of changes in interest rates and shifts
in the mix of BCB's liabilities. As of March 31, 1997, BCB's investment
securities portfolio amounted to $65.9 million, or 27.1% of its total assets.
In 1995, the Financial Accounting Standards Board ("FASB") allowed a
one-time reassessment of the appropriateness of the classification of all
securities held at a date between November 15, 1995 and December 31, 1995. In
accordance with this ruling, BCB reclassified on December 29, 1995,
approximately $62 million from investment securities held-to-maturity to
investment securities available-for-sale. At the time of the reclassification,
there were $118,000 in unrealized gains and $864,000 in unrealized losses
relating to the securities transferred.
Debt securities that BCB has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost; debt
and equity securities that are bought and held principally for the purpose of
selling in the near term are classified as trading and reported at fair value,
with unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity or trading are classified
as available-for-sale and reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity, net of estimated income taxes. Premiums and discounts are
amortized and accreted primarily on the level yield method over the contractual
life of the securities adjusted for expected prepayments. If a decline in the
fair value below the adjusted cost basis of an investment or mortgage-backed
security is judged to be other than temporary, the cost basis of the investment
is written down to fair value as the new cost basis and the amount of the write
down is included as a charge against securities gains, net.
At March 31, 1997, the reported value of investment securities
available-for-sale and held-to-maturity was $61.7 million and $4.2 million,
respectively. BCB had no securities classified as trading securities. The
reported value of securities available-for-sale at March 31, 1997, reflects a
negative fair value adjustment of $2.3 million. The offset of this adjustment,
net of income tax effect, was a $1.4 million reduction in BCB's stockholders'
equity and an increase in deferred taxes of $846,000. The reported value of
investment securities classified as held-to-maturity had a fair value of $4.2
million at March 31, 1997. The fair value of both portfolios reflect the general
upward movement in interest rates during the period.
The following table presents the reported value of BCB's investment
securities available-for-sale and held-to-maturity as of March 31, 1997, and as
of December 31, 1996, 1995, and 1994 (dollars in thousands).
<TABLE>
<CAPTION>
March 31, December 31,
-------- ----------------------------------------
1997 1996 1995 1994
------- ---- ---- ----
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury bills $ -- $ -- $ -- $ 4,347
U.S. Treasury notes 12,602 12,794 9,128 8,925
U.S. Gov't Agency notes 1,952 5,195 8,213 4,147
Mortgage-backed securities(1) 34,318 35,640 40,415 4,469
Corporate notes 10,014 13,068 16,313 --
Foreign notes 999 1,000 1,999 --
Equity securities 1,709 2,284 295 397
Other 90 190 323 --
------ ------- ------- -------
$61,684 $70,171 $76,686 $22,285
------ ------- ------- -------
Securities held-to-maturity:
U.S. Treasury bills -- -- -- 494
U.S. Treasury notes -- -- -- 4,140
U.S. Gov't Agency notes -- -- -- 994
Mortgage-backed securities(1) -- -- -- 41,227
Corporate notes -- -- -- 16,704
Foreign notes -- -- -- 2,071
State and political
subdivisions 4,224 224 377 1,085
Other -- -- -- 332
------- ------- ------- ------
4,224 224 377 67,047
Discount on transferred
securities -- -- -- (3,551)
------- ------- ------- ------
Total 4,224 224 377 63,496
------ ------- ------- ------
Total investment securities $65,908 $70,395 $77,063 $85,781
======= ======= ======= =======
- -----------------------
(1) Includes collateralized mortgage obligations.
</TABLE>
The following table sets forth, as of March 31, 1997, the amortized cost
of BCB's debt obligations maturing within stated periods and their related
weighted average interest rates (dollars in thousands):
<TABLE>
<CAPTION>
Maturities
-----------------------------------------------------------------------
Within One to Five to Over ten Total
one year five years ten years years Cost
-------- ---------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury notes $ 2,990 $3,990 $ 6,155 $ -- $13,135
U.S. Gov't Agency notes -- 1,000 989 -- 1,989
Corporate notes 7,066 3,014 -- -- 10,080
Foreign notes 1,002 -- -- -- 1,002
Mortgage-backed securities (1) 510 156 5,971 29,289 35,926
Other 45 -- -- -- 45
------- ------ ------- ------- -------
$11,613 $8,160 $13,115 $29,289 $62,177
======= ====== ======= ======= =======
Market value $11,618 $8,078 $12,259 $28,020 $59,975
======= ====== ======= ======= =======
Weighted average yield 5.52% 5.84% 5.45% 5.98% 5.76%
Securities held-to-maturity
State and political subdivisions $ 4,100 $ 124 $ -- $ -- $ 4,224
======= ====== ======= ======= =======
Market Value $ 4,100 $ 126 $ -- $ -- $ 4,226
====== ====== ======= ======= =======
Weighted average yield(2) 6.45% 11.75% -- -- 6.61%
- ---------------------------------
(1) Includes collateralized mortgage obligations.
(2) Yield is calculated on a tax equivalent basis.
</TABLE>
SOURCES OF FUNDS
General. Deposits generated from within BCB's local market area are the
primary source of funds for lending and investment operations. BCB offers a full
variety of deposit accounts ranging from passbook accounts to certificates of
deposit with maturities of up to five years. BCB also offers transaction
accounts, which include commercial checking accounts, negotiable order of
withdrawal ("NOW") accounts, super NOW accounts, and money market deposit
accounts. The rates paid on deposits are established periodically by management
based on BCB's need for funds and the rates being offered by BCB's competitors
with the goal of remaining competitive without offering the highest rates in the
market area.
The following table sets forth information concerning BCB's deposits by
account type and the weighted average nominal rates at which interest is paid
thereon as of March 31, 1997, and as of December 31, 1996, 1995, and 1994
(dollars in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
March 31,
1997 1996 1995 1994
------------------ ----------------- ----------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-certificate deposits:
Regular savings $ 48,482 2.30% $ 49,658 2.30% $ 48,897 2.40% $ 57,252 2.40%
NOW and Super NOW 27,213 1.23 29,957 1.23 27,553 1.53 28,037 1.83
Money Market 10,528 2.72 9,702 2.71 8,807 2.86 10,315 2.87
Demand deposits 19,317 -- 19,212 -- 16,555 -- 15,819 --
-------- -------- -------- --------
Total non-certificate
deposits 105,540 1.64 108,529 1.63 101,812 1.81 111,423 1.96
-------- -------- -------- --------
Certificates of deposit:
Less than $100,000 91,972 5.21 93,429 5.23 96,498 5.60 86,511 4.20
$100,000 and over 15,173 5.22 14,440 5.30 15,465 5.42 15,069 4.46
-------- -------- -------- --------
Total certificates of
deposit 107,145 5.21 107,869 5.24 111,963 5.58 101,580 4.24
-------- -------- -------- --------
Total deposits $212,685 $216,398 $213,775 $213,003
======== ======== ======== ========
Weighted average rate 3.44% 3.43% 3.78%
3.05%
</TABLE>
The following table sets forth information regarding the amounts of
BCB's certificates of deposit in amounts of $100,000 or more at March 31, 1997,
and December 31, 1996 that mature during the periods indicated (dollars in
thousands):
March 31, December 31,
1997 1996
-------- -------------
Within 3 months $ 3,586 $ 2,725
3 to 6 months 3,398 2,875
6 to 12 months 4,618 4,928
Over 12 months 3,571 3,912
-------- -------
$15,173 $14,440
======== =======
Borrowings. BCB may obtain advances from the FHLB upon pledging as
collateral the common stock of the FHLB that it owns and certain of its
investment securities and residential mortgage loans, provided certain standards
related to creditworthiness are met. FHLB borrowings have been utilized for loan
portfolio growth, asset/liability management, liquidity and/or operational
needs. At March 31, 1997, BCB's available line of credit totaled $4.9 million,
and no amounts were outstanding.
BCB also uses repurchase agreements as a source of funds. Repurchase
agreements outstanding at March 31, 1997, amounted to $7.7 million and carried
maturities of eighteen months or less. Investment securities with a book value
of $17.3 million and a fair value of $16.5 million were pledged as collateral
and held by custodians to secure the agreements at March 31, 1997.
GOVERNMENT REGULATION
BCB operates in a heavily regulated industry. As a New Hampshire
chartered trust company whose deposits are insured by the FDIC, BCB is subject
to regulation by federal and state regulatory authorities including, but not
limited to, the FDIC and the New Hampshire Banking Commissioner. See "Certain
Regulatory Considerations."
PROPERTIES
BCB operates seven banking offices, five of which, including its main
office in Berlin, New Hampshire, are located in properties owned by BCB. BCB
leases one of its North Conway, New Hampshire, branches and its Littleton, New
Hampshire, branch under five-year leases expiring on December 31, 2000, and June
1, 2001, respectively. Four of BCB's branches have drive-up facilities connected
to the bank buildings and all are equipped with automated teller machines.
LEGAL PROCEEDINGS
BCB is not a party to, nor are any of its properties the subject of,
any material pending legal proceedings other than ordinary routine litigation
incidental to the business.
BCB MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the names, ages, terms, positions with BCB, and
business experience of BCB's current directors and executive officers is set
forth below:
NAME AGE POSITION WITH BCB
- ---- --- -----------------
William J. Woodward...... 51 Chairman of the Board, President, and Chief
Executive Officer
Peter H. Bornstein....... 42 Director
Gerard L. Cote........... 60 Director
Arnold P. Hanson, Jr..... 47 Director
Barry J. Kelley.......... 47 Director
Randall G. Labnon........ 43 Director
John D. Morris........... 66 Director
Brien L. Ward............ 45 Director
David J. O'Connor........ 50 Executive Vice President, Chief Financial
Officer, and Treasurer
John H. Stratton, Jr..... 50 Senior Vice President
Paul G. Campagna......... 56 Senior Vice President and Clerk
Richard T. Brunelle...... 54 Senior Vice President
Lawrence J. Bessinger.... 52 Vice President
James M. O'Donnell....... 58 Vice President and Controller
William J. Woodward has served as the President and Chief Executive
Officer of BCB since 1994, as Chairman of the Board of Directors since 1989, and
as a director since 1975. Mr. Woodward formerly served as the President of
Vaillancourt & Woodward, Inc., an independent insurance agency located in
Berlin, New Hampshire, and currently serves as treasurer and provides consulting
services to that company. Mr. Woodward's activities on behalf of Vaillancourt &
Woodward, Inc., which do not entail a scheduled commitment, occupy less than
three hours per week during BCB's regular business hours.
Peter H. Bornstein has served as a director of BCB since 1989. Mr.
Bornstein, an attorney, is a partner and president of Bergeron, Hanson &
Bornstein, a law firm based in Berlin, New Hampshire, where he has practiced
since 1981.
Gerard L. Cote has served as a director of BCB since 1991. Mr. Cote is
a licensed public accountant and since 1996 has been employed as a staff
accountant at T. Scott Gamwell & Co., certified public accountants, having
previously been a partner with the public accounting firm of Cote & Gamwell.
Arnold P. Hanson, Jr., has served as a director of BCB since 1997.
Since 1995, Mr. Hanson has served as the Vice President and Chief Operating
Officer of Isaacson Steel, Inc., a steel company, and as an executive officer
and director of various related entities. From 1987 to 1995, Mr. Hanson served
as Vice President of Taylor Publishing Company.
Barry J. Kelley has served as a director of BCB since 1989. Mr. Kelley
is the President and owner of White Mountain Lumber Co., Inc., a Berlin, New
Hampshire lumber company, with which he has been employed for 25 years.
Randall G. Labnon has served as a director of BCB since 1991. Mr.
Labnon has served as the General Manager since 1978, and as a director since
1988, of the Town & Country Motor Inn in Gorham, New Hampshire.
John D. Morris has served as a director of BCB since 1991. Mr. Morris
is a partner in A.N. Morris Partnership, a real estate investment firm. From
1984 to 1991, Mr. Morris owned and operated Morris Financial Services, a
business consulting firm.
Brien L. Ward has served as a director of BCB since 1997. Mr. Ward, an
attorney, owns and operates the Law Office of Brien L. Ward in Littleton, New
Hampshire.
David J. O'Connor has been Executive Vice President of BCB since 1992
and Chief Financial Officer of BCB since 1989 and is responsible for financial
operations. Prior to joining BCB in 1989, Mr. O'Connor served in various banking
positions in New England, including as Comptroller of the Bank of New England,
N.A., Chief Financial Officer of Plymouth Savings Bank, and President of
Atlantic Bank and Trust Company.
John H. Stratton, Jr., has served as Senior Vice President of BCB since
1990 and is responsible for the retail banking division, marketing, and
collections. Prior to joining BCB in 1990, Mr. Stratton served as a Vice
President, Consumer Lending, for Fleet National Bank and Vice President, Branch
Administration, for Citizens Bank. Mr. Stratton was also employed as a
liquidation officer for the FDIC.
Paul G. Campagna has served as Clerk of BCB since 1970 and Senior Vice
President since 1982 and is responsible for the community reinvestment policies
and compliance function of BCB and its loan review process.
He has been employed with BCB since 1968.
Richard T. Brunelle has served as Senior Vice President of BCB since
1996 and is responsible for the commercial lending division. Mr. Brunelle
previously served BCB as Vice President from 1991 to 1996. Prior to joining BCB,
Mr. Brunelle served as Vice President, Commercial Lending, for Fleet Bank in
North Conway, New Hampshire.
Lawrence J. Bessinger has served as Vice President of BCB since 1988
and is responsible for management information systems, check and item
processing, bank security, and property management. Mr. Bessinger has been
employed with BCB since 1976.
James M. O'Donnell has served as Vice President and Controller of BCB
since 1990 and is responsible for internal and external financial reporting.
Prior to joining BCB, Mr. O'Donnell served as Senior Vice President and
Comptroller of Shawmut Arlington Trust Company in Lawrence, Massachusetts.
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to BCB during the
fiscal years ended December 31, 1996, 1995, and 1994, of those persons who were,
at December 31, 1996: (i) the chief executive officer of BCB and (ii) the other
executive officers of BCB whose total annual salary and bonus exceeded $100,000
(collectively, the "Named Executive Officers").
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OMPENSATION($)
- ------------------ ---- --------- -------- --------------
William J. Woodward(1) 1996 0 0 156,000
Chairman, President, and Chief 1995 0 0 160,000
Executive Officer 1994 0 0 78,000
David J. O'Connor 1996 107,667 4,278 0
Executive Vice President and 1995 101,430 8,320 0
Chief Financial Officer 1994 96,396 11,308(2) 0
(1) In June 1994, Mr. Woodward assumed executive management responsibility
upon the resignation of BCB's President and Chief Executive Officer
pending possible selection of a successor. In these circumstances, Mr.
Woodward has not been a salaried employee of BCB, and has not received
any pension, insurance, or other benefits from BCB. Mr. Woodward
received the fees indicated above in lieu of salary and benefits for
the applicable periods. In connection with the Merger, Mr. Woodward has
agreed to become a full-time employee of Northway and BCB (serving as
Chairman of the Board, President and Chief Executive Officer) as well
as a director of PNB.
(2) The total for Mr. O'Connor includes $1,508 which was paid to Mr. O'Connor by
BCB in lieu of accrued vacation time.
PENSION PLAN
BCB provides no employment benefits to its executive officers other
than medical, life, accidental death, disability, and salary continuation
insurance plans and a pension plan (the "Retirement Plan"), all of which are
provided to BCB's other officers and employees. The Retirement Plan is a
non-contributory defined benefit plan administered by BCB's Retirement
Committee, consisting of Messrs. O'Connor and Campagna, who have been designated
as Trustees, and BCB's consulting actuary. All employees join BCB's Retirement
Plan upon reaching age twenty-one and completing at least 1,000 hours of service
in a consecutive twelve-month period. An employee generally becomes 100% vested
in the pension plan after 5 years. Age 65 is the normal retirement age under the
Retirement Plan, although early retirement may be taken after age 55.
The following table sets forth estimated annual pension benefits
payable to a BCB employee under the Retirement Plan upon retirement at age 65
under the most advantageous plan provisions available for the various levels of
compensation and years of service. The figures in this table are calculated on
the basis of a straight-life annuity and upon certain other assumptions
regarding social security benefits and compensation trends. Amounts shown would
be subject to offset by the primary amount of social security benefits received
by any employees receiving pension benefits.
AVERAGE COMPENSATION(1) YEARS OF SERVICE(2)
- -------------------- --------------------
10 15 20 25
---- ---- ---- ----
$ 40,000 $ 8,000 $12,000 $16,000 $20,000
$ 55,000 $11,000 $16,500 $22,000 $27,500
$ 70,000 $14,000 $21,000 $28,000 $35,000
$ 85,000 $17,000 $25,500 $34,000 $42,500
$100,000 $20,000 $30,000 $40,000 $50,000
$115,000 $23,000 $34,500 $46,000 $57,500
$130,000 $26,000 $39,000 $52,000 $65,000
$145,000 $29,000 $43,500 $58,000 $72,500
$160,000 $32,000 $48,000 $64,000 $80,000
- ------------------
(1) The compensation covered by the Retirement Plan is the
annual base rate of pay as of January 1, 1997 (not including any bonuses).
Mr. O'Connor's compensation covered by the plan is $108,160.
(2) The number of credit years of service at December 31, 1996, and the
estimated credited years of service at age 65 for purposes of the Retirement
Plan for Mr. O'Connor are seven and 23 years, respectively.
EMPLOYMENT AGREEMENTS
There are no employment agreements between BCB and any employees of
BCB.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of its business, BCB grants loans to directors,
officers, and their immediate families and to organizations in which such
persons have more than a 10% ownership interest. These loans are made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the same time for comparable transactions with unrelated persons
and do not involve more than the normal risk of collectability or present other
unfavorable features. Federal banking laws and regulations limit the aggregate
amount of indebtedness that a bank may extend to its insiders and their
affiliates. Pursuant to such laws and regulations, banks may extend credit to
executive officers, directors, principal stockholders, or any related interest
of such persons, if the extension of credit to such persons is in an amount
that, when aggregated with the amount of all outstanding extensions of credit to
such individuals, does not exceed the banks' unimpaired capital and unimpaired
surplus. As of March 31, 1997, and December 31, 1996, the aggregate amount of
extensions of credit made by BCB to its directors and executive officers, and
their affiliates, totaled $1,034,590 and $728,000, respectively, or 4.8% and
3.4% of BCB's capital, which was well below the legal limit.
During the three month period ended March 31, 1997, and the year ended
December 31, 1996, there were no directors or officers of BCB whose direct or
indirect liability to BCB exceeded 10% of BCB's stockholders' equity. BCB has
not been a party to any transaction or proposed transaction during the past two
years in which any director, director nominee, executive officer, or principal
stockholder, or any immediate family member thereof, has had a direct or
indirect material interest.
PRINCIPAL HOLDERS OF BCB COMMON STOCK
The following table sets forth, as of July 31, 1997, to the best
knowledge of BCB, the number and percentage of outstanding shares of BCB Common
Stock beneficially owned by: (i) each director of BCB; (ii) each of the Named
Executive Officers of BCB; (iii) BCB's directors and executive officers as a
group; and (iv) each person (including any "group," as that term is used in
Section 13(d)(3) of the Exchange Act), known to BCB to beneficially own more
than 5% of the outstanding BCB Common Stock. Also set forth is the equivalent
number of shares and the percent of the class of Northway Common Stock that will
be owned by the individuals and entities listed in the table following the
consummation of the Merger. Except as otherwise set forth below, to the
knowledge of BCB, all persons listed below have sole voting and investment power
with respect to their shares.
<TABLE>
<CAPTION>
Equivalent Shares of
Northway Common
Stock, Assuming
BCB Common Stock Consummation
Beneficially Owned (2) of the Merger (2)(3)
--------------------- -----------------------
Number Number
of Percent of Percent
Name of Beneficial Owner(1) Shares of Class Shares(4) of Class(4)
- --------------------------- ------ -------- --------- -----------
<S> <C> <C> <C> <C>
Directors and Executive Officers
William J. Woodward.................................... 4,023 6.36% 64,368 3.72%
Peter H. Bornstein(5).................................. 227 * 3,632 *
Gerard L. Cote......................................... 25 * 400 *
Arnold P. Hanson, Jr(6)................................ 1,862 2.94% 29,792 1.72%
Barry J. Kelley(7)..................................... 2,076 3.28% 33,216 1.92%
Randall G. Labnon...................................... 192 * 3,072 *
John D. Morris......................................... 616 * 9,856 *
Brien L. Ward.......................................... 8 * 128 *
David J. O'Connor...................................... 36 * 576 *
Directors and executive officers
as a group (14 persons)............................ 9,332 14.74% 149,312 8.62%
Other Principal Stockholders
Arnold P. Hanson, Sr................................... 6,080 9.60% 97,280 5.62%
PO Box 36
Berlin, New Hampshire 03570
David S. Sands......................................... 4,154 6.56% 66,464 3.84%
PO Box 854
Wolfeboro, New Hampshire 03894
- --------------------------
* Less than 1%.
(1) Unless otherwise noted, the address of each of the listed stockholders is 9 Main Street, Berlin, New
Hampshire 03570.
(2) The percentages set forth in this table are based upon 63,301 shares of BCB Common Stock outstanding as
of March 31, 1997, and 1,732,145 shares of Northway Common Stock outstanding following the consummation
of the Merger, respectively. The definition of beneficial ownership includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares
voting power or investment power with respect to such security.
(3) These figures do not include any potential ownership of Northway Common Stock as a result of ownership of
PEMI Common Stock.
(4) In the event the BCB Reorganization Proposals are approved but the BCB Merger Proposal is not approved,
the number of shares of Northway Common Stock held by the beneficial owners listed herein following
consummation of the BCB Reorganization would be the same as set forth in this column, while the
percentage of shares owned would be as set forth under the heading "BCB Common Stock Beneficially Owned."
(5) Mr. Bornstein owns his shares of BCB Common Stock jointly with his spouse.
(6) The total for Mr. Hanson includes 1,000 shares held in a trust for which Mr. Hanson serves as trustee and
855 shares held in a trust for which Mr. Hanson serves as co-trustee.
(7) The total for Mr. Kelley includes 1,728 shares owned jointly with his spouse.
</TABLE>
BUSINESS OF PEMI
GENERAL
PEMI was organized in March 1985 for the purpose of becoming a bank
holding company to own and control 100% of the capital stock of PNB. PEMI's
primary asset is the capital stock of PNB and its primary activity is in
connection with the operations of PNB.
PNB is a national banking association organized under the laws of the
United States in 1881. PNB operates out of five locations in the New Hampshire
towns of Plymouth (2), Campton, Ashland, and North Woodstock. PNB's deposits are
insured by the FDIC in accordance with the Federal Deposit Insurance Act. PNB
provides loans and services to individuals and businesses, including commercial,
industrial, consumer and real estate loans. It also offers various types of
checking accounts, including commercial, personal checking, and money market
accounts, as well as various types of savings accounts, individual retirement
accounts, certificates of deposit and other time deposit accounts. PNB makes
consumer loans, including automobile, education, equipment and home improvement
loans, and also extends secured and unsecured business and personal loans, as
well as mortgages, on commercial and residential real estate.
MARKET AREA AND COMPETITION
PNB is located in Grafton County, Plymouth, New Hampshire. Plymouth is
located almost directly in the center of the state of New Hampshire, adjacent to
the White Mountains and the Lakes Region. The White Mountain National Forest
(one of the most popular public forest areas in the United States), Waterville
Valley, Cannon Mountain, Loon Mountain, and Gunstock Mountain are also located
nearby. Because of its location, vacationers are drawn to the Plymouth area on a
year round basis. Skiing continues to attract individuals to the Plymouth area
in the winter, while area lakes attract potential business opportunities for PNB
to the Plymouth area in the summer. Plymouth is also the home of Plymouth State
College, a New Hampshire State College with an enrollment of approximately 4,000
students. Interstate I-93, a major interstate highway running north and south
from Plymouth and the Tenney Mountain Highway, the major highway leading west
from Plymouth, offers sites to attract new businesses. Toward the north, the
Campton-Thornton-Waterville Valley areas are the site of housing and condominium
projects. Although business in PNB's market area, and New Hampshire in general,
was strong during the 1980s, during the early 1990s the area experienced a
slowdown in economic activity. The economic slowdown had a negative effect on
the economy and the business of PEMI and PNB. More recently, regional and local
economic conditions appear to have stabilized.
PNB encounters competition in all phases of its business. Several
competitive financial institutions have offices in the Plymouth, New Hampshire
banking market, including Bank of New Hampshire, Fleet Bank, Meredith Village
Savings Bank, Franklin Savings Bank, Community Guaranty Savings Bank and
Citizens Bank. A number of these institutions have higher lending limits and
greater resources than PNB and provide certain services that PNB does not
provide. In addition, savings and loan associations, credit unions and small
loan companies are each significant factors in the consumer market. Insurance
companies, investment firms, credit and mortgage companies, brokerage firms,
cash management accounts, money market funds and retailers are all significant
competitors for various types of business. Many non-bank competitors are not
subject to the extensive regulation and thus, in certain respects, may have a
competitive advantage over banks in providing certain services.
Banks compete on the basis of price, including rates paid on deposits
and charged on borrowings, convenience and quality of service. In marketing it
services, PNB emphasizes its position as a hometown bank providing personal
service, continuity of personnel, flexibility and prompt responsiveness to the
needs of its customers. Moreover, it competes for both deposits and loans by
offering competitive rates, well positioned branch and ATM locations and
convenient business hours. In addition to providing banking services to
customers in its primary service areas, PNB is a member of the NYCE, CIRRUS and
Mastercard automatic teller machine networks which allow it to deliver certain
financial services to customers regardless of their proximity to the primary
service area of PNB.
In April 1996, PNB purchased certain assets and assumed certain
deposits from the Campton, New Hampshire branch of First New Hampshire Bank. The
transaction did not involve the establishment of a new branch by PNB, because
PNB and First New Hampshire Bank had shared the Campton facility since 1975. PNB
continues to operate a branch at the same location. As a result of the
transaction, there was no change in the Community Reinvestment Act Statement of
PNB, which received a "satisfactory" Community Reinvestment Act Compliance
rating from the Office of Comptroller of Currency at its most recent
examination.
LOAN PORTFOLIO
PNB has directed most of its lending activities into the following four
areas: (i) commercial and commercial real estate loans, (ii) residential real
estate loans, (iii) municipal loans, and (iv) consumer loans. As of December 31,
1996, these four categories accounted for approximately 30.3%, 60.2%, 1.1%, and
8.4%, respectively, of PNB's loan portfolio.
The following table presents the outstanding balance of loans as of
March 31, 1997 and as of December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------------------------
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commercial and
commercial real estate $ 26,901 $ 26,841 $ 24,431 $ 28,293
Residential Real Estate 53,646 53,243 50,127 51,613
Consumer 7,353 7,441 6,081 4,994
Municipal 1,286 931 1,054 874
Other loans 47 60 16 20
--------- -------- --------- ---------
Total loans 89,233 88,516 81,709 85,794
Allowance for possible loan losses (1,283) (1,306) (1,360) (1,567)
Unearned income (101) (114) (262) (296)
--------- -------- --------- ---------
Net loans $ 87,849 $ 87,096 $ 80,087 $ 83,931
========= ======== ========= =========
</TABLE>
The following tables sets forth the maturity distribution and interest
rate sensitivity of selected loan categories at the dates indicated (dollars in
thousands):
<TABLE>
<CAPTION>
March 31, 1997
------------------------------------------------------------
Maturities
------------------------------------------------------------
Within One One to Five Over Five
Year Years Years Total
---------- ----------- --------- ------
<S> <C> <C> <C> <C>
Commercial and commercial
real estate $ 3,535 $ 5,177 $18,822 $27,534
Residential real estate 1,676 813 50,885 53,374
Municipal 923 107 256 1,286
Consumer 788 6,163 41 6,992
Other 47 0 0 47
------- ------- ------- -------
Total* $ 6,969 $12,260 $70,004 $89,233
======= ======= ======= =======
December 31, 1996
------------------------------------------------------------
Maturities
------------------------------------------------------------
Within One One to Five Over Five
Year Years Years Total
---------- ----------- --------- ------
Commercial and commercial
real estate $ 2,623 $ 5,775 $18,443 $26,841
Residential real estate 758 907 51,578 53,243
Municipal 568 107 256 931
Consumer 695 6,684 62 7,441
Other 60 0 0 60
------- ------- ------- -------
Total* $ 4,704 $13,473 $70,339 $88,516
======= ======= ======= =======
</TABLE>
The following table sets forth loan maturities for variable and fixed
rate loans with a maturity of greater than one year at the dates indicated,
before allowance for possible loan losses and unearned income (in thousands):
March 31, 1997
--------------------------------------
Maturities
--------------------------------------
One to Five Years Over Five Years
----------------- ---------------
Variable rate $ 2,389 $52,232
Fixed rate 9,912 17,772
------- -------
Total* $12,301 $70,004
======= =======
December 31, 1996
--------------------------------------
Maturities
--------------------------------------
One to Five Years Over Five Years
--------------------------------------
Variable rate $ 4,267 $53,745
Fixed rate 9,206 16,594
------- -------
Total* $13,473 $70,339
======= =======
* The figures used in the maturity analyses also include loans subject to
interest rate adjustment within the specified time categories.
PNB discontinues the accrual of interest on loans when, in management's
judgement, the collection of the full amount of the loan is doubtful. This will
generally occur once the loan has become 90 days past due, unless the loan is
well secured and in the process of collection. The following table presents a
summary of non-accrual, past due and restructured loans and foreclosed real
estate as of March 31, 1997 and as of December 31, 1996, 1995, and 1994 (dollars
in thousands).
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------------------
1997 1996 1995 1994
-------- ----- ------ -----
<S> <C> <C> <C> <C>
Loans on nonaccrual $ 1,116 $ 531 $ 496 $ 640
Loans past due 90 days or more
and still accruing 269 87 46 187
Troubled debt restructuring 96 261 -- --
Foreclosed real estate 109 54 62 223
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
An allowance is available for losses which may be incurred in the
future on loans in the current portfolio. The allowance is increased by
provisions charged to current operations and is decreased by loan losses, net of
recoveries. The provision for possible loan losses is based on management's
evaluation of current and anticipated economic conditions, changes in the
character and size of the loan portfolio, and other indicators. The balance in
the allowance for possible loan losses is considered adequate by management to
absorb any reasonably foreseeable loan losses. See "PEMI Management's Discussion
and Analysis of Financial Condition and Results of Operations - Allowance for
Possible Loan Losses and Non-Performing Assets."
As of January 1, 1995, PEMI adopted Statement of Financial Accounting
Standards (SFAS) 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 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. PEMI considers its residential real estate loans and
consumer loans that are not individually significant to be large groups of
smaller balance homogeneous loans.
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. PEMI applies SFAS No. 114 on a loan-by-loan basis.
PEMI 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. PEMI may
place a loan on nonaccrual status but not classify it as impaired, if (i) it is
probable that PEMI 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 collectability of the loan's principal is remote.
Substantially all of PEMI's loans that have been identified as impaired have
been measured by the fair value of existing collateral. The financial statement
impact of adopting the provisions of this Statement was not material.
PNB's allowance for possible loan losses was $1.3 million at March 31,
1997. This represented 1.4% of the total loans outstanding. The following table
sets forth PNB's allowance for possible loan losses at the dates indicated
(dollars in thousands).
<TABLE>
<CAPTION>
At or for the Three At or for the Years
Months Ended March 31, Ended December 31,
---------------------- -------------------
1997 1996 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Allowance for possible loan losses,
beginning of period $1,306 $1,360 $1,360 $1,567
------ ------ ------ ------
Charge offs:
Real estate-mortgage loans (33) (13) (104) (173)
Real estate commercial/industrial loans (36) (6) (105) (177)
Loans to Individuals (20) (3) (32) (24)
------ ----- ------ ------
(89) (22) (241) (374)
Recoveries:
Real estate-mortgage loans 31 3 10 24
Real estate commercial/industrial loans 2 2 11 29
Loans to individuals 3 1 14 2
------ ------ ------ ------
36 6 35 55
------ ------ ------ ------
Net charge offs (53) (16) (206) (319)
------ ------ ------ ------
Provision for loan losses 30 36 152 112
------ ------ ------ ------
Allowance for possible loan losses, end of
period $1,283 $1,380 $1,306 $1,360
====== ====== ====== ======
Ratio of net charge offs to average loans .06% .02% .24% .38%
Ratio of allowance for possible loan losses to
period-end loans 1.44% 1.68% 1.48% 1.66%
</TABLE>
The provisions to the allowance for possible loan losses are sufficient
to maintain the allowance at a level which in the judgement of management is
adequate to absorb any potential loss in existing loans.
The following table sets forth the amount of PNB's allowance for
possible loan losses as of March 31, 1997, and as of December 31, 1996 and 1995,
allocated to each category of loan together with the loans in each category as a
percentage of total loans at the dates indicated (dollars in thousands). While
PNB allocates the allowance for possible loan losses based on the percentage of
each category to total loans receivable, the portion of the allowance for
possible loan losses allocated to each category does not represent the total
available for future losses which may occur within the loan category since the
total allowance for possible loan losses is a valuation reserve applicable to
the entire portfolio.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
March 31, 1997 1996 1997
-------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 488 59.0% $ 473 60.2% $ 486 61.4%
Commercial and
commercial real estate 754 31.6% 794 30.3% 824 29.9%
Consumer 39 7.9% 37 8.4% 47 7.4%
Municipal 2 1.4% 2 1.1% 3 1.3%
Other loans 0 .1% 0 0% 0 .0%
------ ----- ------ ----- ------ -----
Total $1,283 100.0% $1,306 100.0% $1,360 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
INVESTMENT SECURITIES
General. PNB's investment portfolio is managed as a source of interest
income, an asset/liability management tool, and a potential source of liquidity
to fund loan growth or meet deposit outflow. As such, PNB seeks to invest in a
broad range of investments to maintain diversification and provide superior
yields to those of federal funds and other short-term investments.
At March 31, 1997, the investment portfolio, excluding Federal Reserve
Bank stock and Federal Home Loan Bank stock, had a carrying value of $29.2
million and a market value of $28.9 million. Of the $29.2 million carrying
value, $11.6 million, or 39.7%, of the securities were designated as
held-to-maturity with the remaining $17.6 million, or 60.3%, designated as
available-for-sale.
The following table sets forth certain information regarding the
amortized cost and market value of PNB's investments at the dates indicated
(dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
March 31, 1997 1996 1995 1994
-------------------- -------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-
maturity:
Debt securities issued
by the U.S. Treasury
and other U.S. Gov't
corporations and
agencies $ 500 $ 501 $ 501 $ 503 $ 1,302 $ 1,306 $ 2,005 $ 1,951
Debt securities issued
by states of the U.S.
and political
subdivisions of the
states 1,529 1,552 1,531 1,566 1,717 1,770 2,341 2,345
Mortgage-backed
securities 9,575 9,405 9,943 9,810 11,981 11,850 13,179 12,244
------- ------- ------- ------- ------- ------- ------- -------
Total $11,604 $11,458 $11,975 $11,879 $15,000 $14,926 $17,525 $16,540
======= ======= ======= ======= ======= ======= ======= =======
Securities available-for-
sale:
Debt securities issued
by the U.S. Treasury
and other U.S. Gov't
corporations and
agencies $ 1,989 $ 1,971 $ 2,489 $ 2,490 $ 1,009 $ 1,012 $ -- $ --
Debt securities issued
by states of the U.S.
and political
subdivisions of the
states 3,217 3,201 3,219 3,259 2,032 2,055 -- --
Mortgage-backed
securities 12,368 12,217 12,784 12,708 5,094 5,046 1,597 1,476
------- ------- ------- ------- ------- ------- ------- -------
Total $17,574 $17,389 $18,492 $18,457 $ 8,135 $ 8,113 $ 1,597 $ 1,476
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
There were no sales of available-for-sale or held-to-maturity
securities in 1996, 1995, and 1994.
In 1995, PNB transferred at fair value certain debt securities from
securities classified as held-to-maturity to securities classified as
available-for-sale. The unrealized holding loss of $17,000 ($27,000 less tax
effect of $10,000) at the date of transfer has been recognized as a separate
component of stockholders' equity. The transfer was a result of reassessment of
the appropriateness of the classification of all securities held at December 31,
1995. In accordance with a Special Report of the Financial Accounting Standards
Board regarding SFAS No. 115, this transfer will not call into question the
intent of PNB to hold other debt securities to maturity in the future.
During 1994, the amortized cost of a security held-to-maturity that was
transferred to available-for-sale at fair value amounted to $469,000, and the
related unrealized loss amounted to $69,000. Such security was transferred as a
result of PEMI's understanding that there was a significant deterioration in the
issuer's creditworthiness.
There were no securities of issuers whose aggregate carrying amount
exceeded 10% of stockholders' equity as of March 31, 1997, and December 31,
1996.
The following table sets forth the maturities of investment securities
as of March 31, 1997 and the weighted average yields of such securities
(calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security). Various securities included below are
redeemable at various times. Fully taxable equivalent adjustments have been made
in calculating yields on obligations of states and political subdivisions. For
securities with variable or adjustable interest rates, the rate in effect as of
March 31, 1997 was used for this schedule (dollars in thousands).
<TABLE>
<CAPTION>
Under 1 1-5 5-10 Over 10
Year Yield Years Yield Years Yield Years Yield Total Yield
------- ----- ----- ----- -------- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
US Treasury securities and $ 500 6.75% $ -- --% $ -- --% $ -- --% $ 500 6.75%
obligations of US
government
corporations and agencies
Obligations of states and 161 10.21 1,368 10.20 -- -- -- -- 1,529 10.20
political subdivisions
Mortgage-backed securities 191 8.86 1,024 7.83 4,128 6.61 4,232 6.95 9,575 6.89
------ ------ ------ ------- -------
Total $ 852 8.66% $2,392 9.02% $4,128 6.61% $ 4,232 6.95% $11,604 7.00%
------ ------ ------ ------- -------
Securities
available-for-sale:
US Treasury securities and $ -- --% $1,989 6.54% $ -- --% $ -- --% $ 1,989 6.54%
obligations of US
Government
corporations and agencies
Obligations of states and -- -- 333 9.90 672 8.01 2,212 8.07 3,217 8.14
political
subdivisions
Mortgage-backed securities 175 6.03 519 7.64 1,966 6.59 9,708 6.88 12,368 6.87
------ ------ ------ ------- -------
Total $ 175 6.03% $2,841 7.20% $2,638 6.96% $11,920 7.08% $17,574 7.08%
------ ------ ------ ------- -------
Total portfolio* $1,027 8.08% $5,233 7.94% $6,766 6.73% $16,152 7.04% $29,178 7.05%
====== ====== ====== ======= =======
- ----------------------------------
* Does not include Federal Home Loan Bank stock and Federal Reserve
Bank stock with carrying amounts of $740,000 and $80,000, respectively.
</TABLE>
DEPOSITS
Most of PNB's deposits have been obtained from individuals and from
small and medium-sized businesses. In addition, PNB attracts deposits from
municipalities and other governmental agencies. Customer deposits are insured by
the FDIC, up to applicable limits.
As of December 31, 1996, PNB had a total of $16.1 million in demand
deposit accounts and $89.6 million in NOW and money market, time and savings
deposit accounts for individuals, corporations and other entities. Of total
deposits of $105.7 million, 85% were in interest bearing categories and 15% were
in non-interest bearing categories.
The following table shows the average deposits and average interest
rate paid for the three months ended March 31, 1997, and for the years ended
December 31, 1996, 1995, and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
Three Months Ended ----------------------------------------------------------------------
March 31, 1997 1996 1995 1994
----------------- ----------------- ----------------- ----------------
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate Balance Rate
-------- ------ -------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C>
Demand deposits $ 15,389 --% $ 14,366 --% $ 12,665 --% $12,891 --%
NOW and money
market accounts 27,164 2.03 27,793 2.11 28,301 2.21 32,797 2.17
Savings 16,403 2.52 15,338 2.57 13,677 2.67 14,670 2.47
Time, $100,000 and
over 5,490 5.65 5,192 5.95 4,168 5.63 3,979 4.60
Other time deposits 40,742 5.68 39,439 5.94 33,678 5.50 30,557 4.49
-------- -------- ------- -------
Total $105,188 $102,128 $92,489 $94,894
======== ======== ======= =======
</TABLE>
The following table sets forth, as of March 31, 1997 and December 31,
1996, the maturities of time deposits in amounts of $100,000 or more (dollars in
thousands):
Maturity March 31, 1997 December 31, 1996
------------------------------- -------------- -----------------
3 months or less $1,350 $1,339
Over 3 months through 6 months 946 1,147
Over 6 months through 12 months 1,441 601
Over 12 months 1,712 2,305
------ -------
Total $5,449 $5,392
====== ======
Borrowings. PNB borrowed funds from the FHLB to fund asset growth
during the first quarter 1997. Advances outstanding as of March 31, 1997 totaled
$9.9 million at a weighted average interest rate of 6.1%. The average balance of
advances outstanding in the first quarter of 1997 was $8.0 million. Advances
were secured by PNB's stock in that institution, its residential real estate
mortgage portfolio and the remaining US government and agencies obligations not
otherwise pledged.
EMPLOYEES
At March 31, 1997, PEMI had 73 full-time and 4 part-time employees.
Management considers its relations with its employees to be good. PEMI's
employees are not represented by any collective bargaining group.
PROPERTIES
PNB conducts business through its main office and four branch offices,
all of which are owned. PNB's main office is at 287 Highland Street, West
Plymouth and PNB has banking offices at 103 Highland Street, Plymouth; Route 49,
Campton; Route 3, Ashland; and Route 3, North Woodstock.
LEGAL PROCEEDINGS
There are no known pending material legal proceedings to which PEMI or
PNB are a party, or to which any of their properties are subject, other than
ordinary litigation arising in the normal course of business.
<PAGE>
PEMI MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the names, ages, terms, positions with PEMI and
PNB, and business experience of PEMI's current directors and executive officers
is set forth below:
NAME AGE POSITION WITH PEMI
- ---- --- ------------------
Fletcher W. Adams........... 60 President, Chief Executive
Officer, and Treasurer
Frederick C. Anderson....... 45 Director
Charles H. Clifford, Jr..... 61 Director and Secretary
James E. Currie............. 73 Director
Andrew L. Morse............. 54 Director
John H. Noyes ............. 50 Director
Milton E. Pettengill........ 70 Chairman of the Board
Ann M. Reever ............. 52 Director
Dean H. Yeaton ............. 59 Director
Keith L. Philbrick.......... 48 Chief Financial Officer of PNB
Robert R. Sargeant.......... 45 Vice President and Senior Loan
Officer of PNB
Fletcher W. Adams has served as a director of PEMI since it was
organized in 1985. Since January 1990, Mr. Adams has served as President and
Chief Executive Officer of PEMI, having previously served PEMI from 1985 to 1990
as Executive Vice President. Mr. Adams is also the President and Chief Executive
Officer of PNB, having joined PNB as Executive Vice President in June 1984, and
has served as a director of PNB since 1973. Prior to joining PNB, Mr. Adams was
the President of Adams Supermarket, Inc., a company which owned a supermarket.
Frederick C. Anderson has served as a director of PEMI since January
1997. From 1992 to the present, Mr. Anderson has served as the Chief Executive
Officer and General Manager of New Hampshire Electric Cooperative, Inc., having
previously served that company as Assistant General Manager. Mr. Anderson is a
director of Whole Village Family Resource Center, Northeast Public Power
Association, and the Northeast Association of Electrical Cooperatives.
Charles H. Clifford, Jr., has served as a director of PEMI since it was
organized in 1985, and as a director of PNB since 1980. Mr. Clifford is the
President of Clifford-Nicol Printing, a printing company.
James E. Currie has served as a director of PEMI since it was organized
in 1985. Prior to his retirement in July 1986, Mr. Currie served as Vice
President and Senior Loan Officer, and as a director, of PNB.
Andrew L. Morse has served as a director of PEMI and PNB since 1996.
Mr. Morse is the owner of Wayne's Market and the Woodstock Cheese Shoppe.
John H. Noyes has served as a director of PEMI and PNB since 1994. Mr.
Noyes is the President and Treasurer of Noyes Insurance Agency, Inc., and since
1991 has served as the President of Central Square Insurance, Inc., both of
which are independent insurance agencies.
Milton E. Pettengill has served as a director of PEMI since it was
organized in 1985 and as Chairman of the Board since 1990. From 1985 to his
retirement in 1990, Mr. Pettengill also served as the President and Chief
Executive Officer of PEMI. From 1951 to 1990, Mr. Pettengill served in various
positions with PNB, becoming a director in 1973 and an executive officer in
1974.
Ann M. Reever has served as a director of PEMI and PNB since 1993. Mrs.
Reever, a self-employed business manager, has served as a member of the
Pemi-Baker Regional School Board since 1989 and was a director of the Swift
Water Girl Scout Council from 1991 to 1993. Mrs. Reever currently serves as a
member of the Ashland, New Hampshire Budget Committee.
Dean H. Yeaton has served as a director of PEMI and PNB since 1986. Mr.
Yeaton is the President of Dean H. Yeaton, Inc., a trucking company, and the
President of Yeaton Oil Company.
Keith L. Philbrick has served as the Chief Financial Officer of PNB
since November 1994. From 1980 to 1994, Mr. Philbrick, who joined PNB in 1970,
served as PNB's senior mortgage officer.
Robert R. Sargeant has served as Vice President and Senior Loan Officer
of PNB since 1987. From 1980 to 1987, Mr. Sargeant, who joined PNB in 1974,
served as PNB's Commercial and Consumer Loan Officer.
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to PEMI during
the fiscal years ended December 31, 1996, 1995, and 1994, of PEMI's chief
executive officer. No other executive officer of PEMI earned more than $100,000
during such years.
NAME AND
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2)
- ------------------ ---- --------- --------
Fletcher W. Adams 1996 $97,000 $1,965
President, Chief Executive 1995 $93,600 $1,830
Officer and Treasurer 1994 $87,100 $1,715
- --------------
(1) The totals for Mr. Adams include his base salary together
with monthly fees received for attendance at meetings of the Boards of
Directors of PEMI and PNB. See "- Compensation of Directors."
(2) The totals for Mr. Adams include a bonus equal to one week of salary ($1,865
for 1996, $1,730 for 1995, and $1,615 for 1994, respectively) and an
additional $100 bonus payable at year end to all full-time employees of PNB
with seniority of one year or more.
EMPLOYMENT AGREEMENTS
There are no employment agreements between PEMI or PNB, and any
employees of PEMI or PNB.
PENSION PLAN
PNB maintains a qualified pension plan covering substantially all of
its employees meeting certain eligibility requirements. Benefits paid under this
plan are based on 50% of monthly compensation reduced by 1/20 for each year of
service less than 20 years.
In March 1997, PNB filed an application with the IRS to resolve certain
ambiguities and potential issues concerning the eligibility of its defined
benefit pension and 401(k) plans. As reflected in the footnotes to the
Consolidated Financial Statements of PEMI for the year-ended December 31, 1996,
PEMI anticipates that any sanction that would be imposed against PEMI by the IRS
with respect to such issues would be between $25,000 and $200,000.
COMPENSATION OF DIRECTORS
The members of the PEMI Board receive $300 for each board meeting
attended, except for the Chairman and the Clerk, who receive $500 and $350,
respectively. In addition, members of various committees of the PEMI Board
receive a fee of $175 per committee meeting attended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of PEMI and companies or
organizations with which they are affiliated, have conducted, and may in the
future conduct, banking transactions with PNB in the ordinary course of PNB's
business. Federal banking laws and regulations limit the aggregate amount of
indebtedness that a bank may extend to its insiders and their affiliates.
Pursuant to such laws and regulations, banks may extend credit to executive
officers, directors, principal stockholders, or any related interest of such
persons, if the extension of credit to such persons is in an amount that, when
aggregated with the amount of all outstanding extensions of credit to such
individuals, does not exceed the banks' unimpaired capital and unimpaired
surplus. As of March 31, 1997, and December 31, 1996, the aggregate amount of
extensions of credit made by PNB to directors and executive officers of PEMI,
and their affiliates, totaled $395,000 and $360,000, respectively, or 3.2% and
3.0% of PEMI's capital, which was well below the legal limit.
All loans and commitments to loan to PNB's and PEMI's directors,
executive officers, and their affiliates are made on substantially the same
terms, including interest rates, collateral, and repayment terms, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of management, do not involve more than a normal risk of collection
or present other unfavorable features.
<PAGE>
PRINCIPAL HOLDERS OF PEMI COMMON STOCK
The following table sets forth, as of July 31, 1997, to the best
knowledge of PEMI, the number and percentage of outstanding shares of PEMI
Common Stock beneficially owned by: (i) each director of PEMI; (ii) PEMI's chief
executive officer; (iii) PEMI's directors and executive officers as a group; and
(iv) each person (including any "group," as that term is used in Section
13(d)(3) of the Exchange Act), known to PEMI to beneficially own more than 5% of
the outstanding PEMI Common Stock. Also set forth is the equivalent number of
shares and the percent of the class of Northway Common Stock that will be owned
by the individuals and entities listed in the table following the consummation
of the Merger. Except as otherwise set forth below, to the knowledge of PEMI,
all persons listed below have sole voting and investment power with respect to
their shares.
<TABLE>
<CAPTION>
Equivalent Shares of
Northway Common
Stock, Assuming
PEMI Common Stock Consummation
Beneficially Owned (2) of the Merger (2)(3)
-------------------------- ---------------------
Number Number
of Percent of Percent
Name of Beneficial Owner(1) Shares of Class Shares of Class
- ------------------------ ------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers
Fletcher W. Adams(4)................................... 57,927 8.4% 60,354 3.5%
Frederick C. Anderson.................................. 1,000 * 1,041 *
Charles H. Clifford, Jr................................ 2,400 * 2,500 *
James E. Currie(5)..................................... 3,600 * 3,750 *
Andrew L. Morse........................................ 1,000 * 1,041 *
John H. Noyes.......................................... 11,350 1.6% 11,825 *
Milton E. Pettengill(6)................................ 8,800 1.3% 9,168 *
Ann M. Reever.......................................... 2,450 * 2,552 *
Dean H. Yeaton(7)...................................... 5,350 * 5,574 *
Directors and executive officers
as a group (11 persons)............................ 93,877 13.6% 97,810 5.6%
Other Principal Stockholders
American Global Insurance Co........................... 43,200 6.3% 45,010 2.6%
c/o Fiduciary Trust Co., Inc.
Two World Trade Center
New York, NY 10048
- --------------------------
* Less than 1%.
(1) Unless otherwise noted, the address of each of the listed stockholders is
287 Highland Street, Plymouth, New Hampshire 03264.
(2) The percentages set forth in this table are based upon 690,401 shares of
PEMI Common Stock outstanding as of March 31, 1997, and 1,732,145 shares of
Northway Common Stock outstanding following consummation of the Merger,
respectively. The definition of beneficial owner includes any person, who
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares voting power or investment power
with respect to such security.
(3) These figures do not include any potential ownership of Northway Common
Stock as a result of ownership of BCB Common Stock.
(4) The total for Mr. Adams includes 44,250 shares owned individually by Mr.
Adams, 4,000 shares owned jointly with his wife, 1,700 shares owned by each
of Mr. Adams' son and daughter, and 6,277 shares owned by an estate of which
Mr. Adams is Trustee.
(5) The total for Mr. Currie includes 1,400 shares
owned individually by Mr. Currie and 2,200 shares owned jointly with his
wife.
(6) The total for Mr. Pettengill includes 1,000 shares owned individually by Mr.
Pettengill and 7,800 shares owned jointly with his wife.
(7) The total for Mr. Yeaton includes 2,000 shares owned individually by Mr.
Yeaton, 1,000 shares owned by his wife, and 2,350 shares owned jointly with
his wife.
</TABLE>
BUSINESS OF NORTHWAY
Northway is a newly formed company organized on March 7, 1997, under
the laws of the state of New Hampshire for the purpose of effecting the Merger
and thereby becoming the holding company for BCB and PNB. Northway currently
conducts no business and has no employees. After the Merger, Northway's business
will be to own all of the shares of BCB Common Stock and PNB Common Stock.
Accordingly, viewed on a consolidated basis, the business of Northway will
consist of the businesses of BCB and PNB. See "Business of BCB" and "Business of
PEMI."
As of March 31, 1997, if the Merger had been effected by such date, on
a pro forma basis, Northway would have had total assets of $371.5 million, total
deposits of $315.9 million, total net loans of $243.3 million and stockholders'
equity of $34.1 million. Based on BCB's and PEMI's total deposits at June 30,
1996, Northway would have ranked ninth among New Hampshire banking and thrift
institutions. See "Unaudited Pro Forma Combined Financial Information of
Northway." In addition, as of March 31, 1997, if the Merger and related
transactions had been effected by such date, Northway and its subsidiaries would
have employed an aggregate of approximately 198 full-time and part-time
employees.
Northway will maintain an Asset/Liability Committee that will be
responsible for overseeing interest rate exposure and investment activities for
the constituent banks on a consolidated basis. Each bank will continue to
maintain its own asset/liability committee which will continue to set guidelines
for the management of each such bank's liquidity and interest rate risk
position.
As a bank holding company, Northway will be extensively regulated under
federal law. Northway will be subject to supervision and examination by the
Federal Reserve Board under the BHCA, and will be obligated to file with the
Federal Reserve Board an annual report and such additional reports as the
Federal Reserve Board may require. PNB and BCB will continue to be subject to
supervision and examination by OCC and the FDIC, respectively, and will be
obligated to file therewith annual and other periodic reports. In addition,
Northway, as a bank holding company under New Hampshire law, and BCB, as a New
Hampshire commercial bank, will be required to register with the New Hampshire
Banking Commissioner and to file such reports with the New Hampshire Banking
Commissioner as may be required from time to time. Northway will also be
required to file periodic and other reports with the Commission and, as a
company with securities quoted on the Nasdaq National Market, with The Nasdaq
Stock Market, Inc.
MANAGEMENT OF NORTHWAY FOLLOWING THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Northway Articles and Northway By-laws, the Northway
Board will, as of the Effective Time, consist of ten members, six of whom will
be designated, after consultation with PEMI, by BCB and four of whom will be
designated, after consultation with BCB, by PEMI. Thereafter, the number of
directors on the Northway Board will consist of not less than six nor more than
13 directors. The Northway Board will be divided into three classes, as nearly
equal in number as possible, with one class elected annually. At each annual
meeting of stockholders, the successors to the directors of the class whose term
expired in that year will be elected to hold office for a term expiring at the
annual meeting of the stockholders held in the third year following the year of
their election and until their respective successors are duly elected or
appointed and qualified; provided, however, that the directors initially elected
to Class I will hold office for a term expiring at the annual meeting of
stockholders to be held in 1998, the directors initially elected to Class II
will hold office for a term expiring at the annual meeting of stockholders to be
held in 1999, and the directors initially elected to Class III will hold office
for a term expiring at the annual meeting of stockholders to be held in 2000.
Directors of Northway may or may not simultaneously serve on the BCB Board or
the PNB Board. The vote of BCB and PEMI stockholders in favor of the Merger at
their respective meetings will be deemed to be the ratification by such
stockholders of the election by BCB, as sole stockholder of Northway, of
Northway's ten initial directors.
Information concerning the persons designated by BCB and PEMI to serve
as the directors and executive officers of Northway following the Merger is set
forth below:
NAME AGE POSITION WITH NORTHWAY
- ---- --- ----------------------
William J. Woodward....... 51 Chairman of the Board, President, and
Chief Executive Officer
Fletcher W. Adams......... 60 Vice Chairman of the Board
Peter H. Bornstein......... 42 Director
Charles H. Clifford, Jr.... 61 Director
Arnold P. Hanson, Jr....... 47 Director
Barry J. Kelley............ 47 Director
Randall G. Labnon.......... 43 Director
John D. Morris............. 66 Director
Andrew L. Morse............. 54 Director
John H. Noyes............... 50 Director
David J. O'Connor........... 50 Executive Vice President, Chief Financial
Officer, and Treasurer
Paul G. Campagna............ 56 Clerk
William J. Woodward has served as the President and Chief Executive
Officer of BCB since 1994, as Chairman of the Board of Directors since 1989, and
as a director since 1975. Mr. Woodward formerly served as the President of
Vaillancourt & Woodward, Inc., an independent insurance agency located in
Berlin, New Hampshire, and currently serves as treasurer and provides consulting
services to that company. Mr. Woodward's activities on behalf of Vaillancourt &
Woodward, Inc., which do not entail a scheduled commitment, occupy less than
three hours per week during BCB's regular business hours.
Fletcher W. Adams has served as a director of PEMI since it was
organized in 1985. Since January 1990, Mr. Adams has served as President and
Chief Executive Officer of PEMI, having previously served PEMI from 1985 to 1990
as Executive Vice President. Mr. Adams is also the President and Chief Executive
Officer of PNB, having joined PNB as Executive Vice President in June 1984, and
has served as a director of PNB since 1973. Prior to joining PNB, Mr. Adams was
the President of Adams Supermarket, Inc., a company which owned a supermarket.
Peter H. Bornstein has served as a director of BCB since 1989. Mr.
Bornstein, an attorney, is a partner and president of Bergeron, Hanson &
Bornstein, a law firm based in Berlin, New Hampshire, where he has practiced
since 1981.
Charles H. Clifford, Jr., has served as a director of PEMI since it was
organized in 1985, and as a director of PNB since 1980. Mr. Clifford is the
President Clifford-Nicol Printing, a printing company.
Arnold P. Hanson, Jr. has served as a director of BCB since 1997. Since
1995, Mr. Hanson has served as the Vice President and Chief Operating Officer of
Isaacson Steel, Inc., a steel company, and as an executive officer and director
of various related entities. From 1987 to 1995, Mr. Hanson served as Vice
President of Taylor Publishing Company.
Barry J. Kelley has served as a director of BCB since 1989. Mr. Kelley
is the President and owner of White Mountain Lumber Co., Inc., a Berlin, New
Hampshire lumber company, with which he has been employed for 25 years.
Randall G. Labnon has served as a director of BCB since 1991. Mr.
Labnon has served as the General Manager since 1978, and as a director since
1988, of the Town & Country Motor Inn in Gorham, New Hampshire.
John D. Morris has served as a director of BCB since 1991. Mr. Morris
is a partner in A.N. Morris Partnership, a real estate investment firm. From
1984 to 1991, Mr. Morris owned and operated Morris Financial Services, a
business consulting firm.
Andrew L. Morse has served as a director of PEMI and PNB since May
1996. Mr. Morse is the owner of Wayne's Market and the Woodstock Cheese Shoppe.
John H. Noyes has served as a director of PEMI and PNB since 1994. Mr.
Noyes is the Treasurer of Noyes Insurance Agency, Inc., and since 1991 has
served as the President of Central Square Insurance, Inc., both of which are
independent insurance agencies.
David J. O'Connor has been Executive Vice President of BCB since 1992
and Chief Financial Officer of BCB since 1989 and is responsible for financial
operations. Prior to joining BCB in 1989, Mr. O'Connor served in various banking
positions in New England, including as Comptroller of the Bank of New England,
N.A., Chief Financial Officer of Plymouth Savings Bank, and President of
Atlantic Bank and Trust Company.
Paul G. Campagna has served as Clerk of BCB since 1970 and Senior Vice
President since 1982 and is responsible for the community reinvestment policies
and compliance function of BCB and its loan review process.
He has been employed with BCB since 1968.
COMMITTEES OF THE NORTHWAY BOARD
The Northway By-laws provide that the Northway Board may establish
various committees from time to time. The committees of the Northway Board and
their respective memberships will be established following the Effective Time.
EMPLOYMENT AGREEMENTS
It is anticipated that, at the Effective Time, Northway will enter into
employment agreements with Messrs. Woodward and Adams. See "The Merger and
Related Transactions - Interests of Certain Persons in the Merger."
TRANSACTIONS WITH DIRECTORS
The Northway Board will conduct an appropriate review of all related
party transactions and conflict of interest situations on an ongoing basis. In
accordance with New Hampshire law, any transactions between Northway and its
affiliated entities, directors, executive officers, or significant stockholders
will require either the authorization, approval, or ratification of the
independent members of the Northway Board or the stockholders or will be fair to
Northway. Any such transactions will also be subject to applicable federal and
state banking laws and regulations.
COMPARATIVE STOCK PRICES AND DIVIDENDS
BCB AND PEMI
The BCB Common Stock and the PEMI Common Stock are not traded on any
exchange nor in the over-the-counter market. On occasion, shares are traded
between individuals or through one or more local broker-dealers. Because there
is no established market for the BCB Common Stock and the PEMI Common Stock, the
following table sets forth, to the best knowledge and belief of BCB and PEMI
management, the highest and lowest prices paid for shares of BCB Common Stock
and PEMI Common Stock, respectively, in the isolated transactions that have
occurred during the past two years, together with the dividends declared by BCB
and PEMI during such periods. The prices set forth below may not be indicative
of current value.
<TABLE>
<CAPTION>
BCB PEMI
---------------------------------- ------------------------------------
Dividends Dividends
High Low Declared High Low Declared
---- --- --------- ---- --- ----------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter $218.00 $210.00 $ -- $ 9.00 $ 8.50 $ --
Second Quarter 220.00 210.00 3.30 9.25 9.00 .13
Third Quarter 220.00 220.00 -- 10.25 9.00 --
Fourth Quarter 260.00 220.00 3.30 11.50 10.25 .37
1996
First Quarter $270.00 $270.00 $ -- $10.50 $ 9.50 $ --
Second Quarter 306.00 299.00 3.50 13.50 10.00 .15
Third Quarter 302.00 292.00 -- 12.00 11.00 --
Fourth Quarter 302.00 292.00 3.50 12.00 11.00 .50
1997
First Quarter $318.00 $307.00 $ -- $22.00 $13.50 $ --
Second Quarter $323.00 $321.00 $4.75 $22.00 $19.50 $.15
</TABLE>
The purchase prices paid in connection with the last sales of BCB
Common Stock and PEMI Common Stock prior to the public announcement of the
proposed merger on March 14, 1997, were $312.00 and $13.50 per share,
respectively. The purchase prices paid in connection with the last sales of such
shares between March 14, 1997 and July 31, 1997, the latest practicable date
prior to the date of this Proxy Statement/Prospectus, were $324.00 and $19.50
per share, respectively. As of July 31, 1997, there were approximately 1,353
holders of record of the 63,301 outstanding shares of BCB Common Stock and
approximately 420 holders of record of the 690,401 outstanding shares of PEMI
Common Stock.
The Merger Agreement provides that neither BCB nor PEMI will declare or
pay any dividends on, or make other distributions in respect of, any of their
capital stock, except that, if the Merger has not been consummated by the
respective dates on which such dividends are payable, (i) BCB may declare and
pay regular cash dividends, provided that ratio of any such dividends to BCB's
net income for the 1997 fiscal year may not exceed such ratio with respect to
PEMI's 1996 fiscal year, and (ii) PEMI may pay its regular semi-annual cash
dividend of up to $0.15 per share in June 1997 and up to $0.29 in December 1997.
In considering the declaration of any dividends prior to the Effective Time, the
BCB Board and PEMI Board will consider a number of factors, including the
capital requirements of BCB and PEMI, respectively, regulatory limitations,
BCB's and PEMI's results of operations and financial condition, taxes, and
general economic conditions.
NORTHWAY
Application has been made for quotation of the Northway Common Stock on
the Nasdaq National Market. See "The Merger and Related Transactions -- Listing
on the Nasdaq National Market."
Future dividends on the Northway Common Stock will depend on the
earnings and financial condition of Northway, BCB, and PNB, on the extent to
which Northway engages in additional or new banking and banking-related
businesses, and on other factors. Following the Merger, Northway will be a legal
entity separate and distinct from its subsidiaries and the only funds available
to Northway for the payment of dividends will be cash and cash equivalents held
at the holding company level, dividends paid to Northway by BCB and PNB, and
borrowings. The amount of dividends that BCB and PNB will be able to pay to
Northway will be subject to federal and state regulatory limitations and
approvals, tax considerations, and general economic conditions. See "Certain
Regulatory Considerations -- Regulation of BCB and PNB." No assurances can be
given that dividends will be paid by Northway, or if paid, that dividends will
continue to be paid at the same level. For information on the high and low share
prices and the dividends declared on the Northway Common Stock on a pro forma
combined basis, see "Summary -- Pro Forma Comparative Per Share Data
(Unaudited)."
DESCRIPTION OF NORTHWAY CAPITAL STOCK
Northway is a New Hampshire corporation and its affairs are governed by
the Northway Articles, the Northway By-laws, and the NHBCA. The following
summary description of the capital stock of Northway is qualified in its
entirety by reference to the provisions of the Northway Articles and Northway
By-laws, copies of which are filed as exhibits to the Registration Statement of
which this Proxy Statement/Prospectus is a part. For further information on the
rights of holders of Northway Common Stock, as well as a discussion of the
differences between the rights of Northway, BCB, and PEMI stockholders, see
"Comparison of Rights of Holders of Northway Common Stock, BCB Common Stock, and
PEMI Common Stock."
At the Effective Time, the authorized capital stock of Northway will
consist of 9,000,000 shares of Northway Common Stock and 1,000,000 shares of
preferred stock, par value $1.00 per share ("Northway Preferred Stock"). There
are currently outstanding 1,000 shares of Northway Common Stock, all of which
are owned by BCB. At the effective time of the BCB Reorganization, BCB will
transfer or surrender its interest in such shares of Northway to Northway for
cancellation. It is anticipated that, after giving effect to the Merger, based
on the number of shares of BCB Common Stock and PEMI Common Stock outstanding on
March 31, 1997, Northway will have 1,732,145 shares of Northway Common Stock and
no shares of Northway Preferred Stock issued and outstanding.
NORTHWAY COMMON STOCK
The holders of Northway Common Stock are entitled to one vote for each
share held of record on all matters on which stockholders are entitled to vote.
Holders of Northway Common Stock do not have cumulative voting rights and,
therefore, the holders of a majority of the shares voted in the election of
directors can elect all of the directors then standing for election, subject to
the rights of the holders of Northway Preferred Stock, if and when issued. The
holders of Northway Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Northway Board from funds legally
available therefor. See "Comparative Stock Prices and Dividends - Northway." The
possible issuance of Northway Preferred Stock with a preference over Northway
Common Stock as to dividends could impact the dividend rights of holders of
Northway Common Stock. In the event of liquidation, dissolution, or winding up
of Northway, the holders of Northway Common Stock are entitled to share ratably
in any corporate assets remaining after payment of all debts, subject to any
preferential rights of any outstanding Northway Preferred Stock. The holders of
Northway Common Stock have no preemptive or other subscription rights, and there
are no conversion rights or redemption or sinking fund provisions with respect
to the Northway Common Stock. All outstanding shares of Northway Common Stock
are, and the shares of Northway Common Stock to be issued by Northway upon
consummation of the BCB Reorganization and the Merger will be, if issued,
validly issued, fully paid, and non-assessable. For a discussion of limitations
on the rights of certain BCB and PEMI stockholders to re-sell shares of Northway
Common Stock received by them in the BCB Reorganization and the Merger, as the
case may be, see "The Merger and Related Transactions -- Resale of Northway
Common Stock."
NORTHWAY PREFERRED STOCK
The Northway Board has the authority, without further action of the
stockholders of Northway, to issue from time to time up to 1,000,000 shares of
Northway Preferred Stock in one or more classes or series and to fix the number
of shares, and the designations, voting powers, preferences, optional and other
special rights, and the restrictions or qualifications thereof. The rights,
preferences, privileges, and restrictions or qualifications of different series
of Northway Preferred Stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion rights, redemption provisions,
sinking fund provisions, and other matters. Any Northway Preferred Stock issued
by Northway may rank prior to the Northway Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights, and may
be convertible into shares of Northway Common Stock. The issuance of Northway
Preferred Stock could (i) decrease the amount of earnings and assets available
to the holders of the Northway Common Stock, (ii) adversely affect the powers
and rights, including voting rights, of the holders of Northway Common Stock,
and (iii) have the effect of delaying, deferring, or preventing a change in
control of Northway.
CERTAIN ANTI-TAKEOVER PROVISIONS
For a discussion of certain provisions of the Northway Articles and the
Northway By-laws, in addition to the preferred stock provisions discussed above,
that could have an effect of delaying, deferring, or preventing a change in
control of Northway and that would operate only with respect to an extraordinary
corporate transaction involving Northway, see "Comparison of Rights of Holders
of Northway Common Stock, BCB Common Stock, and PEMI Common Stock -- Certain
Anti-Takeover Effects of the Northway Articles and the Northway By-laws."
TRANSFER AGENT AND REGISTRAR
Northway has selected The First National Bank of Boston as the transfer
agent and registrar for the Northway Common Stock.
CERTAIN REGULATORY CONSIDERATIONS
Set forth below is a brief description of certain laws and regulations
that relate to the regulation of Northway, BCB, and PNB. The description of
certain laws and regulations below and elsewhere in this Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to applicable laws and regulations.
REGULATION OF NORTHWAY
General. Subject to the approval of the Federal Reserve Board, Northway
will become a bank holding company upon its acquisition of all of the voting
securities of BCB pursuant to the BCB Reorganization. As a bank holding company,
Northway will be subject to regulation, supervision, and examination by, and
will be required to file semiannually and annually a report of its operations
with, the Federal Reserve Board. The BHCA and other laws and regulations place
strict limitations on the types of activities in which Northway will be
permitted to engage and the manner in which Northway will be permitted to
conduct its operations.
BHCA -- Activities and Other Limitations. The BHCA and regulations
promulgated thereunder by the Federal Reserve Board prohibit a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the outstanding shares of any class of voting securities of any bank without
the Federal Reserve Board's prior approval. The BHCA also generally prohibits a
bank holding company from acquiring any bank located outside of the state in
which the existing bank subsidiaries of the bank holding company are located
unless specifically authorized by applicable state law. However, the Interstate
Banking and Branching Efficiency Act of 1994 provides that, among other things,
substantially all state law barriers to the acquisition of banks by out-of-state
bank holding companies will be eliminated. The law also permits interstate
branching by banks effective as of June 1, 1997, subject to the ability of
states to opt-out completely or set an earlier effective date.
The BHCA and regulations promulgated thereunder by the Federal Reserve
Board also prohibit a bank holding company, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5% of the
outstanding shares of any class of voting securities of any company that is not
a bank and from engaging in any business other than owning or managing or
controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefit to the public, including greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, including undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain
activities are so closely related to banking, within the meaning of the BHCA,
that such activities are permissible by bank holding companies. These activities
include making or servicing loans such as would be made by a mortgage, consumer
finance, credit card, or factoring company; performing trust company functions;
performing certain data processing operations; providing limited securities
brokerage services; acting as an investment or financial advisor; acting as an
insurance agent for certain types of credit-related insurance; leasing personal
property on a full-payout, non-operating basis; providing tax planning and
preparation services; operating a collection agency; and providing certain
courier services. The Federal Reserve Board also has determined that certain
other activities, including real estate brokerage and syndication, land
development, property management and underwriting of life insurance not related
to credit transactions, are not so closely related to banking as to be a proper
incident thereto, and bank holding companies are prohibited from engaging in
such activities.
