SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-A
For Registration of Certain Classes of Securities
Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
NMBT CORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware Pending
---------------------------------- ------------------------
(State of Incorporation (I.R.S. Employer
or organization) Identification No.)
55 Main Street New Milford, CT 06776-2400
- --------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
If this Form relates to the registration of a class of debt securities and is
effective upon filing pursuant to General Instructions A.(c)(1), please check
the following box. [ ]
If this Form relates to the registration of a class of debt securities and is to
become effective simultaneously with the effectiveness of a concurrent
registration statement under the Securities Act of 1933 pursuant to General
Instruction A.(c)(2), please check the following box. [ ]
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Small Cap Tier of NASDAQ Stock Market
(Name of Exchange)
<PAGE>
ITEM I. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMPANY CAPITAL STOCK
The certificate of incorporation of NMBT CORP (the "Company") authorizes
the issuance of 8,000,000 shares of common stock, par value $.01 per share,
("Company Common Stock"), and 2,000,000 shares of serial preferred stock, $.01
par value per share. As of the date hereof, there were 2,600,358 shares of
Company Common Stock issued and outstanding.
Authorized but unissued shares of capital stock may be used for various
purposes, including stock splits and dividends, potential acquisitions, public
offerings, stock option and employee stock plans and dividend reinvestment
plans. Authorized but unissued shares of capital stock, or securities
convertible into or exchangeable for such capital stock, could also be issued by
the Board of Directors in a manner which could make a change in control more
difficult. Under certain circumstances, such shares could be sold privately to
purchasers who might support the Board of Directors in opposing a takeover bid
which the Board determines not to be the best interest of the shareholders.
The Board of Directors of the Company has no present plans to issue any
shares of Company Common Stock, except for shares that will be issued pursuant
to stock option plans.
Company Common Stock may not be used as collateral to secure loans from The
New Milford Bank & Trust Company ("NMBT"), the Registrant's wholly-owned banking
subsidiary. Unless prior approval of the Federal Reserve Board is obtained, the
Company may not redeem shares of Company Common Stock in amounts exceeding 10%
of its consolidated net worth in any twelve month period.
Certain provisions of the Certificate of Incorporation and Bylaws of the
Company may make the accomplishment of certain mergers, tender offers and other
business combinations and the removal of incumbent management more difficult.
Such provisions affect the rights of holders of Company Common Stock, and the
amendment of such provisions is subject to "super-majority" voting requirements.
VOTING RIGHTS
Each holder of Company Common Stock is entitled to one vote for each share
held. The shares of Company Common Stock do not have cumulative voting rights.
Cumulative voting rights mean that holders of more than 50% of shares voting for
the election of directors have the ability to elect 100% of the directors then
standing for election if they choose to do so, and in such event the holders of
the remaining shares voting for the election of directors will not be able to
elect any person or persons to the Board of Directors.
<PAGE>
PREEMPTIVE RIGHTS
Under the Company's Certificate of Incorporation, shareholders of the
Company do not have preemptive rights to subscribe for or purchase shares of any
class of capital stock now or hereafter authorized or securities convertible
into shares of any class of capital stock of the Company. Without preemptive
rights, a shareholder's ownership is subject to dilution if additional shares
are issued.
DIVIDEND RIGHTS
The holders of Company Common Stock will be entitled to receive dividends
when, as and if declared by the Board of Directors of the Company. Dividends may
be declared and paid by the Company only out of funds legally available
therefore. Under Delaware law, dividends may generally be declared by the Board
of Directors of a corporation and paid in cash, property or in shares of such
corporation, to the extent of its surplus as defined therein. For the
foreseeable future, the sole source of amounts available to the Company for the
declaration of dividends will be dividends declared and paid by NMBT on shares
of its common stock, par value $1.00 per share ("Bank Common Stock"). Any
amounts received by the Company will be used to pay the operating expenses of
the Company, and for other activities in which it may engage, including the
acquisition of other financial institutions, before any dividends can be paid on
Company Common Stock. It is anticipated that the only operating expenses of the
Company will be administrative expenses of its officers, which in large part
will be allocated to and reimbursed by NMBT. Holders of Bank Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor. Cash dividends may be paid by NMBT out
of current or accumulated net profits and not out of the capital surplus
account. Under Connecticut law, a Connecticut-chartered capital stock bank may
not pay out in dividends in any calendar year an amount exceeding the total of
its net profits of that year combined with its retained net profits of the
preceding two years, unless such larger dividend is specifically approved by the
Banking Commissioner. Additionally, earnings appropriated to bad debt reserves
for loan losses and deducted for Federal income tax purposes are not available
for cash dividends without the payment of taxes at then current income tax rates
on the earnings so used. The present intention of the Board of Directors of the
Company is to declare and pay cash dividends on a quarterly basis. The payment
and size of any dividend will depend on the future earnings of the Company and
NMBT. Under the Certificate of Incorporation of the Company, the Company has the
authority to issue preferred stock with dividend rights superior to the Company
Common Stock that may adversely affect the amount or frequency of Company Common
Stock dividends, although the Company has no plans at this time to issue such
preferred stock.
LIQUIDATION RIGHTS
In the unlikely event of liquidation of the Company, holders of Company
Common Stock are entitled to share pro rata in the net assets of the Company
remaining after payment of all amounts due creditors. In the event of the
concurrent liquidation of the Company and NMBT,
<PAGE>
the net assets available for payment to holders of Company Common Stock would be
the net assets remaining after payment of all amounts due creditors of the
Company and NMBT.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. will be the transfer agent and
registrar for Company Common Stock.
SERIAL PREFERRED STOCK
The Board of Directors of the Company may, without the action of the
Company's shareholders, issue preferred stock from time to time in one or more
series with distinctive serial designations.
The Board of Directors is authorized to determine, among other things, with
respect to each series which may be issued: (1) the dividend rate and conditions
and dividend preferences, if any; (2) whether dividends would be cumulative and,
if so, the date from which dividends on such series would accumulate; (3)
whether, and to what extent, the holder of such series would enjoy voting
rights, if any, in addition to those prescribed by law; (4) whether, and upon
what terms, such series would be convertible into or exchangeable for shares of
any other class of capital stock or other series of preferred stock; (5)
whether, and upon what terms, such series would be redeemable; (6) whether or
not a sinking fund would be provided for the redemption of such series and, if
so, the terms and conditions thereof; and (7) the preference, if any, to which
such series would be entitled in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company. With regard to dividends,
redemption rights and liquidation preference, any particular series of preferred
stock may rank junior to, on a parity with or senior to any other series of
preferred stock and Company Common Stock.
It is not possible to state the actual effect of the authorization of the
preferred stock upon the rights of holders of shares of Company Common Stock
until the Board of Directors determines the specific rights of the holders of a
series of preferred stock. However, such effects might include: (1) restriction
on the payment of dividends on Company Common Stock if dividends on preferred
stock have not been paid; (2) dilution of the voting power of Company Common
Stock to the extent that the preferred stock has voting rights; (3) dilution of
the equity interest of Company Common Stock to the extent that the preferred
stock is converted into Company Common Stock; or (4) Company Common Stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to the holders of the
preferred stock. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could make it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. Accordingly, the issuance of
preferred stock may be used as an "anti-takeover" device without further action
on the part of the shareholders of the Company.
The Company has no present plans to issue or authorize the issuance of any
shares of preferred stock.
<PAGE>
MARKET
Because no shares of Company Common Stock have been issued, other than the
shares issued in connection with the formation of the Company, no market for
Company Common Stock has been established, and there have been no transactions
therein.
SHAREHOLDERS' MEETINGS
The Company's Bylaws provide that, unless a special meeting of shareholders
is otherwise required by law, such meeting can only be called by a majority of
the Board of Directors. Moreover, the Company's Certificate of Incorporation
permits the shareholders to act only at a duly called annual or special meeting
and not by any written consent of the shareholders. This provision effectively
prevents any shareholder action prior to the next annual meeting unless a
majority of the Board of Directors agrees to call a shareholders' meeting prior
to that date.
BOARD OF DIRECTOR PROVISION
Certain provisions of the Company's Certificate of Incorporation and Bylaws
impede changes in majority control of the Board of Directors. The Company's
Certificate of Incorporation provides that the Board of Directors of the Company
will consist of not less than five nor more than twelve members and will be
divided into three classes, with directors in each class elected for three-year
terms. The Company's Bylaws provide that the number of positions on the Board of
Directors will be fixed by resolution of the Board of Directors or, in the
absence of such resolution, will be the number of directors elected at the last
annual meeting plus the number of incumbent directors whose terms did not expire
at such annual meeting. The Board of Directors may increase the number of
directors by no more than two in each fiscal year, and may decrease the number
of directors at any time (but to not less than five directors). No decrease in
the number of directors will shorten the term of any incumbent director. The
Company's Certificate of Incorporation and Bylaws also impose restrictions on
the ability of shareholders to nominate candidates for the Board of Directors,
requiring, in general, not less than sixty (60) nor more than ninety (90) days
prior written notice of such nominations.
The Company's Certificate of Incorporation and Bylaws provide that
vacancies created by an increase in the number of directorships can be filled
for the unexpired term by the Board of Directors. Vacancies occurring for any
other reason, such as death or resignation, would be filled by the remaining
directors. The effect of these provisions would prevent a new majority
shareholder from increasing the size of the Board of Directors and from then
filling the vacancies created by such increase. They would also prevent a new
majority shareholder from filling any vacancies on the Board of Directors
arising by resignation, death or other reason.
No person will be eligible for election or re-election as director if he or
she has reached age seventy (70) at the time of such election. Any director who
reaches age seventy (70) at any
<PAGE>
subsequent time during his or her term of office is required to vacate office at
the expiration of such director's term. However, no person who served as a
director in June of 1994 is prevented from being re-elected as a director until
he or she has reached his or her 72nd birthday. The office of any person who has
reached his or her 72nd birthday and who was serving as a director as of that
date becomes vacant at the Annual Meeting of Stockholders at which such
Director's term expires.
The Company's Certificate of Incorporation and Bylaws provide that any
director of the Company may be removed from office at anytime with or without
cause by the affirmative vote of seventy-five (75%) percent of the entire Board
of Directors at any meeting of the Board of Directors called for that purpose or
by the affirmative vote of the holders of not less than seventy-five percent
(75%) of the outstanding shares of the Company's capital stock entitled to vote
thereon. If there is a shareholder who owns ten percent (10%) or more of the
Company's Capital Stock entitled to vote in an election for directors (a
"Related Person"), such removal must also be approved by seventy-five (75%)
percent of the Company's capital stock entitled to vote thereon held by
shareholders other than the Related Person. The Bylaws define "cause" as either
conviction of a felony or gross negligence or willful misconduct in the
performance of a duty to the Company, as determined in good faith by a vote of
not less than a majority of the Board of Directors.
The Certificate of Incorporation and Bylaws of NMBT contain similar
provisions relating to classification of the Board of Directors, the filling of
vacancies on the Board of Directors, limitations on the maximum age of
directors, and the removal of directors with or without cause.
FAIR PRICE PROVISION
The Company's Certificate of Incorporation also requires that, unless
otherwise required by law, certain "business combinations" with a holder of ten
percent (10%) or more (hereinafter referred to as a "Related Person") of the
Company's capital stock entitled to vote in the election of directors
(hereinafter referred to as the "Company Voting Stock") must be approved by 80%
of the Company Voting Stock and by a majority vote of such stock held by persons
other than a Related Person ("80% Vote"). The purpose of this provision is to
discourage front load or two-tier acquisitions. In this type of acquisition, one
price is offered in a tender offer for a controlling block of stock and then a
much lower price and/or less desirable form of consideration is offered for the
remainder of the outstanding stock.
The term "business combination" encompasses six categories of transactions.
The first includes any merger, consolidation or share exchange by the Company or
any subsidiary with any Related Person or affiliate thereof. The second category
includes any sale, lease, exchange, mortgage or other disposition of assets to
an Interested Shareholder within any twelve month period which is not in the
usual and regular course of business, if the assets have a book value of 10% or
more of either the total market value of the outstanding stock of the Company or
the Company's net worth as of the end of the most recent fiscal quarter. The
third category is the issuance or transfer to a Related Person, on a non-pro
rata basis, of stock, or securities convertible into stock, having a market
value equal to five percent (5%) or more of the total market value of all shares
of stock of the Company. The fourth category is a liquidation or dissolution
proposed by or on behalf of an Interested Shareholder or related person. The
fifth category is any reclassification of securities or recapitalization which
increases an Interested Shareholder's proportionate ownership of the Company's
equity or convertible securities. The
<PAGE>
sixth category is the purchase or other acquisition by the Company of assets of
a Related Person having a book value of ten (10%) percent or more of either the
total market value of the Company or the Company's net worth as of the end of
the most recent fiscal quarter.
The Company's Certificate of Incorporation exempts from the 80% Vote
described above any business combination with a Related Person if the
transaction is approved by the Company's Board of Directors before the Related
Person first becomes a Related Person.
The Company's Certificate of Incorporation also exempts from the 80% Vote,
business combinations which satisfy certain "fair price" and procedural
provisions. Five basic conditions must be met in order for this exemption to
apply. The first condition is that the ratio of consideration for stock in the
business combination to the market value of the stock is at least as great as
the ratio of the highest per share consideration which the Related Person paid
for stock to the market value of stock immediately prior to the initial
acquisition of stock by the Related Person. The second condition requires that
shareholders whose stock is acquired in the second or later stage of an
acquisition must receive at least as much as the highest price the Related
Person paid for shares within the prior two years, and in some cases a higher
price, as determined by various formulas specified in the exemptive provision.
These prices may bear no relation to the then-current market value of the
Company's stock. The third condition is that the consideration in the business
combination must be in the same form of consideration as the Related Person
previously paid. This requirement prevents the use of cash in the "first tier"
of an acquisition and less valuable securities in the "second tier". The fourth
condition is designed to ensure that a Related Person has not, through the
exercise of influence over the Company, enhanced his position or brought about
actions detrimental to the other shareholders. Thus, any omission of preferred
stock dividends, or the receipt by the Related Person of specified financial or
tax benefits (such as loans, advances, pledges or guarantees provided by the
Company), will prevent the use of the "fair price" exemption. The fifth
condition requires that a proxy or information statement complying with the
provisions of the Exchange Act be mailed to the Company's shareholders at least
thirty (30) days prior to the consummation of the business combination, whether
or not such proxy or information statements is required under the Exchange Act.
In the event that the requisite approval of the Board of Directors was
given on the "fair price" or the procedural requirements were met with respect
to a particular business combination, the other voting requirements of the
Certificate of Incorporation, discussed in the next section, and the normal
voting requirements of Delaware law would apply. Under Delaware law, a merger,
consolidation, sale of substantially all of the assets of the Company or the
adoption of a plan of dissolution of the Company would require the approval of a
majority of the outstanding shares of Company Common Stock. A reclassification
of the Company's securities involving an amendment to the Certificate of
Incorporation would require the approval of the holders of a majority of the
Company capital stock entitled to vote thereon. A sale of less than
substantially all of the assets of the Company, a merger of the Company with a
company in which it owns 90% of the outstanding capital stock, or a
reclassification of the Company's securities not involving an amendment to its
certificate of incorporation would not require shareholder approval.
<PAGE>
The 80% Vote and other provisions of the Company's Certificate of
Incorporation are substantially similar to the provisions of Section 203 of the
General Corporation Law of Delaware. The fair price provisions have been
included in the Company's proposed Certificate of Incorporation to retain the
super-majority voting requirements and other provisions set forth in Section 203
in the event the Delaware statutory provisions are repealed or amended by the
Delaware legislature.
BOARD OF DIRECTORS APPROVAL OF A BUSINESS COMBINATION OR STOCK PURCHASE
The Company's Certificate of Incorporation prevents a Related Person from
engaging in any "business combination" with the Company for a period of five (5)
years following the date on which it first became a Related Person (i.e., the
date on which it first acquired ten percent (10%) or more of the Company's
Voting Stock) unless it is approved by the two-thirds of the Company Voting
Stock and a majority of such stock held by persons other than a Related Person.
A "business combination" is defined in the same way as for purposes of the fair
price provision discussed above. Nevertheless, a business combination with a
Related Person may occur before the termination of the five (5) year period if
two-thirds of the Board of Directors of the Company gives its approval, before
the date on which the Related Person becomes a Related Person, to either the
proposed business combination or the proposed acquisition of the Company Voting
Stock. The purpose of this provision is to effectively require any potential
acquiror of the Company to seek the approval of the Board of Directors of the
Company before launching a takeover attempt.
In the event that the requisite prior Board of Director approval is
obtained with respect to a particular business combination, the normal voting
requirements of Delaware law would apply. Under Delaware law, a merger,
consolidation, sale of substantially all of the assets of the Company or the
adoption of a plan of dissolution of the Company would require the approval of a
majority of the outstanding shares of the Company's capital stock. A
reclassification of the Company's securities involving an amendment to its
Certificate of Incorporation would require the approval of the holders of a
majority of the Company's capital stock entitled to vote thereon. A sale of less
than substantially all the assets of the Company, a merger of the Company with a
company in which it owns 90% of the outstanding capital stock, a
reclassification of the Company's securities not involving an amendment to this
Certificate of Incorporation, or the granting of loans, advances, guarantees,
pledges or other financial assistance to a person, would not require shareholder
approval.
ANTI-GREENMAIL PROVISION
The Company's Certificate of Incorporation requires, under certain
circumstances, the affirmative vote of holders of not less than a majority of
the outstanding shares of the Company's capital stock, voting together as a
class, but excluding any stock owned by an Interested Securityholder (as
hereinafter defined), before the Company may, directly or indirectly, purchase
any of its equity securities from such Interested Securityholder who has
beneficially owned such security less than two years prior to the date of said
purchase. An "Interested Securityholder" is generally defined as the holder,
directly or indirectly, of 3% or more of the class of the
<PAGE>
Company's securities to be acquired. No such vote is required, however, if the
Company makes a transfer or exchange offer to the Interested Securityholder and
to all other shareholders on the same terms and conditions and in compliance
with the Federal securities laws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its officers, directors, employees and other persons to
the fullest extent permitted by the Delaware Corporation Law ("DCL"). Section
145 of the DCL contains the indemnification provisions applicable to
corporations. Under that statute, the amount of corporate indemnification
differs, depending on whether or not liability arises as a result of an action
brought by or in the right of a corporation. An action brought by or in the
right of a corporation is called a "corporate suit", while an action not brought
by or in the right of a corporation is called a "third party suit."
Delaware law provides that a corporation shall indemnify a director or
officer, and his legal representatives, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred with regard to any third party suit if: (a) the person is successful on
the merits in defending the action or; (b) the board of directors, independent
legal counsel or the shareholders conclude that the person acted in good faith
and in a manner he reasonably believed to be in the best interest of the
corporation and that, with respect to a criminal action or proceeding, he had no
reasonable cause to believe that his conduct was unlawful. The termination of a
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere does not, in and of itself, create a presumption that the person did
not act in good faith or in a manner he reasonably believed to be in the best
interests of the corporation, or that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
The statutes also provide that a corporation shall indemnify a director or
officer, and his or her legal representatives, for reasonable expenses incurred
in connection with a corporate suit under similar circumstances provided,
however, the corporation may not provide indemnification if such person is
adjudged to be liable to the corporation unless the court, upon application,
determines that it is fair and reasonable for the corporation to indemnify such
person.
The Company's Certificate of Incorporation limits the personal liability of
directors to the Company or to its shareholders for monetary damages arising due
to the breach of the directors' fiduciary duty. However, certain limitations
apply: (a) a director's liability to the Company cannot be reduced to an amount
less than the compensation received by the director for the year in which the
violation occurred; (b) to be subject to the limitation on liability, the breach
of duty can not limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DCL or (iv) for any
transaction from which the director derived an improper personal benefit.
<PAGE>
CERTIFICATE OF INCORPORATION AMENDMENTS
In general, approval of an amendment to the Company's Certificate of
Incorporation will require the approval of the holders of only a majority of the
outstanding shares of the Company's capital stock entitled to vote thereon. The
Certificate of Incorporation requires that any amendment of the provisions of
the Company's Certificate of Incorporation relating to various Board of Director
provisions, the "anti-greenmail" provisions, meetings of shareholders, and the
procedure for the amendment of the foregoing provisions be approved by
two-thirds of the outstanding shares of the Company's capital stock entitled to
vote thereon and if there is a Related Person, the amendment must also be
approved by a majority of the Company's capital stock entitled to vote thereon
held by shareholders other than the Related Person. Amendment of the provisions
relating to business combinations requires a vote of eighty (80%) percent of the
outstanding shares of the Company's Capital Stock entitled to vote thereon and,
if there is a Related Person, the amendment must also be approved by a majority
of the Company's Capital Stock entitled to vote thereon held by Shareholders
other than the Related Person.
BYLAW AMENDMENTS
Portions of the Company's Bylaws may be amended by the affirmative vote of
the holders of a majority of the outstanding shares of the Company's capital
stock entitled to vote thereon or by the affirmative vote of two-thirds of the
number of positions on the Board of Directors. However, certain provisions of
the Bylaws relating to the fixing of the number of directorships, shareholder
nomination of candidates for director, the removal of directors with cause, the
filling of vacancies on the Board of Directors, the calling of special meetings
of shareholders and the procedure for the amendment of the Bylaws may be amended
only by the affirmative vote of two-thirds of the outstanding shares of the
Company's capital stock entitled to vote thereon. If there is a Related Person,
the Bylaw amendment must also be approved by two-thirds of the Company's capital
stock entitled to vote thereon held by shareholders other than the Related
Person.
REPURCHASE OF SHARES
Under Delaware law the Company may not redeem or repurchase shares of its
stock when the capital of the corporation is impaired or when such purchase or
redemption would cause any impairment of the capital of the corporation.
The Federal Reserve Board limits the amount of securities that a bank
holding company may redeem in any one year without obtaining the prior approval
of the Federal Reserve Board if the gross consideration paid for the redemption,
when aggregated with the net consideration paid by the corporation for all such
redemptions in the preceding twelve months, is equal to 10% or more of the
corporation's consolidated net worth. For purposes of this regulation, "net
consideration" is defined as gross consideration paid by the corporation for
redemption of its equity securities during the twelve month period, less the
gross consideration received for all its equity securities during the period
other than as part of a new issue.
<PAGE>
ITEM 2 EXHIBITS
2 Agreement and Plan of Reorganization
3.1 Certificate of Incorporation
3.2 By-Laws
10. Material Contracts
10.1 Non-Statutory Stock Option Plan (1988)
10.2 1994 Stock Option Plan for Employees, Officers and Directors of The New
Milford Bank & Trust Company
10.3 Amendment No. 1 to Non-Statutory Stock Option Plan
10.4 Amendment No. 1 to 1994 Stock Option Plan
10.5 Employment Agreement between The New Milford Bank & Trust Company and
Michael D. Carrigan
10.6 Employment Agreement between The New Milford Bank & Trust Company and
Jay C. Lent
10.7 Employment Agreement between The New Milford Bank & Trust Company and
Peter Maher
11. Statement re: computation of per share earnings
12. Statements re: computation of ratios
21. Subsidiary of Registrant
27.1 Financial Data Schedule - Year ended December 31, 1996
27.2 Financial Data Schedule - Quarter ended March 31, 1997
27.3 Financial Data Schedule - Six months ended June 30, 1997
27.4 Financial Data Schedule - Nine months ended September 30, 1997
99. Additional Exhibits
99.1 Annual Report and Form F-2 for fiscal year ended December 31, 1996
99.2 Quarterly Report on Form F-4 for fiscal quarter ended March 31, 1997
99.3 Quarterly Report on Form F-4 for fiscal quarter ended June 30, 1997
99.4 Quarterly Report on Form F-4 for fiscal quarter ended September 30, 1997
<PAGE>
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
NMBT CORP (Registrant)
By /s/ Michael D. Carrigan
---------------------------------------
Michael D. Carrigan, President and
Chief Executive Officer
Date: 11/25/97
-----------------
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
- --------- ---------------------------------------- -------------------------------------------------------------------------------
SECURITIES ACT FORMS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
S-1 S-2 S-3 S-4 S-8 S-11 F-1 F-2 F-3 F-4
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
(1) Underwriting agreements. X X X X X X X X X
(2) Plan of acquisition, reorganization, X X X X X X X X X X
arrangements, liquidation or
succession.
(3) (i) Articles of incorporation. X X X X X
(ii) By-laws. X X X X X
(4) Instruments defining the rights of X X X X X X X X X X
security holders, including indentures.
(5) Opinion re legality. X X X X X X X X X X
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
(6) Opinion re discount on capital shares. X X X X X X X
(7) Opinion re liquidation preference. X X X X X X X
(8) Opinion re tax matters. X X X X X X X X X
(9) Voting trust agreement. X X X X X X
(10) Material contracts. X X X X X X X
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
(11) Statement re computation of per share X X X X X X X
earnings.
(12) Statement re computation of ratios X X X X X X X X
(13) Annual report to security holders, X X
Form 10-Q or quarterly report to
security holders
(14) Material foreign patents. X X X X
(15) Letter re unaudited interim financial X X X X X X X X X X
information.
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
(16) Letter re change in certifying X X X X
accountant.
(17) Letter re director resignation
(18) Letter re change in accounting
principles.
(19) Report furnished to security holders.
(20) Other documents or statements to
security holders.
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
(21) Subsidiaries of the registrant. X X X X X
(22) Published report regarding matters
submitted to vote of security holders.
(23) Consents of experts and counsel. X X X X X X X X X X
(24) Power of attorney. X X X X X X X X X X
(25) Statement of eligibility of trustee. X X X X X X X X X
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
(26) Invitations for competitive bids. X X X X X X X X
(27) Financial Data Schedule. X X X X X
(28) Information from reports furnished to X X X X X
state insurance regulatory authorities.
(99) Additional Exhibits. X X X X X X X X X X
- --------- ---------------------------------------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------- ---------------------------------------- -------------------------------------------
EXCHANGE ACT FORMS
-------------------------------------------
10 8-K 10-Q 10-K
- --------- ---------------------------------------- ----------- -------- --------- ------------
<S> <C> <C> <C> <C>
(1) Underwriting agreements. X
(2) Plan of acquisition, reorganization, X X X X
arrangements, liquidation or
succession.
(3) (i) Articles of incorporation. X X X
(ii) By-laws. X X X
(4) Instruments defining the rights of X X X X
security holders, including indentures.
(5) Opinion re legality.
- --------- ---------------------------------------- ------------ -------- --------- -----------
(6) Opinion re discount on capital shares. X
(7) Opinion re liquidation preference. X
(8) Opinion re tax matters.
(9) Voting trust agreement. X X X
(10) Material contracts. X X X
- --------- ---------------------------------------- ------------ -------- --------- ----------
(11) Statement re computation of per share X X X
earnings.
(12) Statement re computation of ratios X X
(13) Annual report to security holders, X
Form 10-Q or quarterly report to X X
security holders.
(14) Material foreign patents. X X
(15) Letter re unaudited interim financial
information. X X
- --------- ---------------------------------------- ------------ -------- --------- ----------
(16) Letter re change in certifying X X X
accountant.
(17) Letter re director resignation X
(18) Letter re change in accounting X X
principles.
(19) Report furnished to security holders. X
(20) Other documents or statements to X
security holders.
- --------- ---------------------------------------- ------------ -------- --------- ----------
(21) Subsidiaries of the registrant. X X X
(22) Published report regarding matters X X
submitted to vote of security holders.
(23) Consents of experts and counsel. X X X
(24) Power of attorney. X X X X
(25) Statement of eligibility of trustee.
- --------- ---------------------------------------- ------------ -------- --------- ----------
(26) Invitations for competitive bids.
(27) Financial Data Schedule. X X X X
(28) Information from reports furnished to X X
state insurance regulatory authorities.
(99) Additional Exhibits. X X X X
- --------- ---------------------------------------- ------------ -------- --------- ----------
</TABLE>
Where incorporated by reference into the text of the prospectus and delivered to
security holders along with the prospectus as permitted by the registration
statement; or, in the case of the Form 10-K, where the annual report to security
holders is incorporated by reference into the text of the Form 10-K.
Where the opinion of the expert or counsel has been incorporated by reference
into a previously filed Securities Act registration statement.
An exhibit need not be provided about a company if: (1) with respect to such
company an election has been made under Forms S-4 or F-4 to provide information
about such company at a level prescribed by Forms S-2, S-3, F-2 or F-3 and (2)
the form, the level of which has been elected under Forms S-4 or F-4, would not
require such company to provide such exhibit if it were registering a primary
offering.
If required pursuant to Item 304 of Regulation S-K.
Financial Data Schedules shall be filed by electronic filers only. Such schedule
shall be filed only when a filing includes annual and/or interim financial
statements that have not been previously included in a filing with the
Commission. See Item 601(c) of Regulation S-K.
AGREEMENT AND PLAN OF REORGANIZATION
between
NMBT CORP
and
THE NEW MILFORD BANK & TRUST COMPANY
AGREEMENT AND PLAN OF REORGANIZATION dated as of April 16, 1997 (the
"Plan") by and between NMBT CORP, a Delaware corporation (the "Company"), and
THE NEW MILFORD BANK & TRUST COMPANY, a Connecticut state chartered bank (the
"Bank").
The Company and the Bank intend to provide for the acquisition by the
Company of all the issued and outstanding capital stock of the Bank pursuant to
The Connecticut Bank Holding Company and Bank Acquisition Act (the "Bank
Acquisition Act") and subject to the terms and conditions stated in this Plan.
Upon consummation of the acquisition provided for herein (the "Acquisition"),
the present shareholders of the Bank (other than shareholders who have validly
exercised their rights under Section 36a-181(c) of the Bank Acquisition Act to
be paid the value of their stock of the Bank) will receive shares of Common
Stock, $.01 par value per share, of the Company ("Company Common Stock"), as
provided in this Plan.
NOW THEREFORE, the Company and the Bank hereby agree as follows:
ARTICLE I
THE PLAN
1.1 The Acquisition. On the Effective Date (as hereinafter defined), all
of the issued and outstanding Common Stock, par value $1.00 per share, of the
Bank ("Bank Common Stock") will be acquired automatically in a single
transaction by the Company in accordance with the Bank Acquisition Act and the
terms and conditions of this Plan. Each share of Bank Common Stock outstanding
on the Effective Date (as defined in Section 1.2 below) shall continue to be
issued and outstanding, and the ownership thereof shall automatically and
without further action be transferred to and vested in the Company.
1.2. Effective Date. The date on which the Acquisition shall become
effective (the "Effective Date") shall be the date on which this Plan shall be
filed in the office of the Secretary of the State of the State of Connecticut,
which date shall not be before the date on which the last of the conditions
specified in Article V hereof shall have been satisfied or otherwise fulfilled
or compliance therewith shall have been waived.
1.3. Stock Options. All employee and director stock options and rights to
acquire
<PAGE>
Bank Common Stock which are issued pursuant to the Bank's 1988 and 1994
Non-Statutory Stock Option Plans (collectively, the "Bank Stock Option Plans")
and which are outstanding at the Effective Date will be assumed by the Company
at the Effective Date, and such options and rights will become options and
rights to acquire the equivalent number of shares of Company Common Stock. At
the Effective Date, the Bank shall also amend the Bank Stock Option Plans to
provide that such plans will be continued, provided that any stock option to be
issued pursuant to the plan after the Effective Date shall be for purchase of
Company Common Stock, rather than Bank Common Stock. After the Effective Date,
the Bank will continue to administer the Bank Stock Option Plans, and the
Company shall assume the obligation to issue Company Common Stock upon the
exercise of such options.
1.4. Statutory Right to Receive Payment. Any shareholder of the Bank whose
shares of Bank Common Stock would otherwise be converted into shares of Company
Common Stock by operation of this Plan and who validly complies with all the
requirements of Section 36a-181(c) of the Bank Acquisition Act may demand in
writing from the Bank payment for his Bank Common Stock and shall receive
payment therefor from the Bank in the amounts and at the times specified in
Section 36a-181(c) of the Bank Acquisition Act. Upon payment the Bank shall
become the owner of the Bank Common Stock owned by such dissenting shareholder.
ARTICLE II
EXCHANGE OF SHARES
2.1. Conversion of Bank Common Stock. Each share of Bank Common Stock
issued and outstanding immediately prior to the Effective Date (other than
shares of Bank Common Stock owned by Bank shareholders who pursuant to Section
36a-181(c) of the Bank Acquisition Act have (i) at or prior to the shareholders'
meeting referred to in Section 5.1(d) hereof delivered to the Bank their written
objection to this Plan and (ii) within 10 days after the date on which this Plan
is filed by the Secretary with the Banking Commissioner of the State of
Connecticut, demanded in writing from the Bank payment in cash for their shares
of Bank Common Stock) shall, by virtue of this Plan and without any action on
the part of the holder thereof, be converted into and exchangeable for one share
of Company Common Stock.
2.2. Exchange of Shares.
(a) As soon as practicable after the Effective Date, the Company shall
mail to each holder, who so requests, of record a certificate or certificates
which immediately prior to the Effective Date represented outstanding shares of
Bank Common Stock (the "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 Company),
and instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Company Common Stock. Upon surrender of a
Certificate for exchange and cancellation together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of shares of
Company Common Stock to which such holder of Bank Common Stock shall have become
entitled pursuant to the provisions of this Article II, and the Certificate so
surrendered shall
<PAGE>
forthwith be canceled.
(b) If any certificate representing shares of Company Common Stock is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, and that the person requesting such exchange shall pay
to the Company in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Company Common Stock in any
name other than that of the registered holder of the Certificate surrendered, or
required for any other reason, or shall establish to the satisfaction of the
Company that such tax has been paid or is not payable.
(c) After the Effective Date there shall be no transfer on the stock
transfer books of the Bank of the shares of Bank Common Stock which were
outstanding immediately prior to the Effective Date. If after the Effective
Date, Certificates representing such shares are presented for transfer to the
Bank, they shall be canceled and exchanged for certificates representing shares
of Company Common Stock as provided in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Bank. The Bank hereby represents
and warrants that:
(a) It is a bank duly organized, validly existing and in good standing
under the laws of the State of Connecticut and has all requisite corporate power
and authority to own, operate and lease its real and personal properties in the
manner and to the extent owned, operated or leased as of the date hereof; it is
duly authorized and empowered with all requisite regulatory approvals to conduct
a general banking business at its main and branch offices as established on the
date hereof; and no action or administrative proceeding is pending, or, to its
knowledge, threatened or contemplated, which would in any way challenge it's
right or authority to conduct a general banking business at its main office or
any of its branch offices;
(b) Its authorized capital stock consists of 8,000,000 shares of Bank
Common Stock, par value $1.00 per share, and 2,000,000 shares of serial
preferred stock, par value $1.00 per share;
(c) It has the corporate power and authority to enter into, subject to
approval of this Plan by the shareholders of the Bank and the receipt of
necessary regulatory approvals become bound by the terms of, this Plan, which
Plan has been duly approved by not less than a majority of its directors at a
meeting duly called for such purpose and has been duly executed and delivered on
its behalf and, subject to such shareholder approval and such regulatory
approvals, constitutes a legal, valid and binding obligation of the Bank
enforceable against the Bank in accordance with its terms;
(d) If the requisite approval of the Plan is obtained at the meeting of
<PAGE>
shareholders of Bank Common Stock referred to in Section 5.1(d), thereafter and
until the Effective Date, the Bank shall issue certificates for Bank Common
Stock, whether upon transfer or otherwise, only if such certificates bear a
legend, the form of which shall be approved by the Board of Directors of the
Company, indicating that the Plan has been approved and that shares of Bank
Common Stock evidenced by such certificates are subject to acquisition by the
Company pursuant to the Plan;
(e) The performance by the Bank of its obligations under this Plan will
not conflict with any provision of the charter or by-laws of the Bank or
conflict with, or result in a breach of or a default (without regard to the
giving of notice or the passage of time) under, any indenture, agreement,
contract, commitment or obligation to which it is a party or by which it or its
assets may be bound, or violate any provision of any law, governmental rule or
regulation, judgment or decree binding on it or any of its assets; and
(f) The names of all affiliates, as defined in the rules and regulations
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
of the Bank (including all of its directors) who will acquire shares of Company
Common Stock in connection with the Acquisition and the number of shares of Bank
Common Stock owned of record or beneficially by each of them, are set forth in a
list previously furnished by the Bank to the Company (the "Bank Affiliates").
3.2. Representations and Warranties of the Company. The Company hereby
represents and warrants that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with all corporate power to own
its properties and to carry on its business as currently being conducted;
(b) Its authorized capital stock consists of 8,000,000 shares of Company
Common Stock, par value $.01 per share and 2,000,000 shares of serial preferred
stock, $.01 par value per share;
(c) The shares of the Company Common Stock to be issued in connection
with the Acquisition will be, when issued in accordance with the provisions of
this Plan, duly authorized, validly issued, fully paid and nonassessable;
(d) It has the corporate power and authority to enter into, and subject
to the receipt of necessary regulatory approvals, become bound by the terms of,
this Plan, which Plan has been duly approved by not less than a majority of its
directors and by the holders of not less than two-thirds of all the outstanding
shares of Company Common Stock at meetings duly called for such purpose and has
been duly executed and delivered on its behalf and, subject to such regulatory
approvals, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms; and
<PAGE>
(e) The performance by it of its obligations under this Plan will not
conflict with any provision of the Certificate of Incorporation or By-laws of
the Company or conflict with, or result in a breach of or a default (without
regard to the giving of notice or the passage of time) under, any indenture,
agreement, contract, commitment or obligation to which it is a party or by which
it or its assets may be bound, or violate any provision of any law, governmental
rule or regulation, judgment or decree binding on it or any of its assets.
ARTICLE IV
SECURITIES LAWS; REGULATORY APPROVALS
4.1. Registration Statement. The Company shall undertake to conduct the
Acquisition in a manner which will qualify for the exemption from registration
of the Company Common Stock under the Securities Act of 1933 ("1933 Act")
provided by Section 3(a)(12) of such act.
4.2. Proxy Statement. The Bank shall undertake to file with the Federal
Deposit Insurance Corporation (the "FDIC") a proxy statement (the "Proxy
Statement") relating to the meeting of shareholders of the Bank to be held to
consider and act upon the Acquisition.
4.3. BHC Act Application. The Company shall prepare and file a notice to
the Board of Governors of the Federal Reserve System with respect to the
Acquisition pursuant to the Bank Holding Company of 1956, as amended (the "BHC
Act").
4.4. Connecticut Application. The Company and the Bank shall prepare and
file such application as may be necessary with the Banking Commissioner of the
State of Connecticut with respect to the approval of the Acquisition pursuant to
the Bank Acquisition Act.
ARTICLE V
CONDITIONS PRECEDENT TO CONSUMMATION OF THE ACQUISITION
5.1. Conditions Precedent to Obligations of the Company and the Bank. All
obligations of the Company and the Bank under this Plan are subject to the
fulfillment and satisfaction, prior to or on the Effective Date, of each of the
following conditions:
(a) All regulatory approvals and authorizations, including, without
limitation, the approvals of (i) all state securities law agencies which have
jurisdiction over the offers and sales of the Company Common Stock pursuant to
the Acquisition, (ii) the Board of Governors of the Federal Reserve System under
the BHC Act, (iii) the Banking Commissioner of the State of Connecticut under
the Bank Acquisition Act, and (iv) all other consents, approvals and permissions
necessary to permit consummation of the Acquisition shall have been received and
shall be in full force and effect;
(b) The requirements for exemption from registration under the 1933 Act
provided by Section 3(a)(12) shall have been met in connection with the
Acquisition;
(c) The Proxy Statement shall have been filed in accordance with the
rules and
<PAGE>
regulations of the FDIC and shall have been mailed to the shareholders of the
Bank in accordance with such rules and regulations;
(d) At the meeting of the shareholders of the Bank held to consider and
act upon the Acquisition, the Plan shall have been approved by the affirmative
vote of the holders of at least two-thirds of all the outstanding shares of Bank
Common Stock;
(e) The Bank shall have received a ruling from the Internal Revenue
Service satisfactory to it and its special counsel with respect to the tax
consequences of the Plan or an opinion of its special counsel satisfactory to it
with respect to such tax consequence and such transactions;
(f) The Company Common Stock shall have been approved as successor to the
Bank Common Stock on the NASDAQ Stock Market upon issuance of the Company Common
Stock; and
(g) No other circumstances shall exist which, in the opinion of the Board
of Directors of the Bank or the Board of Directors of the Company, evidenced in
either case by a resolution adopted by a majority of the entire board, would
make the consummation of the Plan inadvisable.
5.2. Conditions Precedent to Obligations of the Company. All obligations of
the Company under this Plan are subject to the fulfillment and satisfaction,
prior to or on the Effective Date, of each of the following conditions:
(a) the number of shares of Bank Common Stock as to which the holders
shall have exercised their rights to be paid the value of such Bank Common Stock
pursuant to Section 36a-181(c) of the Bank Acquisition Act shall not exceed the
lesser of (i) 5% of the number of shares of Bank Common Stock issued and
outstanding on the Effective Date; (ii) such number of such shares as in the
opinion of the Company's independent public accountants would prevent accounting
for the Acquisition on a "pooling of interests" basis in accordance with
generally accepted accounting principles; or (iii) such number of such shares as
in the opinion of the Company's special counsel would prevent the Company Common
Stock from being exempt from registration under the 1933 Act pursuant to Section
3(a)(12) thereof; and
(b) Each of the Bank Affiliates shall have delivered to the Company a
letter, in a form satisfactory to its counsel, with respect to the restrictions
on the sale of shares of Company Common Stock by such affiliates.
ARTICLE VI
BOARDS OF DIRECTORS AND OFFICERS
6.1. Directors and Officers of the Company. On or after the Effective Date
and until changed in the manner provided by the Company's Certificate of
Incorporation and Bylaws, the
<PAGE>
Board of Directors of the Company shall consist of those persons who are
currently serving as directors of the Company. The President and Chief Executive
Officer of the Company shall be Michael D. Carrigan and the Executive Vice
President, Chief Financial Officer and Secretary of the Company shall be Jay C.
Lent who, together with such other officers as the Board of Directors of the
Company may designate, shall serve at the pleasure of said Board of Directors,
subject to any employment agreements entered into between such officers and the
Company.
6.2. Directors and Officers of the Bank. On and after the Effective Date
and until changed in the manner provided by the Bank's charter and bylaws, the
Board of Directors of the Bank shall consist of those persons who on the
Effective Date are serving as directors of the Bank. The officers of the Bank on
the Effective Date shall continue to serve as officers of the Bank at the
pleasure of its Board of Directors subject to any employment agreements entered
into between such officers and the Bank.
ARTICLE VII
TERMINATION
7.1. Termination by Mutual Agreement. This Plan may be terminated by the
mutual agreement of the Board of Directors of the Company and the Bank at any
time prior to the Effective Date whether or not it has theretofore been approved
by the shareholders of the Bank.
7.2. Termination by the Company or the Bank. This Plan may be terminated by
action of the Board of Directors of either the Company or the Bank at any time
prior or subsequent to its approval by the shareholders of the Bank and prior to
the Effective Date, if the Board of Directors of the Company or the Bank, as the
case may be, shall have made a good faith determination that any of the
conditions set forth in Section 4.1 of this Plan cannot be fulfilled or
otherwise satisfied within a reasonable time.
7.3. Termination by the Company. This Plan may be terminated at any time
prior or subsequent to its approval by the shareholders of the Bank and prior to
the Effective Date by action of the Board of Directors of the Company if the
number of shares of Bank Common Stock as to which the right to receive payment
under Section 36a-181(c) of the Connecticut General Statutes is exercised
exceeds the lesser of (a) 5% of the issued and outstanding shares of Bank Common
Stock, (b) such number of shares as in the opinion of the Company's independent
public accountants would prevent accounting for the Acquisition on a "pooling of
interest" basis or (c) such number of shares as in the opinion of the Company's
special counsel prevent the Company Common Stock from being exempt from
registration under the 1933 Act pursuant to Section 3(a)(12) thereof.
7.4. Termination by the Bank. This Plan may be terminated at any time prior
or subsequent to its approval by the shareholders of the Bank and prior to the
Effective Date by action of the Board of Directors of the Bank if such Board
determines for any reason that consummation of the Acquisition would be
inadvisable or not in the best interest of the Bank or its shareholders.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1. Counterparts. This Plan may be executed in any number of counterparts,
each of which shall be deemed to be an original instrument, but all of such
counterparts shall constitute one and the same Plan.
8.2. Entire Agreement. This Plan constitutes the entire agreement between
the parties with respect to the subject matter hereof and shall not be altered,
changed or amended in any way except by a writing approved by the Board of
Directors of each of the parties and executed by a person or persons so
authorized by them.
8.3. Waivers. Prior to the Effective Date, the failure by either party to
exercise any right, power or privilege hereunder, or the partial exercise of any
such right, power or privilege, or the waiver of any term, condition or
condition precedent, shall not prevent nor preclude the future or further
exercise of any such right, power or privilege nor shall the same be construed
to be a waiver of any other term, condition or condition precedent.
8.4. Governing Law; Successors. This Plan shall be construed under and
governed by the laws of the State of Connecticut and shall be binding upon and
shall inure to the benefit of the parties hereto, their successors and assigns.
8.5. Governmental Agencies. All references in the Plan to various
applicable governmental regulatory agencies shall be deemed to include, to the
extent required by law, any other such regulatory agency which, by virtue of
legislative change or any action permitted to a party hereunder, properly
assumes jurisdiction of any of the transactions contemplated in this Plan.
8.6. Captions. The captions of the various Articles and Sections of this
Plan are inserted for the convenience of the parties and are not to be construed
as a limitation upon the text to which they refer.
8.7. Amendment. This Agreement may be amended only by a writing approved by
the Boards of Directors of the Bank and the Company, provided that, after
approval of the Agreement by the shareholders of the Bank, no amendment shall be
approved which is materially adverse to the interest of such shareholders
without further approval.
<PAGE>
We hereby declare under the penalties of false statement that the
statements made in the foregoing Agreement and Plan of Reorganization are true.
NMBT CORP
By: /s/ Michael D. Carrigan
---------------------------------------------
Name: Michael D. Carrigan
Title: President and Chief Executive Officer
and
By: /s/ Jay C. Lent
---------------------------------------------
Name: Jay C. Lent
Title: Executive Vice President,
Chief Financial Officer and Secretary
THE NEW MILFORD BANK & TRUST
COMPANY
By: /s/ Michael D. Carrigan
---------------------------------------------
Name: Michael D. Carrigan
Title: President and Chief Executive Officer
and
By: /s/ Jay C. Lent
---------------------------------------------
Name: Jay C. Lent
Title: Executive Vice President, Chief
Financial Officer and Secretary
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NMBT CORP
(Pursuant to Section 241 and 245 of the General Corporation Law of the State of
Delaware)
NMBT CORP, a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is NMBT CORP. The date of filing of its
original Certificate of Incorporation with the Secretary of State was August 21,
1996 under the name NMBT Corp.
2. The Corporation has not received any payment for its stock and
accordingly, this Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of said
corporation and has been duly adopted, pursuant to Section 241 of the General
Corporation Law of the State of Delaware, pursuant to a resolution adopted by
the Board of Directors, acting by written consent, in accordance with the
provisions of Section 141 of the General Corporation Law of the State of
Delaware.
3. The text of the Certificate of Incorporation is hereby amended and
restated to read in full as follows:
ARTICLE I
NAME OF CORPORATION
The Name of the corporation is NMBT CORP (hereinafter the "Corporation").
ARTICLE II
INITIAL ADDRESS OF REGISTERED AGENT
The address of the initial registered office of the Corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of the Corporation's initial registered agent at such address
is The Prentice-Hall Corporation System, Inc.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
<PAGE>
ARTICLE IV
AUTHORIZED CAPITAL
A. Authorized Capital Stock. The aggregate number of shares which the
Corporation shall have authority to issue is ten million (10,000,000) shares,
consisting of:
1. Eight million (8,000,000) shares of Common Stock (par value $.01 per
share); and
2. Two million (2,000,000) shares of Serial Preferred Stock (par value
$.01 per share).
B. Common Stock. All shares of Common Stock shall have one (1) vote per
share and shall be identical in all respects and shall have equal rights and
privileges, except as otherwise expressly provided herein. Also, the
Corporation's Board of Directors is authorized to provide for the issuance from
time to time of the Corporation's authorized but unissued stock and to determine
all matters with respect thereto.
C. Serial Preferred Stock. The Board of Directors is authorized at any
time, and from time to time, to provide for the issuance of shares of Serial
Preferred Stock in one or more series, and to determine the designations,
preferences, limitations and relative or other rights of the Serial Preferred
Stock or any series thereof. For each series, the Board of Directors shall
determine, by resolution or resolutions adopted prior to the issuance of any
shares thereof, the designations, preferences, limitations and relative or other
rights thereof, including , but not limited to, the following relative rights
and preferences, as to which there may be variations among different series:
1. the rate and manner of payment of dividends, if any;
2. whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
3. the amount payable for shares in the event of liquidation, dissolution
or other winding up of the Corporation;
4. sinking fund provisions, if any, for the redemption or purchase of
shares;
5. the terms and conditions, if any, on which shares may be converted or
exchanged;
6. voting rights, if any; and
7. any other rights and preferences of such shares to the full extent now
or hereafter permitted by the laws of the State of Delaware.
2
<PAGE>
Prior to issuing any shares of Serial Preferred Stock, and to effect the
determination of the relative designations, preferences, limitations and
relative or other rights of any series of Serial Preferred Stock, the Board of
Directors shall amend this Certificate of Incorporation in accordance with the
laws of the State of Delaware.
The Board of Directors shall have the authority to determine the number of
shares that will comprise each series.
Prior to the issuance of any shares of a series of Serial Preferred Stock,
but after adoption by the Board of Directors of the resolution establishing such
series, the appropriate officers of the Corporation shall file such resolution
with the State of Delaware as may be required by law.
The holders of each series of Serial Preferred Stock shall have such voting
rights, if any, as shall be provided for in the resolution or resolutions of the
Board of Directors establishing such class or series.
The number of authorized shares of any classes of stock of the Corporation
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the shares
entitled to vote irrespective of the provisions of Section 242(b)(2) of the
Delaware General Corporate Law.
ARTICLE V
PERPETUAL EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI
INDEMNIFICATION
The Corporation shall have all of the indemnification and other powers now
or hereafter set forth in Section 145 of the Delaware Corporation Law or in any
amendments or additions thereto.
The indemnification and advancement of expenses provided by, or granted
pursuant to, such indemnification laws shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office. The
indemnification and advancement of expenses provided hereby or granted pursuant
hereto and to such indemnification laws, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
The Corporation shall also have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
3
<PAGE>
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions hereof.
In addition, to the fullest extent permitted by law, notwithstanding any
other provision hereof, no director of the Corporation, for breach of his
fiduciary duty as a director, shall have any personal liability to the
Corporation or its stockholders for monetary damages in an amount that is less
than or equal to the amount of compensation received by such director for
serving the Corporation during the year of the breach, provided that this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
ARTICLE VII
AUTHORIZED POWERS
The Corporation and its Board of Directors shall have all of the powers and
rights provided for in the Delaware General Corporation Law.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide. Elections of Directors need not be by
written ballot unless the By-laws of the Corporation shall so provide. Special
meetings of stockholders may be called at any time only by a majority of the
Board of Directors unless otherwise required by law. Any action required or
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such stockholders and may not be effected by any
consent in writing.
ARTICLE IX
CERTAIN PROVISIONS RELATING TO BUSINESS
COMBINATIONS, BOARD OF DIRECTORS, AND OTHER MATTERS
9.1 Definitions and Related Matters.
9.1(a) Affiliate. An "Affiliate" of or a Person "affiliated with" a
specified Person, means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
9.1(b) Associate. The term "Associate," used to indicate a relationship
with any Person, means:
1. Any corporation or organization (other than the Corporation or a
Subsidiary of the Corporation), or any subsidiary or parent thereof, of which
such Person is an officer or partner or
4
<PAGE>
is, directly or indirectly, the Beneficial Owner of ten percent (10%) or more of
any class of equity securities;
2. Any trust or other estate in which such Person has a ten percent (10%)
or greater beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity;
3. Any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person; or
4. Any investment company registered under the Investment Company Act of
1940 for which such Person or any Affiliate or Associate of such Person serves
as investment adviser.
9.1(c) Beneficial Owner. A Person shall be considered the "Beneficial
Owner" of any shares of stock (whether or not owner of record):
1. With respect to which such person or any Affiliate or Associate of
such Person directly or indirectly has or shares (i) voting power, including the
power to vote or to direct the voting of such shares of stock and/or (ii)
investment power, including the power to dispose of or to direct the disposition
of such shares of stock;
2. Which such Person or any Affiliate or Associate of such Person has (i)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, and/or (ii) the right to vote pursuant to any
agreement, arrangement or understanding (whether such right is exercisable
immediately or only after the passage of time); or
3. Which are Beneficially Owned within the meaning of (1) or (2) of this
Section 9.1(c) by any other Person with which such first-mentioned Person or any
of its Affiliates or Associates has any agreement, arrangement or understanding,
written or oral, with respect to acquiring, holding, voting or disposing of any
shares of stock of the Corporation or any Subsidiary of the Corporation or
acquiring, holding or disposing of all or substantially all, or any Substantial
Part, of the assets or businesses of the Corporation or a Subsidiary of the
Corporation.
For the purpose only of determining whether a Person is the Beneficial
Owner of a percentage specified in this Article IX of outstanding Voting Shares,
the shares owned by such Person shall be deemed to include any Voting Shares
which may be issuable pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants, options or
otherwise and which are deemed to be Beneficially Owned by such Person pursuant
to the foregoing provisions of this Section 9.1(c).
5
<PAGE>
9.1(d) Business Combination. A "Business Combination" means:
1. Any sale, exchange, lease, mortgage, pledge, transfer or other
disposition to or with a Related Person or any Affiliate or Associate of such
Related Person by the Corporation or any of its Subsidiaries (in a single
transaction or a series of related transactions in any twelve (12) month
period), not in the usual and regular course of business, of all or
substantially all, or any Substantial Part, of its or their assets or businesses
(including, without limitation, any securities issued by a Subsidiary);
2. The purchase, exchange, lease or other acquisition by the Corporation
or any of its Subsidiaries (in a single transaction or a series of related
transactions) of all or substantially all, or any Substantial Part, of the
assets or business of a Related Person or any Affiliate or Associate of such
Related Person;
3. Any merger, consolidation or share exchange of the Corporation or any
Subsidiary thereof into or with a Related Person or any Affiliate or Associate
or such Related Person or into or with another Person which, after such merger ,
consolidation or share exchange, would be an Affiliate or an Associate of a
Related Person that was a Restated Person prior to the transaction, in each case
irrespective of which Person is the Surviving entity in such merger of
consolidation;
4. Any reclassification of securities, recapitalization, merger,
consolidation or other transaction (other than a redemption in accordance with
the terms of the security redeemed) which has the effect, directly or
indirectly, of increasing the proportionate amount of Voting Shares of the
Corporation or any Subsidiary thereof which are Beneficially Owned by a Related
Person or any Affiliate of any Related Person, other than the Corporation or any
of its Subsidiaries, or any partial or complete liquidation, spin-off, split-off
or split-up of the Corporation or any Subsidiary thereof; provided, however,
that this Section 9.1(d)(4) shall not relate to any transactions of the types
specified herein that have been approved by a majority of the Whole Board of
Directors and a majority (but in any event not less than six (6)) of the
Continuing Directors; or
5. The issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the Corporation or
any Subsidiary having an aggregate Market Value of five percent (5%) or more of
the total Market Value of the outstanding shares of the Corporation to any
Related Person or any Affiliate or Associate of any Related Person, other than
the Corporation or any of its Subsidiaries, except pursuant to the exercise of
warrants, rights or options to subscribe to or purchase securities offered,
issued or granted pro rata to all holders of the Voting Shares or by an other
method affording substantially proportionate treatment to the holders of such
Voting Shares; or
6. The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or any Subsidiary proposed by or on behalf of a
Related Person or any Affiliate or Associate of any Related Person, other than
the Corporation or any of its Subsidiaries; or
7. The acquisition upon the issuance thereof of Beneficial Ownership by a
Related Person of Voting Shares or securities convertible into Voting Shares, in
an amount set forth in
6
<PAGE>
subsection 5 hereof, or any voting securities or securities convertible into
voting securities of any Subsidiary of the Corporation, or the acquisition upon
the issuance thereof of Beneficial Ownership by a Related Person of any rights,
warrants or options to acquire any of the foregoing Voting Shares of any class
or voting securities of a Subsidiary.
As used in this definition, a "series of related transactions" shall be
deemed to include not only a series of transactions with the same Related
Person, but also a series of separate transactions with a Related Person or any
Affiliate or Associate of such Related Person.
Anything in this definition to the contrary notwithstanding, if there are
six (6) or more Continuing Directors, this definition shall not be deemed to
include (i) any transaction that has been approved on or prior to the Date of
Determination by sixty-six and two-thirds percent (66 2/3%) (but in any event
not less than six (6)) of the Continuing Directors and by sixty-six and
two-thirds percent (66 2/3% ) of the Whole Board of Directors, or (ii) any
transaction of the type set forth in Section 9.1(d)(1) through 9.1(d)(3) above,
between or among any two (2) or more Subsidiaries of the Corporation or the
Corporation and one or more Subsidiaries of the Corporation, if such transaction
has been approved by the affirmative vote of at least sixty-six and two-thirds
present (66 2/3% ) of the Whole Board of Directors and a majority (but in any
event not less than six (6)) of the Continuing Directors on or prior to the Date
of Determination.
9.1(e) Continuing Director. A "Continuing Director" shall mean:
1. An individual who was a member of the Board of Directors of the
Corporation on the date (the "Effective Time") of the consummation of the
acquisition by the Corporation of all of the issued and outstanding shares of
capital stock of The New Milford Bank & Trust Company, a Connecticut bank and
trust company, or who was a member of the Board of Directors of the Corporation
elected by the stockholders prior to the time that a Related Person acquired in
excess of ten percent (10%) of the Voting Shares of the Corporation; or
2. If there are six (6) or more Continuing Directors before his
designation, an individual designated (before his initial election as a
director) as a Continuing Director by a majority of the then Continuing
Directors.
9.1(f) Date of Determination. The term "Date of Determination" means:
1. The date on which a binding agreement (except for the fulfillment of
conditions precedent, including without limitations votes of stockholders to
approve such transaction) is entered into by the Corporation, as authorized by
its Board of Directors, and another Person providing for any Business
Combination;
2. If such an agreement as referred to in Section 9.1(f)(1) above is
amended so as to make it less favorable to the Corporation and its stockholders,
the date on which such amendment is approved by the Board of Directors of the
Corporation; or
7
<PAGE>
3. In cases where neither Section 9.1(f)(1) nor (2) shall be applicable,
the record date for the determination of stockholders of the Corporation
entitled to notice of and to vote upon the transaction in question. A majority
(but in any event not less than six (6)) of the continuing Directors shall have
the power and duty to determine the Date of Determination as to any transaction
under this Article IX. Any such determination shall be conclusive and binding
for all purposes of this Article IX.
9.1(g) Independent Majority of Stockholders. "Independent Majority of
Stockholders" shall mean the holders of a majority of the voting power of the
outstanding Voting Shares that are not Beneficially Owned or controlled,
directly or indirectly, by a Related Person.
9.1(h) Market Value. The term "Market Value" means: (i) in the case of
stock, the highest closing sale price during the thirty (30) day period
immediately preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is
not quoted on the Composite Tape on the New York Stock Exchange, or, if such
stock is not listed on The New York Stock Exchange, on the principal United
States securities exchange registered under the Securities Exchange Act of 1934
on which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sale price or bid quotation with respect to a
share of such stock during the thirty (30) day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Board of Directors in good faith; and
(ii) in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined by a majority of the Board
of Directors in good faith.
9.1(i) Offer. The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer or request or invitation for
tender of, a security or interest in a security for value.