Recently enacted legislation, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, provides for streamlined application procedures
for certain well-capitalized and well-managed bank holding companies desiring to
engage de novo or by acquisition in permissible nonbanking activities. Eligible
bank holding companies may engage de novo in permissible nonbanking activities
authorized by regulation without providing prior notice to the Federal Reserve
Board provided that the bank holding company gives written notice to the Federal
Reserve Board not more than 10 business days after commencing the activity.
Additionally, eligible bank holding companies may engage de novo in permissible
nonbanking activities authorized by Federal Reserve Board order or acquire
ownership or control of more than 5% of any class of voting securities of a
company engaged in permissible nonbanking activities authorized by Federal
Reserve Board order by providing a written notice to the Federal Reserve Board
at least 12 business days prior to commencing the activity or making the
acquisition.
Commitments to Affiliated Institutions. Under Federal Reserve Board
policy, Northway will be expected to act as a source of financial strength to
its subsidiary banks and to commit resources to support its subsidiary banks in
circumstances when it might not do so absent such policy. The legality and
precise scope of this policy is unclear, however, in light of federal judicial
precedent.
Limitations on Acquisitions of Common Stock. The federal Change in Bank
Control Act prohibits a person or group of persons from acquiring "control" of a
bank holding company unless the Federal Reserve Board has been given 60 days'
prior written notice of such proposed acquisition and within that time period
the Federal Reserve Board has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during which such
a disapproval may be issued. An acquisition may be made prior to expiration of
the disapproval period if the Federal Reserve Board issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the Federal Reserve Board, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act would, under the circumstances set forth in
the presumption, constitute the acquisition of control.
Notwithstanding the above, any "company" would be required to obtain
the approval of the Federal Reserve Board under the BHCA before acquiring 25%
(5% in the case of an acquirer that is a bank holding company) or more of the
outstanding common stock of, or such lesser number of shares as constitute
control over, Northway. Such approval would be contingent upon, among other
things, the acquirer registering as a bank holding company if not already so
registered, divesting all impermissible holdings, and ceasing any activities not
permissible for a bank holding company.
Certain Transactions by Bank Holding Companies and Their Affiliates.
There are various legal restrictions on the extent to which bank holding
companies, such as Northway, and their non-bank subsidiaries may borrow, obtain
credit from or otherwise engage in "covered transactions" with their insured
depository institution subsidiaries, such as BCB and PNB. Such borrowings and
other covered transactions by an insured depository institution subsidiary (and
its subsidiaries) with its non-depository institution affiliates are limited to
the following amounts: (i) in the case of any one such affiliate, the aggregate
amount of covered transactions of the insured depository institution and its
subsidiaries cannot exceed 10% of the capital stock and surplus of the insured
depository institution; and (ii) in the case of all affiliates, the aggregate
amount of covered transactions of the insured depository institution and its
subsidiaries cannot exceed 20% of the capital stock and surplus of the insured
depository institution. "Covered transactions" are defined by statute for these
purposes to include a loan or extension of credit to an affiliate, a purchase of
or investment in securities issued by an affiliate, a purchase of assets from an
affiliate unless exempted by the Federal Reserve Board, the acceptance of
securities issued by an affiliate as collateral for a loan or extension of
credit to any person or company, or the issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Covered transactions are also
subject to certain collateral security requirements. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property of any kind, or furnishing of any service.
REGULATION OF BCB AND PNB
As a New Hampshire-chartered commercial bank, BCB is subject to
regulation and examination by the New Hampshire Banking Commissioner and by the
FDIC, which insures its deposits to the maximum extent permitted by law. BCB is
required to file reports with, and is periodically examined by, the FDIC and the
New Hampshire Banking Commissioner concerning its activities and financial
condition, and it is required to obtain regulatory approvals from these agencies
prior to entering into certain transactions, including mergers with, or
acquisitions of, other financial institutions. Similarly, because PNB is a
national banking association, it is subject to supervision and examination by
the OCC, and it is required to seek the approval of the OCC before engaging in
certain activities or transactions. As an FDIC-insured institution, PNB is also
subject to certain requirements contained in the FDIA applicable to all insured
depository institutions.
Virtually every aspect of BCB's and PNB's day-to-day operations are
subject to numerous requirements and restrictions. Such requirements and
restrictions apply with respect to such matters as, for example, and without
limitation, the nature and amount of loans and investments that may be made, the
nature and amount of collateral for certain loans, the issuance of securities,
the taking of reserves against deposits, the establishment and closure of
branches, non-banking activities and other operations. Numerous laws and
regulations also set forth special restrictions and procedural requirements with
respect to the extension of credit, credit practices, the disclosure of credit
terms and discrimination in credit transactions. These legal requirements differ
for BCB and PNB to a greater or lesser extent because these entities are
chartered under different legal authorities. Furthermore, the laws and
regulations that govern BCB and PNB have generally been promulgated to protect
depositors and the deposit insurance fund and not for the protection of BCB's
and PNB's stockholder.
Federal Regulation of Bank Activities. As an FDIC-insured bank, BCB is
subject to certain laws and regulations that, among other things, prescribe the
nature and amount of certain investments, regulate the closure of branch
offices, and limit the amount of, and establish required approval procedures,
reporting requirements and credit standards for, loans and other extensions of
credit to directors, officers and principal stockholders of BCB and to their
related interests. BCB is also subject to the FDIC's regulatory capital
requirements. See "- Regulation of BCB and PNB - Regulatory Capital
Requirements." Likewise, PNB is subject to certain laws and regulations that,
among other things, regulate PNB's investment, deposit taking, lending,
corporate, and fiduciary activities, record keeping, and loans and other
extensions of credit to insiders and affiliates.
In general, any bank that does not operate in accordance with
applicable regulations, policies, and directives may be sanctioned for
noncompliance by the appropriate bank regulatory agency. Proceedings may be
instituted against any FDIC-insured bank or any director, officer, or employee
of such bank and certain other "institution-affiliated parties" (a term that
includes stockholders who participate in the conduct of the bank's affairs and,
under certain circumstances, accountants, appraisers, and attorneys) who engage
in unsafe and unsound practices, breaches of fiduciary duties, or violations of
applicable laws, regulations, regulatory orders, and agreements. In general, the
FDIC has the authority to terminate insurance of deposit accounts, to issue
orders to cease and desist, to remove officers, directors, and other
institution-affiliated parties, to impose substantial civil money penalties
against a bank and any director, officer, employee, agent, or other
institution-affiliated party of a bank and to place the bank into receivership.
With respect to national banks, the OCC has the authority, among other powers,
to promulgate cease and desist orders, remove or suspend officers and directors,
and impose civil money penalties. See "- Regulation of BCB and PNB -
Supervisory, Enforcement, and Other Powers."
Brokered Deposits. Federal law restricts the use of brokered deposits
by certain depository institutions in certain capitalization categories.
Limitations on Activities and Investments of Banks. As a national bank,
PNB must comply with the National Bank Act and the regulations promulgated
thereunder by the OCC which limit its activities to those that are deemed to be
part of or incidental to the "business of banking." Activities that are part of
or incidental to the business of banking include taking deposits, borrowing and
lending money, discounting or negotiating paper, acting as fiduciary, and
investing in certain bank-eligible securities. Examples of activities that are
not permissible for national banks include, without limitation, operation of a
travel agency, engaging in a general real estate brokerage business, and
investing in most types of equity securities. Subsidiaries of national banks, in
general, may only engage in activities permissible for the parent national bank.
BCB is subject to similar restrictions on its business and activities.
In particular, Section 24 of the FDIA, as added by FDICIA, provides that an
insured state bank, such as BCB, may not engage as a principal in any activity
that is not permissible for a national bank, unless the FDIC has determined that
the activity would pose no significant risk to the appropriate deposit insurance
fund and the state bank is in compliance with applicable capital standards.
Activities of subsidiaries of insured state banks are similarly restricted to
those activities permissible for subsidiaries of national banks, unless the FDIC
has determined that the activity would pose no significant risk to the
appropriate deposit insurance fund and the state bank is in compliance with
applicable capital standards. Section 24 also provides that an insured state
bank generally may not, directly or indirectly, acquire or retain any equity
investment of a type that is not permissible for a national bank, which would
include most equity security investments. In addition, as a New
Hampshire-chartered bank, BCB is subject to limitations on its business and
activities imposed by New Hampshire law. See "- New Hampshire Bank Regulation."
Supervisory, Enforcement and Other Powers. With the passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"),
the Crime Control Act of 1990 (the "Crime Control Act") and FDICIA, federal bank
regulatory agencies, including the OCC and the FDIC, have been granted
substantially broader enforcement powers to restrict activities of financial
institutions and to impose or seek the imposition of increased civil and
criminal penalties upon financial institutions and the individuals who manage
and control such institutions.
FIRREA's provisions enhanced the supervisory and enforcement powers of
the federal banking agencies with respect to banks generally, expanded the
FDIC's receivership powers with respect to failed banks, and protected insured
banks from abusive or imprudent transactions. In addition, provisions of FIRREA
simplified and shortened the procedures for the FDIC to terminate insurance of a
bank's deposit accounts, authorized the FDIC, as receiver, to repudiate certain
contracts entered into by the insured bank and significantly increased the
amount of civil money penalties which may be assessed by federal bank regulatory
agencies against a bank, its officers and directors or other
institution-affiliated parties. FIRREA also broadened the circumstances under
which such penalties may be assessed. FIRREA imposed additional restrictions on
banks that do not meet applicable minimum capital requirements, have experienced
a change of control within the preceding two years, or are deemed to be in a
"troubled" condition. These restrictions include requiring written notice to
federal regulatory authorities prior to certain proposed changes in the
institution's senior management or board of directors and prohibiting
acceptance, renewal, or rollover of brokered deposits (which prohibition was
extended by FDICIA).
The third of these acts, FDICIA, was intended, among other things, to
strengthen federal supervision and examination of insured depository
institutions, to require that federal banking regulators intervene promptly when
a depository institution experiences financial difficulties, to mandate the
establishment of a risk-based deposit insurance assessment system, and to
require imposition of numerous additional safety and soundness operational
standards and restrictions. FDICIA also expanded the conservatorship and
receivership powers of the FDIC. See "- Regulation of BCB and PNB - Regulatory
Capital Requirements" for a discussion of FDICIA's regulatory capital
requirements.
FDICIA included a variety of provisions that affect the internal
operations and activities of banks. For example, pursuant to FDICIA, the federal
banking agencies promulgated safety and soundness standards relating to
operations and management, compensation, asset quality, earnings, and stock
valuation. FDICIA further required that certain insured depository institutions
have periodic on-site regulatory examinations and annual audits by an
independent public accountant. The audit process must be overseen by an
independent audit committee composed of outside directors.
FDICIA also implemented certain changes in deposit insurance coverage,
including, among other things, the elimination of insurance on foreign deposits
and a significant reduction in "pass-through" deposit insurance coverage for
certain employee benefit plan deposits under certain circumstances. FDICIA
generally prohibits the FDIC from insuring deposits over $100,000 and mandates a
new system of risk-based deposit insurance assessments.
See "- Regulation of BCB and PNB - Deposit Insurance."
Regulatory Capital Requirements. Under current FDIC capital
regulations, state-chartered, nonmember banks (banks that are not members of the
Federal Reserve System), such as BCB, are required to comply with three separate
minimum capital requirements: a Tier 1 leverage capital ratio and two risk-based
capital ratios (the Tier 1 risk-based capital ratio and the total risk-based
capital ratio). As a national bank, PNB is subject to similar requirements
promulgated by the OCC.
FDICIA required the FDIC, the OCC, and each other 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,
concentration of credit risk, and the risks of nontraditional activities, as
well as to reflect the actual performance and expected risk of loss on
multi-family residential loans. FDICIA also requires the FDIC to review its
capital regulations every two years in consultation with the other federal
banking agencies to determine whether the standards require sufficient capital
to facilitate prompt corrective action that would prevent or minimize loss to
the deposit insurance funds. In addition, FDICIA required federal banking
agencies to implement "prompt corrective action" rules that provide for prompt
supervisory intervention for banks with insufficient capital.
Under both the OCC's and the FDIC's regulations, a bank is deemed to be
(i) "well capitalized" if it has total risk-based capital of 10% or more, a Tier
1 risk-based capital ratio of 6% or more, and a Tier 1 leverage capital ratio of
5% or more and is not subject to any written agreement, order, capital
directive, or corrective action directive, (ii) "adequately capitalized" if it
has a total risk-based capital ratio of 8% or more, a Tier 1 risk-based capital
ratio of 4% or more and a Tier 1 leverage capital ratio of 4% or more (3% under
certain circumstances) and does not meet the definition of "well capitalized,"
(iii) "undercapitalized" if it has a total risk-based capital ratio that is less
than 8%, a Tier 1 risk-based capital ratio that is less than 4% or a Tier 1
leverage capital ratio that is less than 4% (3% under certain circumstances),
(iv) "significantly undercapitalized" if it has a total risk-based capital ratio
that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or
a Tier 1 leverage capital ratio that is less than 3%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2%. Section 38 of the FDIA and the regulations promulgated
thereunder by the federal banking agencies also specify circumstances under
which a federal banking agency may reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the next lower category (except that neither the FDIC or the OCC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
A number of sanctions may be imposed on banks that are not in
compliance with applicable capital requirements, including, without limitation,
restrictions on asset growth and imposition of a capital directive that may
require, among other things, an increase in regulatory capital, reduction of
rates paid on savings accounts, cessation of or limitations on
deposit-gathering, lending, purchasing loans, making specified investments, or
issuing new accounts, limits on operational expenditures, an increase in
liquidity, and such other restrictions or corrective actions as the appropriate
federal banking agency may deem necessary or appropriate.
Under the system of prompt corrective action mandated by FDICIA,
immediately upon becoming undercapitalized, an institution will become subject
to the provisions of Section 38 of the FDIA, which include (i) restricting
payment of capital distributions and management fees, (ii) requiring that the
appropriate federal banking agency monitor the condition of the institution and
its efforts to restore its capital, (iii) requiring submission of a capital
restoration plan, (iv) restricting the growth of the institution's assets, and
(v) requiring prior approval of certain expansion proposals. The appropriate
federal banking agency for an undercapitalized institution also may take any
number of discretionary supervisory actions if the agency determines that any of
these actions is necessary to resolve the problems of the institution at the
least possible long-term cost to the deposit insurance fund, subject in certain
cases to specified procedures. These discretionary supervisory actions include
the following: requiring the institution to raise additional capital;
restricting transactions with affiliates; restricting interest rates paid by the
institution on deposits; requiring replacement of senior executive officers and
directors; restricting the activities of the institution and its affiliates;
requiring divestiture of the institution or the sale of the institution to a
willing purchaser; and any other supervisory action that the agency deems
appropriate.
FDICIA provides for the appointment of a conservator or receiver for
any insured depository institution that is "critically undercapitalized," or
that is "undercapitalized" and (i) has no reasonable prospect of becoming
"adequately capitalized," (ii) fails to become "adequately capitalized" when
required to do so under the prompt corrective action provisions, (iii) fails to
submit an acceptable capital restoration plan within the prescribed time limits,
or (iv) materially fails to implement an accepted capital restoration plan. In
addition, the appropriate federal regulatory agency will be required to appoint
a receiver (or a conservator) for a "critically undercapitalized" depository
institution within 90 days after the institution becomes "critically
undercapitalized" or to take such other action that would better achieve the
purpose of Section 38 of FDIA. Such alternative action can be renewed for
successive 90 day periods. With limited exceptions, however, if the institution
continues to be "critically undercapitalized" on average during the quarter that
begins 270 days after the institution first became "critically
undercapitalized," a receiver must be appointed.
Deposit Insurance. Both BCB's and PNB's deposit accounts are insured by
the BIF generally up to a maximum of $100,000 per separately insured depositor,
and both BCB and PNB are subject to FDIC deposit insurance assessments. Pursuant
to FDICIA, the FDIC adopted a risk-based system for determining deposit
insurance assessments under which all insured institutions, were placed into one
of nine categories and assessed insurance premiums, ranging from $2,000 to 0.27%
of insured deposits, based upon their level of capital and supervisory
evaluation. Because the FDIC sets the assessment rates based upon the level of
assets in the insurance fund, premium rates rise and fall as the number and size
of bank failures increase and decrease, respectively. Under the system,
institutions are assigned to one of three capital groups based solely on the
level of an institution's capital - "well capitalized," "adequately capitalized"
and "undercapitalized" - that are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of FDIA, as
discussed above. These three groups are then divided into three subgroups that
reflect varying levels of supervisory concern, from those that are considered to
be healthy to those that are considered to be of substantial supervisory
concern. The Economic Growth and Regulatory Paperwork Reduction Act of 1996
requires BIF-insured banks to begin participating in the payment of interest due
on Financing Corporation bonds used to finance the thrift bailout. As
BIF-insured institutions, BCB and PNB are subject to a special Financing
Corporation assessment in addition to assessments applicable to BIF-insured
deposits.
Interstate Banking. With the passage of the Interstate Banking and
Branching Efficiency Act of 1994, different types of interstate transactions and
activities are permitted, each with different effective dates. Interstate
transactions and activities provided for under the law include: (i) bank holding
company acquisitions of separately held banks in a state other than a bank
holding company's home state; (ii) mergers between insured banks with different
home states, including consolidations of affiliated insured banks; (iii)
establishment of interstate branches either de novo or by branch acquisition;
and (iv) affiliated banks acting as agents for one another for certain banking
functions without being considered a "branch." In general, nationwide interstate
banking became effective one year after the date of enactment, irrespective of
state law limitations. Interstate mergers will be permissible on June 1, 1997,
unless a state passes legislation either to prevent or to permit the earlier
occurrence of interstate mergers. States may at any time enact legislation
permitting interstate de novo branching. Affiliated banks became authorized to
act as agents for one another beginning one year after enactment. Each of the
transactions and activities must be approved by the appropriate federal bank
regulator, with separate and specific criteria established for each category.
After the applicable effective date (and, in the case of interstate
mergers and de novo branching, subject to applicable state law "opt-out" or
"opt-in" provisions), the appropriate federal bank regulator is authorized to
approve the respective interstate transactions only if certain criteria are met.
First, in order for a banking institution (a bank or bank holding company) to
receive approval for an interstate transaction, it must be "adequately
capitalized" and "adequately managed." The phrase "adequately capitalized" is
generally defined as meeting or exceeding all applicable federal regulatory
capital standards, while the phrase "adequately managed" was left undefined.
Second, the appropriate federal bank regulator must consider the applicant's and
its affiliated institutions' records under the CRA as well as the applicant's
record under applicable state community reinvestment laws.
The new law applies deposit "concentration limits" to interstate
acquisition and merger transactions. Specifically, a banking institution may not
receive federal approval for interstate expansion if it and its affiliates would
control (i) more than 10% of the deposits held by all insured depository
institutions in the United States, or (ii) 30% or more of the deposits of all
insured depository institutions in any state in which the banks or branches
involved in the transactions (or any affiliated depository institution) overlap.
States may, by statute, regulation or order, raise or lower the 30% limit. In
addition, the new law preempted certain existing state law restrictions on
interstate banking (such as regional compacts and reciprocity requirements),
effective one year after enactment. However, in order to receive federal
approval for an interstate merger or de novo branching transaction, an applicant
still also must comply with any non-discriminatory host state filing and other
requirements.
New Hampshire law permits New Hampshire-chartered banks to establish a
de novo branch in any other state in the United States in accordance with the
laws of the other state and with the prior approval of the New Hampshire Banking
Commissioner. However, New Hampshire does not generally permit out-of-state
banks to establish a de novo branch in New Hampshire unless the out-of-state
bank has previously merged with a New Hampshire bank or a national bank with its
principal place of business in New Hampshire.
New Hampshire law also generally permits New Hampshire-chartered banks,
with the prior approval of the New Hampshire Banking Commissioner, to establish
and maintain branches through a merger, consolidation with, or purchase of all
or part of the assets an out-of-state bank, or a federally-chartered banking
institution. A New Hampshire-chartered bank, with the approval of the New
Hampshire Banking Commissioner, and a national bank with its principal place of
business in New Hampshire, in accordance with federal law, may merge with an
out-of-state bank, with the surviving bank being the out-of-state bank, provided
the New Hampshire bank has been in existence for at least five years. An
out-of-state bank holding company may acquire a New Hampshire-chartered bank or
a national bank having its principal place of business in New Hampshire,
provided such bank has been in existence for five years.
NEW HAMPSHIRE BANK REGULATION
New Hampshire law regulates the day to day activities of New
Hampshire-chartered banks, such as BCB, including their deposit taking, lending,
and investment activities. In addition, New Hampshire-chartered banks, upon
complying with certain requirements, are authorized to exercise all powers that
may be exercised by the corresponding form of federally-chartered bank, subject
to appropriate rulemaking by the New Hampshire Banking Commissioner, and are
authorized to exercise every power that may be exercised by each other form of
New Hampshire-chartered bank. The New Hampshire Banking Commissioner has general
supervisory authority over New Hampshire-chartered banks and is generally
required to examine the condition and management of each bank at least once
every 18 months. Such examinations may be and normally are conducted jointly
with the FDIC. The New Hampshire Banking Commissioner has authority to issue a
cease and desist order upon a finding that a bank is engaging in unsafe or
unsound practices or violating any law, rule, regulation, or order. Bank holding
companies are not generally regulated under New Hampshire banking law, except
for limitations on bank acquisitions based on the number of bank subsidiaries
and limitations on acquisitions and branching based on deposit concentrations. A
bank holding company generally may not acquire ownership or control of any bank
or national bank in New Hampshire if the holding company and all of its
affiliates would control more than 20% of the dollar volume of time, savings,
and demand deposits of all banks in New Hampshire or if the holding company
would have more than 12 affiliates as a result of the transaction. A bank with
its principal office in New Hampshire may establish a branch with the approval
of the New Hampshire Banking Commissioner in any town in New Hampshire; however,
the New Hampshire Banking Commissioner may not approve branching by any bank if
the dollar volume of time, savings, and demand deposits of a bank and its
affiliates exceed 20% of the total of such deposits held by all banks in New
Hampshire.
OTHER ASPECTS OF FEDERAL AND STATE LAW
Regulation D promulgated by the Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
or non-personal time deposits, subject to certain exemptions. "Transaction
accounts" include demand deposits, NOW accounts, and certain other types of
accounts that permit payments or transfers to third parties. "Non-personal time
deposits" include money market deposit accounts or other savings deposits held
by corporations or other depositors that are not natural persons, and certain
other types of time deposits. Because required reserves must be maintained in
the form of vault cash or non-interest bearing deposits with a regional Federal
Reserve Bank, the effect of this reserve requirement is to reduce the amount of
the institution's interest-bearing assets.
BCB and PNB are also subject to federal and state statutory and
regulatory provisions covering, among other things, security procedures,
currency and foreign transactions reporting, insider and affiliated party
transactions, management interlocks, loan interest rate limitations, lending
policies, truth-in-lending, electronic funds transfers, funds availability,
truth-in-savings, home mortgage disclosure, and equal credit opportunity.
GOVERNMENT POLICIES AND LEGISLATIVE AND REGULATORY PROPOSALS
BCB's and PNB's operations are generally affected by the economic,
fiscal, and monetary policies of the United States and its agencies and
regulatory authorities, particularly the Federal Reserve Board (which regulates
the money supply of the United States, reserve requirements against deposits,
the discount rate on Federal Reserve borrowings and related matters, and which
conducts open-market operations in U.S. government securities). The fiscal and
economic policies of various governmental entities and the monetary policies of
the Federal Reserve Board have a direct effect on the availability, growth, and
distribution of bank loans, investments, and deposits.
In addition, various proposals to change the laws and regulations
governing the operations and taxation of, and deposit insurance premiums paid
by, state-chartered banks and other financial institutions are from time to time
pending in Congress and the New Hampshire legislature and before the Federal
Reserve Board, the FDIC, the OCC, the New Hampshire Banking Commissioner, and
other bank regulatory authorities. The likelihood of any major changes in the
future, and the impact any such changes might have on BCB and PNB, are not
possible to determine.
COMPARISON OF RIGHTS OF HOLDERS OF NORTHWAY COMMON STOCK,
BCB COMMON STOCK, AND PEMI COMMON STOCK
BCB is a New Hampshire chartered commercial bank. Stockholders of BCB,
whose rights as stockholders are currently governed by New Hampshire banking and
applicable corporate law and by BCB's Articles of Agreement (the "BCB Articles")
and By-Laws (the "BCB By-laws"), will, upon consummation of the BCB
Reorganization, become stockholders of Northway (except stockholders of BCB, if
any, who exercise Dissenters' Rights) and their rights as such will be governed
by New Hampshire corporate law and by the Northway Articles and the Northway
By-laws, which will become effective as of the Reorganization Time.
PEMI is a New Hampshire corporation and the parent company of PNB, a
federally chartered commercial bank. Stockholders of PEMI, whose rights as
stockholders are currently governed by New Hampshire corporate law and by PEMI's
Articles of Incorporation (the "PEMI Articles") and By-laws (the "PEMI
By-laws"), will, upon consummation of the Merger, become stockholders of
Northway (except stockholders of PEMI, if any, who exercise Dissenters' Rights)
and their rights as such will be governed by New Hampshire law and the Northway
Articles and the Northway By-laws, which will become effective as of the
Reorganization Time.
Certain differences between the rights of stockholders of BCB and PEMI
and the rights of stockholders of Northway are set forth below. This summary
contains a list of material differences but is not meant to be relied upon as an
exhaustive list or a detailed description of the provisions discussed and is
qualified in its entirety by reference to the Northway Articles, the Northway
By-laws, the BCB Articles, the BCB By-laws, the PEMI Articles, the PEMI By-laws,
and the NHBCA.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE NORTHWAY ARTICLES AND THE NORTHWAY BY-LAWS
The Northway Articles and the Northway By-laws, which will become
effective as of the Reorganization Time, contain certain provisions designed to
enhance the ability of the Northway Board to deal with attempts to acquire
control of Northway. These provisions, which are discussed in greater detail
below, may be deemed to have an anti-takeover effect and may discourage takeover
attempts that have not been approved by the Northway Board (including takeovers
that certain stockholders may deem to be in their best interest). To the extent
that such takeover attempts are discouraged, temporary fluctuations in the
market price of Northway Common Stock resulting from actual or rumored takeover
attempts may be inhibited. These provisions also could discourage or make more
difficult a merger, tender offer, or proxy contest, even though such a
transaction may be favorable to the interests of stockholders, and potentially
could affect adversely the market price of Northway Common Stock.
The protective provisions included in the Northway Articles and the
Northway By-laws were not adopted in response to, or with knowledge of, any
takeover attempts or "unfriendly" efforts to gain control of Northway, BCB, or
PEMI following the BCB Reorganization and/or the Merger. The Northway Board, the
BCB Board, and the PEMI Board adopted these provisions in order to provide
standard corporate protections common among bank holding companies and in the
best interests of current BCB and PEMI stockholders who will become stockholders
of Northway upon consummation of the BCB Reorganization and the Merger,
respectively. Also, there are no additional plans to adopt other anti-takeover
provisions following the consummation of the BCB Reorganization and the Merger.
The protective provisions contained in the Northway Articles and the
Northway By-laws are summarized in further detail in the sections immediately
below. This summary is necessarily general and is not intended to be a complete
description of all the features and consequences of those provisions, and is
qualified in its entirety by reference to the Northway Articles.
MATTERS TO BE CONSIDERED AT STOCKHOLDER MEETINGS AND DIRECTOR NOMINATIONS
Northway. The Northway By-laws contain several provisions that regulate
the submission of proposals in connection with, and the nomination of directors
at, stockholder meetings. The Northway By-laws require that, subject to certain
exceptions, any stockholder desiring to propose business or nominate a person to
the Northway Board at a stockholder meeting must give notice of any proposals
not less than 75 days nor more than 120 days prior to the meeting; provided,
that for the first annual meeting following the date Northway becomes a
reporting company under Section 13(a) or Section 15(d) of the Exchange Act, a
stockholder's notice will be considered timely if delivered to, or mailed to and
received by, Northway at its principal executive offices not later than the
close of business on the later of the 75th day prior to the scheduled date of
such meeting or the 15th day following the day on which Northway publicly
announces the date of such meeting. Such notice is required to contain certain
information as set forth in the Northway By-laws. No business matter will be
transacted nor will any person be eligible for election as a director of
Northway unless proposed or nominated, as the case may be, in strict accordance
with the procedures set forth in the Northway By-laws.
Although the Northway By-laws do not give the Northway Board any power
to approve or disapprove of any business desired by stockholders to be conducted
at an annual or special meeting or of any stockholder nominations for the
election of directors, the above provisions may have the effect of precluding
the conduct of business or a nomination for election to the Northway Board at a
particular annual meeting if the proper procedures are not followed or may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempt to obtain control of
Northway, even if the conduct of such solicitation or such attempt might be
beneficial to Northway and its stockholders. Northway's procedures with respect
to all stockholder proposals and the nomination of directors will be conducted
in accordance with Section 14 of the Exchange Act, as amended, and the rules
promulgated thereunder.
BCB. The BCB By-laws require that, subject to certain exceptions, any
stockholder desiring to propose business or nominate a person to the BCB Board
at a stockholder meeting must give notice of any proposals or nominations not
less than 60 days nor more than 180 days prior to the meeting. Such notice is
required to contain certain information as set forth in the BCB By-laws. No
business matter will be transacted nor will any person be eligible for election
as a director of BCB unless proposed or nominated, as the case may be, in strict
accordance with the procedures set forth in the BCB By-laws.
PEMI. The PEMI By-laws do not contain any provisions that regulate the
submission of proposals in connection with, and the nomination of directors at,
stockholder meetings.
SPECIAL MEETINGS OF STOCKHOLDERS
The NHBCA provides that a corporation shall hold a special meeting of
stockholders on call of its board of directors or the person or persons
authorized to do so by the articles of incorporation or bylaws, or if the
holders of at least 10% of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting sign, date, and
deliver to the corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held.
Northway. The Northway By-laws provide that special meetings of the
stockholders of Northway may be called only by the Northway Board pursuant to a
resolution approved by the affirmative vote of a majority of the directors then
in office, or upon delivery of written demand therefor to the Secretary of
Northway describing the purpose or purposes for which it is to be held by the
holders of not less than 10% of the shares entitled to vote at the meeting.
BCB. The BCB By-Laws provide that special meetings of the stockholders
of BCB for any purpose or purposes may be called at any time (i) by the Chairman
of the BCB Board, if one is elected, (ii) by the affirmative vote of a majority
of the directors then in office, provided, however, that if there is an
Interested Stockholder (as defined in the BCB By-laws), any such call shall also
require the affirmative vote of a majority of the Continuing Directors (as
defined in the BCB By-laws) then in office, or (iii) by the holders of not less
than 50% of all the shares entitled to vote at such meeting. Only those matters
set forth in the call of the special meeting may be considered or acted upon at
such special meeting, unless otherwise provided by law.
PEMI. The PEMI By-laws provide that special meetings of the
stockholders of PEMI for any purpose or purposes, unless otherwise prescribed by
statute, may be called at any time by the Chairman of the Board, the President,
or by a majority of the PEMI Board, or upon written application therefor to the
Secretary by the holders of not less than 10% of the shares entitled to vote at
the meeting.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The NHBCA states that a corporation with nine or more directors may
provide in its articles of incorporation for staggered terms for such directors
by dividing the total number of directors into two or three groups, with each
group containing one-half or one-third of the total, as near as may be, with one
class to be elected annually.
Northway. The Northway Board will initially consist of ten directors.
The Northway Articles provide that, subject to the rights, if any, of any
holders of Northway Preferred Stock then outstanding, the Northway Board will be
classified into three classes, as nearly equal in number as possible, with one
class to be elected annually.
BCB. Pursuant to New Hampshire banking law applicable to BCB, the BCB
Articles provide that the BCB Board shall be classified into three classes, as
nearly equal in number as possible, with one class to be elected annually.
PEMI. The PEMI Articles provide that the PEMI Board shall be classified
into three classes, as nearly equal in number as possible, with one class to be
elected annually.
REMOVAL OF DIRECTORS
The NHBCA provides that a corporation's stockholders may remove one or
more directors with or without cause unless the corporation's articles of
incorporation provide that directors may be removed only for cause.
Northway. The Northway Articles and the Northway By-laws provide that,
subject to the rights, if any, of holders of Northway Preferred Stock, any
director (including persons elected by directors to fill vacancies on the
Northway Board) may be removed from office (i) only with cause and (ii) only by
the affirmative vote of the holders of two-thirds of the shares then entitled to
vote at an election of directors. At least 30 days prior to any meeting of
stockholders at which it is proposed that any director be removed from office,
written notice of such proposed removal must be sent to the director whose
removal will be considered at the meeting. The Northway Articles further provide
that for purposes of this section of the Northway Articles, "cause," with
respect to the removal of any director means only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v) commission
of an action which constitutes intentional misconduct or a knowing violation of
law if such action in either event results both in an improper substantial
personal benefit and a material injury to Northway.
BCB. The BCB Articles provide that any director (including persons
elected by the directors to fill vacancies on the BCB Board) may be removed from
office, with or without cause, by an affirmative vote of (i) the holders of at
least 80% of the voting power of the then outstanding shares of voting stock,
voting together as a single class at a duly constituted meeting of stockholders
called expressly for such purpose, or (ii) two-thirds of the members of the BCB
Board then in office, unless at the time of such removal there is an Interested
Stockholder, in which case the affirmative vote of not less than a majority of
the Continuing Directors then in office will instead be required for removal by
vote of the BCB Board. At least 30 days prior to such meeting of stockholders,
written notice will be sent to the director whose removal will be considered at
the meeting.
PEMI. The PEMI Articles provide that, at any meeting of stockholders
called expressly for the purpose, any director, or the entire PEMI Board, may be
removed from office, with or without cause, but only by the affirmative vote of
the holders of at least 75% of all of the shares of PEMI then entitled to vote
for the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
The NHBCA states that, unless the articles of incorporation otherwise
provide, if a vacancy occurs on a corporation's board of directors, including a
vacancy resulting from an increase in the number of directors, the stockholders
or the directors of the corporation may fill the vacancy.
Northway. The Northway Articles provide that, for a period of three
years following the effective date of the Northway Articles, subject to the
rights, if any, of the holders of Northway Preferred Stock to elect directors
and to fill vacancies in the Northway Board relating thereto: (i) any vacancy in
the Northway Board occurring as a result of an increase in the size of the
Northway Board or the death, resignation, disqualification, or removal of a
director nominated by PEMI will be filled solely by the affirmative vote of
two-thirds of the remaining directors then in office, even if less than a quorum
of the Northway Board, and (ii) all other vacancies in the Northway Board will
be filled solely by the affirmative vote of a majority of the remaining
directors then in office, even if less than a quorum of the Northway Board.
Thereafter, subject to the rights, if any, of the holders of Northway Preferred
Stock to elect directors and to fill vacancies on the Northway Board relating
thereto, any and all vacancies in the Northway Board, however occurring,
including, without limitation, by reason of an increase in size of the Northway
Board, or the death, resignation, disqualification, or removal of a director,
will be filled solely by the affirmative vote of a majority of the remaining
directors then in office, even if less than a quorum of the Northway Board. The
Northway Articles further provide that any director appointed to fill a vacancy
in accordance with the preceding provisions will hold office until the next
annual meeting of stockholders and until such director's successor shall have
been duly elected and qualified or until his or her earlier death,
disqualification, resignation, or removal, and that, subject to the rights, if
any, of the holders Northway Preferred Stock to elect directors, when the number
of directors is increased or decreased, the Northway Board will determine the
class or classes to which the increased or decreased number of directors will be
apportioned; provided, however, that no decrease in the number of directors will
shorten the term of any incumbent director. In the event of a vacancy in the
Northway Board, the remaining directors, except as otherwise provided by law,
may exercise the powers of the full Northway Board until the vacancy is filled.
BCB. The BCB By-laws provide that any vacancy occurring on the BCB
Board as a result of an increase in the authorized number of directors, or a
director's resignation, removal, death, or inability to serve as a director may
be filled by a vote of a majority of the remaining directors, unless there is an
Interested Stockholder, in which case such vacancy may only be filled by vote of
a majority of the Continuing Directors then in office. A director elected to
fill such a vacancy shall be elected to serve for a term of office continuing
until the next election of directors by the stockholders.
PEMI. The PEMI Articles provide that any vacancies in the PEMI Board
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, shall be filled by a majority vote of the directors then
in office even though less than a quorum, and directors so chosen shall hold
office for the unexpired terms of their predecessors in office. The PEMI
Articles further provide that any newly created directorships resulting from any
increase in the authorized number of directors will be filled by a majority vote
of the directors then in office for terms continuing only until the next
election of directors by the stockholders.
INDEMNIFICATION AND EXCULPATION OF DIRECTORS AND OFFICERS
The NHBCA provides that the articles of incorporation of a corporation
may set forth a provision eliminating or limiting the liability of a director,
officer, or both, to the corporation or its stockholders for money damages for
any action taken, or any failure to take any action, as a director or an
officer, except liability for: (i) the amount of a financial benefit received by
such director or officer to which he is not entitled; (ii) an intentional
infliction of harm on the registrant or its stockholders; (iii) a violation of
Section 293-A.8.33 of the NHBCA relating to unlawful distributions; or (iv) an
intentional violation of criminal law. The NHBCA also provides that a
corporation may indemnify its directors and officers against expenses and
liabilities incurred by such persons, to the extent permitted therein.
Northway. The Northway Articles state that no person who serves
Northway as a director or an officer shall have any personal liability to
Northway or its stockholders for money damages for any action taken, or any
failure to take any action, as a director or an officer, except liability for:
(i) the amount of a financial benefit received by such director or officer to
which he or she is not entitled; (ii) an intentional infliction of harm on
Northway or its stockholders; (iii) a violation of Section 293-A.8.33 of the
NHBCA relating to unlawful distributions; or (iv) an intentional violation of
criminal law. The Northway Articles further provide that if the NHBCA is amended
after the effective date of the Northway Articles or any amendment thereto to
authorize corporate action further eliminating or limiting the personal
liability of directors or officers, then the liability of a director or officer
of Northway will be eliminated or limited to the fullest extent permitted by the
NHBCA. Any repeal or modification of the above sections of the Northway Articles
by the stockholders of Northway will be prospective only, and will not adversely
affect any limitation on the personal liability of a director or officer of
Northway for acts or omissions occurring prior to the effective date of such
repeal or modification.
The Northway By-Laws state that each director and officer shall be
indemnified and held harmless by Northway to the fullest extent authorized by
the NHBCA, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits Northway to
provide broader indemnification rights than such law permitted Northway to
provide prior to such amendment) against any and all expenses and liabilities
that are incurred by such director or officer or on such director or officer's
behalf in connection with any proceeding or any claim, issue, or matter therein,
which such director or officer is a party to or participant in by reason of such
director's or officer's status as a director or officer, if such director or
officer acted in good faith and in a manner such director or officer reasonably
believed to be in, or not opposed to, the best interests of Northway and, with
respect to any criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The rights of indemnification provided by the Northway
By-laws continue as to a director or officer after he or she has ceased to be a
director or officer and inure to the benefit of his or her heirs, executors,
administrators, and personal representatives. Notwithstanding the foregoing,
Northway will indemnify any director or officer seeking indemnification in
connection with a proceeding initiated by such director or officer only if such
proceeding was authorized by the Northway Board. The Northway By-laws further
state that the foregoing provisions are deemed to be a contract between Northway
and each director and officer who serves in such capacity at any time while such
provisions are in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts. The Northway
By-laws further provide that Northway may maintain insurance, at its expense, to
protect itself and any director, officer, or non-officer employee against any
liability of any character asserted against or incurred by Northway or any such
director, officer, or non-officer employee, or arising out of any such person's
status as such director, officer, or non-officer employee, whether or not
Northway would have the power to indemnify such person against such liability
under the NHBCA or the provisions of the Northway By-laws.
BCB. The BCB Articles provide that no director or officer will be
personally liable to BCB or its stockholders for monetary damages for breach of
his or her fiduciary duty as a director or officer, notwithstanding any
provision of law imposing such liability; provided, however, that to the extent
provided by applicable law, the foregoing provision will not eliminate the
liability of a director or officer (i) for breach of the director's or officer's
duty of loyalty to BCB or its stockholders, (ii) for acts or omissions which are
not in good faith or which involve intentional misconduct or a knowing violation
of law, or (iii) for any transactions from which the director or officer derives
an improper personal benefit.
The BCB By-laws provide that BCB will indemnify and reimburse for all
expenses incurred in connection with any proceedings by any individual person
who was or is a party to a proceeding by reason of the fact that such party, or
the person whose legal representative or successor such party is, was or is
serving as a director, officer, or employee of BCB, or, at its request, of
another entity in which BCB has an interest, or was or is serving at the request
of BCB as a fiduciary of any deferred compensation plan of BCB in which such
person is involved, to the extent and under the circumstances that would be
required or permitted under the NHBCA if BCB were a business corporation. Such
indemnification and reimbursement (unless ordered by a court) will be made as
authorized in a specific case upon a determination that indemnification of the
director, officer, or employee is proper in the circumstances because such
person has met the applicable standards of conduct set forth in the NHBCA. The
BCB By-laws further provide that BCB may purchase and maintain insurance on
behalf of any person who is or was a director, officer, or employee of BCB, or,
at its request, of another entity in which BCB has an interest, or was or is
serving at the request of BCB as a fiduciary of any deferred compensation plan
of BCB, against any liability asserted against, and incurred by, such person in
any such capacity, or arising out of such person's status as such, whether or
not BCB would have the power to indemnify such person against such liability
under the provisions of the NHBCA.
PEMI. The PEMI Articles and the PEMI By-laws provide that, to the
fullest extent now or hereafter permitted by law, no director or officer of PEMI
will be personally liable to PEMI or its stockholders for monetary damages for
any breach of fiduciary duty as a director or officer. The PEMI Articles further
provide that any amendment or repeal of the foregoing provision shall not
adversely effect any right or protection of any director or officer of PEMI
existing at the time of such amendment or repeal.
The PEMI By-laws provide that PEMI will indemnify any person who was or
is a party to any threatened, pending, or completed action, suit, or proceeding,
and any appeal therein, whether civil, criminal, administrative, arbitrative, or
investigative (other than an action by or in the right of PEMI) by reason of the
fact that such party is or was a director, officer, trustee, employee, or agent
of PEMI, or is or was serving at the request of PEMI as a director, officer,
trustee, employee, or agent of another corporation, association, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) judgments, fines, penalties, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit, or proceeding, or any appeal therein, if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of PEMI, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. Notwithstanding the
foregoing, any indemnification will be made by PEMI only as authorized in the
specific case upon a determination that indemnification of the director,
officer, trustee, employee, or agent is proper in the circumstances because such
director, officer, trustee, employee, or agent has met the applicable standard
of conduct set forth above. The PEMI By-laws further provide that the
indemnification so provided will be deemed to be a contract between PEMI and
each director, officer, trustee, employee, or agent who serves in such capacity
at any time while such provision is in effect, and any repeal or modification
thereof shall not affect the rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit, or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts. The PEMI By-laws further provide that PEMI may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
trustee, employee, or agent of PEMI or is or was serving at the request of PEMI
as a director, officer, trustee, employee, or agent of another corporation,
association, partnership, joint venture, trust, or other enterprise against any
liability asserted against, and incurred by, such person in any such capacity,
or arising out of such person's status as such, whether or not PEMI would have
the power to indemnify such person against such liability under the provisions
of the PEMI By-laws.
CONFLICT OF INTEREST TRANSACTIONS
Under the NHBCA, a conflict of interest transaction (defined as a
transaction in which a director of a corporation has a direct or indirect
interest) is not voidable by a corporation solely because of a director's
interest in the transaction if any one of the following is true: (a) the
material facts of the transaction and the director's interest were disclosed or
known to the board of directors or a committee of the board of directors and a
majority of the directors on the board of directors or such committee who have
no direct or indirect interest in the transaction authorized, approved, or
ratified such transaction; (b) the material facts of the transaction and the
director's interest were disclosed or known to the stockholders entitled to vote
and they authorized, approved, or ratified such transaction; or (c) the
transaction was fair to the corporation.
Northway. The Northway Articles and the Northway By-laws do not contain
any provisions regarding transactions between Northway and its directors.
Accordingly, the provisions of the NHBCA (together with other applicable federal
and state banking laws and regulations) will govern all such transactions.
BCB. The BCB Articles provide that any contract or other transaction
between BCB and one or more of its directors, or between BCB and any firm of
which one or more of its directors are members or employees, or in which they
are interested, or between BCB and a corporation or association of which one or
more of its directors are stockholders, members, directors, officers, or
employees, or in which they are interested, will be valid for all purposes,
notwithstanding the presence of such director or directors at the meeting of the
BCB Board which acts upon, or in reference to, such contract or transaction, and
notwithstanding his or their participation in such action, if the fact of such
interest is disclosed or known to the BCB Board and the BCB Board, nevertheless,
authorizes, approves, or ratifies such contract or transaction, with the
interested director or directors to be counted in determining whether a quorum
is present and to be entitled to vote on such authorization, approval, or
ratification.
PEMI. The PEMI Articles and the PEMI By-laws do not contain any
provisions regarding transactions between PEMI and directors. Accordingly, the
provisions of the NHBCA (together with other applicable federal and state
banking laws and regulations) govern all such transactions.
BUSINESS COMBINATIONS
Northway. The Northway Articles provide that neither Northway nor any
subsidiary of which Northway owns at least a majority of the equity securities
ordinarily entitled to vote for the election of directors (hereinafter, a
"Subsidiary"), will be a party to any Business Combination (as defined below) or
enter into any agreement providing for any Business Combination unless the
following conditions are satisfied: (i) the vote of holders of at least 80% of
the outstanding shares entitled to vote for the election of directors will be
required to approve or authorize any Business Combination unless the aggregate
of the cash and fair market value of the consideration to be paid to all the
holders of the Northway Common Stock in connection with such Business
Combination (when adjusted for stock splits, stock dividends, reclassification
of shares, or otherwise) is equal to the highest price per share paid by the
other party or parties to the Business Combination (the "Acquiring Party") in
acquiring any of the Northway Common Stock; provided, however, that the
consideration to be paid to the holders of the Northway Common Stock must be in
the same form as that paid by the Acquiring Party in acquiring the shares of the
Northway Common Stock held by it except to the extent that any stockholder of
Northway shall otherwise agree; and (ii) subject to the preceding provision, the
vote of the holders of at least 75% of the outstanding shares entitled to vote
for the election of directors will be required to approve or authorize any
Business Combination unless such Business Combination has been approved by at
least two-thirds of the directors of Northway who are not affiliated with, or
stockholders of, the Acquiring Party, in which case the vote of the holders of
at least a majority of the outstanding shares entitled to vote for the election
of directors will be required to approve or authorize such Business Combination.
As defined in the Northway Articles, a "Business Combination" means (i) any
merger or consolidation (whether in a single transaction or a series of related
transactions) other than a merger or consolidation of Northway and any of its
Subsidiaries or a merger or consolidation of any Subsidiaries of Northway; (ii)
any sale, lease, exchange, transfer, or distribution of all or substantially all
or a substantial portion of the property or assets of Northway or any of its
Subsidiaries, including its goodwill; (iii) the issuance of any securities, or
of any rights, warrants, or options to acquire any securities of Northway or any
of its Subsidiaries, to any stockholders other than by stock dividend declared
and paid to all stockholders of Northway or pursuant to an employee stock
ownership plan or a stock option plan established by Northway; (iv) any
reclassification of the stock of Northway or any of its Subsidiaries or any
recapitalization or other transaction (other than a redemption of stock) which
has the effect, directly or indirectly, of increasing the proportionate share of
stock of Northway or any of its Subsidiaries held by any person; or (v) the
adoption of any plan or proposal for (a) the dissolution of Northway or any
Subsidiary thereof or (b) any partial or complete liquidation of Northway or any
Subsidiary thereof. The Northway Articles further provide that, for a period of
three years following the effective date of the Northway Articles, the
affirmative vote of two-thirds of the directors of Northway will be required to
approve or authorize a merger or consolidation involving PNB.
BCB. The BCB Articles provide that, notwithstanding the fact that no
vote may be required or that a lesser percentage may be required by law, any
Business Combination (as defined below) involving BCB and an Interested
Stockholder must be approved by the holders of at least 80% of the voting power
of the then outstanding shares of capital stock of BCB entitled to vote
generally in the election of directors, voting together as a single class (the
"BCB Voting Requirement"). The BCB Voting Requirement does not apply if (i) the
Business Combination is approved by a majority of the members of the BCB Board
who are not Interested Stockholders or affiliates or associates of an Interested
Stockholder and who were members of the BCB Board prior to the time that an
Interested Stockholder became an Interested Stockholder, and (ii) certain "fair
price" (defined generally to mean, among other things, that the consideration to
be received by stockholders in such Business Combination is in the same form and
kind as the consideration paid by the Interested Stockholder for BCB capital
stock owned by such person and is at least equal to the highest of the
following: the highest per share price paid by the Interested Stockholder for
any shares of BCB Common Stock acquired by it within the two-year period
immediately prior to and including the first public announcement of the proposal
of the Business Combination (the "Announcement Date") or in the transaction
through which such person became an Interested Stockholder; the highest Fair
Market Value (as defined in the BCB Articles) per share of BCB Common Stock on
any date during the one-year period prior to and including the Announcement
Date; and the price per share equal to the product of (1) the Fair Market Value
per share of BCB Common Stock on the Announcement Date or on the date on which
the Interested Stockholder became an Interested Stockholder, and (2) a fraction,
(x) the numerator of which is the highest per share price paid by the Interested
Stockholder for any shares of common stock acquired by it within the two-year
period immediately prior to and including the Announcement Date, and (y) the
denominator of which is the Fair Market Value per share of BCB Common Stock on
the first day of such two-year period upon which the Interested Stockholder
acquired any shares of BCB Common Stock) and other criteria are met. As defined
in the BCB Articles, a "Business Combination" means (i) any merger or
consolidation of BCB or any Subsidiary with (a) any Interested Stockholder or
(b) any other corporation or entity (whether or not an Interested Stockholder)
which is, or after such merger or consolidation would be, an Affiliate of an
Interested Stockholder; (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 of any Interested
Stockholder of any assets of BCB or any Subsidiary having an aggregate Fair
Market Value of $500,000 or more; (iii) the issuance or transfer by BCB or any
Subsidiary (in one transaction or series of transactions) of any securities of
BCB or any Subsidiary to any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or other property (or
combination thereof), having an aggregate Fair Market Value of $500,000 or more;
(iv) the adoption of any plan or proposal for the liquidation or dissolution of
BCB proposed by or on behalf of any Interested Stockholder or any Affiliate of
any Interested Stockholder; or (v) any reclassification of securities (including
any reverse stock split), any recapitalization of BCB, any merger or
consolidation of BCB with any of its Subsidiaries, or any other transaction
(whether or not with or into or otherwise involving any Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportion of
outstanding shares of any class of equity or convertible securities of BCB or
any Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder.
PEMI. The PEMI Articles provide that neither PEMI nor any Subsidiary
will be a party to any Business Combination (as defined below) or enter into any
agreement providing for any Business Combination unless the following conditions
have been satisfied: (i) the vote of holders of at least 80% of the outstanding
shares entitled to vote for the election of directors will be required to
approve or authorize any Business Combination unless the aggregate of the cash
and fair market value of the consideration to be paid to all the holders of the
PEMI Common Stock in connection with such Business Combination (when adjusted
for stock splits, stock dividends, reclassification of shares, or otherwise) is
equal to the highest price per share paid by the Acquiring Party in acquiring
any of the PEMI Common Stock; provided, however, that the consideration to be
paid to the holders of the PEMI Common Stock must be in the same form as that
paid by the Acquiring Party in acquiring the shares of the PEMI Common Stock
held by it except to the extent that any stockholder of PEMI shall otherwise
agree; and (ii) subject to the preceding provision, the vote of the holders of
at least 75% of the outstanding shares entitled to vote for the election of
directors is required to approve or authorize any Business Combination unless
such Business Combination has been approved by at least two-thirds of the
directors of PEMI who are not affiliated with, or stockholders of, the Acquiring
Party, in which case the vote of the holders of at least a majority of the
outstanding shares entitled to vote for the election of directors will be
required to approve or authorize such Business Combination. As defined in the
PEMI Articles, a "Business Combination" means (i) any merger or consolidation
(whether in a single transaction or a series of related transactions) other than
a merger or consolidation of PEMI and any of its Subsidiaries or a merger or
consolidation of any Subsidiaries of PEMI; (ii) any sale, lease, exchange,
transfer, or distribution of all or substantially all or a substantial portion
of the property or assets of PEMI or any of its Subsidiaries, including its
goodwill; (iii) the issuance of any securities, or of any rights, warrants, or
options to acquire any securities of PEMI or any of its Subsidiaries, to any
stockholders other than by stock dividend declared and paid to all stockholders
of PEMI or pursuant to an employee stock ownership plan or a stock option plan
established by PEMI; (iv) any reclassification of the stock of PEMI or any of
its Subsidiaries or any recapitalization or other transaction (other than a
redemption of stock) which has the effect, directly or indirectly, of increasing
the proportionate share of stock of PEMI or any of its Subsidiaries held by any
person; or (v) the dissolution of PEMI or any Subsidiary thereof or any partial
or complete liquidation of PEMI or any Subsidiary thereof.
AMENDMENTS TO ARTICLES OF INCORPORATION
The NHBCA provides that a corporation may amend its articles of
incorporation at any time to add or change a provision that is required or
permitted in the articles of incorporation or to delete a provision not required
in the articles of incorporation. Unless the articles of incorporation provide
otherwise, where stockholder approval of an amendment is required, the amendment
to be adopted shall be approved by a majority of the votes entitled to be cast
on the amendment by any voting group with respect to which the amendment would
create Dissenters' Rights.
Northway. The Northway Articles provide that no amendment or repeal of
the Northway Articles will be made unless the same is first approved by the
Northway Board pursuant to a resolution adopted by the Northway Board in
accordance with applicable law and, except as otherwise provided by law,
thereafter approved by the stockholders. Whenever any vote of the holders of
voting stock is required to amend or repeal any provision of the Northway
Articles, and in addition to any other vote of the holders of voting stock that
is required by the Northway Articles or by law, the affirmative vote of a
majority of the outstanding shares entitled to vote on such amendment or repeal,
and the affirmative vote of a majority of the outstanding shares of each class
entitled to vote thereon as a class, will be required to amend or repeal any
provision of the Northway Articles. The Northway Articles further provide that
the affirmative vote of not less than two-thirds of the outstanding shares
entitled to vote on such amendment or repeal, and the affirmative vote of not
less than two-thirds of the outstanding shares of each class entitled to vote
thereon as a class, will be required to amend or repeal certain provisions of
the Northway Articles, including, without limitation, those relating to a
classified board, vacancies on the Northway Board, removal of members of the
Northway Board, voting for Business Combinations, amendment of the Northway
Articles, and liability limitations for directors and officers.
BCB. With certain limited exceptions, the BCB Articles provide that no
amendment, addition, alteration, change, or repeal to the BCB Articles will be
made unless the same is first approved by the affirmative vote of a majority of
the BCB Board then in office, and thereafter approved by the stockholders by not
less than two-thirds of the total votes eligible to be cast at a duly authorized
meeting. If, at any time within the 60 day period immediately preceding the
meeting at which the stockholder vote is taken, there is an Interested
Stockholder, such amendment, addition, alteration, change, or repeal will also
require the affirmative vote of not less than a majority of the Continuing
Directors then in office, prior to the approval by the stockholders. In
addition, certain provisions of the BCB Articles require approval by a vote of
more than two-thirds of the total votes eligible to be cast if at any time
within the 60 day period immediately preceding the meeting at which the
stockholder vote is to be taken there is an Interested Stockholder, unless such
amendment, addition, alteration, change, or repeal has been approved by the
affirmative vote of not less than a majority of the Continuing Directors then in
office.
PEMI. The PEMI Articles provide that the affirmative vote of the
holders of at least 75% of all of the shares of PEMI entitled to vote for the
election of directors will be required to amend or repeal, or to adopt any
provision in contravention of or inconsistent with, certain provisions of the
PEMI Articles relating to directors, business combinations, and amendments to
the PEMI Articles and the PEMI By-laws.
AMENDMENTS TO BY-LAWS
The NHBCA states that the board of directors may amend or repeal a
corporation's bylaws unless the articles of incorporation or the NHBCA reserve
this power exclusively to the stockholders in whole or in part or the
stockholders in amending or repealing a particular bylaw provide expressly that
the board of directors shall not amend or repeal that bylaw. In addition, a
corporation's stockholders may amend or repeal a corporation's bylaws even
though the bylaws may also be amended or repealed by its board of directors.
Northway. The Northway Articles and the Northway By-laws provide that,
except as otherwise provided by law or the Northway By-laws, the Northway
By-laws may be amended or repealed by (i) the Northway Board by the affirmative
vote of a majority of the directors then in office, or (ii) by the stockholders
of Northway, at any annual meeting of stockholders or special meeting of
stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Northway Board recommends that
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal will only require the affirmative vote of the majority
of the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single class.
BCB. The BCB Articles provide that the BCB By-laws may be adopted,
altered, amended, changed, or repealed by the affirmative vote of at least
two-thirds of the directors then in office, unless at the time of such action
there is an Interested Stockholder, in which case such action will also require
the affirmative vote at such meeting of at least a majority of the Continuing
Directors then in office. The BCB Articles provide that any action by its
stockholders to adopt, alter, amend, change, or repeal the BCB By-laws will
require (i) the affirmative vote of a majority of the directors then in office,
unless at the time there is an Interested Stockholder, in which case such action
will also require the affirmative vote of not less than a majority of the
Continuing Directors then in office, (ii) submission of a written proposal for
adopting, altering, amending, changing, or repealing the BCB By-laws in
accordance with the notice provisions described above, and (iii) the affirmative
vote of not less than two-thirds of the total votes eligible to be cast by
stockholders at a duly constituted meeting.
PEMI. The PEMI Articles provide that the PEMI By-laws may be amended at
any time by the affirmative vote of a majority of the entire PEMI Board, subject
to repeal, change, or adoption of any contravening or inconsistent provision
only by a vote of the holders of at least 75% of all the shares entitled to vote
on the matter at a meeting expressly called for that purpose.
FINANCIAL REPORTS TO STOCKHOLDERS
The NHBCA provides that a corporation shall furnish its stockholders
annual financial statements including a balance sheet as of the end of the
fiscal year, an income statement for that year, and a statement of changes in
the stockholders' equity for the year. In addition, the NHBCA provides that (i)
if a corporation indemnifies or advances certain expenses to a director in
connection with a proceeding by or in the right of the corporation, the
corporation shall report the indemnification or advance in writing to the
stockholders with or before the notice of the next stockholders meeting, and
(ii) that if a corporation issues or authorizes the issuance of shares or
promissory notes for promises to render services in the future, the corporation
shall report in writing to the stockholders the number of shares authorized or
issued and the consideration received by the corporation with or before the next
stockholders meeting.
Northway. No provision of the Northway Articles or the Northway By-laws
alters in any way the rights to financial information described above.
BCB. There is no analogous statutory law applicable to BCB.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters in
any way the rights to financial information described above.
REDEMPTION OF SHARES
The NHBCA permits a corporation to acquire its shares from its
stockholders in any circumstance in which the repurchase would comply with the
law applicable to distributions to stockholders, described below.
Northway. No provision of the Northway Articles or the Northway By-laws
alters in any way its ability to redeem its shares as permitted by law.
BCB. New Hampshire statutory law applicable to BCB provides that BCB
can redeem its shares only in a very limited circumstance. A trust company that
has more than 500 stockholders may, with the express written approval of the New
Hampshire Banking Commissioner, redeem shares from holders who own 10 shares or
less of such stock.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters in
any way its ability to redeem its shares as permitted by law.
SHARE DIVIDENDS
The NHBCA provides that a corporation may issue a share dividend;
provided, however, that shares of one class or series of stock may not be issued
as a share dividend in respect of shares of another class or series of stock
unless authorized by the articles of incorporation, a majority of the votes
entitled to be cast by the class or series to be issued approve the issue, and
there are no outstanding shares of the class or series to be issued, and subject
to limitations on distributions, described below.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law applicable to share dividends.
BCB. There is no analogous statutory law applicable to BCB.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law applicable to share dividends.
DISTRIBUTIONS TO STOCKHOLDERS
Under the NHBCA, the board of directors of a corporation has the power
to declare and pay dividends in cash, property, or securities of the corporation
unless (i) such corporation is, or would be thereby made, insolvent or (ii) the
declaration and payment of such dividend would be contrary to any restrictions
contained in the charter. New Hampshire law further provides that no
distribution may be made (a) if the corporation is or would become unable to pay
its debts as they become due in the usual course of business or (b) unless the
fair value of the net assets of the corporation remaining after the distribution
is at least equal to the aggregate preferential amount payable to holders of
stock with preferential rights in the event of involuntary liquidation.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law applicable to distributions to stockholders.
For regulatory restrictions on Northway's ability to declare dividends, see
"Certain Regulatory Considerations."
Northway is a legal entity separate and distinct from its subsidiaries.
The only funds available to Northway for the payment of dividends are cash and
cash equivalents held at the holding company level, dividends paid by Northway's
other subsidiaries, and borrowings. The ability of holders of debt and equity
securities of Northway, including BCB and PEMI stockholders who will become
holders of Northway Common Stock upon consummation of the BCB Reorganization and
the Merger, to benefit from the distribution of assets of a subsidiary upon the
liquidation or reorganization of such subsidiary is subordinate to prior claims
of creditors of the subsidiary (including depositors, in the case of banking
subsidiaries) except to the extent that a claim of Northway as a creditor may be
recognized.
BCB. Statutory law applicable to BCB provides that it shall not declare
any dividend except from its earnings remaining after deducting all losses, all
sums due for expenses, and all overdue debts upon which no interest has been
paid for a period of 6 months, unless the same are well secured and in process
of collection.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law applicable to distributions to stockholders.
STOCKHOLDERS' LIST FOR MEETINGS
The NHBCA provides that after fixing a record date for a stockholders'
meeting, a corporation shall prepare an alphabetical list of names of all of its
stockholders who are entitled to notice of a stockholders' meeting. The
stockholders' list must be made available for inspection by any stockholder
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the date of the meeting.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law requiring the preparation of a stockholder
list.
BCB. There is no analogous statutory law applicable to BCB, although
New Hampshire courts have enforced a common law right of bank stockholders to
inspect a stockholder list in certain circumstances.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law requiring the preparation of a stockholder list.
VOTING ENTITLEMENT OF SHARES
The NHBCA states that, absent special circumstances, the shares of a
corporation are not entitled to be voted if they are owned, directly or
indirectly, by a second corporation and the first corporation owns directly or
indirectly a majority of the shares entitled to vote for directors of the second
corporation.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law with respect to the voting entitlement of
shares.
BCB. There is no analogous limitation applicable to BCB.
PEMI. No provision of the PEMI Articles alters or the PEMI By-laws New
Hampshire statutory law with respect to the voting entitlement of shares.
CUMULATIVE VOTING AND PREEMPTIVE RIGHTS
The NHBCA states that stockholders do not have a right to cumulate
their votes for directors and do not have preemptive rights unless the articles
of incorporation so provide.
Northway. The Northway Articles or the Northway By-laws do not provide
for cumulative voting or for preemptive rights.
BCB. There is no analogous statutory law applicable to BCB nor do the
BCB Articles or BCB By-laws provide for cumulative voting or preemptive rights.
PEMI. The PEMI Articles or the PEMI By-laws do not provide for
cumulative voting or for preemptive rights.
VOTING TRUSTS
The NHBCA provides that one or more stockholders may create a voting
trust, conferring on a trustee the right to vote or otherwise act for them, by
signing an agreement setting out the provisions of the trust, which may include
anything consistent with its purpose and transferring their shares to the
trustee. When a voting trust agreement is signed, the trustee shall prepare a
list of the names and addresses of all owners with a beneficial interest in the
trust together with the number and class of shares each transferred to the trust
and deliver copies of the list and agreement to the corporation's principal
office.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law regarding voting trusts. Northway is not
aware of the existence of any such voting trust regarding the Northway Common
Stock.
BCB. There is no law applicable to BCB which either prohibits or
permits voting trusts. BCB is not aware of the existence of any such voting
trust regarding the BCB Common Stock.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law regarding voting trusts. PEMI is not aware of the
existence of any such voting trust regarding the PEMI Common Stock.
VOTING AGREEMENTS
The NHBCA provides that two or more stockholders may provide for the
manner in which they will vote their shares by signing an agreement for that
purpose and that a voting agreement created under this section is specifically
enforceable.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law regarding voting agreements. Northway is not
aware of the existence of any such voting agreements.
BCB. There is no analogous statutory law applicable to BCB which either
prohibits or permits voting agreements. Voting agreements have been executed by
all directors of BCB in connection with the proposed Merger.
See "The Stockholder Meetings - Votes Required at the Meetings - BCB."
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law regarding voting agreements. Voting agreements have been
executed by eight of the nine PEMI directors in connection with the proposed
Merger. See "The Stockholder Meetings - Votes Required at the Meetings - PEMI."
DERIVATIVE PROCEEDINGS
The NHBCA provides detailed procedural mechanisms by which a
stockholder can commence civil actions on behalf of and in the name of the
corporation. Under this law, stockholders may bring suits on behalf of a
corporation to enforce the rights of the corporation only if such person was a
stockholder at the time of the transaction which is the subject of the suit.
Upon final judgment and a finding that the commencement of a derivative action
by a stockholder was without reasonable cause or for an improper purpose, a
court may require the plaintiff(s) to pay to the parties named as defendant(s)
the reasonable expenses including legal fees incurred by them in defense of such
action.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law regarding derivative proceedings.
BCB. There is no analogous statutory law for commencing derivative
proceedings relative to BCB.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law regarding derivative proceedings.
BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS FOR DIRECTORS
The NHBCA states that a by-law that fixes a greater quorum or voting
requirement for a corporation's board of directors may be amended or repealed
(i) if originally adopted by the stockholders, only by the stockholders, and
(ii) if originally adopted by the board of directors, either by the stockholders
or the board of directors.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law regarding the amendment or repeal of a by-law
that fixes a greater quorum or voting requirement for the Northway Board.
BCB. There is no analogous statutory law applicable to BCB.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law regarding the amendment or repeal of a by-law that fixes
a greater quorum or voting requirement for the PEMI Board.
INSPECTION OF RECORDS BY STOCKHOLDERS
The NHBCA provides that a stockholder of a corporation is entitled to
inspect and copy, during regular business hours at the corporation's principal
office, certain records of the corporation if the stockholder gives the
corporation written notice of his demand at least five business days before the
date on which he or she wishes to inspect and copy.
Northway. No provision of the Northway Articles or the Northway By-laws
alters New Hampshire statutory law regarding inspection of corporate records by
stockholders.
BCB. There is no analogous statutory law applicable to BCB, although
courts have recognized a common law right to inspect certain bank records.
PEMI. No provision of the PEMI Articles or the PEMI By-laws alters New
Hampshire statutory law regarding inspection of corporate records by
stockholders.
QUALIFICATION OF DIRECTORS
The NHBCA states that the articles of incorporation or bylaws of a
corporation may prescribe qualifications for directors and further states that a
director of a corporation need not be a resident of New Hampshire or a
stockholder of the corporation unless the articles of incorporation or bylaws so
prescribe.
Northway. The Northway By-Laws provide that no director need be a
resident of New Hampshire, but that each director must own qualifying shares of
Northway Common Stock with a fair market value at the time of such director's
election of $5,000.
BCB. The BCB By-Laws, consistent with New Hampshire law applicable to
BCB, provide that each director shall at all times be a stockholder of BCB,
owning in his own right or on a jointly held basis as husband and wife,
unencumbered shares of BCB Common Stock having an aggregate fair market value at
the time of the acquisition of not less than $1,000.
PEMI. The PEMI Articles and the PEMI By-laws provide that each
director, during the full term of his or her directorship, shall own in the
aggregate a minimum of $1,000 in par value, market value, or equity interest of
the capital stock of PEMI.
DISSENTERS' RIGHTS
For a discussion of New Hampshire law concerning Dissenters' Rights of
stockholders of BCB and PEMI, which rights may also in the future be exercised
by stockholders of Northway, see "The BCB Reorganization - Dissenters' Rights of
BCB Stockholders," "The Merger and Related Transactions - Dissenters' Rights of
BCB Stockholders in the Merger," and "The Merger and Related Transactions -
Dissenters' Rights of PEMI Stockholders in the Merger."
The foregoing summary of the rights of holders of Northway Common
Stock, BCB Common Stock, and PEMI Common Stock does not purport to be a complete
description of the differences between the statutory and other rights of
stockholders of Northway, BCB, and PEMI. Such differences can be determined more
completely by reference to the NHBCA, the Northway Articles and Northway
By-laws, the BCB Articles and BCB By-laws, and the PEMI Articles and PEMI
By-laws. The vote of BCB stockholders in favor of the BCB Reorganization and of
PEMI stockholders in favor of the Merger will be deemed to be ratification by
such stockholders of the filing of the Northway Articles.
BCB MEETING -- OTHER MATTERS
The following information relates principally to the BCB Meeting. In
addition to serving as a special meeting of BCB's stockholders to consider the
BCB Reorganization and Merger, the BCB meeting is being held in lieu of BCB's
regular 1997 Annual Meeting of Stockholders. Accordingly, BCB's stockholders
will be asked to vote on the election of four directors to the BCB Board, and
upon any other matters that may properly come before the meeting.
THE BCB DIRECTOR PROPOSAL
The BCB Board is currently composed of eight members. The BCB Articles
provide that directors are to be divided into three classes, as nearly equal in
number as possible, with one class to be elected annually for a term of three
years.
At the BCB Meeting, one director will be elected to serve until the
1999 Annual Meeting of Stockholders and until his successor is duly elected and
qualified, and three directors will be elected to serve until the 2000 Annual
Meeting of Stockholders and until their successors are duly elected and
qualified. The BCB Board has nominated Mr. Arnold P. Hanson, Jr., a current
member of the BCB Board, to serve as a director for a two-year term, and Messrs.
Peter H. Bornstein, Randall G. Labnon, and Brien L. Ward, all of whom are
current members of the BCB Board, to serve for three-year terms. Unless
otherwise marked, properly executed and returned proxies will be voted for the
nominees. The BCB Board believes that all of the nominees will be available and
able to serve as directors, but if for any reason any of the nominees named
above should not be available or able to serve, the proxies may exercise
discretionary authority to vote for one or more substitutes as the BCB Board may
recommend, or in the alternative, the BCB Board may, if permitted by law, amend
the BCB By-laws and reduce the size of the BCB Board to eliminate the resulting
vacancy.
Set forth below is certain information regarding the director nominees
named above and each member of the BCB Board continuing in office based on
information furnished by them to BCB. The "Director Since" column sets forth the
year in which the person referred to become a director of BCB.
NAME AGE DIRECTOR SINCE TERM TO EXPIRE
---- --- -------------- --------------
William J. Woodward 51 1975 1998
Peter H. Bornstein 42 1989 2000(1)
Gerard L. Cote 60 1991 1998
Arnold P. Hanson, Jr. 47 1997 1999(1)
Barry J. Kelley 47 1989 1999
Randall G. Labnon 43 1991 2000(1)
John D. Morris 66 1991 1998
Brien L. Ward 45 1997 2000(1)
- -----------------------
(1) If elected at the BCB Meeting.
Biographical information concerning all BCB directors is set forth
elsewhere herein. See "BCB Management - Directors and Executive Officers."
MEETINGS OF THE BCB BOARD AND COMMITTEES
During 1996, the BCB Board held 13 meetings. Each director attended at
least 85% of the aggregate of: (i) the total number of meetings of the BCB
Board, and (ii) the total number of meetings held by all committees of the BCB
Board on which such director served.
Members of the BCB Board are paid a fee of $250 for each BCB Board
meeting attended. In addition, members of committees of the BCB Board are paid a
fee of $200 for each committee meeting attended, except that (i) committee
chairmen are paid $300 per meeting, and (ii) in 1996, Mr. Morris, a member of
BCB's Finance/Pricing and Loan Committees, was paid $250 per committee meeting.
In addition, in 1996 all directors received an additional supplemental fee of
$250 except for Mr. Morris, who received an additional supplemental fee of
$1,750. Directors who are officers of BCB do not receive any fees.
BCB currently has three standing committees: the Audit Committee, the
Human Resources Committee, and the Nominating Committee. The Audit Committee,
which consists of Messrs. Woodward, Bornstein, Morris, Cote, and Kelley,
coordinates the activities of BCB's internal auditor, its independent certified
public accounting firm, and other accounting firms used on a project basis,
reviews the results of each examination by the FDIC and the New Hampshire
Banking Commissioner, and establishes and reviews compliance with the policies
and activities of the Audit Committee. The Audit Committee met six times during
1996.
The Human Resources Committee, which consists of Messrs. Woodward,
Bornstein, Morris, and Cote, conducts annual and periodic reviews of director,
officer, and employee compensation in order to ensure that BCB has the programs
necessary to attract and retain competent professionals at all levels. The
committee's recommendations must be approved by the full BCB Board. The Human
Resources Committee met one time during 1996.
The Nominating Committee, which consists of the entire BCB Board,
selects nominees for election as directors of BCB. The BCB By-Laws provide that,
subject to certain exceptions, any director nominations and new business
proposals intended to be submitted by stockholders in connection with an annual
meeting of stockholders must be filed with BCB at least 60 days, but not more
than 180 days, prior to the scheduled date of the meeting and that no other
nominations or proposals by stockholders shall be acted upon at the meeting. See
"Comparison of Rights of Holders of Northway Common Stock, BCB Common Stock, and
PEMI Common Stock -- Matters to be Considered at Stockholder Meetings and
Director Nominations."
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a plurality of the shares of BCB Common Stock
represented in person or by proxy at the BCB Meeting is necessary for the
election of directors.
THE BCB BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE DIRECTOR NOMINEES OF BCB.
STOCKHOLDER PROPOSALS
If the BCB Reorganization Proposals are approved, it is currently
anticipated that Northway will hold its first annual meeting of stockholders in
the spring of 1998. Stockholder proposals intended to be presented at that
meeting must be delivered to, or mailed to and received by, Northway at its
principal executive office not later than the close of business on the later of
(i) the 75th day prior to the scheduled date of such meeting, or (ii) the 15th
day following the day on which public announcement of the date of such meeting
is first made by Northway.
If the BCB Reorganization Proposals are not approved, it is currently
anticipated that the 1998 annual meeting of stockholders of BCB will be held on
the third Tuesday in March 1998. If such meeting is held, stockholder proposals
intended to be presented at that meeting must be delivered to, or mailed to and
received by, BCB at its principal executive office not less than 60 days nor
more than 180 days prior to the scheduled meeting date. However, if such meeting
is held earlier than the above date, and BCB gives at least 90 days' prior
notice or public disclosure of such rescheduled meeting date, then any such
nominations and proposals must be so delivered and received not later than 60
days prior to the rescheduled date of such meeting. If at least 90 days' prior
notice or public disclosure of the rescheduled meeting date is not given, then
stockholder nominations and proposals must be filed with BCB either (i) within
10 days after the date that notice of the rescheduled meeting date is given or
(ii) at least 60 days before the rescheduled meeting date.
PRESENCE OF AUDITORS AT BCB MEETING
Shatswell, MacLeod & Company, P.C. served as BCB's independent auditing
firm for 1996 and will serve in such capacity in 1997. Representatives of
Shatswell, MacLeod & Company, P.C. are expected to be present at the BCB Meeting
to respond to stockholders' questions and will have the opportunity to make a
statement if they so desire.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, neither the BCB
Board nor the PEMI Board is aware of any matters other than those described in
this Proxy Statement/Prospectus that will be presented for action at their
respective meetings of stockholders. If other matters are properly presented, it
is intended that proxies will be voted in respect thereof in accordance with the
best judgment of the proxy holders.
EXPERTS
The financial statements of BCB as of December 31, 1996, and for the
one-year period ended December 31, 1996, have been included herein and in the
Registration Statement in reliance on the report of Shatswell, MacLeod &
Company, P.C., independent certified public accountants, given on the authority
of said firms as experts in accounting and auditing.
The financial statements of BCB as of December 31, 1995, and for the
two-year period ended December 31, 1995, have been included herein and in the
Registration Statement in reliance on the report of KPMG Peat Marwick LLP,
independent certified public accountants, given on the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of PEMI and subsidiary as of
December 31, 1996, and for the three-year period ended December 31, 1996, have
been included herein and in the Registration Statement in reliance on the report
of Shatswell, MacLeod & Company, P.C., independent certified public accountants,
given on the authority of said firm as experts in accounting and auditing.
NECA has consented to the inclusion as Appendix B hereto of its
fairness opinion to BCB, and to the publication herein of a summary of such
opinion.
HAS has consented to inclusion as Appendix C hereto of its fairness
opinion to PEMI, and to the publication herein of a summary of such opinion.
LEGAL MATTERS
The legality of the shares of Northway Common Stock to be issued to the
BCB and PEMI stockholders pursuant to the BCB Reorganization and the Merger will
be passed upon by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain
legal matters relating to the Merger will be passed upon for PEMI by Cranmore,
FitzGerald & Meaney, Hartford, Connecticut.
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF BCB,
PEMI, AND NORTHWAY
THE BERLIN CITY BANK:
Financial Statements: Page
Independent Auditors' Report (Shatswell, MacLeod & Company, P.C.)... F-2
Independent Auditors' Report (KPMG Peat Marwick LLP)................ F-3
Balance Sheets at March 31, 1997 (unaudited), and at
December 31, 1996 and 1995.................................... F-4
Statements of Income for the three months ended March 31, 1997
and 1996 (unaudited), and for the years ended
December 31, 1996, 1995, and 1994............................. F-5
Statements of Changes in Stockholders' Equity for the three
months ended March 31, 1997 (unaudited), and for the
years ended December 31, 1996, 1995, and 1994................. F-6
Statements of Cash Flows for the three months ended March 31,
1997 and 1996 (unaudited), and for the years ended
December 31, 1996, 1995, and 1994 ............................ F-7
Notes to Financial Statements for the three months ended March
31, 1997 and 1996 (unaudited), and for the years ended
December 31, 1996, 1995, and 1994............................. F-9
PEMI BANCORP, INC. AND SUBSIDIARY:
Consolidated Financial Statements:
Independent Auditors' Report (Shatswell, MacLeod & Company, P.C.)... F-32
Consolidated Balance Sheets at March 31, 1997
(unaudited), and at December 31, 1996 and 1995................ F-33
Consolidated Statements of Income for the three months ended
March 31, 1997 and 1996 (unaudited), and for the years
ended December 31, 1996, 1995, and 1994....................... F-34
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended March 31, 1997 (unaudited), and for the
years ended December 31, 1996, 1995, and 1994................. F-35
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited), and for the
years ended December 31, 1996, 1995, and 1994................. F-36
Notes to Consolidated Financial Statements for the three months
ended March 31, 1997 and 1996 (unaudited), and for the years
ended December 31, 1996, 1995, and 1994....................... F-38
NORTHWAY FINANCIAL, INC.:
Financial Statements:
Independent Auditors' Report (Shatswell, MacLeod & Company, P.C.)... F-61
Balance Sheet at May 9, 1997........................................ F-62
Notes to Balance Sheet.............................................. F-63
<PAGE>
[ADD LETTERHEAD AND SIGNATURES]
Independent Auditors' Report
The Board of Directors and Stockholders
The Berlin City Bank
We have audited the accompanying balance sheet of The Berlin City Bank as of
December 31, 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 Berlin City Bank's management. Our responsibility is
to express an opinion on these financial statements based on our audit. The
financial statements of The Berlin City Bank as of December 31, 1995 and 1994,
were audited by other auditors whose report dated January 19, 1996, 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 reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of The Berlin City Bank as of
December 31, 1996 and the results of its operations and its cash flows for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
Shatswell, MacLeod & Company, P.C.
West Peabody, Massachusetts
February 3, 1997, except for Note 20,
as to which the date is March 14, 1997
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The Berlin City Bank
We have audited the accompanying balance sheet of The Berlin City Bank as of
December 31, 1995 and the related statements of income, changes in stockholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1995. These financial statements are the responsibility of The
Berlin City 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Berlin City Bank as of
December 31, 1995, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 19, 1996
<PAGE>
THE BERLIN CITY BANK
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, 1997 December 31,
Assets Unaudited 1996 1995
- ------ ----------------- ---- ----
<S> <C> <C> <C>
Cash and due from banks (note 2) $ 8,149 $ 9,277 $ 7,818
Federal funds sold 3,000 3,025 7,650
Interest bearing deposits 80 279 2,474
Investment securities available-for-sale, amortized cost of
$63,976 at March 31, 1997, $71,492 at December 31,
1996 and $77,363 at December 31, 1995 (notes 3 and 10) 61,684 70,171 76,686
Investment securities held-to-maturity, market value of $4,226
at March 31, 1997, $226 at December 31, 1996 and $382
at December 31, 1995 (note 3) 4,224 224 377
Federal Home Loan Bank stock, at cost (note 3) 1,082 1,082 1,082
Loans held for sale 147 58 144
Loans (notes 4, 5 and 6) 158,678 152,587 137,283
Unearned income (569) (606) (752)
Allowance for possible loan losses (note 5) (2,618) (2,635) (2,506)
------- ------- ------
Loans, net 155,491 149,346 134,025
Real estate acquired by foreclosure or substantively
repossessed (note 7) 246 148 430
Accrued interest receivable 1,376 1,748 1,751
Deferred income tax asset, net (note 14) 2,115 1,740 1,377
Premises and equipment, net (note 8) 4,380 4,786 4,620
Deposit purchase premium, net 1,229 1,300 1,800
Other assets 263 418 360
-------- -------- --------
Total assets $243,466 $243,602 $240,594
======== ======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 9) $212,685 $216,398 $213,775
Securities sold under agreements to repurchase (note 10) 7,663 4,620 6,087
Mortgagors' escrow accounts 402 232 197
Other borrowings -- 221 --
Other liabilities 1,059 677 827
-------- -------- --------
Total liabilities 221,809 222,148 220,886
-------- -------- --------
Commitments and contingencies (notes 8, 16, and 17)
Stockholders' equity (note 12):
Preferred stock, $1.00 par value; 50,000 shares
authorized, none issued -- -- --
Common stock, $5.00 par value; 150,000 shares authorized,
63,301 shares issued and outstanding 317 317 317
Surplus 1,000 1,000 1,000
Retained earnings 21,747 20,948 18,811
Unrealized loss on investment securities available-for-sale,
net of tax (note 3) (1,407) (811) (420)
-------- -------- --------
Total stockholders' equity 21,657 21,454 19,708
-------- -------- --------
Total liabilities and stockholders' equity $243,466 $243,602 $240,594
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BERLIN CITY BANK
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Years Ended December 31,
1997 1996 1996 1995 1994
-------- -------- --------- -------- ------
(Unaudited)
Interest and dividend income:
<S> <C> <C> <C> <C> <C>
Loans $ 3,394 $ 3,096 $ 12,822 $12,243 $10,496
Investment securities available-for-sale 957 1,108 4,364 1,323 2,398
Investment securities held-to-maturity 42 35 217 3,383 2,142
Federal funds sold 69 124 273 476 367
Interest bearing deposits 3 34 99 47 4
-------- -------- --------- ------- -------
Total interest and dividend income 4,465 4,397 17,775 17,472 15,407
-------- -------- --------- ------- -------
Interest expense:
Deposits (note 9) 1,806 1,997 7,746 7,475 6,012
Borrowed funds 90 95 358 313 346
-------- -------- --------- ------- -------
Total interest expense 1,896 2,092 8,104 7,788 6,358
-------- -------- --------- ------- -------
Net interest and dividend income 2,569 2,305 9,671 9,684 9,049
Provision for possible loan losses (note 5) 90 90 360 540 540
-------- -------- --------- ------- -------
Net interest and dividend income after
provision for possible loan losses 2,479 2,215 9,311 9,144 8,509
-------- -------- --------- ------- -------
Noninterest income:
Service charges on deposit
accounts and fees 92 86 385 433 416
Securities gains (losses), net (note 3) 220 62 306 (75) 90
Other 62 54 257 226 196
-------- --------- --------- ------- -------
Total noninterest income 374 202 948 584 702
-------- --------- --------- ------- -------
Noninterest expense:
Salaries and employee benefits
(note 15) 767 714 3,033 2,764 2,851
Office occupancy and equipment 209 220 892 889 838
Foreclosed real estate, net 9 18 29 (79) (95)
Amortization of deposit purchase premium 71 81 500 322 134
Merger related expenses 276 -- -- -- --
Other (note 13) 447 423 1,879 2,250 2,203
-------- -------- --------- ------- -------
Total noninterest expense 1,779 1,456 6,333 6,146 5,931
-------- -------- --------- ------- -------
Income before income tax expense 1,074 961 3,926 3,582 3,280
Income tax expense (note 14) 275 339 1,346 1,261 1,155
-------- --------- --------- ------- -------
Net income $ 799 $ 622 $ 2,580 $ 2,321 $ 2,125
======== ========= ========= ======= =======
Earnings per common share $ 12.63 $ 9.83 $ 40.76 $ 36.66 $ 33.58
======== ========= ========= ======= =======
Weighted average number of common shares
outstanding 63,301 63,301 63,301 63,301 63,301
======== ========= ========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BERLIN CITY BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
Unrealized Loss on
Loss on Investment
Investment Securities
Securities Trans. To Total
Common Retained Available- Held-To- Stockholders'
Stock Surplus Earnings For-Sale Maturity Equity
------ ------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 317 $ 1,000 $ 15,181 $ (573) $ -- $ 15,925
Net income -- -- 2,125 -- -- 2,125
Cash dividends paid ($6.30 per share) -- -- (398) -- -- (398)
Increase in unrealized loss on
investment securities, net of tax -- -- -- (79) (2,180) (2,259)
------ -------- -------- ------- --------- --------
Balance at December 31, 1994 317 1,000 16,908 (652) (2,180) 15,393
Net income -- -- 2,321 -- -- 2,321
Cash dividends paid ($6.60 per share) -- -- (418) -- -- (418)
Decrease in unrealized loss on
investment securities, net of tax -- -- -- 232 2,180 2,412
------ -------- -------- ------- --------- --------
Balance at December 31, 1995 317 1,000 18,811 (420) -- 19,708
Net income -- -- 2,580 -- -- 2,580
Cash dividends paid ($7.00 per share) -- -- (443) -- -- (443)
Increase in unrealized loss on
investment securities, net of tax -- -- -- (391) -- (391)
------ -------- -------- ------- --------- --------
Balance at December 31, 1996 317 1,000 20,948 (811) -- 21,454
Net income -- -- 799 -- -- 799
Increase in unrealized loss on
investment securities, net of tax -- -- -- (596) -- (596)
------ -------- -------- ------- --------- --------
Balance at March 31, 1997 (unaudited) $ 317 $ 1,000 $ 21,747 $(1,407) $ -- $ 21,657
====== ========= ======== ======= ========= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BERLIN CITY BANK
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
------------------------- -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income $ 799 $ 622 $ 2,580 $ 2,321 $ 2,125
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for:
Possible loan losses 90 90 360 540 540
Depreciation and amortization 139 150 805 593 402
Deferred income taxes (benefit) -- -- (111) (304) 7
Write down of real estate acquired by foreclosure -- 7 29 -- --
(Gains) losses on sales of investment securities
available-for-sale, net (220) (62) (306) 142 (90)
Gains on sales of mortgage-backed securities, net -- -- -- (67) --
Loss on sale of premises and equipment 51 -- -- -- --
Accretion of discount and amortization of premium
on investment and mortgage-backed securities, net 49 90 314 273 387
(Decrease) increase in unearned income, net (37) (25) (146) (133) 371
Gains on sales of real estate acquired by foreclosure
of substantively repossessed (15) -- (69) (146) (200)
(Increase) decrease in loans held for sale (89) 11 86 (144) --
Decrease (increase) in accrued interest receivable 372 219 3 (108) (373)
Decrease (increase) in other assets 155 73 (58) 225 (260)
Increase (decrease) in other liabilities 382 470 (150) 41 81
-------- -------- -------- -------- --------
Net cash provided by operating activities 1,676 1,645 3,337 3,233 2,990
-------- -------- -------- -------- --------
Cash flows from investing activities:
Net decrease (increase) in interest bearing deposits 199 279 2,195 (2,405) (4)
Proceeds from sales of investment securities available-for-sale 3,657 464 3,223 11,386 16,453
Proceeds from sales of investment securities held-to-maturity -- -- -- 1,536 --
Proceeds from sales of mortgage-backed securities available-for-sale -- -- -- 2,068 --
Proceeds from maturities of investment securities available-for-sale 4,101 5,017 9,017 3,638 --
Proceeds from maturities of investment securities held-to-maturity -- -- 7,030 1,590 3,650
Purchase of investment securities available-for-sale (802) (11,609) (10,791) (9,995) (33,384)
Purchase of investment securities held-to-maturity (4,000) -- (6,910) (925) (6,663)
Principal payments received on investment securities held-to-maturity -- 733 35 88 1,336
Principal payments received on investment securities available-for-sale -- -- 128 12 1,900
Principal payments received on mortgage-backed securities 731 -- 4,285 2,898 --
Net (increase) decrease in loans (6,313) 219 (15,566) (4,064) (12,179)
Proceeds from sales of real estate acquired by
foreclosure or substantively repossessed 31 1 353 225 320
Deposit purchase premium acquisition -- -- -- -- (2,256)
Proceeds from sale of premises and equipment 290 -- -- -- --
Additions to premises and equipment (2) (5) (471) (133) (961)
-------- -------- -------- -------- --------
Net cash (used in) provided by investing activities (2,108) (4,901) (7,472) 5,919 (31,788)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits (3,713) (508) 2,623 772 (6,984)
Increase (decrease) in mortgagors' escrow accounts 170 108 35 (17) 11
Total deposits acquired -- -- -- -- 33,157
Net increase (decrease) in borrowed funds 2,822 1,087 (1,246) (795) (3,488)
Cash dividends -- -- (443) (418) (398)
-------- -------- -------- -------- ---------
Net cash (used in) provided by financing activities (721) 687 969 (458) 22,298
-------- -------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents (1,153) (2,569) (3,166) 8,694 (6,500)
Cash and cash equivalents at beginning of period 12,302 15,468 15,468 6,774 13,274
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 11,149 $ 12,899 $ 12,302 $15,468 $ 6,774
======== ======== ======== ======= ========
Cash paid during the period for:
Interest $ 2,057 $ 2,025 $ 8,085 $ 7,670 $ 6,485
======== ======== ======== ======= ========
Income taxes $ -- $ -- $ 1,565 $ 1,766 $ 929
======== ======== ======== ======= ========
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
------------------- ----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of non-cash activities:
Loans transferred to real estate acquired by
foreclosure or substantively repossessed, net $148 $ -- $110 $ 67 $ 548
==== ==== ==== ======= =======
Loans charged off, net of recoveries $107 $ 72 $231 $ 149 $ 401
==== ---- ==== ======= =======
Financed sales of real estate acquired by foreclosure $ 33 $ -- $ 79 $ -- $ 818
Investment securities available-for-sale transferred
to held-to-maturity, net $ -- $ -- $ -- $ -- $46,560
==== ==== ==== ======= =======
Investment securities held-to-maturity transferred
to available-for-sale, net $ -- $ -- $ -- $61,818 $ --
==== ==== ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BERLIN CITY BANK
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Berlin City Bank ("BCB"), a state chartered trust company organized
under the laws of the State of New Hampshire, was incorporated in 1974 and is
headquartered in Berlin, New Hampshire. BCB is engaged principally in the
business of attracting deposits from the general public and investing those
deposits in real estate loans, consumer loans, and small business loans.
Basis of Presentation
The accounting and reporting policies of BCB conform to generally
accepted accounting principles and to general practices within the banking
industry.
In preparing the financial statements, management is required to make
estimates and judgements that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets, and income and expense for
the periods. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to change in the near-term relate to
the determination of the allowance for possible loan losses and valuation of
real estate acquired by foreclosure.
BCB's loans are primarily secured by real estate in New Hampshire. In
addition, real estate acquired by foreclosure is located in this market.
Accordingly, the ultimate collectability of a substantial portion of BCB's loan
portfolio and the recovery of real estate acquired by foreclosure are
susceptible to changing conditions in this market. A description of the
significant accounting policies follows.
The information at March 31, 1997 and for the three months ended March
31, 1997 and 1996 is unaudited, but in the opinion of management, reflects all
adjustments (which are comprised of only normal recurring accruals) necessary
for a fair presentation of the financial position and results of operations at
the dates and for the periods then ended.
Reclassifications
Certain amounts in the prior periods' financial statements have been
reclassified to conform with the current period's presentation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold.
Interest Bearing Deposits
Interest bearing deposits are stated at cost, which approximates market
value.
<PAGE>
Investment and Mortgage-Backed Securities
Debt securities that BCB has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost; debt
and equity securities that are bought and held principally for the purpose of
selling in the near term are classified as trading and reported at fair value,
with unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity or trading are classified
as available-for-sale and reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity, net of estimated income taxes.
Premiums and discounts are amortized and accreted primarily on the
level yield method over the contractual life of the securities adjusted for
expected prepayments.
If a decline in the fair value below the adjusted cost basis of an
investment or mortgage-backed security is judged to be other than temporary, the
cost basis of the investment is written down to fair value as the new cost basis
and the amount of the write down is included as a charge against securities
gains, net.
Gains and losses on sales of investment securities are recognized at
the time of the sale on a specific identification basis.
Loans Held for Sale
Loans held for sale in the secondary market are generally identified as
such at origination and are stated at the lower of aggregate cost or market.
Market value is based on outstanding investor commitments. When loans are sold,
a gain or loss is recognized to the extent that the sale proceeds exceed or are
less than the carrying value of the loans. Gains and losses are determined using
the specific identification method. All loans sold are without recourse to BCB.
Loans
Loans are carried at the principal amounts outstanding, net of any
unearned income. Unearned income includes loan origination fees, net of direct
loan origination costs, and discounts on purchased loans. This income is
deferred and recognized as adjustments to loan income over the contractual life
of the related loans using a method the result of which approximates that of the
interest method.
Loans are placed on nonaccrual when payment of principal or interest is
considered to be in doubt or is past due 90 days or more. BCB may choose to
place a loan on nonaccrual status due to payment delinquency or uncertain
collectability, while not classifying the loan as impaired, if (i) it is
probable that BCB will collect all amounts due in accordance with the
contractual terms of the loan or (ii) the loan is not a commercial, commercial
real estate or an individually significant mortgage or consumer loan. Previously
accrued income on nonaccrual loans that has not been collected is reversed from
current income, and subsequent cash receipts are recorded as income. Loans are
returned to accrual status when collection of all contractual principal and
interest is reasonably assured and there has been sustained repayment
performance.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level
considered adequate by management on the basis of many factors including
the risk characteristics of the portfolio, trends in loan delinquencies
and an assessment of existing economic conditions. Management believes
that the allowance for possible loan losses is adequate. Additions to the
allowance are charged to earnings; realized losses, net of recoveries,
are charged directly to the allowance.
While management uses available information in establishing the
allowance for possible loan losses, future additions to the allowance may be
necessary if economic conditions differ substantially from the estimates used in
making the evaluation. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review BCB's allowance for
possible loan losses. Such agencies may require BCB to recognize additions to
the allowance based on judgements different from those of management.
On January 1, 1995, BCB adopted a new method of measuring loan
impairment in accordance with two pronouncements issued by the Financial
Accounting Standards Board. Under this new method, creditors are required
to account for impaired loans at the present value of the expected future
cash flows discounted at the loan's effective interest rate. Impairment
on troubled debt restructurings is measured at present value using the
loan's premodification interest rate. In addition, criteria for
classification of a loan as in-substance foreclosure has been modified so
that such classification need be made only when the lender is in
possession of the collateral. The effect of adopting this new method of
accounting did not have a material effect on BCB's financial condition or
results of operations.
Commercial, commercial real estate and individually significant
mortgage and consumer loans are considered impaired, and are placed on
nonaccrual, when it is probable that BCB will not be able to collect all amounts
due according to the contractual terms of the loan agreement. Mortgage and
consumer loans which are not individually significant are measured for
impairment collectively. Loans that experience insignificant payment delays and
insignificant shortfalls in payment amounts generally are not classified as
impaired. The amount of impairment for all impaired loans is determined by the
difference between the present value of the expected cash flows related to the
loan, using the original contractual interest rate, and its recorded value, or,
as a practical expedient in the case of collateralized loans, the difference
between the fair value of the collateral and the recorded amount of the loan.
When foreclosure is probable, impairment is measured based on the fair value of
the collateral.
Real Estate Acquired by Foreclosure or Substantively Repossessed
Real estate acquired by foreclosure is comprised of properties acquired
either through foreclosure proceedings or acceptance of a deed in lieu of
foreclosure, and for which BCB has taken physical possession. BCB classifies
loans as in-substance repossessed or foreclosed if BCB receives physical
possession of the debtor's assets, regardless of whether or not foreclosure
proceedings take place.
Both in-substance foreclosures and real estate formally acquired in
settlement of loans are initially recorded at the lower of the carrying value of
the loan or the fair value of the property constructively or actually received.
Subsequent to foreclosure or classification as in-substance foreclosure, such
assets are carried at the lower of cost or fair value minus costs to sell. Gains
and losses upon disposition are reflected in operations as realized.
Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the respective assets.
Amortization of leasehold improvements is accumulated on a
straight-line basis over the lesser of the term of the respective lease or the
asset's useful life.
Deposit Purchase Premium
On July 22, 1994, BCB acquired $33.2 million in deposits from the
Resolution Trust Corporation. BCB paid a deposit purchase premium of $2.3
million. This premium is being amortized
to noninterest expense over seven years by
use of the straight-line method. Management reviews the carrying value of this
intangible asset on an ongoing basis, taking into consideration any events and
circumstances that might have diminished such value.
Income Taxes
BCB uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
the respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Pension Costs
BCB funds accrued pension costs under a non-contributory pension plan
covering substantially all employees.
Earnings Per Share
Earnings per share is based upon the average number of common shares
outstanding during each period.
NOTE 2 CASH AND DUE FROM BANKS
Cash and due from banks at March 31, 1997 and December 31, 1996 and
1995 includes $1,341,000, $1,233,000 and $1,302,000, respectively, which is
subject to withdrawal and usage restrictions to satisfy the reserve requirements
of the Federal Reserve Bank.
NOTE 3 INVESTMENT AND MORTGAGE-BACKED SECURITIES
In 1995, the Financial Accounting Standards Board ("FASB") allowed a
one-time reassessment of the appropriateness of the classifications of all
securities held at a date between November 15, 1995 and December 31, 1995. In
accordance with this assessment, BCB reclassified on December 29, 1995,
approximately $62,000,000 from investment securities held-to-maturity to
investment securities available-for-sale. At the time of the reclassification,
there were $118,000 in unrealized gains and $864,000 in unrealized losses
relating to the securities transferred.
The amortized cost, gross unrealized gains, gross unrealized losses and
market value of investment and mortgage-backed securities at March 31, 1997
follow (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ------
Available-for-sale
<S> <C> <C> <C> <C>
U.S. Treasury notes $13,135 -- $ 533 $12,602
U.S. Gov't Agency notes 1,989 -- 37 1,952
Corporate notes 10,080 2 68 10,014
Foreign notes 1,002 -- 3 999
Other 45 45 -- 90
Common and preferred stocks 1,799 26 116 1,709
Mortgage-backed securities by issuer:
Fixed rate:
FHLMC 243 11 -- 254
FNMA 13,677 11 609 13,079
Other 789 1 3 787
Adjustable rate:
FNMA 88 1 -- 89
GNMA 106 4 -- 110
Other 10 -- -- 10
Collateralized mortgage obligations by issuer:
Fixed rate:
FHLMC 14,412 -- 642 13,770
FNMA 6,601 -- 382 6,219
------- --- ------ -------
$63,976 $101 $2,393 $61,684
======= ==== ====== =======
Held-to-maturity
State and political subdivisions $ 4,224 $ 2 $ -- $ 4,226
------- ---- ------ -------
Market value $ 4,224 $ 2 $ -- $ 4,226
======= ==== ====== =======
</TABLE>
<PAGE>
The amortized cost, gross unrealized gains, gross unrealized losses and
market value of investment and mortgage-backed securities at December 31, 1996
follow (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
Available-for-sale
<S> <C> <C> <C> <C>
U.S. Treasury notes $13,136 $ 9 $ 351 $ 12,794
U.S. Gov't Agency notes 5,203 3 11 5,195
Corporate notes 13,125 9 66 13,068
Foreign notes 1,003 -- 3 1,000
Other 145 45 -- 190
Common and preferred stocks 2,221 118 55 2,284
Mortgage-backed securities by issuer:
Fixed rate:
FHLMC 268 13 -- 281
FNMA 14,129 34 352 13,811
Other 818 4 1 821
Adjustable rate:
FNMA 104 2 -- 106
GNMA 113 4 -- 117
Other 38 -- -- 38
Collateralized mortgage obligations by issuer:
Fixed rate:
FHLMC 14,572 -- 442 14,130
FNMA 6,617 -- 281 6,336
------- ------- ------ ---------
$71,492 $ 241 $1,562 $ 70,171
======= ======= ====== =========
Held-to-maturity
State and political subdivisions $ 224 $ 2 $ -- $ 226
------- ------- ------ ---------
Market value $ 224 $ 2 $ -- $ 226
======= ======= ====== =========
</TABLE>
<PAGE>
The amortized cost, gross unrealized gains, gross unrealized losses and
market value of investment and mortgage-backed securities at December 31, 1995
follow (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
Available-for-sale
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 9,173 $ 63 $ 108 $ 9,128
U.S. Gov't Agency notes 8,212 11 10 8,213
Corporate notes 16,393 21 101 16,313
Foreign notes 2,016 -- 17 1,999
Other 276 48 1 323
Common and preferred stocks 325 13 43 295
Mortgage-backed securities by issuer:
Fixed rate:
FHLMC 384 15 -- 399
FNMA 16,063 82 151 15,994
Other 1,062 26 -- 1,088
Adjustable rate:
FNMA 191 2 -- 193
GNMA 166 5 -- 171
Other 169 -- -- 169
Collateralized mortgage obligations by issuer:
Fixed rate:
FHLMC 16,081 -- 337 15,744
FNMA 6,829 -- 195 6,634
Other 23 -- -- 23
------------ ---------- ----------- ----------
$ 77,363 $ 286 $ 963 $ 76,686
============ ========== =========== ==========
Held-to-maturity
State and political subdivisions $ 377 $ 5 $ -- $ 382
------------ ---------- ----------- ----------
Market value $ 377 $ 5 $ -- $ 382
============ ========== =========== ==========
</TABLE>
<PAGE>
The contractual maturity distribution of investments in debt obligations at
March 31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
One to Five to Over
Within five ten ten Total
one year years years years cost
-------- ------- ------- ------ ------
Available-for-sale
<S> <C> <C> <C> <C> <C>
U.S. Treasury notes $ 2,990 $ 3,990 $ 6,155 $ -- $ 13,135
U.S. Gov't Agency notes -- 1,000 989 -- 1,989
Corporate notes 7,066 3,014 -- -- 10,080
Foreign notes 1,002 -- -- -- 1,002
Other 45 -- -- -- 45
Mortgage-backed securities by issuer:
FHLMC -- 27 -- 216 243
FNMA -- -- 59 13,706 13,765
GNMA -- -- -- 106 106
Other 510 129 -- 160 799
Collateralized mortgage obligations by issuer:
FHLMC -- -- -- 14,412 14,412
FNMA -- -- 5,912 689 6,601
---------- ---------- ---------- ---------- ----------
$ 11,613 $ 8,160 $ 13,115 $ 29,289 $ 62,177
========== ========== ========== ========== ==========
Market value $ 11,618 $ 8,078 $ 12,259 $ 28,020 $ 59,975
========== ========== ========== ========== ==========
Held-to-maturity
State and political subdivisions $ 4,100 $ 124 $ -- $ -- $ 4,224
---------- ---------- ---------- ---------- ----------
Market value $ 4,100 $ 124 $ -- $ -- $ 4,224
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
The contractual maturity distribution of investments in debt obligations at
December 31, 1996 follows (in thousands):
<TABLE>
<CAPTION>
One to Five to Over
Within five ten ten Total
one year years years years cost
-------- ------ ------- ------ ------
Available-for-sale
Investment securities:
<S> <C> <C> <C> <C> <C>
U.S. Treasury notes $ 1,000 $ 5,975 $ 6,161 $ -- $ 13,136
U.S. Gov't Agency notes 3,213 1,001 989 -- 5,203
Corporate notes 8,066 5,059 -- -- 13,125
Foreign notes 1,003 -- -- -- 1,003
Other 145 -- -- -- 145
Mortgage-backed securities by issuer:
FHLMC -- 27 -- 241 268
FNMA -- -- 63 14,170 14,233
GNMA -- -- -- 113 113
Other 539 129 -- 188 856
Collateralized mortgage obligations by issuer:
FHLMC -- -- -- 14,572 14,572
FNMA -- -- 5,907 710 6,617
---------- ---------- ---------- ---------- ----------
$ 13,966 $ 12,191 $ 13,120 $ 29,994 $ 69,271
========== ========== ========== ========== ==========
Market value $ 14,000 $ 12,143 $ 12,530 $ 29,214 $ 67,887
========== ========== ========== ========== ==========
Held-to-maturity
State and political subdivisions $ 100 $ 124 $ -- $ -- $ 224
========== ========== ========== ========== ==========
Market value $ 100 $ 126 $ -- $ -- $ 226
========== ========== ========== ========== ==========
Actual maturities of state and political subdivisions, mortgage-backed
securities and collateralized mortgage obligations will differ from the
maturities presented because borrowers have the right to prepay obligations
without prepayment penalties.
An analysis of gross realized gains and losses on investment and
mortgage-backed securities sold during the three months ended March 31, 1997 and
the years ended December 31, 1996, 1995 and 1994 follows (in thousands):
<CAPTION>
December 31,
March 31, 1997 1996 1995 1994
-------------------- ------------------- ----------------- ------------------
Realized Realized Realized Realized Realized Realized Realized Realized
Gains Losses Gains Losses Gains Losses Gains Losses
-------- -------- -------- -------- -------- -------- -------- --------
Investments:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt $ -- $ 5 $ 1 $ -- $ 75 $ 222 $ 5 $ --
Equity 225 -- 325 20 5 -- 173 65
Mortgage-backed securities
available-for-sale -- -- -- -- 67 -- 33 56
------- ------- ------- ------- ------- ------- ------- ------
$ 225 $ 5 $ 326 $ 20 $ 147 $ 222 $ 211 $ 121
======= ======= ======= ======= ======= ======= ======= ======
</TABLE>
Investment securities totaling $16,480,000, 14,483,000, and $17,379,000 were
pledged to secure public deposits and repurchase agreements at March 31, 1997
and December 31, 1996 and 1995, respectively.
<PAGE>
As a member of the Federal Home Loan Bank of Boston (the "FHLBB"), BCB
is required to invest in $100 par value stock of the FHLBB in an amount equal to
1% of its outstanding home loans, .3% of total assets, or 5% of BCB's advances
from the FHLBB, whichever is higher. If redeemed BCB will receive an amount
equal to the par value of the stock.
NOTE 4 LOANS
Loans as of March 31, 1997, and as of December 31, 1996 and 1995 were
comprised of the following (in thousands):
March 31, December 31,
1997 1996 1995
-------- ---- ----
Real Estate:
Residential $ 92,675 $ 92,604 $ 89,814
Commercial 35,499 31,692 25,890
Construction 2,630 1,447 --
Commercial 10,501 9,671 8,256
Line of Credit 3,866 3,872 3,664
Installment 9,168 8,727 5,881
Collateral 2,347 2,566 2,571
Other 1,992 2,008 1,207
-------- -------- --------
Total loans 158,678 152,587 137,283
Less: Unearned income (569) (606) (752)
Allowance for possible
loan losses (note 5) (2,618) (2,635) (2,506)
-------- -------- --------
$155,491 $149,346 $134,025
======== ======== ========
Loans are granted in the ordinary course of business to directors,
officers, and their immediate families and to organizations in which such
persons have more than a 10% ownership interest.
These loans are made on substantially the
same terms, including interest rate and collateral, as those prevailing at the
same time for comparable transactions with unrelated persons and do not involve
more than the normal risk of collectability or present other unfavorable
features.
An analysis of activity in such loans for the three months ended March
31, 1997, and for the years ended December 31, 1996 and 1995 follows (in
thousands):
March 31, December 31,
1997 1996 1995
--------- ---- ----
Balance at beginning of period $ 974 $ 1,377 $ 1,590
New loans 392 89 418
Repayments (69) (322) (315)
Changes in status of
officers and directors 30 (170) (316)
-------- -------- --------
Balance at end of period $ 1,327 $ 974 $ 1,377
======== ======== ========
BCB's lending activities are conducted principally in New Hampshire.
BCB grants single family residential loans, commercial real estate loans,
including loans on resorts and motels, vacation condominium loans, time share
loans, commercial loans, and a variety of consumer loans. In addition, BCB
grants loans for the construction of residential homes, vacation condominiums,
commercial real estate properties, and for land development. Most loans granted
by BCB are secured by real estate collateral. The ability and willingness of the
single family residential, vacation condominium and consumer borrowers to honor
their repayment commitments is generally dependent on the level of overall
economic activity within such 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 such borrowers'
geographic areas and the general economy.
Mortgage loans serviced for others are not included in the accompanying
balance sheets. The unpaid principal balances of such loans totaled $3,716,000,
$3,476,000, and $1,156,000 at March 31, 1997, and at December 31, 1996 and 1995,
respectively.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" (SFAS No. 122), became effective as of January 1,
1996. In 1996 and for the first quarter of 1997, BCB sold loans totaling
$2,797,000 and retained the servicing rights. The fair value of those rights
under SFAS No. 122 is not material and has not been recognized in the 1997 or
1996 financial statements.
NOTE 5 ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses follows (in
thousands):
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Years Ended December 31,
------------------------- ------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,635 $2,506 $2,506 $2,115 $1,976
Provision charged to expense 90 90 360 540 540
Recoveries on loans previously
charged-off 8 41 178 173 71
Loans charged off (115) (113) (409) (322) (472)
------ ------ ------ ------ ------
Balance at end of period $2,618 $2,524 $2,635 $2,506 $2,115
====== ====== ====== ====== ======
</TABLE>
NOTE 6 IMPAIRED LOANS
Effective January 1, 1995, BCB adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS No. 114), and Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" (SFAS No. 118). These statements
require changes in both the disclosure and impairment measurement of
non-performing loans. Certain loans which had previously been reported as
non-performing loans and certain in-substance foreclosures are now required to
be disclosed as impaired loans. In accordance with the provisions of SFAS No.
114 and SFAS No. 118, no reclassification is necessary as it is immaterial to
the financial statements.
Restructured, accruing loans entered into prior to the adoption of
these statements are not required to be reported as impaired loans unless such
loans are not performing in accordance with the restructured terms at adoption
of SFAS No. 114. Restructured, accruing loans entered into subsequent to the
adoption of these statements are reported as impaired loans. In the year
subsequent to restructure, these loans may be removed from the impaired loan
disclosure provided that the loan bears a market rate of interest at the time of
restructure and is performing under the restructured terms.
The recorded investment in loans that are considered to be impaired
under SFAS No. 114 for the three months ended March 31, 1997, and the years
ended December 31, 1996 and 1995, respectively, was $214,000, $464,000, and
$2,040,000 (of which $0, $248,000, and $1,551,000 was on a nonaccrual basis),
for which the related allowance for possible loan losses is $0, $0, and
$233,000, which is exclusive of a partial guaranty by the Small Business
Administration of $0, $0, and $90,000. All of BCB's impaired loans are
collateralized and therefore all impaired loans are measured by the difference
between the fair value of the collateral and the recorded amount of the loan.
The average recorded investment in impaired loans during the three months ended
March 31, 1997, and the years ended December 31, 1996 and 1995, was
approximately $215,000, $873,000, and $1,819,000, respectively. For the three
months ended March 31, 1997, and the years ended December 31, 1996 and 1995, BCB
recognized interest income on those impaired loans of $3,000, $30,000, and
$111,000, respectively, which amounts included $3,000, $30,000, and $78,000,
respectively, of interest income recognized using the cash basis of income
recognition.
NOTE 7 REAL ESTATE ACQUIRED BY FORECLOSURE OR SUBSTANTIVELY REPOSSESSED
The value of real estate acquired by foreclosure or substantively
repossessed as of March 31, 1997, and as of December 31, 1996 and 1995 follows
(in thousands):
March 31, December 31,
1997 1996 1995
-------- ---- ----
Condominiums $ 46 $ 46 $ 248
Residential homes 200 97 75
Land 0 5 107
-------- -------- --------
$ 246 $ 148 $ 430
======== ====== ========
The aforementioned balances include $46,000, $46,000, and $123,000 of
collateral substantively repossessed at March 31, 1997, and at December 31, 1996
and 1995, respectively.
Sales by BCB resulted in gains of $15,000, $5,000, $69,000, $146,000 and
$200,000 for the three months ended March 31, 1997 and 1996 and for the years
ended December 31, 1996, 1995, and 1994, respectively.
Loss provisions on real estate acquired by foreclosure totaled $0,
$7,000 and $29,000 for the three months ended March 31, 1997 and 1996 and the
year ended December 31, 1996, respectively.
NOTE 8 PREMISES AND EQUIPMENT
A summary of the value of premises and equipment as of March 31, 1997,
and as of December 31, 1996 and 1995 follows (in thousands):
March 31, December 31,
1997 1996 1995
---------- ---------- ---------
Land $ 1,001 $ 1,063 $ 887
Building 3,791 4,092 4,051
Equipment 1,363 1,363 1,341
--------- ---------- ---------
6,155 6,518 6,279
Less accumulated depreciation
and amortization (1,775) (1,732) (1,659)
--------- ---------- ---------
$ 4,380 $ 4,786 $ 4,620
========= ========== =========
BCB leases two of its branch locations under non-cancellable operating
leases. Minimum lease payments in future periods under such non-cancellable
operating leases at December 31, 1996, are as follows:
1997 $ 51,000
1998 51,000
1999 51,000
2000 51,000
2001 10,500
--------
$214,500
========
The terms of one of the leases provides that BCB can, at the end of the
initial five year term, renew the lease under two five-year options. Both leases
contain a provision that BCB shall pay its pro-rata share of operating costs,
including real estate taxes. A lease under which BCB was paying rent for a
location no longer in use expired in 1996.
Rent expense amounted to $9,000 and $6,000 for the three months ended
March 31, 1997 and 1996, respectively. Rent expense for the years ended December
31, 1996, 1995, and 1994 amounted to $52,000, $113,000 and $73,000,
respectively.
NOTE 9 DEPOSITS
Deposits are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------------------------------
1997 1996 1995
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------ ---------
Non-certificate deposits:
<S> <C> <C> <C> <C> <C> <C>
Regular savings $ 48,482 2.30% $ 49,658 2.30% $ 48,897 2.40%
Now and Super NOW 27,213 1.23 29,957 1.23 27,553 1.53
Money market 10,528 2.72 9,702 2.71 8,807 2.86
Demand deposits 19,317 -- 19,212 -- 16,555 --
---------- ---------- ----------
105,540 1.64 108,529 1.63 101,812 1.81
---------- ---------- ----------
Certificates of deposit:
Less than $100,000 91,972 5.21 93,429 5.23 96,498 5.60
$100,000 and over 15,173 5.22 14,440 5.30 15,465 5.42
---------- ---------- ----------
107,145 5.21 107,869 5.24 111,963 5.58
---------- ---------- ----------
Total deposits $ 212,685 3.44% $ 216,398 3.43% $ 213,775 3.78%
========= ========= ==========
</TABLE>
Included above are $99,000, $297,000, and $891,000 in brokered
certificates of deposit at March 31, 1997, and December 31, 1996 and 1995,
respectively.
For time deposits as of March 31, 1997, and December 31, 1996 and 1995,
the aggregate amount of maturities are as follows (in thousands):
March 31, December 31,
1997 1996 1995
-------- ---- ----
1996 $ -- $ -- $ 82,012
1997 58,948 75,744 24,093
1998 40,507 26,978 3,482
1999 6,223 4,474 2,242
2000 868 542 134
2001 599 131 --
---------- ---------- -----------
$ 107,145 $ 107,869 $ 111,963
========= ========= ===========
<PAGE>
NOTE 10 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase at March 31, 1997, and at
December 31, 1996, 1995, and 1994 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------------
1997 1996 1995 1994
------------ ---------- ---------- -------
<S> <C> <C> <C> <C>
Outstanding $ 7,663 $ 4,620 $ 6,087 $ 6,882
Maturity date Apr 97-Sep 98 Feb 97-May 98 Feb 96-May 98 Jan 95-Mar 97
Weighted average interest rate
at end of period 5.04% 5.50% 5.56% 4.38%
Maximum amount outstanding
at any month end $ 8,121 $ 7,784 $ 9,028 $ 9,971
Daily average outstanding $ 7,435 $ 6,565 $ 6,151 $ 7,452
Weighted average interest rate
for the period 4.91% 5.45% 4.98% 4.21%
</TABLE>
Investment securities with a total book value and accrued interest of
$17,348,000, $14,393,000, $17,122,000, and $17,319,000 were pledged as
collateral and held by a correspondent bank to secure the agreements at March
31, 1997, and December 31, 1996, 1995, and 1994, respectively. The market value
of the collateral at March 31, 1997 and December 31, 1996, 1995, and 1994,
respectively, was $16,480,000, $13,998,000, $16,871,000, and $16,375,000.
NOTE 11 LINES OF CREDIT
As a member of the FHLBB, BCB has access to a pre-approved line of
credit up to 2% of total assets and the capacity to borrow an amount up to 30%
of total assets less other borrowings. At March 31, 1997, BCB's available line
of credit totaled $4.9 million.
In addition, BCB has a credit line totaling $2.0 million with another
commercial bank.
At March 31, 1997 and December 31, 1996 and 1995 there was no amount
outstanding on lines of credit.
NOTE 12 STOCKHOLDERS' EQUITY
Federal regulations prohibit banking companies from paying dividends on
their stock if the effect would cause stockholders' equity to be reduced below
applicable regulatory capital requirements or if such declaration and payment
would otherwise violate regulatory requirements. At March 31, 1997, BCB was in
compliance with all regulatory capital requirements.
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 BCB's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, BCB must meet specific capital guidelines that involve
quantitative measures of BCB's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. BCB'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 BCB 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 1 capital (as defined) to average
assets (as defined). Management believes, as of March 31, 1997, that BCB meets
all capital adequacy requirements to which it is subject.
As of March 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized BCB as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, BCB must maintain minimum total risk-based, and Tier I
risk-based capital 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 BCB's category. The following table sets forth BCB's
actual capital amounts and ratios against the amounts and ratios required by the
capital adequacy guidelines and the amounts and ratios necessary to be
categorized as well-capitalized (dollars in thousands):
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Total Capital $23,371 18.10% $10,330 (+-)8.0% $12,913 (+-)10.0%
(to Risk Weighted
Assets)
Tier 1 Capital $21,745 16.71% $ 5,205 (+-)4.0% $ 7,807 (+-) 6.0%
(to Risk Weighted
Assets)
Tier 1 Capital $21,745 8.92% $ 9,752 (+-)4.0% $12,190 (+-) 5.0%
(to Average Assets)
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1996:
Total Capital $22,583 17.44% $10,357 (+-)8.0% $12,946 (+-)10.0%
(to Risk Weighted
Assets)
Tier 1 Capital $20,965 16.19% $ 5,178 (+-)4.0% $ 7,768 (+-) 6.0%
(to Risk Weighted
Assets)
Tier 1 Capital $20,965 8.63% $9,722 (+-)4.0% $12,153 (+-) 5.0%
(to Average Assets)
</TABLE>
<PAGE>
NOTE 13 OTHER NONINTEREST EXPENSE
The major components of other noninterest expense for the three months
ended March 31, 1997 and 1996, and the years ended December 31, 1996, 1995, and
1994 follows (in thousands):
<TABLE>
<CAPTION>
Three Months For the Years Ended
Ended March 31, December 31,
--------------------------- --------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Deposit and other assessments $ 10 $ 15 $ 15 $ 447 $ 419
Directors' fees 52 53 221 230 149
Stationery and supplies 58 51 225 217 190
Other 327 304 1,418 1,356 1,445
-------- -------- ------- ------- -------
$ 447 $ 423 $ 1,879 $ 2,250 $ 2,203
======== ======== ======= ======= =======
</TABLE>
NOTE 14 FEDERAL AND STATE TAXES
The components of federal and state tax expense are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months For the Years Ended
Ended March 31, December 31,
--------------------------- --------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 250 $ 301 $ 1,296 $ 1,393 $ 1,022
State 25 38 161 172 126
-------- -------- ------- ------- -------
275 339 1,457 1,565 1,148
-------- -------- ------- ------- -------
Deferred:
Federal 0 0 (91) (249) 5
State 0 0 (20) (55) 2
-------- -------- ------ ------ -------
0 0 (111) (304) 7
-------- -------- ------ ------ -------
Net $ 275 $ 339 $ 1,346 $ 1,261 $ 1,155
======== ======== ======= ======= =======
</TABLE>
The temporary differences (the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases) that give rise to significant portions of the deferred
income tax asset and deferred income tax liability are as follows (in
thousands):
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
--------- -------------------------
1997 1996 1995 1994
-------- -------- -------- ------
Deferred income tax assets:
<S> <C> <C> <C> <C>
Allowance for possible
loan losses $ 784 $ 784 $ 645 $ 484
Loan origination fees 101 101 134 189
Interest on nonaccrual loans 224 224 300 275
Foreclosed property valuation 19 19 42 42
Unrealized holding loss on investment
securities available-for-sale 885 510 257 1,776
Supplemental insurance 48 48 46 45
Other 255 255 203 104
-------- -------- -------- -------
2,316 1,941 1,627 2,915
-------- -------- -------- -------
Deferred income tax liabilities:
Depreciation 201 201 211 209
Prepaid FDIC assessment -- -- 12 95
Other -- -- 27 20
-------- -------- -------- -------
201 201 250 324
-------- -------- -------- -------
Deferred income tax assets, net $ 2,115 $ 1,740 $ 1,377 $ 2,591
======== ======== ======== =======
</TABLE>
The primary sources of recovery of the deferred income tax asset are
taxes paid that are available for carryback and the expectation that the
deductible temporary differences will reverse during periods in which BCB
generates taxable income.
Total income tax expense differs from the "expected" federal income tax
expense at the 34% statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
Three Months For the Years Ended
Ended March 31, December 31,
------------------------------- ----------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Expected federal income taxes $ 277 $ 327 $ 1,335 $ 1,218 $ 1,115
Municipal income (18) (14) (86) (34) (47)
State tax expense net of federal benefit 9 13 93 77 84
Other 7 13 4 -- 3
-------- ------- ------- ------- -------
$ 275 $ 339 $ 1,346 $ 1,261 $ 1,155
======== ======= ======= ======= =======
</TABLE>
NOTE 15 PENSION PLAN
BCB has a non-contributory defined benefit pension plan (the "Plan")
covering substantially all employees. BCB contributes to the Plan annually to
provide for current benefits, as well as expected future benefits.
The actuarial present value of benefit obligations under the Plan are as
follows (in thousands):
At January 1,
1996 1995
------ ------
Vested benefits $ 1,112 $ 980
Non-vested benefits 43 68
--------- --------
Accumulated benefit obligations $ 1,155 $ 1,048
========= ========
The following table shows the funded status of the Plan and the amount
of prepaid pension costs (in thousands):
At December 31,
1996 1995
------ ------
Estimated projected benefit obligations $ (1,613) $ (1,452)
Estimated fair value of plan assets 1,324 1,244
---------- --------
Deficiency of estimated fair value of plan assets
over estimated projected benefit obligations (289) (208)
Past service cost 17 19
Unrecognized net loss 319 264
Unrecognized net transition asset (3) (4)
-------- ---------
Prepaid pension cost $ 44 $ 71
======== ========
Plan obligations were computed using a 7% discount rate. The estimated
return on plan assets was 9%. Future salary increases were assumed to be 5% in
both years.
Plan assets are invested in U.S. Treasury, U.S. Government Agency, and
FHLBB securities.
Pension expense consisted of the following components (in thousands):
Years Ended December 31,
1996 1995 1994
------ ------ ------
Service cost benefit earned $ 106 $ 81 $ 90
Interest cost on projected benefit
obligations 100 87 81
Return on plan assets gain (loss) (67) (118) 2
Net amortization of deferral (41) 24 (94)
------- -------- ------
Pension expense $ 98 $ 74 $ 79
======= ======== ======
NOTE 16 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
BCB is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to originate loans and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
amounts of those instruments reflect the extent of involvement BCB has in
particular classes of financial instruments.
BCB's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. BCB
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
Financial instruments with off-balance sheet credit risk are as follows:
(in thousands)
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------
1997 1996 1995
-------- ---- ----
Financial instruments whose contract
amounts represent credit risk:
<S> <C> <C> <C>
Unused lines of credit $ 9,454 $ 9,663 $ 5,185
Commitments to originate loans 8,112 7,440 3,479
Standby letters of credit 415 374 325
</TABLE>
Commitments to originate loans and unused lines of credit 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. BCB
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by BCB upon extension of credit, is
based on management's credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by BCB to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan commitments to customers.
NOTE 17 LITIGATION
In the ordinary course of business, BCB is involved in routine
litigation. Based on its review of such litigation, management does not foresee
any material effect on BCB's financial position or results of operations.
NOTE 18 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by BCB in estimating its
fair value disclosures for financial instruments:
Cash and due from banks, interest bearing deposits, and federal funds
sold: The carrying amounts reported in the balance sheet for cash and short-term
instruments approximate those assets' fair values.
Investment and mortgage-backed securities: Fair values for investment
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.
FHLBB Stock: The carrying amount reported in the balance sheet for FHLBB
stock approximates fair value. If redeemed, BCB will receive an amount equal to
the par value of the stock.
Loans held for sale: The carrying amount reported in the balance sheet
approximates fair value.
Loans: 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 fair value of non-accrual loans was
estimated using the estimated fair value of the underlying collateral. The fair
value of commitments to originate loans and outstanding letters of credit were
considered in estimating the fair value of loans. As the undisbursed lines of
credit are at floating rates, there is no fair value adjustment
Accrued interest receivable: The carrying value of accrued interest
receivable approximates its fair value because of the short term nature of these
financial instruments.
Deposits and mortgagors' escrow accounts: The fair values of demand
deposits (e.g., NOW and Super NOW checking, regular savings, money market
accounts, and mortgagors' escrow accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for certificates of deposit are estimated using a discounted cash
flow technique that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities of time
deposits.
Repurchase Agreements: The fair value of BCB's repurchase agreements is
estimated using discounted cash flow analysis, based on BCB's current rate for
similar repurchase agreements.
Other Borrowings: The carrying amount reported in the balance sheet
approximates fair value.
The estimated fair values of BCB's financial instruments are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------------------
1997 1996 1995
---------------------------------- ---------------------- ---------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-------- ---------- -------- ---------- ------ ----------
Financial assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 8,149 $ 8,149 $ 9,277 $ 9,277 $ 7,818 $ 7,818
Federal funds sold 3,000 3,000 3,025 3,025 7,650 7,650
Interest bearing deposits 80 80 279 279 2,474 2,474
Investment securities
available-for-sale 61,684 61,684 70,171 70,171 76,686 76,686
Investment securities held-to-maturity 4,224 4,249 224 226 377
382
FHLB stock 1,082 1,082 1,082 1,082 1,082 1,082
Loans held for sale 147 147 58 58 144 144
Loans, net 155,491 155,062 149,346 148,992 134,025 135,084
Accrued interest receivable 1,376 1,376 1,748 1,748 1,751 1,751
Financial liabilities:
Deposits 212,685 213,296 216,398 217,032 213,775 214,318
Repurchase agreements 7,663 7,688 4,620 4,638 6,087 6,122
Mortgagors' escrow accounts 402 402 232 232 197 197
Other borrowings -- -- 221 221 -- --
</TABLE>
The carrying amounts of financial instruments shown in the above table
are included in the balance sheets under the indicated captions.
At March 31, 1997, all of BCB's financial instruments were held for
purposes other than trading.
At March 31, 1997, BCB had no derivative financial instruments subject
to the provisions of Statement of Financial Accounting Standards No. 119,
"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments."
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time BCB's entire holdings of a particular financial
instrument. Because no market exists for some of BCB's financial instruments,
fair value estimates are based on judgements regarding future expected loss
experience, cash flows, current economic conditions, risk characteristics, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and, therefore, cannot be
determined with precision. Changes in assumptions and changes in the loan, debt,
and interest rate markets could significantly affect the estimates. Further, the
income tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have not
been considered. The fair value amounts presented do not represent the
underlying value of BCB because fair value of certain other financial
instruments, assets and liabilities have not been determined.
<PAGE>
THE BERLIN CITY BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 19 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data for the years ended December 31,
1996 and 1995, respectively, follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
1996 Quarters Ended
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest and dividend income $ 4,397 $ 4,411 $ 4,447 $ 4,520
Interest expense 2,092 2,044 2,009 1,959
----------- --------- ---------- ---------
Net interest and dividend income 2,305 2,367 2,438 2,561
Provision for possible loan losses 90 90 90 90
Noninterest income 202 220 227 299
Noninterest expense 1,456 1,471 1,594 1,812
----------- --------- ---------- ---------
Income before income tax expense 961 1,026 981 958
Income tax expense 339 350 333 324
----------- --------- ---------- ---------
Net income $ 622 $ 676 $ 648 $ 634
=========== ========= ========== =========
Earnings per share $ 9.83 $ 10.67 $ 10.24 $ 10.02
=========== ========= ========== =========
1995 Quarters Ended
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Interest and dividend income $ 4,176 $ 4,257 $ 4,497 $ 4,542
Interest expense 1,720 1,876 2,080 2,112
----------- --------- ---------- ---------
Net interest and dividend income 2,456 2,381 2,417 2,430
Provision for possible loan losses 135 135 135 135
Noninterest income 159 92 137 196
Noninterest expense 1,448 1,517 1,361 1,820
----------- --------- ---------- ---------
Income before income tax expense 1,032 821 1,058 671
Income tax expense 370 289 385 217
----------- --------- ---------- ---------
Net income $ 662 $ 532 $ 673 $ 454
=========== ========= ========== =========
Earnings per share $ 10.46 $ 8.40 $ 10.64 $ 7.16
=========== ========= ========== =========
</TABLE>
NOTE 20 MERGER AGREEMENT
On March 14, 1997, BCB entered into an Agreement and Plan of Merger (the
"Merger Agreement"), by and among BCB, Northway Financial, Inc. ("Northway"), a
New Hampshire corporation and a wholly owned subsidiary of BCB, Pemi Bancorp,
Inc. ("PEMI"), and Pemigewasset National Bank ("PNB"), a wholly owned national
bank subsidiary of PEMI. Under the terms of the Merger Agreement, (i) Northway
will organize a new New Hampshire trust company, Berlin Interim Trust Company
("BITC"), (ii) BITC will merge with and into BCB (the "BCB Reorganization"), as
a result of which BCB will become a wholly owned direct subsidiary of Northway,
and (iii) following the BCB Reorganization, PEMI will merge with and into
Northway, with Northway being the surviving corporation. As a result of the
foregoing transactions, Northway will be the bank holding company for BCB and
PNB, and each of BCB and PNB will be wholly owned direct subsidiaries of
Northway.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Pemi Bancorp, Inc.
We have audited the accompanying balance sheets of Pemi Bancorp, Inc. and
Subsidiary as of December 31, 1996 and 1995 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of PEMI's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pemi
Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Shatswell, MacLeod & Company, P.C.
West Peabody, Massachusetts January 16, 1997, except for Note 10, as to which
the date is March 7, 1997, and Note 18, as to which the date is March 14, 1997
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, 1997 December 31,
(Unaudited) 1996 1995
-------------- ---------- ----------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 4,474 $ 4,980 $ 4,919
Federal funds sold -- -- 3,300
-------- -------- --------
Cash and cash equivalents 4,474 4,980 8,219
Investments in available-for-sale securities (at fair value) 17,389 18,457
8,113
Investments in held-to-maturity securities
(fair values of $11,458 as of March 31, 1997 and
$11,879 as of December 31, 1996
and $14,926 as of December 31, 1995) 11,604 11,975 15,000
Federal Reserve Bank stock, at cost 80 80 80
Federal Home Loan Bank stock, at cost 740 740 740
Loans, net 87,849 87,096 80,087
Premises and equipment 4,099 3,979 3,481
Other real estate owned 109 54 62
Accrued interest receivable 828 863 855
Other assets 890 755 686
-------- -------- --------
$128,062 $128,979 $117,323
======== ======== ========
Liabilities and Stockholders' Equity
Demand deposits $ 14,571 $ 16,116 $ 14,023
Savings and NOW deposits 43,240 43,541 40,933
Time deposits 45,791 46,028 41,460
-------- -------- --------
Total deposits 103,602 105,685 96,416
Advances from Federal Home Loan Bank of Boston 9,891 8,703 7,492
Other liabilities 2,168 2,377 2,021
-------- -------- --------
Total liabilities 115,661 116,765 105,929
-------- -------- --------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized
2,000,000 shares; issued 751,901 shares; outstanding
690,401 shares 752 752 752
Paid-in capital 2,384 2,384 2,384
Retained earnings 9,993 9,714 8,886
Treasury stock, at cost (61,500 shares) (615) (615) (615)
Net unrealized holding loss on available-for-sale securities (113) (21) (13)
-------- -------- ---------
Total stockholders' equity 12,401 12,214 11,394
-------- -------- --------
$128,062 $128,979 $117,323
==+===== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PEMI BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31
---------------------------- -------------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 1,993 $ 1,973 $ 8,257 $ 8,123 $ 7,190
Interest and dividends on securities:
Taxable 428 349 1,617 1,094 1,139
Tax-exempt 62 62 249 157 160
Other interest 12 33 77 128 35
------- ------- ------- -------- -------
Total interest and dividend income 2,495 2,417 10,200 9,502 8,524
------- ------- ------- -------- -------
Interest expense:
Interest on deposits 885 861 3,632 3,079 2,628
Interest on advances from FHLB 137 115 520 611 419
Interest on other borrowed funds -- -- 2 3 5
------- ------- ------- -------- -------
Total interest expense 1,022 976 4,154 3,693 3,052
------- ------- ------- -------- -------
Net interest and dividend income 1,473 1,441 6,046 5,809 5,472
Provision for possible loan losses 30 36 152 112 120
------- ------- ------- -------- -------
Net interest and dividend income
after provision for possible loan
losses 1,443 1,405 5,894 5,697 5,352
------- ------- ------- -------- -------
Other income:
Service charges on deposit accounts 62 65 260 253 267
Securities gains, net -- -- -- -- 22
Other income 52 49 216 241 241
Other deposit fees 49 43 178 179 161
Gain on sales of other real estate
owned, net -- -- 19 7 33
------- ------- ------- ------- -------
Total other income 163 157 673 680 724
------- ------- ------- -------- -------
Other expense:
Salaries and employee benefits 605 583 2,390 2,376 2,282
Occupancy expense 102 84 341 297 309
Equipment expense 140 125 526 446 407
Writedown of other real estate owned 5 -- 25 80 48
Other real estate owned expense 1 -- 16 13 43
FDIC deposit insurance premium 3 1 2 135 241
Stationery and supplies 22 39 136 124 109
Postage expense 32 30 116 102 95
Other expense 279 264 1,110 901 839
------- -------- ------- -------- -------
Total other expense 1,189 1,126 4,662 4,474 4,373
------- -------- ------- -------- -------
Income before income taxes 417 436 1,905 1,903 1,703
Income taxes 138 142 628 628 552
------- -------- ------- -------- -------
Net income $ 279 $ 294 $ 1,277 $ 1,275 $ 1,151
======= ======== ======= ======== =======
Net income per share $ .40 $ .43 $ 1.85 $ 1.85 $ 1.53
======= ======== ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PEMI BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain
(Loss) On
Common Paid-in Retained Treasury Available-For-
Stock Capital Earnings Stock Sale Securities Total
------ ------- -------- -------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 752 $ 2,384 $ 7,106 $ -- $ 1 $ 10,243
Net income 1,151 1,151
Net change in unrealized holding
gain on available-for-sale
securities (75) (75)
Dividends declared ($.40 per share) (301) (301)
Treasury stock purchased (298) (298)
------ ------- --------- -------- ------- --------
Balance, December 31, 1994 752 2,384 7,956 (298) (74) 10,720
Net income 1,275 1,275
Net change in unrealized holding
loss on available-for-sale
securities 61 61
Dividends declared ($.50
per share) (345) (345)
Treasury stock purchased (317) (317)
------ --------- --------- -------- ------- --------
Balance, December 31, 1995 752 2,384 8,886 (615) (13) 11,394
Net income 1,277 1,277
Net change in unrealized holding
loss on available-for-sale
securities (8) (8)
Dividends declared ($.65 per
share) (449) (449)
------ --------- -------- -------- -------- --------
Balance, December 31, 1996 752 2,384 9,714 (615) (21) 12,214
Net income 279 279
Net change in unrealized holding
loss on available-for-sale
securities (92) (92)
------ --------- --------- --------- -------- --------
Balance, March 31, 1997
(unaudited) $ 752 $ 2,384 $ 9,993 $ (615) $ (113) $ 12,401
======= ========= ========= ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Three Months Ended Years Ended
March 31, December 31,
------------------------------- -----------------------------
1997 1996 1996 1995 1994
------------ ------------ -------- -------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279 $ 294 $ 1,277 $ 1,275 $ 1,151
Adjustments to reconcile net income to net cash
provided by operating activities:
Donation of other real estate owned -- -- -- 5 --
Securities gains, net -- -- -- -- (22)
Amortization, net of accretion of securities 26 32 135 111 195
Depreciation and amortization 101 83 354 317 284
Provision for possible loan losses 30 36 152 112 120
Deferred tax expense (benefit) (9) 18 100 109 153
Increase (decrease) in taxes payable 110 76 (11) (160) 170
(Increase) decrease in interest receivable 67 (71) (8) (98) (17)
Increase (decrease) in interest payable 30 176 281 472 (59)
Increase (decrease) in accrued expenses 24 47 41 (80) (95)
(Increase) decrease in prepaid expenses (64) (13) (72) (68) 7
Increase (decrease) in other liabilities (28) (25) 24 4 --
Amortization of core deposit intangible 4 -- 13 -- --
(Increase) decrease in other assets (41) 1 -- -- 64
Change in unearned income (13) (39) (148) (34) (12)
Gain on sales of other real estate owned, net -- -- (19) (7) (33)
Writedown of other real estate owned 5 -- 25 80 48
-------- -------- ------- ------- -------
Net cash provided by operating activities 521 615 2,144 2,038 1,954
-------- -------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sales of other real estate owned -- -- 134 79 207
Purchases of Federal Home Loan Bank stock -- -- -- (143) (47)
Purchases of available-for-sale securities -- (6,183) (12,514) (5,422) (97)
Proceeds from maturities of available-for-sale securities 912 181 2,121 258 882
Purchases of held-to-maturity securities -- -- -- (1,591) (2,761)
Proceeds from maturities of held-to-maturity securities 352 350 2,926 2,631 6,237
Net (increase) decrease in loans (866) (718) (7,175) 3,716 (2,722)
Capital expenditures (221) (45) (628) (248) (300)
Recoveries of previously charged-off loans 36 6 35 55 165
-------- -------- ------- ------- -------
Net cash provided by (used in) investing activities 213 (6,409) (15,101) (665) 1,564
-------- -------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Cash received from acquisition of branch -- -- 6,355 -- --
Purchases of treasury stock -- -- -- (317) (298)
Repayment of advances from FHLB (2,212) (4,501) (37,392) (25,589) (19,052)
Advances from FHLB 3,400 6,501 38,603 24,089 18,193
Net increase in other borrowed funds -- 200 -- -- --
Net increase (decrease) in demand deposits, NOW and
savings accounts (1,846) (3,092) 924 (3,135) 330
Net increase (decrease) in time deposits (237) 1,714 1,587 7,785 (2,334)
Dividends paid (345) (255) (359) (330) (211)
-------- ------- ------- ------- -------
Net cash provided by (used in) financing activities (1,240) 567 9,718 2,503 (3,372)
-------- ------- ------- ------ --------
Net increase (decrease) in cash and cash equivalents (506) (5,227) (3,239) 3,876 146
Cash and cash equivalents at beginning of period 4,980 8,219 8,219 4,343 4,197
-------- ------- -------- ------- -------
Cash and cash equivalents at end of period $ 4,474 $ 2,992 $ 4,980 $ 8,219 $ 4,343
======== ======= ======== ======= =======
Supplemental disclosures:
Loans transferred to other real estate owned $ 60 $ 195 $ 195 $ 8 $ 190
Loans originating from sales of other real estate owned -- -- 63 14 265
Held-to-maturity securities transferred to available-for-sale
securities -- -- -- 1,389 469
Interest paid 1,022 976 3,872 3,221 3,111
Income taxes paid 37 48 539 679 229
Assets acquired and liabilities assumed from another financial institution:
Cash received $ -- $ -- $ 6,355 $ -- $ --
Overdraft protection loans __ __ 4 -- --
Premises and equipment __ __ 225 -- --
Core deposit intangible __ __ 175 -- --
Deposits __ __ 6,758 -- --
Miscellaneous liabilities __ __ 1 -- --
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 1 NATURE OF OPERATIONS
Pemi Bancorp, Inc. ("PEMI") is a New Hampshire corporation that was
organized in 1985 to become the holding company of The Pemigewasset National
Bank ("PNB"). PEMI's primary activity is to act as the holding company for PNB.