9.1(j) Person. The term "Person" shall mean any individual, partnership,
corporation, group or other entity other than (A) the Corporation, (B) any
Subsidiary of the Corporation, and (C) a trustee holding stock for the benefit
of employees of the Corporation, its Subsidiaries, or any one of them, pursuant
to one or more employee benefit plans or arrangements. When two or more Persons
act as a partnership, syndicate, association, or other group for the purpose of
acquiring, holding or disposing of shares of stock, such partnership, syndicate,
association or group shall be deemed a "Person".
9.1(k) Related Person. "Related Person" means any Person who is the
Beneficial Owner as of the Date of Determination or immediately prior to the
consummation of a Business Combination, or both, or ten percent (10%) or more of
the Voting Shares, or any Person who is an Affiliate of the Corporation and at
any time within two (2) years preceding the Date of Determination was the
Beneficial Owner of ten percent (10% ) or more of the then outstanding Voting
Shares.
9.1(l) Substantial Part. The term "Substantial Part" as used with reference
to the assets of the Corporation, any Subsidiary or any Related Person means an
aggregate book value as of the end of the Corporation's most recent fiscal
quarter of ten percent (10%) or more of the total Market Value of the
outstanding shares of the Corporation or of its net worth as of the end of its
most recent fiscal quarter.
8
<PAGE>
9.1(m) Subsidiary. "Subsidiary" means any corporation of which the
Corporation owns, directly or indirectly, a majority of any class of equity
security; provided, however, that for the purposes of the definition of "Person"
set forth in Section 9.1(j) above, the term "Subsidiary" shall mean only a
corporation of which the Corporation owns, directly or indirectly, a majority of
each class of equity securities.
9.1(n) Voting Shares. "Voting Shares" shall mean shares of the Corporation
entitled to vote generally in the election of directors.
9.1(o) Whole Board of Directors. "Whole Board of Directors" shall mean the
total number of directors which the Corporation would have if there were no
vacancies.
9.1(p) Certain Determinations With Respect to Article IX.
1. A majority (but in any event not less than six (6)) of the Continuing
Directors shall have the power to determine for the purposes of this Article IX,
on the basis of information known to them: (i) the number of Voting Shares of
which any Person is the Beneficial Owner, (ii) whether a Person is an Affiliate
or Associate of another, (iii) whether a Person has an agreement, arrangement or
understanding with another as to the matters referred to in the definition of
"Beneficial Owner" as hereinabove defined, (iv) whether the assets subject to
any Business Combination constitute a "Substantial Part" as hereinabove defined,
(v) whether two or more transactions constitute a "series of related
transactions" as hereinabove defined, (vi) any matters referred to in Section
9.1(c)(2) below, and (vii) such other matters with respect to which a
determination is required under this Article IX.
2. A Related Person shall be deemed to have acquired a share of the
Corporation at the time when such Related Person became the Beneficial Owner
thereof. With respect to shares owned by Affiliates, Associates or other Persons
whose ownership is attributed to a Related Person under the foregoing definition
of Beneficial Owner, if the price paid by such Related Person for such shares is
not determinable, the price so paid shall be deemed to be the higher of (i) the
price paid upon acquisition thereof by the Affiliate, Associate or other Person
or (ii) the market price of the shares in question (as determined by a majority
but in any event not less than six (6) of the Continuing Directors) at the time
when the Related Person became the Beneficial Owner thereof.
9.1(q) Fiduciary Obligations. Nothing contained in this Article IX shall be
construed to relieve any Related Person from any fiduciary obligation imposed by
law.
9.2 Approval of Business Combinations-Minimum Vote. Whether or not a vote
of the stockholders is otherwise required in connection with the transaction,
neither the Corporation nor any of its Subsidiaries shall become a party to any
Business Combination without the prior affirmative vote at a meeting of the
Corporation's stockholders:
1. By the holders of not less than sixty-six and two-thirds percent (66
2/3%) of the voting power of the outstanding Voting Shares; and
9
<PAGE>
2. By an Independent Majority of Stockholders;
provided, however, that the provisions of this Section 9.2 shall not apply to
any Business Combination approved by sixty-six two-thirds (66 2/3%) of the Whole
Board of Directors either (a) at a time prior to the acquisition of ten percent
(10%) or more of the total voting power of the outstanding Voting Shares by the
Related Person, or (b) after such acquisition, but only so long as such Related
Person sought and obtained the approval, by the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the Whole Board of Directors, of
the acquisition of ten percent (10%) or more of the total voting power of the
outstanding Voting Shares prior to such acquisition being consummated and any
such Business Combination so recommended shall require only the vote, if any,
required under the applicable provisions of the Delaware General Corporation
Law. The affirmative vote required by this Section 9.2 is in addition to the
vote of the holders of any class or series of stock of the Corporation otherwise
required by law, this Certificate of Incorporation (including, without
limitation, any voting requirements in Section 9.3 hereof, if applicable), any
resolution which has been adopted by the Board of Directors providing for the
issuance of a class or series of stock, or any agreement between the Corporation
and any securities exchange.
9.3 Approval of Business Combinations-Maximum Vote.
9.3(a) Except as provided in Section 9.3(b) or Section 9.3(d), neither the
Corporation nor any of its Subsidiaries shall become a party to any Business
Combination without the prior affirmative vote at a meeting of the Corporation's
stockholders:
1. By the holders of not less than eighty percent (80%) of the voting
power of the outstanding Voting Shares; and
2. By an Independent Majority of Stockholders.
Such favorable votes shall be in addition to any stockholder vote which
would be required without reference to this Section 9.3 and shall be required
notwithstanding that no vote may be required, or that some lesser percentage may
be specified by law or elsewhere in this Certificate of Incorporation
(including, without limitation, the lesser vote required by Section 9.2 hereof,
if applicable) or the By-laws of the Corporation or otherwise.
9.3(b) The provisions of Section 9.3(a) shall not apply to a particular
Business Combination, and such Business Combination shall require only such
stockholder vote (if any) as would be required without reference to this Section
9.3, if all of the conditions set forth in Subparagraphs (1) through (7) below
are satisfied:
1. The ratio of (i) the aggregate amount of the cash and the fair market
value of the other consideration to be received per share of Common Stock of the
Corporation in such Business Combination by holders of Common Stock other than
the Related Person involved in such Business Combination, to (ii) the market
price per share of the Common Stock immediately prior to the announcement of the
proposed Business Combination, is at least as great as the ratio of (x) the
highest per share price (including brokerage commissions, transfer taxes and
soliciting dealers' fees) which
10
<PAGE>
such Related Person has theretofore paid in acquiring any Common Stock prior to
such Business Combination, to (y) the market price per share of Common Stock
immediately prior to the initial acquisition by such Related Person of any
shares of Common Stock; and
2. The aggregate amount of the cash and the fair market value of other
consideration to be received per share of Common Stock in such Business
Combination, (i) is not less than the highest per share price (including
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by such
Related Person in acquiring any of its holdings of Common Stock, as reflected in
the balance sheet of the Corporation as of the last day of the last fiscal
quarter of the Corporation preceding the Date of Determination; and
3. If applicable, the ratio of (i) the aggregate amount of the cash and
the fair market value of other consideration to be received per share of
Preferred Stock of the Corporation in such Business Combination by holders of
Preferred Stock other than the Related Person involved in such Business
Combination, to (ii) the market price per share of the Preferred Stock
immediately prior to the announcement of the proposed Business Combination, is
at least as great as the ratio of (x) the highest per share price (including
brokerage commissions, transfer taxes and soliciting dealers' fees) which such
Related Person has theretofore paid in acquiring any Preferred Stock prior to
such Business Combination to (y) the market price per share of Preferred Stock
immediately prior to the initial acquisition by such Related Person of any
shares of Preferred Stock; and
4. If applicable, the aggregate amount of the cash and the fair market
value of other consideration to be received per share of Preferred Stock in such
Business Combination by holders of Preferred Stock, other than the Related
Person involved in such Business Combination, (i) is not less than the highest
per share price (including brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by such Related Person in acquiring any of its holdings of
Preferred Stock, and (ii) is not less than the highest preferential amount per
share to which the holders or shares of such class of Preferred Stock would be
entitled in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, regardless of whether the
Business Combination to be consummated constitutes such an event; and
5. The consideration (if any) to be received in such Business Combination
by holders of stock other than the Related Person involved shall, except to the
extent that a stockholder agrees otherwise as to all or part of the shares which
he or she owns, be in the same form and of the same kind as the consideration
paid by the Related Person in acquiring stock already owned by it; and
6. After such Related Person became a Related Person and prior to the
consummation of such Business Combination:
(i) such Related Person shall have taken steps to insure that the
Board of Directors of the Corporation included at all times representation by
Continuing Directors proportionate to the ratio that (x) the number of Voting
Shares from time to time owned by stockholders who are not Related Persons,
bears to (y) all Voting Shares outstanding at the time in question (with a
Continuing Director to occupy any resulting fractional position among the
directors);
11
<PAGE>
(ii) such Related Person shall not have acquired from the Corporation,
directly or indirectly, any shares of the Corporation (except (x) upon
conversion of convertible securities acquired by it prior to becoming a Related
Person or (y) as a result of a pro rata stock dividend, stock split or division
of shares or (z) in a transaction which satisfied all applicable requirements of
this Article IX);
(iii) such Related Person shall not have acquired any additional
Voting Shares of the Corporation or securities convertible into or exchangeable
for Voting Shares except as a part of the transaction which resulted in such
Related Person's becoming a Related Person;
(iv) such Related Person shall not have (x) received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax credits
provided by the Corporation or any Subsidiary, or (y) made any major change in
the Corporation's business or equity capital structure or entered into any
contract, arrangement or understanding with the Corporation except any such
change, contract, arrangement or understanding as may have been approved by the
favorable vote of not less than a majority of the Whole Board of Directors and a
majority (but in any event not less than six) of the Continuing Directors; and
(v) except as approved by a majority of the Whole Board of Directors
and a majority (but in any event not less than six (6)) of the Continuing
Directors, there shall have been: (x) no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not cumulative)
on the outstanding Preferred Stock; (y) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock); and (z) an increase in such annual rate of
dividends as necessary to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the stock; and
7. A proxy statement complying with the requirements of the Securities
Exchange Act of 1934, as amended, shall have been mailed to all holders of
Voting Shares for the purpose of soliciting stockholder approval of such
Business Combination. Such proxy statement shall contain at the front thereof,
in a prominent place, any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Continuing Directors, or
any of them, may have furnished in writing and, if deemed advisable by a
majority (but in any event not less than six (6)) of the Continuing Directors,
an opinion of a reputable investment banking firm as to the fairness (or lack of
fairness) of the terms of such Business Combination from the point of view of
the holders of Voting Shares other than any Related Person (such investment
banking firm to be selected by a majority, but in any event not less than six
(6), of the Continuing Directors, to be furnished with all information it
reasonably requests, and to be paid a reasonable fee for its services upon
receipt by the Corporation of such opinion).
9.3(c) For purposes of Sections 9.3(b)(1) through 9.3(b)(4) hereof, in the
event of a Business Combination, upon the consummation of which the Corporation
would be the surviving corporation or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or
12
<PAGE>
dissolution of the Corporation will be effected), the term "other consideration
to be received" shall include, without limitation, stock retained by
stockholders of the Corporation other than Related Persons who are parties to
such Business Combination.
9.3(d) The provisions of this Section 9.3 shall not apply to any Business
Combination approved by sixty-six and two-thirds percent (66 2/3%) of the Whole
Board of Directors either (i) at a time prior to the acquisition of ten percent
(10%) or more of the total voting power of the outstanding Voting Shares by the
Related Person, or (ii) after such acquisition, but only so long as such Related
Person sought and obtained the approval, by the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the Whole Board of Directors, of
the acquisition of ten percent (10%) or more of the total voting power of the
outstanding Voting Shares prior to such acquisition being consummated.
9.3(e) Any amendment, change or repeal of this Article IX or any other
amendment of this Certificate of Incorporation which would have the effect of
modifying or permitting circumvention of this Article IX shall require the
affirmative vote, at a meeting of stockholders of the Corporation, as to all
shares held:
1. By the holders of at least eighty percent (80%) of the voting power of
the then outstanding Voting Shares; and
2. By an Independent Majority of Stockholders;
provided, however, that in the event that any such amendment, change or repeal
is recommended to stockholders by the favorable vote of not less than sixty-six
and two-thirds percent (66 2/3%) of the Whole Board of Directors and a majority
(but in any event not less than six (6)) of the Continuing Directors, then such
amendment, change or repeal so recommended shall require only the vote of an
Independent Majority of Stockholders and the vote, if any, required under the
applicable provisions of the Delaware General Corporation Law.
9.4 Board of Directors.
9.4(a) The business and affairs of the Corporation shall be managed by or
under the direction or the Board of Directors of not less than five (5) nor more
than twelve (12) members, exclusive of the ex officio directorship held by the
President of the Corporation. Initially, the number of directors of the
Corporation (exclusive of directors to be elected by the holders of any one or
more series of the Preferred Stock voting separately as a class or classes) that
shall constitute the Board of Directors shall be ten (10), exclusive of an ex
officio directorship to be held by the President of the Corporation. All the
powers of the Corporation, insofar as same may be lawfully vested by this
Certificate of Incorporation in the Board of Directors, are hereby conferred
upon the Board of Directors of the Corporation. In furtherance and not in
limitation of that power, the Board of Directors shall have the power to make,
adopt, amend and repeal from time to time Bylaws of the Corporation, subject to
the right of the stockholders entitled to vote with respect thereto to adopt,
alter, amend and repeal Bylaws made by the Board of Directors. Notwithstanding
the foregoing or anything contained in this Certificate of Incorporation to the
contrary, Section 2 of Article I, Sections 1, 2, and 3 of Article II, and
Article VIII of the Corporation's Bylaws shall not be altered, amended, added to
or repealed without the affirmative
13
<PAGE>
vote of the holders of not less than sixty-six and two-thirds percent (66 2/3%)
of the voting power of the issued and outstanding shares of each class of shares
entitled to vote thereon; provided, however, that if there is a Related Person
(as defined in this Article), such sixty-six and two-thirds percent vote must
include the affirmative vote of not less than two-thirds (2/3) of the voting
power of the issued and outstanding shares of each class entitled to vote
thereon held by stockholders other than a Related Person. The number of
directors constituting the Whole Board of Directors after the Effective Time may
be increased or decreased by more than two (2) members within any calendar year,
from time to time only by resolution adopted by the Board of Directors, by the
affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the
Whole Board of Directors.
9.4(b) The Board of Directors shall be divided into three (3) classes,
designated Classes I, II and III, with the term of office of one class expiring
each year. Each class shall be as nearly equal in the number of directors as the
other classes to the extent permitted by the total number of directors
constituting the Whole Board of Directors. At the annual meetings of
stockholders in 1998, 1999 and 2000, directors of Classes III, II and I,
respectively, shall be elected, or re-elected, to hold office for a term
expiring at the third succeeding annual meeting. Any vacancies in the Board of
Directors for any reason, and any newly created directorships resulting from an
increase in the number of directors, may be filled by the Board of Directors,
acting by vote of sixty-six and two-thirds percent (66 2/3%) of the directors
then in office, even though such remaining directors may be less than a quorum,
and any directors so chosen shall hold office until the next election of the
class for which such directors shall have been chosen and until their successors
shall be elected and qualified. No decrease in the number of directors shall
shorten the term of any incumbent director. At each annual meeting of the
stockholders, the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting and until their successors shall be elected and
qualified.
9.4(c) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-laws of the Corporation (and notwithstanding that some
lesser percentage may be specified by law, this Certificate of Incorporation or
the By-laws of the Corporation ), any director of the Corporation may be removed
from office at any time, with cause, by the affirmative vote of seventy-five
percent (75%) of the Whole Board at any meeting of the Board of Directors duly
called for that purpose or by the affirmative vote of the holders of not less
than seventy-five percent (75%) of the issued and outstanding shares entitled to
vote thereon, at any meeting of shareholders called for that purpose; provided,
however, that if there is a Related Person, such seventy-five percent (75%) vote
must include the affirmative vote of not less than seventy-five percent (75%) of
the voting power of the issued and outstanding shares entitled to vote thereon
held by shareholders other than the Related Person.
Any director may be removed from office at any time without cause only by
the concurrent affirmative vote of seventy-five percent (75%) of the Whole Board
of Directors at any meeting of the Board of Directors duly called for that
purpose.
9.4(d) In addition to the right of the Board of Directors of the
Corporation to make nominations for the election of directors, nominations for
the election of directors may be made by any holder of Voting Shares in a manner
provided in the By-Laws of the Corporation.
14
<PAGE>
ARTICLE X
CERTAIN STOCK REPURCHASES
Any direct or indirect purchase or other acquisition by the Corporation of
any Equity Security (as hereinafter defined) of any class from any Interested
Securityholder (as hereinafter defined) who has beneficially owned such
securities for less than two (2) years prior to the date of such purchase or any
agreement in respect thereof shall, except as hereinafter expressly provided,
require the affirmative vote of the holders of at least a majority of the voting
power of the issued and outstanding Voting Shares (as defined in Section 9.1(n),
the "Voting Stock"), excluding Voting Stock beneficially owned by such
Interested Securityholder, voting together as a single class (it being
understood that for the purposes of this Article X, each share of the Voting
Stock shall have the number of votes granted to it pursuant to Article IV of
this Certificate of Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lessor
percentage may be specified, by law or any agreement with any national
securities exchange, or otherwise, but no such affirmative vote shall be
required with respect to any purchase or other acquisition of securities made as
part of a tender or exchange offer by the Corporation to purchase securities of
the same class made on the same terms to all holders of such securities and
complying with the applicable requirements of the Securities Exchange Act of
1934 and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules and regulations).
For the purpose of this Article X:
A. "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as from time to time amended.
B. A person shall be a "beneficial owner" of any security of any class of
the corporation:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) any right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing any security of any class of the Corporation.
C. "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as from time to time
amended.
15
<PAGE>
D. "Interested Securityholder" shall mean any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation) who or which:
(i) is the beneficial owner, directly or indirectly, of three (3) percent
or more of the class of securities to be acquired; or
(ii) is an Affiliate of the Corporation and at any time within the two
(2) year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of three percent or more of the class of
securities to be acquired; or
(iii) is an assignee or has otherwise succeeded to any shares of the
class of securities to be acquired which were at any time within the two (2)
year period immediately prior to the date in question beneficially owned by an
Interested Securityholder, if such assignment or succession shall have occurred
in the course of a transaction or transactions not involving a public offering
within the meaning of the Securities Act of 1933.
E. For the purposes of determining whether a person is an Interested
Securityholder pursuant to subparagraph D of this paragraph, the relevant class
of securities outstanding shall be deemed to comprise all such securities deemed
owned through application of subparagraph B of this paragraph, but shall not
include other securities of such class which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
F. A "person" shall mean any individual, firm, corporation or other entity.
ARTICLE XI
AMENDMENTS OF CERTIFICATE OF INCORPORATION
Notwithstanding any other provisions of this Certificate of Incorporation
or the By-laws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, this Certificate of Incorporation or the
By-laws of the Corporation), and in addition to such additional vote of any
preferred stock as may be required by the provisions of any series thereof or by
applicable law, Articles VI, VII, VIII, X and XI of this Certificate of
Incorporation shall not be amended, altered, changed or repealed without the
affirmative vote of (i) the holders of six (6)ty-six (6) and two-thirds percent
(66 2/3%) of the voting power of the then outstanding Voting Shares and (ii) an
Independent Majority of Stockholders.
The amendment of other provisions of this Certificate of Incorporation,
except for Article IX, shall require the vote required under Delaware law.
16
<PAGE>
IN WITNESS WHEREOF, NMBT CORP has caused this certificate to be executed by
its President on the 16th day of April, 1997.
/s/ Michael D. Carrigan
---------------------------------
Michael D. Carrigan
President
Director
17
RESTATED
BYLAWS
OF
NMBT CORP
ARTICLE I.
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders, for the
election of successors to that class of Directors whose terms shall have then
expired and the transaction of whatever other business may properly be brought
before said meeting, shall be held within the Corporation's service area at such
date and place as the Board of Directors may designate in the notice of meeting.
SECTION 2. Special Meetings. Except as otherwise required by law, special
meetings may be called at any time but only by a majority of the Board of
Directors. Business transacted at any special meeting shall be limited to the
purpose stated in the notice. Special meetings of the stockholders may be held
within the Corporation's service area at such date and place as the Board of
Directors may designate in the notice of meeting.
SECTION 3. Notice of Meetings. Written notice of each stockholders' meeting
stating the time, place and purpose or purposes of the meeting shall be mailed
to each stockholder entitled to vote at such meeting at his address as shown on
the books of the Corporation at least ten (10) days and not more than sixty (60)
days before the date of said meeting, provided that any one or more of such
stockholders, as to himself or themselves, may waive such notice in writing or
by attendance without protest at such meeting.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 4. Record Date. The Board of Directors may fix, in advance, a date
preceding the date of any meeting of stockholders, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, or any adjournment(s) thereof, which record date shall not be more
than sixty (60) nor less than ten (10) days before such meeting.
SECTION 5. Quorum. At all meetings of the stockholders there shall be
present, either in person or by proxy, stockholders representing a majority of
the capital stock of the Corporation issued and outstanding on the record date
set for such meeting, in order to constitute a quorum for the election of the
successors to the class of Directors whose terms shall have then expired or the
<PAGE>
transaction of other business. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all questions shall be decided by
a vote of the holders of a majority of the shares present at any meeting of
stockholders at which a quorum is present. In the absence of a quorum, a
majority in interest of the stockholders present, in person or by proxy, may
adjourn the meeting to such future time as shall be agreed upon by them, without
further notice, until a quorum shall be present, and thereupon any business may
be transacted which might have been transacted at the meeting originally called.
SECTION 6. Voting. At all meetings of the stockholders, each stockholder
shall be entitled to vote, in person or by proxy, one (1) vote for each share of
stock standing in his name on the books of the Corporation on the record date
set for such meeting. Stockholders may not accumulate their votes for the
election of Directors. Shares of its own capital stock belonging to the
Corporation directly or indirectly shall not be voted directly or indirectly.
SECTION 7. Procedure and Conduct of Meeting. The Chairman of the Board of
Directors or the President shall preside over and chair any meetings of
stockholders. The' Secretary of the Board of Directors shall act as secretary at
any meetings of stockholders, unless another person is appointed by the chair of
the meeting. The chair of the meeting shall have all the powers and authority
vested in a presiding officer by law or practice, including such authority as
may be necessary or helpful under the circumstances in order to conduct an
orderly meeting. The Board of Directors may from time to time adopt Rules for
the conduct of the annual or any special meeting or meetings of stockholders, to
the extent that such Rules do not conflict with applicable law or the provisions
of the Corporation's Certificate of Incorporation or Bylaws. Unless specifically
required by such rules, or the Bylaws or Certificate of Incorporation of the
Corporation, strict compliance with the provisions of Roberts Rules of Order, or
Parliamentary Procedure is not required. Rather, in accordance with the Rules
and these Bylaws, the chair shall have the right and duty to preserve order and
conduct the meeting in accordance with such chair's reasonable exercise of good
faith in fundamental fairness. Roberts Rules of Order Newly Revised shall,
however, generally govern these meetings.
SECTION 8. Stock List. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, 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 stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II.
DIRECTORS
SECTION 1. Number, Term of Office and Qualifications. The affairs of the
Corporation shall be managed by a Board of Directors consisting of not less than
five (5) nor more than twelve (12)
2
<PAGE>
Directors, exclusive of the ex officio directorship held by the President of the
Corporation. The Directors of the corporation shall be divided into three
classes, namely, Classes I, II, and III, as nearly equal in number as possible,
with each class consisting of such number of Directors, as the Board of
Directors shall from time to time determine. Class III Directors shall initially
serve until the first Annual Meeting of Stockholders. Class II Directors shall
initially serve until the second Annual Meeting of Stockholders. Class I
Directors shall initially serve until the third Annual Meeting of Stockholders.
At each Annual Meeting of Stockholders, the successors to any class of Directors
whose terms shall then expire shall be elected to serve three (3) year terms and
until their successors are elected and qualified. The number of positions on the
Board of Directors shall initially be ten (10), exclusive of an ex officio
directorship to be held by the President of the Corporation. Thereafter, the
number of positions on the Board of Directors shall be the number fixed by
resolution of the Board of Directors, or, in the absence of such resolution,
shall be the aggregate of the number of Directors who continued in office as of
the preceding Annual Meeting of Stockholders plus the number of Directors
elected at the preceding Annual Meeting of Stockholders. The number of positions
on the Board of Directors for any year, as fixed in accordance with the
foregoing (hereinafter referred to as the "number of directorships") may be
increased by a majority vote of the Board of Directors by no more than two (2)
in each calendar year or decreased at any time as provided by law. When the
number of directorships is changed pursuant' to the Certificate of Incorporation
or this Article II, any newly created directorships or any decrease in
directorships shall be so apportioned among the classes so as to make all the
classes as nearly equal in number as possible.
SECTION 2. Stockholder Nomination of Director Candidates. In addition to
the right of the Board of Directors of the Corporation to make nominations for
election to the Board of Directors, nominations for election to the Board of
Directors may be made by any stockholder of any outstanding class of capital
stock of the Corporation entitled to vote for the election of Directors if that
stockholder complies with all the provisions of this Section 2.
(a) Nominations shall be made in writing and shall be received by the
Secretary of the Corporation not less than sixty (60) calendar days
nor more than ninety (90) calendar days prior to any meeting of the
stockholders called for the election of Directors; provided, however,
that if fewer than thirty (30) calendar days' Advance Notice (as
hereinafter defined) of the meeting is given to stockholders, such
nomination shall be mailed or delivered to the Secretary of the
Corporation not later than the close of business on the seventh (7)
day following the day on which the Advance Notice of such meeting was
mailed. As used herein, "Advance Notice", to the stockholders shall be
deemed to have been given on the date of any quarterly report of the
Corporation or letter to stockholders or other communication from the
Corporation to stockholders disclosing the date of the next annual
meeting and provided that the annual meeting is in fact held on such
date or within thirty (30) days after such date. Any such Advance
Notice would be in addition to, but not in substitution for, the
Notice of Meeting provided in Article I, Section 3 hereof.
(b) Each written notice under Section 2(a) shall contain the following
information: (i) the name, age, business address and residence address
of each nominee proposed in such notice; (ii) the principal occupation
or employment of each such proposed nominee; (iii) the total number of
shares of stock of the Corporation which are beneficially owned (as
that term is defined in Rule 13d-3 of the Securities and Exchange
Commission) by each such proposed nominee; (iv) the name and address
3
<PAGE>
of the notifying stockholder; and (v) the number of shares of capital
stock of the Corporation owned by the notifying stockholder. In
addition, the stockholder making such nomination shall promptly
provide any other information reasonably requested by the Corporation,
including, but not limited to any other information relating to such
proposed nominee that is required to be disclosed in the solicitations
of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (including without limitation such person's
written consent to being named in the proxy statement as a nominee and
to serving as a Director if elected). In the event that the notifying
stockholder is the beneficial owner of the shares of the capital stock
of the Corporation described in such notification, and not the record
holder, then the notifying stockholder shall furnish to the Secretary
of the Corporation evidence satisfactory to the Secretary showing that
such person is entitled to act with respect to such shares.
(c) The nomination made by the stockholder may only be made at a meeting
of the stockholders of the Corporation called for the election of
Directors at which such stockholder is present in person or by proxy,
and can only be made by a stockholder who has, theretofore, complied
with the notice provisions of Sections 2(a) and (b) above.
(d) Nominations not made in accordance with these Bylaws, including the
provisions of this Section 2, may be disregarded by the chair of the
meeting, and, upon his instruction, the vote tabulators may disregard
all votes cast for each such nominee.
SECTION 3. Removal. (a) Any Director may be removed from office at any time
without cause only by the concurrent affirmative vote of seventy-five (75%)
percent of the entire Board of Directors at any meeting of the Board of
Directors called for such purpose.
(b) Any Director may be removed from office at any time with cause either
by the concurrent affirmative vote of seventy-five (75%) percent of the entire
Board of Directors at any meeting of the Board of Directors called for that
purpose or by the concurrent affirmative vote of the holders of not less than
seventy-five (75%) percent of the issued and outstanding shares of capital stock
entitled to vote, at a meeting of the stockholders called for that purpose;
provided, however, that if there is an Interested Stockholder (as is defined in
Article 8 of the Certificate of Incorporation) such seventy-five (75%) percent
vote must include the affirmative vote of not less than three-fourths of the
voting power of the issued and outstanding shares entitled to vote thereon held
by stockholders other than the Interested Stockholder.
SECTION 4. Vacancies. Vacancies created by an increase in the number of
directorships shall be filled for the unexpired term by the concurring vote of
not less than sixty-six and two-thirds (66 2/3%) percent of the directorships
existing prior to such increase. Vacancies occurring by reason other than by
increase in the number of directorships shall be filled for the unexpired term
by the concurring vote of sixty-six and two thirds (66 2/3%) percent of the
Directors remaining in office, even though such remaining Directors may be less
than a majority of the number of directorships (as fixed for the current year in
accordance with Article II, Section 1). If such remaining Directors fail to fill
a vacancy, then such vacancy may be filled by action of the stockholders.
SECTION 5. General Powers. The property, affairs and business of the
Corporation shall be
4
<PAGE>
managed by its Board of Directors, which may exercise all of the corporate
powers of the Corporation except such as are by law, by the Certificate of
Incorporation, or by the Bylaws, expressly conferred upon or reserved to the
stockholders.
SECTION 6. Compensation. The Board of Directors shall have the authority to
fix the compensation of Directors. All Directors, other than Directors who are
employees of the Corporation, shall be entitled to a reasonable fee for
attendance at meetings of the Board and of committees of the Board, such fee to
be fixed from time to time by resolution of the Board of Directors.
SECTION 7. Limitations. No person shall be eligible for election as a
Director and no Director shall be eligible for re-election after having reached
his or her 70th birthday. The office of a Director who has reached his or her
70th birthday, however, shall become vacant at the Annual Meeting of
Stockholders at which such Director's term expires.
Notwithstanding the above limitation, no person who was serving as a
Director as of June 1, 1994 shall be barred from re-election as a Director until
he or she has reached his or her 72nd birthday. The office of any person who has
reached his or her 72nd birthday and who was serving as a Director at the time
these bylaws become effective shall become vacant at the Annual Meeting of
Stockholders at which such Director's term expires.
ARTICLE III.
MEETINGS OF DIRECTORS
SECTION 1. Annual Meeting of the Board of Directors. A regular annual
meeting of the Board of Directors shall be held without notice immediately after
the Annual Meeting of Stockholders, or as soon thereafter as convenient. At such
meeting the Board of Directors shall elect a Chairman, Vice Chairman, Secretary,
and Treasurer who shall serve at the pleasure of the Board of Directors and
subject to prior removal by the Board of Directors, shall hold their offices
until the next annual meeting or until their successors are chosen and
qualified. The persons elected as Chairman and Vice Chairman must be Directors;
the persons elected as Secretary and Treasurer, may be, but are not required to
be, Directors.
At such meeting the Board of Directors shall also choose and elect the
officers of the Corporation who shall also serve at the pleasure of the Board of
Directors and subject to prior removal by the Board of Directors pursuant to
Article IV hereof shall hold their offices until the next annual meeting or
until their successors are chosen and qualified.
SECTION 2. Regular Meetings. All other regular meetings of the Board of
Directors shall be held at least monthly at such place, day and hour as the
Board of Directors may from time to time determine. No notice of such regular
meetings need be given.
SECTION 3. Special Meetings. Special meetings of the Board of Directors may
be held upon the call of the President, the Chairman or a majority of the
Directors. Written or oral notice of the date, time and place of all special
meetings of the Board of Directors shall be given to each Director personally or
mailed to his residence or usual place of business at least two (2) days prior
to the date of the meeting, provided that any one or more Directors, as to
himself or themselves, may waive such notice in writing or by attendance without
protest at any such meeting.
5
<PAGE>
SECTION 4. Quorum. Directors holding a majority of the number of
directorships shall constitute a quorum. In the absence of a quorum, a majority
of the Directors present may adjourn the meeting from time to time until a
quorum shall be present without further notice or waiver thereof. All questions
shall be decided by the vote of the majority of the Directors present at a
meeting at which a quorum is present, except as otherwise required by law, the
Certificate of Incorporation or these Bylaws.
SECTION 5. Director Participation in Meetings by Telephone. A Director may
participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment enabling all Directors
participating in the meeting to hear one another, and participation in a meeting
pursuant to this Section 10 shall constitute presence in person at such meeting.
SECTION 6. Directors' Action Without Meeting. If all the Directors
severally or collectively consent in writing to any action taken or to be taken
by the Corporation, such action shall be as valid as though it had been
authorized at a meeting of the Board of Directors. The Secretary of the
Corporation shall file such consent or consents with the minutes of the meetings
of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall include a
President, one (1) or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board of Directors. The President may be the Chief
Executive Officer of the Corporation. The Board of Directors may also elect or
authorize the appointment of such other officers as the business of the
Corporation may require. The officers shall have such authority and perform such
duties as the Board of Directors may from time to time authorize or determine.
In the absence of action by the Board of Directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
SECTION 2. Election or Appointment and Term of Office. The Chairman,
President, any Vice Presidents, Secretary and Treasurer shall serve at the
pleasure of the Board of Directors. The Board of Directors may fill any vacancy
in any office, and the person so chosen shall serve at the pleasure of the Board
of Directors. Any two (2) or more offices may be held by the same person, except
the offices of President and Secretary.
SECTION 3. Chairman's Duties. The Chairman shall preside at all meetings of
the Board of Directors. The Chairman, if so designated by the Board of
Directors, shall preside at meetings of the stockholders. The Chairman shall
have such other duties as the Board may from time to time prescribe. The Vice
Chairman shall preside over meetings of the Board of Directors in the Chairman's
absence.
SECTION 4. President's Duties. The President of the Corporation may be the
Chief Executive Officer of the Corporation and shall perform such duties as
shall be prescribed by the Board of Directors. The President solely by virtue of
his office shall be an ex officio voting member of the Board of Directors.
SECTION 5. Vice President's Duties. The Vice Presidents shall do and
perform such duties as
6
<PAGE>
may from time to time be assigned to them by the Chairman, the President or the
Board of Directors. In the absence or disability of the Chairman and President,
the Vice Presidents in the order designated by the Board of Directors shall
perform the duties of the President.
SECTION 6. Secretary's Duties. The Secretary or Assistant Secretary shall
keep the minutes of all meetings of the Corporation, the Board of Directors, and
Committees of the Board The Secretary shall have charge of the seal of the
Corporation and in general shall have such other duties as the Board may
prescribe or are incident to his office.
SECTION 7. Treasurer's Duties. The Treasurer shall be responsible for
keeping all financial records of the Corporation.
SECTION 8. Other Corporate Officers. In addition to the officers specially
provided herein, the Board of Directors shall have the right to appoint such
other officers and may designate such other titles for them as may from time to
time be advisable for the proper function of the Corporation. All officers shall
perform such duties pertaining to their offices as shall be prescribed from time
to time by the President or the Board of Directors and which by law and general
usage appertain to their respective offices.
SECTION 9. Removal. Any officer may be removed with or without cause (i)
upon the concurring affirmative vote of Directors holding a majority of the
directorships, or (ii) in accordance with the provisions of a written agreement
between any officer and the Corporation if such written agreement otherwise
provides, or (iii) by the President if such officer holds a position with a rank
of Assistant Vice President or lower.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable seal for the Corporation
and shall provide also for the manner in which all contracts, deeds, conveyances
and all other instruments of any and every kind made by the Corporation shall be
executed.
7
<PAGE>
ARTICLE VI
COMMITTEES
SECTION 1. Committees of the Board of Directors. The Board of Directors, by
a vote of a majority of the Board of Directors, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation. Any committee so designated may exercise the power
and authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his or her place, the member or members of
the committee present at the meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may by unanimous vote appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member.
SECTION 2. Conduct of Business. Each committee may determine the procedural
rules for meeting and conducting its business and shall act in accordance
therewith, except as otherwise provided herein or required by law. Adequate
provision shall be made for notice to members of all meetings; one-third (1/3)
of the members shall constitute a quorum; and all matters shall be determined by
a majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of such
committee.
SECTION 3. Emergency Delegation. The Board of Directors may provide for the
delegation of authority in the event of war or other emergency, including the
temporary delegation, to the extent permitted by law, to officers, of the powers
of the Board of Directors and Committees thereof.
ARTICLE VII
GENERAL
SECTION 1. Transaction of Business. The days and hours that the Corporation
and its branch offices shall be open for the transaction of business shall be
determined by the Board of Directors in accordance with the banking laws of the
State of Connecticut.
8
<PAGE>
SECTION 2. Signature on Contracts. All contracts shall be signed by such
person or persons as shall be authorized by the Board of Directors.
SECTION 3. Signature on Instruments. All checks, drafts and other
instruments shall be signed by such person or persons as may be designated by
the Board of Directors.
SECTION 4. Transfer of Capital Stock. Transfer of shares shall be made upon
the books of the Corporation by the holder in person or by power of attorney
duly executed, witnessed and filed with the Secretary or other proper officer of
the Corporation upon surrender of the certificate or certificates of such
shares. In case of the loss or destruction of a certificate, another certificate
may be issued in its place upon proof of loss or destruction and the giving of a
bond of indemnity or Affidavit, as appropriate, in form and substance
satisfactory to the Board of Directors.
SECTION 5. Nature of Business. The Board of Directors may from time to time
authorize the establishment and maintenance or the discontinuance of such
different types of accounts and other deposit agreements as may be permitted by
law and may authorize the transaction of such other business as may be lawfully
undertaken by a capital stock state bank and trust company under and pursuant to
the laws of the State of Connecticut.
The Board of Directors may delegate to management the authority to
authorize the establishment and maintenance or discontinuance of such different
types of accounts and other deposit agreements as may be permitted by law, to
institute or impose service charges, maintenance fees or any other fees or
charges deemed appropriate by management in connection with deposit accounts or
other agreements between the Corporation and its depositors and other customers,
and to take such other actions as may be necessary and proper to transact such
other business as may be lawfully undertaken by a capital stock state bank and
trust company under and pursuant to the laws of the State of Connecticut.
ARTICLE VIII
AMENDMENTS
These By-laws may be altered, amended, added to or repealed by the
affirmative vote of two-thirds (2/3) of the entire Board of Directors at any
regular or special meeting called for such purpose or by the affirmative vote of
the holders of a majority of the voting power of shares entitled to vote thereon
at any regular or special meeting called for such purpose. Notwithstanding the
foregoing and anything contained in these bylaws to the contrary, Section 2 of
Article I, Sections 1, 2, and 3 of Article II, and this Article VIII of these
Bylaws shall not be altered, amended, added to or repealed without the
affirmative vote of the holders of not less than Sixty-six and two-thirds
(66 2/3%) percent of the voting power of the issued and outstanding shares
entitled to vote thereon; provided, however, that if there is an Interested
Stockholder (as is defined in Article 8 of the Certificate of Incorporation),
such sixty-six and two thirds (66 2/3%) percent vote must include the
affirmative vote of not less than two-thirds (2/3) of the voting power of the
issued and outstanding shares entitled to vote thereon held by Stockholders
other than the Interested Stockholder.
Any notice of a meeting of Stockholders or of the Board of Directors at which
these Bylaws are proposed to be altered, amended, added to, or repealed shall
include notice of such proposed action.
9
<PAGE>
ARTICLE IX
INDEMNIFICATION
The Corporation shall provide indemnification, to the full extent Permitted
or required of corporations subject to the Delaware General Corporation Law, to
its Officers, Directors, employees and to such other persons Specified in such
law.
EXHIBIT 10.1
NON-STATUTORY STOCK OPTION PLAN
A. Purpose and Scope
The purposes of this Plan are to encourage stock ownership by exemplary
employees, officers and members of the Board of Directors of New Milford Bank &
Trust Company (herein called the "Company"), to provide an incentive for such
individuals to expand and improve the profits and prosperity of the Company, and
to assist the Company in attracting and retaining such personnel through the
grant of (1) Options to purchase shares of the Company's common stock and (2)
Stock Appreciation Rights related to those Options.
B. Definitions
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Stock Option Plan Committee, which is
appointed by the Board, and which shall be composed of three or more
members of the Board.
3. "Company" shall mean the New Milford Bank & Trust Company, a
Connecticut banking corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended
5. "Option" shall mean a right to purchase Stock, granted pursuant to the
Plan.
6. "Option Price" shall mean the purchase price for Stock under an
Option, as determined in Section F below.
7. "Participant" shall mean an employee, officer or Director sitting on
the Board of the Company, to whom an Option is granted under the Plan.
<PAGE>
8. "Plan" shall mean this non-statutory Stock Option Plan.
9. "Retirement" - shall mean when an employee voluntarily leaves the
employ of the Company and is at least sixty-five years (65) of age at
such time and is not a Director on the Board of Directors of the
Company.
10. "Stock" shall mean the common stock of the Company, $5.00 par value.
11. "Stock Appreciation Right" shall mean a right to receive cash or
Stock, granted pursuant to Section H of the Plan.
C. Stock to be Optioned
Subject to the provisions of Section M of the Plan, the maximum number of
shares of Stock that may be optioned or sold under the Plan is 93,786 shares.
Such shares may be treasury, or authorized, but unissued, shares of Stock of the
Company.
D. Administration
The Plan shall be administered by the Committee made up of three or more
members of the Board. The Committee shall be responsible to the Board for the
operation of the Plan, and shall make recommendations to the Board with respect
to participation in the Plan by employees, officers and Directors of the Company
with respect to the extent of that participation. The interpretation and
construction of any provision of the Plan by the Committee shall be final,
unless otherwise determined by the Board. No member of the Board or the
Committee shall be liable for any action or determination made by him in good
faith and the Company shall indemnify and hold harmless any such member of the
Board or Committee to the extent of any liability which may arise due to his
good faith efforts, if any.
2
<PAGE>
E. Eligibility
The Board, upon recommendation of the Committee may grant Options to any
employee, officers or Director (provided the Director recommended for the grant
does not vote on his own grant) of the Company. Options may be awarded by the
Board at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include
or exclude previous Participants, as the Board, upon recommendation by the
Committee shall determine. The Board may grant options at such prices and
exercisable over such terms as it determines in its sole discretion, such that,
options granted at different times need not contain the same provisions.
F. Option Price
The purchase price for Stock under each Option shall be determined by the
Board, upon recommendation of the Committee, at the time the Option is granted,
but in no event less than the par value of the Stock.
G. Terms and Conditions of Options
Options granted pursuant to the Plan shall be authorized by the Board and
shall be evidenced by agreements in such form as the Board, upon recommendation
of the Committee, shall from time to time approve. Such agreements shall comply
with and be subject to the following terms and conditions:
1. Restriction Agreement. The Board may, in its discretion, include in any
Option granted under the Plan a provision that the particular Option is
exercisable from or after a particular date and the Participant shall have
remained an employee, officer or Director, as the case may be, of the Company
from the date of the grant to date of exercise (as specified in the
3
<PAGE>
agreement). No such agreement shall impose upon the Company, however, any
obligation to employ the Participant for any period of time.
2. Time and Method of Payment. The Option Price shall be paid in full in
cash at the time an Option is exercised under the Plan. Otherwise, an exercise
of any Option granted under the Plan shall be invalid and of no effect. Promptly
after the exercise of an Option and the payment of the full Option Price, the
Participant shall be entitled to the issuance of a stock certificate evidencing
his ownership of such Stock. A Participant shall have none of the rights of a
shareholder until the Option(s) are exercised by him, and no adjustment will be
made for dividends or other rights for which the record date is prior to the
date of such exercise.
3. Number of Shares. Each Option shall state the total number of shares of
Stock to which it pertains. The number of shares to which a Participant is
entitled under an Option shall be reduced by the number of Stock Appreciation
Rights (described in Section H below) related to the Option that has been
previously exercised by the Participant.
4. Option Period and Limitations on Exercise of Options. The Board may, in
its discretion, provide that an Option may not be exercised in whole or in part
for any period or periods of time specified in the Option agreement. Except as
provided in the Option agreement, an Option may be exercised in whole or in part
at any time during its term. No Option may be exercised after the expiration of
ten years from the date it is granted. No Option may be exercised for a
fractional share of Stock.
H. Stock Appreciation Right
The Board may, upon recommendation of the Committee, grant Stock
Appreciation Rights to Participants at the same time as such Participants are
awarded Options under the Plan. Such Stock Appreciation Rights shall be
evidenced by agreements in such form as the Board shall
4
<PAGE>
from time to time approve. Such agreements shall comply with, and be subject to,
the following terms and conditions:
1. Restriction Agreement. The Board may, in its discretion, include in any
Stock Appreciation Rights granted under the Plan a provision that the particular
Stock Appreciation Right is exercisable from or after a particular date and the
Participant shall have remained an employee, officer or Director, as the case
may be, of the Company from the date of the grant to date of exercise (as
specified in the agreement). No such agreement shall impose upon the Company,
however, any obligation to employ the Participant for any period of time.
2. Grant. Each Stock Appreciation Right shall relate to a specific Option
under the plan, and may, at the discretion of the Board, upon recommendation of
the Committee, be awarded to a Participant concurrently with the grant of such
Option. The number of Stock Appreciation Rights granted to a Participant may be
equal to or less than the number of shares that the Participant is entitled to
receive pursuant to the related Option. The number of Stock Appreciation Rights
held by a Participant shall be reduced by:
(a) the number of Stock Appreciation Rights exercised for Stock or
cash under the Stock Appreciation Rights agreement, and
(b) the number of shares of Stock purchased by such Participant
pursuant to the related Option.
3. Manner of Exercise. A Participant shall exercise Stock Appreciation
Rights by giving written notice of such exercise to the Company. The date upon
which such written notice is received by the Company shall be the exercise date
for the Stock of Appreciation Rights.
4. Appreciation Available. Each Stock Appreciation Right shall entitle a
Participant to the following amount of appreciation -- the excess of the fair
market value of a share of Stock
5
<PAGE>
on the exercise date over the option price of the related Option. The total
appreciation available to a Participant from any exercise of Stock Appreciation
Rights shall be equal to the number of Stock Appreciation Rights being
exercised, multiplied by the amount of appreciation per Right determined under
the preceding sentence.
5. Payment of Appreciation. In the discretion of the Committee, the total
appreciation available to a Participant from an exercise of Stock Appreciation
Rights may be paid to the Participant either in Stock or in cash. If paid in
cash, the amount thereof shall be the amount of appreciation determined under
Paragraph 4 above. If paid in Stock, the number of shares of Stock that shall be
issued pursuant to the exercise of Stock Appreciation Rights shall be determined
by dividing the amount of appreciation determined under Paragraph 4 above by the
fair market value of a share of Stock on the exercise date of the Stock
Appreciation Rights; provided, however, that cash shall be paid in lieu of any
fractional shares which were computed under this sentence.
6. Limitations Upon Exercise of Stock Appreciation Rights. A Participant
may exercise a Stock Appreciation Right for cash only in conjunction with the
exercise of the Option to which the Stock Appreciation Right relates. Stock
Appreciation Rights may be exercised only at such times and by such persons as
may exercise Options under the Plan. Adjustment to the number of shares in the
Plan and the price per share pursuant to Section M below shall also be made to
any Stock Appreciation Rights held by each Participant. Any termination,
amendment, or revision of the Plan pursuant to Section L below shall be deemed a
termination, amendment, or revision of Stock Appreciation Rights to the same
extent.
6
<PAGE>
I. Termination of Employment
Except as provided in Section J below, if a Participant ceases to be
employed by the Company or ceases to be a member of the Board, his Options and
Stock Appreciation Rights, shall terminate immediately; provided, however, that
if a Participant's cessation of employment with the Company is due to his
Retirement, the Participant may, at any time within three months after such
cessation, exercise his Options and Stock Appreciation Rights to the extent that
he was entitled to exercise them on the date of cessation of employment, but in
no event shall any Option or Stock Appreciation Right be exercisable more than
ten years from the date it was granted. The Committee may cancel an Option or
Stock Appreciation Right during the three month period referred to in this
paragraph, if the Participant engages in employment or activities contrary, in
the opinion of the Committee, to the best interests of the Company. The
Committee shall determine in each case whether a termination of employment or
ceasing to be a member of the Board shall be considered a Retirement and,
subject to applicable law, whether a leave of absence shall constitute a
termination of employment. Any such determination of the Committee shall be
final and conclusive, unless overruled by the Board.
J. Rights in Event of Death
If a Participant dies while employed by the Company or while being a member
of the Board, or within three months after Retirement, and without having fully
exercised his Options and Stock Appreciation Rights, the executors or
administrators of his estate shall have the right to exercise such Options and
Stock Appreciation, Rights to the extent that such deceased Participant was
entitled to exercise the Options and Stock Appreciation Rights on the date of
his death; provided, however, that in no event shall the Options or Stock
Appreciation Rights, be
7
<PAGE>
exercisable more than ten years from the date they were granted or three months
after death whichever period is shorter.
K. Adjustment in Event of Change in Stock
In the event of stock split, recapitalization, consolidation, combination
of shares, merger, or other relevant change in the Company's capitalization
(excluding stock dividends) the Committee shall, subject to the approval of the
Board of Directors, appropriately adjust the number and kind of shares covered
by the Plan, the maximum number of shares that may be sold or for which Stock
Appreciation Rights may be awarded under the Plan to any employee, officer of
Director and the number, kind and Option Price of shares subject to outstanding
Options. Upon dissolution or liquidation of the Company, or upon a merger or
consolidation in which the Company is not the surviving corporation, all Options
and Stock Appreciation Rights outstanding under the Plan shall terminate;
provided, however, that each Participant (and each other person entitled under
Section J to exercise an Option or Stock Appreciation Rights) shall have the
right, immediately prior to such dissolution or liquidation, or such merger or
consolidation, to exercise such Participant's Options and Stock Appreciation
Rights in whole or in part, but only to the extent that such Options and Stock
Appreciation Rights are otherwise exercisable under the terms of the Plan.
L. Amendment and Termination
The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option or Stock Appreciation Rights previously granted under
the Plan, except as authorized herein. Unless sooner terminated,
8
<PAGE>
the Plan shall remain in effect for a period of ten years from the date of the
Plan's adoption by the Board. Termination of the Plan shall not affect any
Option previously granted.
M. Agreement and Representation of Employees
As a condition to the exercise of any portion of an Option, or of any Stock
Appreciation Rights, the Company may require the person exercising such Option
or Stock Appreciation Rights to represent and warrant at the time of such
exercise that any shares of Stock acquired at exercise are being acquired only
for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Company, such a representation is
required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
N. Reservation of Shares of Stock
The Company, during the term of this Plan, will at all times reserve and
keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Company for the
lawful issuance and sale of its Stock hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.
0. Effective Date of Plan
The Plan shall be effective from the date that the Plan is approved by the
Board.
9
EXHIBIT 10.2
1994 STOCK OPTION PLAN FOR EMPLOYEES, OFFICERS, AND DIRECTORS
A. PURPOSE AND SCOPE
The purposes of this 1994 Plan are to encourage stock ownership by
exemplary employees, officers and members of the Board of Directors of The New
Milford Bank & Trust Company (the "Corporation"), to provide an incentive for
such individuals to expand and improve the profits and prosperity of the
corporation, and to assist the corporation in attracting and retaining such
personnel through the grant of (1) options to purchase shares of the
corporation's common stock and (2) stock Appreciation Rights related to those
options.
B. DEFINITIONS
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Corporation.
2. "Committee" shall mean the Personnel/Stock Option Committee, which is
appointed by the Board, and which shall be composed of three or more
members of the Board.
3. "Corporation" shall mean The New Milford Bank & Trust Company, a
Connecticut banking corporation.
4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
5. "Option" shall mean a right to purchase Stock, granted pursuant to the
1994 Plan.
6. "Option Price" shall mean the purchase price per share for Stock under
an Option, as determined in Section F below.
7. "Participant" shall mean an employee, officer or Director of the
Corporation, to whom an Option is granted under the 1994 Plan.
8. "1994 Plan" shall mean this Stock Option Plan.
9. "Retirement" shall mean when an employee or officer ceases to be
employed by the Corporation and is at least sixty-five years (65) of
age at such time or when a Director who has attained the age of
sixty-five (65) ceases to be a member of the Board of Directors of the
Corporation.
<PAGE>
10. "Stock" shall mean the common stock of the Corporation, $1.00 par
value.
11. "Stock Appreciation Right" shall mean a right to receive cash or
Stock, granted pursuant to Section H of the 1994 Plan.
C. STOCK TO BE OPTIONED
The maximum number of shares of Stock that may be optioned or sold under
the 1994 Plan is 300,000 shares, subject to the provisions of Section M hereof.
Such shares may be treasury, or authorized, but unissued, shares of Stock of the
corporation. If any option expires or terminates for any reason without having
been exercised, the unpurchased shares of Stock subject thereto shall again be
available for the grant of Options.
D. ADMINISTRATION
The 1994 Plan shall be administered by the Committee made up of three or
more members of the Board. The committee shall be responsible to the Board for
the operation of the 1994 Plan, and shall make recommendations to the Board with
respect to participation in the 1994 Plan by employees, officers and Directors
of the Corporation and with respect to the extent of that participation. The
interpretation and construction of any provision of the 1994 Plan by the
Committee shall be final, unless otherwise determined by the Board. No member of
the Board or the Committee shall be liable for any action or determination made
by him in good faith and the Corporation shall indemnify and hold harmless any
such member of the Board or Committee to the extent of any liability which may
arise due to his good faith efforts, if any.
E. ELIGIBILITY
The Board, upon recommendation of the Committee, may grant Options to any
employee, officer or Director (provided the Director recommended for the grant
does not vote on his own grant) of the Corporation. Options may be awarded by
the Board at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include
or exclude previous Participants, as the Board, upon recommendation by the
Committee shall determine. The Board may grant options at such prices and
exercisable over such terms as it determines in its sole discretion, such that,
options granted at different times need not contain the same provisions.
F. OPTION PRICE
The purchase price for Stock under each Option shall be the fair market
value of a share of Stock on the date of grant. For purposes of this 1994 Plan,
the fair market value of a share of Stock on any date shall be equal to the
average of the closing bid and asked prices for a share of Stock on such date
(or if no such quotation occurred on that date on the next preceding date on
which there was such a quotation), as made available for publication by the
National Association of Securities Dealers Automated Quotation system, or if no
such prices are available, the fair
2
<PAGE>
market value as determined by the Board, upon recommendation of the Committee,
at the time the Option is granted, but in no event less than the par value of
the Stock.
G. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the 1994 Plan shall be authorized by the Board
and shall be evidenced by agreements in such form as the Board, upon
recommendation of the Committee, shall from time to time approve. Such
agreements shall comply with and be subject to the following terms and
conditions:
1. Restriction Agreement. The Board may, in its discretion, include in any
Option granted under the 1994 Plan a provision that the particular Option is
exercisable from or after a particular date and the Participant shall have
remained an employee, officer or Director, as the case may be, of the
Corporation from the date of the grant to date of exercise (as specified in the
agreement). No such agreement shall impose upon the Corporation, however, any
obligation to employ the Participant for any period of time.
2. Time and Method of Payment. The Option Price shall be paid in full in
cash at the time an Option is exercised under the 1994 Plan. Otherwise, an
exercise of any Option granted under the 1994 Plan shall be invalid and of no
effect. Promptly after the exercise of an Option and the payment of the full
Option Price, the Participant shall be entitled to the issuance of a stock
certificate evidencing his ownership of such Stock. A Participant shall have
none of the rights of a shareholder until the Option(s) are exercised by him,
and except as set forth in Section K hereof, no adjustment will be made for
dividends or other rights for which the record date is prior to the date of such
exercise.
3. Number of Shares. Each Option shall state the total number of shares of
Stock to which it pertains. The number of shares to which a Participant is
entitled upon exercise of an Option shall be reduced by the number of Stock
Appreciation Rights (as set forth and described in Section H below) related to
shares subject to such Option that have been previously exercised by the
Participant.
4. Option Period and Limitations on Exercise of Options. Participants shall
be granted Options which are exercisable for a period of ten (10) years from the
date of the granting thereof. Notwithstanding the foregoing, the Board may, in
its discretion, provide that an Option may not be exercised in whole or in part
for any period or periods of time specified in the Option agreement. Except as
provided in the Option agreement, an Option may be exercised in whole or in part
at any time during its term. No Option may be exercised after the expiration of
ten years from the date it is granted. No Option may be exercised for a
fractional share of Stock.
H. STOCK APPRECIATION RIGHT.
The Board may, upon recommendation of the Committee, grant Stock
Appreciation Rights to Participants at the same time as such participants are
awarded Options under the 1994 Plan. Such Stock Appreciation Rights shall be
evidenced by agreements in such form as the
3
<PAGE>
Board shall from time to time approve. Such agreements shall comply with, and be
subject to, the following terms and conditions:
1. Restriction Agreement. The Board may, in its discretion, include in any
Stock Appreciation Rights granted under the Plan a provision that the particular
Stock Appreciation Right is exercisable from or after a particular date and the
Participant shall have remained an employee, officer or Director, as the case
may be, of the corporation from the date of the grant to date of exercise (as
specified in the agreement). No such agreement shall impose upon the
corporation, however, any obligation to employ the Participant for any period of
time.
2. Grant. Each Stock Appreciation Right shall relate to a specific option
under the plan, and may, at the discretion of the Board, upon recommendation of
the Committee, be awarded to a Participant concurrently with the grant of such
Option. The number of Stock Appreciation Rights granted to a Participant may be
equal to or less than the number of shares that the Participant is entitled to
receive pursuant to the related Option. The number of Stock Appreciation Rights
held by a Participant shall be reduced by:
(a) the number of Stock Appreciation Rights exercised for Stock or cash
under the Stock Appreciation Rights agreement, and
(b) the number of shares of Stock purchased by such Participant pursuant
to the related Option.
3. Manner of Exercise. A Participant shall exercise Stock Appreciation
Rights by giving written notice of such exercise to the Corporation. The date
upon which such written notice is received by the Corporation shall be the
exercise date for the Stock Appreciation Rights.
4. Appreciation Available. Each Stock Appreciation Right shall entitle a
Participant to the following amount of appreciation - the excess of the fair
market value of a share of Stock on the exercise date over the option price of
the related Option. The total appreciation available to a Participant from any
exercise of Stock Appreciation Rights shall be equal to the number of Stock
Appreciation Rights being exercised, multiplied by the amount of appreciation
per Stock Appreciation Right determined under the preceding sentence.
5. Payment of Appreciation. In the discretion of the Committee, the total
appreciation available to a Participant from an exercise of Stock Appreciation
Rights may be paid to the Participant either in Stock or in cash. If paid in
cash, the amount thereof shall be the amount of appreciation determined under
Paragraph 4 above. If paid in Stock, the number of shares of Stock that shall be
issued pursuant to the exercise of Stock Appreciation Rights shall be determined
by dividing the amount of appreciation determined under Paragraph 4 above by the
fair market value of a share of Stock on the exercise date of the Stock
Appreciation Rights; provided, however, that cash shall be paid in lieu of any
fractional shares which were computed under this sentence.
4
<PAGE>
6. Limitations Upon Exercise of Stock Appreciation Rights. A Participant
may exercise a Stock Appreciation Right in conjunction with the exercise of the
Option to which the Stock Appreciation Right relates. Stock Appreciation Rights
may be exercised only at such times and by such persons as may exercise Options
under the 1994 Plan. Adjustment to the number of shares in the 1994 Plan and the
price per share pursuant to Section K below shall also be made to any Stock
Appreciation Rights held by each Participant. Any permissible termination,
amendment, or revision of the 1994 Plan pursuant to Section L below shall be
deemed a termination, amendment, or revision of Stock Appreciation Rights to the
same extent.
I. TERMINATION OF EMPLOYMENT
Except as provided in Section J below, if a Participant ceases to be
employed by the Corporation or ceases to be a member of the Board, his Options
and Stock Appreciation Rights, shall terminate immediately; provided, however,
that if a Participant's cessation of employment with the Corporation or
resignation from the Board is due to his Retirement (as defined above), the
Participant may, at any time within six (6) months after his Retirement,
exercise his Options and Stock Appreciation Rights to the extent that he was
entitled to exercise them on the date of such Retirement, but in no event shall
any Option or Stock Appreciation Right be exercisable more than ten years from
the date it was granted. The Committee may cancel an Option or Stock
Appreciation Right during the six (6) month period referred to in this
paragraph, if the Participant engages in employment or activities contrary, in
the opinion of the Committee, to the best interests of the Corporation. The
Committee shall have complete discretion with respect to determining whether
ceasing employment or ceasing to be a member of the Board shall be considered
Retirement and, subject to applicable law, whether a leave of absence shall
constitute ceasing employment. Any such determination of the Committee or the
Board shall be final and conclusive.
J. RIGHTS IN EVENT OF DEATH
If a participant dies while employed by the Corporation or while a member
of the Board, or within six (6) months following the date of his Retirement, and
without having fully exercised his Options and Stock Appreciation Rights, the
executors or administrators of his estate shall have the right to exercise such
Options and Stock Appreciation Rights to the extent that such deceased
Participant was entitled to exercise the Options and Stock Appreciation Rights
on the date of his death; provided, however, that in no event shall the Options
or Stock Appreciation Rights, be exercisable more than ten years from the date
they were granted or six (6) months following the date of his death or
Retirement whichever period is shorter.
K. ADJUSTMENT IN EVENT OF CHANGE IN STOCK.
In the event of stock split, recapitalization, consolidation, combination
of shares, merger, or other relevant change in the Corporation's capitalization
(excluding stock dividends), the Committee shall, subject to the approval of the
Board of Directors, appropriately adjust the number of shares covered by the
1994 Plan, the maximum number of shares that may be sold or for which Stock
Appreciation Rights may be awarded under the 1994 Plan to any employee,
5
<PAGE>
officer or Director and the number and Option Price of shares subject to
outstanding Options. Upon dissolution or liquidation of the Corporation, or upon
a merger or consolidation in which the Corporation is not the surviving
corporation, however, all Options and Stock Appreciation Rights outstanding
under the 1994 Plan shall terminate; provided, however, that each Participant
(and each other person entitled under Section J to exercise an Option or Stock
Appreciation Rights) shall have the right, immediately prior to such dissolution
or liquidation, or such merger or consolidation, to exercise such Participant's
Options and Stock Appreciation Rights in whole or in part, but only to the
extent that such Options and Stock Appreciation Rights are otherwise exercisable
under the terms of the 1994 Plan.
L. DURATION OF PLAN, AMENDMENT AND TERMINATION
Unless sooner terminated, the 1994 Plan shall remain in effect for a period
of ten years from the date on which the 1994 Plan is approved by the
shareholders of the Corporation and shall thereafter terminate. Notwithstanding
the foregoing, and to the extent permitted by law, the Board, by resolution, may
terminate, amend, or revise the 1994 Plan with respect to any shares as to which
Options have not been granted. Neither the Board nor the Committee may, without
the consent of the holder of an Option, terminate, alter or impair any Option or
Stock Appreciation Rights previously granted under the 1994 Plan, except and to
the extent authorized herein, Except as otherwise herein provided or except as
necessary to comply with applicable law, termination of the 1994 Plan shall not
operate to terminate any Option previously granted
M. AGREEMENT AND REPRESENTATION OF EMPLOYEES
As a condition to the exercise of any portion of an Option, or of any Stock
Appreciation Rights, the Corporation may require the person exercising such
Option or Stock Appreciation Rights to represent and warrant at the time of such
exercise that any shares of Stock acquired at exercise are being acquired only
for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Corporation, such a representation
is required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
N. RESERVATION OF SHARES OF STOCK
The Corporation, during the term of this 1994 Plan, will at all times
reserve and keep available, and will seek or obtain from any regulatory body
having jurisdiction any requisite authority necessary to issue and to sell, the
number of shares of Stock that shall be sufficient to satisfy the requirements
of this 1994 Plan. The inability of the Corporation to obtain from any
regulatory body having jurisdiction the authority deemed necessary by counsel
for the Corporation for the lawful issuance and sale of its Stock hereunder
shall relieve the Corporation of any liability in respect of the failure to
issue or sell Stock as to which the requisite authority has not been obtained.
6
<PAGE>
O. EFFECTIVE DATE OF 1994 PLAN
The Plan shall be effective from the date that the Plan is approved by a
majority of the outstanding shares of the Corporation's Stock.
7
EXHIBIT 10.3
AMENDMENT NO. 1 TO THE
NON-STATUTORY STOCK OPTION PLAN
The Board of Directors of THE NEW MILFORD BANK & TRUST COMPANY (the "Bank")
has, by resolution of the Board of Directors of the Bank, authorized the
following amendment to THE NON-STATUTORY STOCK OPTION PLAN OF THE NEW MILFORD
BANK & TRUST COMPANY, which amendment shall be effective as of the 25th day of
November, 1997.
PREAMBLE:
A Non-Statutory Stock Option Plan (the "Plan"), was adopted by resolution
of the Board of Directors of the Bank and became effective in 1988.
NMBT CORP (the "Company) was formed in 1997 and as of the date hereof has
become the sole shareholder of all outstanding shares of stock in the Bank.
The owners of shares and other securities in the Bank, as of the date
hereof, have received through 1:1 exchange, shares and other securities in the
Company in return for a like number of shares and other securities that they
held in the Bank.
The Bank and the Company desire that the Plan be amended to allow the
Company to assume certain obligations of the Bank under the Plan.
NOW, THEREFORE, the Plan is amended as follows:
1. Section B. 10 of the Plan shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"Stock" shall mean the Common Stock of NMBT CORP, a Delaware corporation,
par value $0.01 per share.
EXHIBIT 10.4
AMENDMENT NO. 1 TO THE
1994 STOCK OPTION PLAN FOR EMPLOYEES, OFFICERS AND DIRECTORS
OF THE NEW MILFORD BANK & TRUST COMPANY
The Board of Directors of THE NEW MILFORD BANK & TRUST COMPANY (the "Bank")
has, by resolution of the Board of Directors of the Bank, authorized the
following amendment to THE 1994 STOCK OPTION PLAN FOR EMPLOYEES, OFFICERS AND
DIRECTORS OF THE NEW MILFORD BANK & TRUST COMPANY, which amendment shall be
effective as of the 25th day of November 1997.
PREAMBLE:
The 1994 Stock Option Plan for Employees, Officers and Directors of The New
Milford Bank & Trust Company (the "Plan"), was adopted by resolution of the
Board of Directors of the Bank and became effective in 1994.
NMBT CORP (the "Company") was formed in 1997 and as of the date hereof has
become the sole shareholder of all outstanding shares of stock in the Bank.
The owners of shares and other securities in the Bank, as of the date
hereof, have received through 1:1 exchange, shares and other securities in the
Company in return for a like number of shares and other securities that they
held in the Bank.
The Bank and the Company desire that the Plan be amended to allow the
Company to assume certain obligations of the Bank under the Plan.
NOW, THEREFORE, the Plan is amended as follows:
1. Section B. 10 of the Plan shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
"Stock" shall mean the Common Stock of NMBT CORP, a Delaware Corporation,
par value $0.01 per share.
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 17th day of January,
1996, by and between THE NEW MILFORD BANK & TRUST COMPANY, a Connecticut bank
and trust company with its principal office and place of business at 55 Main
Street, New Milford, Connecticut 06776 (the "Bank"), and MICHAEL D. CARRIGAN,
residing at 212 Patriot Road, Southbury, Connecticut 06488 ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been and continues to be employed by the Bank in a
management capacity;
WHEREAS, Employee is willing to continue to work for the Bank on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual terms herein contained, the
parties hereto, intending to be legally bound, do hereby mutually covenant and
agree as follows:
I. EMPLOYMENT.
The Bank agrees to employ Employee for the Term of Employment, as such
term is defined in Section 2.6 hereof, in the same position that Employee holds
on the date of this Agreement, and Employee accepts such employment and agrees
to serve in such capacity upon the terms and conditions hereinafter set forth.
II. DEFINITIONS.
The following terms shall have the following meanings:
2.1 "Cause," shall mean:
(a) Employee's breach of his obligations under this Agreement, if
such breach shall not have been cured by Employee within thirty
(30) days after Employee's receipt from the Bank of written
notice of a claimed breach; or
(b) willful misconduct by Employee, including, but not limited to,
the commission by Employee of a felony or the perpetration by
Employee of common law fraud upon the Bank; or
<PAGE>
(c) violation by Employee of one or more federal or state banking
laws, including regulations promulgated thereunder, which,
considered separately or together, is deemed to be a significant
violation, the existence and significance of such violation or
violations to be determined in good faith by the Board of
Directors of the Bank (the "Board") after consultation with
counsel; such determination need not await final adjudication of
an alleged violation or violations by the applicable federal or
state bank regulatory agency (collectively, "Bank Regulators");
or
(d) conduct by Employee which is subject to criticism by Bank
Regulators and which criticism the Board, after consultation with
counsel, deems in good faith to adversely affect the Bank,
including the Bank's standing with Bank Regulators; or
(e) Failure To Adhere To Performance and Conduct Criteria, as defined
below; or
(f) prior to a Change-in-Control, as defined below, such other
conduct as may constitute willful misconduct under the laws of
Connecticut.
2.2 A "Change-in-Control" shall be deemed to have occurred with
respect to the Bank if any "Person," as defined in Section 2.5, has acquired
beneficial ownership or effective control of the Bank. A Person shall be deemed
to have acquired beneficial ownership or effective control if:
(a) the Person directly or indirectly or acting through one (1) or
more other Persons beneficially owns, controls, or has power to
vote twenty-five percent (25%) or more of the voting common stock
of the Bank; or
(b) the Person acquires or agrees to acquire all or substantially all
of the assets and business of the Bank; or
(c) the Person controls the election of a majority of the directors
of the Bank; or
(d) the Board of Directors of the Bank determines that the Person
directly or indirectly exercises a controlling influence over the
management of policies of the Bank; or
(e) the Person (i) is a party to a merger, consolidation, or any
other form of reorganization having substantially the same effect
as a merger or consolidation with the Bank, and (ii) immediately
prior to such transaction the Person had total assets as of the
end of its most recent fiscal year equal to or greater than
twenty percent (20%) of
2
<PAGE>
the total assets of the Bank as of the end of its most recent fiscal year.
Notwithstanding the foregoing, a "Change-in-Control" shall not be
deemed to have occurred if (i) a majority of the directors of the Bank in office
prior to the events described in (a), (b), or (c) above shall so vote not later
than thirty (30) days following the event, and (ii) Employee shall so agree in
writing. Beneficial ownership shall be determined under the provisions of
Securities Exchange Act Rule 13d-3, (17 C.F.R. & 240.13d-3) as in effect on the
date of this Agreement.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Failure To Adhere To Performance and Conduct Criteria" shall mean
failure by Employee to adhere to performance and conduct guidelines set forth by
the Board, from time to time; and further that the Employee, in the sole and
good faith opinion of the Board, had not adequately corrected such failure
within 30 days after Employee's receipt from the Board of written notice that he
has failed to adhere to such guidelines.
2.5 A "Person" shall mean a natural person, corporation, or other
entity. When two (2) or more Persons act as a partnership, limited partnership,.
syndicate, or other group for the purpose of acquiring, holding, or disposing of
the Bank common stock, such partnership, syndicate, or group shall be considered
a Person.
2.6 "Term of Employment" shall mean the period commencing as of the
date of this Agreement and ending on December 31, 1996; provided, however, the
Term of Employment shall automatically be extended to the next subsequent 31st
day of December if the Board has not advised Employee in writing prior to 30
days of the expiration date of each such Term of Employment that the Term of
Employment shall not be so extended. For example, if the Board of Directors has
not advised Employee by November 30, 1996 that the Term of Employment will not
be extended beyond December 31, 1996; then the Term of Employment shall
automatically be extended until December 31, 1997; if the Board of Directors has
not advised Employee by November 30, 1997 that the Term of Employment will not
be extended beyond December 31, 1997, then the Term of Employment shall
automatically be extended until December 31, 1998. Notwithstanding anything to
the contrary, the Term of Employment shall not be extended beyond December 31,
2000 under this Agreement.
III. DUTIES OF EMPLOYMENT.
3.1 The Bank hereby employs Employee and Employee hereby accepts such
employment as President and Chief Executive Officer of the Bank during the Term
of Employment upon the terms and conditions set forth herein. During the Term of
Employment Employee will serve as President and Chief Executive Officer of the
Bank and will perform such other duties commensurate with his position as
President and Chief Executive Officer as the Board may assign to him. Employee
agrees that during the Term of Employment, he will apply, in good faith and on a
full-time basis (allowing for usual vacations and absence due to sickness), all
of his skill and experience to the performance of his duties in such employment,
and will adhere,
3
<PAGE>
in good faith, to the laws and regulations of federal and state banking
regulatory agencies which may be promulgated from time to time. It is understood
that Employee may have other business investments or directorships which may,
from time to time, require minor portions of this time, but which shall not
interfere or be inconsistent with his duties hereunder.
IV. COMPENSATION AND BENEFITS DURING TERM OF EMPLOYMENT.
4.1 The Bank shall pay Employee during the Term of Employment
$145,000.00 per annum paid on a monthly basis, with such increases as provided
in Section 4.2 below, as salary (the "Salary"). The Bank may also pay such bonus
compensation ("Bonus Compensation") as may be determined by the Board of
Directors of the Bank in its sole discretion.
4.2 If this Agreement is extended pursuant to Section 2.6 above, the
Salary for such extension period, or periods, as the case may be, will be
determined by the Board of Directors in its sole discretion.
4.3 Employee shall be entitled to participate in any plan of the Bank
relating to stock options, stock purchases, pensions, thrift, profit sharing,
group life insurance, health, dental and disability coverage, education, or
other retirement or employee benefits that the Bank has adopted or may adopt for
the benefit of its employees. Employee shall also be entitled to participate in
any other fringe benefits which are now or may become applicable to the Bank's
employees and any other benefits which are commensurate with the duties and
responsibilities to be performed by Employee under this Agreement.
4.4 The Bank will reimburse Employee for necessary and reasonable
business expenses related to the business of the Bank incurred by him in the
performance of his duties hereunder. Employee will be entitled to such
reimbursement upon providing to the Bank appropriate documentation or receipts
reflecting any such business expenses.
4.5 Employee will be entitled to four weeks of paid vacation during
each calendar year during the Term of Employment hereof, to be taken at such
times as shall not unreasonably interfere with or impede the operation of the
Bank.
4.6 During the Term of this Agreement, the Bank will provide Employee
with the use of an automobile of a type approved by the Board and commensurate
with Employee's position hereunder. The Bank will pay for the expenses related
to the operation and maintenance of such automobile. The Bank agrees to
reimburse Employee for such expenses. The Bank may, however, pay Employee on the
1st day of any month during the Term of Employment hereof a monthly amount
calculated to equal the monthly expenses related to the operation and
maintenance of such automobile.
V. TERMINATION OF EMPLOYMENT.
5.1 If Employee's employment is unilaterally terminated by the Bank
during the Term of Employment for any reason other than (i) Cause, (ii)
permanent and total disability
4
<PAGE>
(as defined in Section 22(e) of the Code) or death, or (iii) in connection with
or within one year after a Change-In-Control, Employee shall be entitled to
receive, and the Bank shall be obligated to pay to Employee, severance pay in an
amount equal to the greater of (A) Employee's Salary as defined in Section 4.1
for the number of months remaining in the Term of Employment, or (B) an amount
equal to the then current monthly portion of Employee's Salary multiplied by the
number (not to exceed 12) of years, or part thereof, Employee has been employed
by the Bank or (C) Employee's Salary for a period of six months.
5.2 In addition to the severance payment described in Section 5.1 that
is payable to Employee, the following shall apply in the event of any
termination without Cause or in the event of any termination subject to Section
5.3 hereof: (1) Employee shall continue to receive life, health, dental and
disability coverage, substantially equivalent to the coverage maintained by the
Bank for Employee prior to termination, for a period of six months, provided the
Bank continues to provide such coverage to its executive officers; (2) and all
insurance or other provisions for indemnification or defense of officers or
directors of the Bank which are in effect on the date of termination of Employee
shall continue for the benefit of Employee with respect to all of his acts and
admissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation which may be applicable to such acts or omissions,
provided the Bank continues to provide such coverage to its executive officers
and directors.
5.3 If during the Term of Employment there is a Change-In-Control and
Employee's employment is terminated voluntarily for Good Reason, as defined in
Section 5.4, or involuntarily for a reason other than Cause, in connection with
or within one year after a Change-In-Control, Employee shall be entitled to
receive a cash severance as provided for in this Section unless such termination
occurs by virtue of normal retirement, permanent and total disability (as
defined in Section 22(e) of the Code) or death. Subject to Section 5.5 below,
the amount of the severance payment shall equal (i) three times Employee's
average annual Salary which was payable by the Bank and was includable by
employee in his gross income for federal income tax purposes with respect to the
five most recent taxable years of Employee ending prior to such
Change-In-Control (or such portion of such period during which Employee was a
full-time employee of the Bank), less (ii) one dollar. In addition, Section 5.2
shall apply in the case of any termination of employment within the scope of
this Section 5.3.
5.4 "Good Reason" shall be deemed to have occurred if Employee
terminates his employment for any of the following reasons:
(a) without Employee's express written consent, the
assignment to Employee of any duties inconsistent
with Employee's positions, duties,
responsibilities and status with the Bank
immediately before a Change in Control, or a
change in Employee's reporting, responsibilities,
titles or offices as in effect immediately before
a Change-In-Control, or any removal of Employee
from, or any failure to re-elect Employee to, any
of such positions, except in connection with the
termination of Employee's employment as a
5
<PAGE>
result of permanent and total disability (as
defined in Section 22(e) of the Code) or death;
(b) a reduction in Employee's Salary in effect
immediately before a Change in Control;
(c) the failure of the Person substantially to
maintain and to continue Employee's participation
in the benefit plans as in effect immediately
before a Change-In-Control, of the taking of any
action which would materially reduce the
Employee's benefits under any of such plans or
deprive Employee of any material fringe benefit
enjoyed by Employee immediately before a
Change-In-Control;
(d) the change of Employee's principal place of
employment to a location more than 25 miles from
Employee's current principal place of employment.
5.5 Notwithstanding any other provisions of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
by Employee with the Bank (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
the Bank for the direct or indirect provision of compensation to Employee
(including groups or classes of participants or beneficiaries of which Employee
is a member), whether or not such compensation is deferred, is in cash, or is in
the form of a benefit to or for Employee (a "Benefit Plan"), Employee shall not
have any right to receive any payment or other benefit under this Agreement, all
Other Agreements, and all Benefit Plans, which would cause any such payment to
Employee to be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Code (a "Parachute Payment). In the event that the receipt of
any such payment or benefit under this Agreement, any Other Agreement, or any
Benefit Plan would cause Employee to be considered to have received a Parachute
Payment, then Employee shall have the right, in Employee's sole discretion to
designate those payments or benefits under this Agreement, any Other Agreements,
and/or any Benefit Plans, which should be reduced or eliminated so as to avoid
having the payment to Employee under this Agreement be deemed to be a Parachute
Payment. In the event that there is a dispute between the parties as to whether
a reduction in such payments to Employee is required to prevent such payment
from constituting a Parachute Payment, the parties agree that they shall be
bound by the determination of such matter by a partner resident in Hartford or
Stamford, Connecticut of one of the following accounting firms selected by the
Bank (or such other firm as shall be mutually agreed upon by the parties):
Coopers & Lybrand LLP; Deloitte & Touche LLP; Ernst & Young LLP; or Price
Waterhouse LLP. In the event that Employee would otherwise be deemed to have
received an amount that would constitute a Parachute Payment, the amount paid to
him that exceeds the maximum amount permissible under this Section 5 shall be
treated as a loan to him and shall be repaid, with interest, to the extent
necessary to reduce the amount paid to the maximum permissible amount. The
interest rate and other terms of any such loan shall conform to terms that would
be applicable to loans of similar unsecured type made by the Bank to third
parties and to all regulatory requirements. Any such loan shall be repaid in
full six months after the date on which
6
<PAGE>
the Bank notifies Employee that a loan relationship exists, and may be repaid by
Employee without prepayment penalty at any time during such six month period.
5.6 Employee shall have no duty to mitigate damages in the event of a
termination under the terms of Sections 5.1 and 5.4, and, if he voluntarily
obtains other employment (including self-employment), and compensation or
profits received or accrued, directly or indirectly, from such other employment
shall not reduce or otherwise affect the obligations of the Bank to make
payments hereunder, except as provided in Section 5.3.
5.7 If the employment of Employee shall terminate at a time other than
during the Term of Employment, or if said employment shall terminate for Cause,
as defined in Section 2.1 hereof, or if Employee shall unilaterally terminate
his employment other than in connection with a Change-In-Control for Good
Reason, all payments that would have been due to Employee under this Agreement
on or after the date of such termination shall case, and the Bank shall have no
further obligations under this Agreement other than for amounts accrued but not
paid as of the date of such termination.
5.8 As a condition of receiving any severance payments or benefits in
this Section 5.1 through 5.5, Employee must enter into a "release agreement"
with terms acceptable to the Bank or Person, releasing any and all legal claims
the Employee had, has or may have against the Bank or Person.
VI. OTHER BENEFITS.
6.1 If Employee shall become disabled or incapacitated to the extent
that Employee is unable to perform Employee's duties and responsibilities
hereunder, Employee shall be entitled to receive disability benefits of the type
provided for other executive employees of the Bank.
VII. EXPENSES.
7.1 Employee shall be entitled to recover any and all reasonable fees
and costs and expenses, including but not limited to attorneys' fees, in the
event Employee is successful in asserting or defending any claim, arising out of
Employee's efforts to enforce any and all of the provisions of this Agreement.
7.2 Employer shall also be entitled to recover any and all reasonable
fees and costs and expenses, including but not limited to attorneys' fees, in
the event Employer is successful in asserting or defending any claim, arising
out of Employer's efforts to enforce any and all of the provisions of this
Agreement.
VIII. CONFIDENTIAL INFORMATION.
Employee understands that in the course of his employment by the Bank,
Employee will receive Confidential Information (as hereafter defined) concerning
the business of the Bank which the Bank desires to protect. Employee agrees that
he will not at any time during
7
<PAGE>
or after the Term of Employment reveal to anyone (except for the Bank employees
who have a need to know such information in the course of their employment) or
use for his own benefit any Confidential Information, without specific written
authorization by the Bank. This Section applies to all information obtained by
Employee in the course of his employment unless such information is or becomes
publicly known or known in the banking community generally prior to any
disclosure thereof by Employee. Upon termination of employment for any reason,
Employee shall return promptly to the Bank at its direction and expense any and
all copies, either prepared by the Bank or Employee, of the records, materials,
memorandums and other data constituting Confidential Information. As used in
this Agreement, the term "Confidential Information" shall mean all business
information of any nature and in any form which at the time or times concerned
is proprietary to the Bank and regarded as such by it and which is not generally
known to persons not employed by the Bank or who are members of its Board
(except for information disclosed by the act or acts of a person not authorized
by the Bank to disclose such information) and which relates to any one or more
of the aspects of the present or past business of the Bank including, but not
limited to, proposed acquisitions, proposed branches, development projects,
policies or other facts relating to financial matters, customers, customers'
lists and customers' financial needs.
IX. PROPRIETARY RIGHTS.
9.1 Employee acknowledges that his services and responsibilities are
of particular significance to the Bank and that his position with Bank has
given, and will give him a close knowledge of its policies and trade secrets.
Employee covenants and agrees that he will not, for a period of twelve months
from the date of the termination of his employment with the Bank (i) solicit or
accept as customers or otherwise provide services to any present customer or
former customer of the Bank, (ii) in any manner attempt to induce any customers
of the Bank to withdraw their accounts or business from the Bank or to induce
any prospective customer to not become a customer, (iii) to induce or encourage
any employee of the Bank to terminate such employee's employment, or (iv) make
any disparaging comment or statement, orally or in writing, regarding the Bank
or its employees or take any action or make any other comment or statement that
may harm the reputation or business of the Bank.
9.2 For purposes of this Agreement, "present customer", "former
customer" shall be defined in the following manner:
A "present customer" of the Bank is a Person with whom the Bank
has a business relationship on the date of termination of
Employee's employment.
A "former customer" of the Bank is a Person with whom the Bank
has no business relationship at the time of the termination of
Employee's employment, but has had such a relationship within the
one-year period ending on the date of termination of Employee's
employment.
9.3 Employee agrees that he shall not, for a period of one year
following his employment with the Bank, either directly or indirectly as agent,
stockholder, employee, officer, director, trustee, partner, proprietor or
otherwise engage in, render advice or assistance to or be employed on a
compensation basis by any person, firm or entity which is in competition with
the Bank. This paragraph shall only apply where such person, firm or entity has
its principal office
8
<PAGE>
within 15 miles of New Milford, Connecticut, or Danbury, Connecticut; or where
the office of the Employee is situated, or Employee's primary geographic areas
of responsibility will be located within 15 miles of New Milford, Connecticut,
or Danbury, Connecticut.
9.4 The time periods referred to in Sections 9(1) and (2) above shall
each be extended by the amount of time that Employee fails to comply with his
obligations under Section 9, whether due to the issuance of a temporary
restraining order or injunction or otherwise.
9.5 In addition to any damages or other remedies to which the Bank may
be entitled by virtue of any breach of the covenants and agreements in Section 8
or 9 hereof, Employee acknowledges that any such breach would cause irreparable
harm to the Bank and consents to the granting of injunctive and other equitable
relief to the Bank. Employee shall also pay all costs, including reasonable
attorney's fees, incurred by the Bank in seeking any such remedy or in
connection with the Bank otherwise enforcing its rights under this Agreement.
Any damages against Employee, which shall include, without limitation, any
amounts received as compensation or in any other capacity by Employee from any
third party as a result of or in connection with the breach of Employee's
obligations under this Agreement, may be applied as a set-off against any amount
owed to Employee by the Bank.
X. OTHER DUTIES OF EMPLOYEE DURING AND AFTER THE TERM OF EMPLOYMENT.
Both during and after the Term of Employment, Employee shall, upon
reasonable notice furnish such information as may be in his possession to, and
cooperate with, the Bank as may reasonably be requested by the Bank in
connection with any litigation in which the Bank is, or may become, a party. The
Bank shall reimburse Employee for all of the reasonable expenses incurred by him
in fulfilling his obligation under this Section 10 (except that no such expenses
shall be paid to Employee with respect to any litigation or proceeding commenced
by Employee or as to which Employee is otherwise a party).
XI. NOTICES.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person to Employee or if to the Bank, to the
Chairman of the Board of the Bank, or if sent, postage prepaid, certified mail,
return receipt requested or by recognized overnight delivery service, as
follows:
If to Employee, as follows: Michael D. Carrigan
212 Patriot Road
Southbury, Connecticut 06488
9
<PAGE>
If to the Bank, as follows: The New Milford Bank & Trust Company
55 Main Street
New Milford, Connecticut 06776-2400
Attention: Jack W. Straub, Chairman
or to such other address or addresses as hereafter shall be designated by notice
given in accordance with this Section by either of the parties hereto to the
other party.
XII. SUCCESSORS AND ASSIGNS.
The rights and obligations of the Bank under this Agreement shall
inure to the benefit of and shall be binding upon the Bank's successors and
assigns, including, without limitation, any Person which may acquire all or
substantially all of the assets and business of the Bank, or with or into which
the Bank may be consolidated or merged or any surviving corporation in any
merger involving the Bank. All references in this Agreement to the Bank shall be
deemed to include all of its successors and assigns.
XIII. ARBITRATION.
If any dispute arises between the parties hereto, the Employee's sole
recourse will be to submit such claim to binding arbitration in the City of
Waterbury, Connecticut in accordance with the Commercial Rules of the American
Arbitration Association.
Prior to submitting a dispute to arbitration, the Employee shall first
submit such dispute to the Bank's Board of Directors for a period of up to three
months in an effort to resolve such dispute without resort to arbitration.
During such three month period, both the Employee and the Bank agree to make a
good faith effort to resolve the dispute amicably and to make arbitration
unnecessary.
If the dispute concerns the termination of the Employee's employment,
or the severance and benefits to which the Employee is entitled upon the
termination, at arbitration, the only issue before the arbitrator will be to
determine the nature of the Employee's termination (i.e., whether for cause,
without cause, or in a situation subject to Section 5.3, whether Employee had
Good Reason to voluntarily terminate his employment). Based on the arbitrator's
determination of the nature of the Employee's termination, the arbitrator may
award the appropriate severance payments and, if applicable, benefits, provided
under this Agreement.
XIV. SEVERABILITY.
If any of the terms and conditions of this Agreement shall be declared
void or unenforceable by any court or administrative body of competent
jurisdiction, such term or condition shall be deemed severable from the
remainder of this Agreement, and the other terms and conditions of this
Agreement shall continue to be valid and enforceable except that if any
provision of the release agreement is declared illegal or unenforceable as the
result of efforts by the Employee, or his agent, or Employee brings a claim
against any of the released entities
10
<PAGE>
released in that release agreement, Employee will return to the Bank any
consideration he has received in exchange for entering into the release
agreement.
XV. OTHER AGREEMENTS.
This Agreement supersedes any and all prior written or oral employment
agreements between the Bank and Employee or between Employee and any predecessor
of the Bank.
XVI. CONSTRUCTION.
This Agreement shall be construed under the laws of the State of
Connecticut. Section headings are for convenience only and shall not be
considered a part of the terms and provisions of this Agreement. No
modifications of or amendments to this Agreement may be made except in writing
signed by the Bank and Employee. All references to gender shall, as the case may
be, refer to either the male or female gender.
XVII. MISCELLANEOUS PROVISIONS.
17.1 The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed a waiver of any subsequent breach
thereof.
17.2 Employee hereby acknowledges that the services to be rendered
hereunder are of a unique, special and extraordinary character which would be
difficult or impossible for the Bank to replace, and by reason thereof, Employee
hereby agrees that for violation of any of the provisions of this Agreement, the
Bank shall, in addition to any other rights and remedies available hereunder, at
law or otherwise, be entitled to an injunction to be issued by any court of
competent jurisdiction enjoining and restraining Employee from committing any
violation of this Agreement, and Employee hereby consents to the issuance of
such injunction.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by a duly authorized officer and Employee has executed this Agreement as of the
day and year first above written.
THE NEW MILFORD BANK & TRUST COMPANY
Dated: 1/17/96 By: /s/ Jack Straub
--------------------------- ---------------------------------
Its: Chairman
Dated: 1/17/96 /s/ Michael D. Carrigan
---------------------------- ---------------------------------
Michael D. Carrigan
11
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 17th day of January,
1996, by and between The New Milford Bank & Trust Company, a Connecticut bank
and trust company with its principal office and place of business at 55 Main
Street, New Milford, Connecticut 06776 (the "Bank"), and Jay C. Lent, residing
at 9 Heather Court, Woodbury, Connecticut 06798 ("Employee").
WITNESSETH:
WHEREAS, Employee has been and continues to be employed by the Bank in a
management capacity;
WHEREAS; Employee is willing to continue to work for the Bank on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual terms herein contained, the
parties hereto, intending to be legally bound, do hereby mutually covenant and
agree as follows:
I. EMPLOYMENT.
The Bank agrees to employ Employee for the Term of Employment, as such term
is defined in Section 2.6 hereof, in the same position that Employee holds on
the date of this Agreement, and Employee accepts such employment and agrees to
serve in such capacity upon the terms and conditions hereinafter set forth.
II. DEFINITIONS.
The following terms shall have the following meanings:
2.1 "Cause," shall mean:
(a) Employee's breach of his obligations under this Agreement, if
such breach shall not have been cured by Employee within thirty
(30) days after Employee's receipt from the Bank of written
notice of a claimed breach; or
(b) willful misconduct by Employee, including, but not limited to,
the commission by Employee of a felony or the perpetration by
Employee of common law fraud upon the Bank; or
<PAGE>
(c) violation by Employee of one or more federal or state banking
laws, including regulations promulgated thereunder, which,
considered separately or together, is deemed to be a significant
violation, the existence and significance of such violation or
violations to be determined in good faith by the Board of
Directors of the Bank (the "Board") after consultation with
counsel; such determination need not await final adjudication of
an alleged violation or violations by the applicable federal or
state bank regulatory agency (collectively, "Bank Regulators");
or
(d) conduct by Employee which is subject to criticism by Bank
Regulators and which criticism the Board, after consultation with
counsel, deems in good faith to adversely affect the Bank,
including the Bank's standing with Bank Regulators; or
(e) Failure To Adhere To Performance and Conduct Criteria, as defined
below; or
(f) prior to a Change-in-Control, as defined below, such other
conduct as may constitute cause under the laws of Connecticut.
2.2 A "Change-in-Control" shall be deemed to have occurred with
respect to the Bank if any "Person," as defined in Section 2.5, has acquired
beneficial ownership or effective control of the Bank. A Person shall be deemed
to have acquired beneficial ownership or effective control if:
(a) the Person directly or indirectly or acting through one (1) or
more other Persons beneficially owns, controls, or has power to
vote twenty-five percent (25%) or more of the voting common stock
of the Bank; or
(b) the Person acquires or agrees to acquire all or substantially all
of the assets and business of the Bank; or
(c) the Person controls the election of a majority of the directors
of the Bank; or
(d) the Board of Directors of the Bank determines that the Person
directly or indirectly exercises a controlling influence over the
management or policies of the Bank; or
(e) the Person (i) is a party to a merger, consolidation, or any
other form of reorganization having substantially the same effect
as a merger or consolidation with the Bank, and (ii) immediately
prior to such transaction the Person had total assets as of the
end of its most recent fiscal year equal to or greater than
twenty percent (20%) of
2
<PAGE>
the total assets of the Bank as of the end of its most recent
fiscal year.
Notwithstanding the foregoing, a "Change-in-Control" shall not be
deemed to have occurred if (i) a majority of the directors of the Bank in office
prior to the events described in (a), (b), or (c) above shall so vote not later
than thirty (30) days following the event, and (ii) Employee shall so agree in
writing. Beneficial ownership shall be determined under the provisions of
Securities Exchange Act Rule 13d-3, (17 C.F.R. & 240.13d-3) as in effect on the
date of this Agreement.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Failure To Adhere To Performance and Conduct Criteria" shall mean
failure by Employee to adhere to performance and conduct guidelines set forth by
the CEO and/or the Board, from time to time; and further that the Employee, in
the sole and good faith opinion of the Board, had not adequately corrected such
failure within 30 days after Employee's receipt from the Board and/or the CEO of
written notice that he has failed to adhere to such guidelines.
2.5 A "Person" shall mean a natural person, corporation, or other
entity. When two (2) or more Persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding, or disposing of
the Bank common stock, such partnership, syndicate, or group shall be considered
a Person.
2.6 "Term of Employment" shall mean the period commencing as of the
date of this Agreement and ending on December 31, 1996; provided, however, the
Term of Employment shall automatically be extended to the next subsequent 31st
day of December if the Board has not advised Employee in writing prior to 30
days of the expiration date of each such Term of Employment that the Term of
Employment shall not be so extended. For example, if the Board of Directors has
not advised Employee by November 30, 1996 that the Term of Employment will not
be extended beyond December 31, 1996; then the Term of Employment shall
automatically be extended until December 31, 1997; if the Board of Directors has
not advised Employee by November 30, 1997 that the Term of Employment will not
be extended beyond December 31, 1997, then the Term of Employment shall
automatically be extended until December 31, 1998. Notwithstanding anything to
the contrary, the term of employment shall not be extended beyond December 31,
1998.
III. DUTIES OF EMPLOYMENT.
3.1 The Bank hereby employs Employee and Employee hereby accepts such
employment as Executive Vice President and Chief Financial Officer of the Bank
during the Term of Employment upon the terms and conditions set forth herein.
During the Term of Employment Employee will serve as Executive Vice President
and Chief Financial Officer of the Bank and will perform such other duties
commensurate with his position as Executive Vice President and Chief Financial
Officer as the CEO and/or the Board may assign to him. Employee agrees that
during the Term of Employment, he will apply, in good faith and on a full-time
basis (allowing for usual vacations and absence due to sickness), all of his
skill and experience to the performance of his
3
<PAGE>
duties in such employment, and will adhere, in good faith, to the laws and
regulations of federal and state banking regulatory agencies which may be
promulgated from time to time. It is understood that Employee may have other
business investments or directorships which may, from time to time, require
minor portions of his time, but which shall not interfere or be inconsistent
with his duties hereunder.
IV. COMPENSATION AND BENEFITS DURING TERM OF EMPLOYMENT.
4.1 The Bank shall pay Employee during the Term of Employment
$125,000.00 per annum paid on a monthly basis, with such increases as provided
in Section 4.2 below, as salary (the "Salary"). The Bank may also pay such bonus
compensation ("Bonus Compensation") as may be determined by the Board of
Directors of the Bank in its sole discretion.
4.2 If this Agreement is extended pursuant to Section 2.6 above, the
Salary for such extension period, or periods, as the case may be, will be
determined by the Board of Directors in its sole discretion.
4.3 Employee shall be entitled to participate in any plan of the Bank
relating to stock options, stock purchases, pensions, thrift, profit sharing,
group life insurance, health, dental and disability coverage, education, or
other retirement or employee benefits that the Bank has adopted or may adopt for
the benefit of its employees. Employee shall also be entitled to participate in
any other fringe benefits which are now or may become applicable to the Bank's
employees and any other benefits which are commensurate with the duties and
responsibilities to be performed by Employee under this Agreement.
4.4 The Bank will reimburse Employee for necessary and reasonable
business expenses related to the business of the Bank incurred by him in the
performance of his duties hereunder. Employee will be entitled to such
reimbursement upon providing to the Bank appropriate documentation or receipts
reflecting any such business expenses.
4.5 Employee will be entitled to four weeks of paid vacation during
each calendar year during the Term of Employment hereof, to be taken at such
times as shall not unreasonably interfere with or impede the operation of the
Bank.
4.6 During the Term of this Agreement, the Bank will provide Employee
with the use of a 1995 Ford Explorer. When the vehicle is 36 months old or has
been driven 50,000 miles, whichever comes first, the Bank will eliminate use of
the vehicle. Instead, the Employee will be given a car allowance, pursuant to
the car policy then in effect.
V. TERMINATION OF EMPLOYMENT.
5.1 If Employee's employment is unilaterally terminated by the Bank
during the Term of Employment for any reason other than (i) Cause, (ii)
permanent and total disability (as defined in Section 22(e) of the Code) or
death, or (iii) in connection with or within one year after a Change-
In-Control, Employee shall be entitled to receive, and the Bank shall be
obligated
4
<PAGE>
to pay to Employee, severance pay in an amount equal to the greater of (A)
Employee's Salary as defined in Section 4.1 for the number of months remaining
in the Term of Employment, or (B) an amount equal to the then current monthly
portion of Employee's Salary multiplied by the number (not to exceed 12) of
years, or part thereof, Employee has been employed by the Bank, or (C)
Employee's Salary for a period of six months.
5.2 In addition to the severance payment described in Section 5.1 that
is payable to Employee, the following shall apply in the event of any
termination without Cause or in the event of any termination subject to Section
5.3 hereof: (1) Employee shall continue to receive life, health, dental and
disability coverage substantially equivalent to the coverage maintained by the
Bank for Employee prior to termination for a period of six months; provided the
Bank continues to provide such coverage to its executive officers; (2) and all
insurance or other provisions for indemnification or defense of officers or
directors of the Bank which are in effect on the date of termination of Employee
shall continue for the benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation which may be applicable to such acts or omissions,
provided the Bank continues to provide such coverage to its executive officers
and directors.
5.3 If during the Term of Employment there is a Change-In-Control and
Employee's employment is terminated voluntarily for Good Reason, as defined in
Section 5.4, or involuntarily for a reason other than Cause, in connection with
or within one year after a Change-in-Control, Employee shall be entitled to
receive a cash severance as provided for in this Section unless such termination
occurs by virtue of normal retirement, permanent and total disability (as
defined in Section 22(e) of the Code) or death. Subject to Section 5.4 below,
the amount of the severance payment shall equal (i) one times Employee's average
annual Salary which was payable by the Bank and was includable by Employee in
his gross income for federal income tax purposes with respect to the five most
recent taxable years of Employee ending prior to such Change-in-Control (or such
portion of such period during which Employee was a full-time employee of the
Bank), less (ii) one dollar. In addition, Section 5.2 shall apply in the case of
any termination of employment within the scope of this Section 5.3.
5.4 "Good Reason" shall be deemed to have occurred if Employee
terminates any of the following reasons:
(a) without Employee's express written consent, the assignment
to Employee of any duties inconsistent with Employee's
positions, duties, responsibilities and status with the Bank
immediately before a Change-In-Control, or a change in
Employee's reporting, responsibilities, titles or offices as
in effect immediately before a Change-In-Control, or any
removal of Employee from, or any failure to re-elect
Employee to, any of such positions, except in connection
with the termination of Employee's employment as a result of
permanent and total disability (as defined in Section 22(e)
of the Code) or death;
5
<PAGE>
(b) a reduction in Employee's Salary in effect immediately
before a Change-In-Control;
(c) the failure of the Person substantially to maintain and to
continue Employee's participation in the benefit plans as in
effect immediately before a Change-in-Control, of the taking
of any action which would materially reduce the Employee's
benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee immediately
before a Change-In-Control;
(d) the change of Employee's principal place of employment to a
location more than 25 miles from Employee's current
principal place of employment.
5.5 Notwithstanding any other provisions of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
by Employee with the Bank (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
the Bank for the direct or indirect provision of compensation to Employee
(including groups or classes of participants or beneficiaries of which Employee
is a member), whether or not such compensation is deferred, is in cash, or is in
the form of a benefit to or for Employee (a "Benefit Plan"), Employee shall not
have any right to receive any payment or other benefit under this Agreement, any
Other Agreement, and all Benefit Plans, which would cause any such payment to
Employee to be considered a "parachute payment" within the meaning of Section
280G(b)(2) of the Code (a "Parachute Payment"). In the event that the receipt of
any such payment or benefit under this Agreement, any Other Agreement, or any
Benefit Plan would cause Employee to be considered to have received a Parachute
Payment, then Employee shall have the right, in Employee's sole discretion to
designate those payments or benefits under this Agreement, any Other Agreements,
and/or any Benefit Plans, which should be reduced or eliminated so as to avoid
having the payment to Employee under this Agreement be deemed to be a Parachute
Payment. In the event that there is a dispute between the parties as to whether
a reduction in such payments to Employee is required to prevent such payment
from constituting a Parachute Payment, the parties agree that they shall be
bound by the determination of such matter by a partner resident in Hartford or
Stamford, Connecticut of one of the following accounting firms selected by the
Bank (or such other firm as shall be mutually agreed upon by the parties):
Coopers & Lybrand LLP; Deloitte & Touche LLP; Ernst & Young LLP; or Price
Waterhouse LLP. In the event that Employee would otherwise be deemed to have
received an amount that would constitute a Parachute Payment, the amount paid to
him that exceeds the maximum amount permissible under this Section 5 shall be
treated as a loan to him and shall be repaid, with interest, to the extent
necessary to reduce the amount paid to the maximum permissible amount. The
interest rate and other terms of any such loan shall conform to terms that would
be applicable to loans of similar unsecured type made by the Bank to third
parties and to all regulatory requirements. Any such loan shall be repaid in
full six months after the date on which the Bank notifies Employee that a loan
relationship exists, and may be repaid by Employee without prepayment penalty at
any time during such six month period.
6
<PAGE>
5.6 Employee shall have no duty to mitigate damages in the event of a
termination under the terms of Sections 5.1 and 5.4, and, if he voluntarily
obtains other employment (including self-employment), any compensation or
profits received or accrued, directly or indirectly, from such other employment
shall not reduce or otherwise affect the obligations of the Bank to make
payments hereunder, except as provided in Section 5.3.
5.7 If the employment of Employee shall terminate at a time other than
during the Term of Employment, or is said employment shall terminate for Cause,
as defined in Section 2.1 hereof, or if Employee shall unilaterally terminate
his employment other than in connection with a Change-In- Control for Good
Reason, all payments that would have been due to Employee under the Agreement on
or after the date of such termination shall cease, and the Bank shall have no
further obligations under this Agreement other than for amounts accrued but not
paid as of the date of such termination.
5.8 As a condition of receiving any severance payments or benefits in
this Section 5.1 through 5.5, Employee must enter into a "release agreement"
with terms acceptable to the Bank or Person, releasing any and all legal claims
the Employee had, has or may have against the Bank or Person.
VI. OTHER BENEFITS.
6.1 If Employee shall become disabled or incapacitated to the extent
that Employee is unable to perform Employee's duties and responsibilities
hereunder, Employee shall be entitled to receive disability benefits of the type
provided for other executive employees of the Bank.
VII. EXPENSES.
7.1 Employee shall be entitled to recover any and all reasonable fees
and costs and expenses, including but not limited to, attorneys' fees in the
event employee is successful in asserting or defending any claim, arising out of
Employee's efforts to enforce any and all of the provisions of this Agreement.
7.2 Employer shall be entitled to recover any and all reasonable fees
and costs and expenses, including but not limited to, attorneys' fees in the
event Employer is successful in asserting or defending any claim, arising out of
Employer's efforts to enforce any and all of the provisions of this Agreement.
VIII. CONFIDENTIAL INFORMATION.
Employee understands that in the course of his employment by the Bank,
Employee will receive Confidential Information (as hereafter defined) concerning
the business of the Bank which the Bank desires to protect. Employee agrees that
he will not at any time during or after the Term of Employment reveal to anyone
(except for the Bank employees who have a need to know such information in the
course of their employment) or use for his own benefit any Confidential
Information, without specific written authorization by the Bank. This Section
applies
7
<PAGE>
to all information obtained by Employee in the course of his employment unless
such information is or becomes publicly known or known in the banking community
generally prior to any disclosure thereof by Employee. Upon termination of
employment for any reason, Employee shall return promptly to the Bank at its
direction and expense any and all copies, either prepared by the Bank or
Employee, of the records, materials, memorandums and other data constituting
Confidential Information. As used in this Agreement, the term "Confidential
Information" shall mean all business information of any nature and in any form
which at the time or times concerned is proprietary to the Bank and regarded as
such by it and which is not generally known to persons not employed by the Bank
or who are members of its Board (except for information disclosed by the act or
acts of a person not authorized by the Bank to disclose such information) and
which relates to any one or more of the aspects of the present or past business
of the Bank including, but not limited to, proposed acquisitions, proposed
branches, development projects, policies or other facts relating to financial
matters, customers, customers' lists and customers' financial needs.
IX. PROPRIETARY RIGHTS.
9.1 Employee acknowledges that his services and responsibilities are
of particular significance to the Bank and that his position with Bank has
given, and will give him a close knowledge of its policies and trade secrets.
Employee covenants and agrees that he will not, for a period of twelve months
from the date of the termination of his employment with the Bank (i) solicit or
accept as customers or otherwise provide services to any present customer or
former customer of the Bank, (ii) in any manner attempt to induce any customers
of the Bank to withdraw their accounts or business from the Bank or to induce
any prospective customer to not become a customer, (iii) induce or encourage any
employee of the Bank to terminate such employee's employment, or (iv) make any
disparaging comment or statement, orally or in writing, regarding the Bank or
its employees or take any action or make any other comment or statement that may
harm the reputation or business of the Bank.
9.2 For purposes of this Agreement, "present customer", "former
customer" shall be defined in the following manner:
A "present customer" of the Bank is a Person with whom the Bank
has a business relationship on the date of termination of
Employee's employment.
A "former customer" of the Bank is a Person with whom the Bank
has no business relationship at the time of the termination of
Employee's employment, but has had such a relationship within the
one-year period ending on the date of termination of Employee's
employment.
9.3 Employee agrees that he shall not, for a period of one year
following his employment with the Bank, either directly or indirectly as agent,
stockholder, employee, officer, director, trustee, partner, proprietor or
otherwise engage in, render advice or assistance to or be employed on a
compensation basis by any person, firm or entity which is in competition with
the Bank. This paragraph shall only apply where such person, firm or entity has
its principal office within 15 miles of New Milford, Connecticut, or Danbury,
Connecticut; or where the office of
8
<PAGE>
Employee is situated, or Employee's primary geographic areas of responsibility
will be located within 15 miles of New Milford, Connecticut, or Danbury,
Connecticut.
9.4 The time periods referred to in Sections 9(1) and (2) above shall
each be extended by the amount of time that Employee fails to comply with his
obligations under Section 9, whether due to the issuance of a temporary
restraining order or injunction or otherwise.
9.5 In addition to any damages or other remedies to which the Bank may
be entitled by virtue of any breach of the covenants and agreements in Section 8
or 9 hereof, Employee acknowledges that any such breach would cause irreparable
harm to the Bank and consents to the granting of injunctive and other equitable
relief to the Bank. Employee shall also pay all costs, including reasonable
attorney's fees, incurred by the Bank in seeking any such remedy or in
connection with the Bank otherwise enforcing its rights under this Agreement.
Any damages against Employee, which shall include, without limitation, any
amounts received as compensation or in any other capacity by Employee from any
third party as a result of or in connection with the breach of Employee's
obligations under this Agreement, may be applied as a set-off against any amount
owed to Employee by the Bank.
X. OTHER DUTIES OF EMPLOYEE DURING AND AFTER THE TERM OF EMPLOYMENT
Both during and after the Term of Employment, Employee shall, upon
reasonable notice furnish such information as may be in his possession to, and
cooperate with, the Bank as may reasonably be requested by the Bank in
connection with any litigation in which the Bank is, or may become, a party. The
Bank shall reimburse Employee for all of the reasonable expenses incurred by him
in fulfilling his obligation under this Section 10 (except that no such expenses
shall be paid to Employee with respect to any litigation or proceeding commenced
by Employee or as to which Employee is otherwise a party).
XI. NOTICES.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person to Employee or if the Bank, to the
Chairman of the Board of the Bank or CEO, or if sent, postage prepaid, certified
mail, return receipt requested, or by recognized overnight delivery service, as
follows:
If to Employee, as follows: Jay C. Lent
9 Heather Court
Woodbury, Connecticut 06798
If to the Bank, as follows: The New Milford Bank & Trust Company
55 Main Street
New Milford, Connecticut 06776-2400
Attention: Jack W. Straub, Chairman or
Michael D. Carrigan, President & CEO
9
<PAGE>
or to such other address or addresses as hereafter shall be designated by notice
given in accordance with this Section by either of the parties hereto to the
other party.
XII. SUCCESSORS AND ASSIGN.
The rights and obligations of the Bank under this Agreement shall
inure to the benefit of and shall be binding upon the Bank's successors and
assigns, including, without limitation, any Person which may acquire all or
substantially all of the assets and business of the Bank, or with or into which
the Bank may be consolidated or merged or any surviving corporation in any
merger involving the Bank. All references in this Agreement to the Bank shall be
deemed to include all of its successors and assigns.
XIII. ARBITRATION.
If any dispute arises between the parties hereto, the Employee's sole
recourse will be to submit such claim to binding arbitration in the City of
Waterbury, Connecticut in accordance with the Commercial Rules of the American
Arbitration Association.
Prior to submitting a dispute to arbitration, the Employee shall first
submit such dispute to the Bank's Board of Directors for a period of up to three
months in an effort to resolve such dispute without resort to arbitration.
During such three month period, both the Employee and the Bank agree to make a
good faith effort to resolve the dispute amicably and to make arbitration
unnecessary.
If the dispute concerns the termination of the Employee's employment,
or the severance and benefits to which the Employee is entitled upon the
termination, at arbitration, the only issue before the arbitrator will be to
determine the nature of the Employee's termination (i.e., whether for cause,
without cause, or in a situation subject to Section 5.3, whether Employee had
Good Reason to voluntarily terminate his employment). Based on the arbitrator's
determination of the nature of the Employee's termination, the arbitrator may
award the appropriate severance payments and, if applicable, benefits, provided
under this Agreement.
XIV. SEVERABILITY.
If any of the terms and conditions of this Agreement shall be declared
void or unenforceable by any court or administrative body of competent
jurisdiction, such term or condition shall be deemed severable from the
remainder of this Agreement, and the other terms and conditions of this
Agreement shall continue to be valid and enforceable except that if any
provision of the release agreement is declared illegal or unenforceable as the
result of efforts by the Employee, or his agent, or Employee brings a claim
against any of the released entities released in that release agreement,
Employee will return to the Bank any consideration he has received in exchange
for entering into the release agreement.
10
<PAGE>
XV. OTHER AGREEMENTS.
This Agreement supersedes any and all prior written or oral employment
agreements between the Bank and Employee or between Employee and any predecessor
of the Bank.
XVI. CONSTRUCTION.
This Agreement shall be construed under the laws of the State of
Connecticut. Section headings are for convenience only and shall not be
considered a part of the terms and provisions of this Agreement. No
modifications of or amendments to this Agreement may be made except in writing
signed by the Bank and Employee. All references to gender shall, as the case may
be, refer to either the male or female gender.
XVII. MISCELLANEOUS PROVISIONS.
17.1 The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed a waiver of any subsequent breach
thereof.
17.2 Employee hereby acknowledges that the services to be rendered
hereunder are of a unique, special and extraordinary character which would be
difficult or impossible for the Bank to replace, and by reason thereof, Employee
hereby agrees that for violation of any of the provisions of this Agreement, the
Bank shall, in addition to any other rights and remedies available hereunder, at
law or otherwise, be entitled to an injunction to be issued by any court of
competent jurisdiction enjoining and restraining Employee from committing any
violation of this Agreement, and Employee hereby consents to the issuance of
such injunction.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by a duly authorized officer and Employee has executed this Agreement as of the
day and year first above written.
THE NEW MILFORD BANK & TRUST COMPANY
Dated: 1/19/96 By: /s/ Jack Straub
--------------------------- ---------------------------------
Its: Chairman
Dated: 1/19/96 /s/ Jay C. Lent
---------------------------- ---------------------------------
Jay C. Lent
11
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 17th day of January, 1996, by
and between THE NEW MILFORD BANK & TRUST COMPANY, a Connecticut bank and trust
company with its principal office and place of business at 55 Main Street, New
Milford, Connecticut 06776 (the "Bank"), and PETER R. MAHER, residing at 116
Brushy Hill Road, Newtown, Connecticut 06470-2548 ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been and continues to be employed by the Bank in
a management capacity;
WHEREAS, Employee is willing to continue to work for the Bank on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual terms herein contained,
the parties hereto, intending to be legally bound, do hereby mutually covenant
and agree as follows:
I. EMPLOYMENT.
The Bank agrees to employ Employee for the Term of Employment, as such
term is defined in Section 2.6 hereof, in the same position that Employee holds
on the date of this Agreement, and Employee accepts such employment and agrees
to serve in such capacity upon the terms and conditions hereinafter set forth.
II. DEFINITIONS.
The following terms shall have the following meanings:
2.1 "Cause," shall mean:
(a) Employee's breach of his obligations under this Agreement,
if such breach shall not have been cured by Employee within
thirty (30) days after Employee's receipt from the Bank of
written notice of a claimed breach; or
(b) willful misconduct by Employee, including, but not limited
to, the commission by Employee of a felony or the
perpetration by Employee of common law fraud upon the Bank;
or
<PAGE>
(c) violation by Employee of one or more federal or state
banking laws, including regulations promulgated thereunder,
which, considered separately or together, is deemed to be a
significant violation, the existence and significance of
such violation or violations to be determined in good faith
by the Board of Directors of the Bank (the "Board") after
consultation with counsel; such determination need not await
final adjudication of an alleged violation or violations by
the applicable federal or state bank regulatory agency
(collectively, "Bank Regulators"); or
(d) conduct by Employee which is subject to criticism by Bank
Regulators and which criticism the Board, after consultation
with counsel, deems in good faith to adversely affect the
Bank, including the Bank's standing with Bank Regulators; or
(e) Failure To Adhere To Performance and Conduct Criteria, as
defined below; or
(f) prior to a Change-in-Control, as defined below, such other
conduct as may constitute cause under the laws of
Connecticut.
2.2 A "Change-in-Control" shall be deemed to have occurred with
respect to the Bank if any "Person," as defined in Section 2.5, has acquired
beneficial ownership or effective control of the Bank. A Person shall be deemed
to have acquired beneficial ownership or effective control if:
(a) the Person directly or indirectly or acting through one (1)
or more other Persons beneficially owns, controls, or has
power to vote twenty-five percent (25%) or more of the
voting common stock of the Bank; or
(b) the Person acquires or agrees to acquire all or
substantially all of the assets and business of the Bank; or
(c) the Person controls the election of a majority of the
directors of the Bank; or
(d) the Board of Directors of the Bank determines that the
Person directly or indirectly exercises a controlling
influence over the management or policies of the Bank; or
(e) the Person (i) is a party to a merger, consolidation, or any
other form of reorganization having substantially the same
effect as a merger or consolidation with the Bank, and (ii)
immediately prior to such transaction the Person had total
assets as of the end of its most recent fiscal year equal to
or greater than twenty percent (20%) of the total assets of
the Bank as of the end of its most recent fiscal year.
2
<PAGE>
Notwithstanding the foregoing, a "Change-in-Control" shall not be
deemed to have occurred if (i) a majority of the directors of the Bank in office
prior to the events described in (a), (b),or (c) above shall so vote not later
than thirty (30) days following the event, and (ii) Employee shall so agree in
writing. Beneficial ownership shall be determined under the provisions of
Securities Exchange Act Rule 13d-3, (17 C.F.R. & 240. 13d-3) as in effect on the
date of this Agreement.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Failure To Adhere To Performance and Conduct Criteria" shall mean
failure by Employee to adhere to performance and conduct guidelines set forth by
the CEO and/or the Board, from time to time; and further that the Employee, in
the sole and good faith opinion of the Board, had not adequately corrected such
failure within 30 days after Employee's receipt from the Board and/or the CEO of
written notice that he has failed to adhere to such guidelines.
2.5 A "Person" shall mean a natural person, corporation, or other
entity. When two (2) or more Persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding, or disposing of
the Bank common stock, such partnership, syndicate, or group shall be considered
a Person.
2.6 "Term of Employment" shall mean the period commencing as of the
date of this Agreement and ending on December 31, 1996; provided, however, the
Term of Employment shall automatically be extended to the next subsequent 31st
day of December if the Board has not advised Employee in writing prior to 30
days of the expiration date of each such Term of Employment that the Term of
Employment shall not be so extended. For example, if the Board of Directors has
not advised Employee by November 30, 1996 that the Term of Employment will not
be extended beyond December 31, 1996; then the Term of Employment shall
automatically be extended until December 31, 1997; if the Board of Directors has
not advised Employee by November 30, 1997 that the Term of Employment will not
be extended beyond December 31 1997, then the Term of Employment shall
automatically be extended until December 31, 1998. Notwithstanding anything to
the contrary, the term of employment shall not be extended beyond December 31,
1998.
III. DUTIES OF EMPLOYMENT.
3.1 The Bank hereby employs Employee and Employee hereby accepts such
employment as Executive Vice President and Chief Lending Officer of the Bank
during the Term of Employment upon the terms and conditions set forth herein.
During the Term of Employment Employee will serve as Executive Vice President
and Chief Lending Officer of the Bank and will perform such other duties
commensurate with his position as Executive Vice President and Chief Lending
Officer as the CEO and/or the Board may assign to him. Employee agrees that
during the Term of Employment, he will apply, in good faith and on a full-time
basis (allowing for usual vacations and absence due to sickness), all of his
skill and experience to the performance of his duties in such employment, and
will adhere, in good faith, to the laws and regulations of federal
3
<PAGE>
and state banking regulatory agencies which may be promulgated from time to
time. It is understood that Employee may have other business investments or
directorships which may, from time to time, require minor portions of his time,
but which shall not interfere or be inconsistent with his duties hereunder.