PNB is a federally chartered bank which was incorporated in 1881 and is
headquartered in Plymouth, New Hampshire. PNB operates its business from five
banking offices located in New Hampshire. PNB is engaged principally in the
business of attracting deposits from the general public and investing those
deposits in residential and real estate loans, and in consumer and small
business loans.
NOTE 2 ACCOUNTING POLICIES
The accounting and reporting policies of PEMI and its subsidiary
conform to generally accepted accounting principles and predominant practices
within the banking industry. The consolidated financial statements of PEMI were
prepared using the accrual basis of accounting. The significant accounting
policies of PEMI and its subsidiary are summarized below to assist the reader in
better understanding the financial statements and other data contained herein.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
Basis of Presentation
The consolidated financial statements include the accounts of PEMI and
its wholly-owned subsidiary, PNB. All significant intercompany accounts and
transactions have been eliminated in the consolidation. The information at March
31, 1997 and for the three months ended March 31, 1997 and 1996 is unaudited,
but in the opinion of management of PEMI, reflects all adjustments (which are
comprised of only normal recurring accruals) necessary for a fair presentation
of the financial position and results of operations at the dates and for the
periods then ended.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, cash items, Federal Home Loan Bank overnight deposits, demand
deposits due from banks and federal funds sold.
Securities
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts computed on the straight-line method which
has substantially the same effect as using the interest method. Gains or losses
on sales of investment securities are computed on a specific identification
basis.
PEMI classifies debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This security
classification may be modified after acquisition only under certain specified
conditions. In general, securities may be classified as held-to-maturity only if
PEMI has the positive intent and ability to hold them to maturity. Trading
securities are defined as those bought and held principally for the purpose of
selling them in the near term. All other securities must be classified as
available-for-sale.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
-- Held-to-maturity securities are measured at amortized cost in the
balance sheet. Unrealized holding gains and losses are not
included in earnings or in a separate component of capital. They
are merely disclosed in the notes to the consolidated financial
statements.
-- Available-for-sale securities are carried at fair value on the
balance sheet. Unrealized holding gains and losses are not
included in earnings, but are reported as a net amount (less
expected tax) in a separate component of capital until realized.
-- Trading securities are carried at fair value on the balance sheet.
Unrealized holding gains and losses for trading securities are
included in earnings.
Loans
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 amounts due to borrowers on unadvanced
loans, any charge-offs, the allowance for possible loan losses and net deferred
fees or costs on originated loans, or unamortized premiums or discounts on
purchased loans.
Interest on loans is generally recognized on a simple interest basis.
Loan origination and commitment fees and certain direct origination
costs are deferred, and the net amount amortized as an adjustment of the related
loan's yield. PEMI is generally amortizing these amounts over the contractual
life of the related loans.
Cash receipts of interest income on impaired loans is credited to
principal to the extent necessary to eliminate doubt as to the collectibility of
the net carrying amount of the loan. Some or all of the cash receipts of
interest income on impaired loans is recognized as interest income if the
remaining net carrying amount of the loan is deemed to be fully collectible.
When recognition of interest income on an impaired loan on a cash basis is
appropriate, the amount of income that is recognized is limited to that which
would have been accrued on the net carrying amount of the loan at the
contractual interest rate. Any cash interest payments received in excess of the
limit and not applied to reduce the net carrying amount of the loan are recorded
as recoveries of charge-offs until the charge-offs are fully recovered.
Allowance For Possible Loan Losses
An allowance is available for possible losses which may be incurred in
the future on loans in the current portfolio. The allowance is increased by
provisions charged to current operations and is decreased by loan losses, net of
recoveries. The provision for possible loan losses is based on management's
evaluation of current and anticipated economic conditions, changes in the
character and size of the loan portfolio, and other indicators. The balance in
the allowance for possible loan losses is considered adequate by management to
absorb any reasonably foreseeable loan losses.
As of January 1, 1995, PEMI 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. PEMI considers its residential real estate loans and
consumer loans that are not individually significant to be large groups of
smaller balance homogeneous loans.
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. PEMI applies SFAS No. 114 on a loan-by-loan basis.
PEMI 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. PEMI may
place a loan on nonaccrual status but not classify it as impaired, if (i) it is
probable that PEMI 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.
Substantially all of PEMI's loans that have been identified as impaired have
been measured by the fair value of existing collateral.
The financial statement impact of adopting the provisions of this
Statement was not material.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Cost and related allowances for depreciation
and amortization of premises and equipment retired or otherwise disposed of are
removed from the respective accounts with any gain or loss included in income
or expense. Depreciation and amortization are calculated principally on the
straight-line method over the estimated useful lives of the assets.
Other Real Estate Owned and In-substance Foreclosures
Other real estate owned includes properties acquired through
foreclosure and properties classified as in-substance foreclosures in accordance
with Financial Accounting Standards Board Statement No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring." These properties are
carried at the lower of cost or estimated fair value less costs to sell. Any
writedown from cost to estimated fair value required at the time of foreclosure
or classification as in-substance foreclosure is charged to the allowance for
possible loan losses. Expenses incurred in connection with maintaining these
assets, subsequent writedowns and gains or losses recognized upon sale are
included in other expense.
Beginning in 1995, in accordance with Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan," PEMI
classifies loans as in-substance repossessed or foreclosed if PEMI receives
physical possession of the debtor's assets regardless of whether formal
foreclosure proceedings take place.
Income Taxes
PEMI recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of PEMI's
assets and liabilities at enacted tax rates expected to be in effect when the
amounts related to such temporary differences are realized or settled.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that PEMI disclose estimated fair
value for its financial instruments. Fair value methods and assumptions used by
PEMI 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.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 3 SECURITIES
Debt securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and their
approximate fair values are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
March 31, 1997:
Debt securities issued by the U.S. Treasury and
other U.S. government corporations
and agencies $ 1,989 $ 6 $ 24 $ 1,971
Debt securities issued by states of the United
States and political subdivisions of the states 3,217 25 41 3,201
Mortgage-backed securities 12,368 27 178 12,217
-------- --------- -------- ---------
$ 17,574 $ 58 $ 243 $ 17,389
======== ========= ======== =========
December 31, 1996:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 2,489 $ 17 $ 16 $ 2,490
Debt securities issued by states of the United
States and political subdivisions of the states 3,219 45 5 3,259
Mortgage-backed securities 12,784 44 120 12,708
-------- --------- -------- ---------
$ 18,492 $ 106 $ 141 $ 18,457
======== ========= ======== =========
December 31, 1995:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 1,009 $ 3 $ -- $ 1,012
Debt securities issued by states of the United
States and political subdivisions of the states 2,032 34 11 2,055
Mortgage-backed securities 5,094 11 59 5,046
-------- --------- -------- ---------
$ 8,135 $ 48 $ 70 $ 8,113
======== ========= ======== =========
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
(Unaudited)
Held-to-maturity securities:
March 31, 1997:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 500 $ 1 $ -- $ 501
Debt securities issued by states of the United
States and political subdivisions of the states 1,529 23 -- 1,552
Mortgage-backed securities 9,575 12 182 9,405
--------- --------- --------- ---------
$ 11,604 $ 36 $ 182 $ 11,458
========= ========= ========= =========
December 31, 1996:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 501 $ 2 $ -- $ 503
Debt securities issued by states of the United
States and political subdivisions of the states 1,531 35 -- 1,566
Mortgage-backed securities 9,943 19 152 9,810
-------- ---------- --------- ---------
$ 11,975 $ 56 $ 152 $ 11,879
======== ========= ========= =========
December 31, 1995:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 1,302 $ 7 $ 3 $ 1,306
Debt securities issued by states of the United
States and political subdivisions of the states 1,717 53 -- 1,770
Mortgage-backed securities 11,981 31 162 11,850
-------- --------- --------- ---------
$ 15,000 $ 91 $ 165 $ 14,926
======== ========= ========= =========
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
The scheduled maturities of held-to-maturity securities and
available-for-sale securities were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------------
Held-to-maturity Available-for-sale
securities securities
-------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Basis Value Cost Basis Value
---------- ------ ---------- -----
<S> <C> <C> <C> <C>
Debt securities other than mortgage-backed securities:
Due within one year $ 661 $ 664 $ -- $ --
Due after one year through five years 1,368 1,389 2,322 2,311
Due after five years through ten years -- -- 672 673
Due after ten years -- -- 2,212 2,188
Mortgage-backed securities 9,575 9,405 12,368 12,217
----------- ---------- ---------- ----------
$ 11,604 $ 11,458 $ 17,574 $ 17,389
=========== ========== =========== ==========
December 31, 1996
-----------------------------------------------------------
Held-to-maturity Available-for-sale
securities securities
-------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Basis Value Cost Basis Value
---------- ------ ---------- -----
Debt securities other than mortgage-backed securities:
Due within one year $ 661 $ 666 $ 501 $ 502
Due after one year through five years 1,371 1,403 2,160 2,169
Due after five years through ten years -- -- 834 844
Due after ten years -- -- 2,213 2,234
Mortgage-backed securities 9,943 9,810 12,784 12,708
----------- ---------- ---------- ----------
$ 11,975 $ 11,879 $ 18,492 $ 18,457
=========== ========== ========== ==========
</TABLE>
There were no sales of available-for-sale or held-to-maturity securities
for the three months ended March 31, 1997, or for the years ended December 31,
1996, 1995 and 1994.
In 1995, PNB transferred at fair value certain debt securities from
securities classified as held-to-maturity to securities classified as
available-for-sale. The unrealized holding loss of $17,000 ($27,000 less tax
effect of $10,000) at the date of transfer has been recognized as a separate
component of stockholders' equity. The transfer was a result of a reassessment
of the appropriateness of the classification of all securities held at December
31, 1995. In accordance with a Special Report of the Financial Accounting
Standards Board regarding SFAS No. 115 this transfer will not call into question
the intent of PNB to hold other debt securities to maturity in the future.
During 1994, the amortized cost of a security held-to-maturity that was
transferred to available-for-sale at fair value amounted to $469,000, and the
related unrealized loss amounted to $69,000. Such security was transferred as a
result of PEMI's understanding that there was a significant deterioration in the
issuer's creditworthiness.
There were no securities of issuers whose aggregate carrying amount
exceeded 10% of stockholders' equity as of March 31, 1997 and December 31, 1996.
A total par value of $1,532,000, $1,545,000, and $1,144,000 of debt
securities was pledged to secure treasury tax and loan deposits and public funds
on deposit as of March 31, 1997, December 31, 1996 and 1995, respectively.
NOTE 4 LOANS
Loans consisted of the following as of the indicated dates (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------
March 31, 1997 1996 1995
-------------- ---------------- -------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 14,003 $ 13,750 $ 12,363
Real estate - construction and land development 647 882 363
Real estate - residential 53,646 53,243 50,127
Real estate - commercial 12,251 12,209 11,705
Consumer 7,353 7,441 6,081
Obligations of states and political subdivisions 1,286 931 1,054
Other 47 60 16
-------- -------- --------
89,233 88,516 81,709
Allowance for possible loan losses (1,283) (1,306) (1,360)
Unearned income (101) (114) (262)
-------- -------- --------
Net loans $ 87,849 $ 87,096 $ 80,087
======== ======== ========
</TABLE>
Certain directors and executive officers of PEMI and companies in which
they have significant ownership interest are customers of PNB. Total loans to
such persons and their companies amounted to $395,000 as of March 31, 1997.
During the three months ended March 31, 1997, advances totaled $80,000 and
repayments totaled $45,000. Total loans to such persons and their companies
amounted to $360,000 as of December 31, 1996. During the year ended December 31,
1996, advances totaled $68,000 and repayments totaled $143,000.
Changes in the allowance for possible loan losses were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
------------------------------- -------------------------------------------
1997 1996 1996 1995 1994
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 1,306 $ 1,360 $ 1,360 $ 1,567 $ 1,730
Loans charged off (89) (22) (241) (374) (448)
Provision for possible loan losses 30 36 152 112 120
Recoveries of loans previously
charged off 36 6 35 55 165
---------- -------- -------- -------- -------
Balance at end of period $ 1,283 $ 1,380 $ 1,306 $ 1,360 $ 1,567
========== ======== ======== ======== =======
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
Information about loans that meet the definition of an impaired loan in
Statement of Financial Accounting Standards No. 114 is as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------------------
1997 1996 1995
------------------------ ----------------------- -----------------------
Recorded Related Recorded Related Recorded Related
Investment Allowance Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses Loans Losses
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loans for which there is a related allowance
for possible loan losses $ 878 $ 111 $ 97 $ 9 $ 211 $ 23
Loans for which there is no related
allowance for possible loan losses -- -- -- -- 413 --
-------- ------- -------- -------- ------- -------
Totals $ 878 $ 111 $ 97 $ 9 $ 624 $ 23
======= ====== ====== ====== ======= =======
Average recorded investment in impaired
loans during the period $ 463 $ 132 $ 729
======= ====== =======
Related amount of interest income
recognized during the time, in the
period that the loans were impaired
Total recognized $ -- $ 25 $ --
======= ====== =======
Amount recognized using a
cash-basis method of accounting $ -- $ 25 $ --
======= ====== =======
</TABLE>
As of March 31, 1997 and December 31, 1996, loans restructured in a
troubled debt restructuring before January 1, 1995, the effective date of SFAS
No. 114, that are not impaired based on the terms specified by the restructuring
agreement totaled $260,000 and $261,000, respectively. The gross interest income
that would have been recorded in the three months ended March 31, 1997 and the
year ended December 31, 1996, if such restructured loans had been current in
accordance with their original terms, was $6,000 and $27,000, respectively. The
amount of interest income on such restructured loans that was included in net
income for the three months ended March 31, 1997 and the year ended December 31,
1996 was $5,000 and $23,000, respectively.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 5 PREMISES AND EQUIPMENT
The following is a summary of premises and equipment (in thousands):
As of December 31,
March 31, ---------------------------
1997 1996 1995
-------- ------- -------
Land $ 449 $ 449 $ 409
Buildings 3,229 3,229 3,061
Furniture and equipment 2,858 2,637 1,993
--------- --------- ---------
6,536 6,315 5,463
Accumulated depreciation and
amortization (2,437) (2,336) (1,982)
--------- --------- ---------
$ 4,099 $ 3,979 $ 3,481
========= ========= =========
NOTE 6 DEPOSITS
The aggregate amount of time deposit accounts (including CDs), each with
a minimum denomination of $100,000, was approximately $5,449,000, $5,392,000 and
$4,890,000 as of March 31, 1997, December 31, 1996 and 1995, respectively.
For time deposits as of March 31, 1997 and December 31, 1996, the
aggregate amount of maturities are as follows (in thousands):
March 31, December 31,
1997 1996
---------- ------------
1997 $ 24,949 $ 31,163
1998 18,256 12,867
1999 1,492 1,398
2000 691 424
2001 393 176
After 2001 10 --
---------- ---------
$ 45,791 $ 46,028
========== =========
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 7 ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances consist of funds borrowed from the Federal Home Loan Bank of
Boston (FHLB). The components of these borrowings are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------------------------- --------------------------
Weighted Weighted
Average Average
Rate to Rate to
Maturity Date Balance Maturity Balance Maturity
------------- --------------- ------------ --------------- ----------
1997 $ 4,597 6.03% $ 4,909 5.92%
1998 5,212 6.07 3,712 6.12
1999 82 7.33 82 7.43
--------- --------
Total $ 9,891 6.10% $ 8,703 6.02%
========= ========
Advances are secured by PEMI's stock in that institution, its
residential real estate mortgage portfolio and the remaining U.S. government and
agencies obligations not otherwise pledged.
Information about short-term advances included above is as follows:
December 31,
Three months ended ------------------------------
March 31, 1997 1996 1995
-------------- ---------------- ---------
<S> <C> <C> <C>
Outstanding at end of period $ 4,400 $ 4,711 $ 7,000
Approximate maximum outstanding at any month end 4,400 5,900 8,500
Average amounts outstanding during the period 3,787 7,474 7,152
Weighted average interest rate during the period 6.11% 5.82% 6.27%
Weighted average interest rate at end of period 6.08 6.21 6.09
</TABLE>
NOTE 8 ACQUISITION OF BRANCH
On April 22, 1996, PEMI purchased certain assets and assumed deposits
from First New Hampshire Bank's branch office in Campton, New Hampshire. On that
day, PEMI recorded the following entries to record this transaction
(in thousands).
Assets and Liabilities Amount
---------------------- ------------------------
Loans $ 4
Premises and equipment 225
Core deposit intangible 175
Cash 6,355
Other liabilities $ 1
Deposits 6,758
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
The transaction was accounted for using the purchase method of
accounting. The results of operations of the acquired branch office are included
in the 1996 income statement of PEMI from the date of the transaction to
December 31, 1996.
The core deposit intangible is being amortized over 10 years.
Amortization expense amounted to $4,000 for the three months ended March 31,
1997, and $13,000 for the year ended December 31, 1996.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 9 INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
----------------------- ----------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 117 $ 112 $ 438 $ 431 $ 349
State 24 22 90 88 50
----- ----- ------- ------ -------
141 134 528 519 399
----- ----- ------- ------ -------
Deferred:
Federal (3) 6 83 90 124
State -- 2 17 19 29
----- ------ ------- ------ -------
(3) 8 100 109 153
----- ------ ------- ------ -------
Total income tax expense $ 138 $ 142 $ 628 $ 628 $ 552
===== ====== ======= ====== =======
The reasons for the differences between the statutory federal income
tax rates and the effective tax rates are summarized as follows (in thousands):
Three Months Ended
March 31, Years Ended December 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
% of % of % of % of % of
Income Income Income Income Income
------ ------ ------ ------ ------
Federal income tax at statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (6.4) (6.3) (6.2) (5.1) (5.7)
Unallowable expenses 1.2 1.2 .8 .6 .6
Other, net -- -- 1.3 .5 .5
State tax, net of federal tax benefit 3.8 3.7 3.1 3.0 3.0
---- ---- ---- ---- ----
32.6% 32.6% 33.0% 33.0% 32.4%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
PEMI had gross deferred tax assets and gross deferred tax liabilities
as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
March 31, -----------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $355 $360 $379
Loan origination fees 73 77 96
Nonaccrual loans 25 26 30
Other real estate owned valuation 11 14 8
Net unrealized holding loss on available-for-sale
securities 14 14 8
Other, net 3 14 6
---- ---- ---
Gross deferred tax assets 481 491 527
---- ---- ---
Deferred tax liabilities:
Other, net -- (5) --
Depreciation (136) (137) (116)
Pension (40) (41) (16)
---- ---- ----
Gross deferred tax liabilities (176) (183) (132)
---- ---- ----
Net deferred tax assets $305 $308 $395
==== ==== ====
</TABLE>
Deferred tax assets as of March 31, 1997 and December 31, 1996 and 1995
have not been reduced by a valuation allowance because management believes that
it is more likely than not that the full amount of deferred tax assets will be
realized.
As of March 31, 1997 and December 31, 1996, PEMI had no operating loss
and tax credit carryovers for tax purposes.
NOTE 10 CONTINGENCY
As of December 31, 1996, PNB intends to file with the Internal Revenue
Service an application to resolve certain problems concerning the eligibility of
its defined benefit pension and 401K plans. Bank management and counsel estimate
that the sanction that would be imposed by the IRS is between $25,000 and
$200,000. The minimum contingent liability of $25,000 has not been accrued due
to immateriality.
NOTE 11 EMPLOYEE BENEFITS
PEMI has a qualified defined benefit pension plan covering
substantially all of its employees who meet certain eligibility requirements.
The benefit provision of the plan is 50% of monthly compensation reduced by 1/20
for each year of service less than 20 years.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
The following table sets forth the funded status of the plan and
amounts recognized in PEMI's balance sheet as of December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested benefits of
$1,304,000 and $1,092,000, respectively) $ 1,331 $ 1,108
========= =========
Projected benefit obligation for services rendered to date $ (1,578) $ (1,395)
Plan assets at fair value, primarily invested in individual
life insurance policies and investments 1,622 1,525
--------- ---------
Plan assets greater than projected benefit obligation 44 130
Unrecognized net transition asset (29) (33)
Unrecognized net loss (gain) 89 (55)
--------- ---------
Prepaid pension cost included in other assets on the balance sheets $ 104 $ 42
========= ========
</TABLE>
Net periodic pension cost included the following components (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 94 $ 81 $ 73
Interest cost on projected benefit obligation 104 82 92
Actual (return) loss on plan assets (149) (254) 35
Net amortization and deferral 25 163 (123)
------ ------- ------
Net periodic pension cost $ 74 $ 72 $ 77
====== ======= ======
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.0% and 4.0%. The expected long-term rate of
return on assets was 8.0%.
PNB has a 401(k) plan. To be eligible, employees must have attained age
twenty-one, completed six months of service and be credited with 1,000 hours of
service. PNB matches 25% of employee contributions on the first 4% of
compensation deposited as elective contributions. The 401(k) matching expense
was $6,000, $14,000, $16,000, and $13,000 for the three months ended March 31,
1997 and for the years ended December 31, 1996, 1995, and 1994, respectively.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED) (INFORMATION WITH RESPECT TO MARCH 31, 1997
AND 1996 IS UNAUDITED)
NOTE 12 FINANCIAL INSTRUMENTS
PEMI 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, standby
letters of credit and unadvanced funds on 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 PEMI has in particular classes of financial instruments.
PEMI's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amounts of those instruments. PEMI
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. PEMI evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by PEMI 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.
Standby letters of credit are conditional commitments issued by PEMI to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Of the total standby letters of
credit outstanding as of March 31, 1997 and December 31, 1996, $33,000 are
secured by deposit accounts held by PNB.
The provisions of Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments," as amended by SFAS No.
119, became effective for PEMI as of December 31, 1995.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED) (INFORMATION WITH RESPECT TO MARCH 31, 1997
AND 1996 IS UNAUDITED)
The disclosures are the estimated fair values of PEMI's financial
instruments, all of which are held or issued for purposes other than trading,
which are as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
1997 December 31,
------------------- ---------------------------------------
1996 1995
------------------ ------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,474 $ 4,474 $ 4,980 $ 4,980 $ 8,219 $ 8,219
Available-for-sale securities 17,389 17,389 18,457 18,457 8,113 8,113
Held-to-maturity securities 11,604 11,458 11,975 11,879 15,000 14,926
Federal Reserve Bank stock 80 80 80 80 80 80
Federal Home Loan Bank stock 740 740 740 740 740 740
Loans 87,849 87,526 87,096 86,753 80,087 80,678
Accrued interest receivable 828 828 863 863 855 855
Financial liabilities:
Deposits 103,602 103,785 105,685 105,984 96,416 96,672
Advances from FHLB 9,891 9,866 8,703 8,717 7,492 7,504
</TABLE>
The carrying amounts of financial instruments shown in the above table
are included in the consolidated balance sheets under the indicated captions.
Accounting policies related to financial instruments are described in Note 2.
Notional amounts of financial instrument liabilities with off-balance
sheet credit risk are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31,
-------------- ---------------
1996 1995
------ ------
<S> <C> <C> <C>
Commitments to originate loans $2,237 $1,768 $1,152
Standby letters of credit 209 211 142
Unadvanced portions of commercial real estate loans 152 45 47
Unadvanced portions of home equity loans 1,129 1,020 406
Unadvanced portions of commercial lines of credit 5,760 3,072 5,772
------ ------ ------
$9,487 $6,116 $7,519
====== ====== ======
</TABLE>
There is no material difference between the notional amounts and the
estimated fair values of the off-balance sheet liabilities.
PEMI has no derivative financial instruments subject to the provisions
of SFAS No. 119 "Disclosure About Derivative Financial Instrumentsand Fair Value
of Financial Instruments."
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED) (INFORMATION WITH RESPECT TO MARCH 31, 1997
AND 1996 IS UNAUDITED)
NOTE 13 SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of PEMI's business activity is with customers located within the
state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of PEMI's loan portfolio is comprised of
loans collateralized by real estate located in the state of New Hampshire.
NOTE 14 EARNINGS PER SHARE
Earnings per share for the three months ended March 31, 1997 and 1996,
and for the years ended December 31, 1996, 1995, and 1994 were calculated using
the weighted average number of shares outstanding during those periods. For the
three months ended March 31, 1997 and 1996, the weighted average number of
shares outstanding were 690,401. For the years ended December 31, 1996, 1995,
and 1994, the weighted average number of shares outstanding were 690,401,
691,188, and 751,020, respectively.
NOTE 15 REGULATORY MATTERS
PNB, as a National Bank is subject to the dividend restrictions set
forth by the Comptroller of the Currency. Under such restrictions, PNB may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The dividends that PNB
could declare, without the approval of the Comptroller of the Currency, amounted
to approximately $1,841,000 and $2,407,000 as of March 31, 1997 and December 31,
1996, respectively.
PEMI and its subsidiary PNB are 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 PEMI's and PNB's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
PEMI and PNB must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Their 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 PEMI and PNB 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 March 31, 1997 and
December 31, 1996, that PEMI and PNB meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from the Office
of the Comptroller of the Currency categorized PNB as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized PNB 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 PNB's
category.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
PEMI's and PNB's actual capital amounts and ratios are also presented
in the table (dollars in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------ ----------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------ -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated $ 13,304 17.61% $ 6,043 (+-)8% N/A
Pemigewasset National Bank 13,260 17.56 6,042 (+-)8 7,552 (+-)10%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 12,356 16.29 3,035 (+-)4 N/A
Pemigewasset National Bank 12,312 16.23 3,034 (+-)4 4,552 (+-)6
Tier 1 Capital (to Average Assets):
Consolidated 12,356 9.59 5,153 (+-)4 N/A
Pemigewasset National Bank 12,312 9.57 5,145 (+-)4 6,431 (+-)5
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated 13,013 17.41 5,978 (+-)8 N/A
Pemigewasset National Bank 12,964 17.35 5,978 (+-)8 7,473 (+-)10
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 12,074 16.08 3,004 (+-)4 N/A
Pemigewasset National Bank 12,025 16.01 3,004 (+-)4 4,506 (+-)6
Tier 1 Capital (to Average Assets):
Consolidated 12,074 9.50 5,083 (+-)4 N/A
Pemigewasset National Bank 12,025 9.46 5,083 (+-)4 6,354 (+-)5
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated 12,274 17.82 5,509 (+-)8 N/A
Pemigewasset National Bank 12,225 17.75 5,509 (+-)8 6,886 (+-)10
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 11,407 16.45 2,774 (+-)4 N/A
Pemigewasset National Bank 11,358 16.38 2,774 (+-)4 4,161 (+-)6
Tier 1 Capital (to Average Assets):
Consolidated 11,407 9.91 4,606 (+-)4 N/A
Pemigewasset National Bank 11,358 9.86 4,606 (+-)4 5,758 (+-)5
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 16 RECLASSIFICATION
Certain amounts in the prior periods have been reclassified to be
consistent with the current period statement presentation.
NOTE 17 PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following financial statements are for Pemi Bancorp, Inc. (Parent
Company Only) and should be read in conjunction with the consolidated financial
statements of Pemi Bancorp, Inc.
and Subsidiary.
<TABLE>
PEMI BANCORP, INC.
(Parent Company Only)
Balance Sheets
(Dollars in thousands, except per share data)
<CAPTION>
March 31, December 31
-------- --------------------
Assets 1997 1996 1995
- ------ -------- -------- --------
<S> <C> <C> <C>
Cash $ 44 $ 394 $ 302
Investment in subsidiary, The Pemigewasset National Bank 12,357 12,165 11,345
Other assets -- -- 2
-------- -------- --------
$ 12,401 $ 12,559 $ 11,649
======== ======== ========
Liabilities and Stockholders' Equity
Other liabilities $ -- $ 345 $ 255
-------- -------- --------
Stockholders' equity:
Common stock, par value $1.00 per share;
authorized 2,000,000 shares; issued 751,901
shares; outstanding 690,401 shares 752 752 752
Paid-in capital 2,384 2,384 2,384
Retained earnings 9,993 9,714 8,886
Treasury stock, at cost (61,500 shares) (615) (615) (615)
Net unrealized holding loss on available-for-sale securities (113) (21) (13)
-------- -------- --------
Total stockholders' equity 12,401 12,214 11,394
-------- -------- --------
$ 12,401 $ 12,559 $ 11,649
======== ======== ========
</TABLE>
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
PEMI BANCORP, INC.
(Parent Company Only)
Statements of Income
(Dollars in thousands)
Three Months Ended
March 31, Years Ended December 31,
------------------- -------------------------
1997 1996 1996 1995 1994
----- ---- ------ ------ ------
Dividends from subsidiary $-- $-- $ 449 $ 547 $ 301
Management fee income
from subsidiary -- 3 36 21 37
----- ---- ------ ------ ------
-- 3 485 568 338
----- ---- ------ ------ ------
General and administrative
expense 5 3 37 21 37
----- ---- ------ ------ ------
Income (loss) before equity
in undistributed net income
of subsidiary (5) -- 448 547 301
Equity in undistributed
net income of subsidiary 284 294 829 728 850
----- ---- ------ ------ ------
Net income $ 279 $294 $1,277 $1,275 $1,151
===== ==== ====== ====== ======
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
PEMI BANCORP, INC.
(Parent Company Only)
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
----------------- ---------------------------------
1997 1996 1996 1995 1994
----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 279 $ 294 $ 1,277 $ 1,275 $ 1,151
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
(Increase) decrease in
accrued dividend receivable -- 2 3 238
(90)
Undistributed net income of
subsidiary (284) (294) (829) (728) (850)
----- ----- ------- ------- -------
Net cash provided by (used in)
operating activities (5) 2 451 785 211
----- ----- ------- ------- -------
Cash flows from financing activities:
Purchases of treasury stock -- -- -- (317)
(298)
Dividends paid (345) (255) (359) (330) (211)
----- ----- ------- ------- -------
Net cash used in financing
activities (345) (255) (359) (647) (509)
----- ----- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents (350) (253) 92 138 (298)
Cash and cash equivalents at
beginning of period 394 302 302 164 462
----- ----- ------- ------- -------
Cash and cash equivalents at
end of period $ 44 $ 49 $ 394 $ 302 $ 164
===== ===== ======= ======= =======
</TABLE>
The Parent Company Only Statements of Changes in Stockholders' Equity
are identical to the Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and for the years ended December 31,
1996, 1995 and 1994, and therefore are not reprinted here.
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND 1996 IS UNAUDITED)
NOTE 18 MERGER AGREEMENT
On March 14, 1997, PEMI and PNB entered into an Agreement and Plan of
Merger (the "Merger Agreement"), by and among PEMI, PNB, The Berlin City Bank
("BCB"), and Northway Financial, Inc. ("Northway"), a New Hampshire corporation
and a wholly owned subsidiary of BCB. Under the terms of the Merger Agreement,
(i) Northway will organize a new New Hampshire trust company, Berlin Interim
Trust Company ("BITC"), (ii) BITC will merge with and into BCB (the "BCB
Reorganization"), as a result of which BCB will become a wholly owned direct
subsidiary of Northway, and (iii) following the BCB Reorganization, PEMI will
merge with and into Northway, with Northway being the surviving corporation. As
a result of the foregoing transactions, Northway will be the bank holding
company for BCB and PNB, and each of BCB and PNB will be wholly owned direct
subsidiaries of Northway.
<PAGE>
Independent Auditors' Report
To the Board of Directors of
Northway Financial, Inc.
We have audited the accompanying balance sheet of Northway Financial,
Inc., as of May 9, 1997. This balance sheet is the responsibility of Northway
Financial, Inc.'s management. Our responsibility is to express an opinion of
this balance sheet based on our audit.
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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Northway Financial, Inc., as of
May 9, 1997, in conformity with generally accepted accounting principles.
Shatswell, MacLeod & Company, P.C.
West Peabody, Massachusetts
June 9, 1997
<PAGE>
NORTHWAY FINANCIAL, INC.
BALANCE SHEET
MAY 9, 1997
(IN THOUSANDS)
Assets
Cash .................................................................... $ 1
----
Total assets ...................................................... $ 1
====
Liabilities and Stockholders' Equity
Commitments and contingencies (Note 4)
Stockholders' equity (Note 3) ........................................... $ 1
----
Total liabilities and stockholders' equity .......................... $ 1
====
The accompanying notes are an integral part of this balance sheet.
<PAGE>
NORTHWAY FINANCIAL, INC.
NOTES TO BALANCE SHEET
NOTE 1 FORMATION OF NORTHWAY FINANCIAL, INC.
Northway Financial, Inc. ("Northway") is a newly formed company
organized on March 7, 1997, under the laws of the state of New Hampshire, for
the purpose of becoming the holding company of The Berlin City Bank ("BCB")
pursuant to a reorganization transaction (the "BCB Reorganization") by and among
Northway, BCB, and a subsidiary of BCB, and, thereafter, effecting the merger
(the "Merger") by and among Northway, The Berlin City Bank ("BCB"), Pemi
Bancorp, Inc. ("PEMI"), and its wholly owned subsidiary, Pemigewasset National
Bank ("PNB"). Other than matters relating to corporate organization and
capitalization, and other matters incidental to completion of the BCB
Reorganization and the Merger, Northway is not engaged, nor will it engage, in
any business activity prior to consummation of the BCB Reorganization and the
Merger. At the Effective Time of the Merger, Northway's business will be to own
all of the common stock of BCB and PNB.
BCB is a trust company chartered under the laws of the State of New
Hampshire. BCB has seven banking offices in New Hampshire through which it
provides a range of bank-related services.
PEMI is a national banking association organized under the laws of the
United States. PEMI's wholly-owned subsidiary, PNB, has five branches located in
New Hampshire through which it provides a range of bank-related services.
The Merger is to be effected in accordance with the terms and conditions
of the Agreement and Plan of Merger, dated as of March 14, 1997, by and among
BCB, Northway, PEMI, and PNB (the "Merger Agreement"). Under the terms of the
Merger Agreement (i) Northway will organize a New Hampshire trust company,
Berlin Interim Trust Company (BITC"), (ii) BCB will merge with and into BITC
while retaining the name "The Berlin City Bank" and, as a result of which, will
become a wholly owned subsidiary of Northway, and (iii) following the BCB
Reorganization, PEMI will merge with and into Northway, with Northway being the
surviving corporation ("the Merger"). As a result of the foregoing transactions,
Northway will be the bank holding company for BCB and PNB and each of BCB and
PNB will be wholly owned subsidiaries of Northway.
In connection with the BCB Reorganization and the Merger, respectively,
(i) each outstanding share of BCB common stock will be converted into 16 shares
of Northway common stock, subject to dissenter's rights, and (ii) each
outstanding share of PEMI common stock will be converted into 1.0419 shares of
Northway common stock, subject to dissenter's rights.
The accompanying Proxy Statement/Prospectus of Northway describes the
BCB Reorganization and the Merger and the various agreements and conditions
required to consummate the BCB Reorganization and the Merger. All capitalized
terms used herein and not otherwise defined are defined in the Registration
Statement.
<PAGE>
NORTHWAY FINANCIAL, INC.
NOTES TO BALANCE SHEET (CONTINUED)
NOTE 2 ACCOUNTING TREATMENT
Under generally accepted accounting principles, it is expected that the
Merger, including the interim steps involving the BCB Reorganization and the
merger of PEMI with and into Northway, will qualify as a "pooling of interests"
transaction for accounting and financial reporting purposes. Under the pooling
of interests method of accounting, the recorded amounts of the assets and
liabilities of Northway and PEMI will be carried forward at their previously
recorded historical amounts. Revenues and expenses will be retroactively
combined as if Northway and PEMI were combined for the entire periods in which
the Merger occurs and for all periods prior to the Merger at previously recorded
amounts.
NOTE 3 AUTHORIZED AND OUTSTANDING CAPITAL STOCK
At the Effective Time, the authorized capital stock of Northway will
consist of [__] shares of Northway Common Stock and [__] shares of Northway
Preferred Stock. There are currently outstanding 1,000 shares of Northway Common
Stock, all of which are owned by BCB. At the Effective Time of the BCB
Reorganization, BCB will transfer or surrender its interest in such shares of
Northway to Northway for cancellation. It is anticipated that, after giving
effect to the Merger, based on the number of shares of BCB Common Stock and PEMI
Common Stock outstanding on March 31, 1997, Northway will have 1,732,145 shares
of Northway Common Stock and no shares of Northway Preferred Stock issued and
outstanding.
NOTE 4 COMMITMENTS AND CONTINGENCIES
Pursuant to the terms of the Merger Agreement, at the Effective Time,
Northway will enter into employment agreements with William J. Woodward,
Chairman of the Board, President, and Chief Executive Officer of BCB, and
Fletcher W. Adams, President and Chief Executive Officer of PEMI. See "The
Merger and Related Transactions - Interests of Certain Persons in the Merger" in
the Registration Statement.
<PAGE>
APPENDIX A
===============================
AGREEMENT AND PLAN OF MERGER
By and Among
THE BERLIN CITY BANK,
NORTHWAY FINANCIAL, INC.,
PEMIGEWASSET NATIONAL BANK
and
PEMI BANCORP, INC.
Dated as of March 14, 1997
===============================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER..........................................................1
1.01 The Merger...............................................1
1.02 Plan of Merger...........................................1
1.03 Effective Time...........................................2
1.04 Effect of the Merger.....................................2
1.05 Conversion of Company Common Stock.......................2
1.06 Rights With Respect to Objecting Shares..................3
1.07 Articles of Incorporation................................4
1.08 By-Laws..................................................4
1.09 Directors and Officers of the Surviving Corporation......4
1.10 Articles; By-Laws; Directors; Officers of Purchaser......4
1.11 Articles; Bylaws; Directors; Officers of the Bank........5
1.12 Tax Consequences.........................................5
1.13 Voting Agreements........................................5
1.14 Trading Listing..........................................5
1.15 Additional Actions.......................................5
1.16 Possible Alternative Structure...........................6
ARTICLE II
EXCHANGE OF SHARES..................................................6
2.01 Parent to Make Shares Available..........................6
2.02 Exchange of Shares.......................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE BANK............................................................9
3.01 Corporate Organization...................................9
3.02 Capitalization..........................................10
3.03 Authority; No Violation.................................11
3.04 Consents and Approvals..................................12
3.05 Loan Portfolio; Reports.................................12
3.06 Financial Statements....................................14
3.07 Broker's Fees...........................................16
3.08 Absence of Certain Changes or Events....................16
3.09 Legal Proceedings.......................................17
3.10 Taxes and Tax Returns...................................18
3.11 Employee Benefit Plans..................................19
3.12 SEC Reports.............................................21
3.13 Company Information.....................................21
3.14 Compliance with Applicable Law..........................21
3.15 Certain Contracts.......................................22
3.16 Agreements with Regulatory Agencies.....................23
3.17 Investment Securities...................................23
3.18 Environmental Matters...................................23
3.19 Properties..............................................25
3.20 Administration of Fiduciary Accounts....................26
3.21 Insurance...............................................26
3.22 Transactions with Certain Persons.......................27
3.23 State Takeover Laws.....................................27
3.24 Disclosure..............................................27
3.25 Regulatory Approvals....................................27
3.26. Labor Matters...........................................28
3.27. Intellectual Property...................................28
3.28 Ownership of Purchaser Common Stock; Affiliates and
Associates..............................................28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER........................28
4.01 Corporate Organization..................................28
4.02 Capitalization..........................................29
4.03 Authority; No Violation.................................30
4.04 Consents and Approvals..................................31
4.05 Loan Portfolio; Reports.................................31
4.06 Financial Statements....................................33
4.07 Broker's Fees...........................................34
4.08 Absence of Certain Changes or Events....................34
4.09 Legal Proceedings.......................................35
4.10 FDIC Reports............................................35
4.11 Parent and Purchaser Information........................35
4.12 Compliance with Applicable Law..........................36
4.13 Agreements with Regulatory Agencies.....................36
4.14 Regulatory Approvals....................................36
4.15 Taxes and Tax Returns...................................36
4.16 Insurance...............................................38
4.17 Disclosure..............................................38
4.18 Employee Benefit Plans..................................38
4.19 Certain Contracts.......................................40
4.20 Investment Securities...................................41
4.21 Environmental Matters...................................41
4.22 Properties..............................................43
4.23 Administration of Fiduciary Accounts....................44
4.24 Transactions with Certain Persons.......................44
4.25 State Takeover Laws.....................................44
4.26. Labor Matters...........................................44
4.27. Intellectual Property...................................45
4.28 Ownership of the Company Common Stock; Affiliates
and Associates..........................................45
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS..........................45
5.01 Covenants of the Company and the Bank...................45
5.02 No Solicitation.........................................48
5.03 Covenants of Purchaser and Parent.......................49
5.04 Minimum Shareholders' Equity; Allowance for Loan
Losses..................................................51
ARTICLE VI
ADDITIONAL AGREEMENTS..............................................52
6.01 Regulatory Matters......................................52
6.02 Securities Laws Matters.................................53
6.03 Shareholder Meetings....................................53
6.04 Access to Information...................................54
6.05 Legal Conditions to Merger..............................55
6.06 Restrictions on Sale of Parent Common Stock.............55
6.07 Employee Matters........................................56
6.08 Subsequent Interim and Annual Financial Statements......56
6.09 Additional Agreements...................................56
6.10 Disclosure Supplements..................................56
6.11 Current Information.....................................56
6.12 Parent..................................................57
6.13 No Inconsistent Actions.................................57
ARTICLE VII
CONDITIONS PRECEDENT...............................................57
7.01 Conditions to Each Party's Obligation to Effect the
Merger..................................................57
(a) Shareholder Approval.............................57
(b) Regulatory Approvals.............................58
(c) Securities Laws Matters..........................58
(d) No Injunctions or Restraints; Illegality.........58
7.02 Conditions to Obligations of Purchaser and Parent.......58
(a) Representations and Warranties...................58
(b) Performance of Obligations of the Company and
the Bank.........................................59
(c) No Burdensome Condition..........................59
(d) Consents Under Agreements........................59
(e) Tax Opinion......................................59
(f) Accountant's Letter..............................59
(g) Legal Opinion....................................60
(h) Opinion of Financial Adviser.....................60
(i) Cash Consideration...............................60
7.03 Conditions to Obligations of the Company................60
(a) Representations and Warranties...................60
(b) Performance of Obligations of Purchaser and
Parent...........................................60
(c) No Burdensome Condition..........................60
(d) Tax Opinion......................................61
(e) Accountant's Letter..............................61
(f) Legal Opinion....................................61
(g) Opinion of Financial Advisor.....................61
ARTICLE VIII
TERMINATION AND AMENDMENT..........................................61
8.01 Termination.............................................61
8.02 Effect of Termination...................................63
8.03 Expenses; Termination Fee...............................63
8.04 Amendment...............................................64
8.05 Extension; Waiver.......................................65
ARTICLE IX
GENERAL PROVISIONS.................................................65
9.01 Closing.................................................65
9.02 Non-Survival of Representations, Warranties and
Agreements..............................................65
9.03 Notices.................................................65
9.04 Interpretation..........................................66
9.05 Counterparts............................................66
9.06 Entire Agreement........................................66
9.07 Governing Law...........................................67
9.08 Enforcement of Agreement................................67
9.09 Severability............................................67
9.10 Publicity...............................................67
9.11 Assignment..............................................67
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 14, 1997, by and among The
Berlin City Bank, a New Hampshire chartered commercial bank ("Purchaser"),
Northway Financial, Inc., a New Hampshire chartered corporation wholly owned by
Purchaser ("Parent"), Pemigewasset National Bank, a national bank with its
principal office in New Hampshire (the "Bank") and Pemi Bancorp, Inc., a New
Hampshire chartered corporation (the "Company").
WHEREAS, the Boards of Directors of Purchaser and Parent have determined
that it is in the best interests of their respective companies and their
shareholders for Purchaser to become a wholly owned subsidiary of Parent, in a
transaction (the "Holding Company Reorganization") in which the shareholders of
Purchaser will receive 16 shares of the common stock, par value $1.00 per share,
of Parent ("Parent Common Stock") for each share of the common stock, par value
$5.00 per share, of Purchaser ("Purchaser Common Stock") (the ratio of the
number of shares of Parent Common Stock received in exchange for each share of
Purchaser Common Stock shall be hereinafter referred to as the "Holding Company
Exchange Ratio").
WHEREAS, the Boards of Directors of Purchaser, Parent, the Company and the
Bank have determined that it is in the best interests of their respective
companies and their shareholders to consummate the business combination
transaction provided for herein in which the Company will, subject to the terms
and conditions set forth herein, merge with and into Parent (the "Merger")
immediately following the Holding Company Reorganization; and
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. Subject to the terms and conditions of this Agreement, in
accordance with the New Hampshire Revised Statutes Annotated, at the Effective
Time (as hereinafter defined), the Company shall merge with and into Parent.
Parent shall become the surviving corporation (hereinafter sometimes called the
"Surviving Corporation") in the Merger, and shall continue its corporate
existence under the laws of the State of New Hampshire. The name of the
Surviving Corporation shall be Northway Financial, Inc. Upon consummation of the
Merger, the separate corporate existence of the Company shall terminate.
1.02 PLAN OF MERGER. This Agreement shall constitute a plan of merger for
purposes of the New Hampshire Business Corporation Act.
1.03 EFFECTIVE TIME. As promptly as practicable after all of the conditions
set forth in Article VII shall have been satisfied or, if permissible, waived by
the party entitled to the benefit of the same, the Company and Parent shall duly
execute and file articles of merger (the "Articles of Merger") with the
Secretary of State of New Hampshire (the "Secretary") in accordance with Section
293-A:11.05 of the New Hampshire Revised Statutes Annotated (the "New Hampshire
Business Corporation Act"). The Merger shall become effective on the date (the
"Effective Date") and at such time (the "Effective Time") as the Articles of
Merger are filed with the Secretary or at such later date and time as is
specified in the Articles of Merger.
1.04 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided herein and as set forth in Section 293-A.11:06 of the New
Hampshire Business Corporation Act. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Parent shall vest in the
Surviving Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of the Company and Parent shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
1.05 CONVERSION OF COMPANY COMMON STOCK.
(a) At the Effective Time, subject to Section 2.02(c) hereof, each
share of the common stock, par value $1.00 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than (i) shares of Company Common Stock held in the
Company's treasury or directly or indirectly by Parent, Purchaser, the Company
or the Bank (except for Trust Account Shares and DPC Shares (as such terms are
defined in Section 1.05(b) hereof) and (ii) Objecting Shares (as such term is
defined in Section 1.06 hereof)) shall, by virtue of this Agreement and without
any action on the part of the holder thereof, be converted into and exchangeable
for 1.0419 shares of Parent Common Stock rounded to the nearest ten thousandth
of a share, it being understood that the foregoing Exchange Ratio is applicable
only after giving effect to the Holding Company Reorganization. All of the
shares of Company Common Stock converted into Parent Common Stock pursuant to
this Article I shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and each certificate (each a "Certificate")
previously representing any such shares of Company Common Stock shall thereafter
represent the right to receive (i) the number of whole shares of Parent Common
Stock and (ii) cash in lieu of fractional shares into which the shares of
Company Common Stock represented by such Certificate have been converted
pursuant to this Section 1.05(a) and Section 2.02(c) hereof (the "Merger
Consideration"). Certificates previously representing shares of Company Common
Stock shall be exchanged for certificates representing whole shares of Parent
Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section 2.02
hereof, without any interest thereon. If prior to the Effective Time Purchaser
or Parent should split or combine its common stock, or pay a special cash or
stock dividend or other distribution in such common stock other than the
exchange of stock contemplated to occur as a result of the Holding Company
Reorganization which is already reflected in the Exchange Ratio, then the
Exchange Ratio shall be appropriately adjusted to reflect such split,
combination, dividend or distribution.
(b) At the Effective Time, all shares of Company Common Stock that are
owned by the Company as treasury stock and all shares of Company Common Stock
that are owned directly or indirectly by Parent, Purchaser, the Company or the
Bank (other than (i) shares of Company Common Stock held directly or indirectly
in trust accounts, managed accounts and the like or otherwise held in a
fiduciary capacity that are beneficially owned by third parties (any such
shares, and shares of Parent Common Stock which are similarly held, whether held
directly or indirectly by Parent or the Company, as the case may be, being
referred to herein as "Trust Account Shares") and (ii) any shares of Company
Common Stock held by Parent, Purchaser, the Company or the Bank in respect of a
debt previously contracted (any such shares of Company Common Stock, and shares
of Parent Common Stock which are similarly held, whether held directly or
indirectly by Parent or the Company, being referred to herein as "DPC Shares"))
shall be canceled and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor. All shares of Parent
Common Stock that are owned by the Company or the Bank (other than Trust Account
Shares and DPC Shares) shall become treasury stock of Parent.
1.06 RIGHTS WITH RESPECT TO OBJECTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable law, shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective Time and that are
owned by shareholders who have properly exercised and perfected their rights of
appraisal within the meaning of Chapter 293-A:13 of the New Hampshire Business
Corporation Act (the "Objecting Shares"), shall not be converted into the right
to receive the Merger Consideration, unless and until such shareholders shall
have failed to perfect or shall have effectively withdrawn or lost their right
of appraisal and payment under applicable law. If any such shareholder shall
have failed to perfect or shall have effectively withdrawn or lost such right of
appraisal, each share of Company Common Stock held by such shareholder shall
thereupon be deemed to have been converted into the right to receive and become
exchangeable for, at the Effective Time, the Merger Consideration pursuant to
Section 1.05(a) hereof.
(b) The Company shall give Purchaser (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served in connection with such demands pursuant to the New
Hampshire Business Corporation Act and received by the Company and (ii) the
opportunity to participate with the Company in all negotiations and proceedings
with respect to demands for appraisal under the New Hampshire Business
Corporation Act consistent with the obligations of the Company thereunder. The
Company shall not, except with the prior written consent of Purchaser, (x) make
any payment with respect to any demands for appraisal, (y) offer to settle or
settle any such demands, or (z) waive any failure to timely deliver a written
demand for appraisal in accordance with the New Hampshire Business Corporation
Act.
1.07 ARTICLES OF INCORPORATION. Unless otherwise agreed to by the parties
prior to the Effective Time, at and after the Effective Time, the Articles of
Incorporation of the Surviving Corporation shall be in the form appended hereto
as Exhibit I, until thereafter amended as provided by law and such Articles of
Incorporation. The parties have agreed that the Articles of Incorporation of the
Surviving Corporation shall require any merger or consolidation involving the
Bank within three years after the Effective Time to be approved by a vote of
two-thirds of the directors of the Surviving Corporation and shall further
provide that this provision of the Articles of Incorporation cannot be amended
except by a vote of two-thirds of such directors. To effect the foregoing,
Purchaser agrees that immediately prior to the Effective Time, Purchaser will
file with the New Hampshire Secretary of State Amended and Restated Articles of
Incorporation of Parent to conform the Articles of Incorporation of Parent to
Exhibit I.
1.08 BY-LAWS. Unless otherwise agreed to by the parties prior to the
Effective Time, at and after the Effective Time, the By-Laws of the Surviving
Corporation shall be substantially in the form appended hereto as Exhibit II,
until thereafter amended as provided by law, the Articles of Incorporation of
the Surviving Corporation and such Bylaws.
1.09 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. As of the
Effective Time, the board of directors of the Surviving Corporation shall
consist of ten members, of whom four will be designated, after consultation with
the Purchaser and prior to the Effective Time, in writing by the Company and six
of whom will be designated, after consultation with the Company and prior to the
Effective Time, in writing by Purchaser. The Company shall designate in writing
prior to the Effective Time two of its Board designees to serve a one-year term,
one of its Board designees to serve a two-year term and one of its Board
designees to serve a three-year term on the surviving Corporation's board of
directors. Purchaser shall designate in writing prior to the Effective Time two
of its Board designees to serve a one-year term, two of its Board designees to
serve two-year terms and two of its Board designees to serve three-year terms on
the Surviving Corporation's board of directors. Each of the directors so
designated shall hold office in accordance with the Articles of Incorporation
and By-Laws of the Surviving Corporation until their respective successors are
duly elected or appointed and qualified. The Surviving Corporation shall enter
into employment agreements with William J. Woodward, who will serve as Chairman,
President and Chief Executive Officer of the Surviving Corporation, and Fletcher
W. Adams, who will serve as Vice Chairman of the Surviving Corporation, in the
forms attached as Exhibits III and IV, respectively. The board of directors of
the Surviving Corporation shall elect the other officers of the Surviving
Corporation.
1.10 ARTICLES; BY-LAWS; DIRECTORS; OFFICERS OF PURCHASER. The Articles of
Agreement and By-Laws of Purchaser shall continue as in effect immediately prior
to the Effective Time except to the extent amended to implement the provisions
of this Section 1.10. The directors and officers of Purchaser in office
immediately prior to the Effective Time shall continue to hold office in
accordance with the Articles of Agreement and By-Laws of the Purchaser until
their respective successors are duly elected or appointed and qualified. In
addition, the Bank may nominate two members of the Bank's Board of Directors to
join the Board of Directors of Purchaser, each for a one-year term, to hold
office in accordance with the Articles of Agreement and By-Laws of Purchaser,
until their respective successors are duly elected or appointed and qualified.
1.11 ARTICLES; BYLAWS; DIRECTORS; OFFICERS OF THE BANK. The Articles of
Association and By-laws of the Bank shall continue as in effect immediately
prior to the Effective Time, except to the extent amended to implement the
provisions of this Section 1.11. The directors and officers of the Bank in
office immediately prior to the Effective Time shall hold office in accordance
with the Articles of Association and By-laws of the Bank, until their respective
successors are duly elected or appointed and qualified. In addition, Purchaser
may nominate two members of Purchaser's Board of Directors to join the Board of
Directors of the Bank, each for a one-year term to hold office in accordance
with the Articles of Association and By-laws of the Bank, until their respective
successors are duly elected or appointed and qualified.
1.12 TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
1.13 VOTING AGREEMENTS. As of the date of this Agreement, each of the
Company and Purchaser shall have delivered Voting Agreements executed by each of
the Company's and Purchaser's directors in the form appended hereto as Exhibits
V and VI, respectively.
1.14 TRADING LISTING. Purchaser and Parent shall obtain a favorable trading
listing on the National Association of Securities Dealers Automated Quotation
National Market System ("NASDAQ/NMS") or the American Stock Exchange for the
Parent Common Stock at or before the Effective Time.
1.15 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in Surviving Corporation, title to
and possession of any property or right of the Company acquired or to be
acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry
out the purposes of this Agreement, the Company and its proper officers and
directors shall be deemed to have granted to Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
Surviving Corporation and otherwise to carry out the purposes of this Agreement;
and the proper officers and directors of Surviving Corporation are fully
authorized in the name of the Company or otherwise to take any and all such
action.
1.16 POSSIBLE ALTERNATIVE STRUCTURE. Notwithstanding any other provision of
this Agreement to the contrary, to the extent necessary or appropriate to assure
fulfillment of the intentions of the parties that Purchaser or an affiliate of
Purchaser acquire a 100% ownership interest in the Company and, indirectly, the
Bank and to minimize any adverse tax or accounting treatment, Purchaser, Parent,
the Company and the Bank may jointly elect, at or prior to the Effective Time,
to substitute an alternative structure in lieu of the structure described herein
to accomplish the aforementioned intentions of the parties.
ARTICLE II
EXCHANGE OF SHARES
2.01 PARENT TO MAKE SHARES AVAILABLE. At least one business day prior to
the Effective Time, Parent shall deposit, or shall cause to be deposited, with
The First National Bank of Boston or such other bank or trust company selected
by Parent and reasonably acceptable to the Company (the "Exchange Agent"), for
the benefit of the holders of Certificates, for exchange in accordance with this
Article II, certificates representing the shares of Parent Common Stock and the
cash in lieu of fractional shares (such cash and certificates for shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") to be issued
pursuant to Section 1.05 and paid pursuant to Section 2.02(a) in exchange for
outstanding shares of Company Common Stock.
2.02 EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, and in no event
later than three business days thereafter, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing the shares of Parent
Common Stock and the cash in lieu of fractional shares into which the shares of
Company Common Stock represented by such Certificate or Certificates shall have
been converted pursuant to this Agreement. The Company shall have the right to
review both the letter of transmittal and the instructions three days prior to
its mailing. Upon surrender of a Certificate for exchange and cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such Certificates shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of Parent Common
Stock to which such holder of Company Common Stock shall have become entitled
pursuant to the provisions of Article I hereof and (y) a check representing the
amount of cash in lieu of fractional shares, if any, which such holder has the
right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash in lieu
of fractional shares, unpaid dividends and distributions, if any, payable to
holders of Certificates.
(b) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be canceled and exchanged for certificates
representing shares of Parent Common Stock as provided in this Article II.
(c) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Parent Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of the
Company. In lieu of the issuance of any such fractional share, Parent shall pay
to each former shareholder of the Company who otherwise would be entitled to
receive a fractional share of Parent Common Stock, an amount in cash determined
by multiplying (i) $26.875 by (ii) the fraction of a share of Parent Common
Stock to which such holder would otherwise be entitled to receive pursuant to
Section 1.05 hereof, it being understood that the foregoing computation method
is applicable only after giving effect to the Holding Company Reorganization.
(d) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of the Company for twelve months after the Effective Time shall be
transferred to the Surviving Corporation. Any shareholders of the Company who
have not theretofore complied with this Article II shall thereafter look only to
the Surviving Corporation for payment of their shares of Parent Common Stock,
cash in lieu of fractional shares and unpaid dividends and distributions on the
Parent Common Stock deliverable in respect of each share of Company Common Stock
such shareholder holds as determined pursuant to this Agreement, in each case
without any interest thereon. Notwithstanding the foregoing, none of the
Surviving Corporation, Purchaser, the Company, the Bank, the Exchange Agent or
any other person shall be liable to any former holder of shares of Company
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate, the shares of Parent Common Stock and cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE BANK
Each of the Company and the Bank hereby represents and warrants to
Purchaser and Parent as follows:
3.01 CORPORATE ORGANIZATION.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Hampshire. The Company has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect (as defined below) on the Company or the Bank. As used
in this Agreement, the term "Material Adverse Effect" means, with respect to
Purchaser, Parent (or the Surviving Corporation), the Bank, or the Company, as
the case may be, any change or effect that is, or in the judgment of the parties
hereto, would be materially adverse to the business, properties, assets,
liabilities, financial condition, results of operations of such party and its
subsidiaries taken as a whole. As used in this Agreement, the word "Subsidiary"
means any corporation, partnership or other organization, whether incorporated
or unincorporated, which is or was consolidated with such party (or with which
such party is or was consolidated) for financial reporting purposes. The Company
is duly registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHC Act"). The Articles of Incorporation and By-Laws
of the Company, copies of which have previously been delivered to Purchaser, are
true and complete copies of such documents as in effect as of the date of this
Agreement.
(b) The Bank is a national bank duly organized, validly existing and
in good standing under the laws of the United States of America. The deposit
accounts of the Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC") through the Bank Insurance Fund (the "BIF"), to the fullest extent
permitted by law, and all premiums and assessments required in connection
therewith have been paid by the Bank. The Company's sole Subsidiary is the Bank.
The Bank has the power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or the location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified, either
individually or in the aggregate, would not have a Material Adverse Effect on
the Bank. The Articles of Association and By-laws of the Bank, copies of which
have previously been delivered to Purchaser, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
(c) The Company has no direct or indirect Subsidiaries other than the
Bank and the Bank has no direct or indirect Subsidiaries. Other than the
Company's ownership of the Bank, neither the Company nor the Bank owns, controls
or holds with the power to vote, directly or indirectly of record, beneficially
or otherwise, any capital stock or any equity or ownership interest in any
corporation, partnership, association, joint venture or other entity, except as
set forth in Section 3.01 of the Company Disclosure Schedule and except for less
than five percent of any equity security registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(d) The minute books of each of the Company and the Bank contain true,
accurate and complete records of all meetings and other corporate actions held
or taken since January 1, 1992 of their respective shareholders and boards of
directors (including committees of their respective boards of directors).
3.02 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 2,000,000
shares of Company Common Stock. As of the date of this Agreement, there are (x)
751,901 shares of Company Common Stock issued and outstanding and 61,500 shares
of Company Common Stock held in the Company's treasury, and (y) no shares of
Company Common Stock reserved for issuance upon the exercise of outstanding
stock options or otherwise. All of the issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights with no personal liability attaching
to the ownership thereof. The Company does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of Company
Common Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock, or any other equity security of the Company. No options are
outstanding to purchase shares of the Company Common Stock.
(b) The Company's sole Subsidiary is the Bank. All of the issued and
outstanding shares of capital stock of the Bank and all of such shares of
capital stock or interests are duly authorized and validly issued and are fully
paid, nonassessable, except as provided in the National Bank Act, with no
personal liability attaching to the ownership thereof. The Bank does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of the Bank or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of the Bank. At the Effective Time,
there will not be any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character by which the Company or the Bank will
be bound calling for the purchase or issuance of any shares of the capital stock
of the Company or the Bank.
(c) Except as contemplated herein, there are no agreements or
understandings, with respect to the voting of any shares of Company Common Stock
or the common stock of the Bank or which restrict the transfer of such shares,
to which the Company or the Bank is a party, and to the knowledge of the Company
and the Bank, there are no such agreements or understandings to which the
Company or the Bank is not a party with respect to the voting of any such shares
or which restrict the transfer of such shares.
3.03 AUTHORITY; NO VIOLATION.
(a) The Company and the Bank each has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by the Company of the transactions contemplated by this
Agreement have been duly and validly approved by the Board of Directors of each
of the Company and the Bank. The Board of Directors of the Company has directed
that this Agreement and the transactions contemplated hereby be submitted to the
Company's shareholders for approval at a meeting of such shareholders and has
voted to recommend to their shareholders approval thereof and, except for the
adoption of this Agreement by the requisite vote of the Company's shareholders,
no other corporate proceedings on the part of the Company or the Bank are
necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by each of the Company and the Bank and (assuming the due
authorization, execution and delivery by Parent and Purchaser) constitutes a
valid and binding obligation of each of the Company and the Bank, enforceable
against the Company and the Bank in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by each of
the Company and the Bank, nor the consummation by the Company or the Bank, as
the case may be, of the transactions contemplated hereby, nor compliance by the
Company or the Bank with any of the terms or provisions hereof, will (i)
violate, conflict with or result in a breach of any provision of the Articles of
Incorporation or By-Laws of the Company or the Articles of Association or
By-laws of the Bank, as the case may be (ii) assuming that the consents and
approvals referred to in Section 3.04 hereof are duly obtained, (x) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company, the Bank or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of any
provisions of or the loss of any benefit under, constitute a default (or any
event, which, with notice or lapse of time, or both would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
respective properties or assets of the Company or the Bank under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company or the Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate will not have a Material Adverse Effect on the
Company or the Bank.
3.04 CONSENTS AND APPROVALS. Except for (a) the filing of applications with
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the BHC Act and approval of such applications, (b) the filing of
an application with the FDIC under the Bank Merger Act and approval of such
application, (c) filings with the New Hampshire Bank Commissioner (the
"Commissioner") and the New Hampshire Board of Trust Company Incorporation (the
"BTCI") (the "State Banking Approvals"), (d) the filing with the Securities and
Exchange Commission (the "SEC") of a proxy statement in definitive form relating
to the meeting of the Company's shareholders (the "Company Shareholder Meeting")
and the meeting of the Purchaser's shareholders (the "Purchaser Shareholder
Meeting") (collectively, the Company Shareholder Meeting and Purchaser
Shareholder Meeting shall be referred to as the "Shareholder Meetings") to be
held in connection with this Agreement and the transactions contemplated hereby
(the "Proxy Statement"), which Proxy Statement shall be part of and included in
a Registration Statement on Form S-4 (the "Registration Statement") filed with
the SEC by Parent to register the shares of Parent Common Stock to be issued
pursuant to the terms of this Agreement, (e) the approval of this Agreement by
the requisite vote of the shareholders of the Company, Purchaser and Parent and
the Board of Directors of Parent, (f) the filing of the Articles of Merger with
the Secretary pursuant to the New Hampshire Business Corporation Act, (g) such
filings, authorizations or approvals as may be set forth in Section 3.04 of the
Company Disclosure Schedule, and (h) such filings and approvals as are required
to be made or obtained under the securities or "Blue Sky" laws of various states
in connection with the issuance of shares of Parent Common Stock pursuant to
this Agreement, no consents or approvals of or filings or registrations with any
court, administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with the execution and delivery by the Company and the
Bank of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby, except where the failure to obtain such
consents or approvals, or to make such filings or registrations, would not
prevent the Company or the Bank from performing their respective obligations
under this Agreement.
3.05 LOAN PORTFOLIO; REPORTS.
(a) Except as set forth in Section 3.05 of the Company Disclosure
Schedule hereto, all of the mortgage loans having a principal amount in excess
of $50,000 (each a "Company Loan") reflected as assets on the Company's
consolidated balance sheet included in the financial statements for the fiscal
year ended December 31, 1996 or made or acquired by the Company and the Bank
since December 31, 1996, were validly and legally made, constitute valid and
binding agreements of the borrower enforceable in accordance with their terms
(subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the rights and remedies of creditors generally, and general principles
of equity), are properly perfected, represent valid mortgages on properties
described therein, are saleable in the ordinary course of the Bank's business
and no amount thereof is subject to any defenses which may be asserted against
the Company or the Bank. Neither the Company nor the Bank has entered into any
agreement which will result in a future waiver or negation of any material
rights or remedies presently available against the borrower or guarantor, if
any, on any such Company Loan. Except as set forth in Section 3.05 of the
Company Disclosure Schedule, each mortgage securing a Company Loan has been and
is evidenced by documentation of the types customarily employed by the Bank,
which are in compliance in all material respects with federal and state banking
laws and regulations and prudent banking standards, and complete copies thereof
have been maintained by the Bank in accordance with such requirement and
practices. Except with respect to participation loans described in Section 3.05
of the Company Disclosure Schedule, the Bank owns and holds the entire interest
in all mortgages free and clear of all liens, claims, equities, options,
security interests, charges, encumbrances or restrictions of any kind or nature,
and no person has any interest therein.
(b) Except as disclosed in Section 3.05 of the Company Disclosure
Schedule, all of the Company Loans originated and presently held and, to the
best knowledge of the Company and the Bank after reasonable due diligence and
inquiry, all of the Company Loans purchased and presently held by the Company
(if any) and the Bank were solicited, originated and exist in material
compliance with all applicable loan policies and procedures of the Company (if
applicable) and the Bank and comply with all applicable laws, rules and
regulations, including, but not limited to, applicable usury statutes, the Truth
in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement
Procedures Act, and other applicable consumer protection statutes and the
regulations thereunder.
(c) Except as disclosed in Section 3.05 of the Company Disclosure
Schedule, all Company Loans purchased or originated by the Company or the Bank
and subsequently sold have been sold without recourse to the Company or the Bank
and without any liability under any yield maintenance or similar obligation.
(d) Except as set forth in Section 3.05 of the Company Disclosure
Schedule, to the best knowledge of the Company and the Bank after reasonable due
diligence and inquiry, neither the Company nor the Bank is a party to any
written or oral loan agreement, note or borrowing arrangement (including without
limitation, leases, credit enhancements, commitments and interest-bearing
assets) under the terms of which the obligor is, as of the date of this
Agreement, over 30 days delinquent in payment of principal or interest or in
default under any other material provision. Section 3.05 of the Company
Disclosure Schedule sets forth (x) all of the Company Loans presently held by
the Company (if any) and the Bank that prior to the date of this Agreement have
been classified by any bank examiner or loan reviewer (whether regulatory,
internal, or independent contractor) as "Other Loans Specially Mentioned,"
"Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans," "Watch List" or words of
similar import, together with the aggregate principal amount of and accrued and
unpaid interest on each such Company Loan and the identity of the borrower
thereunder, and (y) by category of Company Loan (i.e., commercial, consumer,
etc.), all of the other Company Loans presently held by the Company (if any) and
the Bank that prior to the date of this Agreement were classified as such,
together with the aggregate principal amount of and accrued and unpaid interest
on such Company Loans by category.
(e) The Company and the Bank each has timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file since January 1, 1992 with
(i) the Federal Reserve Board, (ii) the FDIC, (iii) the Office of the
Comptroller of the Currency (the "OCC"), (iv) the Commissioner and any other
state banking or other state regulatory authority (each a "State Regulator") and
(v) any self-regulatory organization ((i)-(v) collectively referred to
hereinafter as "Regulatory Agencies"), and all other reports and statements
required to be filed by it since January 1, 1992, including without limitation,
any report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, the Federal Reserve Board, the FDIC, the OCC,
the Commissioner, any State Regulator or any self-regulatory organization, and
has paid all fees and assessments due and payable in connection therewith.
Except for normal examinations conducted by a Regulatory Agency in the regular
course of the business of the Company and the Bank, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of the Company or the Bank,
investigation into the business or operations of the Company and the Bank since
January 1, 1992. There is no violation, criticism or exception by any Regulatory
Agency with respect to any report or statement relating to any examination of
the Company or the Bank that (x) has not been addressed by the Bank in a written
response to the Regulatory Agency, (y) has been addressed by the Bank in a
written response to the Regulatory Agency, which response has been objected to
by the Regulatory Agency, or (z) is expected to result in any supervisory action
by such Regulatory Agency.
3.06 FINANCIAL STATEMENTS.
(a) The Company has previously delivered to Purchaser copies of the
audited consolidated balance sheets of the Company and the Bank as of December
31 for the fiscal years 1995 and 1996, and the related consolidated statements
of income, changes in shareholders' equity and cash flows for the fiscal years
1994 through 1996, inclusive, to be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 to be filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
December 31, 1996 consolidated balance sheet of the Company (including the
related notes, where applicable) fairly presents in all material respects the
consolidated financial position of the Company and the Bank as of the date
thereof, and the other financial statements referred to in this Section 3.06
(including the related notes, where applicable) fairly present in all material
respects, and the financial statements referred to in Section 6.08 hereof will
fairly present (subject, in the case of the unaudited statements, to recurring
audit adjustments normal in nature and amount) in all material respects, the
results of the consolidated operations and changes in shareholders' equity and
consolidated financial position of the Company and the Bank for the respective
fiscal periods or as of the respective dates therein set forth and each of such
statements (including the related notes, where applicable) has been, and the
financial statements referred to in Section 6.08 hereof will be, prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q. Without
limiting the generality of the foregoing, (x) the allowance for possible loan
losses included in the consolidated financial statements of the Company to be
included in its Form 10-K for the period ended December 31, 1996 was determined
in accordance with GAAP to be adequate to provide for losses relating to or
inherent in the loan and lease portfolios of the Company and the Bank (including
without limitation commitments to extend credit), and (y) the other real estate
owned ("OREO") included in the consolidated financial statements of the Company
included in its Form 10-K for the period ended December 31, 1996 was carried net
of reserves at the lower of cost or market value based on current independent
appraisals and net of estimated disposal costs. Such reserves for possible loan
losses comply with all loan loss reserve guidelines utilized by the Company and
the Bank, which guidelines have been acceptable to all regulatory agencies
having jurisdiction with respect thereto.