IV. COMPENSATION AND BENEFITS DURING TERM OF EMPLOYMENT.
4.1 The Bank shall pay Employee during the Term of Employment
$100,000.00 per annum paid on a monthly basis, with such increases as provided
in Section 4.2 below, as salary (the "Salary"). The Bank may also pay such bonus
compensation ("Bonus Compensation") as may be determined by the Board of
Directors of the Bank in its sole discretion.
4.2 If this Agreement is extended pursuant to Section 2.6 above, the
Salary for such extension period, or periods, as the case may be, will be
determined by the Board of Directors in its sole discretion.
4.3 Employee shall be entitled to participate in any plan of the Bank
relating to stock options, stock purchases, pensions, thrift, profit sharing,
group life insurance, health, dental and disability coverage, education, or
other retirement or employee benefits that the Bank has adopted or may adopt for
the benefit of its employees. Employee shall also be entitled to participate in
any other fringe benefits which are now or may become applicable to the Bank's
employees and any other benefits which are commensurate with the duties and
responsibilities to be performed by Employee under this Agreement.
4.4 The Bank will reimburse Employee for necessary and reasonable
business expenses related to the business of the Bank incurred by him in the
performance of his duties hereunder. Employee will be entitled to such
reimbursement upon providing to the Bank appropriate documentation or receipts
reflecting any such business expenses.
4.5 Employee will be entitled to four weeks of paid vacation during
each calendar year during the Term of Employment hereof, to be taken at such
times as shall not unreasonably interfere with or impede the operation of the
Bank.
4.6 During the Term of this Agreement, the Bank will provide Employee
with the use of a 1995 Ford Explorer. When the vehicle is 36 months old or has
been driven 50,000 miles whichever comes first, the Bank will eliminate the use
of the vehicle. Instead, the Employee will be given a car allowance, pursuant to
the car policy then in effect.
V. TERMINATION OF EMPLOYMENT.
5.1 If Employee's employment is unilaterally terminated by the Bank
during the Term of Employment for any reason other than (i) Cause, (ii)
permanent and total disability (as defined in Section 22(e) of the Code) or
death, or (in) in connection with or within one year after a Change-In-Control,
Employee shall be entitled to receive, and the Bank shall be obligated to pay
4
<PAGE>
to Employee, severance pay in an amount equal to the greater of (A) Employee's
Salary as defined in Section 4.1 for the number of months remaining in the Term
of Employment, or (B) an amount equal to the then current monthly portion of
Employee's Salary multiplied by the number (not to exceed 12) of years, or part
thereof, Employee has been employed by the Bank, or (C) Employee's Salary for a
period of six months.
5.2 In addition to the severance payment described in Section 5.1 that
is payable to Employee, the following shall apply in the event of any
termination without Cause or in the event of any termination subject to Section
5.3 hereof: (1) Employee shall continue to receive life, health, dental and
disability coverage substantially equivalent to the coverage maintained by the
Bank for Employee prior to termination for a period of six months; provided the
Bank continues to provide such coverage to its executive officers; (2) and all
insurance or other provisions for indemnification or defense of officers or
directors of the Bank which are in effect on the date of termination of Employee
shall continue for the benefit of Employee with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation which may be applicable to such acts or omissions,
provided the Bank continues to provide such coverage to its executive officers
and directors.
5.3 If during the Term of Employment there is a Change-In-Control and
Employee's employment is terminated voluntarily for Good Reason, as defined in
Section 5.4, or involuntarily for a reason other than Cause, in connection with
or within one year after a Change-In-Control, Employee shall be entitled to
receive a cash severance as provided for in this Section unless such termination
occurs by virtue of normal retirement, permanent and total disability (as
defined in Section 22(e) of the Code) or death. Subject to Section 5.4 below,
the amount of the severance payment shall equal (i) one times Employee's average
annual Salary which was payable by the Bank and was includable by Employee in
his gross income for federal income tax purposes with respect to the five most
recent taxable years of Employee ending prior to such Change-In-Control (or such
portion of such period during which Employee was a full-time employee of the
Bank), less (II) one dollar. In addition, Section 5.2 shall apply in the case of
any termination of employment within the scope of this Section 5.3.
5.4 "Good Reason" shall be deemed to have occurred if Employee
terminates any of the following reasons:
(a) without Employee's express written consent, the assignment
to Employee of any duties inconsistent with Employee's
positions, duties, responsibilities and status with the Bank
immediately before a Change-In-Control, or a change in
Employee's reporting, responsibilities, titles or offices as
in effect immediately before a Change-In-Control, or any
removal of Employee from, or any failure to re-elect
Employee to, any of such positions, except in connection
with the termination of Employee's employment as a result of
permanent and total disability (as defined in Section 22(e)
of the Code) or death;
5
<PAGE>
(b) a reduction in Employee's Salary in effect immediately
before a Change-In-Control;
(c) the failure of the Person substantially to maintain and to
continue Employee's participation in the benefit plans as in
effect immediately before a Change-In-Control, of the taking
of any action which would materially reduce the Employee's
benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee immediately
before a Change-In-Control;
(d) the change of Employee's principal place of employment to a
location more than 25 miles from Employee's current
principal place of employment.
5.5 Notwithstanding any other provisions of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
by Employee with the Bank (the "Other Agreements"), and notwithstanding any
formal or informal plan or other arrangement heretofore or hereafter adopted by
the Bank for the direct or indirect provision of compensation to Employee
(including groups or classes of participants or beneficiaries of which Employee
is a member), whether or not such compensation is deferred, is in cash, or is in
the form of a benefit to or for Employee (a "Benefit Plan"), Employee shall not
have any right to receive any payment or other benefit under this Agreement, any
Other Agreement, and all Benefit Plans, which would cause any such payment to
Employee to be considered a "parachute payment" within the meaning of Section
28OG(b)(2) of the Code (a "Parachute Payment"). In the event that the receipt of
any such payment or benefit under this Agreement, any Other Agreement, or any
Benefit Plan would cause Employee to be considered to have received a Parachute
Payment, then Employee shall have the right, in Employee's sole discretion to
designate those payments or benefits under this Agreement, any Other Agreements,
and/or any Benefit Plans, which should be reduced or eliminated so as to avoid
having the payment to Employee under this Agreement be deemed to be a Parachute
Payment. In the event that there is a dispute between the parties as to whether
a reduction in such payments to Employee is required to prevent such payment
from constituting a Parachute Payment, the parties agree that they shall be
bound by the determination of such matter by a partner resident in Hartford or
Stamford, Connecticut of one of the following accounting firms selected by the
Bank (or such other firm as shall be mutually agreed upon by the parties):
Coopers & Lybrand LLP; Deloitte & Touche LLP; Ernst & Young LLP; or Price
Waterhouse LLP. In the event that Employee would otherwise be deemed to have
received an amount that would constitute a Parachute Payment, the amount paid to
him that exceeds the maximum amount permissible under this Section 5 shall be
treated as a loan to him and shall be repaid, with interest, to the extent
necessary to reduce the amount paid to the maximum permissible amount. The
interest rate and other terms of any such loan shall conform to terms that would
be applicable to loans of similar unsecured type made by the Bank to third
parties and to all regulatory requirements. Any such loan shall be repaid in
full six months after the date on which the Bank notifies Employee that a loan
relationship exists, and may be repaid by Employee without prepayment penalty at
any time during such six month period.
6
<PAGE>
5.6 Employee shall have no duty to mitigate damages in the event of a
termination under the terms of Sections 5.1 and 5.4, and, if he voluntarily
obtains other employment (including self-employment), any compensation or
profits received or accrued, directly or indirectly, from such other employment
shall not reduce or otherwise affect the obligations of the Bank to make
payments hereunder, except as provided in Section 5.3.
5.7 If the employment of Employee shall terminate at a time other than
during the Term of Employment, or is said employment shall terminate for Cause,
as defined in Section 2.1 hereof, or if Employee shall unilaterally terminate
his employment other than in connection with a Change-In-Control for Good
Reason, all payments that would have been due to Employee under the Agreement on
or after the date of such termination shall cease, and the Bank shall have no
further obligations under this Agreement other than for amounts accrued but not
paid as of the date of such termination.
5.8 As a condition of receiving any severance payments or benefits in
this Section 5.1 through 5.5, Employee must enter into a "release agreement"
with terms acceptable to the Bank or Person, releasing any and all legal claims
the Employee had, has or may have against the Bank or Person.
VI. OTHER BENEFITS.
6.1 If Employee shall become disabled or incapacitated to the extent
that Employee is unable to perform Employee's duties and responsibilities
hereunder, Employee shall be entitled to receive disability benefits of the type
provided for other executive employees of the Bank.
VII. EXPENSES.
7.1 Employee shall be entitled to recover any and all reasonable fees
and costs and expenses, including but not limited to, attorneys' fees in the
event employee is successful in asserting or defending any claim, arising out of
Employee's efforts to enforce any and all of the provisions of this Agreement.
7.2 Employer shall be entitled to recover any and all reasonable fees
and costs and expenses, including but not limited to, attorneys' fees in the
event Employer is successful in asserting or defending any claim, arising out of
Employer's efforts to enforce any and all of the provisions of this Agreement.
VIII CONFIDENTIAL INFORMATION.
Employee understands that in the course of his employment by the Bank,
Employee will receive Confidential Information (as hereafter defined) concerning
the business of the Bank which the Bank desires to protect. Employee agrees that
he will not at any time during or after the Term of Employment reveal to anyone
(except for the Bank employees who have a need to know such information in the
course of their employment) or use for his own benefit any
7
<PAGE>
Confidential Information, without specific written authorization by the Bank.
This Section applies to all information obtained by Employee in the course of
his employment unless such information is or becomes publicly known or known in
the banking community generally prior to any disclosure thereof by Employee.
Upon termination of employment for any reason, Employee shall return promptly to
the Bank at its direction and expense any and all copies, either prepared by the
Bank or Employee, of the records, materials, memorandums and other data
constituting Confidential Information. As used in this Agreement, the term
"Confidential Information" shall mean all business information of any nature and
in any form which at the time or times concerned is proprietary to the Bank and
regarded as such by it and which is not generally known to persons not employed
by the Bank or who are members of its Board (except for information disclosed by
the act or acts of a person not authorized by the Bank to disclose such
information) and which relates to any one or more of the aspects of the present
or past business of the Bank including, but not limited to, proposed
acquisitions, proposed branches, development projects, policies or other facts
relating to financial matters, customers , customers' lists and customers'
financial needs.
IX PROPRIETARY RIGHTS.
9.1 Employee acknowledges that his services and responsibilities are
of particular significance to the Bank and that his position with Bank has
given, and will give him a close knowledge of its policies and trade secrets.
Employee covenants and agrees that he will not, for a period of twelve months
from the date of the termination of his employment with the Bank (i) solicit or
accept as customers or otherwise provide services to any present customer or
former customer of the Bank, (ii) in any manner attempt to induce any customers
of the Bank to withdraw their accounts or business from the Bank or to induce
any prospective customer to not become a customer, (iii) induce or encourage any
employee of the Bank to terminate such employee's employment, or (iv) make any
disparaging comment or statement, orally or in writing, regarding the Bank or
its employees or take any action or make any other comment or statement that may
harm the reputation or business of the Bank.
9.2 For purposes of this Agreement, "present customer", "former
customer" shall be defined in the following manner:
A "present customer" of the Bank is a Person with whom the Bank has a
business relationship on the date of termination of Employee's employment.
A "former customer" of the Bank is a Person with whom the Bank has no
business relationship at the time of the termination of Employee's employment,
but has had such a relationship within the one-year period ending on the date of
termination of Employee's employment.
9.3 Employee agrees that he shall not, for a period of one year
following his employment with the Bank, either directly or indirectly as agent,
stockholder, employee, officer, director, trustee, partner, proprietor or
otherwise engage in, render advice or assistance to or be employed on a
compensation basis by any person, firm or entity which is in competition with
the
8
<PAGE>
Bank. This paragraph shall only apply where such person, firm or entity has its
principal office within 15 miles of New Milford, Connecticut, or Danbury,
Connecticut; or where the office of Employee is situated, or Employee's primary
geographic areas of responsibility will be located within 15 miles of New
Milford, Connecticut, or Danbury, Connecticut.
9.4 The time periods referred to in Sections 9(1) and (2) above shall
each be extended by the amount of time that Employee fails to comply with his
obligations under Section 9, whether due to the issuance of a temporary
restraining order or injunction or otherwise.
9.5 In addition to any damages or other remedies to which the Bank may
be entitled by virtue of any breach of the covenants and agreements in Section 8
or 9 hereof, Employee acknowledges that any such breach would cause irreparable
harm to the Bank and consents to the granting of injunctive and other equitable
relief to the Bank. Employee shall also pay all costs, including reasonable
attorney's fees, incurred by the Bank in seeking any such remedy or in
connection with the Bank otherwise enforcing its rights under this Agreement.
Any damages against Employee, which shall include, without limitation, any
amounts received as compensation or in any other capacity by Employee from any
third party as a result of or in connection with the breach of Employee's
obligations under this Agreement, may be applied as a set-off against any amount
owed to Employee by the Bank.
X. OTHER DUTIES OF EMPLOYEE DURING AND AFTER THE TERM OF EMPLOYMENT.
Both during and after the Term of Employment, Employee shall, upon
reasonable notice furnish such information as may be in his possession to, and
cooperate with, the Bank as may reasonably be requested by the Bank in
connection with any litigation in which the Bank is, or may become, a party. The
Bank shall reimburse Employee for all of the reasonable expenses incurred by him
in fulfilling his obligation under this Section 10 (except that no such expenses
shall be paid to Employee with respect to any litigation or proceeding commenced
by Employee or as to which Employee is otherwise a party).
XI. NOTICES.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person to Employee or if the Bank, to the
Chairman of the Board of the Bank or CEO, or if sent, postage prepaid, certified
mail, return receipt requested, or by recognized overnight delivery service, as
follows:
If to Employee, as follows: Peter R. Maher
116 Brushy Hill Road
Newtown, Connecticut 06470-2548
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Bank, as follows: The New Milford Bank & Trust Company
55 Main Street
New Milford, Connecticut 06776-2400
Attention: Jack W. Straub, Chairman or
Michael D. Carrigan, President & CEO
</TABLE>
or to such other address or addresses as hereafter shall be designated by notice
given in accordance with this Section by either of the parties hereto to the
other party.
XII. SUCCESSORS AND ASSIGNS.
The rights and obligations of the Bank under this Agreement shall
inure to the benefit of and shall be binding upon the Bank's successors and
assigns, including, without limitation, any Person which may acquire all or
substantially all of the assets and business of the Bank, or with or into which
the Bank may be consolidated or merged or any surviving corporation in any
merger involving the Bank. All references in this Agreement to the Bank shall be
deemed to include all of its successors and assigns.
XIII. ARBITRATION.
If any dispute arises between the parties hereto, the Employee's sole
recourse will be to submit such claim to binding arbitration in the City of
Waterbury, Connecticut in accordance with the Commercial Rules of the American
Arbitration Association.
Prior to submitting a dispute to arbitration, the Employee shall first
submit such dispute to the Bank's Board of Directors for a period of up to three
months in an effort to resolve such dispute without resort to arbitration.
During such three month period, both the Employee and the Bank agree to make a
good faith effort to resolve the dispute amicably and to make arbitration
unnecessary.
If the dispute concerns the termination of the Employee's employment,
or the severance and benefits to which the Employee is entitled upon the
termination, at arbitration, the only issue before the arbitrator will be to
determine the nature of the Employee's termination (i.e., whether for cause,
without cause, or in a situation subject to Section 5.3, whether Employee had
Good Reason to voluntarily terminate his employment). Based on the arbitrator's
determination of the nature of the Employee's termination, the arbitrator may
award the appropriate severance payments and, if applicable, benefits, provided
under this Agreement.
XIV. SEVERABILITY.
If any of the terms and conditions of this Agreement shall be declared
void or unenforceable by any court or administrative body of competent
jurisdiction, such term or condition shall be deemed severable from the
remainder of this Agreement, and the other terms and conditions of this
Agreement shall continue to be valid and enforceable except that if any
provision of the release agreement is declared illegal or unenforceable as the
result of efforts by
10
<PAGE>
the Employee, or his agent, or Employee brings a claim against any of the
released entities released in that release agreement, Employee will return to
the Bank any consideration he has received in exchange for entering into the
release agreement.
XV. OTHER AGREEMENTS.
This Agreement supersedes any and all prior written or oral employment
agreements between the Bank and Employee or between Employee and any predecessor
of the Bank.
XVI. CONSTRUCTION.
This Agreement shall be construed under the laws of the State of
Connecticut. Section headings are for convenience only and shall not be
considered a part of the terms and provisions of this Agreement. No
modifications of or amendments to this Agreement may be made' except in writing
signed by the Bank and Employee. All references to gender shall, as the case may
be, refer to either the male or female gender.
XVII. MISCELLANEOUS PROVISIONS.
17.1 The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed a waiver of any subsequent breach
thereof.
17.2 Employee hereby acknowledges that the services to be rendered
hereunder are of a unique, special and extraordinary character which would be
difficult or impossible for the Bank to replace, and by reason thereof, Employee
hereby agrees that for violation of any of the provisions of this Agreement, the
Bank shall, in addition to any other rights and remedies available hereunder, at
law or otherwise, be entitled to an injunction to be issued by any court of
competent jurisdiction enjoining and restraining Employee from committing any
violation of this Agreement, and Employee hereby consents to the issuance of
such injunction.
11
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by a duly authorized officer and Employee has executed this Agreement as of the
day and year first above written.
THE NEW MILFORD BANK & TRUST COMPANY
Dated: 1/19/96 By: /s/ Jack Straub
--------------------------- ---------------------------------
Its: Chairman
Dated: 1/19/96 /s/ Peter R. Maher
---------------------------- ---------------------------------
Peter R. Maher
12
Exhibit 11
Statement of Computation of Per Share Earnings
None.
Exhibit 12
Statements re: Computation of Ratios
None.
EXHIBIT 21
Subsidiary of Registrant
New Milford Bank and Trust Company is the only wholly-owned subsidiary
of the Registrant.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001046520
<NAME> zex@7ndf
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 17,855
<INT-BEARING-DEPOSITS> 6,135
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,240
<INVESTMENTS-CARRYING> 35,521
<INVESTMENTS-MARKET> 35,611
<LOANS> 211,686
<ALLOWANCE> 3,212
<TOTAL-ASSETS> 305,545
<DEPOSITS> 266,161
<SHORT-TERM> 6,885
<LIABILITIES-OTHER> 2,255
<LONG-TERM> 7,679
0
0
<COMMON> 2,681
<OTHER-SE> 19,884
<TOTAL-LIABILITIES-AND-EQUITY> 305,545
<INTEREST-LOAN> 16,534
<INTEREST-INVEST> 3,554
<INTEREST-OTHER> 212
<INTEREST-TOTAL> 20,300
<INTEREST-DEPOSIT> 7,255
<INTEREST-EXPENSE> 7,994
<INTEREST-INCOME-NET> 12,306
<LOAN-LOSSES> 390
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,385
<INCOME-PRETAX> 3,171
<INCOME-PRE-EXTRAORDINARY> 3,171
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,792
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 4,025
<LOANS-PAST> 236
<LOANS-TROUBLED> 264
<LOANS-PROBLEM> 4,525
<ALLOWANCE-OPEN> 3,553
<CHARGE-OFFS> 660
<RECOVERIES> 129
<ALLOWANCE-CLOSE> 3,212
<ALLOWANCE-DOMESTIC> 3,212
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
* Allowance-Open, Allowance-Close and Allowance-Domestic include $200
liability for losses from off-balance sheet credit instruments and other
credit exposures.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001046520
<NAME> zex@7ndf
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 17,914
<INT-BEARING-DEPOSITS> 5,555
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,653
<INVESTMENTS-CARRYING> 37,447
<INVESTMENTS-MARKET> 37,193
<LOANS> 211,524
<ALLOWANCE> 3,310
<TOTAL-ASSETS> 310,516
<DEPOSITS> 270,172
<SHORT-TERM> 6,597
<LIABILITIES-OTHER> 2,672
<LONG-TERM> 8,276
0
0
<COMMON> 2,681
<OTHER-SE> 20,172
<TOTAL-LIABILITIES-AND-EQUITY> 22,853
<INTEREST-LOAN> 4,309
<INTEREST-INVEST> 1,038
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 5,400
<INTEREST-DEPOSIT> 1,928
<INTEREST-EXPENSE> 2,153
<INTEREST-INCOME-NET> 3,247
<LOAN-LOSSES> 125
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,493
<INCOME-PRETAX> 1,061
<INCOME-PRE-EXTRAORDINARY> 1,061
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001046520
<NAME> zex@7ndf
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 21,616
<INT-BEARING-DEPOSITS> 6,335
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,438
<INVESTMENTS-CARRYING> 35,679
<INVESTMENTS-MARKET> 35,803
<LOANS> 219,984
<ALLOWANCE> 3,460
<TOTAL-ASSETS> 323,324
<DEPOSITS> 282,918
<SHORT-TERM> 3,637
<LIABILITIES-OTHER> 2,484
<LONG-TERM> 10,672
0
0
<COMMON> 2,690
<OTHER-SE> 20,960
<TOTAL-LIABILITIES-AND-EQUITY> 323,324
<INTEREST-LOAN> 8,762
<INTEREST-INVEST> 2,133
<INTEREST-OTHER> 153
<INTEREST-TOTAL> 11,048
<INTEREST-DEPOSIT> 3,942
<INTEREST-EXPENSE> 4,394
<INTEREST-INCOME-NET> 6,654
<LOAN-LOSSES> 245
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,102
<INCOME-PRETAX> 2,227
<INCOME-PRE-EXTRAORDINARY> 2,227
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,331
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001046520
<NAME> zex@7ndf
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 18,749
<INT-BEARING-DEPOSITS> 9,095
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,119
<INVESTMENTS-CARRYING> 34,536
<INVESTMENTS-MARKET> 34,930
<LOANS> 219,847
<ALLOWANCE> 3,597
<TOTAL-ASSETS> 330,218
<DEPOSITS> 280,523
<SHORT-TERM> 8,975
<LIABILITIES-OTHER> 2,657
<LONG-TERM> 13,605
0
0
<COMMON> 2,694
<OTHER-SE> 21,764
<TOTAL-LIABILITIES-AND-EQUITY> 330,218
<INTEREST-LOAN> 13,277
<INTEREST-INVEST> 3,349
<INTEREST-OTHER> 193
<INTEREST-TOTAL> 16,819
<INTEREST-DEPOSIT> 6,039
<INTEREST-EXPENSE> 6,775
<INTEREST-INCOME-NET> 10,044
<LOAN-LOSSES> 455
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,538
<INCOME-PRETAX> 3,480
<INCOME-PRE-EXTRAORDINARY> 3,480
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,096
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 4.72
<LOANS-NON> 2,824
<LOANS-PAST> 123
<LOANS-TROUBLED> 261
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,412
<CHARGE-OFFS> 188
<RECOVERIES> 118
<ALLOWANCE-CLOSE> 3,797
<ALLOWANCE-DOMESTIC> 3,797
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
* Allowance-Open, Allowance-Close and Allowance-Domestic include $200
liability for losses from off-balance sheet credit instruments and other
credit exposures.
</FN>
</TABLE>
Exhibit 99
Additional Exhibits
Exhibit 99.1
Annual Report and Form F-2 for fiscal year ended December 31, 1996
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON D.C. 20429
----------------------
FORM F-2
----------------------
ANNUAL REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
For the fiscal year ended December 31, 1996
FDIC Certificate No. 21977-1
THE NEW MILFORD BANK & TRUST COMPANY
-------------------------------------------
(Exact name of bank as specified in its
charter)
CONNECTICUT
------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
06-0914281
--------------------------------------
(I.R.S. Employer Identification No.)
55 MAIN STREET, NEW MILFORD, CONNECTICUT
----------------------------------------
(Address of principal office)
06776-2400
-------------------
(ZIP Code)
(860) 355-1171
--------------------------------------------
(Bank's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK
-----------------
(Title of class)
<PAGE>
Indicate by check mark if the bank, as a "small business issuer" as
defined under 17 CFR 240.12b-2, is providing alternative disclosures as
permitted for small business issuers in this Form F-2. [ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 10 is not contained herein, and will not be contained, to the best of
bank's knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form F-2 or any amendment of this Form F-2. [ X ]
Indicate by check mark whether the bank (1) has filed all reports
required to be filed by section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that NMBT was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES _X_ NO ____
The aggregate market value of the voting stock held by nonaffiliates of
NMBT as of March 12, 1997 was: $27,639,125.
The number of shares of NMBT's common stock outstanding as of March 12,
1997 was: 2,588,058 shares, $1.00 par value.
Listed hereunder are documents incorporated by reference and the parts of Form
F-2 into which the documents are incorporated:
(1) Annual Report to Stockholders for the fiscal year ended
December 31, 1996 - PART I (Items 1 and 3) & PART II
(2) Proxy Statement for Annual Meeting on May 27, 1997 - PART I
(Item 4) & PART III.
2
<PAGE>
PART I
Item 1. Business.
General:
The New Milford Bank & Trust Company (NMBT), headquartered in New
Milford, Connecticut, is a state-chartered bank and trust company founded in
1975. NMBT's principal business is to provide full banking services to
individuals and businesses in western Connecticut. Deposits are insured up to
applicable limits by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (FDIC). NMBT's lending activities consist of originating loans
collateralized by residential and commercial properties, and extending
collateralized and uncollateralized loans to consumers and businesses. NMBT
serves its market through a network of nine banking offices located in New
Milford, Kent, Bridgewater, New Fairfield and Danbury. NMBT's primary regulators
are the FDIC and the State of Connecticut Department of Banking. NMBT is
authorized to transact general banking business pursuant to the powers set forth
in the Connecticut General Statutes. NMBT is not offering trust services at this
time.
NMBT's primary service area includes the towns of New Milford,
Bridgewater, Kent, Danbury and New Fairfield; its secondary service area
includes the towns of Bethel, Brookfield, Newtown, Roxbury, Sherman, Southbury,
Warren, Washington and Woodbury.
While NMBT's business is not seasonal, the populations of a number of
the towns in its service areas increase substantially in the summer months,
requiring some additional personnel to handle the increased volume of
transactions during these months.
NMBT has no subsidiaries and no operations other than conventional
banking operations and has no foreign branches.
3
<PAGE>
Competition:
NMBT's Main Office and four of its branch offices are located in
Litchfield County, Connecticut. The remaining four branch offices are located in
Fairfield County, Connecticut. Both Counties are located in the western portion
of Connecticut bordering the State of New York. Within this market area, NMBT
encounters competition in its banking business from many other financial
institutions offering comparable products. These competitors include other
commercial banks (both locally based independent banks and local offices of
regional banks and major New York and Boston based banks) , as well as mutual
and stock savings banks, savings and loan associations, credit unions, mortgage
banking companies, and loan production offices of out-of-state banks. In
addition, NMBT experiences competition in marketing some of its services from
local and national insurance companies and brokerage firms.
Employees:
As of December 31, 1996, NMBT employed a total of 128 fulltime and 46
part-time employees. (154 employees on a full-time equivalent basis.) NMBT is an
equal opportunity employer. NMBT provides a variety of benefit plans including
group life, accident, medical, dental and retirement plans to its employees.
Government Policies and Economic' Controls:
The U.S. federal and state governments may enact laws and amendments to
existing laws to regulate further the banking and financial services industries
or to reduce finance charges or other fees or charges applicable to such
activities. NMBT is subject to such legislative and
4
<PAGE>
administrative developments. Accordingly, there can be no assurance as to
whether any legislation or regulations will be adopted in the U.S. or its
political subdivisions, or in any other jurisdiction in which NMBT operates,
that may adversely affect NMBT's financial position or results of its
operations.
The earnings and growth of the banking industry and NMBT are affected
by general economic conditions, as well as by the credit policies of monetary
authorities, including the Federal Reserve System. An important function of the
Federal Reserve System is to regulate the national supply of bank credit to
combat recession and curb inflationary pressures. Its policies are used in
varying combinations to influence overall growth of bank loans, investments and
deposits and may also affect interest rates charged on loans or paid for
deposits.
In view of changing conditions in the national economy and the money
markets, as well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or their effects
on the business and earnings of NMBT.
Additional information required to be disclosed in this Item 1 is set
forth in NMBT's 1996 Annual Report to Stockholders (an Exhibit to this F-2) and
is incorporated herein by reference.
Item 2. Properties.
NMBT's main office is located at 55 Main Street, in New Milford,
Connecticut. NMBT has eight other offices, all in Connecticut, all with
Automatic Teller Machine facilities, and all being full service branch offices,
located at:
186 Danbury Road in New Milford;
100 Park Lane Road in New Milford;
5
<PAGE>
45 North Main Street in Kent;
29 Main Street South in Bridgewater;
105 Mill Plain Road in Danbury;
100 Route 37 in New Fairfield;
30 Germantown Road in Danbury; and
30 Main Street in Danbury.
NMBT's Main Office is located on The Green in New Milford in a two
story building. Owned by NMBT, this facility has eight interior and three
drive-in teller stations and parking for approximately thirty automobiles.
NMBT's executive offices are in this facility. There are no encumbrances on this
facility.
NMBT's South Seven Office at 186 Danbury Road, in New Milford, which
opened in July, 1982, is located in a two story building and has a floor area of
approximately 2,950 square feet. Leased by NMBT for a fifteen year term, which
expires in 1997, this facility has six interior and two drive-in teller stations
and parking for approximately twenty-two automobiles. NMBT pays its pro rata
share of real estate taxes and other municipal charges assessed against the
facility.
NMBT's Park Lane Office at 100 Park Lane Road in New Milford, which
opened in February, 1988, is located in a 21,000 square foot office building
built and owned by NMBT. This facility has eight interior and three drive-in
teller stations and parking for approximately 100 automobiles. This building
also includes NMBT's administrative, data processing and operations departments.
There are no encumbrances on this facility.
NMBT's Kent Office at 45 North Main Street in Kent is located in a two
story building and has a floor area of approximately 1,800 square feet. This
facility opened for business in July, 1983. NMBT's current lease term on this
facility runs until 1998, and NMBT has one fifteen year
6
<PAGE>
renewal option. This facility has five interior and two drive-in teller stations
and parking for approximately twenty-two automobiles. NMBT pays its pro rata
share of real estate taxes and other municipal charges assessed each year
against the facility.
NMBT's Bridgewater Office at 29 Main Street South in Bridgewater, in a
small shopping center, opened for business in February, 1985. The lease was
renewed in February, 1995 for a five year term. NMBT pays its pro rata share of
taxes and other center expenses. This facility has three indoor teller stations
and shares a parking area with other center tenants.
NMBT's Mill Plain Office at 105 Mill Plain Road in Danbury, which
opened in August, 1992, is located in a two story contemporary office building.
The branch floor area consists of approximately 2,500 square feet, with an
additional 2,500 square feet leased in the lower level. Leased by NMBT for a
five year term, with one five year renewal option, this facility has 5 interior
teller stations, 2 drive-in teller stations and parking for approximately
thirty-five automobiles. NMBT pays its pro rata share of taxes and other
municipal charges assessed each year against the facility.
NMBT's Candlewood Office at 100 Route 37 in New Fairfield was formerly
the Main office of Candlewood Bank and Trust Company (Candlewood). NMBT
succeeded Candlewood as the lessee as part of NMBT's acquisition of that
institution on April 29, 1994. The office is located in a two story office
building and has a floor area of approximately 5,500 square feet. This facility
has six interior teller stations, two drive-in teller stations and shares
parking facilities with other building tenants. The current lease expires
September 30, 2006. NMBT pays its pro rata share of taxes assessed against the
facility.
NMBT's Germantown Office at 30 Germantown Road in Danbury was formerly
the branch office of Candlewood and the lease for this office was also assumed
as part of the
7
<PAGE>
acquisition. This office is located in the Germantown Plaza Shopping Center and
has a floor area of approximately 1,800 square feet. This facility has four
interior teller stations, one drive-in teller station and shares parking spaces
with other Center tenants. The present lease term expires in 2005 but may be
renewed for one additional five year term. NMBT pays its pro rata share of the
Center's taxes and other expenses.
NMBT's Danbury Towers Office at 30 Main Street, Danbury, opened April
26, 1995. This full service branch is located in a five story contemporary
office building called the Danbury Executive Towers, and has a floor area of
approximately 3,700 square feet. Subleased by NMBT until December, 1999, this
facility has 5 interior teller stations, 2 drive-in teller stations, 15 parking
spaces reserved for customers and shares additional available parking spaces
with other Towers tenants. NMBT pays its pro rata share of taxes and other
municipal charges assessed against the facility.
Item 3. Legal Proceedings.
The information required by this Item is set forth in NMBT's 1996
Annual Report to Stockholders (an Exhibit to this F-2), on page 34, and is
incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is set forth in a definitive proxy
statement (to be filed under Section 335.204(c)) and is incorporated herein by
reference.
8
<PAGE>
PART II
Item 5. Market for NMBT's Common Stock and Related Security Holder Matters.
The information required by this Item is set forth in NMBT's 1996
Annual Report to Stockholders (an Exhibit to this F-2), on pages 1, 12, 19, 20,
24, 25, 26, 28, 31, 32 and 35, and is incorporated herein by reference.
Item 6. Selected Financial Data.
The information required by this Item is set forth in NMBT's 1996 Annual
Report to Stockholders (an Exhibit to this F-2), on page 12, and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information required by this Item is set forth in NMBT's 1996 Annual
Report to Stockholders (an Exhibit to this F-2), on pages 13 through 21, Note 4
on pages 29 and 30 and Note 7 on page 31, and is incorporated herein by
reference, and on Statistical Disclosure Tables appended to this F-2 Report.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is set forth in NMBT's 1996 Annual
Report to Stockholders (an Exhibit to this F-2), on pages 22 through 35, and is
incorporated herein by reference.
9
<PAGE>
PART III
Item 9. Directors and Executive Officers of NMBT.
The information required by this Item is set forth in a definitive proxy
statement (to be filed under Section 335.204(c)) and is incorporated herein by
reference.
Item 10. Management Compensation and Transactions.
The information required by this Item is set forth in a definitive proxy
statement (to be filed under Section 335.204(c)) and is incorporated herein by
reference.
10
<PAGE>
PART IV
Item 11. Exhibits, Financial Statements, Schedules, and Reports on Form F-3.
A. Financial Statements and Schedules
The following financial statements of NMBT included in the Annual Report of
NMBT to its stockholders for the year ended December 31, 1996 are incorporated
herein by reference:
Statements of Condition - December 31, 1996 and 1995
Statements of Operations - Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity - Years Ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
The following financial information is submitted herewith:
Schedule II - Loans to Officers, Directors, Principal Security Holders and
Any Associates of the Foregoing Persons .......... page 2 of Exhibit (5)
The information required on Schedules I, III, IV and VI is included in the
financial statements or notes thereto.
Schedule V, for which provision is made in the applicable accounting
regulations of the Federal Deposit Insurance Corporation, has been omitted
because it is inapplicable.
B. Reports on Form F-3 - (Fourth Quarter of 1996)
---------------------------------------------
None
C. Exhibits
(1) Employment Agreement between NMBT and Michael D. Carrigan dated
January 17, 1996.
(2) Employment Agreement between NMBT and Jay C. Lent dated January 17,
1996.
11
<PAGE>
(3) Employment Agreement between NMBT and Peter R. Maher dated January 17,
1996.
(4) Bank's 1996 Annual Report to Stockholders.
(5) DELOITTE & TOUCHE LLP Independent Auditors' Report on financial
statement schedule listed in Item 11(A).
Pursuant to the requirements of section 13 of the Securities Exchange Act
of 1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE NEW MILFORD BANK & TRUST COMPANY
Dated: March 12, 1997 By /s/ Michael D. Carrigan
------------------------------------
Michael D. Carrigan
Its President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following on behalf of the registrant and in
the capacities and as of the dates indicated.
/s/ Jack W. Straub Director March 12, 1997
- ------------------------------
Jack W. Straub
Chief Financial Officer,
/s/ Jay C. Lent Executive Vice President,
- ------------------------------- and Secretary March 12, 1997
Jay C. Lent
/s/ Deborah L. Fish Vice President,
- ------------------------------- Treasurer March 12, 1997
Deborah L. Fish
/s/ Kevin L. Dumas
- ------------------------------- Director March 12, 1997
Kevin L. Dumas
12
<PAGE>
/s/ Louis A. Funk, Jr.
- ------------------------------- Director March 12, 1997
Louis A. Funk, Jr.
/s/ Lawrence Greenhaus
- ------------------------------- Director March 12, 1997
Lawrence Greenhaus
/s/ Ruth Henderson
- ------------------------------- Director March 12, 1997
Ruth Henderson
/s/ Robert W. X. Martin
- ------------------------------- Director March 12, 1997
Robert W. X. Martin
/s/ Terry C. Pellegrini
- ------------------------------- Director March 12, 1997
Terry C. Pellegrini
/s/ Walter G. Southworth
- ------------------------------- Director March 12, 1997
Walter G. Southworth
/s/ Harry H. Taylor, Jr.
- ------------------------------- Director March 12, 1997
Harry H. Taylor, Jr.
/s/ Edward E. Tierney
- ------------------------------- Director March 12, 1997
Edward E. Tierney
/s/ Arthur C. Weinshank
- ------------------------------- Director March 12, 1997
Arthur C. Weinshank
13
<PAGE>
ANNUAL REPORT ON FORM F-2
ITEM 11 (A)
FINANCIAL STATEMENTS AND SCHEDULES
YEAR ENDED DECEMBER 31, 1996
THE NEW MILFORD BANK & TRUST COMPANY
INSTRUCTION 7 TO ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATISTICAL DISCLOSURE TABLES
YEAR ENDED DECEMBER 31, 1996
Page
Table II - Securities Portfolio 14
Table III - Loan Portfolio 15
Table IV - Summary of Loan Loss Experience 16
Table V - Deposits 17
Table VII - Short-Term Borrowings 18
14
<PAGE>
TABLE II. SECURITIES PORTFOLIO
The following table sets forth the carrying value of securities at the dates
indicated:
- --------------------------------------------------------------------------------
December 31,
--------------------------------------
1996 1995 1994
--------- -------------- ---------
(In thousands)
U.S. Treasuries, Agencies
and Corporations $ 23,702 $ 18,504 $ 26,395
Mortgage-backed securities $ 29,512 16,622 10,862
Obligations of states and
political subdivisions 8,785 3,166 303
-------- -------- --------
Total securities,
at amortized cost 61,999 38,292 37,560
Federal Home Loan Bank stock 1,542 1,542 1,542
Unrealized gain (loss)
on securities available
for sale 220 372 (243)
-------- -------- --------
Total Carrying value
of securities $ 63,761 $ 40,206 $ 38,859
======== ======== ========
- --------------------------------------------------------------------------------
15
<PAGE>
The following table sets forth the maturities of securities, using amortized
cost amounts, at December 31, 1996, and the weighted average yield of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security). Tax-equivalent adjustments (using
a 34% rate) have been made in calculating yields on obligations of states and
political subdivisions.
<TABLE>
<CAPTION>
Maturity or Expected Principal Repayment
----------------------------------------------------------------------------------------
After One After Five
Within but Within Five but Within After Ten
One Year Years Ten Years Years
------------------- -------------------- -------------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
---------- -------- ---------- --------- ---------- -------- ---------- -------
(Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Treasuries,
Agencies and $ 4,495 6.64% $13,032 6.27% $ 6,175 7.44% $ -
Corporations
Mortgage-backed 6,397 7.30% 18,165 7.18% $4,491 6.75% 459 6.71%
securities1
States and
political - 1,760 6.67% 7,025 7.04% -
subdivisions
--------- ---------- ---------- ---------
Total $10,892 7.10% $32,957 6.88% $17,691 7.09% $459 6.71%
======= ===== ======= ===== ======= ===== ==== =====
</TABLE>
(1) The maturity or expected principal repayment periods for mortgage-backed
securities are based on expected average lives rather than contractual
terms, factoring in scheduled amortization and estimated prepayment
activity on the underlying mortgages. Prepayments were estimated based on
interest rate levels existing at year-end 1996. Lower interest rates would
be expected to lead to higher prepayment levels and a shorter distribution
of principal cash flows, while higher interest rates would be expected to
lead to lower prepayment levels and a longer distribution of cash flows.
================================================================================
16
<PAGE>
The following table shows NMBT's loan distribution at the end of each of the
last five years:
TABLE III. LOAN PORTFOLIO
December 31,
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- --------
(In thousands)
Collateralized by
residential
properties $138,442 $136,067 $129,743 $105,436 $101,550
Collateralized
by commercial
properties 46,044 41,815 43,603 26,711 28,910
Construction
and development 5,999 4,891 3,333 3,000 4,642
Commercial and
industrial 13,203 11,917 10,932 5,946 6,473
Installment and
education 7,129 2,641 2,548 2,278 2,927
Cash reserve and
credit cards 870 840 807 830 1,042
-------- -------- -------- -------- --------
TOTAL LOANS $211,687 $198,171 $190,966 $144,201 $145,544
======== ======== ======== ======== ========
================================================================================
17
<PAGE>
The following tables show the maturity and repricing data for fixed and floating
rate loans outstanding as of December 31, 1996 and 1995:
- --------------------------------------------------------------------------------
Fixed rate loans:
- ----------------
December 31,
Remaining Maturity 1996 1995
- ------------------
-------- --------
(In thousands)
Three months or less $ 2,049 $ 453
Over three months through 12 months 522 1,319
Over one year through five years 13,546 6,629
Over five years 32,772 29,932
-------- --------
Total fixed rate loans 48,889 38,333
-------- --------
Floating rate loans:
- --------------------
December 31,
Repricing Frequency 1996 1995
- ------------------- -------- --------
(In thousands)
Quarterly or more frequently 54,190 48,547
Annually or more frequently but less
frequently than quarterly 83,835 97,313
Every five years or more frequently, but
less frequently than annually 20,200 9,455
Less frequently than every five years 548 --
-------- --------
Total floating rate loans 158,773 155,315
-------- --------
Total nonaccrual loans 4,025 4,523
-------- --------
TOTAL LOANS $211,687 $198,171
-------- --------
================================================================================
18
<PAGE>
TABLE IV. SUMMARY OF LOAN LOSS EXPERIENCE
This table summarizes NMBT's loan loss experience for each of the five years
ended December 31, 1996:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- ------------- --------------- -------------- ------------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1 $3,553 $3,965 $3,769 $4,901 $1,475
Charge-offs:
Real estate loans 614 796 1,095 1,358 989
Installment loans 11 12 4 10 16
Commercial loans 4 13 198 66 288
Other loans 31 28 15 31 39
-------------- ------------- --------------- -------------- ------------
660 849 1,312 1,465 1,332
Recoveries
Real estate loans 99 222 42 127 22
Installment loans 2 1 2 4 5
Commercial loans 26 53 30 44 34
Other loans 2 1 2 3 1
-------------- ------------- --------------- -------------- ------------
129 277 76 178 62
-------------- ------------- --------------- -------------- ------------
Net charge-offs 531 572 1,236 1,287 1,270
Allowance acquired
from Candlewood - - 1,192 - -
Additions charged
to operations 390 160 240 155 4,696
Transfer to liability
for estimated losses
from off-balance sheet
credit instruments 200 - - - -
-------------- ------------- --------------- -------------- ------------
Balance at December 31 $3,212 $3,553 $3,965 $3,769 $4,901
-------------- ------------- --------------- -------------- ------------
Ratio of net loan losses
to total loans 0.25% 0.29% 0.65% 0.89% 0.87%
====================================================================================================================
</TABLE>
19
<PAGE>
TABLE V. DEPOSITS
The average daily amount of deposits and weighted average rates paid on such
deposits is summarized for the periods indicated in the following table:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
----------------------------- ------------------------------ ------------------------------
Average Weighted Average Weighted Average Weighted
Daily Average Daily Average Daily Average
Amount Rate Amount Rate Amount Rate
------------ ------------ ------------ -------------- ------------ --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-
bearing:
Demand $ 28,681 $ 22,605 $ 19,294
Interest-
bearing:
Checking and
Savings 135,714 2.02% 134,331 2.17% 132,051 1.79%
Time 84,423 5.35% 75,924 5.22% 56,115 3.88%
------------ ------------ ------------
Total $248,818 $232,860 $207,460
============ ============ ============
=======================================================================================================================
</TABLE>
Remaining maturities of time certificates of deposit, of $100,000 or more, all
of which have fixed rates, are summarized as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Remaining Maturities:
December 31, 1996
----------------------------
(In thousands)
<S> <C>
Three months or less $ 5,358
Over three months through 12 months 4,623
Over one year 2,426
---------
Total $ 12,407
=========
======================================================================================================================
</TABLE>
20
<PAGE>
TABLE VII. SHORT-TERM BORROWINGS
Advances from Federal Home Loan Bank of Boston were as follows:
- --------------------------------------------------------------------------------
December 31,
-------------------------------------------
Maturity Date Rate 1996 1995 1994
- --------------------- ----------- ------------ ----------------- -------
(Dollars in thousands)
January 3, 1995 6.65% $ - $ - $ 7,304
January 30, 1997 5.46% 4,200 - -
June 9, 1997 6.11% 1,685 - -
June 11, 1997 6.09% 1,000 - -
November 1, 1999 6.05% 3,412 - -
June 11, 2001 7.03% 550 - -
June 19, 2001 6.65% 3,717 - -
--------- ----------------- --------
$ 14,564 - $ 7,304
========= ================= ========
================================================================================
- --------------------------------------------------------------------------------
Years ended December 31,
------------------------------------------
1996 1995 1994
--------- ----------------------- --------
(Dollars in thousands)
Maximum amount outstanding
during period: $ 26,058 $ 13,359 $ 10,000
Average amount outstanding
during period: $ 12,272 $ 2,958 $ 3,265
Average interest rate: 5.92% 6.38% 5.55%
================================================================================
21
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
55 MAIN STREET, NEW MILFORD, CONNECTICUT 06776-2400
NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS
TO BE HELD
MAY 27, 1997,
PROXY STATEMENT
AND
PROSPECTUS
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. ACCORDINGLY, WE
URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE PROXY AS SOON AS POSSIBLE IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
RETURNING YOUR PROXY DOES NOT DEPRIVE YOU OF YOUR RIGHT TO ATTEND THE MEETING
AND TO VOTE YOUR SHARES IN PERSON.
- --------------------------------------------------------------------------------
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
55 MAIN STREET, NEW MILFORD, CONNECTICUT 06776-2400
May 2, 1997
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend
the Annual Meeting of Stockholders of The New Milford Bank & Trust Company
("NMBT") which will be held at the Park Lane Office, 100 Park Lane, New Milford,
Connecticut on Tuesday, May 27, 1997, at 7:00 P.M. local time. We look forward
to seeing as many stockholders as possible at this meeting.
As many of you may already know, I have stepped down as Chairman of the
Board effective in January, 1997. However, I will remain an active director
until my last term ends in 1998. The Board has unanimously appointed Louis A.
Funk, Jr. as the new Chairman. Lou brings a great deal of business and banking
experience to the position. He was the chairman of Candlewood Bank and Trust
Company prior to our merger with them in 1994.
This year's meeting is especially important. In addition to the usual
matters to be voted upon, which include the election of directors and the
appointment of the independent auditors, we are also asking you to consider and
vote upon what is referred to in the accompanying proxy statement as the
AGREEMENT AND PLAN OF REORGANIZATION, which provides for the reorganization of
NMBT as a subsidiary of a newly-formed holding company ("NMBT CORP"). PLEASE BE
ASSURED WE ARE NOT BEING ACQUIRED. The accompanying proxy statement also
constitutes a prospectus for the shares of common stock of NMBT CORP which will
be exchanged for shares of common stock of NMBT which will be held by NMBT CORP.
Also note this will not require any action on your part, other than to vote on
the matter as indicated on the proxy card. We strongly urge you to vote for the
holding company as two-thirds of the shares are required for approval.
During the past year, the Board of Directors of NMBT initiated the
examination of a possible reorganization of NMBT into a holding company
structure. The Board considered issues such as the tax and regulatory aspects of
such a restructuring, the costs of forming a holding company, and the ability of
NMBT to expand through acquisitions. The Board unanimously determined that it
would be in the best interest of NMBT and its stockholders to restructure NMBT
into a holding company structure. The advantages of a holding company include:
o The ability to acquire additional businesses and banks while preserving local
identity;
o The ability to make certain smaller acquisitions without shareholder
approval;
o The opportunity to engage in new business ventures closely related
to banking;
o Additional flexibility with respect to the capitalization and
financing of NMBT;
o Access to a broader range of investors; and
o Tax advantages by virtue of the consolidated tax rules as they relate to
holding companies.
The aforementioned advantages of a holding company structure clearly
outweigh the modest cost of establishing the holding company, including the
ongoing filing requirements and regulatory oversight.
Your vote is very important regardless of the amount of stock you own.
We hope you will attend the meeting, but whether or not you plan to be with us,
please sign and return the enclosed proxy card as soon as possible so that your
shares will be represented.
Sincerely,
/s/ Jack W. Straub
JACK W. STRAUB
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
55 MAIN STREET, NEW MILFORD, CONNECTICUT 06776-2400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 27, 1997
------------------
To the Stockholders of The New Milford Bank & Trust Company ("NMBT"):
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NMBT will
be held on Tuesday, May 27, 1997 at 7:00 P.M., at NMBT's Park Lane Office,
located at 100 Park Lane, New Milford, Connecticut, for the purpose of
considering and voting upon the following matters:
1. Election of Directors. To elect three directors to serve until the
Annual Meeting of Stockholders to be held in the year 2000, who, with
the seven directors whose terms of office do not expire at this
meeting, will constitute NMBT's full Board of Directors.
2. Holding Company. To approve an Agreement and Plan of Reorganization
pursuant to which NMBT will become a wholly owned subsidiary of a
newly chartered bank holding company known as "NMBT CORP" and each
shareholder of NMBT will become the owner of an equal number of shares
of NMBT CORP.
3. Ratification of Appointment of Auditors. To ratify the directors'
appointment of Deloitte & Touche LLP as NMBT's independent auditors
for the year ending December 31, 1997.
4. Other Business. To transact such other business as may properly be
brought before the Annual Meeting or any postponements or adjournments
thereof.
The Board of Directors has selected the close of business on April 17, 1997
as the record date for the determination of Stockholders entitled to notice of
and to vote at the Annual Meeting. Only Stockholders of record on that date will
be entitled to notice of and to vote at the Annual Meeting of Stockholders or
any postponements or adjournments thereof.
By Order of the Board of Directors,
/s/ Jay C. Lent
-----------------------------------
JAY C. LENT
Secretary
New Milford, Connecticut
May 2, 1997
<PAGE>
NMBT CORP
AND
THE NEW MILFORD BANK & TRUST COMPANY
55 MAIN STREET, NEW MILFORD, CT 06776
(860) 355-1171
PROXY STATEMENT AND PROSPECTUS
2,588,058 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF NMBT CORP
-----------------------
This document serves as a Proxy Statement for the Annual Meeting of
Shareholders of The New Milford Bank & Trust Company ("NMBT" or the "Bank") and
as a Prospectus of NMBT CORP (the "Company") with respect to shares of Company
common stock, par value $.01 per share (the "Company Common Stock") to be
offered in connection with a proposed acquisition by the Company of NMBT
pursuant to an Agreement and Plan of Reorganization (the "Plan") between NMBT
and the Company.
At the Annual Meeting, shareholders will be asked to vote upon a proposal
to approve the Plan by which the Company would acquire all of the outstanding
NMBT common stock, par value $1.00 per share (the "Bank Common Stock") in a
share-for-share exchange for Company Common Stock. NMBT will thereby become a
wholly-owned subsidiary of the Company. Shareholders also will be asked at the
Annual Meeting to vote on the re-election of three (3) Directors and the
ratification of the appointment of Deloitte & Touche LLP as NMBT's independent
auditors for the year ending December 31, 1997. Any shareholders who object to
the Plan and who give proper notice thereof on or before the date of the Annual
Meeting have the right, under Connecticut law, to receive payment for the value
of their stock if they follow the required statutory procedures. See the section
entitled "Appraisal Rights of Dissenting Shareholders" for further information
concerning the rights of dissenting shareholders.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THE PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT AND PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION, TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT AND PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES MADE UNDER THIS PROXY STATEMENT AND PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT AND
PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("SEC"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE FDIC OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. SHARES OF COMPANY COMMON STOCK INVOLVE INVESTMENT RISK. THE SHARES OF
THE COMPANY OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS, AND ARE
NOT INSURED BY THE FDIC, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE NOT GUARANTEED BY THE
BANK OR THE COMPANY.
The date of this Proxy Statement and Prospectus is May 2, 1997.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus.
ANNUAL MEETING
SOLICITATION OF PROXIES
This Proxy Statement and Prospectus is being furnished to the shareholders
of NMBT in connection with the solicitation by the Board of Directors of NMBT of
proxies for use at the Annual Meeting of Shareholders of NMBT to be held on
Tuesday, May 27, 1997 at 7:00 P.M. at NMBT's Park Lane Office which is located
at 100 Park Lane, New Milford, Connecticut, and at any postponement or
adjournment thereof. At the Annual Meeting, the Shareholders will consider and
vote upon proposals to elect three directors, approve the appointment by the
Board of Directors of Deloitte & Touche LLP as NMBT's independent auditors for
the year ending December 31, 1997 and approve and adopt an Agreement and Plan of
Reorganization pursuant to which NMBT will become a wholly-owned subsidiary of
the Company. If the Plan is approved by the holders of shares of the common
stock of NMBT, such holders would become the holders of the common stock of the
Company through a share-for-share exchange (the "Exchange").
REQUIRED VOTE
April 17, 1997 has been established by NMBT's Board of Directors as the
date for determination of the stockholders entitled to notice of and to vote at
the Annual Meeting (the "Record Date"). As of the Record Date, 2,588,058 shares
of NMBT common stock were outstanding. See "Introduction-Voting Securities." A
majority of the shares entitled to vote, present in person or represented by
proxy, constitutes a quorum of the stockholders. The presence of a quorum and a
plurality of the votes cast by the shares entitled to vote at the Annual Meeting
is required to elect directors. The affirmative vote of the holders of
two-thirds of the issued and outstanding shares of NMBT common stock is required
to approve the Plan and the Exchange. With respect to the ratification of the
appointment of auditors and the approval of most other actions which may be
taken at the Annual Meeting, the presence of a quorum and a number of
affirmative votes exceeding negative votes at the Annual Meeting will be
required for passage. See "Introduction-Revocability of Proxies and Other Voting
Matters."
NMBT
GENERAL
NMBT, headquartered in New Milford, Connecticut, is a state-chartered bank
and trust company founded in 1975. NMBT is principally engaged in providing full
banking services to individuals and businesses in Litchfield County and northern
Fairfield County, Connecticut. Deposits are insured up to applicable limits by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC").
NMBT operates a network of nine banking offices located in New Milford, Kent,
Bridgewater, New Fairfield and Danbury. NMBT's primary regulators are the FDIC
and the State of Connecticut Department of Banking.
NMBT's business consists primarily of attracting deposits from the general
public and originating and investing in loans secured by mortgages on
residential, commercial and other real estate for the purpose of purchasing,
constructing, improving or refinancing such property. In addition, NMBT invests
in loans secured by savings accounts, automobile and other consumer installment
loans, and commercial loans. NMBT's principal source of income is the interest
that it derives from mortgage loans and other loans, origination and other fees
on loans, and interest and dividends on investments. The net income of NMBT
results from the income sources cited above, less expenses incurred, which
include interest paid on deposits and borrowings and other expenses related to
the day-to-day operation of the business. See "The Business of
NMBT-General."
2
<PAGE>
EMPLOYEES
At December 31, 1996, NMBT employed 154 full-time equivalent employees,
including officers, none of whom are represented by a collective bargaining
group. See "The Business of NMBT-Employees."
COMPETITION
In general, the banking and financial services industry in Connecticut is
highly competitive. Numerous commercial banks, savings banks and savings and
loan associations maintain offices in Litchfield County and northern Fairfield
County, Connecticut, although the number of such enterprises has decreased
recently through consolidations. Commercial banks, savings banks, savings and
loan associations, mortgage brokers, finance companies, credit unions, insurance
companies, investment firms and private lenders compete with NMBT for deposits,
loans and employees. Moreover, many of these competitors have far greater
resources than NMBT and are able to conduct more intensive and broader based
promotional efforts to reach both commercial and individual customers. See "The
Business of NMBT-Competition."
NMBT PROPERTY
NMBT presently operates in five communities located in Litchfield and
northern Fairfield counties in Connecticut through its network of nine banking
offices, including its main office which is located at 55 Main Street, New
Milford, Connecticut. NMBT presently owns its main office property and one
branch location and leases its remaining seven branch locations. See "The
Business of NMBT-Bank Property."
THE COMPANY
The Company was recently organized as a stock corporation under the laws of
the State of Delaware to act as a bank holding company for NMBT. The Company
will supply notice to the Federal Reserve Board and make application to the
Connecticut Banking Department for approval to become a bank holding company and
to provide, through NMBT and any other subsidiaries that the Company may
acquire, comprehensive banking and permissible nonbanking services in
Connecticut. The main address of the Company is 55 Main Street, New Milford,
Connecticut.
THE PLAN AND EXCHANGE
GENERAL
Under the terms of the proposed Plan, the Company will acquire in a single
transaction all of the issued and outstanding shares of Bank Common Stock, so
that immediately thereafter, all shares of Bank Common Stock (other than NMBT
Dissenting Shares as defined below) will be converted automatically and without
further action by the holders thereof into shares of Company Common Stock. It is
presently expected that, if the shareholders approve the Plan, the Plan will
become effective during the Summer of 1997. The Plan also provides that, on and
after the date the Plan becomes effective, shareholders of NMBT will become
shareholders of the Company and shall have no rights as shareholders of NMBT.
See "Approval of the Plan and the Exchange-General."
BACKGROUND AND REASONS FOR THE EXCHANGE
The Board of Directors of NMBT believes that the holding company structure
will better suit the current and future interests of NMBT's shareholders. After
the Exchange, the Company will be able to acquire additional businesses and
banks while preserving their local identity. The Company would also be permitted
to engage in, or acquire or enter into, business ventures which may not be
permitted to NMBT, including those which the Federal Reserve Board has
determined are so closely related to banking or managing or controlling banks as
to be a proper incident thereto. The formation of the Company will also provide
additional flexibility
3
<PAGE>
with respect to the capitalization and financing of NMBT and with certain tax
advantages resulting from tax rules for consolidated companies. See "Approval of
the Plan and the Exchange-Reasons for the Exchange."
EXCHANGE OF NMBT SHARES
Each holder of shares of Bank Common Stock issued and outstanding
immediately prior to the effective date of the Plan's implementation will, upon
consummation of the Exchange, become the holder of an equal number of shares of
Company Common Stock. Dissenting shareholders of NMBT who follow the statutory
procedures described herein under "Appraisal Rights of Dissenting Shareholders"
will be paid the value of their shares of Bank Common Stock in cash by NMBT,
unless holders of more than 5% of the Bank Common Stock exercise their appraisal
rights and the Company exercises its right not to conclude the Exchange. See
"Approval of the Plan and the Exchange-Exchange of NMBT Shares."
RIGHTS OF DISSENTING SHAREHOLDERS
Connecticut law provides an exclusive appraisal right for dissenting
shareholders of NMBT. Under Section 36a-181(c) of the Connecticut BHC Act, a
holder of Bank Common Stock has the right, provided the conditions specified are
met, to be paid the "value" of his or her Bank Common Stock. In order to qualify
for such payment, a shareholder of NMBT must, on or before the date of the
Annual Meeting, give written notice to NMBT of his or her objection to the Plan
and the Exchange. If the requisite number of holders of Bank Common Stock
approve the Exchange and the Plan is filed with the Connecticut Secretary of
State in accordance with Connecticut law, then a shareholder of record of NMBT
desiring to receive the "value" of his or her NMBT common stock and who has
timely given his or her written objection must, within ten days after the Plan
has been filed with the Connecticut Secretary of State, demand in writing,
payment from NMBT of the "value" of his or her shares of NMBT common stock as of
the date the Plan becomes effective. NMBT must pay such dissenting shareholder
the "value" of his or her shares within three months. See "Appraisal Rights of
Dissenting Shareholders."
GOVERNMENTAL AND REGULATORY APPROVALS
The Exchange is expected to be subject to notice being provided to the
Federal Reserve Board and also subject to the prior approval of the Connecticut
Banking Commissioner (the "Commissioner"), which approval cannot be given until
after the holders of at least two-thirds of the issued and outstanding shares of
Bank Common Stock have approved the Plan and the Exchange. The notice to the
Federal Reserve Board and an application for the approval of the Commissioner
are anticipated to be filed before the Annual Meeting of Shareholders. The
Commissioner must determine whether the terms of the Plan are reasonable and in
accordance with law and sound public policy. See "Approval of the Plan and the
Exchange-Governmental and Regulatory Approvals" and "Certain Legal Matters."
TAX CONSEQUENCES
The Company expects the Exchange to be a tax free reorganization. See
"Approval of the Plan and the Exchange-Federal Income Tax Consequences."
CAPITAL STOCK
COMPANY CAPITAL STOCK
The Certificate of Incorporation of the Company will authorize the issuance
of 8,000,000 shares of common stock, par value $.0l per share (the "Company
Common Stock") and 2,000,000 shares of serial preferred stock, par value $.01
per share. There are currently no shares of Company Common Stock issued and
outstanding and there are currently no outstanding shares of serial preferred
stock. If the Exchange is consummated, there will be outstanding at the time the
Plan becomes effective, a number of shares of Company
4
<PAGE>
Common Stock equal to the number of shares of Bank Common Stock then
outstanding, less shares for which dissenters' rights have been exercised. See
"Company Capital Stock."
NMBT CAPITAL STOCK
The Articles of Incorporation of NMBT authorizes the issuance of 8,000,000
shares of common stock, par value $1.00 per share and 2,000,000 shares of serial
preferred stock, par value $1.00 per share. As of the Record Date, 2,588,058
shares of Bank Common Stock were issued and outstanding and were held by
shareholders of record. There are currently no outstanding shares of serial
preferred stock.
COMPARISON OF THE RIGHTS OF HOLDERS OF BANK AND COMPANY COMMON STOCK
As a result of the Exchange, holders of Bank Common Stock, whose rights are
presently governed by the provisions of Connecticut corporate law, Connecticut
and Federal banking law and the Articles of Incorporation and Bylaws of NMBT,
will become shareholders of the Company. Accordingly, their rights will be
governed by the provisions of Delaware corporate law, Connecticut and Federal
banking law relating to bank holding companies, and the proposed Certificate of
Incorporation and Bylaws of the Company. Except for the elimination of
preemptive rights for holders of Company Common Stock under the Certificate of
Incorporation of the Company, the provisions of the Certificate of Incorporation
and Bylaws of the Company are substantially similar to the provisions of the
existing Articles of Incorporation and Bylaws of NMBT. See "Comparison of the
Rights of Holders of Bank Common Stock and Company Common Stock."
5
<PAGE>
AVAILABLE INFORMATION
NMBT is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder. In accordance therewith, NMBT files reports, proxy
statements and other information with the FDIC. Such reports, proxy statements
and other information filed by NMBT should be available for inspection and
copying, upon payment of prescribed fees, at the public reference facilities
maintained by the FDIC at 550 17th Street, Room F-643, N.W., Washington, D.C.
20429 and should be available for inspection in the Public Inspection File
maintained by the Public Information Department of the Federal Reserve Bank in
New York at 33 Liberty Street, New York, New York 10045. Bank Common Stock is
quoted on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the
Symbol: NMBT, and such reports, proxy statements and other information
concerning NMBT also are available for inspection at the offices of Nasdaq, 33
Whitehall Street, New York, New York 10004 and for inspection and copying at the
offices of Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006-1500.
It is expected that the Company will be subject to the informational
requirements of the Exchange Act and in accordance therewith will file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information,
when filed, can be inspected and copied at the SEC's Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the SEC: New York Regional Office, Room 1028, Federal Building, 26
Federal Plaza, New York, New York 10006; and Chicago Regional Office, Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604.
Copies of such material can also be obtained from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
NO AGENT, OFFICER OR DIRECTOR OF NMBT OR THE COMPANY OR ANY OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NMBT OR THE COMPANY.
THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH, INCLUDING THE PLAN AND THE
PROPOSED CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE COMPANY. UPON WRITTEN
OR ORAL REQUEST, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS (NOT INCLUDING
EXHIBITS TO SUCH INFORMATION UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH INFORMATION) WILL BE PROVIDED WITHOUT CHARGE TO SUCH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT AND
PROSPECTUS IS DELIVERED. REQUESTS FOR COPIES SHOULD BE DIRECTED TO JAY C. LENT,
THE NEW MILFORD BANK & TRUST COMPANY, 100 PARK LANE, NEW MILFORD, CONNECTICUT
06776-2400 (TELEPHONE (860) 355-1171). IN ORDER TO ASSUME TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 16, 1997.
6
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
55 MAIN STREET, NEW MILFORD, CONNECTICUT 06776-2400
- --------------------------------------------------------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1997 AND PROSPECTUS
- --------------------------------------------------------------------------------
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the
shareholders of The New Milford Bank & Trust Company, a Connecticut bank and
trust company ("NMBT" or the "Bank"), in connection with the solicitation by the
Board of Directors of NMBT of proxies for use at the Annual Meeting of
Shareholders of NMBT to be held on Tuesday, May 27, 1997 at 7:00 P.M. at NMBT's
Park Lane Office, located at 100 Park Lane, New Milford, Connecticut, and at any
postponement or adjournment thereof (the "Annual Meeting"). The purpose of the
Annual Meeting is to consider and vote upon the following proposals: (i) to
elect three (3) directors for a three year term expiring in the year 2000; (ii)
to approve and adopt an Agreement and Plan of Reorganization (the "Plan")
pursuant to which NMBT will become a wholly-owned subsidiary of NMBT CORP, a
Delaware corporation (the "Company"); and (iii) to approve the appointment by
the Board of Directors of Deloitte & Touche LLP as independent auditors of NMBT
for the year ending December 31, 1997.
Pursuant to the terms of the Plan, the holders of shares of the common
stock of NMBT, par value $1.00 per share ("Bank Common Stock"), would become the
holders of the common stock, par value $.0l per share, of the Company ("Company
Common Stock"). The share-for-share exchange of Bank Common Stock for Company
Common Stock is hereinafter referred to as the "Exchange."
The principal executive offices of the Company and NMBT are located at
55 Main Street, New Milford, Connecticut 06776-2400. The telephone number of the
Company and NMBT is (860) 355-1171.
VOTING SECURITIES
The Board of Directors has selected the close of business on April 17,
1997 (the "Record Date") for determination of the stockholders entitled to
notice of and to vote at the Annual Meeting and each stockholder shall have one
vote on all proposals to be presented at the Annual Meeting for each share of
Bank Common Stock registered in his or her name. There is no cumulative voting.
On the Record Date 2,681,305 shares of Bank Common Stock were authorized and
issued, of which 2,588,058 shares were outstanding and held by 2,045
shareholders of record, with 93,247, the balance, held as treasury shares.
Treasury shares may not, as a matter of law, be counted or voted at the Annual
Meeting.
SOLICITATION OF PROXIES
The expense of soliciting proxies in the enclosed form will be borne by
NMBT. In addition to solicitations by mail, officers and regular employees of
NMBT may solicit proxies personally or by telephone, telegraph or other means
without additional compensation. NMBT may reimburse brokerage firms and others
for their reasonable expenses in forwarding solicitation material to the
beneficial owners of NMBT's stock held of record by such persons.
REVOCABILITY OF PROXIES AND OTHER VOTING MATTERS
7
<PAGE>
The enclosed proxy may he revoked at any time prior to being voted by the
submission of a written revocation or a duly executed proxy bearing a later
date, or by the stockholder's withdrawal of a previously submitted proxy and
personal vote by ballot at the Annual Meeting. Unless a proxy is revoked and
except as specified below, shares represented by a properly executed proxy will
be voted in accordance with any voting instructions given on the proxy or,
unless contrary instructions are given, will be voted "FOR" all nominees listed
in Proposal 1, "FOR" Proposal 2, "FOR" Proposal 3 and in accordance with the
determination of a majority of the Board of Directors as to other matters
properly brought before the Annual Meeting. On a matter for which the "ABSTAIN"
instruction is given by the Stockholder, shares will be voted neither "FOR" nor
"AGAINST."
A majority of the shares entitled to vote, present in person or represented
by proxy, constitutes a quorum of the stockholders. The presence of a quorum and
a plurality of the votes cast by the shares entitled to vote at the Annual
Meeting is required to elect directors. The affirmative vote of the holders of
two-thirds of the issued and outstanding shares of NMBT Common Stock is required
by the Connecticut Bank Holding Company and Bank Acquisition Act (the
"Connecticut BHC Act") to approve the Plan and the Exchange. The various
obligations of the Company and NMBT to consummate the Exchange are subject to
the condition that such affirmative votes be obtained. With respect to the
ratification of the appointment of auditors and the approval of most other
actions which may be taken at the Annual Meeting, the presence of a quorum and a
number of affirmative votes exceeding negative votes at the Annual Meeting will
be required for passage. Abstentions to a proposal are counted for purposes of
establishing a quorum. If a quorum is present, however, abstentions have no
effect on the outcome of voting. Shares beneficially held in street name are
counted for quorum purposes if such shares are voted on at least one matter to
be considered at the meeting. Broker non-votes are neither counted for purposes
of determining the number of affirmative votes required for approval of
proposals nor voted for or against matters presented for shareholder
consideration. Consequently, so long as a quorum is present, such non-votes have
no effect on the outcome of any vote.
The principal officers and directors of NMBT, together with their
affiliates, beneficially owned, directly or indirectly, as of April 17, 1997, an
aggregate of 377,175 shares of Bank Common Stock (which number does not include
outstanding options to purchase Bank Common Stock), constituting approximately
14.6% of such shares outstanding and entitled to vote on that date. Non-employee
directors own 358,556 shares of Bank Common Stock or 14% of the total, and
principal officers of NMBT own 18,619 of such shares, or less than 1%.
ADDITIONAL COPIES OF THE 1996 ANNUAL REPORT TO STOCKHOLDERS AND THE 1996
ANNUAL REPORT ON FORM F-2, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES AS FILED
WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION PURSUANT TO THE SECURITIES
EXCHANGE ACT OF 1934, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO:
JAY C. LENT, THE NEW MILFORD BANK & TRUST COMPANY, 100 PARK LANE, NEW MILFORD,
CONNECTICUT 06776-2400. THE 1996 ANNUAL REPORT TO STOCKHOLDERS CONSTITUTES THE
ANNUAL DISCLOSURE STATEMENT OF THE BANK REQUIRED PURSUANT TO 12 CFR PART 350.
This Proxy Statement and Prospectus and enclosed Form of Proxy, along with
the 1996 Annual Report to Stockholders, are being mailed to stockholders on or
about May 2, 1997.
8
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table lists as of April 17, 1997 the only persons or groups
believed by NMBT to be beneficial owners of more than five percent of any class
of NMBT's voting securities:
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
-------------------------------------------------------
(A) (B) (C) % OF CLASS
TITLE OF NAME AND ADDRESS OF WITH SOLE POWER WITH SHARED POWER TOTAL OF AS OF
CLASS BENEFICIAL OWNER TO VOTE & INVEST TO VOTE & INVEST (A) & (B) APRIL 17, 1997 (1)
------------------- ---------------- ----------------- --------- ------------------
<S> <C> <C> <C> <C>
Common Robert W. X. Martin 92,298 55,197 147,495 5.70%
42 Marwick Manor
New Milford, CT
</TABLE>
- ----------
(1) For purposes of calculation, the percent of class is determined by dividing
column (c), total number of shares beneficially owned, by the total number
of voting securities issued and outstanding as of April 17, 1997
(2,588,058).
9
<PAGE>
STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of April 17, 1997 with
respect to the shares of the Bank's Common Stock beneficially owned by each
director, each executive officer and by all directors and executive officers as
a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
---------------------------------------------------
(A) (B) (C) % OF CLASS
NAMES AND POSITION(S) WITH SOLE POWER WITH SHARED POWER TOTAL OF AS OF
WITH NMBT TO VOTE & INVEST TO VOTE & INVEST (A) & (B) APRIL 17, 1997(1)
--------- ---------------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
Carrigan, Michael D. 121,501(1) 1,372 122,873(1) 4.54%
President & CEO
Dumas, Kevin L. 3,500 13,317 16,817 0.65%
Director
Fish, Deborah L. 2,000(1) 55 2,055(1) 0.08%
Vice President & Treasurer
Funk, Louis A., Jr. 100 5,500 5,600 0.22%
Chairman of the Board
Greenhaus, Lawrence 12,155 6,241 18,396 0.71%
Vice Chairman of the Board
Henderson, Ruth 41,471 992 42,463 1.64%
Director
Lent, Jay C. 89,200(1) 0 89,200(1) 3.33%
Executive Vice President, Secretary & CFO
Maher, Peter R. 47,005(1) 13,986 60,991(1) 2.31%
Executive Vice President & Chief Lending
Martin, Robert W.X. 92,298 55,197 147,495 5.70%
Director & Assistant Secretary
Pellegrini, Terry C. 0 6,019 6,019 0.23%
Director
Southworth, Walter G. 45,563 715 46,278 1.79%
Director
Straub, Jack W. 8,872 36,894 45,766 1.77%
Director
Taylor, Harry H., Jr. 840 2,595 3,435 0.13%
Director
Tierney, Edward E. 3,340 22,478 25,818 1.00%
Director
Weinshank, Arthur C. 469 0 469 0.02%
Director
All directors and executive officers as a group 468,314(1) 165,361 633,675(1) 22.28%
(15 persons)
</TABLE>
- ----------
(1) For purposes of calculation, the percent of class is determined by dividing
column (c), total number of shares beneficially owned, by the sum of the
total number of voting securities issued and outstanding as of April 17,
1997 (2,588,058), plus the number of shares for which the individual or
group is deemed to be the beneficial owner because such individual has or,
where appropriate, the individuals comprising the group have the right to
acquire such shares through the exercise of stock options. The following
individuals and group held such options for the following numbers of shares
as of such date: Mr. Carrigan-l18,500; Mr. Lent-89,000; Mr. Maher-47,000;
Mrs. Fish-2,000; and all directors & executive officers as a group-256,500.
The numbers set forth in the above chart give effect to the options.
10
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL ONE)
NMBT's Bylaws provide for not less than eight nor more than twelve
directorships, divided into three classes with each class being approximately
equal in size. At this Annual Meeting three Class I directors are being
nominated to serve for a term of three years until the Annual Meeting to be held
in the year 2000 and until their successors are elected and qualified. These
three directors, with the seven directors remaining, will constitute the full
Board. Edward E. Tierney, an existing Class I Director is not seeking
re-election and his position will not be filled after the election. Accordingly,
after the Annual Meeting, the Board of Directors shall be deemed to consist of
ten elected directors. NMBT's President, Mr. Carrigan, serves as an ex-officio
director. Shares represented by every properly executed proxy will be voted at
the 1997 Annual Meeting of Stockholders for the election of the proposed slate
of directors, except where the right to vote such shares is withheld as provided
in the proxy or otherwise instructed. A plurality of the votes cast by the
shares entitled to vote at the Annual Meeting is required to elect directors.
All nominees are now serving as directors pursuant to their previous election by
the stockholders. Each candidate for the Board has been nominated by the Board
of Directors. The Board of Directors expect that, and each of the nominees has
indicated that he or she will be available, to serve as director, but in the
event that any of them should become unavailable, it is intended that a proxy
may be voted for a nominee or nominees who would be designated by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSED NOMINEES.
The following tables set forth the names of the Board of Directors'
nominees for election as a director and those directors who will continue to
serve after the Annual Meeting. Also set forth is certain other information with
respect to each such person's age at April 17, 1997, principal occupation or
employment during the past five years, the periods during which he or she has
served as a director of NMBT and positions currently held with NMBT.
<TABLE>
<CAPTION>
EXPIRATION
DIRECTOR OF CURRENT POSITION(S) HELD
NOMINEES (1) AGE SINCE TERM WITH NMBT
------------ --- ------------- ------------ ---------------
CLASS I
<S> <C> <C> <C> <C>
Kevin L. Dumas (Owner; CPA firm) 40 1995 1997 Director
Louis A. Funk, Jr. (Retired; Former Vice 54 1995 1997 Director and Chairman
President-Omaha Beef Co.)
Lawrence Greenhaus (Retired Partner-Greenhaus 68 1975 1997 Director and Vice Chairman
Riordan & Co.; CPA firm)
</TABLE>
- ----------
(1) The information in column one represents a brief account of the business
experience during the past five years for each nominee and director continuing
in office.
11
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION
DIRECTORS CONTINUING DIRECTOR OF CURRENT POSITION(S) HELD
IN OFFICE AGE SINCE TERM WITH NMBT
-------------------- --- ------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS II
Robert W.X. Martin (Retired) 66 1975 1999 Director and
Assistant Secretary
Walter G. Southworth (Retired-former owner 72 1975 1999 Director
Walter G. Southworth, Inc.; retail automobile
sales)
Harry H. Taylor, Jr. (Owner-H.H. Taylor & Sons; 66 1993 1999 Director
building materials and hardware)
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION
DIRECTORS CONTINUING DIRECTOR OF CURRENT POSITION(S) HELD
IN OFFICE (1) AGE SINCE TERM WITH NMBT
-------------------- --- ------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS III
Ruth Henderson (President-Silo, Inc., 67 1975 1998 Director
gallery/store/cooking school)
Terry C. Pellegrini (Partner-Moots, Pellegrini, 53 1994 1998 Director
Mannion & Spillane; law firm)
Jack W. Straub (Retired) 73 1975 1998 Director
Arthur C. Weinshank (Partner-Cramer & 46 1995 1998 Director
Anderson; law firm)
</TABLE>
- ----------
(1) The information in column one represents a brief account of the business
experience during the past five years for each nominee and director continuing
in office.
DIRECTORS' AFFILIATIONS
There are no reportable business or personal relationships or affiliations
between any director or nominee and NMBT or its management. No nominee for
director serves as a director of any other company with a class of securities
registered under Section 12 of the Securities Exchange Act of 1934.
COMPENSATION OF DIRECTORS
Annual Fees and Meeting Fees. In 1996, each director who was not an
employee of NMBT received an annual directors' retainer fee of $8,500; a stipend
of $250 for each board meeting attended; and a stipend of $75 for each committee
meeting attended. During 1996, the then Chairman of the Board, Jack W. Straub,
received an additional stipend of $20,000. The Assistant Secretary received an
additional stipend of $2,500. Any director who is an employee of NMBT receives
no additional compensation for his or her service as a member of the Board or
any Board committee.
Stock Option Grants. NMBT has two stock option plans which were approved by
the stockholders. The option plans are for the benefit of directors, officers
and employees of NMBT. The option plans currently permit grants to directors as
specified in the plans. No option grants, however, have been made to non-officer
directors under either stock option plan.
12
<PAGE>
Directors Fee Deferral Plan. In 1997, the Board of Directors approved a
Directors Fee Deferral Plan whereby Directors may defer their annual fees or a
25%, 50% or 75% portion thereof, until reaching the age of seventy. The deferred
benefits are paid over a 15 year period commencing in the month following a
Director attaining seventy years of age. A lump sum payment, however, is due any
Director terminated as a result of a change of control, within thirty days of
the termination. If a Director dies prior to attaining age seventy, any deferred
benefit relative to that Director is paid to the deceased Director's estate or
designated beneficiary. The Board of Directors had previously adopted a deferred
compensation plan for its Directors and certain selected executive officers (See
"Compensation Pursuant to Plans-Officers' and Directors' Deferred Compensation
Agreements").
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors met 15 times during 1996. No director, nominee or
continuing director attended fewer than 75% of the aggregate of the total number
of meetings of the Board of Directors and the total number of meetings of the
committees of the Board on which he or she served (during the period for which
he or she was a director and for which he or she served on any such committees).
To assist in the discharge of its responsibilities, the Board has
subcommittees which include an Advisory and Nominating Committee, an Audit
Committee, an Investment Committee, a Loan Committee and a Personnel Committee.
The Advisory and Nominating Committee, consisting of Directors Carrigan,
Henderson, Southworth, Straub, Taylor (the Committee's Chairman) and Weinshank,
met 2 times during 1996. This Committee recommends candidates for election by
stockholders or for appointment by the Board of Directors to fill any vacancy.
The Audit Committee, consisting of Directors, Dumas (the Committee's
Chairman), Greenhaus, Martin, Straub, Tierney and Taylor met 10 times during
1996. This Committee recommends engagement of the independent auditors, reviews
the arrangement and scope of the audit, considers comments made by the
independent auditors regarding internal accounting controls, oversees the
internal auditing function, reviews internal accounting procedures and controls
with NMBT's financial staff and reviews non-audit services provided by NMBT's
independent auditors.
The Investment Committee, consisting of Directors Carrigan, Dumas,
Southworth, Weinshank, Straub and Tierney (the Committee's Chairman), met 4
times during 1996. The Investment Committee is responsible for overseeing the
adoption, revision and implementation of NMBT's written investment and funds
management policies.
The Loan Committee, consisting of Directors Carrigan, Funk, Greenhaus (the
Committee's Chairman), Martin, Straub and Tierney, met 13 times during 1996. The
Loan Committee is responsible for overseeing the adoption, revision and
implementation of NMBT's written loan policies.
The Personnel Committee, consisting of Directors Dumas, Funk (the
Committee's Chairman), Martin, Southworth, Straub and Weinshank, met 7 times
during 1996. This Committee reviews NMBT's personnel needs with senior
management, reviews and approves recommendations on salary adjustments for
NMBT's officers and employees for submission to the Board of Directors, makes
recommendations to the Board of Directors concerning the granting of stock
options to NMBT's officers and employees, and oversees NMBT's benefits and
retirement plans.
13
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of NMBT. Messrs. Carrigan, Lent and Maher serve pursuant to
employment agreements. See "Management-Employment Contracts."
AGE AT
NAME APRIL 17, 1997 POSITION(S) HELD
---- -------------- ----------------
Michael D. Carrigan 45 President and Chief Executive
Officer
Jay C. Lent 38 Executive Vice President, Chief
Financial Officer and Secretary
Peter R. Maher 44 Executive Vice President and Chief
Lending Officer
Deborah L. Fish 46 Vice President and Treasurer
Michael D. Carrigan joined NMBT on January 4, 1993, as Executive Vice
President and assumed the responsibilities of President and Chief Executive
Officer on May 6, 1993. He was formerly an Executive Vice President, Senior
Lending Officer with UST Bank/Connecticut. His background includes over 20 years
of commercial lending and loan administration experience.
Jay C. Lent joined NMBT on October 22, 1990, as Executive Vice President
and Chief Financial Officer. In June, 1993, Mr. Lent was named Secretary of
NMBT. Previously, Mr. Lent was a Senior Manager with Coopers & Lybrand, an
international accounting and consulting firm for eight years. He has also served
as Senior Vice President and Chief Financial Officer with First Regional
Bancorp, a bank holding company headquartered in Hartford, Connecticut.
Peter R. Maher joined NMBT on April 19,1993, as Senior Vice President and
Chief Lending Officer. In August, 1995 Mr. Maher was named Executive Vice
President and Chief Lending Officer. Mr. Maher has over 20 years of banking
experience, including commercial and consumer lending, branch administration and
bank operations. Prior to joining NMBT, Mr. Maher was a Senior Vice President
with UST Bank/Connecticut.
Deborah L. Fish joined NMBT in 1976 and has held various positions with
NMBT since that time. She was named Treasurer of NMBT in 1986 and Vice President
in 1987.
EMPLOYMENT CONTRACTS
NMBT has employment agreements with Messrs. Carrigan, Lent and Maher. Their
annual salary for the period ending December 31, 1997 is $155,000, $130,000 and
$105,000 respectively. The employment agreements provide for a term of one year
expiring December 31, 1997. The agreements also provide for one year extensions
unless terminated in accordance with the terms contained therein. Any increases
in salary paid during extension periods are determined at the discretion of the
Board of Directors.
Mr. Carrigan's agreement provides for the payment of cash severance equal
to three times his average annual gross income for the previous five years, less
one dollar, upon his voluntary termination for "good reason" (as defined
therein) or involuntary termination other than for "cause" (as defined therein)
within twelve months following a "change of control" (as defined therein). If
employment is terminated for "cause" or if Mr. Carrigan voluntarily terminates
his employment other than in connection with a "change in control," Mr. Carrigan
would be entitled to receive compensation only through the date of termination.
If his employment is
14
<PAGE>
terminated for any reason other than "for cause," disability, death or a "change
in control," then Mr. Carrigan shall be paid the greater of (i) his salary for
the months remaining in the "term" (as defined therein) of employment, (ii) an
amount equal to his then current monthly salary multiplied by the number of
years (not to exceed twelve) of his employment, or (iii) his salary for six
months.
The agreements for Messrs. Lent and Maher, while substantially similar in
form to Mr. Carrigan's, provide for the payment of cash severance equal to one
times their average annual gross income for the previous five years, less one
dollar, upon their voluntary termination for "good reason" (as defined therein)
or involuntary termination within twelve months following a "change of control"
(as defined therein).
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for NMBT's highest
paid executive officers and directors whose compensation for 1996 exceeded
$100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
FISCAL SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY ($) BONUS ($) UNDERLYING OPTIONS (#) COMPENSATION ($)
------------------------------ ---- ---------- --------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Carrigan 1996 $145,000 $50,000 --- $9,147
President, Chief Executive 1995 135,000 40,000 --- 9,697
Officer and Director 1994 115,000 40,000 100,000 9,796
Jay C. Lent 1996 125,000 30,000 --- 8,801
Executive Vice President, Chief 1995 120,000 30,000 --- 10,297
Financial Officer and Secretary 1994 105,000 30,000 100,000 8,474
Peter R. Maher 1996 100,000 30,000 --- 7,835
Executive Vice President and 1995 85,000 25,000 10,000 7,565
Chief Lending Officer 1994 75,000 15,000 30,000 3,280
</TABLE>
15
<PAGE>
COMPENSATION PURSUANT TO PLANS
PENSION PLAN
On June 1, 1991, NMBT instituted a qualified defined contribution
pension plan pursuant to section 401(k) of the Internal Revenue Code. Eligible
employees, those who have completed a minimum of one year of credited service,
may defer up to fifteen percent of their annual salary by contributions to the
qualified plan. NMBT matches the first 4% of an employee's contribution dollar
for dollar. NMBT has the discretion to make additional annual contributions to
the plan. An employee is vested in any amount deferred by the employee which is
contributed to the plan. NMBT's matching and discretionary contributions vest
over a 5-year period at the rate of 20% per year. Upon retirement or termination
of employment, a participant's vested account proceeds will be distributed in a
lump sum. The plan provides, in accordance with applicable laws and regulations,
for certain "hardship" withdrawals prior to termination of employment or
retirement.
The following table sets forth the years of credited service and NMBT's
contributions to the 401(k) Plan on behalf of each executive officer whose
aggregate cash compensation was more than $100,000, and as to all eligible
participating employees as a group during the prior three fiscal years:
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OR NUMBER OF YEARS OF FISCAL EMPLOYER CONTRIBUTIONS TO
ELIGIBLE PARTICIPATING EMPLOYEES CREDITED SERVICE YEAR THE 401(K) PLAN
- -------------------------------- ---------------- ----- ---------------
<S> <C> <C> <C>
Michael D. Carrigan 3 1996 $9,147
1995 9,697
1994 9,796
Jay C. Lent 6 1996 8,801
1995 10,297
1994 8,474
Peter R. Maher 3 1996 7,835
1995 7,565
1994 3,280
All eligible participating
employees as a group
(131) 1996 227,909
(128) 1995 206,105
(127) 1994 164,079
</TABLE>
STOCK OPTION PLANS
In 1988, the Board of Directors and the stockholders adopted, and the
Connecticut Banking Commissioner approved, a Non-Statutory Stock Option Plan for
the benefit of directors, officers and employees of NMBT (the "1988 Plan") and
reserved 93,786 shares for issuance under the Plan. The 1988 Plan authorizes the
granting of stock options and stock appreciation rights (SARs). Options granted
under the 1988 Plan must be granted by the Board of Directors at a price at or
above 85% of the fair market value of a single share of NMBT's stock. To date
options have been granted to purchase common stock at the fair market value at
the date of the grant. The term of each option may not exceed five years from
the date of grant. The number of SARs granted to a participant may be equal to
or less than the number of shares that the participant is entitled to
16
<PAGE>
receive pursuant to the related option, and is reduced either by the exercise
thereof or by the number of shares of stock purchased by a participant pursuant
to the related options. No SARs have been granted under the 1988 Plan. After
March 29, 1998, the termination date of the 1988 Plan, no further options can be
granted under the 1988 Plan. During 1996, NMBT granted no options under the 1988
Plan.
In 1994, the Board of Directors and the stockholders adopted the 1994
Non-Qualified Stock Option Plan for employees, officers and directors of The New
Milford Bank & Trust Company (the "1994 Plan") and reserved 300,000 shares for
issuance under the 1994 Plan. The term of each option under the 1994 Plan may
not exceed ten years from the date of its grant.
The provisions of the 1994 Plan are identical to the provisions of the 1988
Plan, except that (1) the exercise price of options granted under the 1994 Plan
may not be lower than the fair market value of the shares on the date the
options are granted, (2) a participant may exercise the options for a six-month
(rather than a three-month) period following the participant's retirement or
death, and (3) the maximum option term is ten years, rather than five years,
from the date of grant. The 1994 Plan, like the 1988 Plan, authorizes the
granting of non-qualified stock options and SARs as a means of providing an
incentive to and encouraging ownership of NMBT's common stock by employees,
officers and directors; of rewarding exemplary personnel; of assisting in NMBT's
recruitment of highly qualified personnel; and of providing a mechanism of
offering incentives to employees to continually strive to improve NMBT's
products and services and their contribution to NMBT's performance.
During 1996, NMBT granted 7,500 options under the 1994 Plan at $11.875 per
share. These options were granted at their fair market value on their date of
grant, September 24, 1996. These options are exercisable immediately and for a
period beginning September 24, 1996 and ending August 9, 2004.
OPTION GRANTS
No executive officer whose aggregate compensation was more than $100,000
received any grants of options under the 1994 Plan during the fiscal year ended
December 31, 1996. No options were granted under the 1988 Plan during 1996. None
of the options granted in 1996 under the 1994 Plan were exercised during 1996.
OPTION EXERCISES
The following table sets forth as to each executive officer whose aggregate
compensation was more than $100,000, certain information concerning the exercise
of stock options during the fiscal year ended December 31, 1996, and the value
of all unexercised options held by such individuals at such date:
17
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR FISCAL YEAR
ACQUIRES ON VALUE END END
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE(2)
- ---- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Michael D. Carrigan 4,000 $19,000(1) 118,500 $782,750
Jay C. Lent 11,000 59,875(1) 89,000 589,625
Peter R. Maher 47,000 271,750
</TABLE>
- ----------
(1) Market value of common stock at date of exercise, less the exercise price.
(2) Based on the $12.50 closing price of NMBT's common stock as reported on The
Nasdaq SmallCap Market on December 31, 1996, minus the exercise price.
OFFICERS' AND DIRECTORS' DEFERRED COMPENSATION AGREEMENTS
In 1985 and 1986, the Board of Directors of NMBT approved Deferred
Compensation Agreements for its directors and selected executive officers. These
agreements permitted the directors and selected executive officers to defer a
portion of their cash compensation for a period of four years during which time
such deferred amounts were invested by NMBT in life insurance contracts on the
lives of the directors and executives. NMBT is the beneficiary of such insurance
contracts. Directors were also permitted to enter into similar agreements with
NMBT to defer a portion of their annual retainer fees for a period of four years
during which time such deferred amounts were invested by NMBT in life insurance
contracts on the lives of such directors. The amounts to be received by the
directors are not limited to the amounts initially deferred by the directors and
invested in the life insurance contracts. NMBT is the beneficiary on such
policies which will provide NMBT with the funds to pay the benefits owed by NMBT
to the director upon the director's death, disability or when the director
reaches age 65, 68 or 70 (normal retirement age).
Distributions under the plan are payable by NMBT as either a lump sum, in a
maximum of ten equal annual installments, or in either 120 or 180 equal monthly
installments depending upon the basis for the distribution. In cases of death,
attaining normal retirement age or other terminations, lump sum distributions or
installment payments are authorized. Hardship distributions may also be
requested. Retirement distributions would occur upon the director's attaining
normal retirement age. NMBT's aggregate distributions in 1996 pursuant to this
plan totaled $144,577. As of December 31, 1996, the amount of deferred
compensation accrued under these agreements aggregated $1,123,636.
Although NMBT may be obligated for certain cash payments prior to the
receipt of proceeds from the purchased life insurance policies under its
Deferral Compensation Agreements approved in 1985 and 1986, the actuaries have
calculated that NMBT should ultimately be reimbursed in whole from such life
insurance proceeds.
In 1997, the Board of Directors adopted a Supplemental Executive Retirement
and Deferred Compensation Plan to provide its senior executive officers with
additional retirement and tax deferral benefits to
18
<PAGE>
the extent benefits under the qualified retirement plans of NMBT are limited by
applicable law or regulation. The Supplemental Plan will permit additional
deferral of compensation and matching contributions (as determined by NMBT's
Personnel Committee) to the extent the supplemental deferral had been made into
NMBT's 401(k) Plan.
CERTAIN TRANSACTIONS
NMBT has had and expects to have in the future banking transactions in
the ordinary course of business with directors, officers, stockholders and their
associates. These transactions are made on substantially the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others, and do not involve more than
the normal risk of collectibility or present other unfavorable features at the
time such loans are made. The highest aggregate amount of loans to all officers
and directors of NMBT and their associates as a group was $2,985,027 on December
16, 1996, or 13.23% of stockholders' equity. There were no standby letters of
credit to related parties outstanding at year end.
APPROVAL OF THE PLAN AND THE EXCHANGE
(PROPOSAL TWO)
Set forth below is a brief description of the Exchange, a summary of
the Plan, and certain background information. The summary of the Plan attempts
to summarize all material matters but does not purport to be complete and is
qualified in its entirety by reference to the Plan.
GENERAL
Under the terms of the Plan, at the Effective Time (as defined below), the
Company will acquire in a single transaction all of the issued and outstanding
shares of Bank Common Stock, so that immediately thereafter, all shares of Bank
Common Stock (other than NMBT Dissenting Shares as defined below) will be
converted automatically and without further action by the holders thereof into
shares of Company Common Stock. The Effective Time will occur upon the filing of
the Plan in the office of the Secretary of State of Connecticut, which date
shall not be before the date on which the last of the conditions to Exchange as
specified in the Plan has been satisfied or otherwise fulfilled or compliance
therewith has been waived. It is presently expected that the Effective Time will
occur during the Summer of 1997.
The Plan also provides that, on and after the Effective Time, shareholders
of NMBT will become shareholders of the Company and shall have no rights as
shareholders of NMBT. The Plan provides that, at the Effective Time,
certificates representing Bank Common Stock immediately prior to the Effective
Time will be converted into certificates representing shares of Company Common
Stock without the necessity of any physical exchange of stock certificates, and
the holders thereof shall have all rights as shareholders of the Company. See
"Approval of the Plan and the Exchange-Exchange of NMBT Shares."
As used herein, the term "NMBT Dissenting Shares" means shares of Bank
Common Stock owned by a shareholder of NMBT who, pursuant to the appraisal
provisions ("Appraisal Rights") of Section 36a-181(c) of the Connecticut BHC
Act: (1) has on or before the date of the Annual Meeting given to NMBT his or
her written objection to the Exchange; and (ii) within ten days after the Plan
has been filed with the Secretary of the State of the State of Connecticut, has
demanded in writing payment from NMBT of the "value" of his or her shares of
Bank Common Stock as of the Effective Time. If NMBT and the shareholder are
unable to agree upon the value
19
<PAGE>
of his or her shares, such value will be determined by a committee of three
disinterested persons, one to be chosen by such shareholder, one by NMBT and the
third by the two thus selected.
BACKGROUND OF THE EXCHANGE
During the past year, the Board of Directors of NMBT initiated an
examination of the possible reorganization of NMBT as a subsidiary of a
newly-formed holding company. The Board considered issues such as the tax
consequences of such a restructuring, the increased regulatory oversight by the
Federal Reserve Board and the additional reporting requirements and related
expenses, as well as the costs to NMBT of the formation of a holding company and
the ability of NMBT to expand through acquisitions. The Board determined that it
would be in the best interest of NMBT and its shareholders to restructure NMBT
into a holding company structure for the reasons set forth below.
REASONS FOR THE EXCHANGE
The Board of Directors of NMBT believes that the holding company structure
will better suit the current and future interests of NMBT's shareholders. After
the Exchange, the Company will be able to effect certain smaller acquisitions
without shareholder approval and acquire additional businesses and banks while
preserving their local identity. The Company would also be permitted to engage
in, or acquire or enter into, business ventures which may not be permitted to
NMBT, including those which the Federal Reserve Board has determined are so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. The formation of the Company will also provide additional
flexibility with respect to the capitalization and financing of the Bank and
with certain tax advantages resulting from tax rules for consolidated companies.
The Company's management intends to explore possible acquisitions of other
banks if the Exchange is approved. Neither NMBT nor the Company is presently
engaged in any negotiations, arrangements or understandings to acquire any other
bank or to enter into any other business venture, and neither has specific plans
for diversification. There is no assurance that the Company will ultimately
acquire any banks other than NMBT or make any acquisitions of any other
financial institutions. In addition, there is no assurance that the Company will
diversify its operations or that any diversification, if undertaken, will be
successful.
VOTE REQUIRED
Under Section 36a-l81 of the Connecticut General Statutes, approval of the
Plan requires the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Bank Common Stock.
THE PLAN MUST BE APPROVED BY A TWO-THIRDS MAJORITY OF THE ISSUED AND
OUTSTANDING SHARES OF BANK COMMON STOCK. THE BOARD OF DIRECTORS OF NMBT
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE
PLAN.
The terms of the Exchange were determined unilaterally by the Boards of
Directors of NMBT and of the Company and are not the result of arms-length
negotiations. The Plan was approved unanimously by the directors of the Company
and NMBT.
20
<PAGE>
EXCHANGE OF NMBT SHARES
Each holder of shares of Bank Common Stock issued and outstanding
immediately prior to the Effective Time will, upon consummation of the Exchange,
become the holder of an equal number of shares of Company Common Stock.
Dissenting shareholders of NMBT who follow the statutory procedures described
herein under "Appraisal Rights of Dissenting Shareholders" will be paid the
value of their shares of Bank Common Stock in cash by NMBT, unless holders of
more than 5% of the Bank Common Stock exercise Appraisal Rights and the Company
exercises its right not to conclude the Exchange.
Pursuant to the terms of the Plan, any shareholder of NMBT who, on or
before the date of the Annual Meeting, gave written notice to NMBT of his or her
intent to demand payment for the value of his or her Bank Common Stock pursuant
to the requirements of Section 36a- 181(c) of the Connecticut Act and who later
perfects his or her right by demanding such payment shall have no further rights
as a shareholder of NMBT, and the certificates held by such dissenting
shareholder shall represent only the right to receive the value of the Bank
Common Stock.
The Company has elected to designate the outstanding certificates
representing Bank Common Stock as certificates representing Company Common Stock
after the Exchange, thereby eliminating the necessity for a physical exchange.
Therefore, at the Effective Time certificates representing shares of Bank Common
Stock shall be deemed to represent an equal number of shares of Company Common
Stock, except for certificates representing NMBT Dissenting Shares and
certificates of Bank Common Stock issued to the Company to reflect Company
ownership in the Bank. After the Effective Time, shareholders shall be entitled,
but not required, to exchange their present certificates for new certificates
representing shares of Company Common Stock. Shareholders will be notified by
the transfer agent for NMBT and the Company as to the procedure for the
voluntary exchange of Bank Common Stock certificates for Company Common Stock
certificates. Shareholders will not be required to complete such exchange. Their
present stock certificates will for all purposes after the Effective Time
represent the same number of shares of Company Common Stock, and the holders of
those certificates will have all rights of shareholders of the Company.
SHAREHOLDERS OF NMBT MAY, BUT WILL NOT BE REQUIRED TO, EXCHANGE THEIR
PRESENT CERTIFICATES FOR NEW CERTIFICATES REPRESENTING COMPANY COMMON STOCK
AFTER THE EXCHANGE IS CONSUMMATED.
GOVERNMENTAL AND REGULATORY APPROVALS
It is expected that the Exchange will qualify as a transaction which
requires notice to the Federal Reserve Board since it involves the acquisition
by the Company of 100% of the voting shares of a bank. Such notice is
anticipated to be filed prior to the Annual Meeting.
The Exchange is also subject to the prior approval of the Connecticut
Banking Commissioner (the "Commissioner"), which approval cannot be given until
after the holders of at least two-thirds of the issued and outstanding shares of
Bank Common Stock have approved the Plan and the Exchange. An application for
the approval of the Commissioner is anticipated to be filed before the Annual
Meeting of Shareholders. The Commissioner must determine whether the terms of
the Plan are reasonable and in accordance with law and sound public policy. See
"Certain Legal Matters."
21
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
NMBT and the Company will request a ruling from the Internal Revenue
Service, or will obtain an opinion from Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., special counsel to the Bank, that the Federal income tax
consequences of the Exchange will be substantially as follows:
(a) The Exchange will be governed by Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code");
(b) Shareholders of NMBT will recognize neither gain nor loss under
the provisions of the Code on receiving shares of Company Common Stock in
exchange for their Bank Common Stock (except for those shareholders who
receive payment for the value of their Bank Common Stock from NMBT in
accordance with section 36a-181(c) of the Connecticut BHC Act);
(c) The adjusted basis of each share of Company Common Stock received
by each former shareholder of NMBT by reason of the Exchange will be the
same as the adjusted basis of the Bank Common Stock exchanged therefor;
(d) The holding period of each share of Company Common Stock received
by each former shareholder of NMBT by reason of the Exchange will include
the holding period of the Bank Common Stock exchanged therefor, provided
that such Bank Common Stock was held as a capital asset at the time of the
Exchange; and
(e) Neither the Company nor the Bank will recognize any gain or loss
as a result of the Merger.
Shareholders of NMBT who exercise their dissenters' appraisal rights and
receive cash in exchange for their shares of Bank Common Stock will recognize
taxable income or loss for Federal income tax purposes in connection with the
transaction. The amount of that income or loss and the tax treatment of that
income or loss (that is, whether it constitutes ordinary income or loss,
short-term capital gain or loss or long-term capital gain or loss) will turn
upon a number of factual considerations pertinent to the individual shareholder.
Shareholders of NMBT considering exercising their dissenters' appraisal
rights with respect to their shares of Bank Common Stock should consult their
personal income tax advisors for specific advice with respect to the Federal
income tax consequences of that exercise.
IT IS RECOMMENDED THAT EACH SHAREHOLDER OF NMBT CONFER WITH HIS OR HER OWN
TAX OR FINANCIAL ADVISOR AS TO THE TAX CONSEQUENCES OF THE EXCHANGE, INCLUDING
THE CONSEQUENCES UNDER STATE AND LOCAL LAW
CONDITIONS TO THE EXCHANGE
The obligations of the Company and NMBT to cause the Exchange to be
consummated are subject to the satisfaction, prior to or at the Effective Time,
of the following conditions: (1) receipt of all regulatory approvals and
authorizations, including, without limitation, the approvals of (i) all state
securities law agencies that have jurisdiction over the offers and sales of the
Company Common Stock pursuant to the Exchange, (ii) the Federal Reserve Board
under the Bank Holding Company Act of 1956 (the "Federal BHC Act") and (iii) the
Commissioner under the Connecticut BHC Act, and all other consents; approvals
and permissions necessary to permit consummation of the Exchange shall have been
received and shall be in full force and effect; (2) the
22
<PAGE>
requirements for exemption from registration under the Securities Act of 1933,
as amended ("1933 Act") shall have been met, (3) the Proxy Statement and
Prospectus shall have been filed in accordance with the rules and regulations of
the FDIC and shall have been mailed to the shareholders of NMBT in accordance
with such rules and regulations; (4) at the Annual Meeting, the Plan shall have
been approved by the affirmative vote of the holders of at least two-thirds of
all outstanding shares of Bank Common Stock; (5) NMBT and the Company shall have
received a ruling from the Internal Revenue Service satisfactory to them with
respect to the tax consequences of the Exchange or, in lieu of such ruling, an
opinion satisfactory to them with respect to such tax consequences of the
Exchange; and (6) the Company Common Stock shall have been substituted for Bank
Common Stock on the Nasdaq Stock Market upon issuance of the Company Common
Stock.
In addition to those conditions outlined above, the obligations of the
Company under the Plan are subject (unless waived by the Company) to the
fulfillment prior to or at the Effective Time of the following conditions: (1)
the number of shares of Bank Common Stock as to which the holders thereof shall
have exercised their dissenters' appraisal rights pursuant to Section 36a-181(c)
of the Connecticut BHC Act shall not exceed the lesser of (i) 5% of the number
of shares of Bank Common Stock issued and outstanding at the Effective Time or
(ii) such number of shares as (a) the Company's independent auditors determine
will prevent the Exchange from being treated as a "pooling of interest" or (b)
the Company's special legal counsel determines would prevent the Company Common
Stock from being exempt from registration under the 1933 Act; and (2) each of
the "affiliates" of NMBT shall have delivered to the Company a letter agreement
with respect to restrictions on resale of the Company Common Stock received by
such affiliates. See "Approval of the Plan and the Exchange --Resale of Company
Common Stock."
AMENDMENT
The Plan may not be altered, changed or amended in any way except by a
writing approved by the respective Boards of Directors of the Company and NMBT
executed by a person or person so authorized by them. Any material amendment to
the Plan made subsequent to any approval of the Plan by the shareholders of NMBT
would require further shareholder approval.
TERMINATION AND ABANDONMENT
The Plan may be terminated before the Effective Time of the Plan,
notwithstanding any approval by the shareholders of NMBT: (1) by the mutual
agreement of the Boards of Directors of the Company and NMBT; (2) by NMBT if the
Board of Directors determines for any reason that the consummation of the
transactions in the Plan would be inadvisable or not in the best interests of
the Bank or its shareholders; or (3) by the Company if the number of shares of
Bank Common Stock as to which the rights to receive payment under Section
36a-181(c) of the Connecticut BHC Act is exercised exceeds the lesser of (i) 5%
of the issued and outstanding shares of Bank Common Stock or (ii) such number of
shares as (a) the Company's independent auditors determine will prevent the
Exchange from being treated as "pooling of interest" or (b) the Company's
special legal counsel determines would prevent the Company Common Stock from
being exempt from registration under the 1933 Act.
ACCOUNTING TREATMENT
The Company and NMBT intend that the Exchange be accounted for in the same
manner as a "pooling of interest" in accordance with generally accepted
accounting principles. Under this concept, the assets, liabilities and
shareholders equity of NMBT, as reported on its balance sheet, will be combined
with the assets, liabilities and shareholders' equity of the Company.
23
<PAGE>
NMBT STOCK OPTIONS
All employee and director options and rights to acquire Bank Common Stock
which are issued pursuant to the Bank's 1988 and 1994 Non-Statutory Stock Option
Plans (collectively referred to as the "Bank Common Stock Plans") and which are
outstanding at the Effective Time will be assumed by the Company at the
Effective Time, and such options and rights will become options and rights to
acquire the equivalent number of shares of Company Common Stock. The Bank Common
Stock Plans shall be continued in accordance with their terms and conditions as
in effect immediately prior to the Effective Time, except that, at the Effective
Time, the Bank Common Stock Plans shall be amended to provide that all options
and rights to be granted, pursuant to the Bank Common Stock Plans, after the
Effective Time will be options and rights to acquire Company Common Stock. After
the Effective Time, the Committee will continue to administer the Bank Common
Stock Plans and will retain such rights as necessary to administer the Bank
Common Stock Plans and continue to grant options, while the Company will assume
the obligations under the Bank Common Stock Plans to issue Company Common Stock
in the event of the exercise of any options granted pursuant to the NMBT Option
Plans. As of April 17, 1997, options to purchase 293,600 shares of Bank Common
Stock were currently exercisable and outstanding.
EXPENSES
NMBT's expenses incident to the consummation of the Exchange are to be paid
by NMBT and the Company's expenses are to be paid by the Company.
RESALE OF COMPANY COMMON STOCK
Company Common stock to be received by shareholders of NMBT may be freely
sold, except for shares to be received by those shareholders of NMBT, including
its directors, who may be deemed "affiliates" of the Company (i.e., persons
controlling, controlled by or under common control with the Company). Sales of
Company Common Stock by those persons may be made only in compliance with the
provisions of Rules 144 and 145 under the 1933 Act or in a manner otherwise in
compliance with such act. In general, such affiliates could resell Company
Common Stock under Rules 144 and 145 only in brokers' transactions or in
transactions directly with a market maker, and only if the number of shares sold
by each affiliate (or, if two or more affiliates agree to act together, then the
aggregate number of shares sold by them) during any period of three months does
not exceed the greater of 1% of the outstanding Company Common Stock or the
average weekly volume of trading in Company Common Stock in the four weeks
preceding the sale.
24
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization at December 31,
1996 of NMBT and the Company and the proforma combined capitalization of NMBT
and the Company as if the Exchange had occurred as of such date after giving
effect to the adjustments set forth therein.
<TABLE>
<CAPTION>
NMBT Proforma Proforma
NMBT CORP Adjustments Combined
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Stockholder's Equity
Common Stock, $1.00 par value per share
Shares authorized: 8,000,000
Shares issued: 2,681,305
Shares outstanding: 2,588,058 $ 2,681 $ - $(2,681) $ -
Common Stock, $0.01 par value per share
Shares authorized: 8,000,000
Shares issued: 2,681,305
Shares outstanding: 2,588,058 27 27
Additional paid-in capital 15,266 _____ 2,654 17,920
Retained earnings 5,195 _____ _____ 5,195
Unrealized gain (loss) on securities available for sale, net of tax 146 _____ _____ 146
Treasury stock, at cost (723) _____ _____ (723)
--------- ---------- ------------ -------
Total stockholders' equity $ 22,565 $_____ $_____ $22,565
--------- ---------- ------------ -------
Book value per common share outstanding $ 8.72 $ 8.72
========= ========
</TABLE>
The Bank will incur certain legal, printing and other expenses in
connection with the Exchange. Such expenses will be capitalized by the Bank and
will be amortized by a reduction in the consolidated earnings of the Company and
the Bank over a period of five years following the consummation of the Exchange.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Connecticut law provides an exclusive appraisal right for dissenting
shareholders of NMBT. Under Section 36a-181(c) of the Connecticut BHC Act, a
holder of Bank Common Stock has the right, provided the conditions specified are
met, to be paid the "value" of his or her Bank Common Stock. In order to qualify
for such payment, a shareholder of NMBT must, on or before the date of the
Annual Meeting, give written notice to NMBT of his or her objection to the Plan
and the Exchange. If the requisite number of holders of Bank Common Stock
approve the Exchange and the Plan is filed with the Connecticut Secretary of
State in accordance with Connecticut law, then a shareholder of record of NMBT
desiring to receive the "value" of his or her Bank Common Stock and who has
timely given his or her written objection must, within ten days after the Plan
has been filed with the Connecticut Secretary of State, demand in writing
payment from NMBT of the "value" of his or her shares of Bank Common Stock as of
the Effective Date. NMBT must pay such dissenting shareholder the "value" of his
or her shares within three months.
In case of disagreement between NMBT and the dissenting shareholder with
respect to the "value" of his or her shares, such "value" shall be ascertained
by three disinterested persons, one to be chosen by the dissenting shareholder,
one by NMBT and the third by the two thus selected. If the award determined by
the
25
<PAGE>
three disinterested persons is not paid within sixty days from its date, the
award shall become a debt of NMBT and the dissenting shareholder may collect it
as such and, upon receiving payment therefor, must transfer his Bank Common
Stock to NMBT.
Pursuant to the terms of the Plan, at the Effective Time, any shareholder
of NMBT, who, on or before the date of the Annual Meeting, gave written notice
to NMBT of his or her intent to demand payment for the value of his or her Bank
Common Stock pursuant to the requirements of Section 36a-181(c) of the
Connecticut BHC Act shall have no further rights as a shareholder of NMBT, and
the certificates held by such dissenting shareholder shall represent only the
right to receive the value of the Bank Common Stock.
The foregoing summary of the rights of dissenting shareholders under
Connecticut law is qualified in its entirety by reference to Section 36a- 181(c)
of the Connecticut General Statutes, the text of which is set forth in Appendix
A.
The receipt of cash pursuant to the exercise of dissenters' appraisal
rights will be a taxable transaction for Federal income tax purposes. See
"Approval of the Plan and the Exchange-Federal Income Tax Consequences."
Any shareholder of NMBT who desires to exercise his or her appraisal rights
should carefully review Section 36a-181(c) of the Connecticut BHC Act and is
urged to consult his or her legal advisor before electing or attempting to
exercise such rights. A shareholder's failure to vote against the Plan and the
Exchange will not constitute a waiver of his or her appraisal rights. However,
each shareholder of NMBT who fails to object in writing to the Plan and the
Exchange on or before the date of the Annual Meeting and to demand in writing
payment of the "value" of his or her Bank Common Stock within ten days after the
Plan has been filed with the Connecticut Secretary of State will be deemed to
have assented to the Plan and the Exchange, whether or not he or she voted to
approve the Plan and the Exchange, and will be entitled to receive a certificate
representing shares of Company Common Stock in the manner and on the terms
specified in the Plan. An objection must be in addition to and separate from any
proxy or vote against the Plan and the exchange and should be submitted to NMBT,
100 Park Lane, New Milford, Connecticut 06776-2400, Attention: Jay C. Lent. NMBT
presently intends to inform dissenting shareholders of its intentions to file
the Plan with the Connecticut Secretary of State and the date when the Plan will
be so filed.
A VOTE AGAINST THE PLAN AND THE EXCHANGE WILL NOT SATISFY THE REQUIREMENTS
THAT A DISSENTING SHAREHOLDER DELIVER HIS OR HER WRITTEN OBJECTION TO THE
EXCHANGE PRIOR TO OR ON THE DATE OF THE ANNUAL MEETING.
CERTAIN LEGAL MATTERS
The Exchange is subject to the requirements of Federal and Connecticut
banking statutes, rules and regulations, which provide that certain acquisitions
may not be consummated without notice to the Federal Reserve Board and the
approval of the Commissioner.
THE BANK HOLDING COMPANY ACT
The Company was organized to act as a "bank holding company" as such term
is defined in the Bank Holding Company Act of 1956, as amended (the "Federal BHC
Act"). Under the Federal BHC Act, approval of the Federal Reserve Board is
required for the Company to become a bank holding company and before the
Exchange contemplated by the Plan can be consummated. If certain conditions are
met in connection with the Exchange, a notice to the Federal Reserve Board
rather than an application is required. As it is anticipated the
26
<PAGE>
Exchange will so qualify, the Company will prepare and submit to the Federal
Reserve Board a notice to become a bank holding company. The Federal Reserve
Board may object to the notice, in which case an application for approval will
be required to be filed.
In the event approval is required and if the Federal Reserve Board approves
the Exchange, the Attorney General of the United States nevertheless may, at any
time within 30 days after such approval, bring an action challenging the
Exchange under the Federal antitrust laws, in which case the effectiveness of
the Federal Reserve Board's approval would be stayed pending a final ruling by
an appropriate United States District Court and any possible appeal. Failure of
the Attorney General to challenge the Exchange does not, however, exempt the
Company from complying with both state and Federal antitrust laws after the
Exchange has been consummated, or immunize the Exchange from future challenge by
the Attorney General or a private litigant under Section 2 of the Sherman Act.
Any action or failure to act by the Attorney General with regard to the Exchange
also does not immunize the Exchange from challenge by a private litigant under
Section 7 of the Clayton Act prior to consummation for the Exchange and prior to
termination of the 30 day period in which the Attorney General may bring an
action challenging the Exchange or, if such an action is commenced, prior to
termination of any such action.
CONNECTICUT BANK HOLDING COMPANY AND BANK ACQUISITION ACT
Under the Connecticut BHC Act, the Plan must be approved by the
Commissioner and filed by him with the Connecticut Secretary of the State. It is
a condition to the obligations of the Company and NMBT to consummate the
Exchange, that such approval of the Plan follow the Annual Meeting.
COMPANY CAPITAL STOCK
At the Effective Time, the Certificate of Incorporation of the Company will
authorize the issuance of 8,000,000 shares of common stock per share, par value
$.01 per share (the "Company Common Stock") and 2,000,000 shares of serial
preferred stock $.0l par value per share. There are currently no shares of
Company Common Stock issued and outstanding and there are currently no
outstanding shares of serial preferred stock.
If the Exchange is consummated, there will be outstanding at the Effective
Time a number of shares of Company Common Stock equal to the number of shares of
Bank Common Stock then outstanding, less shares for which dissenters' appraisal
rights have been exercised. Additional shares of Company Common Stock will be
reserved for issuance upon the exercise of options and other rights outstanding
and to be granted under the Bank Common Stock Plans. All such options and rights
will be assumed by the Company once the Exchange is consummated. See "Approval
of the Plan and the Exchange--NMBT Stock Options."
Once the Exchange is consummated, options outstanding under the Bank Common
Stock Plans to purchase Bank Common Stock will become options to purchase
Company Common Stock.
If the Exchange were consummated as of April 17, 1997, 2,588,058 shares of
Company Common Stock would be issued and outstanding and a maximum of 393,786
shares would be reserved for issuance upon exercise of options outstanding and
to be granted under the Bank Common Stock Plans.
All shares of Company Common Stock issued upon consummation of the Exchange
or exercise of options and other rights will be, when issued as described
herein, fully paid and non- assessable.
Company Common Stock may not be used as collateral to secure loans from
NMBT. Unless prior approval of the Federal Reserve Board is obtained, the
Company may not redeem shares of Company Common
27
<PAGE>
Stock in amounts exceeding 10% of its consolidated net worth in any twelve month
period. See "Comparison of the Rights of Holders of Bank Common Stock and
Company Common Stock-Repurchase of Shares."
Certain provisions of the Certificate of Incorporation and Bylaws of the
Company may make the accomplishment of certain mergers, tender offers and other
business combinations and the removal of incumbent management more difficult.
Such provisions affect the rights of holders of Company Common Stock, and the
amendment of such provisions is subject to "super-majority" voting requirements.
Such rights are similar to the rights set forth in the Bank's Articles of
Incorporation and Bylaws. See "Comparison of the Rights of Holders of Bank
Common Stock and Company Common Stock."
VOTING RIGHTS
Each holder of Company Common Stock is entitled to one vote for each share
held. The shares of Company Common Stock do not have cumulative voting rights.
Cumulative voting rights means that holders of more than 50% of shares voting
for the election of directors have the ability to elect 100% of the directors
then standing for election if they choose to do so, and in such event the
holders of the remaining shares voting for the election of directors will not be
able to elect any person or persons to the Board of Directors.