(b) The Bank has furnished to Purchaser all Call Reports filed by it
with the FDIC with respect to any period subsequent to the year ended January 1,
1992, and except as set forth in Section 3.06 of the Company Disclosure
Schedule, such Call Reports do, and such Call Reports filed with respect to
periods ending after December 31, 1996 will, fairly present the financial
position of the Bank as of its date, and the other financial statements included
therein do, and will, fairly present the results of operations or other
information about the Bank included therein for the periods or as of the dates
therein set forth, subject to the notes thereto, in each case in accordance with
the requirements of the Federal Financial Institutions Examination Council
("FFIEC"), and do, or will, reflect all of the Bank's assets, liabilities and
accruals and all of its items of income and expense in accordance with such
standards consistently applied during the periods involved.
(c) The books and records of the Company and the Bank have been, and
are being, maintained in accordance with applicable legal and accounting
requirements, reflect only actual transactions and reflect all of their assets,
liabilities and accruals and all of their items of income and expense in
accordance with GAAP. All accounting ledgers and other books and records of the
Company and the Bank are located at the principal office of the Company and the
Bank, respectively, are true, complete and correct, and present fairly the
financial condition, results of operations and changes in financial position of
the Company and the Bank as of the date and for the periods indicated.
(d) Except for liabilities incurred since December 31, 1996 in the
ordinary course of business consistent with past practice, neither the Company
nor the Bank has any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, contingent or otherwise) which are not adequately
reserved or reflected on the consolidated balance sheet of the Company to be
included in its Form 10-K for the period ending December 31, 1996, except for
liabilities or obligations which in the aggregate do not exceed $20,000, and
there do not exist any circumstances that, to the best knowledge of the Company
and the Bank, could reasonably be expected to result in any such liabilities or
obligations.
3.07 BROKER'S FEES. Neither the Company nor the Bank, nor any of their
respective officers or directors, has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement, except that the
Company has engaged, and will pay a fee or commission to HAS Associates, Inc.
(the "Investment Banker") in accordance with the terms of a letter agreement
dated December 6, 1996 between the Investment Banker and the Company, a true and
complete copy of which has heretofore been furnished to Purchaser. The Company
has previously received the opinion of the Investment Banker to the effect that,
as of the date of such opinion, the Merger Consideration to be received by the
shareholders of the Company pursuant to the Merger is fair to such shareholders
from a financial point of view, and such opinion has not been amended or
rescinded as of the date of this Agreement.
3.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth in
Section 3.08 of the Company Disclosure Schedule, since December 31, 1996:
(a) there has not been any Material Adverse Effect on the Company or
the Bank and, to the best knowledge of the Company and the Bank, no fact or
condition exists which will, or is reasonably likely to, cause such a Material
Adverse Effect on the Company or the Bank in the future, including without
limitation any material loss of deposits or material decline in the value of the
assets held in the portfolios of the Company or the Bank;
(b) the Company and the Bank have carried on their respective
businesses in the ordinary and usual course consistent with their past
practices;
(c) neither the Company nor the Bank has (i) incurred any obligations
or liabilities, whether absolute, accrued, contingent or otherwise (including
without limiting the generality of the foregoing, liabilities as guarantor under
any guarantees or liabilities for taxes), other than those obligations and
liabilities (x) incurred in the ordinary course of its business consistent with
past practice, or (y) incurred under the contracts and commitments referred to
in Section 3.15 hereof; (ii) mortgaged, pledged, or subjected to any lien or
lease any of its assets, tangible or intangible, or permitted or suffered any
such asset to be subjected to any lien or lease, except in the ordinary course
of business consistent with past practice; or (iii) acquired or disposed of any
assets or properties, or entered into any contract for any such acquisition or
disposition, except acquisitions and dispositions in the ordinary course of
business consistent with past practice;
(d) neither the Company nor the Bank has declared, paid, or set apart
any sum or property for any special dividend or other distribution or paid or
transferred any funds or property to the shareholders of the Company, other than
the Company's regular semi-annual dividend to the extent permitted to be paid
pursuant to Section 5.01(a) hereof, or, directly or indirectly, redeemed or
otherwise acquired any of its capital stock;
(e) except for normal employee raises consistent with its past
practices, neither the Company nor the Bank has increased the wages, salaries,
compensation, pensions, or other fringe benefits or perquisites payable to any
executive officer, employee or director from the amount thereof in effect as of
December 31, 1996 (which amounts have been previously disclosed to Purchaser),
granted any severance or termination pay, entered into any contract to make or
grant any severance or termination pay, or paid any bonus other than year-end
bonuses for fiscal 1996 as listed in Section 3.08 of the Company Disclosure
Schedule;
(f) neither the Company nor the Bank has forgiven or canceled any
indebtedness or contractual obligation other than in the ordinary course of
business;
(g) neither the Company nor the Bank has entered into any transaction
other than in the ordinary course of business;
(h) neither the Company nor the Bank has suffered any strike, work
stoppage, slowdown, or other labor disturbance;
(i) neither the Company nor the Bank has entered into any lease of
real or personal property, except in the ordinary course of business;
(j) there has not been any change in any of the accounting methods or
practices or the loan policies or procedures of the Company or the Bank or any
change in the value at which assets are carried on the consolidated or
unconsolidated balance sheets of the Company or the Bank other than changes that
are reflected in their respective balance sheets or income statements; and
(k) there has not been any notice or indication of the intention of
any person or entity to terminate any material agreement with the Company or the
Bank or any notice or indication from any material depositor, customer or
supplier of the Company or the Bank of any intention to cease doing business
with, materially change the price or other terms on which business is transacted
with or materially reduce the business transacted with the Company or the Bank.
3.09 LEGAL PROCEEDINGS. Except as set forth in Section 3.09 of the Company
Disclosure Schedule, there are no pending or to the best knowledge of the
Company and the Bank, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against or affecting the Company or the Bank or any property or asset of
the Company or the Bank, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which would,
either individually or in the aggregate, have a Material Adverse Effect and no
facts or circumstances have come to the Company's or the Bank's attention which
have caused either of them to believe that a claim, action, proceeding or
investigation against or affecting the Company or the Bank could reasonably be
expected to occur. Neither the Company nor the Bank, nor any property or asset
of the Company or the Bank, is subject to any order, writ, judgment, injunction,
decree, determination or award which restricts its ability to conduct business
in any area in which it presently does business or has or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.
3.10 TAXES AND TAX RETURNS.
(a) The Company and the Bank each has duly filed in correct form all
federal, state, county and local information returns and tax returns required to
be filed by it on or prior to the date hereof (all such returns being true and
complete in all material respects) and has duly paid, discharged or made
provisions for the payment of all material Taxes (as hereinafter defined) and
other governmental charges which have been incurred or are due or claimed to be
due from it by federal, state, county or local taxing authorities on or prior to
the date hereof (including without limitation, if and to the extent applicable,
those due in respect of its properties, income, business, capital stock,
deposits, franchises, licenses, sales and payrolls, and any net worth tax),
other than Taxes or other charges that are not yet delinquent or are being
contested in good faith and have not been finally determined. The amounts set up
as reserves for Taxes on the consolidated balance sheet of the Company and the
Bank to be included in its Annual Report on Form 10-K for the period ended
December 31, 1996 and in the Bank's Call Report for the period ended December
31, 1996 are reasonably sufficient in the aggregate for the payment of all
unpaid federal, state, county and local Taxes (including any interest or
penalties thereon), whether or not disputed, accrued or applicable, for the
period ended December 31, 1996 and all prior periods covered by such returns,
and for which the Company or the Bank is liable in its own right or as
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity. The federal income tax
returns of the Company and the Bank have not in the five years prior to the date
of this Agreement, been examined by the Internal Revenue Service ("IRS"). State
of New Hampshire tax returns of the Company and the Bank have not, in the five
years prior to the date of this Agreement, been examined by the Department of
Revenue of the State of New Hampshire. There are no disputes pending or claims
asserted for Taxes or assessments upon the Company or the Bank, nor has the
Company or the Bank been requested to give any currently effective waivers
extending the statutory period of limitation applicable to any federal, state,
county or local income tax return for any period. In addition, (a) proper and
accurate amounts have been withheld by the Company and the Bank from their
employees for all prior periods in compliance with the tax withholding
provisions of applicable federal, state, county and local laws; (b) federal,
state, county and local returns which are accurate and complete have been filed
by the Company and the Bank for all periods for which returns were due with
respect to income tax withholding, Social Security and unemployment taxes; and
(c) the amounts shown on such returns to be due and payable have been paid in
full or adequate provision therefor has been included by the Company in its
consolidated financial statements to be included in its Annual Report on Form
10-K for the period ended December 31, 1996.
(b) No property of the Company or the Bank is property that the
Company or the Bank is or will be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code (as in effect prior to its amendment by the Tax Reform Act of 1986) or is
"tax-exempt use property" within the meaning of Section 168(h) of the Internal
Revenue Code of 1986, as amended (the "Code"). Neither the Company nor the Bank
has been required to include in income any adjustment pursuant to Section 481 of
the Code by reason of a voluntary change in accounting method initiated by the
Company or the Bank, and the IRS has not initiated or proposed any such
adjustment or change in accounting method. Neither the Company nor the Bank is a
party to any agreement, contract or arrangement that would, individually or in
the aggregate, upon consummation of the transactions contemplated hereby, result
in the payment of an "excess parachute payment" within the meaning of Section
280G of the Code or that would result in payments that would be nondeductible
pursuant to Section 162(m) of the Code. Neither the Company nor the Bank has
taken or will take any action which would result in a recapture of all or any
portion of their respective tax bad debt reserves.
(c) As used in this Agreement, the term "Taxes" means all federal,
state, county, local and foreign income, excise, gross receipts, ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment, severance,
withholding, duties, intangibles, franchise and other taxes, charges, levies or
like assessments, including any net worth tax, or other tax of any kind
whatsoever together with all penalties and additions to tax and interest
thereon.
3.11 EMPLOYEE BENEFIT PLANS.
(a) Section 3.11 of the Company Disclosure Schedule sets forth a true
and complete list of all Plans maintained or contributed to by the Company or
the Bank during the three years preceding this Agreement. The term "Plans" for
purposes of this Article III means all employee benefit plans, arrangements or
agreements that are maintained or contributed to, or that were maintained or
contributed to at any time during the three years preceding the date of this
Agreement, by the Company, the Bank or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with the Company
would be deemed a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) The Company has heretofore delivered to Purchaser true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) all required Forms 5500 and all related schedules for such
Plans (if applicable) for each of the last two years, (ii) the actuarial report
for such Plan (if applicable) for each of the last two years, and (iii) the most
recent determination letter from the IRS (if applicable) for such Plan.
(c) (i) Except as may be provided in Section 3.11 of the Company
Disclosure Schedule and footnote 10 of the Consolidated Financial Statements of
the Company for the period ending December 31, 1996, each of the Plans has been
operated and administered in all material respects in accordance with applicable
laws, including but not limited to ERISA and the Code, (ii) each of the Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been maintained so as to qualify from the effective date of such Plan to the
Effective Time, (iii) with respect to each Plan which is subject to Title IV of
ERISA, the present value of "benefit liabilities" (within the meaning of Section
4001(a)(16) of ERISA) under such Plan, based upon the actuarial assumptions
currently used by the Plan for IRS funding purposes did not, as of its latest
valuation date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits, and there has been no "accumulated funding
deficiency" (whether or not waived), (iv) no Plan provides benefits, including
without limitation death, medical or other benefits (whether or not insured),
with respect to current or former employees of the Company, the Bank or any
ERISA Affiliate beyond their retirement or other termination of service, other
than (u) coverage mandated by applicable law, (v) life insurance death benefits
payable in the event of the death of a covered employee, (w) disability benefits
payable to disabled former employees, (x) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2) of
ERISA, (y) deferred compensation benefits accrued as liabilities on the books of
the Company or the Bank or any ERISA Affiliate or (z) benefits the full cost of
which is borne by the current or former employee (or his beneficiary), (v) with
respect to each Plan subject to Title IV of ERISA, no liability under Title IV
of ERISA has been incurred by the Company, the Bank or any ERISA Affiliate that
has not been satisfied in full, no condition exists that presents a material
risk to the Company, the Bank or any ERISA Affiliate of incurring a material
liability to or on account of such Plan, and there has been no "reportable
event" (within the meaning of Section 4043 of ERISA and the regulations
thereunder), (vi) neither the Company, nor the Bank nor any ERISA Affiliate has
ever maintained or contributed to a "multiemployer pension plan," as such term
is defined in Section 3(37) of ERISA, (vii) all contributions or other amounts
payable by the Company or the Bank as of the Effective Time with respect to each
Plan in respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code, (viii) neither the Company,
the Bank nor any ERISA Affiliate has engaged in a transaction in connection with
which the Company, the Bank or any ERISA Affiliate has any material liability
for either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) consummation
of the transactions contemplated hereby will not cause any amounts payable under
any of the Plans to fail to be deductible for federal income tax purposes under
Sections 280G or 162(m) of the Code, (x) there are no pending or, to the best
knowledge of the Company or the Bank, threatened or anticipated claims (other
than routine claims for benefits) by, on behalf of or against any of the Plans
or any trusts related thereto.
(d) With respect to any Plan that is a welfare plan (within the
meaning of Section 3(1) of ERISA) (i) no such Plan is funded through a "welfare
benefit fund," as such term is defined in Section 419(a) of the Code, and (ii)
each such Plan complies in all material respects with the applicable
requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B of Title I of
ERISA and any applicable state continuation coverage requirements ("COBRA").
(e) Except as prohibited by law (including Section 411(d)(6) of the
Code), each Plan may be amended, terminated, modified or otherwise revised by
the Company, its Subsidiaries or its ERISA Affiliates as of the Effective Time
to eliminate, without material effect, any and all future benefit accruals under
any Plan (except claims incurred under any welfare plan).
3.12 SEC REPORTS. The Company has previously delivered to Purchaser an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1992 by
the Company with the SEC pursuant to the Exchange Act or the Securities Act of
1933, as amended (the "Securities Act") (collectively, the "SEC Reports") and
(b) communication mailed by the Company to its shareholders since January 1,
1992, and no such SEC Reports or communications contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. The Company has timely
filed all SEC Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and as of their respective dates, all SEC
Reports complied with all of the rules and regulations of the SEC with respect
thereto. As of their respective dates, no such SEC Reports contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. The Company has
made available to Purchaser true and complete copies of all amendments and
modifications to all agreements, documents and other instruments which
previously had been filed with the SEC by the Company and which are currently in
effect.
3.13 COMPANY INFORMATION. The information supplied by the Company and the
Bank contained in the Proxy Statement to be sent to the shareholders of the
Company and Purchaser in connection with the Shareholder Meetings, or in any
other document filed with any other regulatory agency in connection herewith,
will not contain, on the date of mailing of the Proxy Statement and on the date
of the Shareholder Meetings, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they are
made, not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Shareholders' Meeting which shall have become false or misleading. The Proxy
Statement will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder and the rules and
regulations of the OCC or SEC with respect thereto.
3.14 COMPLIANCE WITH APPLICABLE LAW. The Company and the Bank each hold all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in conflict with, or in default or violation of
any (a) statute, code, ordinance, law, rule, regulation, order, writ, judgment,
injunction or decree, published policies and guidelines of any Governmental
Entity, applicable to the Company or the Bank or by which any property or asset
of the Company or the Bank is bound or affected or (b) any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which the Company or the Bank is a party or
by which the Company or the Bank or any property or asset of the Company or the
Bank is bound or affected, except for any such non-compliance, conflicts,
defaults or violations that would not, individually or in the aggregate, have a
Material Adverse Effect; and neither the Company nor the Bank knows of, or has
received notice of, any material violations of any of the above. Without
limiting the generality of the foregoing, neither the Company nor the Bank has
been advised of the existence of any facts or circumstances which would cause
the Bank to be deemed not to be in satisfactory compliance with the Community
Reinvestment Act of 1977, as amended (the "CRA"), and the regulations
promulgated thereunder.
3.15 CERTAIN CONTRACTS.
(a) Except as set forth in Section 3.15 of the Company Disclosure
Schedule and in the SEC Reports filed prior to the date of this Agreement,
neither the Company nor the Bank is a party to or bound by any contract,
arrangement, commitment or understanding (whether written or oral): (i) with
respect to the employment of any director, officer or employee, or with respect
to the employment of any consultant which cannot be terminated with a payment of
less than $5,000, (ii) which, upon the consummation of the transactions
contemplated by this Agreement, will result in any payment (whether of severance
pay or otherwise) becoming due from the Company or the Bank to any officer or
employee thereof, (iii) which is a material contract (as defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the SEC
Reports, (iv) which is a consulting or other agreement (including agreements
entered into in the ordinary course and data processing, software programming
and licensing contracts) not terminable on 90 days or less notice involving the
payment of less than $10,000 per annum, (v) which restricts the conduct of any
line of business by the Company or the Bank, (vi) with or to a labor union or
guild (including any collective bargaining agreement), or (vii) (including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The Company has previously delivered to
Purchaser true and complete copies of all employment, consulting and deferred
compensation agreements which are in writing and to which the Company or the
Bank is a party. Each contract, arrangement, commitment or understanding of the
type described in this Section, whether or not set forth in Section 3.15 of the
Company Disclosure Schedule, is referred to herein as a "Company Contract".
(b) (i) Each Company Contract is legal, valid and binding upon the
Company or the Bank, as the case may be, assuming due authorization of the other
party or parties thereto, and in full force and effect, (ii) the Company and the
Bank each has in all material respects performed all obligations required to be
performed by it to date under each such Company Contract, and (iii) no event or
condition exists which constitutes or, after notice or lapse of time or both,
would constitute, a default on the part of the Company or the Bank under any
such Company Contract.
3.16 AGREEMENTS WITH REGULATORY AGENCIES. Neither the Company nor the Bank
is subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding,
commitment letter or similar undertaking (each a "Regulatory Agreement"), with
any Regulatory Agency or other Governmental Entity that restricts the conduct of
its business or that relates to its capital adequacy, its credit policies or its
management, nor has the Company or the Bank been notified by any Regulatory
Agency or other Governmental Entity that it is considering issuing or requesting
any Regulatory Agreement. Neither the Company nor the Bank is a party to any
agreement or arrangement entered into in connection with the consummation of a
federally assisted acquisition of a depository institution pursuant to which the
Company or the Bank is entitled to receive financial assistance or
indemnification from any governmental agency.
3.17 INVESTMENT SECURITIES. Section 3.17(a) of the Company Disclosure
Schedule sets forth the book value as of December 31, 1996 of the investment
securities, mortgage backed securities and securities held for sale by the
Company and the Bank. Section 3.17(b) of the Company Disclosure Schedule sets
forth the names of all the joint ventures in which the Company or the Bank has
an investment (whether or not such joint ventures remain active). Except for
pledges to secure public and trust deposits, Federal Reserve borrowings,
repurchase agreements and reverse repurchase agreements entered into in
arms'-length transactions pursuant to normal commercial terms and conditions and
other pledges required by law, none of the investments reflected in the
consolidated balance sheets of the Company and the Bank to be included in its
Annual Report on Form 10-K for the period ended December 31, 1996, and none of
the investments made by the Bank since December 31, 1996, (i) is subject to any
restriction (contractual, statutory or otherwise) that would impair the ability
of the entity holding such investment freely to dispose of such investment at
any time, or (ii) has suffered or incurred any extraordinary loss nor is
management of the Company or the Bank aware of any event (or events in the
aggregate) which may occur in the future that could reasonably be expected to
result in such an extraordinary loss.
3.18 ENVIRONMENTAL MATTERS.
(a) Each of the Company and the Bank and, to the best knowledge of the
Company and the Bank, their Participation Facilities and Loan Properties (each
as hereinafter defined), are, and have been, in material compliance with all
applicable environmental laws and with all rules, regulations, standards and
requirements of the United States Environmental Protection Agency (the "EPA")
and of state and local agencies with jurisdiction over pollution or protection
of the environment.
(b) There is no suit, claim, action or proceeding pending or, to the
best knowledge of the Company or the Bank, threatened, before any Governmental
Entity or other forum in which the Company or the Bank or any of their
Participation Facilities has been or, with respect to threatened proceedings,
may be, named as a defendant, responsible party or potentially responsible party
(i) for alleged noncompliance (including by any predecessor), with any
environmental law, rule, regulation, standard or requirement or (ii) relating to
the release into or presence in the Environment (as hereinafter defined) of any
Hazardous Materials (as hereinafter defined) or Oil (as hereinafter defined)
whether or not occurring at or on a site owned, leased or operated by the
Company or the Bank or any of their Participation Facilities.
(c) To the best knowledge of the Company or the Bank, there is no
suit, claim, action or proceeding pending or threatened before any Governmental
Entity or other forum in which any Loan Property of the Company or the Bank has
been or, with respect to threatened proceedings, may be, named as a defendant,
responsible party or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any environmental law, rule, regulation,
standard or requirement or (ii) relating to the release into or presence in the
Environment of any Hazardous Material or Oil whether or not occurring at or on a
site owned, leased or operated by a Loan Property of the Company or the Bank.
(d) Neither the Company, nor the Bank, nor to their best knowledge,
any of their Participation Facilities or Loan Properties, has received any
notice regarding a matter on which a suit, claim, action or proceeding as
described in subsection (b) or (c) of this Section 3.18 could reasonably be
based. No facts or circumstances have come to the Company's or the Bank's
attention which have caused either to believe that a material suit, claim,
action or proceeding as described in subsection (b) or (c) of this Section 3.18
could reasonably be expected to occur.
(e) During the period of (i) the Company's or the Bank's ownership or
operation of any of their respective current properties, (ii) the Company's or
the Bank's participation in the management of any of their Participation
Facilities, or (iii) the Company's or any of the Bank's holding of a security
interest in any of their Loan Properties, there has been no release or presence
in the Environment of Hazardous Material or Oil in, on, under or affecting such
property or, to the best knowledge of the Company or the Bank such Participation
Facility or Loan Property. To the best knowledge of the Company and the Bank
prior to the period of (x) the Company's or the Bank's ownership or operation of
any of their respective current properties or any previously owned or operated
properties, (y) the Company's or the Bank's participation in the management of
any of their Participation Facilities, or (z) the Company's or the Bank's
holding of a security interest in any of its Loan Properties, there was no
release or presence in the Environment of Hazardous Material or Oil in, on,
under or affecting any such property, Participation Facility or Loan Property.
(f) The following definitions apply for purposes of this Section 3.18:
(i) "Loan Property" means any property in which the Company or the Bank holds a
security interest, and, where required by the context, said term means the owner
or operator of such property; (ii) "Participation Facility" means any facility
in which the Company or the Bank participates or has participated in the
management and, where required by the context, said term means the owner or
operator of such property; (iii) "Hazardous Material" means any pollutant,
contaminant, or hazardous substance or hazardous material as defined in or
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. ss. 9601 et seq., or any other federal, state, or local
environmental law, regulation, or requirement; (iv) "Oil" means oil or petroleum
of any kind or origin or in any form, as defined in or pursuant to the Federal
Clean Water Act, 33 U.S.C. ss. 1251 et seq., or any other federal, state, or
local environmental law, regulation, or requirement; and (v) "Environment" means
any soil, surface waters, groundwaters, stream sediments, surface or subsurface
strata, and ambient air, and any other environmental medium.
3.19 PROPERTIES.
(a) Section 3.19 of the Company Disclosure Schedule contains a true,
complete and correct list and a brief description (including carrying value) of
all real properties, including properties acquired by foreclosure or deed in
lieu thereof, owned or leased to the Company and the Bank. Except as set forth
in Section 3.19 of the Company Disclosure Schedule, the Company and the Bank
each has good and marketable title to all the real property and all other
property owned by it and included in the consolidated balance sheet of the
Company and the Bank for the period ended December 31, 1996, and owns such
property subject to no encumbrances, liens, mortgages, security interests or
pledges, except such encumbrances, liens, mortgages, security interests and
pledges that do not have a Material Adverse Effect on the Company or the Bank or
which do not and will not interfere with the use of the property as currently
used or contemplated to be used by the Company or the Bank, or the conduct of
the business of the Company or the Bank.
(b) Neither the Company nor the Bank has received any notice of
violation of any applicable zoning or environmental regulation, ordinance or
other law, order, regulation or requirement relating to its operations or its
properties and to the knowledge of the Company and the Bank, there is no such
violation of a material nature. Except as set forth in Section 3.19 to the
Company Disclosure Schedule, all buildings and structures used by the Company or
the Bank conform in all material respects with all applicable ordinances, codes
and regulations, or are not required to conform due to grandfathering clauses
contained in such ordinances, codes or regulations, except to the extent such
noncompliance does not and will not have a Material Adverse Effect on the
Company or the Bank and which does not or will not interfere with the use of any
property as currently used or contemplated to be used by the Company or the
Bank, or the conduct of the business of the Company or the Bank.
(c) Section 3.19 to the Company Disclosure Schedule contains a true,
complete and correct list of all leases pursuant to which the Company or the
Bank lease any real or personal property, either as lessee or as lessor (the
"Company Leases"). Assuming due authorization of the other party of parties
thereto, each of the Company Leases is valid and binding on the Company or the
Bank, as the case may be, and valid and binding on and enforceable against all
other respective parties to such leases in accordance with their respective
terms (subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the rights and remedies of creditors generally and general
principles of equity). There are not under such Company Leases any existing
breaches, defaults, events of default by the Company or the Bank, or events
which with notice and/or lapse of time would constitute a breach, default or
event of default by the Company or the Bank, nor has the Company or the Bank
received notice of, or made a claim with respect to, any breach or default by
any other party to such Company Leases. The Company and the Bank each enjoy
quiet and peaceful possession of all such leased properties occupied by it as
lessee.
(d) All of the real properties, leasehold improvements and items of
equipment and other material personal property owned, leased, or licensed by the
Company or the Bank, or in which any of those parties hold an interest, are in
good maintenance, repair, and operating condition, ordinary wear and tear
excepted, are adequate for the purposes for which they are now being or are
anticipated to be used, and are free from any material defects.
3.20 ADMINISTRATION OF FIDUCIARY ACCOUNTS. Each of the Company and the Bank
has properly administered all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable law. The
accountings for each such fiduciary account are true and correct and accurately
reflect the assets of such fiduciary account. Neither the Company, nor the Bank,
nor, to the best knowledge of the Company and the Bank, their respective
officers, directors or employees has committed any breach of trust with respect
to any fiduciary account.
3.21 INSURANCE. The Company has made available to Purchaser true and
complete copies of all material policies of insurance of the Company and the
Bank currently in effect. All of the policies relating to insurance maintained
by the Company or the Bank with respect to its material properties and the
conduct of its business in any material respect (or any comparable policies
entered into as a replacement therefor) are in full force and effect and neither
the Company nor the Bank has received any notice of cancellation with respect
thereto. All life insurance policies on the lives of any of the current and
former officers of the Company or the Bank which are maintained by the Company
or the Bank or which are otherwise included as assets on the books of the
Company or the Bank (i) are, or will at the Effective Time be, owned by the
Company or the Bank, free and clear of any claims thereon by the officers or
members of their families, except with respect to the death benefits thereunder,
as to which the Company and the Bank each agrees that there will not be an
amendment prior to the Effective Time without the consent of Purchaser, and (ii)
are accounted for properly as assets on the books of the Company or the Bank, as
the case may be, in accordance with GAAP. Neither the Company nor the Bank has
any material liability for unpaid premiums or premium adjustments not properly
reflected on the Company's consolidated financial statements contained in the
SEC Reports. Each of the Company and the Bank has been and is adequately insured
with respect to its property and the conduct of its business in such amounts and
against such risks as are substantially similar in kind and amount to that
customarily carried by parties similarly situated who own properties and engaged
in businesses substantially similar to that of the Company and the Bank
(including without limitation liability insurance and blanket bond insurance).
All claims under any policy or bond have been duly and timely filed.
3.22 TRANSACTIONS WITH CERTAIN PERSONS. Neither the Company nor the Bank
has any outstanding loan, deposit or other relationship or other transaction
with any officer, director or greater-than-5% shareholder of the Company or the
Bank or any "associate" (as defined in Rule 14a-1 under the Exchange Act of any
such officer or director) affiliates (as defined in Rule 144(a)(1) of the
Securities Act) of any such officer, director or shareholder (individually, an
"Interested Person"), other than deposit or loan transactions in the ordinary
course of business on terms substantially the same as those prevailing at the
time for comparable transactions with other, unaffiliated persons, and which did
not and do not involve any unusual risk (including of non- collectibility) or
other features unfavorable to the Company or the Bank. Section 3.22 of the
Company Disclosure Schedule hereto contains a full description of all
outstanding loans by the Company or the Bank to an Interested Person which,
either individually or in the aggregate, have current outstanding balances of
$5,000 or more (including in the outstanding balance all amounts which the
Company or the Bank is obligated to advance but not including loans secured by
cash collateral). All deposit relationships of the Company or the Bank with an
Interested Person with aggregate balances in excess of $10,000 are fully
described in Section 3.22 of the Company Disclosure Schedule. Except as
otherwise set forth in Section 3.22 of the Company Disclosure Schedule, neither
the Company nor the Bank has entered into any contractual or other business
relationship with any Interested Person.
3.23 STATE TAKEOVER LAWS. The transactions contemplated by this Agreement
are not subject to any applicable state takeover laws in effect on the date
hereof. The Board of Directors of the Company has taken all necessary action
prior to the date of this Agreement in connection with the approval of the
execution, delivery and performance of this Agreement, any purchase or other
transaction respecting the Company Common Stock provided for herein or therein,
and the other transactions contemplated hereby and thereby, including without
limitation approval by the affirmative vote of at least two-thirds of the
members of the Board of Directors of the Company who are not affiliated with or
shareholders of Purchaser or Parent. Based upon the approval of this Agreement
by greater than two-thirds of the Company's directors who are neither affiliated
with nor shareholders of Purchaser, the Company's Articles of Incorporation do
not require more than a majority of the holders of the Company Common Stock to
approve the Merger as currently structured.
3.24 DISCLOSURE. No representation or warranty contained in this Agreement,
and no statement contained in any certificate, list or other writing furnished
to Purchaser pursuant to the provisions hereof, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances in which they are
made, not misleading. No information material to the Merger and which is
necessary to make the representations and warranties herein contained not
misleading, has been withheld from, or has not been delivered in writing to
Purchaser.
3.25 REGULATORY APPROVALS. Neither the Company nor the Bank is, as of the
date hereof, aware of any reason why the regulatory approvals required to be
obtained by the Company or the Bank to consummate the Merger would not be
satisfied within the time frame customary for transactions of the nature
contemplated thereby.
3.26. LABOR MATTERS. Neither the Company nor the Bank is a party to any
collective bargaining or other labor union or guild contract. There is no
pending or, to the best knowledge of the Company, threatened, labor dispute,
strike or work stoppage against the Company or the Bank which may interfere with
the respective business activities of the Company or the Bank. Neither the
Company nor the Bank, nor, their respective representatives or employees, has
committed any unfair labor practices in connection with the operation of the
respective businesses of the Company or the Bank, and there is no pending or, to
the best knowledge of the Company or the Bank, threatened, charge or complaint
against the Company or the Bank by the National Labor Relations Board or any
comparable state agency.
3.27. INTELLECTUAL PROPERTY. The Company and the Bank each owns or
possesses valid and binding licenses and other rights to use without payment of
any material amount all material patents, copyrights, trade secrets, trade
names, service marks and trademarks used in its businesses, provided, that
neither the Company nor the Bank claims to have sole or exclusive right to use
all of the trade names and service marks used by it; neither the Company nor the
Bank has received any notice of conflict with respect thereto that asserts the
right of others. The Company and the Bank each has performed in all material
respects all the obligations required to be performed by them and are not in
default under any contract, agreement, arrangement or commitment relating to any
of the foregoing.
3.28 OWNERSHIP OF PURCHASER COMMON STOCK; AFFILIATES AND ASSOCIATES.
Neither the Company nor the Bank, nor to the best knowledge of the Company and
the Bank, any of their affiliates or associates (as such terms are defined under
the Exchange Act), (i) beneficially own, directly or indirectly, or (ii) is a
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, any shares of capital
stock of Purchaser (other than Trust Account Shares and DPC Shares). Neither the
Company, nor the Bank nor any of their directors, officers, or employees is an
"affiliate" or an "associate" of Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
4.01 CORPORATE ORGANIZATION.
(a) Parent, on the date it becomes a party to this Agreement, will be
a corporation duly organized, validly existing and in good standing under the
laws of the State of New Hampshire. Parent, on the date it becomes a party to
the Agreement, will have the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it will then be
conducted, and will be duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Parent. Prior
to the Effective Time, the Parent will have received approval to become a bank
holding company under the BHC Act and such approval will be effective at the
Effective Time. The Articles of Incorporation and By-Laws of Parent will be in
the forms attached to this Agreement as Exhibits I and II.
(b) Purchaser is a commercial bank duly organized, validly existing
and in good standing under the laws of the State of New Hampshire. The deposit
accounts of Purchaser are insured by the FDIC through the BIF to the fullest
extent permitted by law, and all premiums and assessments required in connection
therewith have been paid by Purchaser. Purchaser has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified, either individually or in the aggregate, would not
have a Material Adverse Effect on Purchaser. The Articles of Agreement and
By-Laws of Purchaser, copies of which have previously been delivered to the
Company, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement. Purchaser has no Subsidiaries other than Parent.
(c) Purchaser has no direct or indirect Subsidiaries. Parent will have
no direct or indirect subsidiaries other than Purchaser at the Effective Time
and will be the sole shareholder of Purchaser at the Effective Time. Purchaser
does not own, control or hold with the power to vote, directly or indirectly of
record, beneficially or otherwise, any capital stock or any equity or ownership
interest in any corporation, partnership, association, joint venture or other
entity, except for less than five percent of any equity security registered
under the Exchange Act.
(d) The minute books of Purchaser contain true, complete and accurate
records of all meetings and other corporate actions held or taken since January
1, 1992 of its shareholders and board of directors (including committees
thereof).
4.02 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 1,000 shares of
Parent Common Stock. The shares of Parent Common Stock to be issued in exchange
for shares of the Company Common Stock upon consummation of the Merger will have
been duly authorized and when issued in accordance with the terms of this
Agreement, will be validly issued and fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership thereof
and will be identical in all material respects to the shares of Parent Common
Stock to be issued and outstanding immediately prior to the Merger. Parent does
not have and is not be bound by any subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Parent Common Stock or any other equity security of Parent or
any securities representing the right to purchase or otherwise receive any
shares of Parent Common Stock or any other equity security of Parent, other than
as provided for in this Agreement or pursuant to the Holding Company
Reorganization.
(b) Except as contemplated herein, there are no agreements or
understandings, with respect to the voting of any shares of Parent Common Stock
or the common stock of Purchaser or which restrict the transfer of such shares,
to which Parent or Purchaser is a party, and to the knowledge of Parent and
Purchaser, there are no such agreements or understandings to which Parent or
Purchaser is not a party with respect to the voting of any such shares or which
restrict the transfer of such shares.
4.03 AUTHORITY; NO VIOLATION.
(a) Purchaser and Parent each has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser and Parent of the transactions contemplated
hereby have been duly and validly approved by the Board of Directors of
Purchaser and Parent. The Board of Directors of Purchaser has directed that this
Agreement and the transactions contemplated hereby be submitted to Purchaser's
shareholders for approval at a meeting of such shareholders and has voted to
recommend that its shareholders approve and adopt this Agreement and the
transactions contemplated thereby and, except for the adoption of this Agreement
by the requisite vote of Purchaser's shareholders, no other corporate
proceedings on the part of Purchaser or Parent are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser and Parent and (assuming the due
authorization, execution and delivery by the Company and the Bank) constitutes a
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement by each of
Purchaser and Parent, nor the consummation by either Purchaser or Parent, as the
case may be, of the transactions contemplated hereby, nor compliance by either
Purchaser or Parent with any of the terms or provisions hereof, will (i)
violate, conflict with or result in a breach of any provision of the Articles of
Incorporation or By-Laws of Parent, the Articles of Agreement or By-Laws of
Purchaser, or the articles of incorporation, by-laws or similar governing
documents of any of the Subsidiaries, as the case may be, or (ii) assuming that
the consents and approvals referred to in Section 4.04 are duly obtained, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Parent, Purchaser or any of the Subsidiaries
or any of their respective properties or assets, or (y) violate, conflict with,
result in a breach of any provisions of or the loss of any benefit under,
constitute a default (or any event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Parent or
Purchaser under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Parent or Purchaser is a party, or by which
they or any of their respective properties or assets may be bound or affected,
except (in the case of clause (y) above) for such violations, conflicts,
breaches or defaults which, either individually or in the aggregate, will not
have a Material Adverse Effect on Parent or Purchaser.
4.04 CONSENTS AND APPROVALS. Except for (a) the filing of applications and
notices, as applicable, with (i) the Federal Reserve Board under the BHC Act
(ii) the FDIC under the Bank Merger Act, (iii) the Commissioner, and (iv) the
BTCI, and the consent and approval of such applications and notices, (b) the
filing with the SEC and the FDIC of the Registration Statement, (c) the approval
of this Agreement by the requisite vote of the shareholders of Parent, the
Company and Purchaser and the board of directors of Parent, (d) the filing of
the Articles of Merger with the Secretary to effect the Merger pursuant to the
New Hampshire Business Corporation Act, (e) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of shares of Parent Common Stock
pursuant to this Agreement, and (f) such filings, authorizations or approvals as
may be set forth in Section 4.04 of the Purchaser Disclosure Schedule, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with the execution
and delivery by Purchaser and Parent of this Agreement and the consummation by
Parent of the Merger and the other transactions contemplated hereby, except
where the failure to obtain such consents or approvals, or to make such filings
or registrations, would not prevent Parent or Purchaser from performing their
respective obligations under this Agreement.
4.05 LOAN PORTFOLIO; REPORTS.
(a) Except as set forth in Section 4.05 of the Purchaser Disclosure
Schedule hereto, all of the mortgage loans having a principal amount in excess
of $50,000 (each a "Purchaser Loan") reflected as assets on Purchaser's
consolidated balance sheet included in the financial statements for the fiscal
year ended December 31, 1996 or made or acquired by Purchaser or Parent since
December 31, 1996, were validly and legally made, constitute valid and binding
agreements of the borrower enforceable in accordance with their terms (subject
to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights and remedies of creditors generally, and general principles of
equity), are properly perfected, represent valid mortgages on properties
described therein, are saleable in the ordinary course of Purchaser's business
and no amount thereof is subject to any defenses which may be asserted against
Purchaser or Parent. Neither Purchaser nor Parent has entered into any agreement
which will result in a future waiver or negation of any material rights or
remedies presently available against the borrower or guarantor, if any, on any
such Purchaser Loan. Except as set forth in Section 4.05 of the Purchaser
Disclosure Schedule, each mortgage securing a Purchaser Loan has been and is
evidenced by documentation of the types customarily employed by Purchaser, which
are in compliance in all material respects with federal and state banking laws
and regulations and prudent banking standards, and complete copies thereof have
been maintained by Purchaser in accordance with such requirement and practices.
Except with respect to participation loans described in Section 4.05 of the
Purchaser Disclosure Schedule, Purchaser owns and holds the entire interest in
all mortgages free and clear of all liens, claims, equities, options, security
interests, charges, encumbrances or restrictions of any kind or nature, and no
person has any interest therein.
(b) Except as disclosed in Section 4.05 of the Purchaser Disclosure
Schedule, all of the Purchaser Loans originated and presently held and, to the
best knowledge of Purchaser or Parent after reasonable due diligence and
inquiry, all of the Purchaser Loans purchased and presently held by Parent (if
any) and Purchaser were solicited, originated and exist in material compliance
with all applicable loan policies and procedures of Parent (if applicable) and
Purchaser and comply with all applicable laws, rules and regulations, including,
but not limited to, applicable usury statutes, the Truth in Lending Act, the
Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, and
other applicable consumer protection statutes and the regulations thereunder.
(c) Except as disclosed in Section 4.05 of the Purchaser Disclosure
Schedule, all Purchaser Loans purchased or originated by Purchaser or Parent and
subsequently sold have been sold without recourse to Purchaser or Parent and
without any liability under any yield maintenance or similar obligation.
(d) Except as set forth in Section 4.05 of the Purchaser Disclosure
Schedule, to the best knowledge of Purchaser and Parent after reasonable due
diligence and inquiry, neither Purchaser nor Parent is a party to any written or
oral loan agreement, note or borrowing arrangement (including without
limitation, leases, credit enhancements, commitments and interest-bearing
assets) under the terms of which the obligor is, as of the date of this
Agreement, over 30 days delinquent in payment of principal or interest or in
default under any other material provision. Section 4.05 of the Purchaser
Disclosure Schedule sets forth (x) all of the Purchaser Loans presently held by
Parent (if any) and Purchaser that prior to the date of this Agreement have been
classified by any bank examiner or loan reviewer (whether regulatory, internal,
or independent contractor) as "Other Loans Specially Mentioned," "Special
Mention," "Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit
Risk Assets," "Concerned Loans," "Watch List" or words of similar import,
together with the aggregate principal amount of and accrued and unpaid interest
on each such Purchaser Loan and the identity of the borrower thereunder, and (y)
by category of Purchaser Loan (i.e., commercial, consumer, etc.), all of the
other Purchaser Loans presently held by Parent (if any) and Purchaser that prior
to the date of this Agreement were classified as such, together with the
aggregate principal amount of and accrued and unpaid interest on such Purchaser
Loans by category.
(e) Purchaser has timely filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that it was required to file since January 1, 1992 with the Regulatory
Agencies, and all other reports and statements required to be filed by them
since January 1, 1992, including without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, the FDIC, the Commissioner, any State Regulator or any self-regulatory
organization, and has paid all fees and assessments due and payable in
connection therewith. Except for normal examinations conducted by a Regulatory
Agency in the regular course of the business of Purchaser, no Regulatory Agency
has initiated any proceeding or, to the best knowledge of Purchaser,
investigation into the business or operations of Purchaser since January 1,
1992. There is no violation, criticism or exception by any Regulatory Agency
with respect to any report or statement relating to any examination of Purchaser
that (x) has not been addressed by Purchaser in a written response to the
Regulatory Agency, (y) has been addressed by Purchaser in a written response to
the Regulatory Agency, which response has been objected to by the Regulatory
Agency or (z) is expected to result in any supervisory action by such Regulatory
Agency.
4.06 FINANCIAL STATEMENTS.
(a) Purchaser has previously delivered to the Company copies of the
audited balance sheets of Purchaser as of December 31 for the fiscal years 1995
and 1996 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years 1994 through 1996,
inclusive, to be included in the Purchaser's Annual Report on Form F-2 for the
fiscal year ended December 31, 1996 to be filed with the FDIC under the Exchange
Act. The December 31, 1996 balance sheet of Purchaser (including the related
notes, where applicable) fairly presents in all material respects the financial
position of Purchaser as of the date thereof, and the other financial statements
referred to in this Section 4.06 (including the related notes, where applicable)
fairly present in all material respects and the financial statements referred to
in Section 6.08 hereof will fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount) in all material respects, the results of the consolidated operations and
changes in shareholders' equity and financial position of Purchaser for the
respective fiscal periods or as of the respective dates therein set forth and
each of such statements (including the related notes, where applicable) has been
and the financial statements referred to in Section 6.08 hereof will be,
prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto, or in the case of unaudited
statements, as permitted by Form F-2. Without limiting the generality of the
foregoing, (x) the allowance for possible loan losses included in the financial
statements of the Purchaser to be included in its Form F-2 for the period ended
December 31, 1996 was determined in accordance with GAAP to be adequate to
provide for losses relating to or inherent in the loan and lease portfolios of
Purchaser (including without limitation commitments to extend credit), and (y)
the other real estate owned ("OREO") included in the financial statements of
Purchaser included in its Form F-2 for the period ended December 31, 1996 was
carried net of reserves at the lower of cost or market value based on current
independent appraisals and net of estimated disposal costs. Such reserves for
possible loan losses comply with all loan loss reserve guidelines utilized by
Purchaser, which guidelines have been acceptable to all regulatory agencies
having jurisdiction with respect thereto.
(b) Purchaser has furnished to the Company all Call Reports filed by
it with the FDIC with respect to any period subsequent to the year ended January
1, 1992, and except as set forth in Section 4.06 of the Purchaser Disclosure
Schedule, such Call Reports do, and such Call Reports filed with respect to
periods ending after December 31, 1996 will, fairly present the financial
position of Purchaser as of its date, and the other financial statements
included therein do, and will, fairly present the results of operations or other
information Purchaser included therein for the periods or as of the dates
therein set forth, subject to the notes thereto, in each case in accordance with
the requirements of the FFIEC, and do, or will, reflect all of Purchaser's
assets, liabilities and accruals and all of its items of income and expense in
accordance with such standards consistently applied during the periods involved.
(c) The books and records of Purchaser have been, and are being,
maintained in accordance with applicable legal and accounting requirements,
reflect only actual transactions and reflect all of their assets, liabilities
and accruals and all of their items of income and expense in accordance with
GAAP. All accounting ledgers and other books and records of Purchaser are
located at the principal office of Purchaser, are true, complete and correct,
and present fairly the financial condition, results of operations and changes in
financial position of Purchaser as of the date and for the periods indicated.
(d) Except for liabilities incurred since December 31, 1996 in the
ordinary course of business consistent with past practice, Purchaser has no
liabilities or obligations of any nature whatsoever (whether absolute, accrued,
contingent or otherwise) which are not adequately reserved or reflected on the
balance sheet of Purchaser to be included in its Form F-2 for the period ending
December 31, 1996, except for liabilities or obligations which in the aggregate
do not exceed $20,000, and there do not exist any circumstances that, to the
best knowledge of Purchaser, could reasonably be expected to result in any such
liabilities or obligations.
4.07 BROKER'S FEES. Neither Purchaser, nor any of its officers or
directors, has employed any broker or finder or incurred any liability for any
broker's fee, commission or finder's fee in connection with any of the
transactions contemplated by this Agreement other than fees paid to Northeast
Capital & Advisory, Inc. ("NECA") in accordance with the terms of a letter
agreement dated February 10, 1997 between NECA and Purchaser, a true and
complete copy of which has heretofore been furnished to the Company. Purchaser
has previously received the opinion of NECA to the effect that, as of the date
of such opinion, the Exchange Ratio is fair to Purchaser's shareholders from a
financial point of view, and such opinion has not been amended or rescinded as
of the date of this Agreement.
4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth in
Section 4.08 of the Purchaser Disclosure Schedule, since December 31, 1996,
there has not been any Material Adverse Effect on Purchaser and, to the best
knowledge of Purchaser, no fact or condition exists which will, or is reasonably
likely to, cause such a Material Adverse Effect on Purchaser in the future.
4.09 LEGAL PROCEEDINGS. Except as set forth in Section 4.09 of the
Purchaser Disclosure Schedule, Purchaser is not a party to any, and there are no
pending or, to the best of Purchaser's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against or affecting Purchaser or any
property or asset of Purchaser, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which would,
either individually or in the aggregate, have a Material Adverse Effect and no
facts or circumstances have come to Purchaser's attention which have caused it
to believe that a claim, action, proceeding or investigation against or
affecting Purchaser could reasonably be expected to occur. Neither Purchaser,
nor any property or asset of Purchaser, is subject to any order, writ, judgment,
injunction, decree, determination or award which restricts its ability to
conduct business in any area in which it presently does business or has or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.10 FDIC REPORTS. Purchaser has previously delivered to the Company an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1992 by
Purchaser with the FDIC pursuant to the Exchange Act or the Securities Act
(collectively, the "FDIC Reports") and (b) communication mailed by Purchaser to
its shareholders since January 1, 1992, and no such FDIC Reports or
communications contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading. Purchaser has timely filed all FDIC Reports and other
documents required to be filed by it under the Securities Act and the Exchange
Act, and as of their respective dates, all FDIC Reports complied with all of the
rules and regulations of the FDIC with respect thereto. As of their respective
dates, no such FDIC Reports contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. Purchaser has made available to the Company true
and complete copies of all amendments and modifications not filed by Purchaser
with the FDIC to all agreements, documents and other instruments that previously
had been filed with the FDIC by Purchaser and are currently in effect.
4.11 PARENT AND PURCHASER INFORMATION. The information supplied by
Purchaser and Parent relating to Purchaser and Parent contained in the
Registration Statement and Prospectus and Proxy Statement to be sent to the
shareholders of the Company and Purchaser in connection with the Shareholder
Meetings, or in any other document filed with any other regulatory agency in
connection herewith, will not contain, on the date of mailing of the Proxy
Statement and on the date of the Shareholder Meetings, any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they are made, not false or misleading. The Registration Statement and
Prospectus and Proxy Statement will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder and the
rules and regulations of the FDIC or SEC with respect thereto.
4.12 COMPLIANCE WITH APPLICABLE LAW. Parent and Purchaser hold all material
licenses, franchises, permits and authorizations necessary for the lawful
conduct of their businesses under and pursuant to all, and have complied with
and are not in conflict with, or in default or violation of any, (a) statute,
code, ordinance, law, rule, regulation, order, writ, judgment, injunction or
decree, published policies and guidelines of any Governmental Entity, applicable
to Purchaser or Parent or by which any property or asset of Purchaser or Parent
is bound or affected or (b) any note, bond, mortgage, indenture, deed of trust,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Purchaser or Parent is a party or by which Purchaser or
Parent or any property or asset of Purchaser or Parent is bound or affected,
except for any such non-compliance, conflicts, defaults or violations that would
not, individually or in the aggregate, have a Material Adverse Effect; and
neither Purchaser nor Parent knows of, or has received notice of, any material
violations of any of the above. Without limiting the generality of the
foregoing, the Purchaser has not been advised of the existence of any facts or
circumstances which would cause the Purchaser to be deemed not to be in
satisfactory compliance with the CRA, and the regulations promulgated
thereunder.
4.13 AGREEMENTS WITH REGULATORY AGENCIES. Purchaser is not subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding, commitment letter
or similar undertaking, with any Regulatory Agency or other Governmental Entity
that restricts the conduct of its business or that relates to its capital
adequacy, its credit policies or its management, nor has Purchaser been notified
by any Regulatory Agency or other Governmental Entity that it is considering
issuing or requesting any Regulatory Agreement. Purchaser is not a party to any
agreement or arrangement entered into in connection with the consummation of a
federally assisted acquisition of a depository institution pursuant to which
Purchaser is entitled to receive financial assistance or indemnification from
any governmental agency.
4.14 REGULATORY APPROVALS. Purchaser is not, as of the date hereof, aware
of any reason why the regulatory approvals required to be obtained by it or
Parent to consummate the Merger would not be satisfied within the time frame
customary for transactions of the nature contemplated thereby.
4.15 TAXES AND TAX RETURNS.
(a) Purchaser has duly filed in correct form all federal, state,
county and local information returns and tax returns required to be filed by it
on or prior to the date hereof (all such returns being true and complete in all
material respects) and has duly paid, discharged or made provisions for the
payment of all material Taxes (as hereinafter defined) and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, county or local taxing authorities on or prior to the date
hereof (including without limitation, if and to the extent applicable, those due
in respect of its properties, income, business, capital stock, deposits,
franchises, licenses, sales and payrolls, any net worth tax), other than Taxes
or other charges that are not yet delinquent or are being contested in good
faith and have not been finally determined. The amounts set up as reserves for
Taxes on the consolidated balance sheet of Purchaser to be included in its
Annual Report on Form F-2 for the period ended December 31, 1996 and in
Purchaser's Call Report for the period ended December 31, 1996 are reasonably
sufficient in the aggregate for the payment of all unpaid federal, state, county
and local Taxes (including any interest or penalties thereon), whether or not
disputed, accrued or applicable, for the period ended December 31, 1996 and all
prior periods covered by such returns, and for which Purchaser is liable in its
own right or as transferee of the assets of, or successor to, any corporation,
person, association, partnership, joint venture or other entity. The federal
income tax returns of Purchaser have not in the five (5) years prior to the date
of this Agreement, been examined by the Internal Revenue Service ("IRS"). State
of New Hampshire tax returns of Purchaser have not, in the five (5) years prior
to the date of this Agreement, been examined by the Department of Revenue of the
State of New Hampshire. There are no disputes pending or claims asserted for
Taxes or assessments upon Purchaser, nor has Purchaser been requested to give
any waivers extending the statutory period of limitation applicable to any
federal, state, county or local income tax return for any period. In addition,
(a) proper and accurate amounts have been withheld by the Purchaser from its
employees for all prior periods in compliance with the tax withholding
provisions of applicable federal, state, county and local laws; (b) federal,
state, county and local returns which are accurate and complete have been filed
by the Purchaser for all periods for which returns were due with respect to
income tax withholding, Social Security and unemployment taxes; and (c) the
amounts shown on such returns to be due and payable have been paid in full or
adequate provision therefor has been included by the Purchaser in its
consolidated financial statements to be included in its Annual Report on Form
F-2 for the period ended December 31, 1996.
(b) No property of Purchaser is property that Purchaser is or will be
required to treat as being owned by another person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property" within
the meaning of Section 168(h) of the Internal Revenue Code of 1986, as amended
(the "Code"). Purchaser has not been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change
in accounting method initiated by Purchaser, and the IRS has not initiated or
proposed any such adjustment or change in accounting method. Purchaser is not a
party to any agreement, contract or arrangement that would, individually or in
the aggregate, upon consummation of the transactions contemplated hereby, result
in the payment of an "excess parachute payment" within the meaning of Section
280G of the Code or that could result in payments that would be nondeductible
pursuant to Section 162(m) of the Code. Purchaser has not taken nor will take
any action which would result in a recapture of all or any portion of their
respective tax bad debt reserves.
(c) As used in this Agreement, the term "Taxes" means all federal,
state, county, local and foreign income, excise, gross receipts, ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment, severance,
withholding, duties, intangibles, franchise and other taxes, charges, levies or
like assessments, including any net worth tax, or other tax of any kind
whatsoever together with all penalties and additions to tax and interest
thereon.
4.16 INSURANCE. Purchaser has made available to the Company true and
complete copies of all material policies of insurance of Purchaser currently in
effect. All of the policies relating to insurance maintained by Purchaser with
respect to its material properties and the conduct of its business in any
material respect (or any comparable policies entered into as a replacement
therefor) are in full force and effect and Purchaser has not received any notice
of cancellation with respect thereto. All life insurance policies on the lives
of any of the current and former officers of Purchaser which are maintained by
Purchaser or which are otherwise included as assets on the books of Purchaser
(i) are, or will at the Effective Time be, owned by Purchaser, free and clear of
any claims thereon by the officers or members of their families, except with
respect to the death benefits thereunder, as to which Purchaser agrees that
there will not be an amendment prior to the Effective Time without the consent
of the Company, and (ii) are accounted for properly as assets on the books of
Purchaser, as the case may be, in accordance with GAAP. Purchaser does not have
any material liability for unpaid premiums or premium adjustments not properly
reflected on Purchaser's consolidated financial statements contained in the FDIC
Reports. Purchaser has been and is adequately insured with respect to its
property and the conduct of its business in such amounts and against such risks
as are substantially similar in kind and amount to that customarily carried by
parties similarly situated who own properties and engaged in businesses
substantially similar to that of Purchaser (including without limitation
liability insurance and blanket bond insurance). All claims under any policy or
bond have been duly and timely filed.
4.17 DISCLOSURE. No representation or warranty contained in this Agreement,
and no statement contained in any certificate, list or other writing furnished
to the Company pursuant to the provisions hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances in which they
are made, not misleading. No information material to the Merger and which is
necessary to make the representations and warranties herein contained not
misleading, has been withheld from, or has not been delivered in writing to the
Company.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Section 4.18 of the Purchaser Disclosure Schedule sets forth a
true and complete list of all Plans maintained or contributed to by Purchaser or
Parent during the three years preceding this Agreement. The term "Plans" for
purposes of this Article IV means all employee benefit plans, arrangements or
agreements that are maintained or contributed to, or that were maintained or
contributed to at any time during the three years preceding the date of this
Agreement, by Purchaser or Parent or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with Purchaser would
be deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Purchaser has heretofore delivered to the Company true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) all required Forms 5500 and all related schedules for such
Plans (if applicable) for each of the last two years, (ii) the actuarial report
for such Plan (if applicable) for each of the last two years, and (iii) the most
recent determination letter from the IRS (if applicable) for such Plan.
(c) (i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not limited
to ERISA and the Code, (ii) each of the Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been maintained so as to qualify
from the effective date of such Plan to the Effective Time, (iii) with respect
to each Plan which is subject to Title IV of ERISA, the present value of
"benefit liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under
such Plan, based upon the actuarial assumptions currently used by the Plan for
IRS funding purposes, did not, as of its latest valuation date, exceed the then
current value of the assets of such Plan allocable to such accrued benefits, and
there has been no "accumulated funding deficiency" (whether or not waived), (iv)
no Plan provides benefits, including without limitation death, medical or other
benefits (whether or not insured), with respect to current or former employees
of Purchaser or Parent or any ERISA Affiliate beyond their retirement or other
termination of service, other than (u) coverage mandated by applicable law, (v)
life insurance death benefits payable in the event of the death of a covered
employee, (w) disability benefits payable to disabled former employees, (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits
accrued as liabilities on the books of Purchaser or Parent or any ERISA
Affiliate or (z) benefits the full cost of which is borne by the current or
former employee (or his beneficiary), (v) with respect to each Plan subject to
Title IV of ERISA, no liability under Title IV of ERISA has been incurred by
Purchaser or Parent or any ERISA Affiliate that has not been satisfied in full,
no condition exists that presents a material risk to Purchaser or Parent or any
ERISA Affiliate of incurring a material liability to or on account of such Plan,
and there has been no "reportable event" (within the meaning of Section 4043 of
ERISA and the regulations thereunder), (vi) neither Purchaser nor Parent nor any
ERISA Affiliate has ever maintained or contributed to a "multiemployer pension
plan," as such term is defined in Section 3(37) of ERISA, (vii) all
contributions or other amounts payable by Purchaser or Parent as of the
Effective Time with respect to each Plan in respect of current or prior plan
years have been paid or accrued in accordance with GAAP and Section 412 of the
Code, (viii) neither Purchaser or Parent nor any ERISA Affiliate has engaged in
a transaction in connection with which Purchaser or Parent or any ERISA
Affiliate has any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section
4975 or 4976 of the Code, (ix) consummation of the transactions contemplated
hereby will not cause any amounts payable under any of the Plans to fail to be
deductible for federal income tax purposes under Sections 280G or 162(m) of the
Code, (x) there are no pending or, to the best knowledge of Purchaser or Parent,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto.
(d) With respect to any Plan that is a welfare plan (within the
meaning of Section 3(1) of ERISA) (i) no such Plan is funded through a "welfare
benefit fund," as such term is defined in Section 419(a) of the Code, and (ii)
each such Plan complies in all material respects with the applicable
requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B of Title I of
ERISA and any applicable state continuation coverage requirements ("COBRA").
(e) Except as prohibited by law (including Section 411(d)(6) of the
Code), each Plan may be amended, terminated, modified or otherwise revised by
Purchaser, its Subsidiaries or its ERISA Affiliates as of the Effective Time to
eliminate, without material effect, any and all future benefit accruals under
any Plan (except claims incurred under any welfare plan).
4.19 CERTAIN CONTRACTS.
(a) Except as set forth in Section 4.19 of the Purchaser Disclosure
Schedule and in the FDIC Reports filed prior to the date of this Agreement,
neither Purchaser nor Parent is a party to or bound by any contract,
arrangement, commitment or understanding (whether written or oral): (i) with
respect to the employment of any director, officer or employee, or with respect
to the employment of any consultant which cannot be terminated with a payment of
less than $5,000, (ii) which, upon the consummation of the transactions
contemplated by this Agreement, will result in any payment (whether of severance
pay or otherwise) becoming due from Purchaser or Parent to any officer or
employee thereof, (iii) which is a material contract (as defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the FDIC
Reports, (iv) which is a consulting or other agreement (including agreements
entered into in the ordinary course and data processing, software programming
and licensing contracts) not terminable on 90 days or less notice involving the
payment of less than $10,000 per annum, (v) which restricts the conduct of any
line of business by Purchaser or Parent, (vi) with or to a labor union or guild
(including any collective bargaining agreement), or (vii) (including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan) any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement. Purchaser has previously delivered to the Company true and
complete copies of all employment, consulting and deferred compensation
agreements which are in writing and to which Purchaser or Parent is a party.
Each contract, arrangement, commitment or understanding of the type described in
this Section, whether or not set forth in Section 4.19 of Purchaser Disclosure
Schedule, is referred to herein as a "Purchaser Contract".
(b) (i) Each Purchaser Contract is legal, valid and binding upon
Purchaser or Parent, as the case may be, assuming due authorization of the other
party or parties thereto, and in full force and effect, (ii) Purchaser or Parent
each has in all material respects performed all obligations required to be
performed by it to date under each such Purchaser Contract, and (iii) no event
or condition exists which constitutes or, after notice or lapse of time or both,
would constitute, a default on the part of Purchaser or Parent under any such
Purchaser Contract.
4.20 INVESTMENT SECURITIES. Section 4.20(a) of Purchaser Disclosure
Schedule sets forth the book value as of December 31, 1996 of the investment
securities, mortgage backed securities and securities held for sale by Purchaser
or Parent. Section 4.20(b) of Purchaser or Parent Disclosure Schedule sets forth
the names of all the joint ventures in which Purchaser or Parent has an
investment (whether or not such joint ventures remain active). Except for
pledges to secure public and trust deposits, Federal Reserve borrowings,
repurchase agreements and reverse repurchase agreements entered into in
arms'-length transactions pursuant to normal commercial terms and conditions and
other pledges required by law, none of the investments reflected in the
consolidated balance sheets of Purchaser to be included in its Annual Report on
Form F-2 for the period ended December 31, 1996, and none of the investments
made by Purchaser since December 31, 1996, (i) is subject to any restriction
(contractual, statutory or otherwise) that would impair the ability of the
entity holding such investment freely to dispose of such investment at any time,
or (ii) has suffered or incurred any extraordinary loss nor is management of
Purchaser or Parent aware of any event (or events in the aggregate) which may
occur in the future that could reasonably be expected to result in such an
extraordinary loss.
4.21 ENVIRONMENTAL MATTERS.
(a) Each of Purchaser or Parent and, to the best knowledge of
Purchaser or Parent, their Participation Facilities and Loan Properties (each as
hereinafter defined), are, and have been, in material compliance with all
applicable environmental laws and with all rules, regulations, standards and
requirements of the United States Environmental Protection Agency (the "EPA")
and of state and local agencies with jurisdiction over pollution or protection
of the environment.
(b) There is no suit, claim, action or proceeding pending or, to the
best knowledge of Purchaser or Parent, threatened, before any Governmental
Entity or other forum in which Purchaser or Parent or any of their Participation
Facilities has been or, with respect to threatened proceedings, may be, named as
a defendant, responsible party or potentially responsible party (i) for alleged
noncompliance (including by any predecessor), with any environmental law, rule,
regulation, standard or requirement or (ii) relating to the release into or
presence in the Environment (as hereinafter defined) of any Hazardous Materials
(as hereinafter defined) or Oil (as hereinafter defined) whether or not
occurring at or on a site owned, leased or operated by Purchaser or Parent or
any of their Participation Facilities.
(c) To the best knowledge of Purchaser or Parent, there is no suit,
claim, action or proceeding pending or threatened before any Governmental Entity
or other forum in which any Loan Property of Purchaser or Parent has been or,
with respect to threatened proceedings, may be, named as a defendant,
responsible party or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any environmental law, rule, regulation,
standard or requirement or (ii) relating to the release into or presence in the
Environment of any Hazardous Material or Oil whether or not occurring at or on a
site owned, leased or operated by a Loan Property of Purchaser or Parent.
(d) Neither Purchaser, nor Parent, nor to their best knowledge, any of
their Participation Facilities or Loan Properties, has received any notice
regarding a matter on which a suit, claim, action or proceeding as described in
subsection (b) or (c) of this Section 4.21 could reasonably be based. No facts
or circumstances have come to Purchaser's or Parent's attention which have
caused either to believe that a material suit, claim, action or proceeding as
described in subsection (b) or (c) of this Section 4.21 could reasonably be
expected to occur.
(e) During the period of (i) Purchaser's or Parent's ownership or
operation of any of their respective current properties, (ii) Purchaser's or
Parent's participation in the management of any of their Participation
Facilities, or (iii) Purchaser's or Parent's holding of a security interest in
any of their Loan Properties, there has been no release or presence in the
Environment of Hazardous Material or Oil in, on, under or affecting such
property or, to the best knowledge of Purchaser or Parent such Participation
Facility or Loan Property. To the best knowledge of Purchaser and Parent prior
to the period of (x) Purchaser's or Parent's ownership or operation of any of
their respective current properties or any previously owned or operated
properties, (y) Purchaser's or Parent's participation in the management of any
of their Participation Facilities, or (z) Purchaser's or Parent's holding of a
security interest in any of its Loan Properties, there was no release or
presence in the Environment of Hazardous Material or Oil in, on, under or
affecting any such property, Participation Facility or Loan Property.
(f) The following definitions apply for purposes of this Section 4.21:
(i) "Loan Property" means any property in which Purchaser or Parent holds a
security interest, and, where required by the context, said term means the owner
or operator of such property; (ii) "Participation Facility" means any facility
in which Purchaser or Parent participates or has participated in the management
and, where required by the context, said term means the owner or operator of
such property; (iii) "Hazardous Material" means any pollutant, contaminant, or
hazardous substance or hazardous material as defined in or pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq., or any other federal, state, or local environmental law,
regulation, or requirement; (iv) "Oil" means oil or petroleum of any kind or
origin or in any form, as defined in or pursuant to the Federal Clean Water Act,
33 U.S.C. ss. 1251 et seq., or any other federal, state, or local environmental
law, regulation, or requirement; and (v) "Environment" means any soil, surface
waters, groundwaters, stream sediments, surface or subsurface strata, and
ambient air, and any other environmental medium.
4.22 PROPERTIES.
(a) Section 4.22 of the Purchaser Disclosure Schedule contains a true,
complete and correct list and a brief description (including carrying value) of
all real properties, including properties acquired by foreclosure or deed in
lieu thereof, owned or leased to Purchaser and Parent. Except as set forth in
Section 4.22 of Purchaser Disclosure Schedule, Purchaser and Parent each has
good and marketable title to all the real property and all other property owned
by it and included in the consolidated balance sheet of Purchaser for the period
ended December 31, 1996, and owns such property subject to no encumbrances,
liens, mortgages, security interests or pledges, except such encumbrances,
liens, mortgages, security interests and pledges that do not have a Material
Adverse Effect on Purchaser or Parent or which do not and will not interfere
with the use of the property as currently used or contemplated to be used by
Purchaser or Parent, or the conduct of the business of Purchaser or Parent.
(b) Neither Purchaser nor Parent has received any notice of violation
of any applicable zoning or environmental regulation, ordinance or other law,
order, regulation or requirement relating to its operations or its properties
and to the knowledge of Purchaser and Parent, there is no such violation of a
material nature. Except as set forth in Section 4.22 to the Purchaser Disclosure
Schedule, all buildings and structures used by Purchaser or Parent conform in
all material respects with all applicable ordinances, codes and regulations, or
are not required to conform due to grandfathering clauses contained in such
ordinances, codes or regulations, except to the extent such noncompliance does
not and will not have a Material Adverse Effect on Purchaser or Parent and which
does not or will not interfere with the use of any property as currently used or
contemplated to be used by Purchaser or Parent, or the conduct of the business
of Purchaser or Parent.
(c) Section 4.22 to the Purchaser Disclosure Schedule contains a true,
complete and correct list of all leases pursuant to which Purchaser or Parent
lease any real or personal property, either as lessee or as lessor (the
"Purchaser Leases"). Assuming due authorization of the other party of parties
thereto, each of the Purchaser Leases is valid and binding on Purchaser or
Parent, as the case may be, and valid and binding on and enforceable against all
other respective parties to such leases in accordance with their respective
terms (subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the rights and remedies of creditors generally and general
principles of equity). There are not under such Purchaser Leases any existing
breaches, defaults, events of default by Purchaser or Parent, or events which
with notice and/or lapse of time would constitute a breach, default or event of
default by Purchaser or Parent, nor has Purchaser or Parent received notice of,
or made a claim with respect to, any breach or default by any other party to
such Purchaser Leases. Purchaser and Parent each enjoy quiet and peaceful
possession of all such leased properties occupied by it as lessee.
(d) All of the real properties, leasehold improvements and items of
equipment and other material personal property owned, leased, or licensed by
Purchaser or Parent, or in which any of those parties hold an interest, are in
good maintenance, repair, and operating condition, ordinary wear and tear
excepted, are adequate for the purposes for which they are now being or are
anticipated to be used, and are free from any material defects.
4.23 ADMINISTRATION OF FIDUCIARY ACCOUNTS. Each of Purchaser and Parent has
properly administered all accounts for which it acts as a fiduciary, including
but not limited to accounts for which it serves as a trustee, agent, custodian,
personal representative, guardian, conservator or investment advisor, in
accordance with the terms of the governing documents and applicable law. The
accountings for each such fiduciary account are true and correct and accurately
reflect the assets of such fiduciary account. Neither Purchaser, nor Parent, to
the best knowledge of Purchaser and Parent, their respective officers, directors
or employees has committed any breach of trust with respect to any fiduciary
account.
4.24 TRANSACTIONS WITH CERTAIN PERSONS. Neither Purchaser nor Parent has
any outstanding loan, deposit or other relationship or other transaction with
any officer, director or greater-than-5% shareholder of Purchaser or Parent or
any "associate" (as defined in Rule 14a-1 under the Exchange Act of any such
officer or director) affiliates (as defined in Rule 144(a)(1) of the Securities
Act) of any such officer, director or shareholder (individually, an "Interested
Person"), other than deposit or loan transactions in the ordinary course of
business on terms substantially the same as those prevailing at the time for
comparable transactions with other, unaffiliated persons, and which did not and
do not involve any unusual risk (including of non- collectibility) or other
features unfavorable to Purchaser or Parent. Section 4.24 of the Purchaser
Disclosure Schedule hereto contains a full description of all outstanding loans
by Purchaser or Parent to an Interested Person which, either individually or in
the aggregate, have current outstanding balances of $5,000 or more (including in
the outstanding balance all amounts which Purchaser or Parent is obligated to
advance but not including loans secured by cash collateral). All deposit
relationships of Purchaser or Parent with an Interested Person with aggregate
balances in excess of $10,000 are fully described in Section 4.24 of the
Purchaser Disclosure Schedule. Except as otherwise set forth in Section 4.24 of
the Purchaser Disclosure Schedule, neither Purchaser nor Parent has entered into
any contractual or other business relationship with any Interested Person.
4.25 STATE TAKEOVER LAWS. The transactions contemplated by this Agreement
are not subject to any applicable state takeover laws in effect on the date
hereof. The Board of Directors of Purchaser has taken all necessary action prior
to the date of this Agreement in connection with the approval of the execution,
delivery and performance of this Agreement, any purchase or other transaction
respecting Purchaser Common Stock provided for herein or therein, and the other
transactions contemplated hereby and thereby, including without limitation
approval by a majority of the Continuing Directors of Purchaser (as such term is
defined in the Amended and Restated Articles of Agreement of Purchaser).