PREEMPTIVE RIGHTS
Under the Company's Certificate of Incorporation, shareholders of the
Company do not have preemptive rights to subscribe for or purchase shares of any
class of capital stock now or hereafter authorized or securities convertible
into shares of any class of capital stock of the Company. Without preemptive
rights, a shareholder's ownership is subject to dilution if additional shares
are issued.
DIVIDEND RIGHTS
The holders of Company Common Stock will be entitled to receive dividends
when, as and if declared by the Board of Directors of the Company. Dividends may
be declared and paid by the Company only out of funds legally available
therefor. Under Delaware law, dividends may generally be declared by the Board
of Directors of a corporation and paid in cash, property or in shares of such
corporation, to the extent of its surplus as defined therein. For the
foreseeable future, the sole source of amounts available to the Company for the
declaration of dividends will be dividends declared and paid by NMBT on Bank
Common Stock after consummation of the Exchange. Any amounts received by the
Company will be used to pay the operating expenses of the Company, and for other
activities in which it may engage, including the acquisition of other financial
institutions, before any dividends can be paid on Company Common Stock. It is
anticipated that the only operating expenses of the Company will be
administrative expenses of its officers, which in large part will be allocated
to and reimbursed by NMBT. For a description of limitations on the ability of
NMBT to declare and pay any dividends on Bank Common Stock, see "Bank Capital
Stock-Dividends." The present intention of the Board of Directors of the Company
is to declare and pay cash dividends on a quarterly basis. The payment and size
of any dividend will depend on the future earnings of the Company and NMBT.
Under the Certificate of Incorporation of the Company, the Company has the
authority to issue preferred stock with dividend rights superior to the Company
Common Stock that may adversely affect the amount or frequency of Company Common
Stock dividends, although the Company has no plans at this time to issue such
preferred stock.
LIQUIDATION RIGHTS
In the unlikely event of liquidation of the Company, holders of Company
Common Stock are entitled to share pro rata in the net assets of the Company
remaining after payment of all amounts due creditors. In the event of the
concurrent liquidation of the Company and NMBT, the net assets available for
payment to holders
28
<PAGE>
of Company Common Stock would be the net assets remaining after payment of all
amounts due creditors of the Company and NMBT.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. will be the transfer agent and
registrar for Company Common Stock.
SERIAL PREFERRED STOCK
The Board of Directors of the Company may, without the action of the
Company's shareholders, issue preferred stock from time to time in one or more
series with distinctive serial designations.
The Board of Directors is authorized to determine, among other things, with
respect to each series which may be issued: (1) the dividend rate and conditions
and dividend preferences, if any; (2) whether dividends would be cumulative and,
if so, the date from which dividends on such series would accumulate; (3)
whether, and to what extent, the holder of such series would enjoy voting
rights, if any, in addition to those prescribed by law; (4) whether, and upon
what terms, such series would be convertible into or exchangeable for shares of
any other class of capital stock or other series of preferred stock; (5)
whether, and upon what terms, such series would be redeemable; (6) whether or
not a sinking fund would be provided for the redemption of such series and, if
so, the terms and conditions thereof; and (7) the preference, if any, to which
such series would be entitled in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Company. With regard to dividends,
redemption rights and liquidation preference, any particular series of preferred
stock may rank junior to, on a parity with or senior to any other series of
preferred stock and Company Common Stock.
It is not possible to state the actual effect of the authorization of the
preferred stock upon the rights of holders of shares of Company Common Stock
until the Board of Directors determines the specific rights of the holders of a
series of preferred stock. However, such effects might include: (1) restriction
on the payment of dividends on Company Common Stock if dividends on preferred
stock have not been paid; (2) dilution of the voting power of Company Common
Stock to the extent that the preferred stock has voting rights; (3) dilution of
the equity interest of Company Common Stock to the extent that the preferred
stock is converted into Company Common Stock; or (4) Company Common Stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to the holders of the
preferred stock. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could make it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. Accordingly, the issuance of
preferred stock may be used as an "anti-takeover" device without further action
on the part of the shareholders of the Company.
The Company has no present plans to issue or authorize the issuance of any
shares of preferred stock.
MARKET
Because no shares of Company Common Stock have been issued, other than the
shares issued in connection with the formation of the Company, no market for
Company Common Stock has been established, and there have been no transactions
therein. The Company will file an application to substitute Company Common Stock
for Bank Common Stock on the Nasdaq Stock Market. See "Bank Capital
Stock-Market."
29
<PAGE>
BANK CAPITAL STOCK
The Articles of Incorporation of NMBT authorizes the issuance of 8,000,000
shares of common stock, par value $1.00 per share and 2,000,000 shares of serial
preferred stock, par value $1.00 per share. As of the Record Date, 2,588,058
shares of Bank Common Stock were issued and outstanding and were held by 2,045
shareholders of record. There are currently no outstanding shares of serial
preferred stock.
MARKET
Bank Common Stock is traded over-the-counter and is quoted on the Nasdaq
SmallCap Market tier of the Nasdaq Stock Market under the symbol "NMBT."
The following table sets forth, for the periods indicated, market price
information regarding Bank Common Stock, and dividends paid. Stock price
information includes average bid and ask prices as quoted on the Nasdaq SmallCap
Market tier of the Nasdaq Stock Market for the period from January 1, 1994
through April 17, 1997. There is no assurance that trading in the Company Common
Stock will be at prices similar to those at which Bank Common Stock has been
traded.
AVERAGE BID AND
ASK PRICES
---------------
BID ASK DIVIDENDS PAID
------ ------ ------------
1994:
First Quarter................................ $5.375 $6.125 None
Second Quarter............................... 4.875 6.125 None
Third Quarter................................ 5.375 6.250 None
Fourth Quarter............................... 5.625 6.500 None
1995:
First Quarter................................ 5.750 6.500 0.030
Second Quarter............................... 7.125 8.250 0.030
Third Quarter................................ 7.500 8.750 0.035
Fourth Quarter............................... 8.500 9.750 0.035
1996:
First Quarter................................ 9.500 10.500 0.040
Second Quarter............................... 9.625 10.750 0.040
Third Quarter................................ 10.125 11.125 0.045
Fourth Quarter............................... 11.500 12.500 0.045
1997:
First Quarter................................ 11.125 12.125 0.050
Second Quarter (through April 17, 1997)...... 11.250 12.500 (1)
- ----------
(1) A dividend of $0.05 for the second quarter was declared on April 16, 1997
and is payable on May 7, 1997.
An application will be filed to substitute Company Common Stock for Bank
Common Stock in the Nasdaq SmallCap Market tier of the Nasdaq Stock Market. It
is anticipated that approval for this substitution will be received prior to
consummation of the Exchange.
30
<PAGE>
The closing price of Bank Common Stock as reported by the Nasdaq SmallCap
Market tier of the Nasdaq Stock Market was $12.00 on April 17, 1997.
DIVIDENDS
Holders of Bank Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
Cash dividends may only be paid out of current or accumulated net profits. Under
Connecticut law, a Connecticut-chartered capital stock bank may not pay out in
dividends in any calendar year an amount exceeding the total of its net profits
of that year combined with its retained net profits of the preceding two years,
unless such larger dividend is specifically approved by the Commissioner. These
restrictions will remain applicable to NMBT after the Exchange is consummated.
See "Comparison of the Rights of Holders of Bank Common Stock and Company Common
Stock-Dividends."
NMBT paid cash dividends of $0.13 and $0.17 per share during fiscal 1995
and 1996, respectively. From 1991 to 1994 the Bank did not pay any cash
dividends.
After the Exchange is consummated, NMBT expects to continue to pay regular
quarterly cash dividends to the Company. There is no assurance, however, that
NMBT will generate sufficient revenue to declare and pay regular cash dividends
to the Company. Such dividends will be used for the Company's operating expenses
and for other activities in which it may engage (including the acquisition of
other financial institutions) and depending on its financial condition, for the
payment of cash dividends.
COMPARISON OF THE RIGHTS OF HOLDERS OF BANK
COMMON STOCK AND COMPANY COMMON STOCK
GENERAL
As a result of the Exchange, holders of Bank Common Stock, whose rights are
presently governed by the provisions of Connecticut corporate law, Connecticut
and Federal banking law and the Articles of Incorporation and Bylaws of NMBT,
will become shareholders of the Company. Accordingly, their rights will be
governed by the provisions of Delaware corporate law, Connecticut and Federal
banking law relating to bank holding companies, and the proposed Certificate of
Incorporation and Bylaws of the Company. Except for the elimination of
preemptive rights for holders of Company Common Stock under the Certificate of
Incorporation of the Company, the provisions of the proposed Certificate of
Incorporation and Bylaws of the Company are substantially similar to the
provisions of the Articles of Incorporation and Bylaws of NMBT.
Certain similar provisions in NMBT's Articles and the Company's Certificate
of Incorporation are intended to enhance the negotiating ability of the Board of
Directors in order to serve the best interests of the shareholders and may make
it more difficult for third parties to acquire or to exercise control of NMBT
and the Company. The Board of Directors of NMBT is not aware at this time of any
attempt by any person or entity to gain control of NMBT or the Company.
The following discussion is only a summary and is not intended in any way
to be a complete description of all of the provisions of the Connecticut and
Federal statutes or the Articles and Certificate of Incorporation and Bylaws of
NMBT and the Company which may affect the rights of shareholders. It is
qualified in its entirety by reference to the Connecticut Stock Corporation Act,
the General Corporation Law of the State of Delaware, the banking laws of the
United States and the State of Connecticut, and the Articles and Certificate of
Incorporation and Bylaws of NMBT and the Company (which are available on request
from NMBT).
31
<PAGE>
CAPITALIZATION
NMBT has authorized capital stock consisting of 8,000,000 shares of common
stock, par value $1.00 per share, 2,000,000 shares of serial preferred stock par
value $1.00 per share (the "Serial Preferred Stock"). The same number of shares
of common stock and serial preferred stock will be authorized for issuance under
the Company's proposed Certificate of Incorporation; however, the par value of
the Company Common Stock and serial preferred stock will be $0.01 per share.
As of April 17, 1997, there were 2,588,058 shares of Bank Common Stock and
no shares of serial preferred stock issued and outstanding.
Under Connecticut banking law, the Commissioner must approve an increase or
decrease in NMBT's authorized capital stock or the par value thereof. In
addition, the authorized capital stock of NMBT may not be reduced below the
minimum requirements for a new capital stock bank, unless otherwise approved by
the Commissioner. No such restrictions or need for Commissioner approval apply
to changes in the capitalization of the Company.
Authorized but unissued shares of capital stock may be used for various
purposes, including stock splits and dividends, potential acquisitions, public
offerings, stock option and employee stock plans and dividend reinvestment
plans. Authorized but unissued shares of capital stock, or securities
convertible into or exchangeable for such capital stock, could also be issued by
the Board of Directors in a manner which could make a change in control more
difficult. Under certain circumstances, such shares could be sold privately to
purchasers who might support the Board of Directors in opposing a takeover bid
which the Board determines not to be in the best interest of the shareholders.
The Board of Directors of NMBT has no present plans to issue any shares of
Bank Common Stock, except for shares that NMBT may issue prior to the Exchange
pursuant to the Bank Common Stock Plans. The Board of Directors of the Company
has no present plans to issue any shares of Company Common Stock beyond the
number to be issued in connection with the Exchange, except for shares that will
be issued pursuant to the Bank Common Stock Plans after the Exchange is
consummated and such plans are assumed by the Company.
VOTING AND OTHER RIGHTS
Subject to the voting rights of any new series of preferred stock upon
issuance, the holders of Bank Common Stock possess the exclusive voting rights
of the Bank. Each holder of Bank Common Stock is entitled to one vote for each
share owned of record. There are no cumulative voting rights in the election of
directors. All of the issued and outstanding shares of Bank Common Stock are
fully paid and nonassessable. The Articles of Incorporation of NMBT does not
provide for any conversion rights, sinking fund provisions, redemption
provisions or restrictions on alienability with respect to the Bank Common
Stock.
Holders of Company Common Stock will possess the same voting rights as
holders of Bank Common Stock. See "Company Capital Stock--Voting Rights."
DIVIDENDS
Holders of Bank Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
Cash dividends may be paid out of current or accumulated net profits and not out
of the capital surplus account.
32
<PAGE>
Under Connecticut law, a Connecticut-chartered bank and trust company may
not pay out in dividends in any calendar year an amount exceeding its current or
accumulated net profits, unless the dividend is specifically approved by the
Commissioner. Further, NMBT may not pay cash dividends if its net worth would
thereby be reduced below the amount required by the Connecticut Banking
Commissioner or the EDIC. See "Bank Capital Stock-Dividends."
Delaware law also prohibits the Company from paying dividends except from
its surplus as defined therein. See "Company Capital Stock--Dividend Rights."
The present intention of the Board of Directors of NMBT is to declare and
pay cash dividends on a quarterly basis. The Company expects to continue NMBT's
dividend policy, taking into account factors including, but not limited to, net
income, capital requirements, financial condition, alternative investment
options, tax implications, prevailing economic conditions, industry practices,
the needs of the Company, and other factors deemed relevant at the time. See
"Bank Capital Stock-Dividends."
PREEMPTIVE RIGHTS
Shares of Bank Common Stock may be issued from time to time by a majority
vote of the Board of Directors for such consideration as the Board may
determine. Holders of Bank Common Stock are entitled to preemptive rights with
respect to any shares of Bank Common Stock which may be issued. The serial
preferred stock of the Bank does not have preemptive rights.
Holders of Company Common Stock will not have preemptive rights. See
"Company Capital Stock-Preemptive Rights."
SHAREHOLDERS' MEETINGS
The annual meeting of the shareholders of NMBT is generally held during
April or May or such date as is determined by the Board of Directors in order to
elect directors and transact any other business properly before the meeting. The
presence in person or by proxy of holders of shares entitled to cast a majority
of the votes of all outstanding shares of Bank Common Stock constitutes a quorum
at any shareholders' meeting. The proposed Bylaws of the Company contain similar
provisions relating to the annual meeting and quorum requirements.
The Company's Bylaws provide that, unless a special meeting of shareholders
is otherwise required by law, such meeting can only be called by a majority of
the Board of Directors. Moreover, the Company's proposed Certificate of
Incorporation permits the shareholders to act only at a duly called annual or
special meeting and not by any written consent of the shareholders. This
provision will effectively prevent any shareholder action prior to the next
annual meeting unless a majority of the Board of Directors agrees to call a
shareholders' meeting prior to that date.
The Articles of Incorporation and Bylaws of the Bank contain similar
provisions relating to shareholders' meetings.
BOARD OF DIRECTOR PROVISION
Certain provisions of the Company's proposed Certificate of Incorporation
and Bylaws impede changes in majority control of the Board of Directors. The
Company's proposed Certificate of Incorporation provides that the Board of
Directors of the Company will consist of not less than five nor more than twelve
members and will be divided into three classes, with directors in each class
elected for three-year terms. The Company's Bylaws
33
<PAGE>
provide that the number of positions on the Board of Directors will be fixed by
resolution of the Board of Directors or, in the absence of such resolution, will
be the number of directors elected at the last annual meeting plus the number of
incumbent directors whose terms did not expire at such annual meeting. The Board
of Directors may increase the number of directors by no more than two in each
fiscal year, and may decrease the number of directors at any time (but to not
less than five directors). No decrease in the number of directors will shorten
the term of any incumbent director. The Company's proposed Certificate of
Incorporation and Bylaws also impose restrictions on the ability of shareholders
to nominate candidates for the Board of Directors, requiring, in general, not
less than sixty (60) nor more than ninety (90) days prior written notice of such
nominations.
The Company's proposed Certificate of Incorporation and Bylaws provide that
vacancies created by an increase in the number of directorships can be filled
for the unexpired term by the Board of Directors. Vacancies occurring for any
other reason, such as death or resignation, would be filled by the remaining
directors. The effect of these provisions would prevent a new majority
shareholder from increasing the size of the Board of Directors and from then
filling the vacancies created by such increase. They would also prevent a new
majority shareholder from filling any vacancies on the Board of Directors
arising by resignation, death or other reason.
No person will be eligible for election or re-election as director if he or
she has reached age seventy (70) at the time of such election. Any director who
reaches age seventy (70) at any subsequent time during his or her term of office
is required to vacate office at the expiration of such director's term. However,
no person who served as a director in June of 1994 is prevented from being
re-elected as a director until he or she has reached his or her 72nd birthday.
The office of any person who has reached his or her 72nd birthday and who was
serving as a director as of that date becomes vacant at the Annual Meeting of
Stockholders at which such Director's term expires.
The Company's proposed Certificate of Incorporation and Bylaws provide that
any director of the Company may be removed from office at anytime with or
without cause by the affirmative vote of seventy-five (75%) percent of the
entire Board of Directors at any meeting of the Board of Directors called for
that purpose. Any director of the Company may also be removed from office with
cause by the affirmative vote of the holders of not less than seventy-five
percent (75%) of the outstanding shares of the Company's capital stock entitled
to vote thereon. If there is a shareholder who owns ten (10%) percent or more of
the Company's capital stock entitled to vote in an election for directors (a
"Related Person"), such removal must also be approved by seventy-five (75%)
percent of the Company's capital stock entitled to vote thereon held by
shareholders other than the Related Person.
The Articles of Incorporation and Bylaws of NMBT contain similar provisions
relating to classification of the Board of Directors, the filling of vacancies
on the Board of Directors, limitations on the maximum age of directors, and the
removal of directors with or without cause. The Company Bylaws differs from the
Bank's Bylaws in that the minimum number of Directors is five (5) as opposed to
eight (8) in the Bank's Bylaws.
FAIR PRICE PROVISION
The Company's proposed Certificate of Incorporation also requires that,
unless otherwise required by law, certain "business combinations" with a holder
of ten (10%) percent or more (hereinafter referred to as a "Related Person") of
the Company's capital stock entitled to vote in the election of directors
(hereinafter referred to as the "Company Voting Stock") must be approved by 80%
of the Company Voting Stock and by a majority vote of such stock held by persons
other than a Related Person ("80% Vote"). The purpose of this provision is to
discourage front load or two-tier acquisitions. In this type of acquisition, one
price is offered in a tender offer for a controlling block of stock and then a
much lower price and/or less desirable form of consideration is offered for the
remainder of the outstanding stock.
34
<PAGE>
The term "business combination" encompasses six categories of transactions.
The first includes any merger, consolidation or share exchange by the Company or
any subsidiary with any Related Person or affiliate thereof. The second category
includes any sale, lease, exchange, mortgage or other disposition of assets to
an Interested Shareholder within any twelve month period which is not in the
usual and regular course of business, if the assets have a book value of 10% or
more of either the total market value of the outstanding stock of the Company or
the Company's net worth as of the end of the most recent fiscal quarter. The
third category is the issuance or transfer to a Related Person, on a non-pro
rata basis, of stock, or securities convertible into stock, having a market
value equal to five percent (5%) or more of the total market value of all shares
of stock of the Company. The fourth category is a liquidation or dissolution
proposed by or on behalf of an Interested Shareholder or related person. The
fifth category is any reclassification of securities or recapitalization which
increases an Interested Shareholder's proportionate ownership of the Company's
equity or convertible securities. The sixth category is the purchase or other
acquisition by the Company of assets of a Related Person having a book value of
ten (10%) percent or more of either the total market value of the Company or the
Company's net worth as of the end of the most recent fiscal quarter.
The Company's Certificate of Incorporation exempts from the 80% Vote described
above any business combination with a Related Person if the transaction is
approved by the Company's Board of Directors before the Related Person first
becomes a Related Person.
The Company's Certificate of Incorporation also exempts from the 80% Vote,
business combinations which satisfy certain "fair price" and procedural
provisions. Five basic conditions must be met in order for this exemption to
apply. The first condition is that the ratio of consideration for stock in the
business combination to the market value of the stock is at least as great as
the ratio of the highest per share consideration which the Related Person paid
for stock to the market value of stock immediately prior to the initial
acquisition of stock by the Related Person. The second condition requires that
shareholders whose stock is acquired in the second or later stage of an
acquisition must receive at least as much as the highest price the Related
Person paid for shares within the prior two years, and in some cases a higher
price, as determined by various formulas specified in the exemptive provision.
These prices may bear no relation to the then-current market value of the
Company's stock. The third condition is that the consideration in the business
combination must be in the same form of consideration as the Related Person
previously paid. This requirement prevents the use of cash in the "first tier"
of an acquisition and less valuable securities in the "second tier." The fourth
condition is designed to ensure that a Related Person has not, through the
exercise of influence over the Company, enhanced his position or brought about
actions detrimental to the other shareholders. Thus, any omission of preferred
stock dividends, or the receipt by the Related Person of specified financial or
tax benefits (such as loans, advances, pledges or guarantees provided by the
Company), will prevent the use of the "fair price" exemption. The fifth
condition requires that a proxy or information statement complying with the
provisions of the Exchange Act be mailed to the Company's shareholders at least
thirty (30) days prior to the consummation of the business combination, whether
or not such proxy or information statement is required under the Exchange Act.
In the event that the requisite approval of the Board of Directors was
given on the "fair price" or the procedural requirements were met with respect
to a particular business combination, the other voting requirements of the
Certificate of Incorporation, discussed in the next section, and the normal
voting requirements of Delaware law would apply to the Company and the normal
requirements of Connecticut law would apply to the Bank. A merger, consolidation
or sale of substantially all of the assets would require the approval of a
majority of the outstanding shares of Company Common Stock under Delaware law
and a two-thirds vote of the outstanding shares of Bank Common Stock under
Connecticut law. A reclassification of securities involving an amendment to the
Certificate of Incorporation would require the approval of the holders of a
majority of the Company Capital Stock entitled to vote thereon under Delaware
law and the same vote of Bank Common Stock under Connecticut law. A sale of less
than substantially all of the assets or a
35
<PAGE>
reclassification of the Company's securities not involving an amendment to its
Certificate of Incorporation would not require shareholder approval under
Connecticut or Delaware law. Certain small acquisitions by the Bank would
require a stockholder vote, which would not be required for the Company's
stockholders, after the Exchange due to the resulting holding company structure.
The Certificate of Incorporation of the Bank contains similar provisions
relating to certain business combinations with Related Persons, except that the
vote required under the Bank's Articles of Incorporation would be two-thirds of
the Bank Common Stock and two-thirds of such stock held by persons other than
the Related Person rather than the 80% Vote. However Sections 33-840 through
33-843 of the Connecticut General Statutes, which are applicable to the Bank,
provide for an 80% vote, so that substantially the same requirements for a
business combination involving the Bank would be required for a business
combination of the Company.
BOARD OF DIRECTORS APPROVAL OF A BUSINESS COMBINATION OR STOCK PURCHASE
The Company's proposed Certificate of Incorporation prevents a Related
Person from engaging in any "business combination" with the Company for a period
of five (5) years following the date on which it first became a Related Person
(i.e., the date on which it first acquired ten percent (10%) or more of the
Company's Voting Stock) unless it is approved by two-thirds of the Company
Voting Stock and a majority of such stock held by persons other than a Related
Person. A "business combination" is defined in the same way as for purposes of
the fair price provision discussed above. Nevertheless, a business combination
with a Related Person may occur before the termination of the five (5) year
period if two-thirds of the Board of Directors of the Company gives their
approval, before the date on which the Related Person becomes a Related Person,
to either the proposed business combination or the proposed acquisition of the
Company Voting Stock. The purpose of this provision is to effectively require
any potential acquiror of the Company to seek the approval of the Board of
Directors of the Company before launching a takeover attempt.
In the event that the requisite prior Board of Director approval is
obtained with respect to a particular business combination, the normal voting
requirements of Delaware law would apply to the Company and the normal
requirements of Connecticut law would apply to the Bank as set forth in the
preceding section.
The Articles of Incorporation of the Bank do not contain a provision
corresponding to the foregoing. However, comparable provisions are set forth in
sections 33-843 through 33-845 et seq. of the Connecticut General Statutes,
which do apply to the Bank with the exception that Connecticut law prohibits a
business combination, rather than allowing one with a two-thirds vote, absent
the required Board approval.
ANTI-GREENMAIL PROVISION
The Company's proposed Certificate of Incorporation requires, under certain
circumstances, the affirmative vote of holders of not less than a majority of
the outstanding shares of the Company's capital stock, voting together as a
class, but excluding any stock owned by an Interested Securityholder (as
hereinafter defined), before the Company may, directly or indirectly, purchase
any of its equity securities from such Interested Securityholder (as hereinafter
defined) who has beneficially owned such security less than two years prior to
the date of said purchase. An "Interested Securityholder" is generally defined
as the holder, directly or indirectly, of 3% or more of the class of the
Company's securities to be acquired. No such vote is required, however, if the
Company makes a transfer or exchange offer to the Interested Securityholder and
to all other shareholders on the same terms and conditions and in compliance
with the Federal securities laws.
The Articles of Incorporation of the Bank contain a similar anti-greenmail
provision relating to purchases of Bank capital stock from an Interested
Securityholder.
36
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's proposed Certificate of Incorporation and the Company's
Bylaws provide that the Company will indemnify its officers, directors,
employees and other persons to the fullest extent permitted by the Delaware
Corporation Law ("DCL"). Section 145 of the DCL contains the indemnification
provisions applicable to corporations. Under that statute, the amount of
corporate indemnification differs, depending on whether or not liability arises
as a result of an action brought by or in the right of a corporation. An action
brought by or in the right of a corporation is called a "corporate suit," while
an action not brought by or in the right of a corporation is called a "third
party suit."
Delaware law provides that a corporation shall indemnify a director or
officer, and his legal representatives, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred with regard to any third party suit if: (a) the person is successful on
the merits in defending the action or; (b) the Board of Directors, independent
legal counsel or the shareholders conclude that the person acted in good faith
and in a manner he or she reasonably believed to be in the best interest of the
corporation and that, with respect to a criminal action or proceeding, he or she
had no reasonable cause to believe that his or her conduct was lawful. The
termination of a proceeding by judgment, order, settlement, conviction or upon a
plea of nob contendere does not, in and of itself, create a presumption that the
person did not act in good faith or in a manner he or she reasonably believed to
be in the best interests of the corporation, or that, with respect to any
criminal action or proceeding, he or she had reasonable cause to believe that
his or her conduct was unlawful.
The statutes also provide that a corporation shall indemnify a director or
officer, and his or her legal representatives, for reasonable expenses incurred
in connection with a corporate suit under similar circumstances provided,
however, the corporation may not provide indemnification if such person is
adjudged to be liable to the corporation unless the court, upon application,
determines that it is fair and reasonable for the corporation to indemnify such
person.
The Company's proposed Certificate of Incorporation limits, to an amount
not greater than the compensation received by the director for the year in which
a violation occurred; the personal liability of directors to the Company or to
its shareholders for monetary damages arising due to the breach of the
directors' fiduciary duty. Such limitation shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not made in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The Articles of Incorporation and Bylaws of the Bank contain similar
provisions relating to the indemnification of directors and officers.
Recent changes in Federal banking law have given the FDIC express authority
to regulate indemnification payments which benefit directors and executive
officers. In general such regulation prohibits banks or bank holding companies
from indemnifying officers and directors, along with other affiliates, for costs
incurred with regard to an administrative or civil enforcement action by a
Federal banking agency which results in a final order or settlement pursuant to
which such person is assessed a civil money penalty, removed from office,
prohibited from participating in the affairs of a bank or is subject to a cease
and desist order.
CERTIFICATE OF INCORPORATION AMENDMENTS
In general, approval of an amendment to the Company's proposed Certificate
of Incorporation will require the approval of the holders of only a majority of
the outstanding shares of the Company's Capital Stock
37
<PAGE>
entitled to vote thereon. The proposed Certificate of Incorporation requires
that any amendment of the provisions of the Company's proposed Certificate of
Incorporation relating to various Board of Director provisions, the
"antigreenmail" provisions, meetings of shareholders, and the procedure for the
amendment of the foregoing provisions be approved by two-thirds of the
outstanding shares of the Company's capital stock entitled to vote thereon and
if there is a Related Person, the amendment must also be approved by a majority
of the Company's capital stock entitled to vote thereon held by shareholders
other than the Related Person. Amendment of the provisions relating to business
combinations requires a vote of eighty (80%) percent of the outstanding shares
of the Company's capital stock entitled to vote thereon and, if there is a
Related Person, the amendment must also be approved by a majority of the
Company's capital stock entitled to vote thereon held by shareholders other than
the Related Person.
The Articles of Incorporation of the Bank contain similar provisions
relating to the amendment of the Bank's Articles of Incorporation, except that
amendment of the business combination provisions would require a two-thirds
rather than an eighty (80%) percent vote.
BYLAW AMENDMENTS
Portions of the Company's proposed Bylaws may be amended by the affirmative
vote of the holders of a majority of the outstanding shares of the Company's
capital stock entitled to vote thereon or by the affirmative vote of two-thirds
of the number of positions on the Board of Directors. However, certain
provisions of the Bylaws relating to the fixing of the number of directorships,
shareholder nomination of candidates for director, the removal of directors with
cause, the filling of vacancies on the Board of Directors, the calling of
special meetings of shareholders and the procedure for the amendment of the
Bylaws may be amended only by the affirmative vote of two-thirds of the
outstanding shares of the Company's capital stock entitled to vote thereon. If
there is a Related Person, the Bylaw amendment must also be approved by
two-thirds of the Company's capital stock entitled to vote thereon held by
shareholders other than the Related Person.
The Bylaws of the Bank contain similar provisions relating to the amendment
of the Bank's Bylaws.
LIQUIDATION
In the event of the dissolution of the Company, the holders of Company
Common Stock would be entitled to receive, after payment of all of its debts,
liabilities, and of all sums to which holders of any preferred stock may be
entitled, all of the remaining assets of the Company. A voluntary dissolution of
the Company may be effected by the affirmative vote of a majority of the
outstanding Company Common Stock. See "Company Capital Stock-Liquidation
Rights."
Similar provisions would apply to the dissolution of the Bank provided that
the shareholders vote to approve dissolution would be two-thirds rather than a
majority.
REPURCHASE OF SHARES
Under Delaware law the Company may not redeem or repurchase shares of its
stock when the capital of the corporation is impaired or when such purchase or
redemption would cause any impairment of the capital of the corporation.
Connecticut law limits redemptions and repurchases of a corporation's
shares of stock to unreserved and unrestricted earned surplus. No redemption or
repurchase of shares of a corporation's stock may be made if the corporation is,
or would thereby be rendered insolvent. These provisions of Connecticut law
apply to the Bank. In addition, repurchases of shares by NMBT are subject to
FDIC regulation and approval.
38
<PAGE>
The Federal Reserve Board limits the amount of securities that a bank
holding company may redeem in any one year without obtaining the prior approval
of the Federal Reserve Board if the gross consideration paid for the redemption,
when aggregated with the net consideration paid by the corporation for all such
redemptions in the preceding twelve months, is equal to 10% or more of the
corporation's consolidated net worth. For purposes of this regulation, "net
consideration" is defined as gross consideration paid by the corporation for
redemption of its equity securities during the twelve month period, less the
gross consideration received for all its equity securities during the period
other than as part of a new issue.
DISSENTER'S RIGHTS
Pursuant to Connecticut law, holders of Bank Common Stock have dissenters'
rights with respect to certain fundamental corporate changes requiring a
stockholder vote, including mergers and transactions such as the Exchange.
Pursuant to such rights the Bank's stockholders may, upon compliance with
certain notice requirements, cause the Bank to pay such stockholder the fair
value of his or her shares of stock rather than participating in the proposed
transaction. Delaware law provides similar rights to holders of Company Common
Stock with respect to mergers, except that no such rights are available for
shares of a class of stock which are either (i) listed on a national securities
exchange or the National Market System of the Nasdaq Stock Market or (ii) held
of record by more than 2,000 holders. Based upon the current record holders of
shares of Bank Common Stock, the holders of Company Common Stock would not be
entitled to dissenters' rights under Delaware law after the Exchange.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is the transfer agent and
registrar for the Bank Common Stock, and will be the transfer agent and
registrar for the Company Common Stock.
PREFERRED STOCK
The preferred stock which will be authorized under the proposed Certificate
of Incorporation of the Company will be issuable in one or more series. The
Board of Directors of the Company, subject to certain limitations, will be
authorized to provide for the issuance of one or more new series of preferred
stock and to fix the number of shares, dividend rate, liquidation prices,
redemption, conversion, voting rights and other terms of the series without
further action of the shareholders. The Board of Directors of the Company may
issue such preferred stock from time to time in transactions that may not
require the approval of the Company's shareholders, and the preferences,
designations, and voting rights of such preferred stock may materially limit or
qualify the rights of the outstanding shares of Company Common Stock.
The preferred stock authorized under the Articles of Incorporation of the
Bank is subject to the same of conditions as are applicable to the preferred
stock which will be authorized under the proposed Certificate of Incorporation
of the Company.
OTHER PROVISIONS
Under Connecticut law, NMBT is prohibited from accepting a pledge of Bank
Common Stock as collateral to secure a loan, except where necessary to prevent a
loss upon a debt previously contracted by NMBT in good faith, and NMBT may not
repurchase or otherwise retire shares of Bank Common Stock without prior written
approval from the Connecticut Banking Commissioner.
39
<PAGE>
The use of Company Common Stock as collateral to secure loans from NMBT
generally will be prohibited under Connecticut law and will be subject to
restrictions as to amount by the provisions of Section 23(a) of the Federal
Reserve Act.
Certain of the above-described provisions of the Certificate and Articles
of Incorporation and Bylaws of the Company and NMBT, separately and in
conjunction with each other, may have the effect of making the accomplishment of
certain mergers, tender offers, and other extraordinary corporate transactions
and the removal of incumbent management more difficult. They may also have the
effect of preventing shareholders from participating in a tender offer for their
common stock even when they may desire to do so.
REGULATION AND SUPERVISION
REGULATION
As a Connecticut-chartered bank and trust company whose deposits are
insured by the FDIC, the Bank is subject to extensive regulation and supervision
by both the Connecticut Banking Commissioner and the FDIC. The Bank is also
subject to various regulatory requirements of the Federal Reserve Board
applicable to FDICinsured financial institutions. Such governmental regulation
is primarily intended to protect depositors, not stockholders.
CONNECTICUT REGULATION
As a state-chartered bank and trust company, the Bank is subject to the
applicable provisions of Connecticut law and the regulations adopted thereunder
by the Commissioner. The Commissioner administers Connecticut banking laws,
which contain comprehensive provisions for the regulation of banks. The Bank
derives its lending and investment powers from these laws, and is subject to
periodic examination by and reporting to the Commissioner.
Banks in Connecticut are empowered by statute, subject to limitations
expressed therein, to accept savings and time deposits, to accept checking
accounts, to pay interest on such deposits and accounts, to make loans on
residential and other real estate, to make consumer and commercial loans, to
invest, with certain limitations, in equity securities and debt obligations of
banks and corporations, to issue credit cards, to establish an insurance
department to issue (but not underwrite) life insurance and sell (but not
underwrite) annuities directly or through an affiliate, and to offer various
other banking services to their customers.
Under applicable Connecticut law, a Connecticut bank may also invest,
subject to certain rating requirements, up to 25% of its assets in debt
obligations. In addition to the otherwise authorized investments, a Connecticut
bank may invest, subject to certain limitations, up to 25% of its total assets
in equity investment securities of corporations incorporated and doing a major
portion of their business in the United States, and up to 8% of its total assets
in any investments, except securities of banks, out of state banks and bank
holding companies, provided the investment is prudent in the opinion of the
bank. A Connecticut bank also has authority to invest in 10% or more of the
equity securities of banks, bank holding companies and certain corporations.
Certain of the investment powers authorized under Connecticut law have been
restricted by Federal law to permit only investments that would be permissible
for national banks. See "FDIC Regulation-Restriction on Activities."
40
<PAGE>
The approval of, or prior notice to, the Commissioner is required, among
other things, to establish, relocate or close branches, merge with another bank,
form a bank holding company or to undertake certain other activities.
As of March 19, 1990, the Connecticut Interstate Banking Act (the
"Interstate Banking Act") permits Connecticut banks and bank holding companies,
with the approval of the Connecticut Banking Commissioner, to engage in stock
acquisitions of banks and bank holding companies in other states with reciprocal
legislation. Before the Interstate Banking Act was adopted in March 1990,
Connecticut banks and bank holding companies were allowed, as of June 1983, to
engage in stock acquisitions with banks and bank holding companies only in other
New England states with reciprocal legislation, all of which have such
legislation. The Interstate Banking Act had a moratorium on the granting of
permanent certificates of authority for the establishment of new banks in
Connecticut by out-of-state banks and bank holding companies as well as
Connecticut banks and bank holding companies, which moratorium expired on
February 1, 1992. The effect of the moratorium was to preclude out-of-state
institutions from establishing full banking operations in Connecticut, except
through the acquisition of Connecticut institutions. Several interstate mergers
involving large Connecticut banks with offices in the Bank's service area and
banks headquartered in Massachusetts or Rhode Island have been completed since
1983, which has resulted in increased competition for the Bank. The adoption of
the Interstate Banking Act in March 1990 (allowing stock acquisitions by
institutions outside of New England) may have a similar effect on increasing
competition for the Bank.
The Connecticut state legislature passed an Act Concerning Interstate
Banking and Branching in June 1995. This Act changes Connecticut's interstate
banking law in response to the passage of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, specifically opting in to the interstate
merger provisions in the Federal law. Significant changes include: (i)
authorizing out-of-state banks to directly establish de novo branches in
Connecticut without first acquiring an existing whole bank or branch, with the
Commissioner's approval; (ii) adopting a five-year age requirement for in-state
targets of in-state and interstate mergers, consolidations and acquisitions,
including acquisitions of branches and a substantial part of a bank's assets;
and (iii) a 30% limit on the resulting concentration of deposits in such
in-state and interstate mergers, consolidations and acquisitions.
FDIC REGULATION
The deposit accounts of the Bank are insured by the FDIC to a maximum of
$100,000 for each insured depositor. As an insured bank, the Bank is subject to
extensive supervision and examination by the FDIC, and also is subject to FDIC
regulations regarding many aspects of its business, including types of deposit
instruments offered, permissible methods for acquisition of funds, and
activities of subsidiaries and affiliates of the Bank. The FDIC periodically
makes its own examination of insured institutions.
Capital Requirements. In April 1990, the FDIC adopted the minimum capital
requirements which require a minimum leverage capital ratio (calculated using
Tier 1 capital, as defined below, compared to total assets) of 3% for certain
banks which have the highest composite examination ratings and that are not
anticipating or experiencing significant growth. All other banks that are not
highly rated or which are anticipating or experiencing significant growth must
maintain a minimum capital ratio at least 100 to 200 basis points above 3%, with
a minimum of 4%. As of December 31, 1996, the Bank's leverage capital ratio was
7.2%.
In addition, the FDIC has issued regulations providing for capital
guidelines based upon the ratio of a bank's capital to total assets adjusted for
risk. Under such FDIC regulations, a bank's risk-based capital ratio is
calculated by dividing (i) its qualifying total capital base (being the
numerator of the ratio) by (ii) its riskweighted assets (being the denominator
of the ratio).
41
<PAGE>
The elements which comprise the qualifying total capital base are: (1) Tier
1 capital elements (which include stockholders' equity, certain preferred stock,
and minority interests in equity capital accounts of consolidated subsidiaries);
and (2) Tier 2 capital elements (which include certain preferred stock, a
limited amount of allowances for loan and lease losses, convertible debt
securities and subordinated debt, subject to certain adjustments). At least 50%
of the qualifying total capital must consist of Tier 1 capital.
Under the risk-based capital framework, a bank's balance sheet assets and
credit equivalent amounts of off-balance sheet items are assigned to one of four
broad risk categories according to the obligor or, if relevant, the guarantor or
the nature of the collateral. The aggregate dollar amount in each category is
then multiplied by the risk weight assigned to that category and the amounts
aggregated resulting in total risk-weighted assets. Banks are required to meet a
minimum ratio of qualifying total capital to risk-weighted assets of 8 percent,
of which at least one-half should be in the form of Tier 1 capital. The Bank's
Tier 1 risk-based capital ratio was 11.7% and its total risk-based capital ratio
was 13% as of December 31, 1996.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each Federal banking agency to revise its risk-based capital
standards for insured institutions to ensure that those standards take adequate
account of interest rate risk, concentration of credit risk and the risk of
nontraditional activities; and reflect the actual performance and expected risk
of loss on multi-family residential loans. The FDIC has recently published a
final rule, effective January 1, 1997, for the purpose of revising its
risk-based capital standards. Such rules amend the capital standards to specify
that the FDIC will include in its evaluations of the Bank's capital adequacy an
assessment of the exposure to declines in the economic value of the Bank's
capital due to changes in interest rates. The rule requires banks whose interest
rate risk exceeds certain criteria to establish an explicit minimum capital
charge for interest rate risk, based on the level of the Bank's measured
interest rate risk exposure pursuant to internal testing methods conducted in
accordance with guidelines set forth in the rule. Such rule is not expected to
increase the regulatory capital requirements which are applicable to the Bank.
FDICIA. FDICIA, which was enacted on December 19, 1991, recapitalized the
Bank Insurance Fund ("BIF") and imposed a number of regulatory reforms on
insured banks and savings associations, including reductions in insurance
coverage for certain kinds of deposits, increases in consumer-oriented
requirements, such as truth in savings disclosures on deposit accounts similar
to existing truth in lending disclosure requirements, the establishment of
risk-based premiums for deposit insurance, increased financial reporting
requirements and related requirements and responsibilities of directors' audit
committees, and major revisions in the supervision and examination processes.
FDICIA also mandates the adoption of new regulations concerning capital,
internal controls, safety and soundness standards, prompt regulatory corrective
action (including placing severely undercapitalized institutions into
conservatorship or receivership), real estate lending standards and foreign
banks. Many of these regulations have been, or are in the process of being,
adopted, and may result in increased expenses of the Bank relating to compliance
therewith.
Brokered Deposits. Under FDICIA, a bank cannot accept, renew or roll over
brokered deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDIC. A bank is defined to be well
capitalized for purposes of this restriction if it maintains a Leverage Ratio of
at least 5.00%, a Tier 1 Risk-Based Capital Ratio of 6.00% and a Total
Risk-Based Capital Ratio of at least 10.00% and is not otherwise in a "troubled
condition" as specified by its appropriate Federal regulatory agency. A bank is
defined to be adequately capitalized if it meets all minimum capital
requirements. A bank that cannot receive brokered deposits also cannot offer
"pass-through" insurance on certain employee benefit accounts. Undercapitalized
is defined as any institution which fails to meet the minimum capital
requirement prescribed by its appropriate Federal banking agency.
42
<PAGE>
Federal Reserve Borrowings. Loans to undercapitalized depository
institutions are severely restricted by FDICIA. A Federal Reserve Bank may not
make advances to an undercapitalized institution (including institutions with
the lowest regulatory rating) for more than 60 days in any 120-day period
without a viability certification by a Federal banking agency or by the Chairman
of the Federal Reserve Board (after an examination by the Federal Reserve
Board). If an institution is deemed critically undercapitalized, an extension of
Federal Reserve Bank credit cannot continue for five days without demand for
payment unless the Federal Reserve Board is willing to accept responsibility for
any resulting loss to the FDIC. As a practical matter, this provision is likely
to mean that Federal Reserve Bank credit will not be extended beyond the
limitations in this provision.
Safety and Soundness Standards. FDICIA, as amended, requires that each of
the Federal bank regulatory agencies prescribe by regulations or guidelines
depository institution standards relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, and employee compensation, fees and
benefits and such other operational and managerial standards as the agency deems
appropriate. In addition, such Federal banking regulatory agencies are also
required to adopt for all depository institutions such standards regarding asset
quality, earnings and stock valuation as the agencies determine to be
appropriate. Finally, each Federal banking agency is required to prescribe
standards for employment contracts and other compensation arrangements of
executive officers, employees, directors and principal stockholders of insured
depository institutions that would prohibit compensation and benefits that are
excessive or that could lead to material financial loss for the institution. An
institution that fails to comply with such standards may be required to submit a
plan designed to achieve such compliance. If no such plan is submitted or a
failure to implement such a plan exists, the depository institution would become
subject to additional regulatory action or enforcement proceedings.
The FDIC issued final regulations pursuant to FDICIA on July 10, 1995 which
provided guidelines for all standards except asset quality and earnings. On
August 27, 1996 the FDIC issued final regulations setting forth guidelines for
the monitoring of asset quality and earnings.
FDICIA also requires each appropriate Federal banking agency to adopt
uniform regulations prescribing standards for extensions of credit (i) secured
by real estate, or (ii) made for the purpose of financing the construction of
improvements on real estate. In prescribing these standards, the banking
agencies must consider the risk posed to the deposit insurance funds by real
estate loans, the need for safe and sound operation of insured depository
institutions and the availability of credit. The FDIC and the other Federal
banking agencies have announced uniform regulations, effective March 19, 1993.
The regulations require each bank to establish and maintain written internal
real estate lending standards consistent with safe and sound banking practices
and appropriate to the size of the institution and the nature and scope of its
real estate lending activities. The policy must also be consistent with the
FDIC's guidelines, which include loan-to-value ratios for the following types of
real estate loans: raw land (65%); land development (75%); nonresidential
construction (80%); and improved property (85%). One-to-four family mortgages
and home equity loans do not have maximum loan-to-value ratio limits, but those
with a greater than 90% loan-to-value ratio at origination are expected to be
backed by private mortgage insurance or readily marketable collateral.
Institutions are also permitted to make a limited amount of loans that do not
conform to the proposed loan-to-value limitation so long as such exceptions are
appropriately reviewed and justified. The guidelines also list a number of
lending situations in which exceptions to the loan-to-value standards are
justified.
Restriction on Activities. FDICIA also generally limits the activities and
equity investments of FDICinsured, state-chartered banks to those that are
permissible for national banks. In October 1992, the FDIC issued final
regulations to implement the restrictions on equity investments and indicated
its intention to propose regulations addressing the activities limitations at a
later date. Under the regulations dealing with equity investments, an insured
state bank generally may not acquire or retain any equity investment of a type,
or in an
43
<PAGE>
amount, that is not permissible for a national bank. An insured state bank is
not prohibited from, among other things, (i) acquiring or retaining a majority
interest in a subsidiary, (ii) investing as a limited partner in a partnership
the sole purpose of which is direct or indirect investment in the acquisition,
rehabilitation or new construction of a qualified housing project, provided that
such limited partnership investments may not exceed 2% of the bank's assets,
(iii) acquiring up to 10% of the voting stock of a company that solely provides
or reinsures directors' and officers' liability insurance and (iv) acquiring or
retaining the voting shares of a depository institution if certain requirements
are met. FDICIA does provide, however, that an insured state bank may retain and
acquire common or preferred stock of corporations listed on a national
securities exchange or shares in registered mutual funds to the extent that the
aggregate amount of such investments do not exceed 100% of the bank's capital,
if such bank (i) is located in a state which, as of September 30, 1991, allowed
such investments, and (ii) maintained an investment in such securities during
the period beginning September 30, 1990 and ending November 26, 1991 and (iii)
applies for and receives approval from the FDIC. Any approval by the FDIC under
the regulations dealing with equity investments may be subject to whatever
conditions or restrictions the FDIC determines is necessary or appropriate. If
the insured state bank does not receive approval of a notice to retain and
acquire listed stock and registered shares, the bank must, as quickly and
prudently as possible but in no event later than December 19, 1996, divest the
listed stock and/or registered shares for which approval to retain was denied.
Audit Requirements. FDICIA requires that, insured depository institutions
in excess of $500 million in assets have an annual audit by an independent
public accountant and establish an independent audit committee made up of
outside directors. Such institutions must also establish and maintain internal
control systems and procedures to ensure compliance with laws and regulations
concerning safety and soundness. Such institutions are also required to prepare
an annual management report concerning the institution's internal control
structure, procedures for financial reporting and compliance with laws relating
to safety and soundness. Independent auditors are also required to attest to the
management report.
Deposit Premiums. As mandated by FDICIA and revised by regulations adopted
by the FDIC on November 26, 1996, the FDIC established a system of risk-based
deposit insurance assessments. Both BIF and SAIF insured institutions pay
between 0% to .27% of domestic insured deposits for deposit insurance, depending
on their risk classification. The risk-based assessment system is based on
capital ratios and on supervisory evaluations of the risk posed by the
institution to the FDIC insurance fund. Institutions are assigned to one of
three capital groups, "well capitalized," "adequately capitalized" and
"undercapitalized," which categories correspond to those defined under the
prompt corrective action regulations described below. These three groups are
then divided into subgroups based on supervisory examinations by the FDIC.
Insured institutions are thus classified in one of nine risk categories, ranging
from a 1A, the lowest risk, to a 3C, the highest risk. The Deposit Insurance Act
of 1996 authorizes the Financing Corporation ("FICO") to assess fees based on
deposits of insured institutions. Such fees are not tied to the risk based
classification system and for BIF insured institutions will be for 1.296 basis
points of deposits for fiscal 1997.
The FDIC may terminate the deposit insurance of any insured depository
institution if, among other things, it determines, after notice and hearing,
that the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, order or any condition imposed by, or under an
agreement with, the FDIC. It also may suspend deposit insurance temporarily
during the hearing process for the permanent termination of insurance, if the
institution has no tangible capital.
Prompt Corrective Action. The prompt corrective action requirements of
FDICIA provide for the classification of banks into one of five categories
according to capital levels. With respect to banks not meeting their minimum
capital levels, and depending on the extent to which a bank is undercapitalized,
Federal bank regulators are required to take certain enumerated corrective
actions against such undercapitalized banks,
44
<PAGE>
ranging from requiring an acceptable capital restoration plan to placing a bank
into conservatorship or receivership in the case of a "critically
undercapitalized" institution. A bank will be categorized as "critically
undercapitalized" if its tangible capital to total assets ratio is below 2%. In
general, all undercapitalized banks are subject to restrictions on asset growth,
acquisitions, branching and business expansion and are subject to increased
monitoring by the appropriate regulator. The regulators may, or, as a bank's
capital ratio decreases, are required, to take further actions, including
imposing restrictions on rates of interest paid on deposits, transactions with
affiliates, engaging in material transactions not in the ordinary course of
business, or payments to senior officers or requiring an institution to raise
additional capital, hold new elections for directors, dismiss directors or
officers, accept an acquisition offer, or divest any subsidiaries.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
was enacted to encourage every financial institution to help meet the credit
needs of its entire community, including low and moderate income neighborhoods,
consistent with the institution's safe and sound operation. Under the CRA, state
and Federal regulators are required, when examining financial institutions and
when considering applications for approval of certain merger, acquisition or
other transactions, to take into account the institution's record in helping to
meet the credit needs of its entire community, including low and moderate income
neighborhoods. Under the new CRA regulations, effective as of July 1, 1995,
state and Federal regulators, in evaluating an institution's CRA record, will
take into account the results of various performance tests. These performance
tests include evaluations of the following criteria: (i) lending; (ii)
investment; (iii) service; and (iv) community development. In addition, an
institution can elect to have its performance evaluated on the basis of a
preapproved strategic plan. Following its most recent CRA examination as of
October 1996 the Bank received an "outstanding" rating regarding its compliance
with CRA.
FEDERAL RESERVE BOARD
Pursuant to the Deregulation Act, the Federal Reserve Board adopted
regulations that require the Bank to maintain reserves against its transaction
accounts and non-personal time deposits. These regulations generally require
that reserves of 3% must be maintained against transaction accounts totaling
$49.3 million or less and a reserve of 10% of the amount exceeding $49.3
million. As of December 27, 1990, the Federal Reserve Board eliminated the
requirements that a reserve of 3% be maintained on non-personal time deposits
with original maturities of less than one and one-half years. The effect of such
elimination has resulted in increases liquidity for the Bank. However, as the
amount of non-personal time deposits with original maturities of less than one
and one-half years at the Bank is small, such increased liquidity has not been
substantial.
EFFECTS OF GOVERNMENT POLICY
Banking is a business that depends on interest rate differentials. One of
the most significant factors affecting the earnings of NMBT is the difference
between the interest rate paid by NMBT on its deposits and borrowings and the
interest rates received by NMBT on loans extended to its various customers and
securities held in its portfolio. The value and yields of its assets and the
rate paid on its liabilities are sensitive to changes in prevailing market rates
of interest. Thus, the earnings and growth of NMBT will be influenced by general
economic conditions, the monetary and fiscal policies of the Federal government,
and policies of regulatory agencies, particularly the Federal Reserve Board,
which implement national monetary policy. The nature and impact of any future
changes in monetary policies cannot be predicted.
The present bank regulatory scheme is undergoing significant change, both
as it affects the banking industry itself and as it affects competition between
banks and nonbanking financial institutions. There has been significant
regulatory change in the bank merger and acquisition area, in the products and
services banks can offer, and in the nonbanking activities in which bank holding
companies can engage. In part, as a result of these changes, banks are now
actively competing with other types of depository institutions and with nonbank
45
<PAGE>
financial institutions, such as money market funds, brokerage firms, insurance
companies, and other financial services enterprises. It is not possible at this
time to assess what impact these changes in the regulatory scheme will
ultimately have on NMBT.
Moreover, certain legislative and regulatory proposals that could affect
NMBT and the banking industry in general are pending, or may be introduced,
before the United States Congress, the Connecticut General Assembly and various
governmental agencies. These proposals include measures that may further alter
the structure, regulation, and competitive relationship of financial
institutions and that may subject NMBT and the Company to increased regulation,
disclosure, and reporting requirements. In addition, the various banking
regulatory agencies frequently propose rules and regulations to implement and
enforce already existing legislation. It cannot be predicted whether or in what
form any legislation or regulations will be enacted or the extent to which the
business of NMBT and the Company will be affected thereby.
THE BUSINESS OF THE COMPANY
The Company was previously organized as a stock corporation under the laws
of the State of Delaware to act as a bank holding company for NMBT. The Company
will apply to the Federal Reserve Board and the Commissioner for approval to
become a bank holding company and to provide, through NMBT and any other
subsidiaries that the Company may acquire, comprehensive banking and permissible
nonbanking services in Connecticut. As of the Effective Time, the Company will
have no significant assets other than the shares of Bank Common Stock acquired
through the Exchange. The Company's revenues immediately after the Effective
Time will be comprised primarily of dividends declared and paid to the Company
by NMBT and such amounts will be used by the Company to pay operating expenses
and dividends, if declared.
THE BUSINESS OF NMBT
GENERAL
NMBT, headquartered in New Milford, Connecticut, is a state-chartered bank
and trust company that was originally founded in 1975. The Bank's principal
business is to provide full banking services to individuals and businesses in
Litchfleld County and northern Fairfield County, Connecticut. Deposits are
insured up to applicable limits by the Bank Insurance Fund of the FDIC. The Bank
serves its market through a network of nine banking offices located in New
Milford, Kent, Bridgewater, New Fairfield and Danbury. The Bank's primary
regulators are the FDIC and the State of Connecticut Department of Banking.
The Bank's business consists primarily of attracting deposits from the
general public and originating and investing in loans secured by mortgages on
residential, commercial and other real estate for the purpose of purchasing,
constructing, improving or refinancing such property. In addition, the Bank
invests in loans secured by savings accounts, automobile and other consumer
installment loans, and commercial loans. The Bank also invests in United States
treasury and other Federal agency obligations as well as obligations of state
and political subdivisions, and other marketable investment securities. The
funding of such activity is generated from deposits, borrowings from the Federal
Home Loan Bank of Boston (the "FHLBB"), reverse repurchase agreements, the
proceeds from the sale of loans, and amortization and prepayment of outstanding
loans. The Bank's principal source of income is the interest that it derives
from mortgage loans and other loans, origination and other fees on loans, and
interest and dividends on investments. The net income of the Bank results from
the income sources cited above, less expenses incurred, which include interest
paid on deposits and borrowings and other expenses related to the day-to-day
operation of the Bank's business.
46
<PAGE>
On April 29, 1994, the Bank acquired all the outstanding common stock of
Candlewood Bank and Trust Company, a Connecticut state bank and trust company
headquartered in New Fairfield, Connecticut ("Candlewood"). Candlewood operated
two full service branches, one in New Fairfield and one on the east side of
Danbury. Candlewood was merged with and into the Bank. The Bank acquired
approximately $54 million in assets (not including approximately $1.5 million of
intangible assets resulting from the excess of the purchase price over the fair
value of net assets acquired).
The Bank operates under the General Statutes of the State of Connecticut
and is a member of the FHLBB, which is a part of the Federal Home Loan Bank
System. The Bank is subject to regulation, examination and supervision by the
Banking Commissioner of the State of Connecticut, and the FDIC and is subject to
various regulatory requirements of the Federal Reserve Board.
Further information concerning NMBT's Business including lending and
investment activities and deposits and other sources of funds, all is contained
in the Bank's Annual Report to security holders which accompanies this Proxy
Statement and Prospectus.
EMPLOYEES
At December 31, 1996, the Bank employed 154 full-time equivalent employees,
including officers, none of whom is represented by a collective bargaining
group. Medical and hospitalization plans comparable to those provided generally
in the industry are available to the Bank's employees. The Bank considers its
relationship with its employees to be excellent.
COMPETITION
In general, competition in the financial services industry in Connecticut
is strong. Numerous commercial banks, savings banks and savings and loan
associations maintain offices in the western Connecticut area although their
numbers have been decreasing recently through consolidations as is discussed
further below. Commercial banks, savings banks, savings and loan associations,
mortgage brokers, finance companies, credit unions, insurance companies,
investment firms and private lenders compete with the Bank for deposits, loans
and employees. Many of these competitors have far greater resources than the
Bank and are able to conduct more intensive and broader based promotional
efforts to reach both commercial and individual customers.
Changes in the financial services industry resulting from fluctuating
interest rates, technological changes and deregulation have resulted in an
increase in competition, cost of funds, merger activity, failures among banking
institutions and customer awareness of product and service differences among
competitors.
Commencing in 1993, the banking industry has experienced increased
consolidation as a result of acquisitions of banks by other banks and financial
institutions. During 1991 and 1992, and to a lesser extent in 1993, the banking
industry, particularly in Connecticut, experienced consolidation due to the
failure of various banks, some of which operated in the Bank's market area.
Although it is not possible to predict, the consolidation of financial
institutions will likely continue and particularly affect banks, including the
Bank.
Connecticut has enacted legislation which liberalized banking powers and
has put thrift institutions on equal footing with other banks, thereby improving
their competitive position. In addition, in March 1990, the Connecticut General
Assembly enacted the Interstate Banking Act which permits mergers or
acquisitions of Connecticut banks and bank holding companies with banks and bank
holding companies in other states so long as such states have reciprocal
legislation. Many of these states currently have such legislation. Connecticut
banking law also permits non-Connecticut bank holding companies to open up to
two offices annually in Connecticut that may engage in a banking business other
than the providing of deposit services, and several New
47
<PAGE>
York and other out-of-state bank holding companies have done so. It is possible
that such legislative authority will increase the number or the size of
financial institutions competing with the Bank for deposits and loans in its
market place, although it is impossible to predict the effect of such
legislation. See "Regulation and Supervision."
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") became Federal law in October 1994. The
Interstate Banking Act authorizes a number of interstate banking transactions
and activities, including, among others, the following: (i) after one year from
the date the Interstate Banking Act became law, a bank holding company will be
allowed to acquire banks in states outside of the holding company's home state;
(ii) beginning on June 1, 1997 (or earlier, if allowed by state law), an insured
bank may acquire a bank outside of the acquiring bank's home state unless the
home state of a bank involved in the transaction passes a law before June 1,
1997 prohibiting such transactions with out-of-state banks; (iii) an insured
bank may acquire a branch of a bank located outside of the acquiring bank's home
state if the law of the state where the branch is located allows such
out-of-state acquisitions; and (iv) an insured bank will be able to establish
new branches in states outside of the bank's home state if the state in which
the bank desires to establish a branch has a law permitting out-of-state banks
to establish branches. The effect of the Interstate Banking Act may be to
increase competition for the Bank. See "Regulation and Supervision-Connecticut
Regulation."
BANK PROPERTY
NMBT presently operates in five communities located in Litchfield and
northern Fairfield counties in Connecticut through its network of nine banking
offices, including its main office located at 55 Main Street, New Milford,
Connecticut.
The Bank presently owns the main office property and one branch location
and leases its remaining seven (7) branch locations.
All Bank or subsidiary-owned property is free of material encumbrances and
considered suitably equipped for its current use. Neither the location of any
particular office nor the unexpired term of any lease is deemed material to the
business of NMBT. It is not currently anticipated that the Company will utilize
any property not currently utilized by the Bank. In the event the Company or the
Bank would require additional property, as a result of the additional
requirements of the Company, then the Company would bear the expenses for such
property.
FINANCIAL DATA
Certain financial information concerning NMBT, including Financial
Statements, Selected Financial Data and Management's Discussion and Analysis of
Financial Condition and Results of Operations are contained in the Bank's Annual
Report to security holders which accompanies this Proxy Statement and
Prospectus. It is not expected that the Company's utilization of Bank property
will be more than nominal. If such utilization increases materially, the Company
will bear the expenses. Such financial information is not deemed to be material
for the exercise of prudent judgment in regard to the vote on the Exchange and
is therefore not included herein.
48
<PAGE>
MANAGEMENT OF THE COMPANY
GENERAL INFORMATION
The proposed Certificate of Incorporation and the Bylaws of the Company
provide for the election of directors by the shareholders. For this purpose, the
Board of Directors will be divided into three classes of directors. The term of
office of the members of the class expire, and a successor class will be
elected, at each annual meeting of shareholders. See "Comparison of the Rights
of Holders of Bank Common Stock and Company Common Stock-Board of Director
Provisions."
BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company consists of the same individuals who
comprise NMBT's Board of Directors with one exception. Namely, Edward E. Tierney
who is not a director of the Company is a director of NMBT; however his term
expires at the Annual Meeting and he is not a nominee for re-election. See
"Election of Directors."
The directors of the Company shall hold office for a term of three (3)
years and until their successors are elected and qualified. As of the Effective
Time, it is anticipated that the Board of Directors of the Company will be
divided into three substantially equal classes of directors. See "Election of
Directors."
For information regarding the age, positions held with NMBT, principal
occupation and directorships held during the past five years, term as a director
with NMBT, shares and percentage of Bank Common Stock beneficially owned,
compensation and related transactions for each individual who is or will become
a director of the Company, see "Election of Directors."
The executive officers of the Company are appointed by the Board of
Directors of the Company. The executive officers of the Company will be Michael
D. Carrigan, President and Chief Executive Officer, and Jay C. Lent, Executive
Vice President, Chief Financial Officer and Secretary, and Deborah L. Fish,
Treasurer.
The executive officers of the Bank who will become executive officers of
the Company will not receive any additional compensation for serving as officers
of the Company. Directors of the Company will not receive additional
compensation for attendance at any board or committee meeting of the Company,
unless such meeting occurs on a date other than the date of a Bank Board of
Directors or committee meeting. In such event, all directors (except those who
are also officers of the Company) will receive $250 for each Board of Directors
meeting they attend and $75 for each committee meeting they attend.
To the extent that Company utilization of Bank personnel is material, the
Company will bear the expenses of such utilization.
RATIFICATION OF DIRECTORS' APPOINTMENT
OF INDEPENDENT AUDITORS
(PROPOSAL THREE)
The Board of Directors has appointed the firm of Deloitte & Touche LLP as
NMBT's independent auditors to serve for the fiscal year ending December 31,
1997. A representative of Deloitte & Touche LLP will be available to answer
appropriate questions at the Annual Meeting and will be afforded the opportunity
to make a statement, if he wishes to do so. Deloitte & Touche LLP is an
internationally known firm and known as one of the "Big Six" accounting firms.
NMBT is being served by the Stamford, Connecticut office.
49
<PAGE>
In 1996, Deloitte & Touche LLP provided NMBT certain services, in addition
to conducting the annual audit of NMBT's financial statements. These services
consisted primarily of income tax advice, corporate tax return preparation and
audits and tax filings relative to NMBT's pension plans. The Audit Committee of
the Board of Directors approved these services and considered their possible
effect on the independence of Deloitte & Touche LLP before these services were
rendered.
REQUIRED VOTE FOR RATIFICATION OF INDEPENDENT AUDITORS
To ratify the directors' appointment of the independent auditors, the
number of affirmative votes must exceed the negative votes cast at the Annual
Meeting either in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION.
COMPLIANCE WITH FEDERAL SECURITIES LAWS
The Federal Securities Laws and regulations, as adopted by the Federal
Deposit Insurance Corporation, and as such applicable to NMBT, require NMBT's
directors and executive officers, and persons who beneficially own more than ten
percent of a registered class of NMBT's equity securities, to file with the
Federal Deposit Insurance Corporation initial reports of ownership and reports
of changes in ownership of any securities of NMBT.
To NMBT's knowledge, based solely on review of the copies of such reports
furnished to NMBT and written representations that no other reports were
required during the year ended December 31, 1996, all NMBT's executive officers
and directors made all required filings.
STOCKHOLDERS' PROPOSALS FOR 1997 MEETING
Any proposal which a stockholder intends to present to the 1998 Annual
Meeting of Stockholders, must be received by the Secretary of NMBT on or before
January 24, 1998 in order to be considered for inclusion in NMBT's Proxy
Statement and Form of Proxy relating to the 1998 Annual Meeting. In the event
that the Exchange is consummated, the 1998 annual meeting of stockholders will
relate to the Company rather than NMBT.
ALL OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
As of the date of this Proxy Statement, the Board of Directors knows of no
business that will be presented for consideration at the meeting other than that
which has been referred to herein. As to other business, if any, that may
properly come before the meeting, the persons named in the accompanying Form of
Proxy will vote such Proxy in accordance with the determination of a majority of
the Board of Directors.
By Order of the Board of Directors,
/s/ Jay C. Lent
-----------------------------------
JAY C. LENT
Secretary
New Milford, Connecticut
May 2, 1997
50
<PAGE>
APPENDIX A
CONNECTICUT GENERAL STATUTE--SECTION 36A-181(C)
Upon the effective date of the plan and the organization provided for
therein, the shareholders of the Connecticut bank shall, except to the extent
that they have received other securities of the parent corporation or cash in
lieu of fractional shares, be holders of the voting securities of the parent
corporation. Unless such plan otherwise provides, the Connecticut bank may
require each shareholder to surrender such shareholder's certificates of stock
in the Connecticut bank and, in that event, no shareholder, until such surrender
of the shareholder's certificates, shall be entitled to vote thereon or to
collect dividends declared thereon or to receive cash in lieu of fractional
shares or the shares or other securities of the parent corporation. Any
shareholder of the Connecticut bank whose stock has been so acquired who, on or
before the date of such shareholders' meeting, gave written notice to the
Connecticut bank of such shareholder's objection thereto, may, within ten days
after the plan of organization has been filed in the office of the Secretary of
the State, demand in writing from the Connecticut bank payment for such
shareholder's stock and the Connecticut bank shall, within three months
thereafter, pay such shareholder the value of such shareholder's stock at the
date upon which such organization became effective. In case of disagreement as
to the value of the stock of the Connecticut bank to be acquired, such value
shall be ascertained by three disinterested persons to be chosen one by the
shareholder, one by the Connecticut bank and the third by the two thus selected,
and, if their award is not paid within sixty days from its date, it shall become
a debt of the Connecticut bank and may be collected as such and such
shareholder, upon receiving payment therefor, shall transfer such shareholder's
stock to the Connecticut bank.
51
<PAGE>
ANNUAL REPORT
1996
NMBT
[Pages referenced in the New Milford Bank
& Trust Company's Form F-2 for the fiscal
year ended December 31, 1996]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------------
Dollars in thousands, except per share data 1996 1995 1994
- --------------------------------------------------------------------------------------
FOR THE YEAR ENDED:
<S> <C> <C> <C>
Net interest and dividend income $ 12,306 $ 11,379 $ 10,040
Noninterest income 1,640 1,275 1,214
Noninterest expense 10,385 9,798 9,336
Net income 2,792 2,159 1,339
- --------------------------------------------------------------------------------------
AT YEAR END:
Assets $ 305,545 $ 269,176 $ 252,485
Loans 211,686 198,158 190,911
Deposits 266,161 247,067 225,758
Stockholders' equity 22,565 20,157 17,546
- --------------------------------------------------------------------------------------
PER SHARE:
Net income $ 1.04 $ 0.83 $ 0.53
Book value 8.72 7.87 6.93
Closing bid price 11.75 9.25 5.50
Closing ask price 12.50 10.25 6.50
- --------------------------------------------------------------------------------------
SELECTED RATIOS:
Return on average assets 0.98% 0.84% 0.58%
Return on average equity 13.23% 11.56% 7.83%
Loan loss allowance to nonperforming loans 79.79% 78.57% 78.41%
Nonperforming assets to total assets 1.48% 2.17% 2.62%
- --------------------------------------------------------------------------------------
</TABLE>
Quarterly
NET INCOME Trends
(Dollars in thousands)
<TABLE>
<CAPTION>
NMBT
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
First Quarter............................... $ 248 $ 444 $ 594
Second Quarter.............................. $ 283 $ 466 $ 675
Third Quarter............................... $ 370 $ 597 $ 731
Fourth Quarter.............................. $ 438 $ 652 $ 792
</TABLE>
<PAGE>
FINANCIAL REVIEW
The following financial data is presented for analytical purposes. Balances are
as of and for the years ended December 31.
<TABLE>
<CAPTION>
Dollars in thousands, except for per
share data
- -----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
STATEMENTS OF CONDITION:
<S> <C> <C> <C> <C> <C>
Assets $305,545 $269,176 $252,485 $202,244 $205,356
Securities 63,761 40,206 38,859 41,111 45,000
Loans, net 208,474 194,605 186,946 140,392 140,544
Deposits 266,161 247,067 225,758 176,324 180,701
Stockholders' equity 22,565 20,157 17,546 16,775 15,358
STATEMENTS OF OPERATIONS:
Interest and dividend income $ 20,300 $ 18,463 $ 14,797 $ 12,673 $ 15,415
Interest expense 7,994 7,084 4,757 4,965 7,567
Net interest income 12,306 11,379 10,040 7,708 7,848
Provision for loan losses 390 160 240 155 4,696
Noninterest income 1,640 1,275 1,214 1,154 2,057
Noninterest expense 10,385 9,798 9,336 7,899 8,719
Income (loss) before income taxes 3,171 2,696 1,678 808 (3,510)
Provision for income taxes 379 537 339 52 630
Net income (loss) 2,792 2,159 1,339 756 (4,140)
COMMON STOCK DATA:
Book value per share $ 8.72 $ 7.87 $ 6.93 $ 6.63 $ 6.07
Tangible book value per share 8.43 7.48 6.40 6.63 6.07
Net income (loss) per share 1.04 0.83 0.53 0.30 (1.61)
Cash dividends per share 0.17 0.13 0.00 0.00 0.00
SELECTED RATIOS:
Return on average assets 0.98% 0.84% 0.58% 0.37% (1.96%)
Return on average equity 13.23% 11.56% 7.83% 4.74% (23.51%)
Net interest spread 4.33% 4.50% 4.50% 3.87% 3.70%
Net interest margin 4.73% 4.82% 4.74% 4.12% 4.06%
Stockholders' equity to total assets 7.39% 7.49% 6.95% 8.29% 7.48%
Nonperforming assets to total assets 1.48% 2.17% 2.62% 3.76% 4.43%
Book Value per share $ 8.72 $ 7.87 $ 6.93 $ 6.63 $ 6.07
Total Assets (Dollars in thousands) $305,545 $269,176 $252,485 $202,244 $205,356
</TABLE>
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The New Milford Bank & Trust Company (NMBT), headquartered in New Milford,
Connecticut, is a state-chartered bank and trust company that was originally
founded in 1975. NMBT's principal business is to provide full banking services
to individuals and businesses in western Connecticut. Deposits are insured up to
applicable limits by the Bank Insurance Fund (BIF) of the Federal Deposit
Insurance Corporation (FDIC). NMBT's lending activities consist of originating
loans collateralized by residential and commercial properties, and extending
collateralized and uncollateralized loans to consumers and businesses. NMBT
serves its market through a network of nine banking offices located in New
Milford, Kent, Bridgewater, New Fairfield, and Danbury. NMBT's primary
regulators are the FDIC and the Connecticut Department of Banking (CDB).
On January 15, 1997, the Board of Directors approved the formation of a
holding company to be presented for approval at the May 27, 1997 stockholders'
meeting. The formation of the holding company requires approval of the
stockholders, as well as the Federal Reserve Bank of Boston (FRB), FDIC and the
CDB. If approved, the name of the holding company will be "NMBT Corp.". NMBT
Corp. will hold 100% of the issued and outstanding common stock of NMBT. Whether
or not the holding company is approved, the Board of Directors also approved the
name of the Bank be changed effective with the stockholders' meeting to "NMBT".
As of December 31, 1996, NMBT had total assets of $305.55 million, up from
$269.18 million as of December 31, 1995. The growth in assets is the product of
strong loan growth and an increase in securities, which assets were funded by an
increase in deposits coupled with a modest leverage strategy. Loans grew $13.53
million, mainly in higher-yielding commercial and installment loans with almost
all of the growth variable rate in nature. During 1996, NMBT's Board of
Directors declared four quarterly cash dividends totaling $0.44 million, or
$0.17 per share.
RESULTS OF OPERATIONS
SUMMARY
NMBT's results of operations are largely dependent upon net interest
income, which is the difference between interest and dividend income on earning
assets, such as loans and securities, and interest expense on deposits and
borrowings. Interest and dividend income on loans, securities and
interest-bearing deposits is a function of the average balances outstanding
during the period and the average yields earned. Interest expense on deposits
and borrowings is similarly a function of average balances outstanding and the
average rates paid. NMBT's results of operations are also affected by: the
provision for loan losses, noninterest income, such as service charges on
deposits and other fee-based revenues; noninterest expense; and income taxes.
NMBT's operating results have benefited considerably in the past three
years from continued improvements in overall asset quality and reduced
noninterest expense as a percent of net revenues. NMBT recorded net income of
$2.79 million or $1.04 per share for 1996, compared to net income of $2.16
million or $0.83 per share for 1995, and net income of $1.34 million or $0.53
per share for 1994. The 29% rise in net income from 1995 to 1996 results
primarily from the substantial increase in interest-earning assets, which assets
were funded by a favorable mix of low cost deposits and FHLB advances, and
continued improvement in operating efficiency. The 61% rise in net income from
1994 to 1995 results primarily from an increased net interest spread and an
increase in interest-earning assets, coupled with improved operating efficiency.
COMPARISON OF YEARS ENDED DECEMBER 31,
1996 AND 1995
NET INTEREST INCOME
Net interest income (interest income less interest expense) increased $0.93
million, or 8.1% from 1995 to 1996. The net interest
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
margin decreased during that same time frame from 4.82% in 1995 to 4.73% in
1996. The increase in net interest income is the product of strong loan growth
and an increase in securities, which assets were funded by a $19.09 million, or
7.7%, increase in deposits coupled with a modest leverage strategy using $14.56
million in Federal Home Loan Bank of Boston (FHLB) advances. Loans grew $13.53
million, fueled mainly by commercial and installment loans, almost all variable
rate in nature. This caused net interest income to accelerate at a pace which
outdistanced the nominal contraction in the net interest margin. The decrease in
the margin was primarily the result of increased competition and the addition of
FHLB advances to fund the modest leverage strategy. These FHLB advances were
used to fund securities at an average spread between 1% and 2%, thereby lowering
the overall margin.
Beginning in 1996, the FDIC has all but eliminated the federal deposit
premiums banks pay to insure deposits. This elimination of FDIC premiums for
most of the nation's banks may encourage banks to raise core deposit rates
without negatively impacting earnings. If disintermediation accelerates,
financial institutions may be forced to raise core deposit rates to maintain
deposits. This could negatively impact NMBT's net interest income and margin.
NONINTEREST INCOME
Noninterest income increased from $1.28 million in 1995 to $1.64 million in
1996, principally due to increases in service charge and other fee income, and
expanded mortgage banking activities since management began a program selling
principally all fixed rate mortgages servicing-retained in May, 1994.
NONINTEREST EXPENSE
Noninterest expense increased $0.60 million or 6.1% to $10.39 million in
1996, up from $9.80 million in 1995. The increase was primarily attributable to
increased general operating expense, which included, among other normal expense
increases reflective of volume, a one-time charge of $0.12 million for a
reduction in the assumed discount rate used to record the deferred compensation
liability, an increase of $0.08 million in advertising expenditures, $0.10
million for settlement of litigation and associated legal fees, and $0.02
million related to a robbery. Overall operating efficiency improved from 1995 to
1996 as a result of management's continued focus on cost control, continued
efficiencies derived from the second full year of combined operating results
after the Candlewood merger, migration to part-time workers, technological
upgrades in data processing, and the reduction of nonperforming assets. All of
these factors served to control noninterest expense and kept their increase
below the increase in asset growth and revenues.
COMPARISON OF YEARS ENDED
DECEMBER 31, 1995 AND 1994
NET INTEREST INCOME
Net interest income increased $1.34 million, or 13.3% from 1994 to 1995.
The net interest margin also improved from 4.74% in 1994 to 4.82% in 1995. A
portion of the increase resulted from the opening of the Danbury Towers office
on April 26, 1995, which added approximately $11 million to deposits as of
December 31, 1995, half of which were checking accounts. Overall, deposits
increased $21.3 million from 1994 to 1995 allowing management to pay off higher
cost FHLB advances with the deposit funds, reducing the overall cost of funds.
Interest expense increased at a slower rate than interest income from 1994 to
1995 mainly due to the influx of deposits mentioned above, which increase in
funding was more than adequate to pay off higher cost advances, fund new loan
growth and increase securities.
NONINTEREST INCOME
Noninterest income increased from $1.21 million in 1994 to $1.28 million in
1995, primarily because 1995 reflects a full year of service charge and fee
income from the Candlewood deposits acquired in the 1994 merger, as compared to
only eight months of similar noninterest income in 1994.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
NONINTEREST EXPENSE
Noninterest expense increased $0.46 million or 4.9% to $9.80 million in
1995, up from $9.34 million in 1994. The increase is primarily attributable to
the merger with Candlewood, for which 1995 reflects a full year of combined
operating expense, versus only eight months in 1994. In addition, NMBT opened a
de novo full service branch (Danbury Towers) in April, 1995, which served to
increase 1995 operating expense when compared to 1994. Overall operating
efficiency improved from 1994 to 1995 as a result of management's continued
focus on cost control, staff reductions, efficiencies derived from the first
full year of combined operating results after the Candlewood merger, migration
to more part-time workers, and the reduction of nonperforming assets. All of
these factors served to control noninterest expense and kept their increase
below the increase in revenues.
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled $0.39 million for 1996, compared to
$0.16 million for 1995 and $0.24 million in 1994. Management believes the
overall level of the allowance for loan losses was adequate at December 31, 1996
and 1995. The provision for loan losses reflects management's assessment of the
adequacy of the allowance for loan losses. The amount of future provisions will
be a function of the regular monthly review of the allowance for loan losses,
which considers the risk characteristics of the loan portfolio and economic
conditions existing at the time.
Net loan charge-offs for fiscal 1996 were $0.53 million, versus $0.57
million in 1995 and $1.24 million in 1994. The increased provision for loan
losses in 1996 reflects growth in the commercial and installment loan portfolios
during 1996. The reduced provision for loan losses in fiscal 1995 reflected
management's analysis of the risk elements of the loan portfolio, current
delinquency rates and payment trends (including the reduced level of charge-offs
in 1995 compared to 1994). In 1996, 99% of nonperforming loans were
collateralized by real estate, with 55% collateralized by residential mortgages.
PROVISION FOR INCOME TAXES
The 1996 provision for income taxes was $0.38 million, compared with $0.54
million in 1995 and $0.34 million in 1994. NMBT's effective tax rate in 1996 was
12%, as compared to 20% in 1995 and 1994. The 1996 provision for income taxes
was lower than the 1995 provision due to the recognition of deferred tax
benefits in the fourth quarter of 1996. The deferred tax benefits resulted from
a reduction in NMBT's valuation allowance on its deferred tax asset which
reflects NMBT's improved financial performance, marked by improving core
earnings, consistent reductions in nonperforming assets, and a positive outlook
for earnings in the near future. Recognition of these future tax benefits in
1996 requires that earnings in future periods be tax effected at the statutory
federal and state rates, adjusted for any permanent differences. As a result,
NMBT's 1997 fiscal year quarterly earnings will, in all likelihood, be reported
on a fully-taxable basis with an effective tax rate of approximately 40% of
pre-tax income. The 1995 and 1994 provisions were also positively impacted by
the recognition of deferred tax benefits.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
ASSET/LIABILITY MANAGEMENT
Financial institutions such as NMBT are subject to interest rate risk when
their interest-bearing liabilities, consisting principally of deposits, FHLB
advances and other borrowings, mature or reprice more rapidly or on a different
basis than their interest-earning assets, which consist predominantly of
investment securities and intermediate or longer-term commercial and real estate
loans. Interest rate risk is increased by the difference in aggregate amounts of
interest-earning assets and interest-bearing liabilities. While having
liabilities that mature or reprice more frequently on average than assets may be
beneficial in times of declining interest rates, such an asset/liability
structure may result in declining net earnings during periods of rising interest
rates, unless offset by increasing noninterest income. One of NMBT's primary
financial objectives is to manage the interest rate risk inherent in its
business by reducing the sensitivity of its earnings to interest rate
fluctuations, improving its interest rate margin, improving the ratio of its
interest-earning assets to interest-bearing liabilities, and achieving a better
matching of the maturities and interest rate sensitivities of its assets and
liabilities. A better matching is achieved through originating adjustable rate
or short-term mortgage and commercial loans, obtaining longer duration sources
of funds, and selling long-term, fixed rate loans. These efforts can be expected
to result in shifts in NMBT's one-year gap from time to time to reflect
management's forecasts of the interest rate environment.
One method of monitoring interest rate risk is through the analysis of gap
positions. Gap is the difference between the amount of assets and the amount of
liabilities that mature or are repriced during a given time frame. A positive
gap results when more assets than liabilities mature or are repriced in a given
time frame. Conversely, a negative gap results when more liabilities than assets
mature or are repriced during a given time frame. Gap positions can be quickly
modified by management as warranted by market conditions. The Board of Directors
is briefed on tactical and strategic issues inherent in NMBT's interest rate
risk profile.
The one-year gap's negative position was implemented from 1994 to 1996 to
reflect management's forecast for a stabilized interest rate environment and a
desire to reduce NMBT's exposure to rising interest rates. Management maintains
a negative gap to counter the effect of placing all checking and savings
accounts in the one-month repricing category. The majority of these deposits
have proven to not be rate sensitive. We expect rates to continue to remain
stable in 1997. The increase in the negative gap during 1996 was mainly
attributable to the leverage strategy, whereby longer-term assets were funded
with shorter-term FHLB advances. The reduction in the negative gap during 1995
resulted primarily from continuing to emphasize origination of adjustable rate
loans and selling all long-term, fixed rate residential mortgages.
NMBT has an Asset/Liability Management Committee (ALCO), which is
responsible for implementing the funds management policy adopted by the Board.
Among other things, NMBT's policy statement sets forth the limits established by
the Board of Directors on acceptable ratios of rate sensitive assets (RSA) to
rate sensitive liabilities (RSL), and gap to total assets, based on specified
changes
================================================================================
GAP ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
Dollars in thousands 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets maturing or repricing within one year $194,162 $180,638 $166,898
Interest-bearing liabilities maturing or repricing within one year 219,291 198,014 196,019
- ----------------------------------------------------------------------------------------------------------------
One-year maturity or repricing gap ($25,129) ($17,376) ($29,121)
- ----------------------------------------------------------------------------------------------------------------
Rate sensitive assets (RSA) divided by rate sensitive liabilities (RSL) 88.54% 91.23% 85.14%
Gap as a percent of total assets (8.22%) (6.45%) (11.53%)
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
in interest rates. ALCO reviews, among other things, economic conditions, the
interest rate outlook, the demand for loans, the availability of deposits and
NMBT's current operating results, liquidity, capital and interest rate risk
exposure. Based on such reviews, ALCO formulates a strategy that is intended to
implement the objectives set forth in NMBT's investment and loan policies,
without exceeding the limits set forth in the funds management policy.
NMBT's ALCO uses interest rate sensitivity gap analysis, and balance sheet
and income statement simulation models, to project multiple interest rate
scenarios to measure the potential effects of funding and investments on NMBT's
interest rate sensitivity profile. Management currently anticipates that it will
maintain a negative one-year gap throughout 1997 to reflect, among other things,
the lag in repricing of checking and savings deposits, which deposits are all
considered immediately repricable in the gap analysis.
NMBT has continued to focus its marketing efforts on the origination of
adjustable rate loans for its own portfolio. The origination of adjustable rate
loans reduces interest rate risk by increasing the portion of the loan portfolio
that constitutes interest sensitive assets. In addition, management has
continued to emphasize shorter repricing frequencies through the origination of
loans that reprice monthly or with market rates, and the reduction in the
balance of loans with longer repricing periods. At December 31, 1996,
approximately 77 percent of NMBT's accruing loan portfolio consisted of variable
rate loans, compared to 80 percent at December 31, 1995, and 76 percent at
December 31,1994. Borrower demand for fixed rate mortgage loans accelerated
during 1996 as interest rates remained low. The increased refinancing activities
as a result of the low interest rate environment in 1996 was a continuation of
1995.
Stable interest rates throughout 1996 leveled off NMBT's yield on assets,
which was offset by increased volume of deposits and loans, and a favorable mix
of deposits. These factors combined to maintain the spread realized between the
yield on assets and the cost of funds. Lower rates in 1995 and 1996 invited
continued migration from savings and transaction accounts to time deposits which
began in late 1994. This changing deposit mix is expected to continue into 1997.
The following table summarizes the year-to-year changes in NMBT's net
interest income resulting from fluctuations in interest rates and from volume
changes in interest-earning assets and interest-bearing liabilities. Changes due
to rate are the change in rate multiplied by the prior year's volume. Changes
due to volume are the change in volume multiplied by the prior year's rate.
Changes in volume and rate that cannot be separately identified have been
allocated in proportion to the relationship of the absolute dollar amounts of
the changes in rate and volume.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Rate/Volume Analysis
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------- ----------------------------
Dollars in thousands Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------
INTEREST EARNED ON:
<S> <C> <C> <C> <C> <C> <C>
Loans $824 ($135) $689 $1,714 $1,540 $3,254
Taxable securities 787 160 947 (3) 289 286
Tax-exempt securities 389 (3) 386 12 (1) 11
Interest-bearing deposits (43) (14) (57) 100 19 119
- --------------------------------------------------------------------------------------------------------------
1,957 8 1,965 1,823 1,847 3,670
- --------------------------------------------------------------------------------------------------------------
INTEREST PAID ON:
Deposits 326 60 386 580 1,744 2,324
FHLB advances and capital leases 549 (25) 524 (11) 14 3
- --------------------------------------------------------------------------------------------------------------
875 35 910 569 1,758 2,327
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income $1,082 ($27) $1,055 $1,254 $89 $1,343
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dollars in thousands 1996 1995 1994 1993 1992
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Interest Income $12,306 $11,379 $10,040 $7,708 $7,848
Net Interest Margin 4.74% 4.82% 4.73% 4.12% 4.06%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table presents average balance sheets (daily averages),
interest income [on fully tax-equivalent (FTE)] basis and interest expense, and
the corresponding yields earned and rates paid. The average loan balances
include both performing and nonperforming loans. Interest income on loans does
not include interest on loans for which NMBT has ceased to accrue interest.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
DOLLARS IN THOUSANDS 1996 1995 1994
-------------------------- --------------------------- -------------------------
AVERAGE FTE YIELD/ AVERAGE FTE YIELD/ AVERAGE FTE YIELD/
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(l) $203,928 $16,534 8.11% $193,751 $15,845 8.18% $171,709 $12,591 7.33%
Taxable securities 50,952 3,371 6.62% 38,936 2,424 6.23% 38,998 2,138 5.48%
Tax-exempt securities 6,219 422 6.79% 483 36 7.43% 316 25 7.91%
Interest-bearing deposits 2,154 113 5.25% 2,958 170 5.74% 1,150 51 4.44%
- --------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 263,253 20,440 7.76% 236,128 18,475 7.82% 212,173 14,805 6.98%
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 15,312 13,979 11,612
Premises and equipment, net 3,760 3,927 4,188
Other assets 5,597 6,005 5,968
Allowance for loan losses (3,469) (3,552) (4,208)
- --------------------------------------------------------------------------------------------------------------------------
Total $284,453 $256,487 $229,733
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Deposits $220,137 $7,255 3.30% $210,255 $6,869 3.27% $188,166 $ 4,545 2.42%
FHLB advances
and capital leases 12,376 739 5.97% 3,113 215 6.91% 3,463 212 6.11%
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 232,513 7,994 3.44% 213,368 7,084 3.32% 191,629 4,757 2.48%
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
- --------------------------------------------------------------------------------------------------------------------------
Deposits 28,681 22,605 19,294
Other liabilities 2,160 1,844 1,699
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 263,354 237,817 212,622
Stockholders' equity 21,099 18,670 17,111
- --------------------------------------------------------------------------------------------------------------------------
Total $284,453 $256,487 $229,733
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $12,446 $11,391 $10,048
Less FTE adjustment 140 12 8
- --------------------------------------------------------------------------------------------------------------------------
Net interest income per
Statements of Operations $12,306 $11,379 $10,040
==========================================================================================================================
Interest rate spread (FTE) 4.33% 4.50% 4.50%
Net interest margin (FTE) 4.73% 4.82% 4.74%
- --------------------------------------------------------------------------------------------------------------------------
(1) Included in interest income from loans is accretion (amortization) of net deferred loan fees and costs
totaling, in thousands, ($33) in 1996, $223 in 1995, and $253 in 1994.
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LENDING ACTIVITIES
NMBT's lending operation is currently divided into three primary functions:
residential mortgage lending, commercial lending and consumer lending (including
automobile loans, personal loans, guaranteed student loans and home equity
loans).
Residential mortgage lending is the focus of NMBT's community strategy. To
increase originations, NMBT seeks referrals from real estate brokers and other
sources and originates residential first and second mortgage loans. NMBT
generally receives fees for originating loans and making loan commitments, which
fees are generally deferred and amortized over the life of the loan.
The amount NMBT is permitted to lend to one borrower is limited by statute
and regulation. At December 31, 1996, the maximum amount which NMBT could lend
to one borrower (and related entities) was $3.87 million ($6.44 million for
loans fully secured by readily marketable collateral). At December 31, 1996,
NMBT had no loans which exceeded either limit.
NMBT uses its funds primarily for lending. Total loans increased by $13.53
million or 6.8% from 1995 to 1996. NMBT's policy is to emphasize loans utilizing
variable rates as much as possible to protect its net interest margin and
liquidity when the cost of its deposits fluctuate.
LOAN COMPOSITION AT DECEMBER 31, 1996
65.4% Residential Real Estate
24.6% Commercial Real Estate
6.2% Commercial and Industrial
3.8% Consumer
RESIDENTIAL LENDING
NMBT's residential mortgage loan portfolio consists of loans originated by
NMBT, and increasingly reflects NMBT's strong commitment to affordable housing
and its Community Reinvestment Act (CRA) responsibilities. Underwriting and
purchase guidelines emphasize credit quality and potential returns on equity,
and not volume or market share alone. NMBT has continued to focus on residential
first mortgage loan originations. NMBT has increased its originations of
residential first mortgage loans through referrals from real estate agents,
community contacts and NMBT's branches. Beginning in 1994, NMBT employed
commissioned mortgage originators to foster better relations with realtors and
improve outreach to low and moderate income buyers.
NMBT originates fixed and variable interest rate loans having terms to
maturity of not more than 30 years, including among others, balloon loans having
terms to maturity of not more than seven years. NMBT currently intends to
emphasize in its portfolio variable rate loans bearing interest at a rate
adjusted within five years from the origination date. These transactions reflect
implementation of NMBT's strategy to invest in adjustable rate or
shorter-duration assets to manage interest rate risk.
Eligible Federal Housing Administration (FHA) and Connecticut Housing
Finance Authority (CHFA) loans are sold in the secondary market. Eligible fixed
rate conventional mortgage loans were held in portfolio until May, 1994. At that
time, management determined that all fixed rate residential mortgage loans
originated would be sold with servicing retained. NMBT intends to expand its
originations of loans over agency size limits (jumbos) using agency underwriting
standards, to retain variable rate jumbos bearing interest at a rate adjusted
within five years from the origination date and to sell other jumbos through
private parties.
In order to meet its commitment to affordable housing and its CRA
responsibilities, NMBT offers several residential loan programs involving high
loan-to-value ratios and more flexible underwriting standards. Because of
refinancings and prepayments, residential mortgage loans generally remain
outstanding for shorter periods than stated. Whether residential mortgage loans
bear interest at a fixed or an adjustable rate depends upon consumer demand,
which is influenced by market conditions.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY REINVESTMENT PROGRAMS
NMBT attempts to ascertain the credit needs of its communities, including
low and moderate income areas, through a number of means, including reviewing
the results of market research and the interaction of members of the Board of
Directors and management with the local communities. NMBT also has a CRA
committee of the Board of Directors whose function is to oversee all CRA
activities of NMBT. NMBT offers various loans and participates in various loan
programs designed to make credit available to low and moderate income persons.
Many of NMBT's loan programs are advertised in local newspapers, and local
realtors and builders are informed by periodic mailings. NMBT is committed to
treating all members of the community equally and fairly. As such, NMBT conducts
seminars and training sessions with employees throughout NMBT regarding fair
lending practices and equal treatment in banking. NMBT has adopted
anti-discrimination and fair housing statements of policy, along with the
implementation of a second review policy for loans which have been rejected to
ensure fair treatment for each applicant.
NMBT maintains ongoing contact with many civic groups in its market area.
These contacts, and joint sponsorship of various seminars and awareness
meetings, foster what we consider to be an excellent working relationship
between NMBT and the community.
NONPERFORMING ASSETS TO TOTAL ASSETS
1996 1.48%
1995 2.17%
1994 2.62%
1993 3.76%
1992 4.43%
COMMERCIAL MORTGAGE LENDING
NMBT is engaged in commercial mortgage lending on such properties as
industrial, retail, office and multi-family residential buildings and
condominiums. Generally, NMBT will provide this type of lending only to existing
customers or to prospective customers who represent the potential for a complete
banking relationship. Such lending has been proven to be profitable, but entails
certain additional risks when compared with residential mortgage lending.
Accordingly, NMBT has implemented standards on such loans which attempt to
mitigate these risks. Required conservative loan-to-value ratios and extensive
research into the background of the borrower are among those standards.
Owner-occupied properties are encouraged and property and environmental
appraisals are conducted by qualified outside appraisers, and then reviewed by
NMBT officers.
Because the real estate market has stabilized, NMBT will selectively issue
certain commercial mortgage loans which are speculative in nature. Such loans
will be issued only to the most credit-worthy borrowers who have the financial
strength to repay the loan outside of the real estate project involved. These
loans must be modest in terms of dollar amounts and involve substantial equity.
NMBT recognizes the need to continue to serve the commercial mortgage market,
and its potential for providing profits to NMBT when done in a disciplined
fashion.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMERCIAL LENDING
Commercial lending to small and medium-sized businesses is integral to
NMBT's effort to achieve a higher level of profitability. Such lending entails
somewhat different risks compared with mortgage or consumer lending, but also
produces higher yields for NMBT, due in part to NMBT's policy of requiring
depository relationships. Commercial loans tend to be directly affected by
changes in the economic cycle while consumer loans are indirectly affected. As
such, commercial loans must be more closely evaluated to ensure likely
repayment. In order to accomplish this, NMBT has procedures and systems to
provide for not only proper underwriting, but appropriate follow-up and
monitoring of commercial loans. These procedures and systems helped to produce
significantly reduced levels of problem loans and assets from 1993 to 1996. The
reduction in time allocated to problem credits resulted in a much greater
commercial new business effort in 1996. As a result, NMBT enjoyed growth in this
area and is poised for an even greater effort in 1997. NMBT has continued to
enhance its business calling effort with real emphasis on outreach into NMBT's
communities.
NMBT's commercial loan portfolio is generally amortizing, which provides
some additional margin of safety, but also generates quicker repayment. As such,
NMBT must be aggressive with its calling efforts in order to assure continued
loan growth. Fortunately, the local economy is improving (albeit slowly) and
management believes that hard work and community involvement will produce
commercial loan growth in 1997.
Notwithstanding the new business effort, management is acutely aware of its
obligation to assure the safety of commercial loans. In that regard, NMBT's
policy is generally to collateralize commercial loans with acceptable collateral
and to obtain the personal guarantees of responsible business owners. NMBT has
an active SBA-lending program to originate government-insured commercial loans.
Emphasis will continue to be placed upon origination of the various types of SBA
loans in an effort to more fully serve the credit needs of small businesses in
NMBT's market area.
NMBT is also aware of the need to provide appropriate ancillary services to
expand its commercial loan base. Accordingly, a lock-box program is in place to
facilitate collection of accounts receivable by customers. Wire transfer
services, cash management, commercial letters of credit and various
international services are available. NMBT offers one of the most attractive fee
schedules for commercial deposit accounts in its market area.
ASSET QUALITY
NMBT has a Special Assets Committee, which is a subcommittee of the
Officer's Loan Committee, whose primary responsibility is to provide senior
management oversight and ongoing review of the loan and real estate owned
portfolios.
Management reviews the adequacy of the allowance for loan losses and real
estate owned valuation allowance on a monthly basis, and charges the related
provisions for such losses to operations during the related period. The
allowance for loan losses and real estate owned valuation allowance are based on
a review of loss experience, loan balances, delinquent loans, real estate owned
and other factors beyond NMBT's control, which may affect the ultimate
collectibility of loans and realization from the disposition of real estate
owned.
There were no accruing loans past due 90 days or more at December 31, 1995.
Accruing loans past due 90 days or more totaled $0.24 million at December 31,
1996 and $0.26 million at December 31, 1994. Nonaccruing loans were $4.03
million at December 31, 1996, $4.52 million at December 31, 1995, and $5.06
million at December 31, 1994. Nonaccruing loans consisted principally of
residential and commercial loans collateralized by real estate. If the condition
of the real estate market does not improve, the current levels of nonaccruals
may continue.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
=====================================================================================================================
NONPERFORMING ASSETS
NON- NON-
PERFORMING REAL ESTATE PERFORMING % OF
LOANS OWNED ASSETS TOTAL
Dollars in thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Collateralized by residential properties $2,215 $271 $2,486 55.0%
Collateralized by commercial properties 1,749 225 1,974 43.6%
Construction and development 26 - 26 0.6%
Commercial, industrial and all other 35 - 35 0.8%
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets on December 31, 1996 $4,025 $496 $4,521 100.0%
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets on December 31, 1995 $4,523 $1,314 $5,837 100.0%
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets on December 31, 1994 $5,056 $1,567 $6,623 100.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NMBT's present allowance for loan losses, including additions made in 1996
of $0.39 million, compared to an addition of $0.16 million in 1995, is
considered by management to be adequate for the present loan portfolio. There
are no loans to foreign borrowers, no leveraged buyout loans and no undue
concentrations of loans for commercial construction. NMBT generally, and as a
matter of policy, does not lend outside of its market area.
Real estate owned consists of commercial and residential properties located
within NMBT's market area. The amount of real estate owned, net of valuation
allowances, decreased $0.82 million from 1995 to 1996, and totaled $0.50 million
at December 31, 1996.
Management believes the decreases in nonperforming loans and real estate
owned have been caused by a philosophy of restructuring and/or disposing of
nonperforming assets in a timely manner and, to a lesser extent, a stabilization
of the real estate market in western Connecticut.
LIQUIDITY MANAGEMENT
Liquidity is a measure of NMBT's ability to meet its cash needs at a
reasonable cost. Cash needs arise primarily as a result of the need to fund
lending opportunities, the maturity of liabilities such as borrowings and the
withdrawal of deposits. Asset liquidity is achieved through the management of
earning asset maturities, loan amortization, deposit growth and access to
borrowed funds. At December 31, 1996, liquid assets totaled $52.49 million, or
17.2% of total assets.
NMBT is also a member of the FHLB, which makes substantial borrowings
available to its members. NMBT's available borrowings from the FHLB are well in
excess of NMBT's annual financing requirements. NMBT also maintains an
interest-bearing checking account with the FHLB on which it may overdraw up to
$5.38 million. This arrangement allows NMBT to obtain advances from the FHLB
rather than having to rely on commercial bank lines of credit or federal funds
purchased.
At December 31, 1996, NMBT had approximately $54.48 million in loan
commitments outstanding. It is expected these future loans will be funded
principally by deposits, loan repayments and maturing investments.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Securities purchased with the intent to hold to maturity for the purpose of
earning interest income are stated at cost, and adjusted for amortization of
premiums and accretion of discounts. Securities which management does not intend
to hold to maturity are categorized as available for sale. These securities,
which represent 44% of the securities portfolio on December 31, 1996, are
reported at fair value with any unrealized gains and losses being reflected in a
separate component of stockholders' equity. Trading securities are prohibited by
NMBT's policy.
DEPOSIT MIX AT DECEMBER 31, 1996
CD's under $100,000 29.8%
Interest-bearing checking 28.9%
Savings 23.1%
Noninterest-bearing checking 13.5%
CD's $100,000 or more 4.7%
NMBT's funds management policy sets forth specific policies and operating
procedures governing NMBT's liquidity levels and addresses plans for future
liquidity needs. On occasion, available for sale securities are sold prior to
maturity and the proceeds are used to fund loans when deposit in-flows are not
adequate, the rates offered on FHLB advances are not favorable, and liquidity
ratios support sales. Management believes this restructuring to be prudent since
it provides an opportunity to reinvest the proceeds from sales of securities in
higher yielding loans. NMBT also occasionally sells securities to restructure an
asset/liability mismatch or to improve its tax position.
NMBT maintains a favorable liquidity position in large part due to stable
core deposits generated from its branch network and from a high quality
securities portfolio. Core deposits (checking and savings accounts) represent a
stable, low-cost source of funds which amounted to 65.5% of total deposits at
December 31, 1996.
- --------------------------------------------------------------------------------
REGULATORY CAPITAL
DECEMBER 31,
--------------------------
REGULATORY
Dollars in Thousands 1996 1995 MINIMUM
- -------------------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital ratio 11.74% 11.70% 4.00%
Total capital ratio 13.00% 12.96% 8.00%
- --------------------------------------------------------------------------------
Leverage ratio 7.24% 7.23% 3.00% (1)
- --------------------------------------------------------------------------------
Tier 1 capital $21,678 $18,935
Total capital $23,997 $20,977
Total risk-adjusted assets $184,623 $161,895
- --------------------------------------------------------------------------------
(1) Plus an additional cushion of at least 1 to 2 percent for all but
the most highly rated institutions.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CAPITAL MANAGEMENT
At December 31, 1996, NMBT had $22.57 million in stockholders' equity,
compared with $20.16 million at December 31, 1995. The growth in stockholders'
equity from the end of 1995 was due to the receipt of proceeds of $0.15 million
from the exercise of stock options, a $0.10 million positive adjustment for net
unrealized gains on securities available for sale, and the retention of $2.79
million in net earnings, less cash dividends of $0.44 million.
Regulatory risk-based capital requirements take into account the differing
risk profiles of banking organizations by assigning risk weights to both assets
and the credit equivalent amounts of off-balance sheet exposures. In addition,
capital is divided into two tiers, tier 1 and tier 2.
At December 31, 1996, banking organizations were required to meet a minimum
total capital ratio of 8%, with at least one-half being in the form of tier 1
capital. Higher tier 1 and total capital ratios can be imposed on particular
institutions at the discretion of the regulatory agencies. Banking organizations
are also subject to a minimum leverage capital ratio of 3%.
NMBT has a capital planning process that seeks to ensure NMBT maintains
appropriate capital levels and ratios. NMBT has a five-year capital plan that is
approved by the Board of Directors annually.
During the year ended December 31, 1996, NMBT paid cash dividends of $0.44
million, or $0.17 per share, which represents 15.6% of 1996 net income. NMBT's
dividend payment policy generally limits dividends paid in any year to no more
than 30% of net earnings, absent mitigating factors. This was done in the
interest of preserving capital which will be used in the continued growth and
expansion of NMBT. NMBT reviews its dividend payment policy based on current
earnings and by assessing the need to retain earnings to support long-term
growth.
Connecticut Banking Laws limit the amount of annual dividends that NMBT may
pay to an amount which approximates NMBT's net income for the current year, plus
its net income for the prior two years, net of dividends previously paid during
the period. NMBT is also prohibited from paying a cash dividend that would
reduce its capital ratios below minimum regulatory requirements.
From a regulatory standpoint, NMBT has capital ratios which place it in the
"well-capitalized" category. A well-capitalized institution, which is the
highest capital category for an institution as defined by the Prompt Corrective
Action regulations issued by the FDIC, is one which maintains a total risk-based
ratio of 10% or above, a tier 1 risk-based ratio of 6% or above and a leverage
ratio of 5% or above, and is not subject to any written order, written
agreement, capital directive, or
<PAGE>
prompt corrective action directive to meet and maintain a specific capital
level.
RECENT RELEVANT FINANCIAL
ACCOUNTING STANDARDS BOARD
RELEASES
Statement of Financial Accounting Standards No. 122 "Accounting for
Mortgage Servicing Rights" (SFAS 122) was issued in May, 1995, and is effective
for fiscal years beginning after December 15, 1995. SFAS 122 requires the
capitalization of mortgage servicing rights acquired through either purchase of
mortgage loan servicing or origination and sale or securitization of mortgage
loans with retention of servicing. SFAS 122 also requires the analysis of
capitalized mortgage servicing rights for impairment to be based on the fair
value of the rights. NMBT adopted SFAS 122 effective January 1, 1996. The effect
of adoption of this standard by NMBT will vary based on the extent of mortgage
servicing rights existing upon adoption and mortgage servicing rights acquired
subsequent to adoption, but is not expected to have a material effect on NMBT's
financial position or results of operations.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" (SFAS 123) was issued in October, 1995, and became
effective for fiscal years beginning after December 15, 1995. SFAS 123 defines a
fair value based method of accounting for an employee stock option or similar
equity instrument, and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is usually
the vesting period. However, SFAS 123 allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB 25). Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Most fixed stock option plans, like NMBT's, have no
intrinsic value at the grant date, and under APB 25 NMBT recognizes no
compensation cost at the time stock options are granted. NMBT has elected to
remain with the accounting in APB 25 and, therefore, makes proforma disclosure
of net income and earnings per share as if the fair value based method of
accounting defined in SFAS 123 had been applied beginning in 1996. Accordingly,
SFAS 123 does not effect NMBT's financial position or results of operations.
Statement of Financial Accounting Standards No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS 125) was issued in June, 1996. SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. NMBT will be required to adopt SFAS 125, as amended by Statement of
Financial Accounting Standards No. 127 "Deferral of Certain Provisions of FASB
Statement No. 125", for transfers and servicing of financial assets and
extinguishment of liabilities occuring after December 31, 1996, on a prospective
basis. The adoption of this standard is not expected to have a material impact
on NMBT's financial condition or its results of operations.
IMPACT OF INFLATION AND
CHANGING PRICES
NMBT's financial statements have been prepared in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Notwithstanding this, inflation
can directly affect the value of loan collateral, in particular, real estate.
Inflation, or disinflation, could continue to significantly affect NMBT's
earnings in future periods.
9
<PAGE>
FINANCIAL GLOSSARY
BASIS POINT
A basis point is equal to one one-hundredth of one percent (25 basis points
equals 0.25 percent and 100 basis points equals one percent).
BOOK VALUE PER SHARE
The amount of NMBT's net worth represented by each share of outstanding common
stock. It is obtained by dividing common stockholders' equity by the number of
shares of common stock outstanding, excluding treasury stock.
EFFICIENCY RATIO
The efficiency ratio is a measure of relative overhead expense levels and is
computed by dividing total noninterest expense (excluding provisions for real
estate owned write-downs), by the sum of tax-equivalent net interest income plus
noninterest income (excluding securities gains and losses).
FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS
Immediately available funds on deposit at a Federal Reserve Bank, the Federal
Home Loan Bank of Boston or a correspondent bank. Banks with excess reserves
lend such funds, generally on a overnight basis, to banks that are temporarily
deficient in required reserves or that want to borrow federal funds to fund
short-term assets.
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Interest is a price paid by a lender for the use of money. NMBT's
interest-earning assets result from transactions in which it acts as a provider
of funds. These include loans to customers, purchases of debt securities and
various transactions in the short-term money markets. Interest-bearing
liabilities are those for which NMBT acts as borrower and pays interest to
depositors and other suppliers of funds, such as the Federal Home Loan Bank of
Boston.
INTEREST RATE SENSITIVITY
The exposure to financial gain or loss due to a change in the level of interest
rates. In a given period, if more interest-earning assets than interest-bearing
liabilities are subject to a change in interest rates because the assets are
maturing or the contract calls for a rate change, NMBT is asset sensitive (or
positive) for that period. Rising interest rates during that time would enhance
earnings, while declining interest rates would reduce earnings. The reverse
earnings effect would occur if NMBT were liability sensitive.
INTEREST RATE SPREAD
The difference between two interest rates. The phrase is most often used to
refer to the difference between the interest yield on average interest-earning
assets and the interest cost of average interest-bearing liabilities.
LEVERAGE RATIO
The ratio was established by federal bank regulators and is computed by dividing
tier 1 capital by average quarterly assets less goodwill and other intangibles.
A minimum leverage ratio of at least 3.00 percent must be maintained. This
leverage ratio is a minimum requirement for the most highly rated banking
organizations, and other banking organizations will be expected to maintain an
additional cushion of at least 100 to 200 basis points.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on assets and
the interest paid on liabilities. Interest income and expense are affected by
changes in the volume and mix of average interest-earning assets and
interest-bearing liabilities, as well as changes in the level of interest rates.
<PAGE>
FINANCIAL GLOSSARY
NET INTEREST MARGIN
Net interest margin represents the tax-equivalent yield on interest-earning
assets. This is obtained by dividing net interest income for a given accounting
period by the average level of interest-earning assets for the period.
This relationship is usually expressed on a tax-equivalent basis.
NONACCRUING LOANS
Loans on which the accrual of interest income has been discontinued because of
the uncertainty that exists regarding the collection of interest or principal.
This circumstance typically results from the borrower's financial difficulties.
Interest received on such loans is recorded as a reduction of principal or
interest income if there is no doubt as to the collectibility of the loan. Also
referred to as nonperforming loans.
NONPERFORMING ASSETS
Nonperforming assets consist of real estate acquired through foreclosure,
forgiveness of debt or otherwise in lieu of debt, collateral which has been
in-substance foreclosed and nonaccrual loans.
RESTRUCTURED LOANS
Loans with original terms which have been modified as a result of a change in
the borrower's financial condition. Typically, interest rate concessions are
made or repayment schedules are lengthened in these cases.
RETURN ON AVERAGE ASSETS
A ratio obtained by dividing net income by average assets. It is a measure of
profitability in banking.
RETURN ON AVERAGE EQUITY
A ratio obtained by dividing net income by average stockholders' equity. This is
a standard measure of the rate of return on the stockholders' investment.
RISK-WEIGHTED ASSETS
Established by federal bank regulators, this is computed based on the sum of
risk-weighted balance sheet assets and off-balance sheet credit equivalent
amounts calculated in accordance with federal guidelines.
TAX-EQUIVALENT BASIS
An adjustment of income exempt from federal and state taxes or taxed at
preferential rates, such as interest income on state and municipal bonds, to an
amount that would yield the same pre-tax income had the income been subject to
taxation. The result is to equate the true earnings value of tax-exempt and
taxable income.
TIER 1 CAPITAL
Established by federal bank regulators, this is composed of common equity,
retained earnings and perpetual preferred stock, reduced by goodwill and certain
nonqualifying intangible assets. Tier 1 capital does not include the effect of
adjustments associated with SFAS 115.
TIER 1 CAPITAL AND TOTAL CAPITAL RATIOS
These measures of capital adequacy have been established by federal bank
regulators, who require institutions to have a minimum ratio of tier 1 capital
to risk-weighted assets of 4.00 percent and a minimum of total capital to
risk-weighted assets of 8.00 percent. The ratios are obtained by dividing tier 1
capital or total capital by risk-weighted assets.
TOTAL CAPITAL
Established by federal bank regulators, this consists of tier 1 capital plus a
limited amount of allowable debt, certain other financial instruments and a
limited amount of the allowance for loan losses.
10
<PAGE>
REPORT OF MANAGEMENT
The accompanying financial statements were prepared by management, which is
responsible for the integrity and objectivity of the data presented, including
amounts that must be based on judgments and estimates. The financial statements
were prepared in conformity with generally accepted accounting principles, and
in situations where acceptable alternative accounting principles exist,
management selected the method that was most appropriate.
Management depends upon NMBT's internal control structure in meeting its
responsibilities for reliable financial statements. The internal control
structure is designed to provide reasonable assurance that assets are
safeguarded and that transactions are properly recorded and executed in
accordance with management's authorization. Judgments are required to assess and
balance the relative cost and the expected benefits of these controls. As an
integral part of the internal control structure, during 1996 NMBT maintained a
staff of internal auditors who conducted operational, financial and special
audits, and coordinated audit coverage with the independent auditors.
The financial statements have been audited by our independent auditors,
Deloitte & Touche LLP, who render an independent professional opinion on
management's financial statements. Management believes that all representations
made to the independent auditors during their audit were valid and appropriate.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the internal auditors, the independent
auditors and management to review the work of each to ensure that they are
properly discharging their responsibilities. The internal auditors and the
independent auditors have free access to the Audit Committee, without management
present, to discuss the results of their audit work, their evaluations of the
adequacy of internal controls and the quality of financial reporting.
MICHAEL D. CARRIGAN, President & CEO JAY C. LENT, Executive Vice President,
Secretary & CFO
/s/ MICHAEL D. CARRIGAN /s/ JAY C. LENT
- ----------------------- ------------------------
<PAGE>
REPORT OF INDEPENDENT AUDITORS
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND THE BOARD OF DIRECTORS:
We have audited the accompanying statements of condition of The New Milford
Bank & Trust Company (NMBT) as of December 31, 1996 and 1995, and the related
statements of operations, cash flows and changes in stockholders' equity for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of NMBT'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 present fairly, in all material
respects, the financial position of NMBT as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31,1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
January 23, 1997
11
<PAGE>
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
Dollars in thousands, except share data
DECEMBER 31,
-----------------------------
1996 1995
-------------- -------------
ASSETS
<S> <C> <C>
Cash and due from banks $17,855 $20,417
Interest-bearing deposits 6,135 4,165
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 23,990 24,582
- ---------------------------------------------------------------------------------------------------------------------
Securities:
Available for sale, at fair value (amortized cost of $28,020 in 1996
and $21,291 in 1995) 28,240 21,663
Held to maturity, at amortized cost (fair value of $35,611 in 1996
and $18,670 in 1995) 35,521 18,543
- ---------------------------------------------------------------------------------------------------------------------
Total securities 63,761 40,206
- ---------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 211,686 198,158
Less allowance for loan losses 3,212 3,553
- ---------------------------------------------------------------------------------------------------------------------
Loans, net 208,474 194,605
- ---------------------------------------------------------------------------------------------------------------------
Real estate owned, net 496 1,314
Premises, equipment and capital leases, net 3,648 3,911
Excess of cost over fair value of net assets acquired, net 741 976
Accrued interest and other assets 4,435 3,582
=====================================================================================================================
Total assets $305,545 $269,176
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing checking $36,013 $31,149
Interest-bearing checking 76,989 72,506
Savings 61,432 62,689
Time deposits under $100 79,320 70,100
Time deposits $100 or more 12,407 10,623
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 266,161 247,067
- ---------------------------------------------------------------------------------------------------------------------
Advances from Federal Home Loan Bank of Boston (FHLB) 14,564 -
Accrued interest and other liabilities 2,255 1,952
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 282,980 249,019
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $1 per share par value
Shares authorized: 8,000,000
Shares issued: 1996 - 2,681,305; 1995 - 2,656,705
Shares outstanding: 1996 - 2,588,058; 1995 - 2,562,858 2,681 2,657
Additional paid-in capital 15,266 15,142
Retained earnings 5,195 2,839
Unrealized gain on securities available for sale, net of tax 146 246
Treasury stock, at cost:1996 - 93,247 shares; 1995 - 93,847 shares (723) (727)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 22,565 20,157
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $305,545 $269,176
=====================================================================================================================
</TABLE>
See notes to financial statements.
12
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Dollars in thousands, except per share data
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- -------- --------
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C>
Interest and fees on loans $16,534 $15,845 $12,591
U.S. Treasury and agency securities 3,272 2,315 2,032
Municipal securities 282 24 17
Dividends on FHLB stock 99 109 106
Interest-bearing deposits 113 170 51
- ---------------------------------------------------------------------- -------- -------- -------
Total interest and dividend income 20,300 18,463 14,797
- ---------------------------------------------------------------------- -------- -------- -------
INTEREST EXPENSE
Interest-bearing checking 1,140 1,185 974
Savings 1,602 1,724 1,394
Time deposits under $100 3,888 3,423 2,059
Time deposits $100 or more 625 537 118
FHLB advances and capital leases 739 215 212
- ---------------------------------------------------------------------- -------- -------- -------
Total interest expense 7,994 7,084 4,757
- ---------------------------------------------------------------------- -------- -------- -------
Net interest and dividend income 12,306 11,379 10,040
Provision for loan losses 390 160 240
- ---------------------------------------------------------------------- -------- -------- -------
Net interest and dividend income after provision for loan losses 11,916 11,219 9,800
- ---------------------------------------------------------------------- -------- -------- -------
NONINTEREST INCOME
Service charges on deposit accounts 965 766 733
Other service charges, commissions and fees 349 278 248
Loan servicing fees 23 8 3
Net gains from loans sold 178 60 10
Realized net gains from available for sale securities - - 60
Other income 125 163 160
- ---------------------------------------------------------------------- -------- -------- -------
Total noninterest income 1,640 1,275 1,214
- ---------------------------------------------------------------------- -------- -------- -------
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 5,037 4,959 4,434
Occupancy 917 905 805
Furniture and equipment 953 971 889
Data processing 246 204 199
Federal deposit insurance premiums 2 261 498
Stationery, printing and supplies 438 343 321
Marketing, advertising and investor relations 402 343 361
Legal and professional fees 412 224 370
Other general and administrative expense 1,423 1,090 917
- ---------------------------------------------------------------------- -------- -------- -------
Total general and administrative expense 9,830 9,300 8,794
Operations of real estate owned 320 263 385
Amortization of intangible assets 235 235 157
- ---------------------------------------------------------------------- -------- -------- -------
Total noninterest expense 10,385 9,798 9,336
- ---------------------------------------------------------------------- -------- -------- -------
Income before provision for income taxes 3,171 2,696 1,678
Provision for income taxes 379 537 339
- ---------------------------------------------------------------------- -------- -------- -------
Net income $ 2,792 $ 2,159 $ 1,339
======================================================================================================
Net income per share $ 1.04 $ 0.83 $ 0.53
- ---------------------------------------------------------------------- -------- -------- -------
Dividends per share $ 0.17 $ 0.13 $ 0.00
- ---------------------------------------------------------------------- -------- -------- -------
</TABLE>
See notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Dollars in thousands
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,792 $2,159 $1,339
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 982 957 848
Provision for loan losses 390 160 240
Provision for losses from real estate owned 314 207 245
Net amortization of securities 100 100 44
Deferred income tax benefit (267) (241) (471)
Realized securities gains, net - - (60)
Loans originated for sale (14,859) (10,342) (2,205)
Proceeds from loans sold, net 14,652 9,809 2,215
Gains from loans sold, net (178) (60) (10)
Realized gains from real estate owned, net (135) (80) (214)
Net increase in interest receivable (331) (113) (217)
Net (increase) decrease in other assets (134) (288) 572
Net increase in interest payable 82 59 13
Net increase in other liabilities 282 63 138
- --------------------------------------------------------------------------- ------------- ------------- -------------
Net cash provided by operating activities 3,691 2,390 2,477
- --------------------------------------------------------------------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (28,242) (5,006) -
Net loan originations (13,764) (7,583) (8,248)
Purchases of available for sale (AFS) securities (9,671) (11,274) (9,802)
Net purchases of premises and equipment (484) (568) (256)
Proceeds from sales of real estate owned 460 483 718
Proceeds from maturities of AFS securities 2,924 672 7,032
Proceeds from maturities of HTM securities 11,182 11,816 3,495
Proceeds from sales and early redemptions of AFS securities - 2,960 10,526
Purchases of FHLB stock - - (328)
Candlewood acquisition, net of cash and cash equivalents received - - (457)
- --------------------------------------------------------------------------- ------------- ------------- -------------
Net cash provided by (used for) investing activities (37,595) (8,500) 2,680
- --------------------------------------------------------------------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in advances from FHLB 14,564 (7,304) (1,196)
Net increase in time deposits 11,004 16,603 2,167
Net increase (decrease) in checking and savings deposits 8,090 4,707 (1,436)
Net sales of treasury stock 4 5 -
Cash dividends (436) (329) -
Other 87 240 (38)
- --------------------------------------------------------------------------- ------------- ------------- -------------
Net cash provided by (used for) financing activities 33,313 13,922 (503)
- --------------------------------------------------------------------------- ------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (592) 7,812 4,654
Cash and cash equivalents, beginning of year 24,582 16,770 12,116
- --------------------------------------------------------------------------- ------------- ------------- -------------
Cash and cash equivalents, end of year $23,990 $24,582 $16,770
=========================================================================== ============= ============= =============
CASH PAID DURING YEAR
Interest to depositors and creditors $7,912 $7,026 $4,743
Income taxes 957 778 435
NON-CASH TRANSFERS
Transfer of loans to real estate owned 581 683 1,101
Net change in unrealized gains (losses) on AFS securities (100) 489 (573)
Financed portion of sales of real estate owned 761 327 891
Acquisitions:
Assets acquired, net of cash and cash equivalents received - - 50,282
Cash and cash equivalents received - - 5,617
Liabilities assumed - - 49,825
</TABLE>
See notes to financial statements.