4.26. LABOR MATTERS. Neither Purchaser nor Parent is a party to any
collective bargaining or other labor union or guild contract. There is no
pending or, to the best knowledge of Purchaser, threatened, labor dispute,
strike or work stoppage against Purchaser or Parent which may interfere with the
respective business activities of Purchaser or Parent. Neither Purchaser nor
Parent, nor, their respective representatives or employees, has committed any
unfair labor practices in connection with the operation of the respective
businesses of Purchaser or Parent, and there is no pending or, to the best
knowledge of Purchaser or Parent, threatened, charge or complaint against
Purchaser or Parent by the National Labor Relations Board or any comparable
state agency.
4.27. INTELLECTUAL PROPERTY. Purchaser and Parent each owns or possesses
valid and binding licenses and other rights to use without payment of any
material amount all material patents, copyrights, trade secrets, trade names,
service marks and trademarks used in its businesses, provided, that neither
Purchaser nor Parent claims to have sole or exclusive right to use all of the
trade names and service marks used by it; neither Purchaser nor Parent has
received any notice of conflict with respect thereto that asserts the right of
others. Purchaser and Parent each has performed in all material respects all the
obligations required to be performed by them and are not in default under any
contract, agreement, arrangement or commitment relating to any of the foregoing.
4.28 OWNERSHIP OF THE COMPANY COMMON STOCK; AFFILIATES AND ASSOCIATES.
Neither Purchaser, nor Parent, nor any of their affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially own, directly
or indirectly, or (ii) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case, any
shares of capital stock of the Company or the Bank (other than Trust Account
Shares and DPC Shares). Neither Purchaser, nor Parent, nor any of their
directors, officers, or employees is an "affiliate" or an "associate" of the
Company.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01 COVENANTS OF THE COMPANY AND THE BANK. During the period from the date
of this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Purchaser, the Company and the Bank shall carry on their respective businesses
in the ordinary course consistent with past practice and with prudent banking
practice. The Company and the Bank each will use all reasonable efforts to (x)
preserve its business organization, (y) keep available the present services of
its employees and (z) preserve for itself and Purchaser the goodwill of the
customers of the Company and the Bank and others with whom business
relationships exist. Without limiting the generality of the foregoing, and
except as set forth in Section 5.01 of the Company Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by
Purchaser, whose consent shall not be unreasonably withheld or delayed, neither
the Company nor the Bank shall:
(a) declare or pay any dividends on, or make other distributions in
respect of, any of its capital stock, except that the Company may pay its
regular semi-annual cash dividend of up to $0.15 per share in June, 1997 and up
to $0.29 in December, 1997 if the Closing has not yet occurred by the respective
date on which such dividend is payable;
(b) (i) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock except upon
the exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement, or (ii) repurchase, redeem or
otherwise acquire (except for the acquisition of Trust Account Shares and DPC
Shares as such terms are defined in Section 1.05(b) hereof), any shares of the
capital stock of the Company or the Bank, or any securities convertible into or
exercisable for any shares of the capital stock of the Company or the Bank;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
(d) amend its Articles of Incorporation or Articles of Association, as
the case may be, or By-Laws, or elect or appoint any new directors;
(e) enter into any real property lease for a term longer than one
year, or extend the term of any lease currently in effect;
(f) make any capital expenditures in excess of $10,000 individually,
or $50,000 in the aggregate;
(g) enter into any new line of business or offer deposit and loan
pricing which is materially different relative to its competitors in the local
market;
(h) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, other than in connection with foreclosures, settlements in
lieu of foreclosure or troubled loan or debt restructurings in the ordinary
course of business, which would be material to the Company or the Bank;
(i) take any action that is intended or would result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the Merger set
forth in Article VII not being satisfied, or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;
(j) change its methods of accounting in effect at December 31, 1996,
except as required by changes in GAAP or regulatory accounting principles as
concurred to by the Company's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, (x) adopt, amend, renew or terminate any
Plan or any agreement, arrangement, plan or policy between the Company or the
Bank and one or more of its current or former directors, officers or employees
or (y) except for normal increases in the ordinary course of business consistent
with past practice, increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any plan
or agreement as in effect as of the date hereof (including, without limitation,
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares) or (ii) except as
contemplated by Section 1.09 hereof, enter into, modify or renew any employment,
severance or other agreement with any director, officer or employee of the
Company or the Bank, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement providing for any benefit to any director, officer or employee;
(l) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code;
(m) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity;
(n) file any application to open, relocate or terminate the operations
of any banking or other office or facility except for the branch facility to be
opened in the Plymouth Regional High School;
(o) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business;
(p) sell, lease, encumber, assign or otherwise dispose of, or agree to
sell, lease, encumber, assign or otherwise dispose of, any of its material
assets, properties or other rights or agreements or purchase or sell any loans
in bulk;
(q) foreclose upon or take deed or title to any commercial real estate
without first conducting a Phase I environmental assessment of the property; or
foreclosure upon such commercial real estate if such Phase I environmental
assessment indicates the presence of hazardous material in amounts which, if
such foreclosure were to occur, would be reasonably likely to result in a
Material Adverse Effect on the Company or the Bank;
(r) make any tax election or settle or compromise any material
Federal, state, local or foreign tax liability;
(s) pay, discharge or satisfy any claim, liability or obligation,
other than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or reserved
against in the balance sheet for the fiscal year ended December 31, 1996, or
subsequently incurred in the ordinary course of business and consistent with
past practice;
(t) sell any securities in its investment portfolio, except in the
ordinary course of business;
(u) change its loan policies or procedures in effect at December 31,
1996;
(v) enter into or renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination of make any commitment with respect
to, (i) any contract, agreement or lease for office space, operations space or
branch space to which the Company or the Bank is a party or by which the Company
or the Bank or their respective properties is bound; (ii) any lease, contract or
agreement other than in the ordinary course of business consistent with past
practices; (iii) regardless of whether consistent with past practices, any
lease, contract, agreement or commitment involving an aggregate payment by or to
the Company or the Bank of more than $25,000 or having a term of one year or
more from the time of execution;
(w) make any loan other than in accordance with the Company's or the
Bank's loan and credit policies and the Company's or the Bank's customary terms,
conditions and standards, and in accordance with applicable law and consistent
with prudent banking practices;
(x) waive any material right, whether in equity or at law, that it has
with respect to any loan, except in the ordinary course of business consistent
with prudent banking practices;
(y) agree to do any of the foregoing.
5.02 NO SOLICITATION.
(a) Neither the Company nor the Bank nor any of their directors,
officers, employees, representatives, agents and advisors or other persons
controlled by the Company or the Bank shall, except to the extent required by
applicable law relating to fiduciary obligations of directors, upon advice of
counsel, solicit or hold discussions or negotiations with, or assist or provide
any information to, any person, entity, or group (other than Purchaser)
concerning any merger, disposition of a significant portion of its assets, or
acquisition of a significant portion of its capital stock or similar
transactions involving the Company or the Bank. Nothing contained in this
Section shall prohibit the Company or its Board of Directors from taking and
disclosing to the Company's shareholders a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act or making such other disclosure to the Company's shareholders
which, in the judgment of the Board of Directors, based upon the advice of
counsel, may be required under applicable law. The Company will promptly
communicate to Purchaser the terms of any proposal, discussion, negotiation, or
inquiry relating to a merger or disposition of a significant portion of its
capital stock or similar transaction involving the Company or the Bank and the
identity of the party making such proposal or inquiry, which it may receive with
respect to any such transaction.
(b) Neither Purchaser nor Parent nor any of their directors, officers,
employees, representatives, agents and advisors or other persons controlled by
the Purchaser shall, except to the extent required by applicable law relating to
fiduciary obligations of directors, upon advice of counsel, solicit or hold
discussions or negotiations with, or assist or provide any information to, any
person, entity, or group (other than Company) concerning any merger, disposition
of a significant portion of its assets, or acquisition of a significant portion
of its capital stock or similar transactions involving the Purchaser or the
Bank. Nothing contained in this Section shall prohibit the Purchaser or its
Board of Directors from taking and disclosing to the Purchaser's shareholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act or making such other disclosure to
the Purchaser's shareholders which, in the judgment of the Board of Directors,
based upon the advice of counsel, may be required under applicable law. The
Purchaser will promptly communicate to the Company the terms of any proposal,
discussion, negotiation, or inquiry relating to a merger or disposition of a
significant portion of its capital stock or similar transaction involving the
Purchaser and the identity of the party making such proposal or inquiry, which
it may receive with respect to any such transaction.
5.03 COVENANTS OF PURCHASER AND PARENT. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Company, Purchaser and Parent shall carry on its respective business in the
ordinary course consistent with past practice and with prudent banking practice.
Purchaser will use all reasonable efforts to (x) preserve its present business
organizations intact, (y) keep available the present services of its employees
and (z) preserve for itself and the Company the goodwill of the customers of
Purchaser and others with whom business relationships exist. Without limiting
the generality of the foregoing, and except as set forth in Section 5.03 of the
Purchaser Disclosure Schedule or as otherwise contemplated by this Agreement or
consented to in writing by the Company, whose consent shall not be unreasonably
withheld or delayed, neither Purchaser nor Parent shall:
(a) declare or pay any dividends on, or make other distributions in
respect of, any of its capital stock, except for the declaration and payment of
regular cash dividends in such amount as Purchaser may determine, provided,
however, that the Dividend Payout Ratio (as hereinafter defined) of Purchaser in
any fiscal year shall not exceed the Dividend Payout Ratio of the Company in its
1996 fiscal year. With respect to either party, the "Dividend Payout Ratio" for
any fiscal year shall mean the ratio of the aggregate cash dividends paid to
such party's shareholders during such year divided by such party's total net
income for the same fiscal year.
(b) (i) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock except upon
the exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement, or (ii) repurchase, redeem or
otherwise acquire (except for the acquisition of Trust Account Shares and DPC
Shares as such terms are defined in Section 1.05(b) hereof), any shares of the
capital stock of Purchaser, or any securities convertible into or exercisable
for any shares of the capital stock of the Purchaser, provided, however, that
Purchaser is permitted to effect the Holding Company Reorganization which will
involve an exchange of stock in accordance with the Holding Company Exchange
Ratio.
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
(d) amend its Articles of Incorporation or By-Laws except as required
to comply with Sections 1.07 and 1.08 hereof;
(e) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, other than in connection with foreclosures, settlements in
lieu of foreclosure or troubled loan or debt restructurings in the ordinary
course of business, which would be material to the Purchaser;
(f) take any action that is intended or would result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the Merger set
forth in Article VII not being satisfied, or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;
(g) change its methods of accounting in effect at December 31, 1996,
except as required by changes in GAAP or regulatory accounting principles as
concurred to by Purchaser's independent auditors;
(h) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, (x) adopt, amend, renew or terminate any
Plan or any agreement, arrangement, plan or policy between Purchaser or Parent
and one or more of its current or former directors, officers or employees or (y)
except for normal increases in the ordinary course of business consistent with
past practice, increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan or
agreement as in effect as of the date hereof (including, without limitation, the
granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares) or (ii) except as
contemplated by Section 1.09 hereof, enter into, modify or renew any employment,
severance or other agreement with any director, officer or employee of Purchaser
or Parent, or establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement providing for any
benefit to any director, officer or employee;
(i) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code;
(j) foreclose upon or take deed or title to any commercial real estate
without first conducting a Phase I environmental assessment of the property; or
foreclosure upon such commercial real estate if such Phase I environmental
assessment indicates the presence of hazardous material in amounts which, if
such foreclosure were to occur, would be reasonably likely to result in a
Material Adverse Effect on Purchaser or Parent;
(k) make any loan other than in accordance with Purchaser's or
Parent's loan and credit policies and Purchaser's or Parent's customary terms,
conditions and standards, and in accordance with applicable law and consistent
with prudent banking practices;
(l) waive any material right, whether in equity or at law, that it has
with respect to any loan, except in the ordinary course of business consistent
with prudent banking practices;
(m) agree to do any of the foregoing.
5.04 MINIMUM SHAREHOLDERS' EQUITY; ALLOWANCE FOR LOAN LOSSES. At the
Effective Time, the Company shall have consolidated shareholders' equity
(exclusive of unrealized investment losses) at least equal to that reflected in
the Company's audited financial statements for the year ended December 31, 1996
and (ii) an allowance for loan and lease losses at least equal to 95% of that
reflected in the Company's audited financial statements for the year ended
December 31, 1996. At the Effective Time, Purchaser shall have (i) consolidated
shareholders' equity (exclusive of unrealized investment losses) at least equal
to that reflected in Purchaser's audited financial statements for the year ended
December 31, 1996 and (ii) an allowance for loan and lease losses at least equal
to 95% of that reflected in Purchaser's audited financial statements for the
year ended December 31, 1996 less $500,000.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 REGULATORY MATTERS.
(a) The parties hereto shall cooperate with each other and use all
reasonable efforts promptly to prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation the Merger). The Company and Purchaser shall have the right to review
in advance, and to the extent practicable each will consult with the other on,
in each case subject to applicable laws relating to the exchange of information,
all the information relating to the Company, the Bank or Purchaser, as the case
may be, which appear in any filing made with or written materials submitted to,
any third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(b) Purchaser and the Company (or the Bank as the case may be) shall,
upon request, furnish each other with all information concerning themselves,
their respective directors, officers and shareholders and such other matters as
may be reasonably necessary or advisable in connection with the Proxy Statement,
the Registration Statement or any other statement, filing, notice or application
made by or on behalf of Purchaser, Parent, the Company or the Bank to any
Governmental Entity in connection with the Merger and the other transactions
contemplated hereby.
(c) Purchaser and the Company (or the Bank as the case may be) shall
promptly furnish each other with copies of written communications received by
Purchaser, the Company or the Bank, as the case may be, from, or delivered by
any of the foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
6.02 SECURITIES LAWS MATTERS.
(a) As soon as practicable after the date hereof, Parent and the
Company shall file the Registration Statement, in which the Proxy Statement will
be included as part of the prospectus, with the SEC and the FDIC under the
Exchange Act and applicable FDIC regulations. Parent, Purchaser and the Bank
shall use all reasonable efforts to have the Registration Statement cleared by
the SEC and the FDIC as promptly as practicable after such filing.
(b) Parent, Purchaser and the Company shall cooperate with each other
in the preparation of the Registration Statement, and each shall notify the
other of the receipt of any comments of the SEC and the FDIC with respect to the
Registration Statement and of any requests by the SEC and the FDIC for any
amendment or supplement thereto or for additional information and shall provide
to the other parties promptly copies of all correspondence between the party or
any representative or agent of the party and the FDIC or SEC. Each party shall
review the Registration Statement prior to its being filed with the SEC and the
FDIC and shall review all amendments and supplements to the Registration
Statement and all responses to requests for additional information and replies
to comments prior to their being filed with, or sent to, the SEC and the FDIC.
The parties agree to use all reasonable efforts, after consultation with each
other, to respond promptly to all such comments of and requests by the SEC and
the FDIC.
(c) Purchaser will advise the Company, promptly after Purchaser
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed or the issuance of any
stop order or the suspension of the qualification of the Parent Common Stock for
offering or sale in any jurisdiction, or the initiation or threat or any
proceeding for any such purpose.
(d) Purchaser and the Company shall each use all reasonable efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities laws or "blue sky" permits and approvals required in connection
with the issuance of Parent Common Stock in the Merger.
(e) Purchaser and the Company further agree to cause the Registration
Statement and all required amendments and supplements thereto to be mailed to
their respective shareholders entitled to vote at the Shareholder Meetings at
the earliest practicable time.
6.03 SHAREHOLDER MEETINGS. In order to consummate the Merger, the Company
and Purchaser shall take all steps necessary to duly call, give notice of,
convene and hold their respective Shareholder Meeting as soon as practicable for
the purpose of voting upon the approval of this Agreement and the transactions
contemplated hereby and shall use all reasonable efforts to obtain such approval
and adoption. The Company and Purchaser each shall, through their respective
Board of Directors, except to the extent legally required for the discharge of
the fiduciary duties of such Board under applicable law as advised in writing by
its independent counsel, recommend to their shareholders approval of this
Agreement and the transactions contemplated hereby. The Company and Purchaser
shall coordinate and cooperate with respect to the foregoing matters.
6.04 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, the parties shall afford each other's officers,
employees, counsel, accountants, agents, advisors and other authorized
representatives, access, during normal business hours during the period prior to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, make available to the other party (i) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which are not permitted to be disclosed under applicable law), (ii)
copies of all periodic reports to senior management, including without
limitation, reports on non-performing loans and other asset quality matters and
all materials furnished to the respective boards of directors relating to asset
quality generally, and (iii) all other information concerning its business,
properties, assets and personnel as either party may reasonably request.
(b) No party shall be required to provide access to or to disclose
information where such access or disclosure would jeopardize the attorney-client
privilege of the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(c) All information (the "Confidential Information") furnished by one
party (the "Providing Party") to the other party or its directors, officers,
employees, counsel, accountants, agents, and advisors (the "Representatives")
(the "Receiving Party") shall be treated as the sole property of the Providing
Party and, if this Agreement terminates, the Receiving Party shall return to the
Providing Party or destroy all such written Confidential Information. The
Receiving Party shall, and shall use reasonable efforts to cause its
Representatives to, keep confidential all such Confidential Information, and
shall not directly or indirectly use such information for any competitive or
commercial purpose. Confidential Information shall not include information which
(i) was already in the possession of the Receiving Party prior to receipt from
the Providing Party, provided that such information is not known by the
Receiving Party or its Representatives to be subject to another confidentiality
agreement with or other obligation of secrecy to the Providing Party; (ii)
becomes generally available to the public other than as a result of a disclosure
by the Receiving Party; (iii) becomes available to the Receiving Party on a
non-confidential basis from a source other than the Providing Party or its
Representatives, provided that such source is not known by the Receiving Party
to be bound by a confidentiality agreement with or other obligation of secrecy
to the Providing Party; (iv) has been approved for release by written
authorization of the Providing Party; or (v) has been publicly disclosed
pursuant to a requirement of a government agency or of law.
6.05 LEGAL CONDITIONS TO MERGER. Each of Parent, Purchaser, the Company and
the Bank shall use all reasonable efforts (a) to take, or cause to be taken, all
actions necessary, proper or advisable to comply promptly with all legal
requirements which may be imposed on such party with respect to the Merger and,
subject to the conditions set forth in Article VII hereof, to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity and any other third party which
is required to be obtained by Parent, Purchaser, the Company or the Bank in
connection with the Merger and the other transactions contemplated by this
Agreement; provided, however, that (1) neither Parent nor Purchaser shall be
obligated to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption is likely, in the reasonable opinion of Purchaser's
Board of Directors, to result in the imposition of a Purchaser Burdensome
Condition (as defined in Section 7.02(c) hereof) and (2) neither the Company nor
the Bank shall be obligated to take any action pursuant to the foregoing if the
taking of the action or such compliance or the obtaining of such consent,
authorization, order, approval or exemption is likely, in the reasonable opinion
of the Company's Board of Directors, to result in the imposition of a Company
Burdensome Condition.
6.06 RESTRICTIONS ON SALE OF PARENT COMMON STOCK.
(a) Each of Parent and the Bank shall use all reasonable efforts to
cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act and for purposes of
qualifying the Merger for "pooling of interests" accounting treatment) of such
party to deliver to the other party hereto, as soon as practicable after the
date of this Agreement, and prior to the date of the Shareholders Meetings,
written agreements in the forms attached hereto as Exhibits VII and VIII,
providing that such person will not sell, pledge, transfer or otherwise dispose
of any shares of Parent Common Stock, Purchaser Common Stock or the Company
Common Stock held by such "affiliate" and, in the case of the "affiliates" of
the Company, the shares of Parent Common Stock to be received by such
"affiliate" in the Merger: (1) otherwise than in compliance with the applicable
provisions of the Securities Act and the rules and regulations thereunder; and
(2) unless the parties shall have agreed that it will be impossible to obtain
pooling treatment for the Merger, during the period commencing 30 days prior to
the Merger and ending at the time of the publication of financial results
covering at least 30 days of combined operations of Parent and the Company.
(b) Parent shall use all reasonable efforts to publish no later than
twenty-five (25) days after the end of the first calendar quarter in which there
are at least thirty (30) days of post-Merger combined operations (which calendar
quarter may be the calendar quarter in which the Effective Time occurs),
combined sales and net income figures as contemplated by and in accordance with
the terms of SEC Accounting Series Release No. 135.
6.07 EMPLOYEE MATTERS. All employees of the Bank immediately prior to the
Effective Time (the "Current Employees") shall be employees of the Bank
immediately after the Effective Time. All Current Employees shall receive such
compensation and benefits as provided by the Bank immediately preceding the
Effective Time.
6.08 SUBSEQUENT INTERIM AND ANNUAL FINANCIAL STATEMENTS. As soon as
reasonably available, but in no event later than March 31, 1997, Purchaser will
deliver to the Company and the Company will deliver to Purchaser their
respective Annual Reports on Form F-2 and 10-K for the fiscal year ended
December 31, 1996, as filed with the FDIC and SEC, respectively, under the
Exchange Act. As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter ending after the date of this Agreement,
Purchaser will deliver to the Company and the Company will deliver to Purchaser
their respective Quarterly Reports on Form F-4 and 10-Q, as filed with the FDIC
and SEC under the Exchange Act.
6.09 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purpose of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger, the proper officers and directors of each party to this
Agreement shall take all such necessary action as may be reasonably requested by
Parent or Purchaser.
6.10 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time,
each party will promptly supplement or amend the Disclosure Schedules delivered
in connection with the execution of this Agreement to reflect any matter which,
if existing, occurring or known at the date of this Agreement, would have been
required to be set forth or described in such Disclosure Schedules or which is
necessary to correct any information in such Disclosure Schedules which has been
rendered inaccurate thereby. No supplement or amendment to such Disclosure
Schedules shall have any effect for the purposes of determining satisfaction of
the conditions set forth in Sections 7.02(a) or 7.03(a) hereof, as the case may
be, or the compliance by the Company or Purchaser, as the case may be, with the
respective covenants set forth in Sections 5.01 and 5.03 hereof.
6.11 CURRENT INFORMATION.
(a) During the period from the date of this Agreement to the Effective
Time, each of the Company and Purchaser will cause one or more of its designated
representatives to be available to confer on a regular and frequent basis (not
less than bi-weekly) with representatives of the other and to report the general
status of their ongoing operations. Without limiting the generality of the
foregoing, each such party will provide monthly reports on the status of loans
made, the investment portfolio including all purchases and sales of securities
and other assets, the type and mix of products and services, personnel matters,
problem loan management, reserve adequacy, results of operations, and any other
data reasonably requested by the other party. Each such party will promptly
notify the other party of any material change in the normal course of its
business and of any governmental complaints, investigations or hearings or the
institution of significant litigation involving them or their subsidiaries or
properties and will keep the other party reasonably informed of such events.
(b) To the extent not covered by paragraph (a) above, the Company
shall give prompt notice to Purchaser, and Purchaser shall give prompt notice to
the Company, of (i) the occurrence or non-occurrence of any event which would be
reasonably likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect and (ii) any
failure of Purchaser or the Company or the Bank, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; provided, however, that the delivery of
any notice pursuant to this paragraph (b) shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
6.12 PARENT. Purchaser shall (a) cause the organization of Parent, (b)
cause Parent to execute a copy of this Agreement and deliver such executed copy
to each of Purchaser and the Company and (c) cause Parent to take all necessary
action to complete the transactions contemplated hereby subject to the terms and
conditions hereof.
6.13 NO INCONSISTENT ACTIONS. Prior to the Effective Time, no party will:
(i) enter into any transaction or make any agreement or commitment and will use
reasonable efforts not to permit any event to occur, which could reasonably be
anticipated to result in (x) a denial of the regulatory approvals referred to in
Section 7.01(b) or (y) the imposition of any condition or requirement that would
materially adversely affect the economic or business benefits to the Surviving
Corporation of the transactions contemplated by this Agreement; or (ii) adopt by
plan or arrangement, or take or cause to be taken any action, that would
adversely affect holders of the Company Common Stock in a disproportionate
manner after the Effective Time. Without limiting the scope of the immediately
preceding sentence, no party hereto shall take or cause to be taken any action,
either before or after the Effective Time, that would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code or that would
disqualify the Merger for "pooling of interests" accounting treatment.
ARTICLE VII
CONDITIONS PRECEDENT
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the affirmative vote
of the shareholders of the Company and Purchaser to the extent required by New
Hampshire law and the respective charters of the Company and Purchaser.
(b) REGULATORY APPROVALS. All necessary approvals, authorizations and
consents of all Governmental Entities required to consummate the transactions
contemplated hereby (including the Holding Company Reorganization and Merger)
shall have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired or been
terminated (all such approvals and the expiration of all such waiting periods
being referred to herein as the "Requisite Regulatory Approvals"). For purposes
of this Agreement, the term "Requisite Regulatory Approvals" shall mean: (i) a
final order or orders of the Federal Reserve Board approving or authorizing the
organization of Parent and Parent's acquisition of all of the outstanding stock
of Purchaser prior to the Merger, approving or authorizing the Merger, and
granting any other necessary approvals with respect to the transactions
contemplated by this Agreement, and (ii), if necessary, a final order of the
Bank Commissioner or the Board of Trust Company Incorporation approving or
authorizing or waiving jurisdiction with respect to the organization of Parent
and Parent's acquisition of all of the outstanding stock of Purchaser prior to
the Merger and with respect to the Merger.
(c) SECURITIES LAWS MATTERS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC
or any other regulatory authority. Parent and Purchaser shall have received all
necessary state securities laws and "blue sky" permits and other authorizations
required in connection with the issuance of Parent Common Stock in the Holding
Company Reorganization and the Merger. The Parent Common Stock issued in the
Merger shall be approved for listing on the NASDAQ/NMS or the American Stock
Exchange.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger, or any of the other transactions contemplated by this Agreement shall be
in effect and no proceeding initiated by any Governmental Entity seeking an
injunction shall be pending. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restricts or makes illegal consummation of
the Merger, or any of the other transactions contemplated by this Agreement.
7.02 CONDITIONS TO OBLIGATIONS OF PURCHASER AND PARENT. The obligation of
Purchaser and Parent to effect the Merger is also subject to the satisfaction or
waiver by Purchaser and Parent at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and the Bank set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, it being
understood that such representations and warranties shall be deemed to be true
and correct in all material respects unless the failure or failures of such
representations and warranties to be so true and correct represent, either
individually or in the aggregate, a Material Adverse Effect on the Company and
the Bank taken as a whole; provided, however, that for purposes of determining
satisfaction of this condition, no effect shall be given to any exception in
such representations and warranties relating to materiality or the knowledge of
the Company or Bank. Purchaser shall have received a certificate signed on
behalf of the Company and the Bank by their respective Chief Executive Officers
and Chief Financial Officers to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY AND THE BANK. The
Company and the Bank shall have each performed in all material respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing Date, and Purchaser shall have received a certificate signed on
behalf of the Company and the Bank by their respective Chief Executive Officers
and Chief Financial Officers to such effect.
(c) NO BURDENSOME CONDITION. None of the Requisite Regulatory
Approvals shall impose any term, condition or restriction upon Purchaser,
Parent, or the Surviving Corporation that in the reasonable opinion of
Purchaser's Board of Directors would (i) require the expenditure of $1,000,000
or more, (ii) result in a delay of the Closing by six months or more, (iii)
require the divestiture of any of the deposits of any party, (iv) restrict the
payment of dividends by any party in any manner below historical levels, (v)
subject any party to a higher minimum capital requirement than is imposed by
applicable law or (vi) require any party to raise additional capital (a
"Purchaser Burdensome Condition").
(d) CONSENTS UNDER AGREEMENTS. The consent, approval or waiver of each
person (other than the Governmental Entities referred to in Section 7.01(b))
whose consent or approval shall be required in order to permit the succession by
the Surviving Corporation pursuant to the Merger, to any obligation, right or
interest of the Company or the Bank under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument shall have
been obtained.
(e) TAX OPINION. Parent shall have received the opinion of Goodwin,
Procter & Hoar, LLP subject to customary conditions and qualifications
(including reliance, in part, on representations of Parent, Purchaser, the
Company and the Bank, and assumptions concerning, among other things, the
actions of shareholders), to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization qualifying under the
provisions of Section 368(a) of the Code.
(f) ACCOUNTANT'S LETTER. The Company shall have caused to be delivered
to Purchaser letters from Shatswell McLeod & Co., independent public accountants
with respect to the Company, dated the date on which the Registration Statement
or last amendment thereto shall become effective, and dated the date of the
Closing, and addressed to Parent and Purchaser, covering such matters as Parent
and Purchaser shall reasonably request with respect to facts concerning the
Company's financial condition.
(g) LEGAL OPINION. Parent shall have received the opinion of Cranmore,
FitzGerald & Meaney, counsel to the Company, dated the Closing Date, in a form
that is customary for transactions of this type.
(h) OPINION OF FINANCIAL ADVISER. Parent shall have received an
opinion, dated as of the date of the Proxy Statement, from NECA to the effect
that as of the date thereof the Exchange Ratio is fair to shareholders of
Purchaser from a financial point of view.
(i) CASH CONSIDERATION. The amount of cash consideration to be paid
the shareholders of the Company in the Merger as a percentage of the total
consideration to be paid to the shareholders of the Company shall not exceed
35%.
7.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company and the Bank to effect the Merger is also subject to the satisfaction or
waiver by the Company and the Bank at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser and Parent set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, it being understood
that such representations and warranties shall be deemed to be true and correct
in all material respects unless the failure or failures of such representations
and warranties to be so true and correct represent, either individually or in
the aggregate, a Material Adverse Effect on the Parent and Purchaser taken as a
whole; provided, however, that for purposes of determining satisfaction of this
condition, no effect shall be given to any exception in such representations and
warranties relating to materiality or the knowledge of Parent or Purchaser. The
Company shall have received a certificate signed on behalf of Purchaser and
Parent by their respective Chief Executive Officers and Chief Financial Officers
to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF PURCHASER AND PARENT. Purchaser and
Parent shall have each performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of
Parent and Purchaser by their respective Chief Executive Officers and Chief
Financial Officers to such effect.
(c) NO BURDENSOME CONDITION. None of the Requisite Regulatory
Approvals shall impose any term, condition or restriction upon the Company or
the Bank that in the reasonable opinion of the Company's Board of Directors
would (i) require the expenditure of $1,000,000 or more, (ii) result in a delay
of the Closing by six months or more, (iii) require the divestiture of any of
the deposits of any party, (iv) restrict the payment of dividends by any party
in any manner below historical levels, (v) subject any party to a higher minimum
capital requirement than is imposed by applicable law or (vi) require any party
to raise additional capital (a "Company Burdensome Condition").
(d) TAX OPINION. The Company shall have received the opinion of
Cranmore, FitzGerald & Meaney, subject to customary conditions and
qualifications (including reliance, in part, on representations of Parent and
the Company, and assumptions concerning, among other things, the actions of
shareholders), to the effect that the Merger will be treated for federal income
tax purposes as a tax-free reorganization qualifying under the provisions of
Section 368(a) of the Code.
(e) ACCOUNTANT'S LETTER. Purchaser shall have caused to be delivered
to the Company letters from Shatswell McLeod & Co., independent public
accountants with respect to Purchaser, dated the date on which the Registration
Statement or last amendment thereto shall become effective, and dated the date
of the Closing, and addressed to the Company and Purchaser, covering such
matters as the Company and Purchaser shall reasonably request with respect to
facts concerning Purchaser's financial condition.
(f) LEGAL OPINION. The Company shall have received the opinion of
Goodwin, Procter & Hoar LLP, counsel to Parent and Purchaser, dated the Closing
Date, in a form that is customary for transactions of this type.
(g) OPINION OF FINANCIAL ADVISOR. The Company shall have received an
opinion, dated as of the date of the Proxy Statement, from HAS Associates, Inc.
to the effect that as of the date thereof the Merger Consideration to be
received by the shareholders of the Company pursuant to the Merger is fair to
such shareholders from a financial point of view.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.01 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company:
(a) by mutual consent of Purchaser and the Company in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Purchaser or the Company upon written notice to the
other party (i) ninety days after the date on which any request or application
for a regulatory approval required to consummate the Merger shall have been
denied or withdrawn at the request or recommendation of the Governmental Entity
which must grant such requisite regulatory approval, unless within the ninety
day period following such denial or withdrawal a petition for rehearing or an
amended application has been filed with the applicable Governmental Entity,
provided, however, that no party shall have the right to terminate this
Agreement pursuant to this Section 8.01(b)(i) if such denial or request or
recommendation for withdrawal shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein, or (ii) if any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable order enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement;
(c) by either Purchaser or the Company if the Merger shall not have
been consummated on or before February 15, 1998, unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe in any material respect the
covenants and agreements of such party set forth herein;
(d) by either Purchaser or the Company (provided, that the terminating
party shall not be in material breach of any of its obligations under Section
6.03) if any approval of the shareholders of the Purchaser or Company required
for the consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of shareholders or at
any adjournment or postponement thereof;
(e) by either Purchaser or the Company (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach is not cured within forty-five days
following written notice to the party committing such breach, or which breach,
by its nature, cannot be cured prior to the Closing;
(f) by either Purchaser or the Company (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach shall not have been cured within forty-five days
following receipt by the breaching party of written notice of such breach from
the other party hereto; or
(g) by Purchaser, if the Board of Directors of the Company does not
publicly recommend, as required by Section 6.03 hereof, in the Proxy Statement
that the Company's shareholders approve and adopt this Agreement, or if after
recommending in the Proxy Statement that shareholders approve and adopt this
Agreement, the Board of Directors of the Company shall have withdrawn, modified
or amended such recommendation in any respect materially adverse to Purchaser;
or
(h) by the Company, if the Board of Directors of Purchaser does not
publicly recommend, as required by Section 6.03 hereof, in the Proxy Statement
that Purchaser's shareholders approve and adopt this Agreement, or if after
recommending in the Proxy Statement that shareholders approve and adopt this
Agreement, the Board of Directors of Purchaser shall have withdrawn, modified or
amended such recommendation in any respect materially adverse to the Company.
8.02 EFFECT OF TERMINATION.
In the event of termination of this Agreement by either Purchaser or
the Company as provided in Section 8.01, this Agreement shall forthwith become
void and have no effect except Sections 6.04(c) and 8.03, shall survive any
termination of this Agreement, and there shall be no further obligation on the
part of Parent, Purchaser, the Company, the Bank or their respective officers or
directors except for the obligations under such provisions. Notwithstanding
anything to the contrary contained in this Agreement, no party shall be relieved
or released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
8.03 EXPENSES; TERMINATION FEE.
(a) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expense; provided, however,
that the costs and expenses of printing and mailing the Proxy Statement, and all
filing and other fees paid to the SEC or any other Governmental Entity in
connection with the Merger and the other transactions contemplated hereby, shall
be shared evenly by the Company and Purchaser; and provided further that nothing
contained herein shall limit either party's rights under Sections 8.03(b) and
(c) hereof.
(b) In order to induce Purchaser to enter into this Agreement and to
reimburse Purchaser for incurring the costs and expenses related to entering
into this Agreement and consummating the transactions contemplated by this
Agreement, the Company will make a cash payment to Purchaser of $2,500,000 as
liquidated damages if and only if:
(i) Purchaser has terminated this Agreement pursuant to Sections
8.01(e) or 8.01(f) and the breach of the representation, warranty, covenant
or agreement was caused by the action, failure to take action or an
occurrence which is within the control of the Company or the Bank; or
(ii) Purchaser has terminated this Agreement pursuant to Section
8.01(g), and (x) at the time of such termination any person other than
Purchaser, Parent or any subsidiary or affiliate of Purchaser or Parent,
shall have made a bona fide proposal to the Bank, the Company or its
shareholders to engage in an Acquisition Transaction by public announcement
or written communication, or (y) at the time of or within six months of any
such termination, the Company shall have entered into an agreement to
engage in an Acquisition Transaction with any person other than Purchaser,
Parent or any subsidiary or other affiliate of Purchaser or Parent, or the
Board of Directors of the Company shall have approved an Acquisition
Transaction or recommended that the shareholders of the Company approve or
adopt any Acquisition Transaction with any person other than Purchaser,
Parent or any subsidiary or other affiliate of Purchaser or Parent.
For purposes of this Agreement, "Acquisition Transaction" shall mean (i) a
merger, consolidation or other similar transaction with the Company or the Bank,
(ii) any sale, lease or other disposition of 25% or more of the assets of the
Company and the Bank, taken as a whole, in a single transaction or series of
transaction, or (iii) any tender or exchange offer for 25% or more of the
outstanding shares of the Company Common Stock or the Bank Common Stock or the
economic value of equity interests therein.
(c) In order to induce the Company to enter into this Agreement and to
reimburse the Company for incurring the costs and expenses related to entering
into this Agreement and consummating the transactions contemplated by this
Agreement, Purchaser shall make a cash payment to the Company of $2,500,000 as
liquidated damages if and only if:
(i) The Company has terminated this Agreement pursuant to Sections
8.01(e) or 8.01(f) and the breach of the representation, warranty, covenant
or agreement was caused by the action, failure to take action or an
occurrence which is within the control of the Purchaser or Parent; or
(ii) The Company has terminated this Agreement pursuant to Section
8.01(h), and (x) at the time of such termination any person other than
Purchaser, Parent or any subsidiary or affiliate of Purchaser or Parent,
shall have made a bona fide proposal to the Parent, Purchaser or its
shareholders to engage in an Acquisition Transaction by public announcement
or written communication, or (y) at the time of or within six months of any
such termination, Purchaser shall have entered into an agreement to engage
in an Acquisition Transaction with any person other than the Company, the
Bank or any subsidiary or other affiliate of the Company or the Bank, or
the Board of Directors of Purchaser shall have approved an Acquisition
Transaction or recommended that the shareholders of Purchaser approve or
adopt any Acquisition Transaction with any person other than the Company,
the Bank or any subsidiary or other affiliate of the Company or the Bank.
8.04 AMENDMENT. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of Purchaser
and the Company. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.05 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver shall not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.01 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at Goodwin, Procter & Hoar
LLP, Exchange Place, Boston, MA 02109, at 10:00 a.m. on a date to be specified
by Purchaser and satisfactory to the Company, which shall be not more than five
business days after the satisfaction of the conditions set forth in Article VII
hereof or at such other date, time and place as is mutually agreed upon by the
Company and Purchaser. The date on which such Closing takes place is referred to
herein as the "Closing Date". Purchaser shall provide the Company written notice
of the date specified by it as the Closing Date at least three business days
prior to such date.
9.02 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein which by their terms apply in whole or in part after the Effective Time.
9.03 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopies (with
confirmation from recipient), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation from
recipient) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Purchaser, to:
The Berlin City Bank
9 Main Street
Berlin, New Hampshire 03570
Attn: William J. Woodward
with a copy to:
William Pratt Mayer, Esq.
Margaret B. Crockett, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(b) if to the Company or the Bank, to:
Pemi Bancorp, Inc.
287 Highland Street, P. O. Box 29
Plymouth, New Hampshire 03264-0029
Attn: Fletcher W. Adams
with a copy to:
J.J. Cranmore, Esq.
Cranmore, FitzGerald & Meaney
49 Wethersfield Avenue
Hartford, Connecticut, 06114-1102
9.04 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to be March 14, 1997.
9.05 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.06 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof except that the
Confidentiality Agreement among the Company, the Bank and Purchaser dated as of
November 20, 1996, as amended, shall remain in full force and effect.
9.07 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New Hampshire, without regard to any
applicable conflicts of law.
9.08 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in Section 6.04(c)
of this Agreement were not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of Section 6.04(c)
of this Agreement and to enforce specifically the terms and provisions thereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in equity.
9.09 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is deemed to be so broad as to be unenforceable, the provision shall
be interpreted to be only so broad as is enforceable.
9.10 PUBLICITY. Except as otherwise required by law or the rules of the
National Association of Securities Dealers, so long as this Agreement is in
effect, neither Purchaser nor the Company shall, or shall permit any of its
Subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
9.11 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
<PAGE>
IN WITNESS WHEREOF, Purchaser, Parent, the Company and the Bank have caused
this Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
THE BERLIN CITY BANK
Attest: By
------------------------------
Title: Chairman, President and
Chief Executive Officer
By
-------------------
Title:
NORTHWAY FINANCIAL, INC.
Attest: By
------------------------------
Title: President and
Chief Executive Officer
By
-------------------
Title:
PEMI BANCORP, INC.
Attest: By
------------------------------
Title: President and
Chief Executive Officer
By
-------------------
Title:
PEMIGEWASSET NATIONAL BANK
Attest: By
------------------------------
Title: President and
Chief Executive Officer
By
-------------------
Title:
<PAGE>
APPENDIX B
[LETTERHEAD OF NORTHEAST CAPITAL & ADVISORY, INC.]
August __, 1997
The Board of Directors
The Berlin City Bank
9 Main Street
Berlin, NH 03570-0009
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of The Berlin City Bank ("Berlin") of the
Exchange Ratio (as defined below) in the proposed merger (the "Merger") of Pemi
Bancorp, Inc., the parent company of The Pemigewasset National Bank
(collectively "Pemi"), with and into Northway Financial, Inc. ("Northway"), a
newly formed Bank Holding Company, whose wholly owned subsidiary initially will
be Berlin, pursuant to the Agreement and Plan of Merger (the "Merger Agreement")
dated March 14, 1997.
Under the terms of, and subject to certain conditions as defined in the
Merger Agreement, each issued and outstanding share of common stock, $1.00 par
value, of Pemi will be exchanged for 1.0419 shares (the "Exchange Ratio") of the
common stock, par value $1.00 per share, of Northway (the "Northway Common
Stock"), rounded to the nearest ten thousandth of a share of Northway Common
Stock.
Northeast Capital & Advisory, Inc., as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. We are familiar with Berlin, having acted as its financial
advisor in connection with, and having participated in certain areas of the
negotiations leading to, the Merger Agreement. We also have provided certain
investment banking services to Berlin in the past.
In connection with this opinion, we have reviewed, among other things,
the Merger Agreement; the Annual Reports to Shareholders and the Annual Reports
on Form 10K of Pemi for the four years ended December 31, 1996; the Annual
Report to Shareholders on Form F-2 of Berlin for the two years ended December
31, 1996; certain Quarterly Reports to Shareholders and Quarterly Reports on
Form 10-Q of Pemi and on Form F-4 of Berlin, certain unaudited interim reports
and certain press releases to the respective shareholders of Berlin and Pemi;
and financial information concerning the business and operations of Berlin and
Pemi furnished to us by their respective managements. We also have conducted
discussions with members of the senior managements of Berlin and Pemi regarding
the past and current business operations, regulatory relationships, financial
condition and future prospects of their respective companies. In addition, we
have reviewed the reported price and trading activity of Pemi's and Berlin's
common stock; compared certain financial information for Berlin and Pemi with
certain financial and stock market information for certain other companies, the
securities of which are publicly traded; reviewed the financial terms of certain
recent business combinations in the commercial banking environment in
particular; and performed such other studies and analyses as we considered
appropriate.
In conducting our review and arriving at our opinion, we relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not attempted
independently to verify such information. We have generally relied upon the
management of Berlin and Pemi as to the reasonableness and achievability of the
financial and operating forecasts and projections (and the assumptions and bases
therefor) provided to us, and we have generally assumed that such forecasts and
projections reflect the best currently available estimates and judgments of such
managements and that such forecasts and projections will generally be realized
in the amounts and in the time periods currently estimated by such managements.
We have also assumed that the aggregate allowance for loan losses for Berlin and
Pemi is adequate to cover such losses. We have not made nor obtained any
evaluations or appraisals of the property of Berlin and Pemi. We have, however,
independently examined certain individual loan credit files of Pemi and
independently produced projections and operating forecasts to assure ourselves
that the assumptions generated by management of Berlin and Pemi in their
projections and forecasts do not materially and adversely alter the adequacy of
the financial consideration being exchanged by Berlin shareholders, from a
financial point of view. Finally, you have informed us that the Merger is
intended to be accounted for as a pooling of interests transaction under
generally accepted accounting principles, but that it may also be accounted for
as a purchase transaction. However, the Merger Agreement provides that Northway
and Berlin will not be obligated to consummate the Merger in the event that the
amount of cash consideration paid to stockholders of Pemi exceeds 35% of the
total purchase consideration.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate in the circumstances. We have also taken into account our assessment
of general economic, market and financial conditions, our experience in other
transactions. and our knowledge of the banking industry in general. In rendering
our opinion, we have assumed that in the course of obtaining the necessary
regulatory approvals for the Merger, no conditions will be imposed that will
have a material adverse effect on the contemplated benefits of the Merger to
Berlin. Our opinion is based upon information, conditions and projections as
they exist and can be evaluated on the date hereof.
Based upon and subject to the foregoing, it is our opinion that the
Exchange Ratio of the Merger as provided and described in the Merger Agreement
is fair, from a financial point of view, to Berlin and its stockholders.
Very truly yours,
/s/ NORTHEAST CAPITAL & ADVISORY, INC.
<PAGE>
APPENDIX C
[LETTERHEAD OF HAS ASSOCIATES, INC.]
August __, 1997
Board of Directors
The Pemi Bancorp, Inc.
151 Highland Street
Plymouth, NH 03264
Members of the Board:
You have requested our opinion as to the fairness to the stockholders of
The Pemi Bancorp, Inc., Plymouth, New Hampshire ("Pemi"), from a financial point
of view, of the terms of the Agreement and Plan of Merger dated March 14, 1997
("the Agreement") which will ultimately provide for the merger (the
"Reorganization") of Pemi into Northway Financial, Inc. ("Northway"), a New
Hampshire corporation formed to become the bank holding company for The Berlin
City Bank of Berlin, New Hampshire ("City") and The Pemigewasset National Bank
of Plymouth, New Hampshire ("the Bank") in a transaction whereby each City
shareholder will receive 16 shares of Northway common stock. Shareholders of
Pemi who do not exercise their right to dissent will receive the per share
merger consideration which will be payable in common stock of Northway. The
exchange ratio will be 1.0419 shares of Northway common stock for each share of
Pemi common stock.
In connection with its opinion, HAS Associates, Inc. ("HAS") reviewed,
analyzed and relied upon material relating to the financial and operating
conditions of Pemi including, among other things, the following: (i) the
Agreement; (ii) Annual Reports to Stockholders for the three years ended
December 31, 1994, 1995, and 1996, of Pemi; (iii) certain interim reports to
stockholders and Quarterly Reports of Pemi and certain other communications from
Pemi to its stockholders; (iv) other financial information concerning the
business and operations of Pemi furnished to HAS by Pemi for purposes of its
analysis, including certain internal financial analyses and forecasts for Pemi
prepared by the senior management of Pemi; (v) certain publicly available
information concerning the trading of, and the trading market for, the Common
Stock of Pemi; (vi) corporate minutes of Pemi for three years; (vii) audit
reports certified by the independent accountants of Pemi for three years; (viii)
regulatory filings of Pemi for three years; (ix) Pemi policies and procedures,
certain loan files, and its investment portfolio; and (x) certain publicly
available information with respect to banking companies and the nature and terms
of certain other transactions that HAS considered relevant to its inquiry.
In addition, HAS reviewed certain market information concerning Pemi,
analyzed data concerning private and publicly owned banks in New England,
reviewed stock market data of other banks generally deemed comparable whose
securities are publicly traded, publicly available information concerning
certain recent business combinations, and such additional financial and other
information as HAS deemed necessary. Furthermore, HAS reviewed the same type of
financial information available concerning City. In addition, HAS reviewed
certain internal reports and documents including loan lists grouped by risk
rating, past due and non-accrual loan reports, internal loan watch list loan
relationship reports, restructured loan reports, OREO and ISF reports, loan loss
reserve analysis reports, audited financial statements (most recent three
years), regulatory reports (most recent three years), 1996 operating results,
securities portfolio-book value and market value reports, and schedule of
threatened or pending litigations. HAS also held discussions with senior
management concerning their past and current operations, financial condition and
prospects, as well as the results of regulatory examinations.
In conducting its review and arriving at its opinion, HAS relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of Pemi. HAS relied upon the accuracy and opinion of
the audit reports prepared by the Bank's independent accountants. HAS assumes no
responsibility for the accuracy and completeness of the financial and other
information relied upon.
We have acted as financial advisor to the Board of Pemi in connection
with the Reorganization and will receive a fee for this service.
In reliance upon and subject to the foregoing, it is our opinion that,
as of March 14, 1997, the per share merger consideration to be received by the
shareholders of Pemi and the financial terms of the Agreement were, and as of
the date hereof, such terms are, fair, from a financial point of view, to the
current shareholders of Pemi.
This letter is furnished to you in connection with the Reorganization
and we consent to its inclusion in the Registration Statement and proxy
solicitation material.
Sincerely,
/s/ HAS Associates, Inc.
<PAGE>
APPENDIX D
DISSENTERS' RIGHTS
NEW HAMPSHIRE BUSINESS CORPORATION ACT
A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
293-A:13.01 DEFINITIONS. IN THIS SUBDIVISION:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RSA 293-A:13.02 and who exercises that right when and in
the manner required by RSA 293-A:13.20 through 293-A:13.28.
(3) Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
293-A:13.02 RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(i) If shareholder approval is required for the merger by RSA
293-A:11.03 or the articles of incorporation and the shareholder is entitled to
vote on the merger; or
(ii) If the corporation is a subsidiary that is merged with its
parent under RSA 293-A:11.04.
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares.
(ii) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights.
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired for
cash under RSA 293-A:6.04.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this subdivision shall not challenge the corporate action creating his
entitlement, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
293-A:13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
293-A:13.20 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under RSA
293-A:13.02 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this subdivision and be accompanied by a copy of this
subdivision.
(b) If corporate action creating dissenters' rights under RSA 293-A:13.02 is
taken without a vote of shareholders or by consent pursuant to RSA 293-A:7.04,
the corporation shall notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in RSA 293-A:13.22.
293-A:13.21 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under RSA
293-A:13.02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(2) Shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this subdivision.
293-A:13.22 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under RSA
293-A:13.02 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RSA 293-A:13.21.
(b) The dissenters' notice shall be sent no later than 10 days after
corporate action was taken, and shall:
(1) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited.
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date.
(4) Set a date by which the corporation shall receive the payment
demand, which date shall not be fewer than 30 nor more than 60 days after the
date the notice is delivered.
(5) Be accompanied by a copy of this subdivision.
293-A:13.23 DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in RSA 293-A:13.22
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth, in the dissenters' notice
pursuant to RSA 293-A:13.22(b)(3), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this subdivision.
293-A:13.24 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under RSA 293-A:13.26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
293-A:13.25 PAYMENT.
(a) Except as provided in RSA 293-A:13.27, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with RSA 293-A:13.23 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year, and
the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under RSA
293-A:13.28; and
(5) A copy of this subdivision.
293-A:13.26 FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under RSA 293-A:13.22 and repeat the payment demand
procedure.
293-A:13.27 AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by RSA 293-A:13.25
from a dissenter, unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenter's right to demand payment under RSA 293-A:13.28.
293-A:13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate, less any payment under RSA 293-A:13.25, or reject the
corporation's offer under RSA 293-A:13.27 and demand payment of the fair value
of his shares and interest due, if:
(1) The dissenter believes that the amount paid under RSA 293-A:13.25 or
offered under RSA 293-A:13.27 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(2) The corporation fails to make payment under RSA 293-A:13.25 within
60 days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a) within
30 days after the corporation made or offered payment for his shares.
C. JUDICIAL APPRAISAL OF SHARES
293-A:13.30 COURT ACTION.
(a) If a demand for payment under RSA 293-A:13.28 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decisions on the
question of their value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment:
(1) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation; or,
(2) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under RSA
293-A:13.27.
293-A:13.31 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under RSA 293-A:13.30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under RSA 293-A:13.28.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of RSA 293-A:13.20 through RSA 293-A:13.28.
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this subdivision.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
CONSOLIDATION OF BANKS
388:13 DISSENTING STOCKHOLDERS.
I. Any stockholder of a bank shall have the right to dissent from, and to
obtain payment for his shares in the event of any merger, consolidation, or
other union of banks under the provisions of this chapter. Such right shall be
the same as the right provided for in RSA 293-A:13.01 through RSA 293-A:13.31
with respect to mergers and consolidations of business corporations and shall be
subject to the same limitations. Any stockholder of a bank electing to assert
the right provided for by this section shall do so in accordance with the
provisions of RSA 293-A:13.01 through RSA 293-A:13.31, which provisions shall be
binding upon the stockholder and upon the bank and shall in all respects govern
the perfection and enforcing of the right provided for by this section.
II. If a proposed merger, consolidation, or other union of banks under the
provisions of this chapter is submitted to a vote at a meeting of stockholders,
the notice of meeting shall notify all stockholders that they have or may have a
right to dissent and obtain payment for their shares by complying with the terms
of this section and of RSA 293-A:13.01 through RSA 293-A:13.31 and shall be
accompanied by a copy of this section and RSA 293-A:13.01 through RSA
293-A:13.31.
III. For purposes of this section, the term "stockholder" shall include
the holder of a special deposit in a guaranty savings bank.
<PAGE>
APPENDIX E
FORM OF
PLAN OF REORGANIZATION
This Plan of Reorganization, dated as of ___________, 1997, by and
between The Berlin City Bank, a New Hampshire trust company ("Berlin") and
Berlin Interim Trust Company, a New Hampshire trust company ("Interim Bank") and
a wholly-owned subsidiary of Northway Financial, Inc., a New Hampshire
corporation ("Northway"), which is in turn a wholly-owned subsidiary of Berlin.
RECITALS
WHEREAS, Berlin and Northway are parties to an Agreement and Plan of
Merger dated as of March 14, 1997 (the "Merger Agreement") by and among Berlin,
Northway, Pemi Bancorp, Inc. and Pemigewasset National Bank, which contemplated
that Berlin and Interim Bank enter into this Plan of Reorganization for the
purpose of effecting a holding company reorganization pursuant to which Interim
Bank shall be merged with and into Berlin (the "Bank Merger") and Berlin
shareholders shall receive 16 shares of Northway common stock for each share of
Berlin common stock, par value $5.00 (the "Share Exchange"); and
WHEREAS, the respective Boards of Directors of Berlin and Interim Bank
have adopted resolutions approving this Plan of Reorganization and have directed
that it be duly submitted to the shareholders of each of Berlin and Interim Bank
in accordance with the applicable laws of the State of New Hampshire; and
WHEREAS, the shareholders of each of Berlin and Interim Bank have duly
approved the Merger Agreement and this Plan of Reorganization; and
WHEREAS, Berlin and Interim Bank desire that Interim Bank be merged with
and into Berlin, with Berlin being the surviving bank (hereinafter sometimes
called the "Surviving Bank"), on the terms and conditions hereinafter set forth
and in accordance with the applicable laws of the State of New Hampshire.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Plan of Reorganization, Berlin and Interim Bank
agree to merge on the terms and conditions as follows:
ARTICLE 1
The Bank Merger
1.1. The Bank Merger. At the Effective Time (as defined below), Interim
Bank shall be merged with and into Berlin. Berlin shall continue its corporate
existence as the surviving bank (the "Surviving Bank") and the identity,
properties and assets of Berlin shall continue unaffected and unimpaired by the
Bank Merger. The identity and separate existence of Interim Bank shall cease,
and all of the rights, privileges, powers, franchises, properties and assets of
Interim Bank shall be vested in Berlin.
1.2 Effective Time. When authorization of the submission of the Bank
Merger to the New Hampshire Bank Commissioner is received pursuant to New
Hampshire Revised Statutes Annotated ("N.H. Rev. Stat. Ann.") 388:8 and 9, this
Plan of Reorganization shall constitute a contract for union entered into
pursuant to that authorization and shall be submitted to the Bank Commissioner
for his approval pursuant to N.H. Rev. Stat. Ann. 388:10. Following receipt of
such approval (or a Superior Court decree pursuant to N.H. Rev. Stat. Ann.
388:5) and the receipt of other required approvals, and following the Closing
provided for by Section 9.01 of the Merger Agreement, this Plan of
Reorganization, together with the Bank Commissioner's certificate of authority
pursuant to N.H. Rev. Stat. Ann. 388:9 and approval pursuant to N.H. Rev. Stat.
Ann. 388:10 and any necessary approvals pursuant to N.H. Rev. Stat. Ann. 388:14
(or the Superior Court decree pursuant to N.H. Rev. Stat. Ann. 388:5), shall be
filed with the New Hampshire Secretary of State. Subject to the terms and upon
satisfaction of all requirements of law and the conditions specified in this
Plan of Reorganization, the Bank Merger shall become effective immediately
following the close of business on the date on which such filing with the
Secretary of State takes place (the "Effective Time"), which will constitute an
effective date of union as that term is used in N.H. Rev. Stat. Ann. 388:10.
ARTICLE 2
Articles of Agreement; Bylaws
2.1 Charter. The Articles of Agreement (the "Charter") of Berlin, as in
effect immediately prior to the Effective Time, shall be the Charter of the
Surviving Bank from and after the Effective Time, except as the Charter may
thereafter be altered, amended or repealed.
2.2. Bylaws. The Bylaws of Berlin, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Bank from and after the
Effective Time, except as the Bylaws may thereafter be altered, amended or
repealed.
ARTICLE 3
Board of Directors and Officers
3.1. Directors. From and after the Effective Time of the Bank Merger,
the directors of the Surviving Bank, who shall hold office until their
successors are elected and qualified according to the Bylaws of the Surviving
Bank, shall be the same as the directors of Berlin immediately prior to the
Effective Time of the Bank Merger.
3.2. Officers. From and after the Effective Time of the Bank Merger, the
officers of the Surviving Bank, who shall hold office until their successors are
elected and qualified according to the Bylaws of the Surviving Bank, shall be
the same as the officers of Berlin immediately prior to the Effective Time of
the Bank Merger.
ARTICLE 4
Conversion and Exchange of Shares; Dissenters' Rights
4.1. Conversion and Exchange of Shares.
(a) At the Effective Time, each share of the common stock, par
value $5.00 per share, of Berlin (the "Berlin Common Stock") issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Berlin Common Stock held in Berlin's treasury or directly or indirectly by
Berlin (except for Trust Account Shares and DPC Shares (as such terms are
defined in Section 4.1(b) hereof) and (ii) Dissenting Shares (as such term is
defined in Section 4.2 hereof)) shall, by virtue of this Plan of Reorganization
and without any action on the part of the holder thereof, be converted into and
exchangeable for 16 shares of the common stock, par value $1.00 per share, of
Northway ("Northway Common Stock"). All of the shares of Berlin Common Stock
converted into Northway Common Stock pursuant to this Article 4 shall no longer
be outstanding and shall automatically be canceled and shall cease to exist, and
each certificate (each a "Certificate") previously representing any such shares
of Berlin Common Stock shall thereafter represent the right to receive the
number of whole shares of Northway Common Stock into which shares of the Berlin
Common Stock represented by such Certificate have been converted pursuant to
this Section 4.1(a). Certificates previously representing shares of Berlin
Common Stock shall be exchanged for certificates representing shares of Northway
Common Stock upon the surrender of such Certificates in accordance with Section
4.1(d) hereof, without any interest thereon.
(b) At the Effective Time, all shares of Berlin Common Stock that
are owned by Berlin as treasury stock and all shares of Berlin Common Stock that
are held directly or indirectly by Berlin (other than (i) shares of Berlin
Common Stock held directly or indirectly in trust accounts, managed accounts and
the like or otherwise held in a fiduciary capacity that are beneficially owned
by third parties (any such shares, and shares of Berlin Common Stock which are
similarly held, whether held directly or indirectly, by Berlin being referred to
herein as "Trust Account Shares") and (ii) any shares of Berlin Common Stock
held by Berlin in respect of a debt previously contracted (any such shares of
Berlin Common Stock whether held directly or indirectly by Berlin being referred
to herein as "DPC Shares")) shall be canceled and shall cease to exist and no
stock of Northway or other consideration shall be delivered in exchange
therefor.
(c) At least one business day prior to the Effective Time, Northway
shall deposit, or shall cause to be deposited, with The First National Bank of
Boston or such other bank or trust company selected by Northway (the "Exchange
Agent"), for the benefit of the holders of Certificates, for exchange in
accordance with this Article 4, certificates representing the shares of Northway
Common Stock (such certificates for shares of Northway Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 4.1(a) and
paid pursuant to Section 4.1(d) in exchange for outstanding shares of Berlin
Common Stock.
(d) As soon as practicable after the Effective Time, and in no
event later than three business days thereafter, the Exchange Agent shall mail
to each holder of record of a Certificate or Certificates a form letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing the
shares of Berlin Common Stock and the cash in lieu of fractional shares into
which the shares of Berlin Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Plan of Reorganization.
[Berlin shall have the right to review both the letter of transmittal and the
instructions three days prior to its mailing.] Upon surrender of a Certificate
for exchange and cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed, the holder of such Certificates shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Northway Common Stock to which such holder of Berlin Common Stock
shall have become entitled pursuant to the provisions of Section 4.1(a) hereof
which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Article 4, and the Certificate so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
unpaid dividends and distributions, if any, payable to holders of Certificates.
(e) After the Effective Time, there shall be no transfers on the
stock transfer books of Berlin of the shares of Berlin Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be canceled and exchanged for certificates
representing shares of Northway Common Stock as provided in this Article 4.
(f) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of the Berlin for twelve months after the Effective Time shall be
transferred to Northway. Any shareholders of Berlin who have not theretofore
complied with this Article 4 shall thereafter look only to Northway for payment
of their shares of Northway Common Stock, and unpaid dividends and distributions
on the Northway Common Stock deliverable in respect of each share of Berlin
Common Stock such shareholder holds as determined pursuant to this Plan of
Reorganization, in each case without any interest thereon. Notwithstanding the
foregoing, none of Northway, Berlin, Interim Bank, the Exchange Agent or any
other person shall be liable to any former holder of shares of Berlin Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Northway,
the posting by such person of a bond in such amount as Northway may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate, the shares of Northway Common Stock and cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.
4.2. Dissenters' Rights. Shares of Interim Bank or Berlin, which are
issued and outstanding immediately prior to the Effective Time and which are
owned by stockholders who assert and perfect dissenters' rights pursuant to and
in accordance with New Hampshire N.H. Rev. Stat. Ann. 388:13 and N.H. Rev. Stat.
Ann. 293-A:13:01-13.31 ("Dissenting Shares"), shall not be converted or
exchangeable as provided in Section 4.1 of this Plan of Reorganization unless
and until such holders shall have failed to perfect or shall have effectively
withdrawn or lost their right to payment for such shares under such applicable
laws. If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such right, the shares of Interim Bank or Berlin held by such
shareholder shall thereupon be deemed to have been converted and exchangeable,
at the Effective Time, as provided for in Section 4.1 hereof.
ARTICLE 5
Rights and Obligations; Further Assurances
At the Effective Time of the Bank Merger, the separate existence of
Interim Bank shall cease and the Surviving Bank shall possess all rights,
franchises, and interests of Interim Bank in and to every type of property
(real, personal and mixed) and chose in action by virtue of such Bank Merger
without any deed or other transfer, and the Surviving Bank, without any order or
other action on the part of any court or otherwise, shall hold and enjoy all
rights of property, franchises and interests, of a public as well as of a
private nature, including appointments, designations and nominations and all
other rights and interests as trustee, executor, administrator, registrar of
stocks and bonds, guardian of estates, assignee, receiver and committee of
estates of incompetents, and in every other fiduciary capacity, in the same
manner and to the same extent as such rights, franchises and interests were held
or enjoyed by Interim Bank at the time the Bank Merger became effective. The
Surviving Bank shall be liable for all liabilities of Interim Bank, all
deposits, debts, liabilities, obligations and contracts of Interim Bank matured
or unmatured, whether accrued, absolute, contingent or otherwise, and whether or
not reflected or reserved against on balance sheets, books of account, or
records of Interim Bank shall be those of the Surviving Bank and shall not be
released or impaired by the Bank Merger, and all rights of creditors and other
obligees and all liens on property of Interim Bank shall be preserved
unimpaired.
At the Effective Time, this Plan of Reorganization shall be deemed to
constitute, insofar as any transfer document is necessary, an irrevocable
transfer and assignment by Interim Bank to the Surviving Bank of all Interim
Bank's interests in and to every type of property, including those described in
the foregoing paragraph. From time to time as and when requested by the
Surviving Bank and to the extent permitted by New Hampshire law, the officers
and directors of Interim Bank last in office shall execute and deliver such
deeds and other instruments and shall take or cause to be taken such further or
other actions as shall be necessary in order to vest or perfect in or to confirm
of record or otherwise to the Surviving Bank title to, and possession of, all
the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Interim Bank, and otherwise to carry out the
purposes of this Plan of Reorganization; provided, that the Surviving Bank
shall, to the extent provided in the Bylaws of the Surviving Bank and by New
Hampshire law, indemnify any such officer or director who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he executed or delivered such
instrument or took such action at the request of the Surviving Bank; further
provided, without limiting the foregoing, that Interim Bank hereby irrevocably
appoints the duly elected officers of the Surviving Bank as Interim Bank's
attorneys-in-fact, each with full power and authority in the place and stead of
Interim Bank and in the name of Interim Bank to execute and deliver such deeds
and other instruments.
ARTICLE 6
Amendment
The parties hereto, by mutual action of their respective Boards of
Directors, may amend, modify or supplement this Plan of Reorganization, whether
before or after approval thereof by the shareholders of the parties, the New
Hampshire Bank Commissioner or Superior Court; provided, however, that after any
approval of the Bank Merger by the shareholders, there may not be, without
further approval of Berlin shareholders, any amendment of this Plan of
Reorganization which reduces the amount or changes the form of consideration to
be delivered to Berlin shareholders. This Plan of Reorganization may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
ARTICLE 7
Miscellaneous
7.1. Any party, by written instrument signed by any duly authorized
officer, may extend the time for the performance of any of the obligations or
other acts of any other party hereto, and may waive compliance with any of the
covenants or performance of any of the obligations of the other party contained
in this Plan of Reorganization.
7.2. This Plan of Reorganization shall be governed by and construed in
accordance with the laws of New Hampshire applicable to agreements made and
entirely to be performed within such State.
7.3. The headings of the several Articles herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Plan of Reorganization.
7.4 This Plan of Reorganization may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Interim Bank and Berlin have caused this Plan of
Reorganization to be executed by their duly authorized officers as of the day
and year first above written.
Berlin Interim Trust Company
Attest:
By:
- -------------------------------- ---------------------------------
The Berlin City Bank
Attest:
By:
- -------------------------------- ---------------------------------
[SEAL]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 293-A:8.51 of the New Hampshire Business Corporation Act
provides that a corporation may indemnify an individual made a party to a
proceeding because he is or was a director, against liability incurred in the
proceeding if: (1) he conducted himself in good faith; and (2) he reasonably
believed (i) in the case of conduct in his official capacity with the
corporation, that his conduct was in its best interests, and (ii) in all other
cases, that his conduct was at least not opposed to its best interests; and (3)
in the case of any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. A corporation may not indemnify a director in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable on the basis that personal benefit was improperly
received by him. Unless limited by its articles of incorporation, a corporation
shall indemnify a director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director of the corporation against reasonable expenses incurred by
him in connection with the proceeding.
The registrant's Amended and Restated Articles of Incorporation,
effective as of the Reorganization Time (the "Articles of Incorporation") state
that no person who serves the registrant as a director or an officer shall have
any personal liability to the registrant or its stockholders for money damages
for any action taken, or any failure to take any action, as a director or an
officer, except liability for: (a) the amount of a financial benefit received by
such director or officer to which he is not entitled; (b) an intentional
infliction of harm on the registrant or its stockholders; (c) a violation of
Section 293-A.8.33; or (d) an intentional violation of criminal law. The
registrant's Articles of Incorporation further provide that if the New Hampshire
Business Corporation Act is amended after the effective date of the registrant's
Articles of Incorporation or any amendment thereto to authorize corporate action
further eliminating or limiting the personal liability of directors or officers,
then the liability of a director or officer of the registrant shall be
eliminated or limited to the fullest extent permitted by the New Hampshire
Business Corporation Act. Any repeal or modification of the above sections of by
the stockholders of the registrant shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the registrant for acts or omissions occurring prior to the effective
date of such repeal or modification.
The registrant's By-Laws state that each director and officer shall be
indemnified and held harmless by the registrant to the fullest extent authorized
by the New Hampshire Business Corporation Act, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the registrant to provide broader indemnification
rights than such law permitted the registrant to provide prior to such
amendment) against any and all expenses and liabilities that are incurred by
such director or officer or on such director or officer's behalf in connection
with any proceeding or any claim, issue, or matter therein, which such director
or officer is a party to or participant in by reason of such director or
officer's status as a director or officer, if such director or officer acted in
good faith and in a manner such director or officer reasonably believed to be
in, or not opposed to, the best interests of the registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The rights of indemnification provided by registrant's By-laws
shall continue as to a director or officer after he or she has ceased to be a
director or officer and shall inure to the benefit of his or her heirs,
executors, administrators, and personal representatives. Notwithstanding the
foregoing, the registrant shall indemnify any director or officer seeking
indemnification in connection with a proceeding initiated by such director or
officer only if such proceeding was authorized by the Board of Directors of the
registrant. The registrant's By-laws further state that the foregoing provisions
shall be deemed to be a contract between the registrant and each director and
officer who serves in such capacity at any time while such provisions are in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The registrant's By-laws further provide
that the registrant may maintain insurance, at its expense, to protect itself
and any director, officer, or non-officer employee against any liability of any
character asserted against or incurred by the registrant or any such director,
officer, or non-officer employee, or arising out of any such person's status as
such director, officer, or non-officer employee, whether or not the registrant
would have the power to indemnify such person against such liability under the
New Hampshire Business Corporation Act or the provisions of the registrant's
By-laws.
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger, dated as of March 14, 1997, by
and among Northway Financial, Inc., The Berlin City Bank, Pemi
Bancorp, Inc., and Pemigewasset National Bank (included in Part
I as Appendix A to the Proxy Statement/Prospectus which
constitutes a part of this Registration Statement).
2.2 Form of Plan of Reorganization, by and among The Berlin City
Bank, Northway Financial, Inc., and Berlin Interim Trust
Company (included in Part I as Appendix D to the Proxy
Statement/Prospectus which constitutes a part of this
Registration Statement).
3.1 Amended and Restated Articles of Incorporation of Northway
Financial, Inc.
3.2 Form of By-laws of Northway Financial, Inc.
4 Form of Certificate representing Northway Common Stock.
5 Form of opinion of Goodwin, Procter & Hoar LLP regarding the
legality of the Northway Common Stock being registered.
8.1 Form of opinion of Goodwin, Procter & Hoar LLP regarding tax
matters.
8.2 Form of opinion of Cranmore, Fitzgerald & Meaney regarding tax
matters.
10.1 Form of Employment Agreement for William J. Woodward.
10.2 Form of Employment Agreement for Fletcher W. Adams.
10.3 Form of Voting Agreement executed by directors of The Berlin
City Bank.
10.4 Form of Voting Agreement executed by directors of Pemi Bancorp,
Inc.
10.5 Form of Rule 145 Representation Letter executed by directors
and executive officers of The Berlin City Bank.
10.6 Form of Rule 145 Representation Letter executed by directors
and executive officers of Pemi Bancorp, Inc.
23.1 Consent of Shatswell, MacLeod & Company, P.C. with respect to
the financial statements of The Berlin City Bank as of and for
the year ended December 31, 1996.
23.2 Consent of KPMG Peat Marwick LLP with respect to the financial
statements of The Berlin City Bank as of December 31, 1995 and
for the years ended December 31, 1995 and 1994.
23.3 Consent of Shatswell, MacLeod & Company, P.C. with respect
to the financial statements of Pemi Bancorp, Inc. as of
December 31, 1996 and for the years ended December 31, 1996,
1995 and 1994.
23.4 Consent of Shatswell, MacLeod & Company, P.C. with respect to
the balance sheet of Northway Financial, Inc. as of May 9,
1997.
23.5 Consent of Northeast Capital & Advisory, Inc. with respect to
its fairness opinion.
23.6 Consent of HAS Associates, Inc. with respect to its fairness
opinion.
23.7 Consent of Goodwin, Procter & Hoar LLP with respect to the
legality of the securities being registered (included in
Exhibit 5 to this Registration Statement).
23.8 Consent of Goodwin, Procter & Hoar LLP with respect to certain
tax matters (included in Exhibit 8.1 to this Registration
Statement).
23.9 Consent of Cranmore, FitzGerald & Meaney with respect to
certain tax matters (included in Exhibit 8.2 to this
Registration Statement).
24 Power of Attorney (included on Signature Page of this
Registration Statement).
99.1 Consent of named nominees to serve as directors of Northway
Financial, Inc.
99.2 Opinion of Northeast Capital & Advisory, Inc. (included in Part
I as Appendix B to the Proxy Statement/Prospectus which
constitutes a part of this Registration Statement).
99.3 Opinion of HAS Associates, Inc. (included in Part I as Appendix
C to the Proxy Statement/Prospectus which constitutes a part of
this Registration Statement).
99.4 Proxy Card of The Berlin City Bank.
99.5 Proxy Card of Pemi Bancorp, Inc.
- ---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable
(c) ITEM 4(b) INFORMATION
The opinions of Northeast Capital & Advisory, Inc. and HAS Associates,
Inc., each dated as of March 14, 1997, are included as Appendix B and Appendix
C, respectively, to the Proxy Statement/Prospectus which constitutes a part of
this Registration Statement.
ITEM 22. UNDERTAKINGS
Item 512(a)
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
Item 512(g)
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Item 512(h)
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
ADDITIONAL UNDERTAKINGS
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes 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 an included
in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Berlin,
State of New Hampshire, on August 6, 1997.
NORTHWAY FINANCIAL, INC.
By: /s/ William J. Woodward
--------------------------
Chairman of the Board and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints William J. Woodward and David J.
O'Connor, and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
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, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE
- ------------------ ----- ----
/s/ William J. Woodward President and Director (Principal August 6, 1997
-------------------- Executive Officer)
William J. Woodward
/s/ David J. O' Connor Executive Vice President August 6, 1997
-------------------- Chief Financial Officer and
David J. O' Connor Treasurer (Principal Financial
and Accounting Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger, dated as of March 14, 1997, by
and among Northway Financial, Inc., The Berlin City Bank, Pemi
Bancorp, Inc., and Pemigewasset National Bank (included in Part
I as Appendix A to the Proxy Statement/Prospectus which
constitutes a part of this Registration Statement).
2.2 Form of Plan of Reorganization, by and among The Berlin City
Bank, Northway Financial, Inc., and Berlin Interim Trust
Company (included in Part I as Appendix D to the Proxy
Statement/Prospectus which constitutes a part of this
Registration Statement).
3.1 Amended and Restated Articles of Incorporation of Northway
Financial, Inc.
3.2 Form of By-laws of Northway Financial, Inc.
4 Form of Certificate representing Northway Common Stock.
5 Form of opinion of Goodwin, Procter & Hoar LLP regarding the
legality of the Northway Common Stock being registered.
8.1 Form of opinion of Goodwin, Procter & Hoar LLP regarding tax
matters.
8.2 Form of opinion of Cranmore, Fitzgerald & Meaney regarding tax
matters.
10.1 Form of Employment Agreement for William J. Woodward.
10.2 Form of Employment Agreement for Fletcher W. Adams.
10.3 Form of Voting Agreement executed by directors of The Berlin
City Bank.
10.4 Form of Voting Agreement executed by directors of Pemi Bancorp,
Inc.
10.5 Form of Rule 145 Representation Letter executed by directors
and executive officers of The Berlin City Bank.
10.6 Form of Rule 145 Representation Letter executed by directors
and executive officers of Pemi Bancorp, Inc.
23.1 Consent of Shatswell, MacLeod & Company, P.C. with respect to
the financial statements of The Berlin City Bank as of and for
the year ended December 31, 1996.
23.2 Consent of KPMG Peat Marwick LLP with respect to the financial
statements of The Berlin City Bank as of December 31, 1995 and
for the years ended December 31, 1995 and 1994.
23.3 Consent of Shatswell, MacLeod & Company, P.C. with respect
to the financial statements of Pemi Bancorp, Inc. as of
December 31, 1996 and for the years ended December 31, 1996,
1995 and 1994.
23.4 Consent of Shatswell, MacLeod & Company, P.C. with respect to
the balance sheet of Northway Financial, Inc. as of May 9,
1997.
23.5 Consent of Northeast Capital & Advisory, Inc. with respect to
its fairness opinion.
23.6 Consent of HAS Associates, Inc. with respect to its fairness
opinion.
23.7 Consent of Goodwin, Procter & Hoar LLP with respect to the
legality of the securities being registered (included in
Exhibit 5 to this Registration Statement).
23.8 Consent of Goodwin, Procter & Hoar LLP with respect to certain
tax matters (included in Exhibit 8.1 to this Registration
Statement).
23.9 Consent of Cranmore, FitzGerald & Meaney with respect to
certain tax matters (included in Exhibit 8.2 to this
Registration Statement).
24 Power of Attorney (included on Signature Page of this
Registration Statement).
99.1 Consent of named nominees to serve as directors of Northway
Financial, Inc.
99.2 Opinion of Northeast Capital & Advisory, Inc. (included in Part
I as Appendix B to the Proxy Statement/Prospectus which
constitutes a part of this Registration Statement).
99.3 Opinion of HAS Associates, Inc. (included in Part I as Appendix
C to the Proxy Statement/Prospectus which constitutes a part of
this Registration Statement).
99.4 Proxy Card of The Berlin City Bank.
99.5 Proxy Card of Pemi Bancorp, Inc.
- ---------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NORTHWAY FINANCIAL, INC.
THE BERLIN CITY BANK, ACTING BY ITS DULY AUTHORIZED REPRESENTATIVE, AND AS SOLE
STOCKHOLDER OF A CORPORATION UNDER THE NEW HAMPSHIRE BUSINESS CORPORATION ACT,
ADOPTS THE FOLLOWING AMENDED AND RESTATED ARTICLES OF INCORPORATION FOR SUCH
CORPORATION:
FIRST: The name of the corporation is Northway Financial, Inc.
SECOND: The period of its duration is perpetual.
THIRD: The corporation is empowered to transact any and all lawful
business for which corporations may be incorporated under RSA 293-A. The
principal purpose or purposes for which the corporation is organized are:
1. Generally conducting the business and carrying on the activities of
a bank holding company, as defined in the Bank Holding Company Act of 1956, as
amended.
2. Acquiring an interest in or control of banks, savings banks,
financial institutions, and other corporations or associations of every kind and
description through ownership of stock; acquiring such stock by purchase,
exchange for its own securities, or otherwise; and exercising all of the rights,
powers and privileges of such stock.
FOURTH:
Section 1. Number of Shares. The aggregate number of shares which the
corporation shall have authority to issue is 9,000,000 shares of Common Stock,
par value $1.00 per share, and 1,000,000 shares of Preferred Stock, par value
$1.00 per share.
As set forth in this Article Fourth, the Board of Directors or any
authorized committee thereof is authorized from time to time to establish and
designate one or more series of Preferred Stock, to fix and determine the
variations in the relative rights and preferences as between the different
series of Preferred Stock in the manner hereinafter set forth in this Article
Fourth, and to fix or alter the number of shares comprising any such series and
the designation thereof to the extent permitted by law.
The number of authorized shares of the class of Preferred Stock may be
increased or decreased (but not below the number of shares outstanding) by the
affirmative vote of the holders of a majority of the Common Stock entitled to
vote, without a vote of the holders of the Preferred Stock, pursuant to the
resolution or resolutions establishing the class of Preferred Stock or Amended
and Restated Articles of Incorporation, as it may be amended from time to time.
Section 2. General.
The designations, powers, preferences and rights of, and the
qualifications, limitations, and restrictions upon, each class or series of
stock shall be determined in accordance with, or as set forth below in, Sections
3, 4, and 5 of this Article Fourth.
Section 3. Common Stock.
Subject to all of the rights, powers, and preferences of the Preferred
Stock, and except as provided by law or in this Article Fourth (or in any
certificate of designation of any series of Preferred Stock) or by the Board of
Directors or any authorized committee thereof pursuant to this Article Fourth:
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of directors and on all other matters requiring
shareholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for
payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared by
the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests.
Section 4. Preferred Stock.
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of shares of Preferred Stock in one or more series of such stock, and
by filing articles of amendment to these Amended and Restated Articles of
Incorporation pursuant to applicable law of the State of New Hampshire, to
establish or change from time to time the number of shares to be included in
each such series, and to fix the designations, powers, and preferences and the
relative, participating, optional, or other special rights of the shares of each
series and any qualifications, limitations, and restrictions thereof. Any action
by the Board of Directors or any authorized committee thereof under this Section
4 of Article Fourth shall require the affirmative vote of a majority of the
directors then in office or a majority of the members of such committee. The
Board of Directors or any authorized committee thereof shall have the right to
determine or fix one or more of the following with respect to each series of
Preferred Stock to the extent permitted by law:
(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 and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the 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 and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation;
(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 Corporation
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;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock (or series thereof) and whether such shares may be reissued as shares of
the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations, and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable.
FIFTH: The capital stock will be sold or offered for sale within the
meaning of RSA 421-B. (New Hampshire Securities Act).
SIXTH: None of the shares of the Corporation shall carry any preemptive
or preferential rights of subscription with respect to any shares of any class
or series of capital stock of the Corporation or any warrants to purchase such
shares or securities convertible into such shares, whether now or hereafter
authorized. Any and all capital stock or other securities of the Corporation now
or hereafter authorized or created may be issued by action of the Board of
Directors, without the necessity of any shareholder approval, to such persons,
for such lawful consideration, and on such terms as the Board of Directors may
determine.
SEVENTH:
Section 1. Internal Affairs of the Corporation.
(a) Powers of Directors. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors, except as otherwise
provided by the Amended and Restated Articles of Incorporation or required by
law.
(b) Election of Directors. Election of directors need not be by written
ballot unless the By-laws of the Corporation shall so provide. There shall be no
cumulative voting for directors or otherwise.
(c) Terms of Directors. The directors, other than those who may be
elected by the holders of any series of Preferred Stock of the Corporation,
shall be classified, with respect to the term for which they severally hold
office, into three classes, as nearly equal in number as possible. The initial
Class I Directors shall serve for a term expiring at the annual meeting of
shareholders to be held in 1998; the initial Class II Directors shall serve for
a term expiring at the annual meeting of shareholders to be held in 1999; and
the initial Class III Directors shall serve for a term expiring at the annual
meeting of shareholders to be held in 2000. At each annual meeting of
shareholders, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at such meeting and entitled to
vote on the election of directors, and shall hold office for a term expiring at
the annual meeting of shareholders held in the third year following the year of
their election. The directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier death,
disqualification, resignation, or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article Fourth of these Amended and Restated Articles of Incorporation, the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a series or together with holders of other such series, to
elect directors at an annual or special meeting of shareholders, the election,
term of office, filling of vacancies, and other features of such directorships
shall be governed by the terms of these Amended and Restated Articles of
Incorporation and any amendments applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this Section 3.
During any period when the holders of any series of Preferred Stock
have the right to elect additional directors as provided for or fixed pursuant
to the provisions of Article Fourth hereof, then upon commencement and for the
duration of the period during which such right continues: (a) the then otherwise
total authorized number of directors of the Corporation shall automatically be
increased by such specified number of directors, and the holders of such
Preferred Stock shall be entitled to elect the additional directors so provided
for or fixed pursuant to said provisions, and (b) each such additional director
shall serve until such director's successor shall have been duly elected and
qualified, or until such director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
director's earlier death, disqualification, resignation, or removal. Except as
otherwise provided by the Board of Directors in the resolution or resolutions
establishing such series, whenever the holders of any series of Preferred Stock
having such right to elect additional directors are divested of such right
pursuant to the provisions of such stock, the terms of office of all such
additional directors elected by the holders of such stock, or elected to fill
any vacancies resulting from the death, resignation, disqualification, or
removal of such additional directors, shall forthwith terminate and the total
and authorized number of directors of the Corporation shall be reduced
accordingly.
(d) Vacancies. For a period of three years following the effective date
of these Amended and Restated Articles of Incorporation, subject to the rights,
if any, of the holders of any series of Preferred Stock to elect directors and
to fill vacancies in the Board of Directors relating thereto: (i) any vacancy in
the Board of Directors occurring as a result of an increase in the size of the
Board of Directors or the death, resignation, disqualification, or removal of a
director nominated by Pemi Bancorp, Inc. pursuant to Section 1.09 of the
Agreement and Plan of Merger by and among The Berlin City Bank, Northway
Financial, Inc., Pemigewasset National Bank and Pemi Bancorp, Inc. dated as of
March 14, 1997 shall be filled solely by the affirmative vote of two-thirds of
the remaining directors then in office, even if less than a quorum of the Board
of Directors, and (ii) all other vacancies in the Board of Directors shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum of the Board of Directors.
Thereafter, subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies on the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification, or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed to fill a vacancy in
accordance with the preceding provisions of this Section shall hold office until
the next annual meeting of shareholders and until such director's successor
shall have been duly elected and qualified or until his or her earlier death,
disqualification, resignation or removal. Subject to the rights, if any, of the
holders of any series of Preferred Stock to elect directors, when the number of
directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of directors shall
be apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled. The affirmative vote of two-thirds of the directors of the Corporation
shall be required to amend or repeal or adopt any provision in contravention of
or inconsistent with clause (i) of this Subsection (d) of Section 2 of Article
Seventh.
(e) Removal. Subject to the rights, if any, of any series of Preferred
Stock to elect directors and to remove any director whom the holders of any such
stock have the right to elect, any director (including persons elected by
directors to fill vacancies on the Board of Directors) may be removed from
office (a) only with cause and (b) only by the affirmative vote of the holders
of two-thirds of the shares then entitled to vote at an election of directors.
At least 30 days prior to any meeting of stockholders at which it is proposed
that any director be removed from office, written notice of such proposed
removal shall be sent to the director whose removal will be considered at the
meeting. For purposes of this Section 1 of Article Seventh of these Amended and
Restated Articles of Incorporation, "cause," with respect to the removal of any
director shall mean only (i) conviction of a felony, (ii) declaration of unsound
mind by order of court, (iii) gross dereliction of duty, (iv) commission of any
action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
Section 2. Voting For Business Combinations
(a) Neither the Corporation nor any subsidiary of which the Corporation
owns at least a majority of the equity securities ordinarily entitled to vote
for the election of directors ("Subsidiary"), shall be a party to any of the
transactions specified herein (a "Business Combination") or enter into any
agreement providing for any Business Combination unless the conditions specified
in (b), (c) and (d) below shall have been satisfied:
(i) any merger or consolidation (whether in a single
transaction or a series of related transactions) other
than a merger or consolidation of the Corporation and any
of its Subsidiaries or a merger or consolidation of any
Subsidiaries of the Corporation; or
(ii) any sale, lease, exchange, transfer, or distribution of
all or substantially all or a substantial portion of the
property or assets of the Corporation or any of its
Subsidiaries, including its goodwill; or
(iii) the issuance of any securities, or of any rights
warrants or options to acquire any securities of the
Corporation or any of its Subsidiaries, to any
shareholders other than by stock dividend declared and
paid to all shareholders of the Corporation or pursuant
to an employee stock ownership plan or a stock option
plan established by the Corporation; or
(iv) any reclassification of the stock of the Corporation or
any of its Subsidiaries or any recapitalization or other
transaction (other than a redemption of stock) which has
the effect, directly or indirectly, of increasing the
proportionate share of stock of the Corporation or any of
its Subsidiaries held by any person; or
(v) the adoption of any plan or proposal for (i) dissolution
of the Corporation or any Subsidiary thereof or (ii) any
partial or complete liquidation of the Corporation or any
Subsidiary thereof.
(b) The vote of the holders of at least eighty percent (80%) of the
outstanding shares entitled to vote for the election of directors shall be
required to approve or authorize any Business Combination to which the
Corporation or any Subsidiary is a party unless the aggregate of the cash and
fair market value of the consideration to be paid to all the holders of the
Common Stock of the Corporation in connection with the Business Combination
(when adjusted for stock splits, stock dividends, reclassification of shares, or
otherwise) shall be equal to the highest price per share paid by the other party
or parties to the Business Combination (the "Acquiring Party") in acquiring any
of the Corporation's Common Stock; provided, however, that the consideration to
be paid to the holders of the Common Stock of the Corporation shall be in the
same form as that paid by the Acquiring Party in acquiring the shares of the
Common Stock held by it except to the extent that any shareholder of the
Corporation shall otherwise agree.
(c) Subject to the provisions in (b) above, the vote of the holders of
at least seventy-five percent (75%) of the outstanding shares entitled to vote
for the election of directors shall be required to approve or authorize any
Business Combination to which the Corporation or any Subsidiary is a party
unless the Business Combination shall have been approved by at least two-thirds
(2/3) of the directors of the Corporation who are not affiliated with, or
shareholders of, the Acquiring Party, in which case the vote of the holders of
at least a majority of the outstanding shares entitled to vote for the election
of directors shall be required to approve or authorize such Business
Combination.
In connection with the exercise of its judgment in determining what is
in the best interests of the Corporation and of the shareholders, when
evaluating a Business Combination or a proposal by another person or persons to
make a Business Combination or a tender or exchange offer, the Board of
Directors may, in addition to considering the adequacy of the amount to be paid
in connection with any such transaction, consider all of the following factors
and any other factors which it deems relevant: (i) the social and economic
effects of the transaction on the Corporation and its subsidiaries, employees,
depositors, loan and other customers, creditors, and other elements of the
communities in which the Corporation and its Subsidiaries operate or are
located; (ii) the business and financial condition and earnings prospects of the
Acquiring Party, including, but not limited to, debt service and other existing
financial obligations, financial obligations to be incurred in connection with
the Business Combination, and other likely financial obligations of the
Acquiring Party, and the possible effect of such conditions upon the Corporation
and its Subsidiaries and the other elements of the communities in which the
Corporation and its subsidiaries operate or are located; and (iii) the
experience and integrity of the Acquiring Party and its management.
(d) In the event that all of the conditions set forth in (b) and (c)
above are met, the Corporation or any Subsidiary may enter into any Business
Combination under the terms and conditions specified in the NHBCA.
(e) The affirmative vote of the holders of at least eighty percent
(80%) of all of the shares of the Corporation entitled to vote for the election
of directors shall be required to amend or repeal, or to adopt any provision in
contravention of or inconsistent with Subsections (a) through (e) of Section 2
of Article Seventh, notwithstanding the fact that a lesser percentage may be
specified by law.
(f) For a period of three years following the effective date of these
Amended and Restated Articles of Incorporation, the affirmative vote of
two-thirds of the directors of the Corporation shall be required to approve or
authorize a merger or consolidation involving Pemigewasset National Bank. The
affirmative vote of two-thirds of the directors of the Corporation shall be
required to amend or repeal, or adopt any provision in contravention of or
inconsistent with this Subsection (f) of Section 2 of Article Seventh,
notwithstanding the fact that a lesser percentage may be specified by law.
Section 3. Amendment of Amended and Restated Articles of Incorporation
The Corporation reserves the right to amend or repeal these Amended and
Restated Articles of Incorporation in the manner now or hereafter prescribed by
statute and these Amended and Restated Articles of Incorporation, and all rights
conferred upon shareholders herein are granted subject to this reservation.
Except as otherwise provided in these Amended and Restated Articles of
Incorporation, no amendment or repeal of these Amended and Restated Articles of
Incorporation shall be made unless the same is first approved by the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 293-A.10.03 of the NHBCA, and except as otherwise
provided by law, thereafter approved by the shareholders. Whenever any vote of
the holders of voting stock is required to amend or repeal any provision of
these Amended and Restated Articles of Incorporation, and in addition to any
other vote of the holders of voting stock that is required by these Amended and
Restated Articles of Incorporation or by law, the affirmative vote of a majority
of the outstanding shares entitled to vote on such amendment or repeal, and the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon as a class, shall be required to amend or repeal any provision
of these Amended and Restated Articles of Incorporation; provided, however, that
the affirmative vote of not less than two-thirds of the outstanding shares
entitled to vote on such amendment or repeal, and the affirmative vote of not
less than two-thirds of the outstanding shares of each class entitled to vote
thereon as a class, shall be required to amend or repeal any of the provisions
of Article Seventh, Sections 1, 2, 3, or 5 of these Amended and Restated
Articles of Incorporation.
Section 4. Amendment of By-Laws
(a) Amendment by Directors. Except as otherwise provided by law or the
By-laws, the By-laws of the Corporation may be amended or repealed by the Board
of Directors by the affirmative vote of a majority of the directors then in
office.
(b) Amendment by Shareholders. The By-laws of the Corporation may be
amended or repealed at any annual meeting of shareholders, or special meeting of
shareholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends that
shareholders approve such amendment or repeal at such meeting of shareholders,
such amendment or repeal shall only require the affirmative vote of the majority
of the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single class.
Section 5. Liability Limitations for Officers and Directors. No person
who serves the Corporation as a director or an officer shall have any personal
liability to the Corporation or its shareholders for money damages for any
action taken, or any failure to take any action, as a director or an officer,
except liability for:
(a) The amount of a financial benefit received by such director or
officer to which he is not entitled;
(b) An intentional infliction of harm on the Corporation or its
shareholders;
(c) A violation of Section 293-A.8.33; or
(d) An intentional violation of criminal law.
If the NHBCA is amended after the effective date of these Amended and
Restated Articles of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors or officers, then
the liability of a director or officer of the Corporation shall be eliminated or
limited to the fullest extent permitted by the NHBCA. Any repeal or modification
of this Section 5 of Article Seventh by the shareholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions occurring prior to the effective date of such repeal or modification.
EIGHTH: Any action required or permitted to be taken by the
shareholders of the Corporation at any annual or special meeting of shareholders
of the Corporation must be effected at a duly called annual or special meeting
of shareholders and may not be taken or effected by a written consent of
shareholders in lieu thereof.
<PAGE>
Exhibit 3.2
FORM OF
BY-LAWS
OF
NORTHWAY FINANCIAL, INC.
ARTICLE I
Shareholders
SECTION 1. Annual Meeting. The annual meeting of shareholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of shareholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
meeting of shareholders or any special meeting in lieu of annual meeting of
shareholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
shareholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a shareholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
shareholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the date
the Corporation becomes a reporting company under Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), a
shareholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (x) the 75th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a shareholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a shareholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 75th day prior to the scheduled date of such Annual Meeting or (2) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press, or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to shareholders of
record of the Corporation at the time of the mailing of such letter or report.
A shareholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the shareholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the shareholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such shareholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other shareholders known by the shareholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other shareholders, and (vi) any material
interest of the shareholder proposing to bring such business before such meeting
(or any other shareholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any shareholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2 or that the information provided in a
shareholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any shareholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the shareholder proposal was made in accordance
with the terms of this Section 2. If the presiding officer determines that any
shareholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a shareholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof,
or the presiding officer determines that a shareholder proposal was made in
accordance with the requirements of this Section 2, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-law, a shareholder
shall also comply with all applicable requirements of the Exchange Act, and the
rules and regulations thereunder with respect to the matters set forth in this
Section 2, and nothing in this Section 2 shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of Preferred Stock,
special meetings of the shareholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office, or upon delivery of written
demand therefor to the Secretary describing the purpose or purposes for which it
is to be held by the holders of not less than ten percent (10%) of the shares
entitled to vote at the meeting.
SECTION 4. Matters to be Considered at Special Meetings. No business
other than specified in the call for the meeting shall be transacted at any
special meeting of the shareholders.
SECTION 5. Notice of Meetings; Adjournments. A written notice of each
Annual Meeting stating the hour, date, and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each shareholder entitled to vote thereat and to each
shareholder who, by law or under the Articles of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the "Articles
of Incorporation") or under these By-laws, is entitled to such notice, by
delivering such notice to him or by mailing it, postage prepaid, addressed to
such shareholder at the address of such shareholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of shareholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the
purpose or purposes for which the meeting has been called.
Notice of an Annual Meeting or special meeting of shareholders need not
be given to a shareholder if a written waiver of notice is signed before or
after such meeting by such shareholder or if such shareholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of shareholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of shareholders and any record date
with respect thereto, regardless of whether any notice or public announcement
with respect to any such meeting has been sent or made pursuant to Section 2 of
this Article I or Section 3 of Article II hereof or otherwise. In no event shall
the public announcement of an adjournment, postponement, or rescheduling of any
previously scheduled meeting of shareholders commence a new time period for the
giving of a shareholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the shareholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
shareholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of shareholders is adjourned to another hour, date, or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date, and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 120 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote thereat and each shareholder who, by
law or under the Articles of Incorporation or these By-laws, is entitled to such
notice.
SECTION 6. Quorum. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
shareholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The shareholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Shareholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the Articles of
Incorporation. Shareholders may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after eleven months from its date, unless
the proxy expressly provides for a longer period. Proxies shall be filed with
the Secretary of the meeting before being voted. Except as otherwise limited
therein or as otherwise provided by law, 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. The Corporation, if acting
in good faith, may accept a proxy with respect to stock held in the name of two
or more persons if executed by or on behalf of any one of them.
SECTION 8. Action at Meeting. When a quorum is present, any matter
before any meeting of shareholders shall be decided by the affirmative vote of
the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the amended and restated Articles of Incorporation, or by these By-laws.
Any election by shareholders shall be determined by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors, except where a larger vote is required by
law, by the Articles of Incorporation, or by these By-laws. The Corporation
shall not directly or indirectly vote any shares of its own stock; provided,
however, that the Corporation may vote shares which it holds in a fiduciary
capacity to the extent permitted by law.
SECTION 9. Shareholder Lists. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make available for inspection, within two business
days after notice of the Annual Meeting or special meeting for which the list
was prepared and continuing through such Annual Meeting or special meeting, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order and by voting group and class and series, if applicable, and
showing the address of each shareholder and the number of shares registered in
the name of each shareholder. Such list shall be open to the examination of any
shareholder, or such shareholder's agent or attorney, for any purpose germane to
the meeting, during ordinary business hours, upon written demand, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
hour, date, and place of the meeting during the whole time thereof, and may be
inspected by any shareholder, and any such shareholder's agent or attorney, who
is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the Vice-Chairman, shall
preside at all Annual Meetings or special meetings of shareholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the shareholders
shall be determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of any meeting of shareholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of shareholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee, or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the New Hampshire Business Corporation Act, as amended from time to
time (the "NHBCA"), including the counting of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
Directors
SECTION 1. Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors, except as otherwise
provided by the Articles of Incorporation or required by law.
SECTION 2. Number and Terms. At the effective date of these By-laws,
the number of directors of the Corporation shall be ten. Thereafter, the number
of directors of the Corporation shall be no less than eight and no more than
thirteen. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
during the three year period following the effective date of these By-laws by
the Board pursuant to a resolution adopted by two-thirds of the entire Board of
Directors and thereafter by a majority of the entire Board. No decrease in the
number of directors constituting the Board shall shorten the term of any
incumbent director. The affirmative vote of two-thirds of the directors of the
Corporation shall be required to amend or repeal or adopt any provision in
contravention of or inconsistent with the required directors' vote to fix the
number of directors during the three-year period following the effective date of
these By-laws as set forth in the third sentence of this Section 2.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a [majority] of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
shareholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational, and
other requirements set forth in this Section 3. Any shareholder who has complied
with the timing, informational, and other requirements set forth in this Section
3 and who seeks to make such a nomination, or his, her, or its representative,
must be present in person at the Annual Meeting. Only persons nominated in
accordance with the procedures set forth in this Section 3 shall be eligible for
election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the date the Corporation becomes a reporting company
under Section 13(a) or Section 15(d) of the Exchange Act, a shareholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not later than the close of business on the
later of (i) the 75th day prior to the scheduled date of such Annual Meeting or
(ii) the 15th day following the day on which public announcement of the date of
such Annual Meeting is first made by the Corporation. For all subsequent Annual
Meetings, a shareholder's notice shall be timely if delivered to, or mailed to
and received by, the Corporation at its principal executive office not less than
75 days nor more than 120 days prior to the Anniversary Date; provided, however,
that in the event the Annual Meeting is scheduled to be held on a date more than
30 days before the Anniversary Date or more than 60 days after the Anniversary
Date, a shareholder's notice shall be timely if delivered to, or mailed and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 75th day prior to the scheduled
date of such Annual Meeting or (y) the 15th day following the day on which
public announcement of the date of such Annual Meeting is first made by the
Corporation.
A shareholder's notice to the Secretary shall set forth as to each
person whom the shareholder proposes to nominate for election or re-election as
a director: (1) the name, age, business address, and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such shareholder notice, and (4) the consent
of each nominee to serve as a director if elected. A shareholder's notice to the
Secretary shall further set forth as to the shareholder giving such notice: (a)
the name and address, as they appear on the Corporation's stock transfer books,
of such shareholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such shareholder's name and the name and address of
other shareholders known by such shareholder to be supporting such nominee(s),
(b) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned, or represented by proxy by such shareholder
and by any other shareholders known by such shareholder to be supporting such
nominee(s) on the record date for the Annual Meeting in question (if such date
shall then have been made publicly available) and on the date of such
shareholder's notice, and (c) a description of all arrangements or
understandings between such shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such shareholder.
If the Board of Directors or a designated committee thereof determines
that any shareholder nomination was not made in accordance with the terms of
this Section 3 or that the information provided in a shareholder's notice does
not satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any shareholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a shareholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof, or the presiding officer determines that a nomination was
made in accordance with the terms of this Section 3, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of
this Section 3, in the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased pursuant to Section 2 of
Article II and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 75 days prior to the Anniversary Date, a shareholder's notice
required by this Section 3 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if such
notice shall be delivered to, or mailed to and received by, the Corporation at
its principal executive office not later than the close of business on the 15th
day following the day on which such public announcement is first made by the
Corporation.
No person shall be elected by the shareholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors, or presiding
officer at such Annual Meeting. If written ballots are to be used, ballots
bearing the names of all the persons who have been nominated for election as
directors at the Annual Meeting in accordance with the procedures set forth in
this Section shall be provided for use at the Annual Meeting.
SECTION 4. Qualification. No director need be a resident of the State
of New Hampshire, but directors must own qualifying shares of the Corporation
with a fair market value at the time of such director's election of $5,000.
SECTION 5. Vacancies. For a period of three years following the
effective date of these By-laws of the Corporation, subject to the rights, if
any, of the holders of any series of Preferred Stock to elect directors and to
fill vacancies in the Board of Directors relating thereto: (i) any vacancy in
the Board of Directors occurring as a result of an increase in the size of the
Board of Directors or the death, resignation, disqualification, or removal of a
director nominated by Pemi Bancorp, Inc. pursuant to Section 1.09 of the
Agreement and Plan of Merger, by and among The Berlin City Bank, Northway
Financial, Inc., Pemigewasset National Bank and Pemi Bancorp, Inc., dated as of
March 11, 1997, shall be filled solely by the affirmative vote of two-thirds of
the remaining directors then in office, even if less than a quorum of the Board
of Directors, and (ii) all other vacancies in the Board of Directors shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum of the Board of Directors.
Thereafter, subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies on the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification, or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed to fill a vacancy in
accordance with the preceding provisions of this Section shall hold office until
the next Annual Meeting and until such director's successor shall have been duly
elected and qualified or until his or her earlier death, disqualification,
resignation, or removal. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect directors, when the number of directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of directors shall be
apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled. The affirmative vote of two-thirds of the directors of the Corporation
shall be required to amend or repeal or adopt any provision in contravention or
inconsistent with clause (i) of the first sentence of this Section 5 of Article
II.
SECTION 6. Removal. Directors may be removed from office in the manner
provided in the Articles of Incorporation.
SECTION 7. Resignation. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President,
or the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of shareholders. Other regular meetings of the Board of Directors may be
held at such hour, date, and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date, and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date, and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity, or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
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 an original meeting. It shall not be necessary to give any notice
of the hour, date, or 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 of the hour, date, and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
director and filed with the records of the meeting shall be deemed to be
equivalent to notice of 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 or promptly upon his or her arrival to the transaction of any business
because such meeting is not lawfully called or convened and does not thereafter
vote for or assent to action taken at the meeting. Except as otherwise required
by law, by the Articles of Incorporation, or by these Bylaws, 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 11. Quorum. At any meeting of the Board of Directors, a
majority of the directors then in office shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 10 of this Article II. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Articles of Incorporation, or by these Bylaws.
SECTION 13. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors unanimously consent thereto in writing.
Such action shall be evidenced by one or more written consents describing the
action taken, signed by each director, and filed with the records of the
meetings of the Board of Directors and shall be treated for all purposes as a
vote at a meeting of the Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority
of the directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, and an Audit Committee, each of which must contain two
or more members, and may delegate thereto some or all of its powers except those
which by law, by the Articles of Incorporation, or by these By-laws may not be
delegated. Except as the Board 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 By-laws
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. 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, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall consist
of a Chairman, a Vice-Chairman, a President, a Treasurer, a Secretary, and such
other officers, including, without limitation, a Chairman of the Board of
Directors, a Chief Executive Officer, and one or more Vice Presidents (including
Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents,
Assistant Treasurers, and Assistant Secretaries, as the Board of Directors may
determine.
SECTION 2. Election. At the regular annual meeting of the Board of
Directors following the Annual Meeting of shareholders, the Board of Directors
shall elect the President, the Treasurer, and the Secretary. Other officers may
be elected by the Board of Directors at such regular annual meeting of the Board
of Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a shareholder or a
director. Any person may occupy more than one office of the Corporation at any
time. 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 Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Articles of
Incorporation or by these By-laws, each of the officers of the Corporation shall
hold office until the regular annual meeting of the Board of Directors following
the next Annual Meeting of shareholders and until his or her successor is
elected and qualified or until his or her earlier death, disqualification,
resignation, or removal.
SECTION 5. Resignation. Any officer may resign at any time by
delivering his or her written resignation to the Corporation addressed to the
President or the 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.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer at any time with or without cause by the
affirmative vote of two-thirds of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. President. The President shall, subject to the direction of
the Board of Directors, have general supervision and control of the
Corporation's business. The President shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the shareholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. Vice-Chairman of the Board. The Vice-Chairman of the Board,
if one is elected, shall, in the absence of the Chairman, preside at all
meetings of the shareholders and the Board of Directors. The Vice-Chairman shall
perform the duties and have the powers of the President or the Chief Executive
Officer if he or she is absent and shall have such other powers and shall
perform such other duties as the Board of Directors may from time to time
designate. The affirmative vote of two-thirds of the directors of the
Corporation shall be required to amend or repeal or adopt any provision in
contravention of or inconsistent with this Section 11 during the three-year
period following the effective date of these By-laws.
SECTION 12. Chief Executive Officer. The Chief Executive Officer, if
one is elected, shall have such powers and shall perform such duties as the
Board of Directors may from time to time designate.
SECTION 13. Vice Presidents and Assistant Vice Presidents. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 14. Treasurer and Assistant Treasurers. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Secretary and Assistant Secretaries. The Secretary shall
record all the proceedings of the meetings of the shareholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, if any, and the Secretary, or an Assistant Secretary, shall have
authority to affix it to any instrument requiring it, and, when so affixed, the
seal may be attested by his or her signature or that of an Assistant Secretary.
The Secretary shall have such other duties and powers as may be designated from
time to time by the Board of Directors or the Chief Executive Officer. In the
absence of the Secretary, any Assistant Secretary may perform his or her duties
and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 16. Other Powers and Duties. Subject to these By-laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each shareholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent, or the registrar may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent, or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law,
by the Articles of Incorporation, or by these By-laws, the Corporation 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 Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each shareholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than seventy days prior to such meeting or other action. If no
record date is fixed: (i) the record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining shareholders
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 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.
ARTICLE V
Indemnification
SECTION 1. Definitions. For purposes of this Article:
(a) "Director" means an individual who is or was on the Board of
Directors of the Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee, benefit plan, or other
enterprise;
(b) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a Party to such Proceeding;
(c) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators, and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging, and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs, or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling, or otherwise
participating in, a Proceeding;
(d) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable Expenses incurred in connection with a Proceeding;
(e) "Non-Officer Employee" means an individual who is or was an
employee of the Corporation but who is not or was not a Director or Officer, or
an individual who, while a Non- Officer Employee of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee, benefit plan, or other enterprise;
(f) "Party" includes any individual who was, is, or is threatened to be
made a named defendant or respondent in a Proceeding.
(g) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing, or other proceeding, whether civil,
criminal, administrative, arbitrative, or investigative and whether formal or
informal;
(h) "Officer" means an individual who is or was appointed by the Board
of Directors of the Corporation or an individual who, while an Officer of the
Corporation, is or was serving at the Corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee, benefit plan, or other
enterprise;
SECTION 2. Indemnification of Directors and Officers. Subject to the
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the NHBCA, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses and Liabilities that are incurred by such Director or Officer or on
such Director or Officer's behalf in connection with any Proceeding or any
claim, issue, or matter therein, which such Director or Officer is a Party to or
participant in by reason of such Director or Officer's status as a Director or
Officer, if such Director or Officer acted in good faith and in a manner such
Director or Officer reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 2 shall continue as to a Director or
Officer after he or she has ceased to be a Director or Officer and shall inure
to the benefit of his or her heirs, executors, administrators, and personal
representatives. Notwithstanding the foregoing, the Corporation shall indemnify
any Director or Officer seeking indemnification in connection with a Proceeding
initiated by such Director or Officer only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the NHBCA, as the same exists or
may hereafter be amended, against any or all Expenses and Liabilities that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any Proceeding, or any claim, issue, or matter therein, which
such Non- Officer Employee is a Party to or participant in by reason of such
Non-Officer Employee's status as a Non-Employee Officer, if such Non-Officer
Employee acted in good faith and in a manner such Non-Officer Employee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The rights of indemnification
provided by this Section 3 shall continue as to a Non-Officer Employee after he
or she has ceased to be a Non-Officer Employee and shall inure to the benefit of
his or her heirs, personal representatives, executors, and administrators.
Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer
Employee seeking indemnification in connection with a Proceeding initiated by
such Non-Officer Employee only if such Proceeding was authorized by the Board of
Directors of the Corporation.
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, the best interests of the Corporation and, with respect
to any criminal Proceeding, such person had no reasonable cause to believe his
or her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion, or (c) by the shareholders of the Corporation provided that shares
owned by or voted under the control of Directors who are not Disinterested
Directors may not be voted in the determination.
SECTION 5. Advancement of Expenses to Directors Prior to Final
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's status as a Director within ten days after
the receipt by the Corporation of a written statement from such Director
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by such Director and shall be preceded
or accompanied by (i) a written affirmation of such Director's good faith belief
that such Director has met the standard of conduct set forth in Section 2 above,
and (ii) a written undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. Advancement of Expenses to Officers and Non-Officer
Employees Prior to Final Disposition. The Corporation may, in the discretion of
the Board of Directors of the Corporation, advance any or all Expenses incurred
by or on behalf of any Officer or Non-Officer Employee in connection with any
Proceeding in which such Officer or Non-Officer Employee is involved by reason
of such Officer or Non-Officer Employee's status as an Officer or Non-Officer
Employee upon the receipt by the Corporation of a statement or statements from
such Officer or Non-Officer Employee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
such Officer or Non-Officer Employee and shall be preceded or accompanied by (i)
a written affirmation of such Officer's or Non-Officer Employee's good faith
belief that he or she has met the standard of conduct set forth in Section 2 or
Section 3, hereof, as the case may be, and (ii) a written undertaking by or on
behalf of such Officer or Non- Officer Employee to repay any Expenses so
advanced if it shall ultimately be determined that such Officer or Non-Officer
Employee is not entitled to be indemnified against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such capacity at any time while this Article
V is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or advancement of Expenses hereunder by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the Corporation's receipt of a
written claim for indemnification, or (b) in the case of a Director, 10 days
after the Corporation's receipt of documentation of Expenses and the required
undertaking, such Director or Officer may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or shareholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Articles of
Incorporation, or these By-laws, or pursuant to any agreement, vote of
shareholders or Disinterested Directors or otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer, or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer, or Non- Officer Employee, or arising
out of any such person's status as such Director, Officer, or Non- Officer
Employee, whether or not the Corporation would have the power to indemnify such
person against such liability under the NHBCA or the provisions of this Article
V.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes, and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President, or the Treasurer or any other officer, employee, or
agent of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President,
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of shareholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. 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 Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
Articles of Incorporation, By-laws, and records of all meetings of the
incorporators, shareholders, and the Board of Directors and the stock transfer
books, which shall contain the names of all shareholders, their record
addresses, and the amount of stock held by each, may be kept outside the State
of New Hampshire and shall be kept at the principal office of the Corporation
and at such other place or places as may be designated from time to time by the
Board of Directors.
SECTION 7. Amendment of By-laws.
(a) Amendment by Directors. Except as provided otherwise by law or
elsewhere in these By-laws, these By-laws may be amended or repealed by the
Board of Directors by the affirmative vote of a majority of the directors then
in office.
(b) Amendment by Shareholders. These By-laws may be amended or repealed
at any Annual Meeting of shareholders, or special meeting of shareholders called
for such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that shareholders approve
such amendment or repeal at such meeting of shareholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted ________ ___, 1997 and effective as of ________ ___, 1997.
<PAGE>
Exhibit 4
Certificate representing Common Stock, par value $1.00 per share, of
Northway Financial, Inc., containing green border, logo, and corporate seal of
Northway Financial, Inc.
<PAGE>
Exhibit 5
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
August 6, 1997
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570
Gentlemen:
Northway Financial, Inc. ("Northway") has entered into an Agreement and
Plan of Merger, dated as of March 14, 1997 (the "Merger Agreement"), by and
among Northway, The Berlin City Bank ("BCB"), a New Hampshire bank and the
parent of Northway, Pemi Bancorp, Inc. ("PEMI"), and Pemigewasset National Bank
("PNB"), a wholly owned national bank subsidiary of PEMI. Under the terms of the
Merger Agreement, (i) Northway will organize a new New Hampshire trust company,
Berlin Interim Trust Company ("BITC"), (ii) pursuant to a Plan of Reorganization
(the "BCB Reorganization Plan"), BITC will merge with and into BCB (the "BCB
Reorganization"), as a result of which BCB will become a wholly owned direct
subsidiary of Northway, and (iii) following the BCB Reorganization, PEMI will
merge with and into Northway, with Northway being the surviving corporation (the
"Merger"). As a result of the foregoing transactions, Northway will be the bank
holding company for BCB and PNB, and each of BCB and PNB will be wholly owned
direct subsidiaries of Northway.
In connection with the BCB Reorganization and the Merger (i) each
outstanding share of BCB common stock will be converted into 16 shares of common
stock, par value $1.00 per share, of Northway ("Common Stock") and (ii) each
outstanding share of PEMI common stock will be converted into 1.0419 shares
of Northway Common Stock.
This opinion is rendered with respect to the shares of Common Stock to
be issued to the stockholders of BCB upon the effectiveness of the BCB
Reorganization Plan and to the stockholders of PEMI upon the effectiveness of
the Merger Agreement. The Merger Agreement and the BCB Reorganization Plan are
set forth as Appendix A and Appendix E, respectively, to the to the joint Proxy
Statement of BCB and PEMI and Prospectus of Northway (the "Proxy
Statement/Prospectus") that forms a part of Northway's registration statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission on August 6, 1997.
We have reviewed the Amended and Restated Articles of Incorporation and
By-laws of each of Northway and BCB, respectively, the Proxy
Statement/Prospectus, the BCB Reorganization Plan, the Merger Agreement, records
of the proceedings of the Boards of Directors of each of Northway and BCB,
respectively, and such other records as we deem relevant for the purposes of
this opinion.
Based upon the foregoing, we are of the opinion that when the BCB
Reorganization Plan and the Merger have been approved by the requisite vote of
the shareholders of BCB as set forth in the Proxy Statement/Prospectus and when
the other conditions to the BCB Reorganization and the Merger set forth in the
BCB Reorganization Plan and the Merger Agreement and in the Proxy
Statement/Prospectus have been satisfied or, if permitted, waived, the BCB
Reorganization and the Merger have become effective, the shares of Northway
Common Stock to be issued to the stockholders of BCB and PEMI pursuant to the
BCB Reorganization and the Merger will be duly authorized, validly issued, fully
paid and non-assessable.
We consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and to a copy of this opinion being filed
as an Exhibit to the Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
FORM OF GOODWIN, PROCTER & HOAR LLP TAX OPINION
Mr. William J. Woodward
Chairman of the Board and President
The Berlin City Bank
9 Main Street
Berlin, NH 03570-0009
Re: Federal Income Tax Consequences of the
Reorganization of The Berlin City Bank
and of the Merger of Pemi Bancorp, Inc.
with and into Northway Financial, Inc.
Ladies and Gentlemen:
We have acted as counsel to The Berlin City Bank, a New Hampshire
chartered commercial bank ("Berlin City") in connection with the proposed
reorganization of the corporate structure of Berlin City and in connection with
the proposed merger of Pemi Bancorp, Inc., a New Hampshire chartered corporation
("Pemi") with and into Northway Financial, Inc., a New Hampshire chartered
corporation ("Parent"), pursuant to the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of March 14, 1997, by and among Berlin City,
Parent, Pemigewasset National Bank, a national bank with its principal office in
New Hampshire (the "Bank") and Pemi.
You have requested our opinion (i) that the preliminary holding company
reorganization of Berlin City, involving a merger of Berlin City with BITC (as
defined below), a second-tier subsidiary of Berlin City, with Berlin City as the
surviving bank (the "Holding Company Reorganization") will constitute a
reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) that the merger of Pemi with and
into Parent, with Parent surviving (the "Merger") will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code.
In preparing this opinion, we have reviewed such documents and materials
as we have considered necessary for the purpose of rendering such opinion. The
opinions expressed herein are based on the terms of the Holding Company
Reorganization and the Merger as described in the Merger Agreement and in
Section I below, and on certain factual representations that were made to us by
various parties and set forth in Section II below.
The conclusions set forth in Section III below are based on the Code,
the Treasury Regulations promulgated thereunder, and existing administrative and
judicial interpretations thereof, all of which are subject to change. No
assurance therefore can be given that the federal income tax consequences
described below will not be altered in the future, and we do not assume
responsibility to provide notice or advice to any person or entity regarding
such changes or altered tax consequences, if any.
Capitalized terms used herein and not otherwise defined shall have the
meanings given them in the Merger Agreement.
I. Description of the Transactions
1. General. The Merger Agreement provides for a series of transactions
pursuant to which Berlin City would reorganize into a bank holding company
structure in accordance with applicable federal and New Hampshire law, and Pemi
will then merge with and into the new holding company. As a result of the
transactions, the present shareholders of Berlin City and Pemi will become the
shareholders of Parent, and Berlin City and the Bank will continue as wholly
owned bank subsidiaries of Parent.
2. Formation of Companies. Berlin City has organized Parent as a wholly
owned subsidiary. Parent has organized Berlin Interim Trust Company, a New
Hampshire trust company ("BITC"), as a wholly owned subsidiary. Prior to the
effective time of the Merger (the "Effective Time"), neither Parent nor BITC has
engaged in any activities other than making filings and other matters related to
the proposed transactions.
3. The Holding Company Reorganization. Subject to the terms and
conditions of the Merger Agreement, Berlin City will merge with BITC. Berlin
City will be the surviving corporation in the Holding Company Reorganization,
and as a result thereof Berlin City will become a wholly owned bank subsidiary
of Parent. In the Holding Company Reorganization, each share of Berlin City
Common Stock outstanding immediately prior to the Effective Time (other than
shares of Berlin City Common Stock owned by dissenting shareholders) will be
converted into and exchangeable for the right to receive sixteen shares of
Parent Common Stock. As part of the Holding Company Reorganization, the stock of
Parent held by Berlin City will be canceled.
4. The Merger. Immediately after the Holding Company Reorganization and
subject to the terms and conditions of the Merger Agreement, Pemi will merge
with Parent. Parent will be the surviving corporation in the Merger, and as a
result thereof the Bank will become a wholly owned bank subsidiary of Parent. In
the Merger, each share of Pemi Common Stock outstanding immediately prior to the
Effective Time (other than the shares of Pemi Common Stock owned by dissenting
shareholders) will be converted into and exchangeable for the right to receive
1.0419 shares of Parent Common Stock. Cash will be given in lieu of fractional
shares.
5. Expenses. Pursuant to the Merger Agreement, all legal and other costs
and expenses incurred in connection with the Merger Agreement will be paid by
the party incurring such costs and expenses; provided that the costs and
expenses of printing and mailing the Proxy Statement, and all filing and other
fees paid to the SEC or any other Governmental Entity in connection with the
Merger and the other transactions contemplated by the Merger Agreement, shall be
shared evenly by Pemi and Berlin City.
II. Representations
In connection with our preparation of this opinion, we have with your
permission and without investigation relied upon the representations set forth
below that have been provided to us by the Bank and/or the Berlin City:
A. The Holding Company Reorganization
1. The fair market value of the Parent Common Stock and other
consideration received by each Berlin City shareholder will be approximately
equal to the fair market value of the Berlin City Common Stock surrendered in
the exchange.
2. There is no plan or intention by the shareholders of Berlin City who
own 5% or more of the Berlin City Common Stock, and to the best of the knowledge
of the management of Berlin City, there is no plan or intention on the part of
the remaining shareholders of Berlin City to sell, exchange, or otherwise
dispose of a number of shares of Parent Common Stock received in the transaction
that would reduce the Berlin City shareholders' ownership of Parent Common Stock
to a number of shares having a value, as of the date of the transaction, of less
than 50 percent of the value of all of the formerly outstanding stock of Berlin
City as of the same date. For purposes of this representation, shares of Berlin
City Common Stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of Parent Common
Stock will be treated as outstanding Berlin City Common Stock on the date of the
transaction. Moreover, shares of Berlin City Common Stock and shares of Parent
Common Stock held by Berlin City shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be considered in making
this representation.
3. Following the transaction, Berlin City will hold at least 90 percent
of the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of BITC's net assets and at least 70 percent of the fair market value of
the BITC's gross assets held immediately prior to the transaction. For purposes
of this representation, amounts paid by Berlin City or BITC to dissenters,
amounts paid by Berlin City or BITC to shareholders who receive cash or other
property, amounts used by Berlin City or BITC to pay reorganization expenses,
and all redemptions and distributions (except for regular, normal dividends)
made by Berlin City will be included as assets of Berlin City or BITC,
respectively, immediately prior to the transaction.
4. Prior to the transaction, Parent will be in control of BITC within
the meaning of Section 368(c) of the Code.
5. Berlin City has no plan or intention to issue additional shares of
its stock that would result in Parent losing control of Berlin City within the
meaning of Section 368(c) of the Code.
6. Parent has no plan or intention to reacquire any of its stock
issued in the transaction.
7. Parent has no plan or intention to liquidate Berlin City; to merge
Berlin City with or into another corporation; to sell or otherwise dispose of
the stock of Berlin City except for transfers of stock to corporations
controlled by Parent; or to cause Berlin City to sell or otherwise dispose of
any of its assets or of any of the assets acquired from BITC, except for
dispositions made in the ordinary course of business or transfers of assets to a
corporation controlled by Berlin City.
8. The liabilities of BITC assumed by Berlin City and the liabilities to
which the transferred assets of BITC are subject were incurred by BITC in the
ordinary course of its business.
9. Following the Holding Company Reorganization, Berlin City will
continue its historic business or use a significant portion of its historic
business assets in a business.
10. Berlin City, BITC, Parent and the shareholders of Berlin City will
pay their respective expenses, if any, incurred in connection with the Holding
Company Reorganization.
11. There is no intercorporate indebtedness existing between Parent and
Berlin City or between BITC and Berlin City that was issued, acquired, or will
be settled at a discount.
12. In the transaction, shares of Berlin City Common Stock representing
control of Berlin City, as defined in Section 368(c) of the Code, will be
exchanged solely for voting stock of Parent. For purposes of this
representation, shares of Berlin City Common Stock exchanged for cash or other
property originating with Parent will be treated as outstanding Berlin City
Common Stock on the date of the transaction.
13. At the time of the transaction, Berlin City will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Berlin City that, if
exercised or converted, would affect Parent's acquisition or retention of
control of Berlin City, as defined in Section 368(c) of the Code.
14. Parent does not own, nor has it owned during the past five years,
any shares of the stock of Berlin City.
15. Neither Berlin City, Parent nor BITC is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. On the date of the transaction, the fair market value of the assets
of Berlin City will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
17. Berlin City is not under the jurisdiction of a court in a title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
B. The Merger
1. The fair market value of the Parent Common Stock and other
consideration received by each Pemi shareholder will be approximately equal to
the fair market value of Pemi Common Stock surrendered in the exchange.
2. There is no plan or intention by the shareholders of Pemi who own 5
percent or more of Pemi Common Stock, and to the best of the knowledge of the
management of Pemi, there is no plan or intention on the part of the remaining
shareholders of Pemi to sell, exchange, or otherwise dispose of a number of
shares of Parent Common Stock received in the transaction that would reduce Pemi
shareholders' ownership of Parent stock to a number of shares having a value, as
of the date of the transaction, of less than 50 percent of the value of all of
the formerly outstanding stock of Pemi as of the same date. For purposes of this
representation, shares of Pemi Common Stock exchanged for cash or other
property, surrendered by dissenters, or exchanged for cash in lieu of fractional
shares of Parent Common Stock will be treated as outstanding Pemi Common Stock
on the date of the transaction. Moreover, shares of Pemi Common Stock and shares
of Parent Common Stock held by Pemi shareholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the transaction will be considered in
making this representation.
3. Parent has no plan or intention to reacquire any of its stock
issued in the transaction.
4. Parent has no plan or intention to sell or otherwise dispose of any
of the assets of Pemi acquired in the transaction, except for dispositions made
in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
5. The liabilities of Pemi assumed by Parent and the liabilities to
which the transferred assets of Pemi are subject were incurred by Pemi in the
ordinary course of its business.
6. Following the transaction, Parent will continue the historic business
of the Bank or use of a significant portion of the Bank's historic business
assets in a business.
7. Pemi, Parent and the shareholders of Pemi will pay their respective
expenses, if any, incurred in connection with the Merger.
8. There is no intercorporate indebtedness existing between Pemi and
Parent that was issued, acquired, or will be settled at a discount.
9. Neither Pemi nor Parent is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
10. Pemi is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
11. The fair market value of the assets of Pemi transferred to Parent
will equal or exceed the sum of the liabilities assumed by Parent plus the
amount of liabilities, if any, to which the transferred assets are subject.
III. Opinions
Based on the foregoing, it is our opinion that for federal income tax
purposes:
1. The Holding Company Reorganization will constitute a reorganization
within the meaning of Section 368(a)(1) of the Code.
2. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code.
3. No gain or loss will be recognized by Berlin City shareholders who
exchange their shares of Berlin City Common Stock solely for shares of Parent
Common Stock pursuant to the Holding Company Reorganization.
The opinions expressed in this letter are limited to matters set forth
in this letter, and no other opinions should be inferred beyond the matters
expressly stated. We consent to the reference to our firm and the description of
this opinion set forth in the Registration Statement, and to a copy of this
opinion being filed as an Exhibit to the Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
[LETTERHEAD OF CRANMORE, FITZGERALD & MEANEY]
Exhibit 8.2
August 6, 1997
The Board of Directors
Pemi Bancorp, Inc.
287 Highland Street
West Plymouth, NH 03264
Ladies and Gentlemen:
Set forth below is our opinion regarding certain federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the "Code")
which will result from the transaction described below.
In rendering this opinion, we have reviewed and relied upon statements made
to us by certain of your officers. We have also examined original or certified
copies of such certificates of public officials that have been made available to
us and such other matters as we have deemed relevant for purposes of this
opinion. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to originals of all documents submitted to us as certified copies or photocopies
and the authenticity of the originals of such documents.
We also have relied upon the accuracy of the formal matters set forth in
the Joint Proxy Statement-Prospectus contained in the Registration Statement
Number __ on Form S-4 (the "Registration Statement") filed on ________________ ,
___ by Northway Financial, Inc. ("Northway") with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the "1933 Act")
Our opinion, in part, is based upon the assumption that the proposed
transaction described herein will occur in accordance with the agreements and
the facts and representations recited or referred to in this opinion letter or
the opinion letter of even date rendered by the law firm of Goodwin, Proctor &
Hoar, LLP and also that the facts set forth herein are accurate as of the date
hereof and will be accurate on the effective date of such proposed transaction.
We have undertaken no independent investigation of the accuracy of the facts and
representations recited herein or therein.
The Proposed Transaction
Based solely upon our review of the documents described herein, and in
reliance upon such documents, subject to the terms of the Agreement and Plan of
Merger, dated as of March 14, 1997 (the "Merger Agreement"), by and among Pemi,
Pemigewasset National Bank ("PNB"), a wholly owned national bank subsidiary of
PEMI, The Berlin City Bank ("BCB"), and Northway Financial, Inc. ("Northway"), a
wholly owned subsidiary of BCB, pursuant to the terms of the Merger Agreement,
(i) Northway has organized a New Hampshire trust company, Berlin Interim Trust
Company ("BITC"), (ii) BITC will merge with and into BCB (the "BCB
Reorganization"), as a result of which BCB will become a wholly owned direct
subsidiary of Northway, and (iii) following the BCB Reorganization, Pemi will
merge with and into Northway, with Northway being the surviving corporation (the
"Merger"). As a result of the foregoing transactions, Northway will be the bank
holding company for PNB and PCB, and each of PNB and BCB will be wholly owned
direct subsidiaries of Northway.
In connection with the BCB Reorganization and the Merger, (i) each
outstanding share of BCB common stock will be converted into 16 shares of
Northway common stock and (ii) each outstanding share of Pemi common stock will
be converted into 1.0419 shares of Northway common stock (the "Exchange Ratio").
At the Effective Time of the Merger:
a. Each share of common stock of Northway that is issued and outstanding
immediately prior to the effective time shall remain outstanding and
shall be unchanged after the Merger and together with the shares issued
in connection with the Merger shall thereafter constitute all of the
issued and outstanding capital stock of Northway, as the surviving
corporation.
b. Aside from dissenters' shares, each share of Pemi Common Stock
outstanding shall be canceled in exchange solely for the right to
receive 1.0419 shares of Northway Common Stock and cash payment in lieu
of fictional shares.
c. In lieu of the issuance of fractional shares of Northway Common Stock,
cash adjustments, without interest, will be paid to the holders of Pemi
Common Stock with respect to any fractional share that would otherwise
be issuable. The price to be paid for any fractional share shall be
equal to an amount in cash determined by multiplying (I) $26.875 by (ii)
the fraction of a share of Northway Common Stock to which such holder
would otherwise be entitled to receive.
The following representations have been made in connection with the
proposed transaction:
(a) There is no plan or intention by the shareholders of Pemi who own 5%
or more of Pemi Common Stock and management knows of no plan or
intention by the remaining shareholders of Pemi to sell or otherwise
dispose of a number of shares of Northway Common Stock to be received
in the transaction which would reduce the Pemi shareholders' ownership
of Northway Common Stock to a number of shares having, in the
aggregate, a fair market value as of the date of the proposed
transaction of less than 50 percent of the value of the former Pemi
stock outstanding as of the same date. For purposes of this
representation, shares of Pemi stock sold, surrendered by dissenters,
or exchanged for cash in lieu of fractional shares, or otherwise
disposed of prior or subsequent to the proposed transaction that are
part of the Merger Agreement will be considered in determining whether
there is a 50 percent continuing interest through stock ownership as
of the Effective Time of the Merger Agreement.
(b) Northway has no plan or intention to redeem or otherwise reacquire any
of its own stock to be issued in the transaction.
(c) Northway has no plan or intention to sell or otherwise dispose of any
of the assets of Pemi acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
(d) The liabilities of Pemi assumed by Northway and the liabilities to
which the transferred assets of Pemi are subject were incurred by Pemi
the ordinary course of its business.
(e) Following the transaction, Northway will continue the historic
business of PNB or use of a significant portion of PNB's historic
business assets in a business.
(f) Northway, Pemi and the shareholders of Pemi will each pay their own
expenses, if any, incurred in connection with the proposed
transaction.
(g) There is no intercorporate indebtedness existing between Pemi and
Northway that was issued, acquired, or will be settled at a discount.
(h) Neither Northway nor Pemi is an investment company, as defined in
section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
(i) Neither Pemi nor Northway is under the jurisdiction of a Court in a
Title 11 or similar action within the meaning of section 368(a)(3)(A)
of the Code.
Opinions
Based on the foregoing description of the Merger and subject to the
assumptions, qualifications and limitations set forth in this letter, we are of
the opinion that if the Merger is consummated as described above as of the date
hereof; then:
(i) The acquisition by Northway of all of the outstanding Pemi Common
Stock in exchange for Northway Common Stock, as described above, will
qualify as a Merger within the meaning of section 368(a)(1) of the
Internal Revenue Code.
(ii) No gain or loss will be recognized by Pemi shareholders who exchange
their shares of Pemi Common Stock solely for shares of Northway Common
Stock pursuant to and in accordance with the Merger Agreement.
Our opinion set forth herein is based upon the description of the Merger
as set forth in the Agreement and Plan of Merger and in the Registration
Statement. If the actual facts relating to any aspect of the Merger differ from
such description in any material respect, the opinions expressed herein may;
become inapplicable. Further, our opinions are based on research of the Code,
applicable Treasury Regulations, current published administrative decisions of
the IRS and existing judicial decisions as of the date hereof. No assurance can
be given that legislative, administrative or judicial decisions or
interpretations may not be forthcoming that will significantly change the
opinions set forth herein. Further, our opinion is not binding on the IRS, and
the tax effects discussed above are not subject to absolute resolution prior to
the running of the statute of limitations or the rendering of a final
determination by a court of law or by closing agreement with the IRS. We express
no opinions other than those stated immediately above as our opinions. In
addition, this opinion does not address any aspects of state, local, foreign or
other tax laws that may be relevant to Pemi shareholders. The foregoing opinion
summarizes the material U.S. Federal Income Tax consequences of the Merger,
including certain consequences to shareholders of Pemi who are citizens or
residents of the United States and who hold their shares as capital assets. It
does not discuss all aspects of federal income taxation that may be relevant to
a particular Pemi shareholder in light of his or her personal circumstances or
to Pemi shareholders subject to special federal income tax treatment (such as
insurance companies, dealers in securities, certain retirement funds, financial
institutions, tax exempt organizations or foreign persons).
We hereby consent to the references to our firm under the captions "Legal
Matters" and "The Merger and Related Transactions - Certain Federal Income Tax
Consequences of the Merger" in the Joint Proxy Statement-Prospectus included in
the Registration Statement.
Sincerely,
CRANMORE, FITZGERALD & MEANEY
Exhibit 10.1
FORM OF
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made as of , 1997 (the "Effective
Date"), by and between Northway Financial, Inc., a New Hampshire chartered
corporation ("Northway"), The Berlin City Bank, a New Hampshire chartered bank
and wholly owned subsidiary of Northway with its principal offices located in
Berlin, New Hampshire (Northway and The Berlin City Bank shall hereinafter
collectively be referred to as the "Employer"), and William J. Woodward (the
"Executive"). In consideration of the mutual covenants contained in this
Agreement, the Employer and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall serve the Employer as Chairman,
President and Chief Executive Officer, subject to election by the Board of
Directors of Northway or The Berlin City Bank, as the case may be (the "Board of
Directors"), and as a member of the Board of Directors, subject to election by
the shareholders of the Employer. The Executive shall also serve the Employer in
such other or additional offices as the Executive may be requested to serve by
the Board of Directors. In such capacity or capacities, the Executive shall
perform such services and duties in connection with the business, affairs and
operations of the Employer as may be assigned or delegated to the Executive from
time to time by or under the authority of the Board of Directors.
3. Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement (the "Term") shall be for three (3) years from the
Effective Date and shall be renewed automatically for periods of one (1) year
commencing at the first anniversary of the Effective Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other not less than sixty (60) days prior to the date of
any such anniversary of such party's election not to extend the Term.
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary (the "Salary")
at the annual rate of ________________________Dollars ($___), subject to
increase from time to time in the discretion of the Board of Directors.
The Salary shall be payable in periodic installments in accordance with
the Employer's usual practice for its senior executives.
(b) Bonus or Similar Incentive Programs. The Executive shall be
entitled to with such terms as may be established in the sole discretion
of the Board of Directors; or
(c) Regular Benefits. The Executive shall also be entitled to
participate in any employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans, vacation
plans, expense reimbursement plans and other benefit plans which the
Employer may from time to time have in effect for all or most of its
senior executives. Such participation shall be subject to the terms of
the applicable plan documents, generally applicable policies of the
Employer, applicable law and the discretion of the Board of Directors or
any administrative or other committee provided for in or contemplated by
any such plan. Nothing contained in this Agreement shall be construed to
create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
(d) Taxation of Payments and Benefits. The Employer shall undertake
to make deductions, withholdings and tax reports with respect to
payments and benefits under this Agreement to the extent that it
reasonably and in good faith believes that it is required to make such
deductions, withholdings and tax reports. Payments under this Agreement
shall be in amounts net of any such deductions or withholdings. Nothing
in this Agreement shall be construed to require the Employer to make any
payments to compensate the Executive for any adverse tax effect
associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
(e) Exclusivity of Salary and Benefits. Unless approved by the Board
of Directors, the Executive shall not be entitled to any payments or
benefits other than those provided under this Agreement.
5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors, devote the Executive's, best efforts and business judgment,
skill and knowledge to the advancement of the Employer's interests and to the
discharge of the Executive's duties and responsibilities under this Agreement.
The Executive shall not engage in any other business activity, except as may be
approved by the Board of Directors; provided that nothing in this Agreement
shall be construed as preventing the Executive from:
(a) investing the Executive's assets in any company or other entity
in a manner not prohibited by Section 7(d) and in such form or manner as
shall not require any material activities on the Executive's part in
connection with the operations or affairs of the companies or other
entities in which such investments are made; or
(b) engaging in religious, charitable or other community or
non-profit activities that do not impair the Executive's ability to
fulfill the Executive's duties and responsibilities under this
Agreement; or
(c) continuing to advise and consult regularly the activities of
Vaillancourt & Woodward, Inc. in his current positions with the same,
provided that such advice and consultation does not unreasonably
interfere with the performance of the Executive's duties hereunder.
6. Termination and Termination Benefits. Notwithstanding the provisions
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's
employment under this Agreement may be terminated for cause without
further liability on the part of the Employer effective immediately upon
a two-thirds (2/3) vote of the Board of Directors and written notice to
the Executive. Only the following shall constitute "cause" for such
termination:
(i) dishonest statements or acts of the Executive with respect
to the business of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant
to which an initial determination of probable or reasonable cause
with respect to such offense is made);
(iii) material failure to perform to the reasonable satisfaction
of the Board of Directors a substantial portion of the Executive's
duties and responsibilities assigned or delegated under this
Agreement, which failure continues, in the reasonable judgment of
the Board of Directors, for sixty (60) days after written notice
given to the Executive by the Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer; or
(v) material breach by the Executive of any of the Executive's
obligations under this Agreement.
(b) Termination by the Executive. The Executive's employment under
this Agreement may be terminated by the Executive by written notice to
the Board of Directors at least thirty (30) days prior to such
termination.
(c) Termination by the Employer Without Cause. Subject to the
payment of Termination Benefits pursuant to Section 6(d), the
Executive's employment under this Agreement may be terminated by the
Employer without cause upon written notice to the Executive by a
two-thirds (2/3) vote of the Board of Directors.
(d) Certain Termination Benefits. Unless otherwise specifically
provided in this Agreement or otherwise required by law, all
compensation and benefits payable to the Executive under this Agreement
shall terminate on the date of termination of the Executive's employment
under this Agreement. Notwithstanding the foregoing, in the event of
termination of the Executive's employment with the Employer pursuant to
Section 6(c) above, the Employer shall provide to the Executive the
following termination benefits ("Termination Benefits"):
(i) continuation of the Executive's Salary at the rate then in
effect pursuant to Section 4(a); and
(ii) continuation of group health plan benefits to the extent
authorized by and consistent with 29 U.S.C. ss. 1161 et seq.
(commonly known as "COBRA"), with the cost of the regular premium
for such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of termination.
The Termination Benefits set forth in (i) and (ii) above shall continue
effective until the expiration of the Term; provided that in the event
that the Executive commences any employment or self-employment during
the period during which the Executive is entitled to receive Termination
Benefits (the "Termination Benefits Period"), the remaining amount of
Salary due pursuant to Section 6(d)(i) for the period from the
commencement of such employment (other than in connection with the
activities of Vaillancourt & Woodward, Inc.) or self-employment to the
end of the Termination Benefits Period shall be reduced by one-half of
the salary the Executive receives from such employment or
self-employment and, if the Executive receives benefits from such
employment or self-employment comparable to those benefits provided by
the Employer, the payments provided under Section 6(d)(ii) shall cease
effective as of the date of commencement of such employment or
self-employment. The Employer's liability for Salary continuation
pursuant to Section 6(d)(i) shall be reduced by the amount of any
severance pay due or otherwise paid to the Executive pursuant to any
severance pay plan or stay bonus plan of the Employer. Notwithstanding
the foregoing, nothing in this Section 6(d) shall be construed to affect
the Executive's right to receive COBRA continuation entirely at the
Executive's own cost to the extent that the Executive may continue to be
entitled to COBRA continuation after the Executive's right to cost
sharing under Section 6(d)(ii) ceases. The Executive shall be obligated
to give prompt notice of the date of commencement of any employment or
self-employment during the Termination Benefits Period and shall respond
promptly to any reasonable inquiries concerning any employment or
self-employment in which the Executive engages during the Termination
Benefits Period.
(e) Disability. If the Executive shall be disabled so as to be
unable to perform the essential functions of the Executive's then
existing position or positions under this Agreement with or without
reasonable accommodation, the Board of Directors of Northway by a
two-thirds (2/3) vote may remove the Executive from any responsibilities
and/or reassign the Executive to another position with the Employer for
the remainder of the Term or during the period of such disability.
Notwithstanding any such removal or reassignment, the Executive shall
continue to receive the Executive's full Salary (less any disability pay
or sick pay benefits to which the Executive may be entitled under the
Employer's policies) and benefits under Section 4 of this Agreement
(except to the extent that the Executive may be ineligible for one or
more such benefits under applicable plan terms) for a period of time
equal to the lesser of (i) one (1) year; or (ii) the remainder of the
Term. If any question shall arise as to whether during any period the
Executive is disabled so as to be unable to perform the essential
functions of the Executive's then existing position or positions with or
without reasonable accommodation, the Executive may, and at the request
of the Employer shall, submit to the Employer a certification in
reasonable detail by a physician selected by the Employer to whom the
Executive or the Executive's guardian has no reasonable objection as to
whether the Executive is so disabled or how long such disability is
expected to continue, and such certification shall for the purposes of
this Agreement be conclusive of the issue. The Executive shall cooperate
with any reasonable request of the physician in connection with such
certification. If such question shall arise and the Executive shall fail
to submit such certification, the Employer's determination of such issue
shall be binding on the Executive. Nothing in this Section 6(e) shall be
construed to waive the Executive's rights, if any, under existing law
including, without limitation, the Family and Medical Leave Act of 1993,
29 U.S.C. ss.2601 et seq. and the Americans with Disabilities Act, 42
U.S.C. ss.12101 et seq.
(f) Termination Following a Change of Control. If there is a Change
of Control, as defined in Section 6(f)(i) below, during the Term, the
provisions of this Section 6(f) shall apply and shall continue to apply
throughout the remainder of the term of this Agreement. If, within
eighteen (18) months following a Change of Control, the Executive's
employment is terminated by the Employer or the Executive following the
occurrence of any of the events listed in Section 6(f)(ii) below or if
the Executive's employment is terminated without cause (in accordance
with Section 6(c) above), in lieu of any payments under Section 6(d)
above, the Employer shall pay to the Executive (or the Executive's
estate, if applicable) a lump sum amount equal to 2.99 times the
Executive's "base amount" within the meaning of Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended (the "Code").
(i) Change of Control shall mean the occurrence of one or more
of the following events:
(A) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) (other
than the Employer, any trustee or other fiduciary holding
securities under an employee benefit plan of the Employer, or
any corporation owned, directly or indirectly, by the
stockholders of the Employer, in substantially the same
proportions as their ownership of stock of Northway), directly
or indirectly, of securities of Northway, representing fifty
percent (50%) or more of the combined voting power of Northway's
then outstanding securities; or
(B) persons who, as of the Effective Date, constituted
Northway's Board of Directors (the "Incumbent Board") cease for
any reason including, without limitation, as a result of a
tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of Northway's Board of Directors,
provided that any person becoming a director of Northway
subsequent to the Effective Date whose election was approved by
at least a majority of the directors then comprising the
Incumbent Board shall, for purposes of this Section 6(f), be
considered a member of the Incumbent Board; or
(C) the stockholders of Northway approve a merger or
consolidation of Northway with any other corporation or other
entity, other than (1) a merger or consolidation which would
result in the voting securities of Northway outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent
(50%) of the combined voting power of the voting securities of
Northway or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation
effected to implement a recapitalization of Northway (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than fifty percent (50%) of the combined voting
power of Northway's then outstanding securities; or
(D) the stockholders of Northway approve a plan of complete
liquidation of Northway or an agreement for the sale or
disposition by Northway of all or substantially all of
Northway's assets.
(ii) The events referred to in Section 6(f) above shall be as
follows:
(A) a reduction of the Executive's salary other than a
reduction that (1) is based on the Employer's financial
performance or (2) is similar to the reduction made to the
salaries provided to all or most other senior executives of the
Employer; or
(B) a significant change in the Executive's responsibilities
and/or duties which constitutes, when compared to the
Executive's responsibilities and/or duties before the Change of
Control, a demotion; or
(C) a material loss of title or office; or
(D) the relocation of the offices at which the Executive is
principally employed as of the Change of Control to a location
more than fifty (50) miles from such offices, which relocation
is not approved by the Executive.
(iii) The Executive shall provide the Employer with reasonable
notice and an opportunity to cure any of the events listed in
Section 6(f)(ii) and shall not be entitled to compensation pursuant
to this Section 6(f) unless the Employer fails to cure within a
reasonable period; and
(iv) It is the intention of the Executive and of the Employer
that no payments by the Employer to or for the benefit of the
Executive under this Agreement or any other agreement or plan, if
any, pursuant to which the Executive is entitled to receive payments
or benefits shall be nondeductible to the Employer by reason of the
operation of Section 280G of the Code relating to parachute payments
or any like statutory or regulatory provision. Accordingly, and
notwithstanding any other provision of this Agreement or any such
agreement or plan, if by reason of the operation of said Section
280G or any like statutory or regulatory provision, any such
payments exceed the amount which can be deducted by the Employer,
such payments shall be reduced to the maximum amount which can be
deducted by the Employer. To the extent that payments exceeding such
maximum deductible amount have been made to or for the benefit of
the Executive, such excess payments shall be refunded to the
Employer with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such
payments shall be nondeductible to the Employer by reason of the
operation of said Section 280G or any like statutory or regulatory
provision. To the extent that there is more than one method of
reducing the payments to bring them within the limitations of said
Section 280G or any like statutory or regulatory provision, the
Executive shall determine which method shall be followed, provided
that if the Executive fails to make such determination within
forty-five (45) days after the Employer has given notice of the need
for such reduction, the Employer may determine the method of such
reduction in its sole discretion.
7. Confidential Information, Noncompetition and Cooperation.
(a) Confidential Information. As used in this Agreement,
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its
business and the disclosure of which could result in a competitive or
other disadvantage to the Employer. Confidential Information includes,
without limitation, financial information, reports, and forecasts;
inventions, improvements and other intellectual property; trade secrets;
know-how; designs, processes or formulae; software; market or sales
information or plans; customer lists; and business plans, prospects and
opportunities (such as possible acquisitions or dispositions of
businesses or facilities) which have been discussed or considered by the
management of the Employer. Confidential Information includes
information developed by the Executive in the course of the Executive's
employment by the Employer, as well as other information to which the
Executive may have access in connection with the Executive's employment.
Confidential Information also includes the confidential information of
others with which the Employer has a business relationship.
Notwithstanding the foregoing, Confidential Information does not include
information in the public domain, unless due to breach of the
Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with
the Employer and after its termination, the Executive will keep in
confidence and trust all such Confidential Information, and will not use
or disclose any such Confidential Information without the written
consent of the Employer, except as may be necessary in the ordinary
course of performing the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data,
apparatus, equipment and other physical property, whether or not
pertaining to Confidential Information, which are furnished to the
Executive by the Employer or are produced by the Executive in connection
with the Executive's employment will be and remain the sole property of
the Employer. The Executive will return to the Employer all such
materials and property as and when requested by the Employer. In any
event, the Executive will return all such materials and property
immediately upon termination of the Executive's employment for any
reason. The Executive will not retain with the Executive any such
material or property or any copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Term and for one
(1) year thereafter (or during the Termination Benefits Period, if
longer), the Executive (i) will not, directly or indirectly, whether as
owner, partner, shareholder, consultant, agent, employee, co-venturer or
otherwise, engage, participate, assist or invest in any Competing
Business (as hereinafter defined); (ii) will refrain from directly or
indirectly employing, attempting to employ, recruiting or otherwise
soliciting, inducing or influencing any person to leave employment with
the Employer (other than terminations of employment of subordinate
employees undertaken in the course of the Executive's employment with
the Employer); and (iii) will refrain from soliciting or encouraging any
customer or supplier to terminate or otherwise modify adversely its
business relationship with the Employer; provided, however, that the
foregoing one-year restriction shall not apply in the event the
Executive's employment under this Agreement is terminated pursuant to
Section 6(c) hereof. The Executive understands that the restrictions set
forth in this Section 7(d) are intended to protect the Employer's
interest in its Confidential Information and established employee,
customer and supplier relationships and goodwill, and agrees that such
restrictions are reasonable and appropriate for this purpose. For
purposes of this Agreement, the term "Competing Business" shall mean a
business (other than Vaillancourt & Woodward, Inc.) conducted anywhere
in the State of New Hampshire which is competitive with any business
which the Employer or any of its affiliates conducts or proposes to
conduct at any time during the employment of the Executive.
Notwithstanding the foregoing, the Executive may own up to one percent
(1%) of the outstanding stock of a publicly held corporation which
constitutes or is affiliated with a Competing Business.
(e) Third-Party Agreements and Rights. The Executive hereby confirms
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the
Executive's use or disclosure of information or the Executive's
engagement in any business. The Executive represents to the Employer
that the Executive's execution of this Agreement, the Executive's
employment with the Employer and the performance of the Executive's
proposed duties for the Employer will not violate any obligations the
Executive may have to any such previous employer or other party. In the
Executive's work for the Employer, the Executive will not disclose or
make use of any information in violation of any agreements with or
rights of any such previous employer or other party, and the Executive
will not bring to the premises of the Employer any copies or other
tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
(f) Litigation and Regulatory Cooperation. During and after the
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of
the Employer which relate to events or occurrences that transpired while
the Executive was employed by the Employer. The Executive's full
cooperation in connection with such claims or actions shall include, but
not be limited to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Employer at
mutually convenient times. During and after the Executive's employment,
the Executive also shall cooperate fully with the Employer in connection
with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to
events or occurrences that transpired while the Executive was employed
by the Employer. The Employer shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in connection with the
Executive's performance of obligations pursuant to this Section 7(f).
(g) Injunction. The Executive agrees that it would be difficult to
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any
such breach. Accordingly, subject to Section 8 of this Agreement, the
Executive agrees that if the Executive breaches, or proposes to breach,
any portion of this Agreement, the Employer shall be entitled, in
addition to all other remedies that it may have, to an injunction or
other appropriate equitable relief to restrain any such breach without
showing or proving any actual damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators, except that the
arbitrator shall apply the law as established by decisions of the U.S. Supreme
Court, the Court of Appeals for the First Circuit and the U.S. District Court
for the District of New Hampshire in deciding the merits of claims and defenses
under federal law or any state or federal anti-discrimination law, and any
awards to the Executive for violation of any anti-discrimination law shall not
exceed the maximum award to which the Executive could be entitled under the
applicable (or most analogous) federal anti-discrimination or civil rights laws.
In the event that any person or entity other than the Executive or the Employer
may be a party with regard to any such controversy or claim, such controversy or
claim shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. This Section 8 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude
either party from pursuing a court action for the sole purpose of obtaining a
temporary restraining order or a preliminary injunction in circumstances in
which such relief is appropriate; provided that any other relief shall be
pursued through an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the Superior Court of the State of New
Hampshire and the United States District Court for the District of New
Hampshire. Accordingly, with respect to any such court action, the Executive (a)
submits to the personal jurisdiction of such courts; (b) consents to service of
process; and (c) waives any other requirement (whether imposed by statute, rule
of court, or otherwise) with respect to personal jurisdiction or service of
process.
10. Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor
the Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors, and shall be effective on the date of delivery in person or
by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a New Hampshire contract and shall be
construed under and be governed in all respects by the laws of the State of New
Hampshire, without giving effect to the conflict of laws principles of such
State.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the Effective Date.
NORTHWAY FINANCIAL, INC.
Attest:
By:
- -------------------- -----------------------
Title
THE BERLIN CITY BANK
Attest:
By:
- -------------------- -----------------------
Title
Attest:
By:
William J. Woodward
- -------------------- -----------------------
Title
Exhibit 10.2
FORM OF
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made as of , 1997 (the
"Effective Date"), by and between Northway Financial, Inc., a New Hampshire
chartered corporation ("Northway"), Pemigewasset National Bank, a national bank
and wholly owned subsidiary of Northway with its principal office located in New
Hampshire (Northway and Pemigewasset National Bank shall hereinafter
collectively be referred to as the "Employer"), and Fletcher W. Adams (the
"Executive"). In consideration of the mutual covenants contained in this
Agreement, the Employer and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.
2. Capacity. The Executive shall serve Northway as Vice Chairman and
Pemigewasset National Bank as President and Chief Executive Officer subject to
election by the Board of Directors of Northway or Pemigewasset National Bank, as
the case may be (the "Board of Directors"), and as a member of the Board of
Directors, subject to election by the shareholders of Northway and Pemigewasset
National Bank respectively. The Executive shall also serve the Employer in such
other or additional offices as the Executive may be requested to serve by the
Chief Executive Officer of Northway or the Board of Directors. In such capacity
or capacities, the Executive shall perform such services and duties from
Employer's Plymouth, New Hampshire office in connection with the business,
affairs and operations of the Employer as may be assigned or delegated to the
Executive from time to time by or under the authority of the Chief Executive
Officer of Northway or the Board of Directors.
3. Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement (the "Term") shall be for three (3) years from the
Effective Date and shall be renewed automatically for periods of one (1) year
commencing at the first anniversary of the Effective Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other not less than sixty (60) days prior to the date of
any such anniversary of such party's election not to extend the Term.
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary (the "Salary")
at the annual rate of ________________________Dollars ($________),
subject to increase from time to time in the discretion of the Board of
Directors. The Salary shall be payable in periodic installments in
accordance with the Employer's usual practice for its senior executives.
(b) Bonus or Similar Incentive Programs. The Executive shall be
entitled to participate in any incentive or bonus program established by
the Board of Directors with such terms as may be established in the sole
discretion of the Board of Directors.
(c) Regular Benefits. The Executive shall also be entitled to
participate in any employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans, vacation
plans, expense reimbursement plans and other benefit plans which the
Employer may from time to time have in effect for all or most of its
senior executives. Such participation shall be subject to the terms of
the applicable plan documents, generally applicable policies of the
Employer, applicable law and the discretion of the Board of Directors or
any administrative or other committee provided for in or contemplated by
any such plan. Nothing contained in this Agreement shall be construed to
create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
(d) Taxation of Payments and Benefits. The Employer shall undertake
to make deductions, withholdings and tax reports with respect to
payments and benefits under this Agreement to the extent that it
reasonably and in good faith believes that it is required to make such
deductions, withholdings and tax reports. Payments under this Agreement
shall be in amounts net of any such deductions or withholdings. Nothing
in this Agreement shall be construed to require the Employer to make any
payments to compensate the Executive for any adverse tax effect
associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
(e) Exclusivity of Salary and Benefits. Unless approved by the Board
of Directors, the Executive shall not be entitled to any payments or
benefits other than those provided under this Agreement.
5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Chief Executive Officer of Northway or the Board of Directors, devote the
Executive's, best efforts and business judgment, skill and knowledge to the
advancement of the Employer's interests and to the discharge of the Executive's
duties and responsibilities under this Agreement. The Executive shall not engage
in any other business activity, except as may be approved by the Board of
Directors; provided that nothing in this Agreement shall be construed as
preventing the Executive from:
(a) investing the Executive's assets in any company or other entity
in a manner not prohibited by Section 7(d) and in such form or manner as
shall not require any material activities on the Executive's part in
connection with the operations or affairs of the companies or other
entities in which such investments are made; or
(b) engaging in religious, charitable or other community or
non-profit activities that do not impair the Executive's ability to
fulfill the Executive's duties and responsibilities under this
Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.
(a) Termination by the Employer for Cause. The Executive's
employment under this Agreement may be terminated for cause without
further liability on the part of the Employer effective immediately upon
a two-thirds (2/3) vote of the Board of Directors and written notice to
the Executive. Only the following shall constitute "cause" for such
termination:
(i) dishonest statements or acts of the Executive with respect
to the business of the Employer or any affiliate of the Employer;
(ii) the commission by or indictment of the Executive for (A) a
felony or (B) any misdemeanor involving moral turpitude, deceit,
dishonesty or fraud ("indictment," for these purposes, meaning an
indictment, probable cause hearing or any other procedure pursuant
to which an initial determination of probable or reasonable cause
with respect to such offense is made);
(iii) material failure to perform to the reasonable
satisfaction of the Board of Directors a substantial portion of the
Executive's duties and responsibilities assigned or delegated under
this Agreement, which failure continues, in the reasonable judgment
of the Board of Directors, for sixty (60) days after written notice
given to the Executive by the Board of Directors;
(iv) gross negligence, willful misconduct or insubordination of
the Executive with respect to the Employer or any affiliate of the
Employer; or
(v) material breach by the Executive of any of the Executive's
obligations under this Agreement.
(b) Termination by the Executive. The Executive's employment under
this Agreement may be terminated by the Executive by written notice to
the Board of Directors at least thirty (30) days prior to such
termination.
(c) Termination by the Employer Without Cause. Subject to the
payment of Termination Benefits pursuant to Section 6(d), the
Executive's employment under this Agreement may be terminated by the
Employer without cause upon written notice to the Executive by a
two-thirds (2/3) vote of the Board of Directors.
(d) Certain Termination Benefits. Unless otherwise specifically
provided in this Agreement or otherwise required by law, all
compensation and benefits payable to the Executive under this Agreement
shall terminate on the date of termination of the Executive's employment
under this Agreement. Notwithstanding the foregoing, in the event of
termination of the Executive's employment with the Employer pursuant to
Section 6(c) above, the Employer shall provide to the Executive the
following termination benefits ("Termination Benefits"):
(i) continuation of the Executive's Salary at the rate then in
effect pursuant to Section 4(a); and
(ii) continuation of group health plan benefits to the extent
authorized by and consistent with 29 U.S.C. ss. 1161 et seq.
(commonly known as "COBRA"), with the cost of the regular premium
for such benefits shared in the same relative proportion by the
Employer and the Executive as in effect on the date of termination.
The Termination Benefits set forth in (i) and (ii) above shall continue
effective until the expiration of the Term; provided that in the event
that the Executive commences any employment or self-employment during
the period during which the Executive is entitled to receive Termination
Benefits (the "Termination Benefits Period"), the remaining amount of
Salary due pursuant to Section 6(d)(i) for the period from the
commencement of such employment or self-employment to the end of the
Termination Benefits Period shall be reduced by one-half of the salary
the Executive receives from such employment or self-employment and, if
the Executive receives benefits from such employment or self-employment
comparable to those benefits provided by the Employer, the payments
provided under Section 6(d)(ii) shall cease effective as of the date of
commencement of such employment or self-employment. The Employer's
liability for Salary continuation pursuant to Section 6(d)(i) shall be
reduced by the amount of any severance pay due or otherwise paid to the
Executive pursuant to any severance pay plan or stay bonus plan of the
Employer. Notwithstanding the foregoing, nothing in this Section 6(d)
shall be construed to affect the Executive's right to receive COBRA
continuation entirely at the Executive's own cost to the extent that the
Executive may continue to be entitled to COBRA continuation after the
Executive's right to cost sharing under Section 6(d)(ii) ceases. The
Executive shall be obligated to give prompt notice of the date of
commencement of any employment or self-employment during the Termination
Benefits Period and shall respond promptly to any reasonable inquiries
concerning any employment or self-employment in which the Executive
engages during the Termination Benefits Period.
(e) Disability. If the Executive shall be disabled so as to be
unable to perform the essential functions of the Executive's then
existing position or positions under this Agreement with or without
reasonable accommodation, the Board of Directors of Northway by a
two-thirds (2/3) vote may remove the Executive from any responsibilities
and/or reassign the Executive to another position with the Employer for
the remainder of the Term or during the period of such disability.
Notwithstanding any such removal or reassignment, the Executive shall
continue to receive the Executive's full Salary (less any disability pay
or sick pay benefits to which the Executive may be entitled under the
Employer's policies) and benefits under Section 4 of this Agreement
(except to the extent that the Executive may be ineligible for one or
more such benefits under applicable plan terms) for a period of time
equal to the lesser of (i) one (1) year; or (ii) the remainder of the
Term. If any question shall arise as to whether during any period the
Executive is disabled so as to be unable to perform the essential
functions of the Executive's then existing position or positions with or
without reasonable accommodation, the Executive may, and at the request
of the Employer shall, submit to the Employer a certification in
reasonable detail by a physician selected by the Employer to whom the
Executive or the Executive's guardian has no reasonable objection as to
whether the Executive is so disabled or how long such disability is
expected to continue, and such certification shall for the purposes of
this Agreement be conclusive of the issue. The Executive shall cooperate
with any reasonable request of the physician in connection with such
certification. If such question shall arise and the Executive shall fail
to submit such certification, the Employer's determination of such issue
shall be binding on the Executive. Nothing in this Section 6(e) shall be
construed to waive the Executive's rights, if any, under existing law
including, without limitation, the Family and Medical Leave Act of 1993,
29 U.S.C. ss.2601 et seq. and the Americans with Disabilities Act, 42
U.S.C. ss.12101 et seq.
(f) Termination Following a Change of Control. If there is a Change
of Control, as defined in Section 6(f)(i) below, during the Term, the
provisions of this Section 6(f) shall apply and shall continue to apply
throughout the remainder of the term of this Agreement. If, within
eighteen (18) months following a Change of Control, the Executive's
employment is terminated by the Employer or the Executive following the
occurrence of any of the events listed in Section 6(f)(ii) below or if
the Executive's employment is terminated without cause (in accordance
with Section 6(c) above), in lieu of any payments under Section 6(d)
above, the Employer shall pay to the Executive (or the Executive's
estate, if applicable) a lump sum amount equal to 2.99 times the
Executive's "base amount" within the meaning of Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended (the "Code").
(i) Change of Control shall mean the occurrence of one or more
of the following events:
(A) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) (other
than the Employer, any trustee or other fiduciary holding
securities under an employee benefit plan of the Employer, or
any corporation owned, directly or indirectly, by the
stockholders of the Employer, in substantially the same
proportions as their ownership of stock of Northway), directly
or indirectly, of securities of Northway, representing fifty
percent (50%) or more of the combined voting power of Northway's
then outstanding securities; or
(B) persons who, as of the Effective Date, constituted
Northway's Board of Directors (the "Incumbent Board") cease for
any reason including, without limitation, as a result of a
tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of Northway's Board of Directors,
provided that any person becoming a director of Northway
subsequent to the Effective Date whose election was approved by
at least a majority of the directors then comprising the
Incumbent Board shall, for purposes of this Section 6(f), be
considered a member of the Incumbent Board; or
(C) the stockholders of Northway approve a merger or
consolidation of Northway with any other corporation or other
entity, other than (1) a merger or consolidation which would
result in the voting securities of Northway outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent
(50%) of the combined voting power of the voting securities of
Northway or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation
effected to implement a recapitalization of Northway (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than fifty percent (50%) of the combined voting
power of Northway's then outstanding securities; or
(D) the stockholders of Northway approve a plan of complete
liquidation of Northway or an agreement for the sale or
disposition by Northway of all or substantially all of
Northway's assets.
(ii) The events referred to in Section 6(f) above shall be as
follows:
(A) a reduction of the Executive's salary other than a
reduction that (1) is based on the Employer's financial
performance or (2) is similar to the reduction made to the
salaries provided to all or most other senior executives of the
Employer; or
(B) a significant change in the Executive's responsibilities
and/or duties which constitutes, when compared to the
Executive's responsibilities and/or duties before the Change of
Control, a demotion; or
(C) a material loss of title or office; or
(D) the relocation of the offices at which the Executive is
principally employed as of the Change of Control to a location
more than fifty (50) miles from such offices, which relocation
is not approved by the Executive.
(iii) The Executive shall provide the Employer with reasonable
notice and an opportunity to cure any of the events listed in
Section 6(f)(ii) and shall not be entitled to compensation pursuant
to this Section 6(f) unless the Employer fails to cure within a
reasonable period; and
(iv) It is the intention of the Executive and of the Employer
that no payments by the Employer to or for the benefit of the
Executive under this Agreement or any other agreement or plan, if
any, pursuant to which the Executive is entitled to receive payments
or benefits shall be nondeductible to the Employer by reason of the
operation of Section 280G of the Code relating to parachute payments
or any like statutory or regulatory provision. Accordingly, and
notwithstanding any other provision of this Agreement or any such
agreement or plan, if by reason of the operation of said Section
280G or any like statutory or regulatory provision, any such
payments exceed the amount which can be deducted by the Employer,
such payments shall be reduced to the maximum amount which can be
deducted by the Employer. To the extent that payments exceeding such
maximum deductible amount have been made to or for the benefit of
the Executive, such excess payments shall be refunded to the
Employer with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such
payments shall be nondeductible to the Employer by reason of the
operation of said Section 280G or any like statutory or regulatory
provision. To the extent that there is more than one method of
reducing the payments to bring them within the limitations of said
Section 280G or any like statutory or regulatory provision, the
Executive shall determine which method shall be followed, provided
that if the Executive fails to make such determination within
forty-five (45) days after the Employer has given notice of the need
for such reduction, the Employer may determine the method of such
reduction in its sole discretion.
7. Confidential Information, Noncompetition and Cooperation.
(a) Confidential Information. As used in this Agreement,
"Confidential Information" means information belonging to the Employer
which is of value to the Employer in the course of conducting its
business and the disclosure of which could result in a competitive or
other disadvantage to the Employer. Confidential Information includes,
without limitation, financial information, reports, and forecasts;
inventions, improvements and other intellectual property; trade secrets;
know-how; designs, processes or formulae; software; market or sales
information or plans; customer lists; and business plans, prospects and
opportunities (such as possible acquisitions or dispositions of
businesses or facilities) which have been discussed or considered by the
management of the Employer. Confidential Information includes
information developed by the Executive in the course of the Executive's
employment by the Employer, as well as other information to which the
Executive may have access in connection with the Executive's employment.
Confidential Information also includes the confidential information of
others with which the Employer has a business relationship.
Notwithstanding the foregoing, Confidential Information does not include
information in the public domain, unless due to breach of the
Executive's duties under Section 7(b).
(b) Confidentiality. The Executive understands and agrees that the
Executive's employment creates a relationship of confidence and trust
between the Executive and the Employer with respect to all Confidential
Information. At all times, both during the Executive's employment with
the Employer and after its termination, the Executive will keep in
confidence and trust all such Confidential Information, and will not use
or disclose any such Confidential Information without the written
consent of the Employer, except as may be necessary in the ordinary
course of performing the Executive's duties to the Employer.
(c) Documents, Records, etc. All documents, records, data,
apparatus, equipment and other physical property, whether or not
pertaining to Confidential Information, which are furnished to the
Executive by the Employer or are produced by the Executive in connection
with the Executive's employment will be and remain the sole property of
the Employer. The Executive will return to the Employer all such
materials and property as and when requested by the Employer. In any
event, the Executive will return all such materials and property
immediately upon termination of the Executive's employment for any
reason. The Executive will not retain with the Executive any such
material or property or any copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the Term and for one
(1) year thereafter (or during the Termination Benefits Period, if
longer), the Executive (i) will not, directly or indirectly, whether as
owner, partner, shareholder, consultant, agent, employee, co-venturer or
otherwise, engage, participate, assist or invest in any Competing
Business (as hereinafter defined); (ii) will refrain from directly or
indirectly employing, attempting to employ, recruiting or otherwise
soliciting, inducing or influencing any person to leave employment with
the Employer (other than terminations of employment of subordinate
employees undertaken in the course of the Executive's employment with
the Employer); and (iii) will refrain from soliciting or encouraging any
customer or supplier to terminate or otherwise modify adversely its
business relationship with the Employer; provided, however, that the
foregoing one-year restriction shall not apply in the event the
Executive's employment under this Agreement is terminated pursuant to
Section 6(c) hereof. The Executive understands that the restrictions set
forth in this Section 7(d) are intended to protect the Employer's
interest in its Confidential Information and established employee,
customer and supplier relationships and goodwill, and agrees that such
restrictions are reasonable and appropriate for this purpose. For
purposes of this Agreement, the term "Competing Business" shall mean a
business conducted anywhere in the State of New Hampshire which is
competitive with any business which the Employer or any of its
affiliates conducts or proposes to conduct at any time during the
employment of the Executive. Notwithstanding the foregoing, the
Executive may own up to one percent (1%) of the outstanding stock of a
publicly held corporation which constitutes or is affiliated with a
Competing Business.
(e) Third-Party Agreements and Rights. The Executive hereby confirms
that the Executive is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the
Executive's use or disclosure of information or the Executive's
engagement in any business. The Executive represents to the Employer
that the Executive's execution of this Agreement, the Executive's
employment with the Employer and the performance of the Executive's
proposed duties for the Employer will not violate any obligations the
Executive may have to any such previous employer or other party. In the
Executive's work for the Employer, the Executive will not disclose or
make use of any information in violation of any agreements with or
rights of any such previous employer or other party, and the Executive
will not bring to the premises of the Employer any copies or other
tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
(f) Litigation and Regulatory Cooperation. During and after the
Executive's employment, the Executive shall cooperate fully with the
Employer in the defense or prosecution of any claims or actions now in
existence or which may be brought in the future against or on behalf of
the Employer which relate to events or occurrences that transpired while
the Executive was employed by the Employer. The Executive's full
cooperation in connection with such claims or actions shall include, but
not be limited to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Employer at
mutually convenient times. During and after the Executive's employment,
the Executive also shall cooperate fully with the Employer in connection
with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to
events or occurrences that transpired while the Executive was employed
by the Employer. The Employer shall reimburse the Executive for any
reasonable out-of-pocket expenses incurred in connection with the
Executive's performance of obligations pursuant to this Section 7(f).
(g) Injunction. The Executive agrees that it would be difficult to
measure any damages caused to the Employer which might result from any
breach by the Executive of the promises set forth in this Section 7, and
that in any event money damages would be an inadequate remedy for any
such breach. Accordingly, subject to Section 8 of this Agreement, the
Executive agrees that if the Executive breaches, or proposes to breach,
any portion of this Agreement, the Employer shall be entitled, in
addition to all other remedies that it may have, to an injunction or
other appropriate equitable relief to restrain any such breach without
showing or proving any actual damage to the Employer.
8. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators, except that the
arbitrator shall apply the law as established by decisions of the U.S. Supreme
Court, the Court of Appeals for the First Circuit and the U.S. District Court
for the District of New Hampshire in deciding the merits of claims and defenses
under federal law or any state or federal anti-discrimination law, and any
awards to the Executive for violation of any anti-discrimination law shall not
exceed the maximum award to which the Executive could be entitled under the
applicable (or most analogous) federal anti-discrimination or civil rights laws.
In the event that any person or entity other than the Executive or the Employer
may be a party with regard to any such controversy or claim, such controversy or
claim shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. This Section 8 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude
either party from pursuing a court action for the sole purpose of obtaining a
temporary restraining order or a preliminary injunction in circumstances in
which such relief is appropriate; provided that any other relief shall be
pursued through an arbitration proceeding pursuant to this Section 8.
9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the Superior Court of the State of New
Hampshire and the United States District Court for the District of New
Hampshire. Accordingly, with respect to any such court action, the Executive (a)
submits to the personal jurisdiction of such courts; (b) consents to service of
process; and (c) waives any other requirement (whether imposed by statute, rule
of court, or otherwise) with respect to personal jurisdiction or service of
process.
10. Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the Employer nor
the Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at Northway's main offices, attention
of the Chief Executive Officer of Northway, and shall be effective on the date
of delivery in person or by courier or three (3) days after the date mailed.
15. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
16. Governing Law. This is a New Hampshire contract and shall be
construed under and be governed in all respects by the laws of the State of New
Hampshire, without giving effect to the conflict of laws principles of such
State.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the Effective Date.
NORTHWAY FINANCIAL, INC.
Attest:
By:
- -------------------- -----------------------
Title
PEMIGEWASSET NATIONAL BANK
Attest:
By:
- -------------------- -----------------------
Title
Attest:
Fletcher W. Adams
- -------------------- -----------------------
Title
Exhibit 10.3
FORM OF
VOTING AGREEMENT
Date: March __, 1997
The Berlin City Bank and
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570-0009
Ladies and Gentlemen:
The undersigned (the "Stockholder") beneficially owns and has sole or
shared voting power with respect to the number of shares of the common stock,
par value $1.00 per share (the "Shares"), of Pemi Bancorp, Inc., a New Hampshire
chartered corporation (the "Company"), indicated opposite the Stockholder's name
on Schedule 1 attached hereto.
Simultaneously with the execution of this letter agreement, The Berlin
City Bank ("Purchaser"), Northway Financial, Inc., a New Hampshire chartered
corporation wholly owned by Purchaser ("Parent"), the Company and Pemigewasset
National Bank, a national bank and wholly-owned subsidiary of the Company (the
"Bank"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") providing, among other things, for the merger (the "Merger") of the
Company with and into Parent, which, as of a date immediately preceding the
Merger, will own all of the issued and outstanding stock of Purchaser. The
undersigned understands that Purchaser has undertaken and will continue to
undertake substantial expenses in connection with the negotiation and execution
of the Merger Agreement and the subsequent actions necessary to consummate the
Merger and the other transactions contemplated by the Merger Agreement.
In consideration of, and as a condition to, Purchaser's entering into
the Merger Agreement, and in consideration of the expenses incurred and to be
incurred by Purchaser in connection therewith, the Stockholder and Purchaser
agree as follows:
1. AGREEMENT TO VOTE IN FAVOR OF MERGER. The Stockholder (a) shall vote
or cause to be voted all of the Shares that such Stockholder shall be entitled
to so vote, whether such Shares are beneficially owned by such Stockholder on
the date of this letter agreement or are subsequently acquired, at the special
or any other meeting of the Company's stockholders to be called and held
following the date hereof, in favor of the approval of the Merger Agreement and
the Merger and (b) shall vote or cause to be voted all such Shares, at such
special meeting or any other meeting of the Company's stockholders following the
date hereof, against the approval of any other agreement providing for a merger,
acquisition, consolidation, sale of a material amount of assets or other
business combination of the Company or the Bank with any person or entity other
than Purchaser or an affiliate of Purchaser; except, in the case of either (a)
or (b), to the extent required by applicable law relating to fiduciary
obligations of directors upon advice of counsel.
2. RESTRICTIONS ON SALE OR OTHER DISPOSITION OF SHARES. The Stockholder
will not sell, assign, transfer or otherwise dispose of (including, without
limitation, by the creation of a Lien (as defined in paragraph 3 below)), or
permit to be sold, assigned, transferred or otherwise disposed of, any Shares
owned by the Stockholder, whether such Shares are held by the Stockholder on the
date of this letter agreement or are subsequently acquired, except (a) transfers
by will or by operation of law, in which case this letter agreement shall bind
the transferee, (b) transfers pursuant to any pledge agreement, subject to the
pledgee agreeing in writing to be bound by the terms of this letter agreement,
(c) transfers in connection with estate planning purposes, including transfers
to relatives, trusts and charitable organizations, subject to the transferee
agreeing in writing to be bound by the terms of this letter agreement, (d)
transfers to any other stockholder of the Company who has executed a copy of
this letter agreement on the date hereof with respect to some or all of the
Shares held by such stockholder, and (e) as Purchaser may otherwise agree in
writing in its sole discretion. Purchaser shall have the option to elect to have
any existing certificates representing Shares subject to this letter agreement
canceled and reissued bearing the following legend:
"THIS CERTIFICATE, AND THE SHARES REPRESENTED HEREBY, ARE SUBJECT TO
CERTAIN VOTING AND TRANSFER RESTRICTIONS CONTAINED IN A VOTING
AGREEMENT BY AND BETWEEN THE BERLIN CITY BANK AND NORTHWAY FINANCIAL,
INC. AND THE BENEFICIAL OWNER OF THESE SHARES AND MAY BE TRANSFERRED
ONLY IN COMPLIANCE THEREWITH. COPIES OF THE ABOVE-REFERENCED AGREEMENT
ARE ON FILE AT THE OFFICES OF PEMI BANCORP, INC."
3. REPRESENTATIONS. The Stockholder represents that the Stockholder has
the complete and unrestricted power and the unqualified right to enter into and
perform the terms of this letter agreement. The Stockholder further represents
that this letter agreement constitutes a valid and binding agreement with
respect to the Stockholder, enforceable against the Stockholder in accordance
with its terms. Except as set forth on Schedule 1, the Stockholder represents
that the Stockholder beneficially owns the number of Shares indicated opposite
such Stockholder's name on said Schedule 1, free and clear of any liens, claims,
charges or other encumbrances or restrictions of any kind whatsoever ("Liens"),
and has sole or shared, and otherwise unrestricted, voting power with respect to
such Shares.
4. TERM. Notwithstanding anything herein to the contrary, the
agreements contained herein shall remain in full force and effect until the
earlier of (i) the consummation of the Merger or (ii) the termination of the
Merger Agreement in accordance with Article VIII thereof.
5. EQUITABLE REMEDIES. The Stockholder has signed this letter agreement
intending to be bound thereby. The Stockholder expressly agrees that this letter
agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against the Stockholder. All of the
covenants and agreements contained in this letter agreement shall be binding
upon, and inure to the benefit of, the respective parties and their permitted
successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
6. MISCELLANEOUS. This letter agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same instrument. No waivers of any breach of this
letter agreement extended by Purchaser to the Stockholder shall be construed as
a waiver of any rights or remedies of Purchaser with respect to any other
stockholder of the Company who has executed a copy of this letter agreement with
respect to Shares held by such stockholder or with respect to any subsequent
breach of the Stockholder or any other such stockholder of the Company. This
letter agreement is deemed to be signed as a sealed instrument and is to be
governed by the laws of the State of New Hampshire, without giving effect to the
principles of conflicts of laws thereof. If any provision hereof is deemed
unenforceable, the enforceability of the other provisions hereof shall not be
affected.
Please confirm our agreement by signing a copy of this letter.
Very truly yours,
-------------------------
Name:
AGREED TO AND ACCEPTED
AS OF MARCH ____, 1997
THE BERLIN CITY BANK AND
NORTHWAY FINANCIAL, INC.
By:
-----------------------------------------------
William J. Woodward
Chairman, President and Chief Executive Officer
<PAGE>
Schedule 1
======================================================================
Name of Number of Shares Shares
Stockholder Beneficially Owned Subject to Pledge
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
======================================================================
Exhibit 10.4
FORM OF
VOTING AGREEMENT
March __, 1997
Pemi Bancorp, Inc.
51 Highland Street
Plymouth, New Hampshire 03264-0029
Ladies and Gentlemen:
The undersigned (the "Stockholder") beneficially owns and has sole or
shared voting power with respect to the number of shares of the common stock,
par value $5.00 per share (the "Shares"), of The Berlin City Bank, a New
Hampshire chartered commercial bank (the "Purchaser"), indicated opposite the
Stockholder's name on Schedule 1 attached hereto.
Simultaneously with the execution of this letter agreement, Purchaser,
Northway Financial, Inc., a New Hampshire chartered corporation wholly owned by
Purchaser ("Parent"), Pemi Bancorp, Inc. (the "Company") and Pemigewasset
National Bank, a national bank and wholly-owned subsidiary of the Company (the
"Bank") are entering into an Agreement and Plan of Merger (the "Merger
Agreement") providing, among other things, for the merger (the "Merger") of the
Company with and into Parent, which, as of a date immediately preceding the
Merger, will own all of the issued and outstanding stock of Purchaser. The
undersigned understands that the Company has undertaken and will continue to
undertake substantial expenses in connection with the negotiation and execution
of the Merger Agreement and the subsequent actions necessary to consummate the
Merger and the other transactions contemplated by the Merger Agreement.
In consideration of, and as a condition to, the Company's entering into
the Merger Agreement, and in consideration of the expenses incurred and to be
incurred by the Company in connection therewith, the Stockholder and the Company
agree as follows:
1. AGREEMENT TO VOTE IN FAVOR OF MERGER. The Stockholder (a) shall vote
or cause to be voted all of the Shares that such Stockholder shall be entitled
to so vote, whether such Shares are beneficially owned by such Stockholder on
the date of this letter agreement or are subsequently acquired, at the special
or any other meeting of Purchaser's stockholders to be called and held following
the date hereof, in favor of the approval of the Merger Agreement and the Merger
and (b) shall vote or cause to be voted all such Shares, at such special meeting
or any other meeting of Purchaser's stockholders following the date hereof,
against the approval of any other agreement providing for a merger, acquisition,
consolidation, sale of a material amount of assets or other business combination
of Purchaser or Parent with any person or entity other than the Company or the
Bank; except, in the case of either (a) or (b), to the extent required by
applicable law relating to fiduciary obligations of directors upon advice of
counsel.
2. RESTRICTIONS ON SALE OR OTHER DISPOSITION OF SHARES. The Stockholder
will not sell, assign, transfer or otherwise dispose of (including, without
limitation, by the creation of a Lien (as defined in paragraph 3 below)), or
permit to be sold, assigned, transferred or otherwise disposed of, any Shares
owned by the Stockholder, whether such Shares are held by the Stockholder on the
date of this letter agreement or are subsequently acquired, except (a) transfers
by will or by operation of law, in which case this letter agreement shall bind
the transferee, (b) transfers pursuant to any pledge agreement, subject to the
pledgee agreeing in writing to be bound by the terms of this letter agreement,
(c) transfers in connection with estate planning purposes, including transfers
to relatives, trusts and charitable organizations, subject to the transferee
agreeing in writing to be bound by the terms of this letter agreement, (d)
transfers to any other stockholder of Purchaser who has executed a copy of this
letter agreement on the date hereof with respect to some or all of the Shares
held by such stockholder, and (e) as the Company may otherwise agree in writing
in its sole discretion. The Company shall have the option to elect to have any
existing certificates representing Shares subject to this letter agreement
canceled and reissued bearing the following legend:
"THIS CERTIFICATE, AND THE SHARES REPRESENTED HEREBY, ARE SUBJECT TO
CERTAIN VOTING AND TRANSFER RESTRICTIONS CONTAINED IN A VOTING
AGREEMENT BY AND BETWEEN THE PEMI BANCORP, INC. AND THE BENEFICIAL
OWNER OF THESE SHARES AND MAY BE TRANSFERRED ONLY IN COMPLIANCE
THEREWITH. COPIES OF THE ABOVE-REFERENCED AGREEMENT ARE ON FILE AT THE
OFFICES OF THE BERLIN CITY BANK."
3. REPRESENTATIONS. The Stockholder represents that the Stockholder has
the complete and unrestricted power and the unqualified right to enter into and
perform the terms of this letter agreement. The Stockholder further represents
that this letter agreement constitutes a valid and binding agreement with
respect to the Stockholder, enforceable against the Stockholder in accordance
with its terms. Except as set forth on Schedule 1, the Stockholder represents
that the Stockholder beneficially owns the number of Shares indicated opposite
such Stockholder's name on said Schedule 1, free and clear of any liens, claims,
charges or other encumbrances or restrictions of any kind whatsoever ("Liens"),
and has sole or shared, and otherwise unrestricted, voting power with respect to
such Shares.
4. TERM. Notwithstanding anything herein to the contrary, the
agreements contained herein shall remain in full force and effect until the
earlier of (i) the consummation of the Merger or (ii) the termination of the
Merger Agreement in accordance with Article VIII thereof.
5. EQUITABLE REMEDIES. The Stockholder has signed this letter agreement
intending to be bound thereby. The Stockholder expressly agrees that this letter
agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against the Stockholder. All of the
covenants and agreements contained in this letter agreement shall be binding
upon, and inure to the benefit of, the respective parties and their permitted
successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
6. MISCELLANEOUS. This letter agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same instrument. No waivers of any breach of this
letter agreement extended by the Company to the Stockholder shall be construed
as a waiver of any rights or remedies of the Company with respect to any other
stockholder of Purchaser who has executed a copy of this letter agreement with
respect to Shares held by such stockholder or with respect to any subsequent
breach of the Stockholder or any other such stockholder of Purchaser. This
letter agreement is deemed to be signed as a sealed instrument and is to be
governed by the laws of the State of New Hampshire, without giving effect to the
principles of conflicts of laws thereof. If any provision hereof is deemed
unenforceable, the enforceability of the other provisions hereof shall not be
affected.
Please confirm our agreement by signing a copy of this letter.
Very truly yours,
--------------------------
Name:
AGREED TO AND ACCEPTED
AS OF MARCH ____, 1997
PEMI BANCORP, INC.
By:
------------------------------------------------
Fletcher W. Adams
Chairman, President and Chief Executive Officer
<PAGE>
Schedule 1
=========================================================================
Name of Number of Shares Shares
Stockholder Beneficially Owned Subject to Pledge
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
=========================================================================
<PAGE>
Exhibit 10.5
FORM OF
RULE 145 REPRESENTATION LETTER
March __, 1997
The Berlin City Bank and
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570-0009
Ladies and Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
The Berlin City Bank for purposes of paragraphs (c) and (d) of Rule 145 of the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Act"), and for purposes of generally accepted accounting
principles as such term relates to pooling of interests accounting treatment for
certain business combinations under generally accepted accounting principles and
the interpretations of the SEC or its staff, including, without limitation,
Section 201.01 of the SEC's Codification of Financial Reporting Policies and the
SEC's Staff Accounting Bulletin No. 65. Neither my entering into this letter
agreement, nor anything contained herein, shall be deemed an admission on my
part that I am such an "affiliate".
The Berlin City Bank, a New Hampshire chartered commercial bank
("Purchaser"), Northway Financial, Inc., a New Hampshire chartered corporation
wholly owned by Purchaser, ("Parent"), Pemi Bancorp, Inc. (the "Company") and
Pemigewasset National Bank, a national bank and wholly-owned subsidiary of the
Company (the "Bank"), have entered into an Agreement and Plan of Merger, dated
on or about the date hereof (the "Merger Agreement"), providing for among other
things, the merger (the "Merger") of the Company with and into Parent which, as
of a date immediately preceding the Merger, will own all of the issued and
outstanding stock of Purchaser. Upon consummation of the merger contemplated by
the Merger Agreement (the "Merger"), I will receive shares of common stock, par
value $1.00 per share, of Parent ("Parent Common Stock") in exchange for all of
my shares of common stock, par value $5.00 per share, of Purchaser ("Purchaser
Common Stock"). This agreement is hereinafter referred to as the "Letter
Agreement".
A. I represent and warrant to, and agree with, Parent as follows:
1. I have read this Letter Agreement and the Merger Agreement and
have discussed their requirements and other applicable limitations upon my
ability to sell, pledge, transfer or otherwise dispose of shares of Purchaser
Common Stock and Parent Common Stock, to the extent I felt necessary, with my
counsel or counsel for Purchaser.
2. I hereby agree that (a) without the consent of Purchaser if prior
to the Effective Date of the Merger, or (b) without the consent of Parent if
subsequent to the Effective Date of the Merger, (i) I will not sell or otherwise
reduce my risk relative to any shares of Purchaser Common Stock during the
period of thirty days prior to the effective date of the Merger, and (ii) I will
not sell or otherwise reduce my risk relative to any shares of Parent Common
Stock until financial results covering at least thirty days of combined
operations have been published following the effective date of the Merger.
3. I shall not make any offer, sale, pledge, transfer or other
disposition in violation of the Act or the rules and regulations of the SEC
thereunder of the shares of Parent Common Stock I receive pursuant to the
Merger.
I agree that, if I desire to dispose of any shares of Purchaser Common
Stock owned by me after the date of this Letter Agreement and prior to the
expiration of a two-year period following the effective date of the Merger, I
will affirmatively inquire of Purchaser through its counsel, Goodwin, Procter &
Hoar LLP, if prior to the effective date of the Merger, whether I may so dispose
of said shares of Purchaser Common Stock, or counsel for Parent following the
effective date of Merger whether I may so dispose of shares of Parent Common
Stock, without violating the requirements of this Letter Agreement. I will
dispose of said shares only if such inquiry is answered in the affirmative by
the written response of said counsel.
B. I understand and agree that:
1. I have been advised that any issuance of the shares of Parent
Common Stock to me pursuant to the Merger will have been registered with the SEC
and will be listed for trading on the NASDAQ/NMS or American Stock Exchange. I
have also been advised, however, that, because I may be an "affiliate" of
Purchaser at the time the Merger will be submitted for a vote of the
stockholders of the Purchaser and because any subsequent disposition of such
shares by me has not been registered under the Act, I must hold such shares
until and unless (i) such disposition of such shares is subject to an effective
registration statement under the Act, (ii) a sale of such shares is made in
conformity with the provisions of Rule 145(d) under the Act, or (iii) in an
opinion of counsel, in form and substance reasonably satisfactory to Parent,
some other exemption from registration is available with respect to any such
proposed disposition of such shares.
2. Stop transfer instructions will be given to the transfer agents
of Parent and Purchaser with respect to the shares of Parent Common Stock and
Purchaser Common Stock in connection with the restrictions set forth herein, and
there will be placed on the certificate representing shares of Parent Common
Stock I receive pursuant to the Merger, or any certificates delivered in
substitution therefor, a legend stating in substance:
The shares represented by this certificate were issued in a transaction
to which Rule 145 under the Securities Act of 1933 applies. The shares
represented by this certificate may only be transferred in accordance
with the terms of an agreement between the registered holder hereof and
The Berlin City Bank and Northway Financial, Inc., a copy of which
agreement is on file at the principal offices of The Berlin City Bank.
3. Unless a transfer of my shares of Parent Common Stock is a sale
made in conformity with the provisions of Rule 145(d), or made pursuant to any
effective registration statement under the Act, Parent reserves the right to put
an appropriate legend an the certificates issued to my transferee.
C. By countersigning this Letter Agreement, Parent (a) represents and
warrants that prior to the effective date of the Merger it has or will have
filed, and (b) agrees that from and after the effective date of the Merger it
will file, on a timely basis, all reports (referred to in paragraph (c) of Rule
144 under the Act) required to be filed by Parent pursuant to Section 13 or
Section 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended, in each case to the extent necessary in order to permit me to dispose
of any Parent Common Stock issued in the Merger pursuant to Rule 145(d).
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Merger Agreement is terminated
pursuant to Article VIII thereof, It is also understood and agreed that this
Letter Agreement shall terminate and be of no further force and effect and the
stop transfer instructions set forth in Paragraph B.2. above shall be lifted
forthwith at the later of (i) such time as financial results covering at least
thirty days of combined operations following the effective date of the Merger
have been published, or (ii) delivery by the undersigned to Parent of a copy of
a letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to Parent, or other evidence reasonably
satisfactory to Parent, to the effect that a transfer of my shares of Parent
Common Stock will not violate the Act or any of the rules and regulations of the
SEC, or (iii) the passage of two (2) years after the effective date of the
Merger (unless I am advised that I am an "affiliate" of Parent at such time). In
addition, it is understood and agreed that the legend set forth in Paragraph B.2
above shall be removed forthwith from the certificate or certificates
representing my shares of Parent Common Stock if I shall have delivered to
Parent a copy of a letter from the staff of the SEC or, an opinion of counsel in
form and substance reasonably satisfactory to Parent, or other evidence
satisfactory to Parent that a transfer of my shares of Parent Common Stock
represented by such certificate or certificates will be pursuant to a sale made
in conformity with the provisions of Rule 145(d), or made pursuant to an
effective registration statement under the Act. Additionally, it is understood
and agreed that, in any event, on surrender of any certificates bearing the
legend set forth in Paragraph B.2 above, Parent shall issue substitute
certificates without the legend upon my (or a transferees) request made at any
time after the expiration of two years from the effective date of the Merger,
unless counsel for Parent advises me or my transferee in writing that the person
so requesting is an "affiliate" of Parent (within the meaning of Rule 144) at
the time of such request.
This Letter Agreement shall be binding on my heirs, legal
representatives and successors.
Very truly yours,
---------------------------------------
Accepted as of , 1997
THE BERLIN CITY BANK AND
NORTHWAY FINANCIAL, INC.
By:
---------------------------------------
William J. Woodward
Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit 10.6
FORM OF
RULE 145 REPRESENTATION LETTER
March __, 1997
The Berlin City Bank and
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570-0009
Ladies and Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
Pemi Bancorp, Inc. (the "Company") for purposes of paragraphs (c) and (d) of
Rule 145 of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act"), and for purposes of generally
accepted accounting principles as such term relates to pooling of interests
accounting treatment for certain business combinations under generally accepted
accounting principles and the interpretations of the SEC or its staff,
including, without limitation, Section 201.01 of the SEC's Codification of
Financial Reporting Policies and the SEC's Staff Accounting Bulletin No. 65.
Neither my entering into this letter agreement, nor anything contained herein,
shall be deemed an admission on my part that I am such an "affiliate".
The Berlin City Bank, a New Hampshire chartered commercial bank
("Purchaser"), Northway Financial, Inc., a New Hampshire chartered corporation
wholly owned by Purchaser, ("Parent"), the Company and Pemigewasset National
Bank, a national bank and wholly-owned subsidiary of the Company (the "Bank")
have entered into an Agreement and Plan of Merger, dated on or about the date
hereof (the "Merger Agreement"), providing for among other things, the merger
(the "Merger") of the Company with and into Parent which, as of a date
immediately preceding the Merger, will own all of the issued and outstanding
stock of Purchaser. Upon consummation of the merger contemplated by the Merger
Agreement (the "Merger"), I will receive shares of common stock, par value $1.00
per share, of Parent ("Parent Common Stock") in exchange for all of my shares of
common stock, par value $1.00 per share, of the Company ("Company Common
Stock"). This agreement is hereinafter referred to as the "Letter Agreement".
A. I represent and warrant to, and agree with, Parent as follows:
1. I have read this Letter Agreement and the Merger Agreement and
have discussed their requirements and other applicable limitations upon my
ability to sell, pledge, transfer or otherwise dispose of shares of Company
Common Stock and Parent Common Stock, to the extent I felt necessary, with my
counsel or counsel for the Company.
2. I hereby agree that (a) without the consent of the Company if
prior to the Effective Date of the Merger, or (b) without the consent of Parent
if subsequent to the Effective Date of the Merger, (i) I will not sell or
otherwise reduce my risk relative to any shares of Company Common Stock during
the period of thirty days prior to the effective date of the Merger, and (ii) I
will not sell or otherwise reduce my risk relative to any shares of Parent
Common Stock until financial results covering at least thirty days of combined
operations have been published following the effective date of the Merger.
3. I shall not make any offer, sale, pledge, transfer or other
disposition in violation of the Act or the rules and regulations of the SEC
thereunder of the shares of Parent Common Stock I receive pursuant to the
Merger.
I agree that, if I desire to dispose of any shares of Company Common
Stock owned by me after the date of this Letter Agreement and prior to the
expiration of a two-year period following the effective date of the Merger, I
will affirmatively inquire of the Company through its counsel, Cranmore,
Fitzgerald & Meaney, if prior to the effective date of the Merger, whether I may
so dispose of said shares of Company Common Stock, or counsel for Parent
following the effective date of Merger whether I may so dispose of shares of
Parent Common Stock, without violating the requirements of this Letter
Agreement. I will dispose of said shares only if such inquiry is answered in the
affirmative by the written response of said counsel.
B. I understand and agree that:
1. I have been advised that any issuance of the shares of Parent
Common Stock to me pursuant to the Merger will have been registered with the SEC
and will be listed for trading on the NASDAQ/NMS or American Stock Exchange. I
have also been advised, however, that, because I may be an "affiliate" of the
Company at the time the Merger will be submitted for a vote of the stockholders
of the Company and because any subsequent disposition of such shares by me has
not been registered under the Act, I must hold such shares until and unless (i)
such disposition of such shares is subject to an effective registration
statement under the Act, (ii) a sale of such shares is made in conformity with
the provisions of Rule 145(d) under the Act, or (iii) in an opinion of counsel,
in form and substance reasonably satisfactory to Parent, some other exemption
from registration is available with respect to any such proposed disposition of
such shares.
2. Stop transfer instructions will be given to the transfer agents
of Parent and the Company with respect to the shares of Parent Common Stock and
Company Common Stock in connection with the restrictions set forth herein, and
there will be placed on the certificate representing shares of Parent Common
Stock I receive pursuant to the Merger, or any certificates delivered in
substitution therefor, a legend stating in substance:
The shares represented by this certificate were issued in a transaction
to which Rule 145 under the Securities Act of 1933 applies. The shares
represented by this certificate may only be transferred in accordance
with the terms of an agreement between the registered holder hereof and
The Berlin City Bank and Northway Financial, Inc., a copy of which
agreement is on file at the principal offices of The Berlin City Bank.
3. Unless a transfer of my shares of Parent Common Stock is a sale
made in conformity with the provisions of Rule 145(d), or made pursuant to any
effective registration statement under the Act, Parent reserves the right to put
an appropriate legend an the certificates issued to my transferee.
C. By countersigning this Letter Agreement, Parent (a) represents and
warrants that prior to the effective date of the Merger it has or will have
filed, and (b) agrees that from and after the effective date of the Merger it
will file, on a timely basis, all reports (referred to in paragraph (c) of Rule
144 under the Act) required to be filed by Parent pursuant to Section 13 or
Section 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended, in each case to the extent necessary in order to permit me to dispose
of any Parent Common Stock issued in the Merger pursuant to Rule 145(d).
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Merger Agreement is terminated
pursuant to Article VIII thereof, It is also understood and agreed that this
Letter Agreement shall terminate and be of no further force and effect and the
stop transfer instructions set forth in Paragraph B.2. above shall be lifted
forthwith at the later of (i) such time as financial results covering at least
thirty days of combined operations following the effective date of the Merger
have been published, or (ii) delivery by the undersigned to Parent of a copy of
a letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to Parent, or other evidence reasonably
satisfactory to Parent, to the effect that a transfer of my shares of Parent
Common Stock will not violate the Act or any of the rules and regulations of the
SEC, or (iii) the passage of two (2) years after the effective date of the
Merger (unless I am advised that I am an "affiliate" of Parent at such time). In
addition, it is understood and agreed that the legend set forth in Paragraph B.2
above shall be removed forthwith from the certificate or certificates
representing my shares of Parent Common Stock if I shall have delivered to
Parent a copy of a letter from the staff of the SEC or, an opinion of counsel in
form and substance reasonably satisfactory to Parent, or other evidence
satisfactory to Parent that a transfer of my shares of Parent Common Stock
represented by such certificate or certificates will be pursuant to a sale made
in conformity with the provisions of Rule 145(d), or made pursuant to an
effective registration statement under the Act. Additionally, it is understood
and agreed that, in any event, on surrender of any certificates bearing the
legend set forth in Paragraph B.2 above, Parent shall issue substitute
certificates without the legend upon my (or a transferees) request made at any
time after the expiration of two years from the effective date of the Merger,
unless counsel for Parent advises me or my transferee in writing that the person
so requesting is an "affiliate" of Parent (within the meaning of Rule 144) at
the time of such request.
This Letter Agreement shall be binding on my heirs, legal
representatives and successors.
Very truly yours,
---------------------------
Accepted as of , 1997
THE BERLIN CITY BANK AND
NORTHWAY FINANCIAL, INC.
By:
-------------------------------
Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit 23.1
[LETTERHEAD OF SHATSWELL, MACLEOD & COMPANY, P.C.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
The Berlin City Bank:
We consent to the use of our report dated February 3, 1997, except for
Note 20, as to which the date is March 14, 1997, on the financial statements of
The Berlin City Bank included herein and to the reference to our firm under the
heading "Experts" in the proxy statement/prospectus.
/s/ SHATWELL, MACLEOD & COMPANY, P.C.
West Peabody, Massachusetts
August 6, 1997
Exhibit 23.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
The Berlin City Bank:
We consent to the use of our report on the balance sheet of The Berlin
City Bank as of December 31, 1995, and on the related statements of income,
changes in stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1995, included herein and to the reference to
our firm under the heading "Experts" in the proxy statement/prospectus.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
August 6, 1997
Exhibit 23.3
[LETTERHEAD OF SHATSWELL, MACLEOD & COMPANY, P.C.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Pemi Bancorp, Inc.:
We consent to the use of our report dated January 16, 1997, except for
Note 10, as to which the date is March 7, 1997,and Note 18, as to which the date
is March 14, 1997, on the consolidated financial statements of Pemi Bancorp,
Inc. included herein and to the reference to our firm under the heading
"Experts" in the proxy statement/prospectus.
/s/ SHATWELL, MACLEOD & COMPANY, P.C.
West Peabody, Massachusetts
August 6, 1997
<PAGE>
Exhibit 23.4
[LETTERHEAD OF SHATSWELL, MACLEOD & COMPANY, P.C.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Northway Financial, Inc.:
We consent to the use of our report dated June 9, 1997, on the balance
sheet of Northway Financial, Inc. included herein and to the reference to our
firm under the heading "Experts" in the proxy
statement/prospectus.
/s/ SHATWELL, MACLEOD & COMPANY, P.C.
West Peabody, Massachusetts
August 6, 1997
Exhibit 23.5
[LETTERHEAD OF NORTHEAST CAPITAL & ADVISORY, INC.]
CONSENT OF NORTHEAST CAPITAL & ADVISORY, INC.
We consent to the inclusion of the opinion of our firm to be dated as
of the date of the Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 of Northway Financial, Inc. and to all references to our
firm in or made a part of such Registration Statement.
/s/ NORTHEAST CAPITAL & ADVISORY, INC.
Albany, New York
August 6, 1997
<PAGE>
Exhibit 23.6
[LETTERHEAD OF HAS ASSOCIATES, INC.]
CONSENT OF HAS ASSOCIATES, INC.
We consent to the inclusion of the opinion of our firm to be dated as
of the date of the Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 of Northway Financial, Inc. and to all references to our
firm in or made a part of such Registration Statement.
/s/ HAS ASSOCIATES, INC.
Boston, Massachusetts
August 6, 1997
<PAGE>
Exhibit 99.1
July 25, 1997
Board of Directors
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570
Re: Consent to Serve as a Director
Dear Sirs:
The undersigned hereby consents to serve as a director of Northway
Financial, Inc., as described in the Registration Statement on Form S-4 of
Northway Financial, Inc., to which this consent is appended as an exhibit.
Sincerely,
/s/ William J. Woodward /s/ Barry J. Kelley
------------------------ ------------------------
William J. Woodward Barry J. Kelley
/s/ Fletcher W. Adams /s/ Randall G. Labnon
----------------------- ------------------------
Fletcher W. Adams Randall G. Labnon
/s/ Peter H. Bornstein /s/ John D. Morris
----------------------- ------------------------
Peter H. Bornstein John D. Morris
/s/ Charles H. Clifford, Jr. /s/ Andrew L. Morse
----------------------- ------------------------
Charles H. Clifford, Jr. Andrew L. Morse
/s/ Arnold P. Hanson, Jr. /s/ John H. Noyes
----------------------- -----------------------
Arnold P. Hanson, Jr. John H. Noyes
<PAGE>
Exhibit 99.4
THE BERLIN CITY BANK
9 MAIN STREET, BERLIN, NEW HAMPSHIRE 03570
PROXY FOR COMMON STOCK
P
R THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
O
X
Y The undersigned hereby appoints William J. Woodward and David J. O'Connor
and each of them, proxies with full power of substitution to vote for and on
behalf of the undersigned at the Special Meeting in Lieu of the Annual Meeting
of Stockholders of The Berlin City Bank ("BCB"), to be held at the Town &
Country Motor Inn, Route 2, Shelburne, New Hampshire, on Tuesday, September 23,
1997, at 2:00 p.m., and at any adjournment or postponement thereof, hereby
granting full power and authority to act on behalf of the undersigned at said
meeting or any adjournment or postponement thereof. The undersigned hereby
revokes any proxy previously given in connection with such meeting and
acknowledges receipt of BCB's Notice of Special Meeting in Lieu of the Annual
Meeting of Stockholders and Joint Proxy Statement/Prospectus and BCB's 1996
Annual Report to Stockholders.
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
<PAGE>
|X|Please mark votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO INSTRUCTION IS INDICATED WITH
RESPECT TO PROPOSALS 1, 2, 3, OR 4 BELOW, THE UNDERSIGNED'S VOTES WILL BE CAST
"FOR" EACH OF SUCH MATTERS. PLEASE SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
1. Proposal to authorize BCB to petition the New Hampshire Bank Commissioner
for approval of a Plan of Reorganization, dated September 23, 1997, by and
among The Berlin City Bank, Northway Financial, Inc., and Berlin Interim
Trust Company (the "BCB Reorganization Plan"), as more fully described in
the accompanying Joint Proxy Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to ratify the BCB Reorganization Plan upon receipt of approval of
the New Hampshire Bank Commissioner, as more fully described in the
accompanying Joint Proxy Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the Agreement and Plan of Merger, dated as of March 14,
1997, by and among The Berlin City Bank, Northway Financial, Inc., Pemi
Bancorp, Inc., and Pemigewasset National Bank, all as more fully
described in the accompanying Joint Proxy Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to elect Arnold P. Hanson, Jr., as Director of The Berlin City
Bank for a two-year term to continue to the 1999 Annual Meeting of
Stockholders, and Peter H. Bornstein, Randall G. Labnon, and Brien L. Ward
as Directors of The Berlin City Bank for three-year terms to continue until
the 2000 Annual Meeting of Stockholders, and until the successor of each is
duly elected and qualified.
[ ] FOR [ ] WITHHOLD [ ] WITHHOLD AS TO
FROM ALL -----------------------
[Insert name(s) above]
5. Such other business as may properly come before the meeting or any
adjournments or postponements thereof.
For joint accounts, each owner
should sign. Signature: Date
--------------------- ---------
Executors, administrators,
trustees, corporate officers,
and others acting in a
representative capacity
should give full title
or authority. Signature: Date
--------------------- ---------
<PAGE>
Exhibit 99.5
PROXY FOR SEPTEMBER 22, 1997
SPECIAL MEETING OF SHAREHOLDERS
PEMI BANCORP, INC.
AND ANY ADJOURNMENTS THEREOF
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of the Common Stock of Pemi Bancorp, Inc.
("PEMI") does hereby nominate, constitute and appoint _________________ and
________________ jointly and severally, proxies with full power of substitution,
for us and in our name, place and stead to vote all Common Stock of PEMI,
standing in our name on its books on August 11, 1997 at a Special Meeting of its
Shareholders to be held at Plymouth Regional Senior Center, R.R. Depot Square,
Plymouth, New Hampshire, on Monday, September 22, 1997 at 2:00 p.m., or at any
adjournment thereof with all the powers the undersigned would possess if
personally present, as follows.
The Board of Directors recommends a vote "FOR" Proposals (1) and (2).
1. APPROVE AGREEMENT AND PLAN OF MERGER
Proposal to approve the Agreement and Plan of Merger, dated as of March
14, 1997, by and among The Berlin City Bank, Northway Financial, Inc., PEMI and
Pemigewasset National Bank, all as more fully described in the accompanying
Joint Proxy Statement/Prospectus.
|_| FOR |_| AGAINST |_| ABSTAIN
2. OTHER BUSINESS
To conduct whatever other business that may be properly brought before
the meeting or any adjournment thereof. Management at present knows of no other
business to be presented by or on behalf of PEMI or its management at the
meeting. However, of any other matters are properly brought before the meeting,
the persons named in this proxy or their substitutes will vote in accordance
with their best judgment.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION INDICATED. IF NO
SPECIFICATION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS (1) AND
(2).
DATE: ____________________________ ____________________________(L.S.)
____________________________(L.S.)
Please sign exactly as name
appears. When shares are held in
more than one name, including
joint tenants, each party should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, give full title as
such.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE MEETING BY WRITTEN NOTICE TO
PEMI OR MAY BE WITHDRAWN AND YOU MAY VOTE IN PERSON SHOULD YOU ATTEND THIS
SPECIAL MEETING.
|_| Please check if you plan to attend the Special Meeting
PLEASE SIGN, DATE AND RETURN
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 9,277 8,149
<INT-BEARING-DEPOSITS> 279 80
<FED-FUNDS-SOLD> 3,025 3,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 70,171 61,684
<INVESTMENTS-CARRYING> 1,306 5,306
<INVESTMENTS-MARKET> 1,308 5,308
<LOANS> 152,587 158,678
<ALLOWANCE> 2,635 2,618
<TOTAL-ASSETS> 243,602 243,466
<DEPOSITS> 216,630 213,087
<SHORT-TERM> 4,841 7,663
<LIABILITIES-OTHER> 677 1,059
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 317 317
<OTHER-SE> 21,137 21,340
<TOTAL-LIABILITIES-AND-EQUITY> 243,602 243,466
<INTEREST-LOAN> 12,822 3,394
<INTEREST-INVEST> 4,581 999
<INTEREST-OTHER> 372 72
<INTEREST-TOTAL> 17,775 4,465
<INTEREST-DEPOSIT> 7,746 1,806
<INTEREST-EXPENSE> 8,104 1,896
<INTEREST-INCOME-NET> 9,671 2,569
<LOAN-LOSSES> 360 90
<SECURITIES-GAINS> 306 220
<EXPENSE-OTHER> 6,333 1,779
<INCOME-PRETAX> 3,926 1,074
<INCOME-PRE-EXTRAORDINARY> 3,926 1,074
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,580 799
<EPS-PRIMARY> 40.76 12.63
<EPS-DILUTED> 40.76 12.63
<YIELD-ACTUAL> 7.83 7.92
<LOANS-NON> 2,343 2,461
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 1,400 1,400
<LOANS-PROBLEM> 691 691
<ALLOWANCE-OPEN> 2,506 2,635
<CHARGE-OFFS> 409 115
<RECOVERIES> 178 8
<ALLOWANCE-CLOSE> 2,635 2,618
<ALLOWANCE-DOMESTIC> 2,025 2,025
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 610 593
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 4,980 4,474
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 18,457 17,389
<INVESTMENTS-CARRYING> 12,795 12,424
<INVESTMENTS-MARKET> 12,699 12,278
<LOANS> 18,516 89,233
<ALLOWANCE> 1,306 1,283
<TOTAL-ASSETS> 128,979 128,062
<DEPOSITS> 105,685 103,602
<SHORT-TERM> 8,793 9,891
<LIABILITIES-OTHER> 2,377 2,168
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 752 752
<OTHER-SE> 11,462 11,649
<TOTAL-LIABILITIES-AND-EQUITY> 128,979 128,062
<INTEREST-LOAN> 8,257 1,993
<INTEREST-INVEST> 1,866 490
<INTEREST-OTHER> 77 12
<INTEREST-TOTAL> 10,200 2,495
<INTEREST-DEPOSIT> 3,632 885
<INTEREST-EXPENSE> 4,154 1,022
<INTEREST-INCOME-NET> 6,046 1,473
<LOAN-LOSSES> 152 30
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 4,662 1,189
<INCOME-PRETAX> 1,905 417
<INCOME-PRE-EXTRAORDINARY> 1,905 417
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,277 279
<EPS-PRIMARY> 1.85 0.40
<EPS-DILUTED> 1.85 0.40
<YIELD-ACTUAL> 9.00 8.64
<LOANS-NON> 531 1,116
<LOANS-PAST> 87 269
<LOANS-TROUBLED> 261 96
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,360 1,306
<CHARGE-OFFS> 241 89
<RECOVERIES> 35 36
<ALLOWANCE-CLOSE> 1,306 1,283
<ALLOWANCE-DOMESTIC> 1,306 1,283
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