14
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED UNREALIZED
ADDITIONAL EARNINGS GAIN (LOSS)
SHARES COMMON PAID-IN (ACCUMULATED OR SECURITIES TREASURY
In Thousands OUTSTANDING STOCK CAPITAL DEFICIT) AVAILABLE FOR SALE STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1994 2,530 $13,120 $4,387 ($330) $330 ($732) $16,775
Net income 1,339 1,339
Net change
in unrealized gain
(loss) on securities
available from sale (573) (573)
Proceeds from exercise
of stock options 1 5 5
Par changed from $5 to $1
(10,500) 10,500 -
--------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 2,531 2,625 14,887 1,009 (243) (732) 17,546
Net income 2,159 2,159
Net change in unrealized
gain (loss) on
securities available
for sale 489 489
Cash dividends (329) (329)
Proceeds from exercise
of stock options 32 32 254 286
Other 1 5 6
--------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 2,563 2,657 15,142 2,839 246 (727) 20,157
Net income 2,792 2,792
Net change in unrealized
gain (loss) on
securities available
for sale (100) (100)
Cash dividends (436) (436)
Proceeds from exercise
of stock options 24 24 121 145
Other 1 3 4 7
==================================================================================================
DECEMBER 31, 1996 2,588 $2,681 $15,266 $5,195 $146 ($723) $22,565
==================================================================================================
</TABLE>
See notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The New Milford Bank & Trust Company (NMBT), headquartered in New Milford,
Connecticut, is a state-chartered bank and trust company that was originally
founded in 1975. NMBT's principal business is to provide full banking services
to individuals and businesses in the Litchfield and northern Fairfield Counties
of Connecticut. Deposits are insured up to applicable limits by the Bank
Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC).
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet,
and revenue and expense for the period. Actual results could differ
significantly from those estimates.
RECLASSIFICATIONS
Certain amounts from 1995 and 1994 have been reclassified to conform to the
1996 presentation. Such reclassifications had no effect on net income.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, NMBT has defined cash and cash
equivalents as cash and due from banks and interestbearing deposits with other
banks having an original maturity of 90 days or less.
SECURITIES
Securities that may be sold as part of NMBT's asset/liability or liquidity
management, or in response to or in anticipation of changes in interest rates
and resulting prepayment risk, or for other similar factors, are classified as
available for sale and carried at fair market value. Unrealized holding gains
and losses on such securities are reported net of related taxes, if any, as a
separate component of stockholders' equity. Securities that NMBT has the ability
and positive intent to hold to maturity are classified as held to maturity and
carried at amortized cost. Realized gains and losses on the sales of all
securities are reported in earnings and computed using the specific
identification cost basis. There are no trading account securities.
LOANS
Loans are reported at the principal amount outstanding, net of unearned
income. Interest income on loans, including impaired loans, is recorded on the
accrual basis until an interest or principal payment is more than 90 days past
due and/or, in the opinion of management, there is question as to the ability of
the debtor to meet contract terms. At that time, the loan is placed on
nonaccrual status and any unpaid accrued interest is reversed unless collection
is assured. Interest received on nonaccrual loans is generally either applied
against principal or reported as interest income, depending on management's
judgment as to the ultimate collectibility of the loan according to its
contractual terms. Generally, loans are returned to accrual status when the loan
has been brought current, has performed in accordance with the contractual terms
for a reasonable period of time (usually six months), and ultimate
collectibility of all principal and interest due on the loan is no longer in
doubt.
Nonrefundable loan fees and direct origination costs are deferred and
recognized as income over the life of the loan as an adjustment of yield.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
IMPAIRED LOANS
Effective January 1,1995, NMBT adopted SFAS 114 "Accounting by Creditors
for Impairment of a Loan", as amended by SFAS 118 "Accounting for Impairment of
a Loan - Income Recognition and Disclosures". Adoption of SFAS 114 and 118 did
not result in any adjustments to the allowance for loan losses as of January 1,
1995.
A loan is recognized as impaired when it is probable that principal and/or
interest are not collectible in accordance with the loan's contractual terms. A
loan is not deemed to be impaired if NMBT expects to collect all amounts due,
including interest accrued at the contractual rate during the period of delay.
Measurement of impairment is based on the present value of expected cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. This evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change.
If the fair value of the impaired loan is less than the related recorded
amount, a specific valuation allowance is established. If the impairment is
considered to be permanent, a charge-off is recorded against the allowance for
loan losses.
Prior to adoption of SFAS 114 and 118, loans were considered troubled debt
restructurings under SFAS 15 "Accounting by Debtors and Creditors for Troubled
Debt Restructurings" if a concession had been granted to the borrower that NMBT
would not have otherwise granted. Restructured loans are returned to accrual
status when such loans have demonstrated acceptable payment performance in
accordance with the restructured terms. Acceptable performance is generally
evidenced by payments in accordance with the contractual terms of the loan for
at least six months and other relevant factors.
LOAN LOSS AND REAL ESTATE OWNED VALUATION ALLOWANCES
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses,
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans (real estate owned). In connection with the determination
of the loan loss and real estate owned valuation allowances, management obtains
independent appraisals for significant properties.
The majority of NMBT's loans are collateralized by real estate located in
western Connecticut, which has experienced a general decline in the market value
of real property in the recent past. Accordingly, the ultimate collectibility of
a substantial portion of NMBT's loan portfolio and real estate owned are
particularly susceptible to changes in market conditions.
Management believes the loan loss and real estate owned valuation
allowances are adequate. While management uses available information to
recognize losses on loans and real estate owned, future additions to the
allowances may be necessary based on changes in economic conditions,
particularly in western Connecticut. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review NMBT's
allowance for loan losses and valuation of real estate owned. Such agencies may
require NMBT to recognize additions to the allowances based on their judgments
of information available to them at the time of their examinations. The most
recent examination was completed in December, 1996 and that examination did not
result in any adjustment to the allowance for loan losses or the real estate
owned valuation allowance.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued
The loan portfolio and other extensions of credit are regularly reviewed to
determine the adequacy of the allowance for loan losses. The impact of local and
national economic conditions and the creditworthiness of borrowers is given
major consideration in determining the adequacy of the allowance. Credit loss
experience, changes in the character and size of the loan portfolio, and
management's judgment are other factors used in assessing the overall adequacy
of the allowance for loan losses, and the resulting provision for loan losses.
Ultimate losses may vary from current estimates. The amount of the provision,
which is a current expense, may be either greater than or less than actual loan
losses.
REAL ESTATE OWNED
Real estate acquired through foreclosure, forgiveness of debt or otherwise
in lieu of debt (known collectively as real estate owned), is stated at the
lower of cost (principally loan amount) or fair value, minus estimated selling
expenses.
Costs relating to the subsequent development or improvement of a property
are capitalized, to the extent realizable. Holding costs and any subsequent
provisions to reduce the carrying value of a property to fair value minus
estimated selling expenses are charged to earnings. Fair value is generally
determined by a current appraisal.
PREMISES, EQUIPMENT AND CAPITAL LEASES
Premises and equipment, including capital leases, are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the period of the related lease or the
useful life of the improvement, whichever is shorter.
INCOME TAXES
Deferred income tax assets and liabilities reflect the impact of temporary
differences between values recorded as assets and liabilities for financial
reporting purposes and amounts utilized for remeasurement in accordance with the
tax laws. A valuation allowance is provided if the realization of a net deferred
tax asset is not more likely than not.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Because of the earning power or special values of certain assets, NMBT paid
amounts in excess of cost over the fair value of net assets acquired in the
purchase transaction of Candlewood Bank and Trust Company. Such amounts are
being amortized on a straight-line basis over seven years. Accumulated
amortization of the excess cost over fair value of net assets acquired was
$626,583 as of December 31, 1996. On an ongoing basis, management assesses the
recoverability of this asset. If recoverability should become impaired, a charge
to the statements of operations would be recorded.
NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted
average common shares and common stock equivalents, if dilutive, outstanding
during the year based on the treasury stock method. Common stock equivalents
consist of shares subject to stock options. Weighted average common shares
outstanding used to calculate earnings per share for the three years ended
December 31, 1996 were as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Weighted average common shares 2,684,124 2,589,754 2,530,360
- --------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS
2. ACQUISITION
On April 29, 1994, the acquisition of Candlewood Bank and Trust Company
("Candlewood"), a Connecticut state-chartered bank and trust company with
offices in New Fairfield and Danbury, Connecticut, was completed. Pursuant to
the Agreements and Plans of Merger, Candlewood was merged with and into NMBT.
Total merger consideration of $5.80 million was paid in the form of cash for all
of the outstanding common stock of Candlewood. The transaction was accounted for
as a purchase under generally accepted accounting principles and, accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date. The excess of
cost over fair value of net assets acquired is being amortized over seven years
on a straight-line basis. The operating results of Candlewood have been included
in NMBT's statements of operations since the acquisition date.
The following summarized pro forma (unaudited) information for 1994 gives
effect to the acquisition as if it had occurred at the beginning of 1994:
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
Net interest income $10,587
Net income $1,057
Net income per common share $0.42
- --------------------------------------------------------------------------------
The above amounts reflect adjustments for amortization of the excess of
cost over fair value of net assets acquired and the foregone interest on the
funds used to purchase Candlewood.
3. SECURITIES
The aggregate amortized cost and estimated fair values of securities
available for sale at December 31, 1996 and 1995 are as follows:
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Dollars in thousands Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S.. Treasury and
agency securities $12,527 $75 $- $12,602
Municipal securities 8,785 82 8 8,859
Mortgage-backed securities 5,166 80 9 5,237
- --------------------------------------------------------------------------------
Total debt securities 26,478 237 17 26,698
FHLB Stock 1,542 - - 1,542
- --------------------------------------------------------------------------------
Total securities
available for sale $28,020 $237 $17 $28,240
================================================================================
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Dollars in thousands Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S.. Treasury and
agency securities $10,487 $213 $- $10,700
Municipal securities 3,166 25 1 3,190
Mortgage-backed securities 6,096 135 - 6,231
- --------------------------------------------------------------------------------
Total debt securities 19,749 373 1 20,121
FHLB Stock 1,542 - - 1,542
================================================================================
Total securities
available for sale $21,291 $373 $1 $21,663
================================================================================
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The aggregate amortized cost and estimated fair values of securities held
to maturity at December 31, 1996 and 1995 are as follows:
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Dollars in thousands Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S.. Treasury and agency
securities $11,175 $30 $70 $11,135
Mortgage-backed securities 24,346 196 66 24,476
- --------------------------------------------------------------------------------
Total securities
held to maturity $35,521 $226 $136 $35,611
================================================================================
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Dollars in thousands Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S.. Treasury and agency
securities $8,017 $32 $8 $8,041
Mortgage-backed securities 10,526 103 - 10,629
- --------------------------------------------------------------------------------
Total securities
held to maturity $18,543 $135 $8 $18,670
================================================================================
The aggregate amortized cost and estimated fair values of securities
available for sale at December 31, 1996 and 1995, by contractual maturity are
shown below. Actual maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations without prepayment penalties.
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
Amortized Fair
Dollars in thousands Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ 4,495 $4,520
Due after one year through five years 9,792 9,851
Due after five years through ten years 7,025 7,090
Due after ten years - -
- --------------------------------------------------------------------------------
21,312 21,461
Mortgage-backed securities 5,166 5,237
- --------------------------------------------------------------------------------
Total debt securities available for sale $26,478 $26,698
================================================================================
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
Amortized Fair
Dollars in thousands Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ 1,995 $1,999
Due after one year through five years 9,337 9,559
Due after five years through ten years 2,321 2,332
Due after ten years - -
- --------------------------------------------------------------------------------
13,653 13,890
Mortgage-backed securities 6,096 6,231
- --------------------------------------------------------------------------------
Total debt securities available for sale $19,749 $20,121
================================================================================
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The aggregate amortized cost and estimated fair values of debt securities
held to maturity at December 31, 1996 and 1995, by contractual maturity are
shown below. Actual maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations without prepayment penalties.
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
Amortized Fair
Dollars in thousands Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ - $ -
Due after one year through five years 5,000 4,950
Due after five years through ten years 6,175 6,185
Due after ten years - -
- --------------------------------------------------------------------------------
11,175 11,135
Mortgage-backed securities 24,346 24,476
- --------------------------------------------------------------------------------
Total debt securities held to maturity $35,521 $35,611
================================================================================
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
Amortized Fair
Dollars in thousands Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ 8,017 $8,041
Due after one year through five years - -
Due after five years through ten years - -
Due after ten years - -
- --------------------------------------------------------------------------------
8,017 8,041
Mortgage-backed securities 10,526 10,629
- --------------------------------------------------------------------------------
Total debt securities held to maturity $18,543 $18,670
================================================================================
Proceeds from sales of debt securities were, in thousands, $10,526 in 1994.
Gross gains, in thousands, of $84 in 1994 and gross losses, in thousands, of $24
in 1994 were realized on these sales. Securities with a carrying value of $5.1
million were pledged as collateral for public deposits as of December 31, 1996.
Mortgage-backed securities include participation certificates issued by the
Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC) and the Federal National Mortgage Association (FNMA).
As required by the Federal Home Loan Bank, NMBT must hold FHLB stock equal
to 1% of assets secured by residential housing. As of December 31, 1996 and
1995, NMBT was in compliance with the FHLB stock requirement.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
DECEMBER 31,
-------------------
Dollars in thousands 1996 1995
- --------------------------------------------------------------------------------
LOANS
Collateralized by residential
properties $138,442 $136,067
Collateralized by commercial
properties 46,044 41,815
Construction and development 5,999 4,891
Commercial and industrial 13,203 11,917
Installment and education 7,129 2,641
Cash reserve and credit cards 870 840
- --------------------------------------------------------------------------------
Total loans 211,687 198,171
LESS
Allowance for loan losses 3,212 3,553
Unearned income 1 13
- --------------------------------------------------------------------------------
Loans, net $208,474 $194,605
================================================================================
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
As described in Note 1, effective January 1, 1995, NMBT adopted SFAS 114 which
defines when a loan is considered to be impaired and requires such loans to be
measured at the lower of cost or fair value. The recorded investment in impaired
loans was, in thousands, $3,598 at December 31, 1996 and $3,933 at December 31,
1995 and consists of loans for which allowances of, in thousands, $490 and $457,
respectively have been established.
Generally, the fair value of impaired loans was determined using the fair
value of the underlying collateral of the loan.
Additional information regarding impaired loans is as follows:
- --------------------------------------------------------------------------------
Dollars in thousands 1996 1995
- --------------------------------------------------------------------------------
Income recorded on impaired loans during the $ 75 $ 57
portion of the year that they were impaired
Income recorded on impaired loans 4 5
recognized on the cash basis
Average investment in impaired loans 3,953 4,037
================================================================================
Nonaccrual loans at December 31, 1996, 1995 and 1994, and related interest
income data are summarized as follows:
- --------------------------------------------------------------------------------
Dollars in thousands 1996 1995 1994
================================================================================
Nonaccrual loans $ 4,025 $4,523 $ 5,056
================================================================================
Interest income in
accordance with original
terms $ 309 $ 169 $ 233
Interest income recorded 30 37 30
- --------------------------------------------------------------------------------
Reduction in interest income $ 279 $ 132 $ 203
================================================================================
Nonaccrual loans at December 31, 1996 and 1995 include, in thousands,
$2,812 and $3,138 of loans considered to be impaired under SFAS 114.
Changes in the allowance for loan losses were as follows:
- --------------------------------------------------------------------------------
DECEMBER 31,
--------------------------
Dollars in thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Allowance for loan losses $3,553 $3,965 $3,769
at beginning of year
Allowance acquired from - - 1,192
Candlewood
Provision for loan losses 390 160 240
charged against income
Transfer to liability for (200) - -
estimated losses from
off-balance sheet credit
instruments
Loan losses, net of (531) (572) (1,236)
recoveries
- --------------------------------------------------------------------------------
Allowance for loan $3,212 $3,553 $3,965
losses at end of year
================================================================================
Loans to executive officers, principal stockholders, directors, companies
of which directors are principal owners, and individuals directly related to or
affiliated with directors and executive officers aggregated $2.94 million and
$3.09 million at December 31, 1996 and 1995, respectively. During 1996, new or
renewed loans totalling $1.09 million were granted, and payments of $1.24
million were received.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122 (SFAS 122), "Accounting for Mortgage
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Servicing Rights". SFAS 122 amends SFAS 65 "Accounting for Certain Mortgage
Banking Activities" to require that NMBT recognize an asset for rights to
service mortgage loans for others, however those servicing rights are acquired.
It also requires NMBT to assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. SFAS 122 was applied
prospectively beginning January 1, 1996. During 1996, NMBT recognized servicing
assets for originated mortgages totalling $76,954, of which $7,318 was amortized
during the year. As of December 31, 1996, an asset of $69,636 is recorded for
mortgage servicing rights. This amount is included in other assets on the
statement of condition.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" (SFAS 125). SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. NMBT will be required to adopt SFAS 125 for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996, on a prospective basis. The adoption of this
standard is not expected to have material impact on NMBT's financial condition
or its results of operations.
5. REAL ESTATE OWNED
Real estate acquired through foreclosure is stated net of a valuation
allowance. Upon adoption of SFAS 114 in 1995, in-substance foreclosed loans were
reclassified to loans. Real estate owned properties consisted of the following:
- --------------------------------------------------------------------------------
DECEMBER 31,
--------------------
Dollars in thousands 1996 1995
- --------------------------------------------------------------------------------
One-to-four family residential $ 511 $ 316
Commercial 405 1,362
- --------------------------------------------------------------------------------
Total real estate owned 916 1,678
Less: valuation allowance 420 364
================================================================================
Real estate owned, net $ 496 $1,314
================================================================================
- --------------------------------------------------------------------------------
CHANGES IN THE VALUATION ALLOWANCE
Valuation allowance at beginning
of year $ 364 433
Provision for real estate owned
losses charged against income 314 207
Real estate owned losses (258) (276)
- --------------------------------------------------------------------------------
Valuation allowance at end of year $ 420 $ 364
================================================================================
6. PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
Dollars in thousands OWNED CAPITAL
PROPERTY LEASES TOTAL
- --------------------------------------------------------------------------------
Premises and improvements $ 3,751 $ 401 $ 4,152
Equipment and furniture 4,420 - 4,420
- --------------------------------------------------------------------------------
8,171 401 8,572
Less accumulated
depreciation and 4,552 372 4,924
amortization
- --------------------------------------------------------------------------------
Premises, equipment and $ 3,619 $ 29 $ 3,648
capital leases, net
================================================================================
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
Dollars in thousands OWNED CAPITAL
PROPERTY LEASES TOTAL
- --------------------------------------------------------------------------------
Premises and improvements $ 3,646 $ 401 $ 4,047
Equipment and furniture 4,307 - 4,307
- --------------------------------------------------------------------------------
7,953 401 8,354
Less accumulated
depreciation and
amortization 4,098 345 4,443
- --------------------------------------------------------------------------------
Premises, equipment and $ 3,855 $ 56 $ 3,911
capital leases, net
================================================================================
7. ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Following is rate and maturity data on outstanding advances from the FHLB
at December 31, 1996:
- --------------------------------------------------------------------------------
Dollars in thousands
MATURITY DATE RATE AMOUNT
- --------------------------------------------------------------------------------
January 30, 1997 5.46% $4,200
June 9, 1997 6.11% 1,685
June 11, 1997 6.09% 1,000
November 1, 1999 6.05% 3,412
June 11, 2001 7.03% 550
June 19, 2001 6.65% 3,717
- --------------------------------------------------------------------------------
$14,564
================================================================================
There were no advances outstanding at December 31, 1995.
NMBT has access to a preapproved line of credit with the FHLB for up to 2%
of its total assets. In accordance with an agreement with FHLB, NMBT is required
to maintain qualified collateral, as defined in FHLB Statement of Credit Policy,
free and clear of liens, pledges and encumbrances, as collateral for the
advances and the preapproved line of credit. NMBT maintained qualified
collateral well in excess of the amount required to collateralize the
outstanding advances at December 31,1996.
8. STOCK OPTION PLANS
NMBT has two stock option plans for the benefit of employees, officers and
directors. The 1988 Non-Statutory Stock Option Plan (the 1988 Plan) permits a
maximum of 93,786 shares of common stock to be issued at exercise prices at or
above 85% of the fair market value. The 1994 Non-Qualified Stock Option Plan
(the 1994 Plan) permits a maximum of 300,000 shares of common stock to be issued
at fair market value.
The Board of Directors determine when such options will be granted, and
when they will become exercisable, with the term of each option not to exceed
five years under the 1988 Plan and ten years under the 1994 Plan. The Plans also
provide for the issuance of stock appreciation rights, at the discretion of the
Board of Directors, concurrent with the issuance of options. The number of
shares of common stock reserved, and outstanding, for stock options and stock
appreciation rights will be adjusted for any stock splits declared after
establishment of the Plans. Options have been granted to purchase common stock
principally at the fair market value at the date of the grant. Options are
exercisable immediately after the grant. Upon the exercise of options, proceeds
received in excess of par value are credited to additional paid-in capital.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Stock option transactions under the Plans were as follows:
- --------------------------------------------------------------------------------
SHARES EXERCISE WEIGHTED
UNDER- PRICE AVERAGE
LYING PER PRICE MATURITY
OUTSTANDING OPTIONS SHARE PER RANGE
OPTIONS RANGE SHARE
- --------------------------------------------------------------------------------
As of January 1, 336,620 $5.00-$6.00 $5.889 1995-2004
1995
Granted 10,000 $9.75 $9.750 2004
Canceled or (3,550) $5.00-$6.00 $5.338 1995-1999
expired
Exercised (31,770) $5.00-$6.00 $5.893 1995-1999
- --------------------------------------------------------------------------------
As of December 311,300 $5.875-$9.75 $6.018 1999-2004
31, 1995
Granted 7,500 $11.875 $11.875 2004
Canceled or (600) $6.00 $6.000 1999
expired
Exercised (24,600) $5.875-$6.00 $5.914 1999-2004
================================================================================
As of December 293,600 $5.875-$11.875 $6.177 1999-2004
31, 1996
================================================================================
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
establishes financial accounting and reporting standards for stock-based
compensation plans. SFAS 123 defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, SFAS 123 also allows NMBT to continue to measure
compensation costs for stock-based compensation plans using the intrinsic value
based method of accounting prescribed by APB No.25 "Accounting for Stock Issued
to Employees" (APB 25) and make pro forma disclosure of net income and earnings
per share, as if the fair value based method of accounting defined in SFAS 123
had been applied. NMBT has elected not to adopt the accounting requirements of
SFAS 123 and continue to account for stock-based compensation plans in
accordance with APB 25. Had compensation cost for NMBT's stock option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, NMBT's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------
Dollars in thousands, except per 1996 1995
share data
- --------------------------------------------------------------------------------
Net income As reported $2,792 $2,159
Pro forma $2,756 $2,109
Earnings per share As reported $1.04 $0.83
Pro forma $1.03 $0.81
================================================================================
The fair value of each option grant in 1995 and 1996 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996 respectively:
dividend yield of 1.6 percent for all years; expected volatility of 30 percent,
risk-free interest rates of 7 percent for the options; and expected lives of
8.67 and 8 years for the options, respectively. All 1995 and 1996 option grants
expire in 2004. The weighted average fair value of options granted during 1995
and 1996 was $6.29 and $5.46, respectively.
9. STOCKHOLDERS' EQUITY CAPITAL REQUIREMENTS
NMBT is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on NMBT's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, NMBT must meet specific capital
guidelines that involve quantitative measures of NMBT's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. NMBT'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 NMBT to maintain minimum amounts and
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ratios (set forth in the table below) of total and Tier 1 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 December 31,
1996, that NMBT meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized NMBT as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized NMBT must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
NMBT's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED
ADEQUACY UNDER
ACTUAL PURPOSES: PROMPT CORRECTIVE
ACTION PROVISIONS:
Dollars in thousands AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted
Assets) $23,997 13.0% $14,770 greater 8.0% $18,462 greater 10.0%
than or than or
equal to equal to
Tier 1 Capital
(to Risk-Weighted 21,678 11.7% 7,385 greater 4.0% 11,077 greater 6.0%
Assets) than or than or
equal to equal to
Tier 1 Capital
(to Average Assets) 21,678 7.2% 12,002 greater 4.0% 15,002 greater 5.0%
than or than or
equal to equal to
- ------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995:
Total Capital
(to Risk-Weighted $20,977 13.0% $12,952 greater 8.0% $16,189 greater 10.0%
Assets) than or than or
equal to equal to
Tier 1 Capital
(to Risk-Weighted 18,935 11.7% 6,476 greater 4.0% 9,714 greater 6.0%
Assets) than or than or
equal to equal to
Tier 1 Capital
(to Average Assets) 18,935 7.2% 10,519 greater 4.0% 13,148 greater 5.0%
than or than or
equal to equal to
-----------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS
There are certain restrictions on the payment of dividends by NMBT. Under
Connecticut law, NMBT is prohibited from declaring a cash dividend on its common
stock except from net earnings for the current year and the preceding two years.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
10. INCOME TAXES
The following table represents a reconciliation of the provision for income
taxes as shown in the statements of operations with that which would be computed
by applying the statutory federal income tax rate (34%) to income before income
taxes:
- --------------------------------------------------------------------------------
RECONCILIATION OF THE PROVISION FOR INCOME TAXES
YEARS ENDED DECEMBER 31,
------------------------
Dollars in thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Federal income tax provision
at statutory rate $1,078 $917 $571
Increase (decrease) in income taxes
resulting from:
State income taxes, net of 142 153 168
federal tax effect
Changes in valuation allowance and
other deferred tax adjustments (701) (640) (471)
Other (140) 107 71
- --------------------------------------------------------------------------------
Actual provision for income taxes $379 $537 $339
================================================================================
- --------------------------------------------------------------------------------
COMPONENTS OF THE PROVISION FOR INCOME TAXES
YEARS ENDED DECEMBER 31,
Dollars in thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Current income tax expense:
Federal $431 $546 $572
State 215 232 238
- --------------------------------------------------------------------------------
646 778 810
Deferred income tax benefit (267) (241) (471)
- --------------------------------------------------------------------------------
Total provision for income taxes $379 $537 $339
================================================================================
The tax effect of temporary differences giving rise to NMBT's deferred tax
assets and liabilities at December 31, 1996 and 1995 are as follows:
- --------------------------------------------------------------------------------
Dollars in thousands 1996 1995
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Allowance for loan losses $771 $867
Deferred compensation 452 410
Capital loss carryforward 105 304
Deferred loan fees (83) 156
Real estate owned 165 12
Other (25) 75
- --------------------------------------------------------------------------------
Total deferred tax assets 1,385 1,824
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Depreciation - (307)
Securities (106) (162)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (106) (469)
- --------------------------------------------------------------------------------
Valuation allowance (105) (499)
- --------------------------------------------------------------------------------
Net deferred tax assets $1,174 $856
================================================================================
NMBT will only recognize a deferred tax asset when, based upon available
evidence, realization is more likely than not. A valuation reserve is
established for tax benefits available but for which realization is in doubt. In
1996, NMBT reduced the valuation allowance to approximately 6% of the deferred
tax asset to recognize the remaining available Federal income tax benefits
together with the remaining available State income tax benefits which NMBT
expected to utilize, and other book/tax temporary differences. At December 31,
1996, NMBT recorded a valuation reserve against 100% of the State and Federal
capital loss carryforwards which NMBT does not expect to utilize.
11. BENEFIT PLANS
NMBT has a defined contribution Retirement and Thift 401(k) Plan for its
employees who meet certain length of service and age requirements. The
provisions of the 401(k) Plan allow eligible employees to contribute between 1%
and 15% of their annual salary, with a matching contribution by NMBT equal to
100% of the employee's contribution, up to 4% of annual salary. NMBT can also
make discretionary contributions to the Plan. NMBT's expense under
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
this plan was $0.23 million, $0.21 million and $0.16 million in 1996, 1995 and
1994, respectively.
In 1985 and 1986, the Board of Directors of NMBT approved Deferred
Compensation Agreements for its Directors and selected Executive Officers. These
agreements permitted the Directors and selected Executive Officers to defer a
portion of their cash compensation. The accrued liability at December 31, 1996
was $1.12 million. To fund this liability, NMBT has purchased life insurance
contracts on the applicable parties. NMBT is the owner and beneficiary of such
contracts. Although NMBT may be obligated for certain cash payments prior to the
receipt of proceeds from the purchased life insurance policies, NMBT should
ultimately be reimbursed in whole from such life insurance proceeds.
Distributions under the Plan are payable by NMBT as either a lump sum, in a
maximum of ten equal annual installments, or in either 120 or 180 equal monthly
installments depending upon the basis for the distribution. In cases of death,
attaining normal retirement age or other terminations, lump sum distributions or
installment payments are authorized. Retirement distributions are made upon
attaining normal retirement age. NMBT's aggregate distributions in 1996 pursuant
to this Plan totaled $0.14 million.
12. COMMITMENTS AND CONTINGENCIES
OFF-BALANCE SHEET COMMITMENTS
NMBT 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, from
time to time, to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These financial instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statements of condition. The contract amounts of those
instruments reflect the extent of involvement NMBT has in particular classes of
financial instruments. NMBT's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit, standby letters of credit and financial guarantees is represented
by the contractual amount of those instruments. NMBT uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Commitments and conditional obligations at December 31, 1996 were as
follows:
- --------------------------------------------------------------------------------
Dollars in thousands CONTRACT AMOUNT
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENT WHOSE CONTRACT
AMOUNTS REPRESENT CREDIT RISK:
Commitments to extend credit $51,327
Standby letters of credit 3,152
- --------------------------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
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. NMBT evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by NMBT upon the extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies, but is
principally real estate and other income producing property.
Standby letters of credit and financial guarantees are conditional
commitments issued by NMBT to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support commercial borrowing
arrangements. Most guarantees are for twelve months. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. NMBT holds certificates of deposit or real estate
as collateral supporting those commitments for which collateral is deemed
necessary. NMBT generally requires an initial loan to value ratio of no greater
than 80% when real estate collateralizes a loan commitment.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONCENTRATIONS OF CREDIT RISK
NMBT primarily grants loans to customers located within its primary market
area in western Connecticut. The majority of NMBT's loan portfolio and
commitments (86%) are comprised of loans collateralized by real estate in
western Connecticut. Of these loans, approximately 74% are collateralized by
residential real estate.
LEASE COMMITMENTS
NMBT leases certain of its premises and equipment under capital and
operating lease agreements. Rent expense for operating leases was, in thousands,
$253, $233 and $167 for the years ended December 31, 1996, 1995 and 1994,
respectively. The present value of future minimum lease payments under capital
leases is included in other liabilities.
The future minimum lease payments by year, and in the aggregate, under
capital and noncancelable operating leases consisted of the following at
December 31, 1996:
- --------------------------------------------------------------------------------
CAPITAL OPERATING
Dollars in thousands LEASES LEASES
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31:
1997 $57 $193
1998 20 179
1999 - 178
2000 - 90
2001 - 86
2002 and thereafter - 489
- --------------------------------------------------------------------------------
Total future minimum lease payments $77 $1,215
Amounts representing interest (7)
- --------------------------------------------------------------------------------
Present value of future minimum
lease payments $70
================================================================================
LEGAL PROCEEDINGS
NMBT is a defendant in certain claims and legal actions that arose in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, these proceedings, in the aggregate, are not expected to
have a materially adverse effect on the financial position, results of
operations or liquidity of NMBT.
CASH AND DUE FROM BANKS
Cash and due from banks includes reserve balances that NMBT is required to
maintain with the Federal Reserve Bank of Boston. These required reserves are
based upon deposits outstanding and were $5.7 million and $4.5 million at
December 31, 1996 and 1995, respectively. These reserve balances averaged $5.1
million and $3.8 million in 1996 and 1995, respectively.
EMPLOYMENT CONTRACTS
NMBT has employment agreements with certain members of senior management.
The agreements provide for an initial term of one year expiring on December 31,
1996, and provide for one year extensions unless the employee is terminated in
accordance with the terms contained therein. One agreement provides for the
payment of cash severance equal to three times average annual gross income for
the previous five years, less one dollar, upon voluntary or involuntary
termination within twelve months following a "change in control" (as such term
is defined therein). The agreements for two others provide for the payment of
cash severance equal to one time average annual gross income for the previous
five years, less one dollar, upon voluntary or involuntary termination within
twelve months following a "change in control" (as such term is defined therein).
13. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 107 "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information for certain financial instruments,
including loans, securities, deposits and borrowings. Quoted market prices are
not available for a significant portion of NMBT's financial instruments and, as
a result, the fair values presented may not be indicative of net realizable or
liquidation values.
Fair values are estimates derived using present value or other valuation
techniques and are based on judgments regarding future
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
expected loss experience, current economic conditions, risk characteristics and
other factors. In addition, fair value estimates are based on market conditions
and information about the financial instrument at a specific point in time. Fair
value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Such items include premises and equipment, real estate
owned and income taxes. In addition, the tax ramifications relating to the
realization of unrealized gains and losses may have a significant effect on fair
value estimates and have not been considered in the estimates.
The following is a summary of the methodologies and assumptions used to
estimate the fair value of NMBT's financial instruments pursuant to SFAS 107.
CASH, CASH EQUIVALENTS AND OTHER: The estimated fair value of cash and due
from banks, deposits with banks, federal funds sold, accrued interest receivable
and accrued interest payable, is considered to approximate the book value due to
their short-term nature and negligible credit losses.
SECURITIES: Securities classified as available for sale are carried at fair
value. Fair value for securities held to maturity was determined generally by
secondary market and independent broker quotations.
LOANS: Estimated fair values for loans collateralized by real estate are
based on discounted projected cash flows using yield spreads determined by
property type, adjusted for prepayment assumptions, changes in credit risk and
interest rate parameters for variable rate loans. Estimated fair values for
commercial and consumer loans, not collateralized by real estate, are based on
applicable fixed yields. Credit cards and cash reserve loans are based on
carrying values.
DEPOSITS: The estimated fair values disclosed for checking and savings
deposits are, by definition, equal to the amount payable on demand at the
reporting date. Estimated 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.
FHLB ADVANCES: The carrying amounts for FHLB advances approximate the fair
value because rates currently available for advances with similar terms
approximate actual rates on NMBT advances.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Estimated fair values for NMBT's
off-balance sheet financial instruments are based on fees currently charged to
enter into similar agreements taking into account the remaining terms of the
agreements and the counterparties' credit standing.
The following table summarizes the carrying value and estimated fair values
of NMBT's on- and off-balance sheet financial instruments at December 31:
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1996 1995
------------------------------------------------------
Dollars in CARRYING ESTIMATED CARRYING ESTIMATED
thousands VALUE FAIR VALUE VALUE FAIR VALUE
- --------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due
from banks $17,855 $17,855 $20,417 $20,417
Interest-bearing
deposits 6,135 6,135 4,165 4,165
Securities
available
for sale 28,240 28,240 21,663 21,663
Securities
held to
maturity 35,521 35,611 18,543 18,670
Loans, net
Accrued 208,474 206,655 194,605 193,835
Interest
receivable 1,923 1,923 1,542 1,542
- --------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Noninterest-bearing
checking $36,013 $36,013 $31,149 $31,149
Interest-bearing
checking 76,989 76,989 72,506 72,506
Savings 61,432 61,432 62,689 62,689
Time deposits 91,727 91,399 80,723 80,366
Accrued
interest
payable 336 336 254 254
FHLB advances 14,564 14,564 - -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995
-------------------- -------------------
CONTRACT ESTIMATED CONTRACT ESTIMATED
Dollars in AMOUNT FAIR AMOUNT FAIR
thousands VALUE VALUE
- --------------------------------------------------------------------------------
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments
to extend
credit $51,327 $564 $40,414 $458
Standby
letters of
credit 3,152 63 1,313 26
- --------------------------------------------------------------------------------
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Dollars in thousands,
except per share data FIRST SECOND THIRD FOURTH
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Interest and dividend income $4,804 $4,903 $5,205 $5,388
Interest expense 1,819 1,898 2,106 2,171
- -------------------------------------------------------------------------------------------------------------------
Net interest income 2,985 3,005 3,099 3,217
Provision for loan losses 60 90 90 150
- -------------------------------------------------------------------------------------------------------------------
Noninterest income 385 392 425 438
Noninterest expense 2,518 2,407 2,459 3,001
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 792 900 975 504
Net income 594 675 731 792
===================================================================================================================
Per share amounts:
Net income per share (1) $0.23 $0.25 $0.28 $0.29
Cash dividends per share $0.040 $0.040 $0.045 $0.045
- -------------------------------------------------------------------------------------------------------------------
Average market ask price $10.50 $10.75 $11.125 $12.50
Average market bid price $9.50 $9.625 $10.125 $11.50
- -------------------------------------------------------------------------------------------------------------------
1995
Interest and dividend income $4,369 $4,552 $4,757 $4,785
Interest expense 1,650 1,766 1,820 1,848
- -------------------------------------------------------------------------------------------------------------------
Net interest income 2,719 2,786 2,937 2,937
Provision for loan losses 40 - 60 60
- -------------------------------------------------------------------------------------------------------------------
Noninterest income 303 309 316 347
Noninterest expense 2,390 2,474 2,397 2,537
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 592 621 796 687
Net income 444 466 597 652
===================================================================================================================
Per share amounts:
Net income per share (1) $0.18 $0.18 $0.24 $0.23
Cash dividends per share $0.030 $0.030 $0.035 $0.035
- -------------------------------------------------------------------------------------------------------------------
Average market ask price $6.500 $8.250 $8.750 $9.750
Average market bid price $5.750 $7.125 $7.500 $8.500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The sum of quarterly per share data may not equal the annual amounts due to
changes in the weighted average shares and share equivalents outstanding
STOCK INFORMATION
Investment Information
Stockholders are encouraged to contact NMBT with any questions or comments about
their investments. Direct letters to:
Jay C. Lent
The New Milford Bank & Trust Company
100 Park Lane
New Milford, CT 06776-2400
Common Stock Listing
The New Milford Bank & Trust Company's common stock is traded on the National
Association of Securities Dealers (NASDAQ) SmallCap Market under the symbol
NMBT. As of December 31, 1996, there were approximately 2,000 stockholders of
record.
STOCK TRANSFER AGENT
Requests for changes in the registration of stock certificates, replacement of
lost or destroyed certificates, or undeliverable dividend checks, should be
referred to NMBT's transfer agent:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800)288-9541
Telecommunications Devices for the Deaf (TDD) for the hearing and speech
impaired are available by calling (800)231-5469.
24
Exhibit 99.2
Quarterly Report on Form F-4 for fiscal quarter ended March 31, 1997
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
550 17th Street, N.W.
Washington, D.C. 20429
--------
FORM F-4
--------
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997
FDIC Insurance Certificate Number 21977-1
THE NEW MILFORD BANK & TRUST COMPANY
------------------------------------
(Exact name of bank as specified in its
charter)
Connecticut
-------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
06-0914281
----------------------------------------
(I.R.S. Employer Identification No.)
55 Main Street, New Milford, Connecticut
----------------------------------------
(Address of principal executive offices)
06776-2400
----------
(Zip Code)
(860) 355-1171
--------------
(Bank's telephone number, including area code)
Indicate by check mark if the Bank, as a "small business issuer" as defined
under 17 CFR 240.12b-2, is providing alternative disclosures as permitted for
small business issuers in this Form F-4. [ X ]
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. YES X NO __
The number of shares of the Bank's common stock outstanding as of May 8, 1997
was: 2,588,058 shares $1.00 par value.
<PAGE>
F-4 March 31, 1997
THE NEW MILFORD BANK & TRUST COMPANY
TABLE OF CONTENTS
PAGE
Item 1. Financial Statements
Statements of Condition (Unaudited) March 31, 1997
and December 31, 1996 3
Statements of Operations (Unaudited) Three Months
Ended March 31, 1997 and March 31, 1996 4
Statements of Cash Flows (Unaudited) Three Months
Ended March 31, 1997 and March 31, 1996 5
Statements of Changes in Stockholders' Equity
(Unaudited) Three Months Ended March 31, 1997 and
March 31, 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
SIGNATURES 11
2
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CONDITION (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
March December
31, 1997 31, 1997
-------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C>
ASSETS
Cash and due from banks $17,914 $17,855
Interest-bearing deposits 5,555 6,135
- -------------------------------------------------------------------------------- ------------------ ------------------
Cash and cash equivalents 23,469 23,990
- -------------------------------------------------------------------------------- ------------------ ------------------
Securities:
Available for sale, at fair value (amortized cost of $31,760 in 1997
and $28,020 in 1996) 31,653 28,240
Held to maturity, at amortized cost (fair value of $37,193 in 1997
and $35,611 in 1996) 37,447 35,521
- -------------------------------------------------------------------------------- ------------------ ------------------
Total securities 69,100 63,761
- -------------------------------------------------------------------------------- ------------------ ------------------
Loans, net of unearned income 211,524 211,686
Less allowance for loan losses 3,310 3,212
- -------------------------------------------------------------------------------- ------------------ ------------------
Loans, net 208,214 208,474
- -------------------------------------------------------------------------------- ------------------ ------------------
Real estate owned, net 735 496
Premises, equipment and capital leases, net 3,569 3,648
Excess of cost over fair value of net assets acquired, net 682 741
Accrued interest and other assets 4,747 4,435
- -------------------------------------------------------------------------------- ------------------ ------------------
Total assets $310,516 $305,545
================================================================================ ================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $32,543 $36,013
Interest-bearing checking 79,093 76,989
Savings 60,483 61,432
Time deposits under $100 80,493 79,320
Time deposits $100 or more 17,560 12,407
- -------------------------------------------------------------------------------- ------------------ ------------------
Total deposits 270,172 266,161
- -------------------------------------------------------------------------------- ------------------ ------------------
Advances from Federal Home Loan Bank of Boston (FHLB) 14,819 14,564
Accrued interest and other liabilities 2,672 2,255
- -------------------------------------------------------------------------------- ------------------ ------------------
Total liabilities 287,663 282,980
- -------------------------------------------------------------------------------- ------------------ ------------------
Stockholders' equity:
Common stock, $1 par value
Shares authorized: 8,000,000
Shares issued: 1997 - 2,681,305; 1996 - 2,681,305
Shares outstanding: 1997 - 2,588,058; 1996 - 2,588,058 2,681 2,681
Additional paid-in capital 15,266 15,266
Retained earnings 5,699 5,195
Unrealized gain (loss) on securities available for sale, net of tax (70) 146
Treasury stock, at cost, shares: 1997 - 93,247; 1996 - 93,247 (723) (723)
- -------------------------------------------------------------------------------- ------------------ ------------------
Total stockholders' equity 22,853 22,565
- -------------------------------------------------------------------------------- ------------------ ------------------
Total liabilities and stockholders' equity $310,516 $305,545
================================================================================ ================== ==================
</TABLE>
See notes to financial statements.
3
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------------
1997 1996
-------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $4,309 $4,078
U.S. Treasury and agency securities 926 607
Municipal securities 112 39
Dividends on FHLB stock 24 25
Interest-bearing deposits 29 55
- -------------------------------------------------------------------------------- ------------------ ------------------
Total interest and dividend income 5,400 4,804
- -------------------------------------------------------------------------------- ------------------ ------------------
INTEREST EXPENSE
Interest-bearing checking 293 282
Savings 369 417
Time deposits under $100 1,064 949
Time deposits $100 or more 202 156
FHLB advances and capital leases 225 15
- -------------------------------------------------------------------------------- ------------------ ------------------
Total interest expense 2,153 1,819
- -------------------------------------------------------------------------------- ------------------ ------------------
Net interest and dividend income 3,247 2,985
Provision for loan losses 125 60
- -------------------------------------------------------------------------------- ------------------ ------------------
Net interest and dividend income after provision for loan losses 3,122 2,925
- -------------------------------------------------------------------------------- ------------------ ------------------
NONINTEREST INCOME
Service charges on deposit accounts 249 229
Other service charges, commissions and fees 82 73
Loan servicing fees 9 4
Net gains from loans sold 64 61
Other income 28 18
- -------------------------------------------------------------------------------- ------------------ ------------------
Total noninterest income 432 385
- -------------------------------------------------------------------------------- ------------------ ------------------
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 1,345 1,276
Occupancy 241 235
Furniture and equipment 234 236
Data processing 54 59
Federal deposit insurance premiums 8 1
Stationery, printing and supplies 83 97
Marketing, advertising and investor relations 98 85
Legal and professional fees 63 76
Other general and administrative expense 275 323
- -------------------------------------------------------------------------------- ------------------ ------------------
Total general and administrative expense 2,401 2,388
Operations of real estate owned 33 71
Amortization of intangible assets 59 59
- -------------------------------------------------------------------------------- ------------------ ------------------
Total noninterest expense 2,493 2,518
- -------------------------------------------------------------------------------- ------------------ ------------------
Income before provision for income taxes 1,061 792
Provision for income taxes 427 198
================================================================================ ================== ==================
Net income $634 $594
================================================================================ ================== ==================
Net income per share $0.24 $0.23
- -------------------------------------------------------------------------------- ------------------ ------------------
Dividends per share $0.050 $0.040
- -------------------------------------------------------------------------------- ------------------ ------------------
</TABLE>
See notes to financial statements.
4
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
IN THOUSANDS
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------
1997 1996
---------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $634 $594
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 241 235
Provision for loan losses 125 60
Net amortization of securities 33 16
Loans originated for sale (4,752) (4,260)
Proceeds from loans sold, net 4,994 3,600
Gains from loans sold, net (64) (61)
Realized gains from real estate owned, net (8) (15)
Net increase in interest receivable (267) (190)
Net (increase) decrease in other assets 112 32
Net increase in interest payable 39 18
Net increase in other liabilities 369 82
- -------------------------------------------------------------------------------- ----------------- ------------------
Net cash provided by operating activities 1,456 111
- -------------------------------------------------------------------------------- ----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (2,996) (13,390)
Purchases of available for sale (AFS) securities (3,869) (365)
Proceeds from maturities of AFS securities 256 2,241
Proceeds from maturities of HTM securities 1,046 2,536
Purchases of FHLB stock (136) -
Net loan (originations) repayments (285) 894
Net purchases of premises and equipment (103) (93)
Proceeds from sales of real estate owned (10) 118
- -------------------------------------------------------------------------------- ----------------- ------------------
Net cash used for investing activities (6,097) (8,059)
- -------------------------------------------------------------------------------- ----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in advances from FHLB 256 3,000
Net increase in time deposits 6,326 1,242
Net decrease in checking and savings deposits (2,316) (1,638)
Cash dividends (129) (103)
Other (17) 2
- -------------------------------------------------------------------------------- ----------------- ------------------
Net cash provided by financing activities 4,120 2,503
- -------------------------------------------------------------------------------- ----------------- ------------------
Decrease in cash and cash equivalents (521) (5,445)
Cash and cash equivalents, beginning of year 23,990 24,582
================================================================================ ================= ==================
Cash and cash equivalents, end of period $23,469 $19,137
================================================================================ ================= ==================
CASH PAID DURING PERIOD
Interest to depositors and creditors $2,115 $1,801
Income taxes - 93
NON-CASH TRANSFERS
Transfer of loans to real estate owned 350 -
Net change in unrealized gains (losses) on AFS securities (216) (158)
Financed portion of sales of real estate owned 129 393
</TABLE>
See notes to financial statements.
5
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on
Shares Common Paid-In Retained Securities Treasury
in thousands Outstanding Stock Capital Earnings Available Stock Total
for Sale
- ----------------------------------- ------------- ---------- ----------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 2,563 $2,657 $15,142 $2,839 $246 ($727) $20,157
Net Income 594 594
Net change in unrealized gain
(loss) on securities available (158) (158
for sale
Cash dividends (103) (103)
Proceeds from exercise of stock
options 2 2 19 21
------------- ---------- ----------- ----------- ------------- ---------- -----------
MARCH 31, 1996 2,565 $2,659 $15,161 $3,330 $88 ($727) $20,511
============= ========== =========== =========== ============= ========== ===========
JANUARY 1, 1997 2,588 $2,681 $15,266 $5,195 $146 ($723) $22,565
Net income 634 634
Net change in unrealized gain
(loss) on securities available
for sale (216) (216)
Cash dividends (130) (130)
------------- ---------- ----------- ----------- ------------- ---------- -----------
MARCH 31, 1997 2,588 $2,681 $15,266 $5,699 ($70) ($723) $22,853
============= ========== =========== =========== ============= ========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
F-4 March 31, 1997
THE NEW MILFORD BANK & TRUST COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The interim unaudited financial statements of The New Milford Bank & Trust
Company ("NMBT" or "the Bank") have been prepared in accordance with generally
accepted accounting principles. Certain financial information that is normally
included in the financial statements prepared in accordance with generally
accepted accounting principles, but which is not required for interim reporting
purposes, has been condensed or omitted. In preparing the interim financial
statements, Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
In the opinion of Management, the accompanying interim unaudited financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly NMBT's financial position as of March 31, 1997, and
the results of its operations and its cash flows for the three months then
ended. The results of operations for the periods shown are not necessarily
indicative of the results to be expected for the year ending December 31, 1997.
The accompanying interim unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in NMBT's
1996 Annual Report.
NOTE 2. Recent Relevant Financial Accounting Standards Board Releases
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
128) was issued in March, 1997, and is effective for periods ended after
December 15, 1997. Earlier application is not permitted. SFAS 128 simplifies the
standards for computing earnings per share (EPS) and makes them comparable to
international standards for computing EPS. When effective, this statement will
replace the presentation of primary EPS with a presentation of basic EPS and
will require a dual presentation of basic EPS and diluted EPS on the face of the
Statements of Operations. Had SFAS 128 been applied as of March 31, 1997, NMBT
would have reported basic and diluted EPS of $0.24 and $0.23 per share, and
$0.23 and $0.22 per share, for the three month periods ended March 31, 1997 and
1996, respectively.
7
<PAGE>
F-4 March 31, 1997
THE NEW MILFORD BANK & TRUST COMPANY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Statements
NMBT has made, and may continue to make, various forward-looking statements with
respect to earnings, credit quality and other financial and business matters for
periods subsequent to March 31, 1997. The Bank cautions that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, and that statements relating to subsequent periods increasingly
are subject to greater uncertainty because of the increased likelihood of
changes in underlying factors and assumptions. Actual results could differ
materially from forward-looking statements.
In addition to those factors previously disclosed by the Bank and those factors
identified elsewhere herein, the following factors could cause actual results to
differ materially from such forward-looking statements: competitive pressures on
loan and deposit product pricing; other actions of competitors; changes in
economic conditions; the extent and timing of actions of the Federal Reserve
Board; customer deposit disintermediation; changes in customers' acceptance of
NMBT's products and services; and the extent and timing of legislative and
regulatory actions and reform.
NMBT's forward-looking statements speak only as of the date on which such
statements are made. By making any forward-looking statements, NMBT assumes no
duty to update them to reflect new, changing or unanticipated events or
circumstances.
Results of Operations
Net income for the three months ended March 31, 1997 increased 6.7% to $0.63
million or $0.24 per share, as compared to net income of $0.59 million or $0.23
per share, for the three months ended March 31, 1996. Net interest and dividend
income (interest and dividend income less interest expense) before provision for
estimated loan losses for the first quarter of 1997 increased by $0.26 million
or 8.8%, from the first quarter of 1996. This increase is a reflection of growth
in NMBT's interest-earning assets.
The net interest spread, the difference between the yield the Bank earns on its
loans and investments and the rate it pays on its deposits and borrowings, was
4.8% for the three months ended March 31, 1997 and 4.9% for the three months
ended March 31, 1996. The slight decrease in the spread was due to a migration
of deposits from lower cost savings accounts to higher cost certificates. The
provision for estimated loan losses for the first quarter of 1997 was $0.12
million as compared to a $0.06 million provision for the same period in 1996.
Also contributing to the NMBT's improved financial performance was an 12.1%
increase in noninterest income due to strong activity in the mortgage banking
area and increased fee income and a 1.0% decrease in noninterest expense..
8
<PAGE>
F-4 March 31, 1997
THE NEW MILFORD BANK & TRUST COMPANY
The Bank's efficiency ratio, measuring the Bank's ability to generate a dollar
of revenue, has improved from 72% for 1996 to 67% during the first quarter of
1997. This ratio is computed by dividing total noninterest expense (excluding
provisions for real estate owned write-downs), by the sum of tax-equivalent net
interest income plus noninterest income (excluding securities gains and losses).
Financial Condition
Total assets increased 1.6% to $310.52 million as of March 31, 1997 from $305.54
million as of December 31, 1996. This increase of $4.97 million in total assets
is primarily attributable to deposit growth of $4.01 million. During the first
quarter of 1997, NMBT's purchase of securities, primarily U.S. agency issues and
mortgage-backed securities, resulted in a 8.4% increase in total securities from
$63.76 million to $69.10 million from December 31, 1996. Net loans decreased
0.1% to $208.21 million as of March 31, 1997 from $208.47 million as of December
31, 1996.
Impaired Loans
The recorded investment in loans considered to be impaired was $3.09 million at
March 31, 1997, and $3.60 million at December 31, 1996, and consists of loans
for which an allowance of $0.42 million and $0.49 million, for the same periods
respectively, has been established. Income recorded on impaired loans during the
first three months of 1997 for the portion of this period that they were
impaired was $.01 million, none of which was recognized on the cash basis.
Average investment in impaired loans during this same period of 1997 was $3.15
million. Nonaccruing loans at March 31, 1997, included $2.25 million of loans
considered to be impaired, as compared with $2.81 million at December 31, 1996.
Nonperforming Assets
Nonperforming loans, consisting principally of residential and commercial loans
collateralized by real estate, and real estate acquired through foreclosures
(real estate owned) have decreased $0.53 million or 13.2% from December 31,
1996. Nonperforming assets and relevant ratios were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------- ----------- -----------
03/31/97 12/31/96
-------- --------
(Dollars in thousands)
<S> <C> <C>
Total nonperforming loans $ 3,495 $4,025
Real estate owned 735 496
------- -------
Total nonperforming assets $4,230 $4,521
======= ======
Total nonperforming loans/Total loans 1.65% 1.90%
Total nonperforming assets/Total assets 1.36% 1.48%
Allowance for estimated loan losses/Total nonperforming loans 94.68% 79.79%
- --------------------------------------------------------------------- ------- ------
</TABLE>
9
<PAGE>
F-4 March 31, 1997
THE NEW MILFORD BANK & TRUST COMPANY
Liquidity Management
For information about NMBT's liquidity position, see Management's Discussion and
Analysis in its 1996 Annual Report to Stockholders, which was also incorporated
into NMBT's Annual Report to the FDIC on Form F-2. There has been no material
change in that data since it was reported.
Capital
At March 31, 1997, NMBT had $22.85 million in stockholders' equity, compared
with $22.56 million at December 31, 1996. The growth in stockholders' equity
from the end of 1996 mainly reflected a $0.21 million adjustment for the
decrease in unrealized gains on securities available for sale in accordance with
SFAS 115, coupled with the retention of $0.63 million in net earnings, less the
cash dividends paid on February 7, totaling $0.13 million.
The following reflects the NMBT's capital ratios (which exclude intangible
assets and the SFAS 115 adjustment):
<TABLE>
<CAPTION>
- ---------------------------------------------------------- -------------- -------------- ----------------
Regulatory
03/31/97 12/31/96 Minimum
---------- ---------- ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital ratio 11.88% 11.74% 4.00%
Total capital ratio 13.14% 13.00% 8.00%
Leverage Ratio 7.40% 7.24% 3.00%(1)
Tier 1 Capital $22,242 $21,678
Total risk-based capital $24,594 $23,997
Total risk-adjusted assets $187,189 $184,623
<FN>
(1) Plus an additional cushion of at least 1 to 2% for all but the most highly
rated institutions.
</FN>
- ---------------------------------------------------------- -------------- -------------- ----------------
</TABLE>
For further information about NMBT's capital, see Management's Discussion and
Analysis in its 1996 Annual Report to Stockholders, which was also incorporated
into NMBT's Annual Report to the FDIC on Form F-2.
10
<PAGE>
F4 March 31, 1997
THE NEW MILFORD BANK & TRUST COMPANY
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Bank has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE NEW MILFORD BANK & TRUST COMPANY
Date May 8, 1997 By /s/ Michael D. Carrigan
----------------------------------
Michael D. Carrigan
President
Date May 8, 1997 By /s/ Jay C. Lent
----------------------------------
Jay C. Lent
Chief Financial Officer
Date May 8, 1997 By /s/ Deborah L. Fish
----------------------------------
Deborah L. Fish
Treasurer
11
Exhibit 99.3
Quarterly Report on Form F-4 for fiscal quarter ended June 30, 1997
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
550 17th Street, N.W.
Washington, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1997
FDIC Insurance Certificate Number 21977-1
THE NEW MILFORD BANK & TRUST COMPANY
---------------------------------------
(Exact name of bank as specified in its
charter)
Connecticut
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
06-0914281
------------------------------------
(I.R.S. Employer Identification No.)
55 Main Street, New Milford, Connecticut
----------------------------------------
(Address of principal executive offices)
06776-2400
----------------------------------------
(Zip Code)
(860) 355-1171
----------------------------------------------
(Bank's telephone number, including area code)
Indicate by check mark if the Bank, as a "small business issuer" as defined
under 17 CFR 240.12b-2, is providing alternative disclosures as permitted for
small business issuers in this Form F-4. [ X]
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. YES X NO __
The number of shares of the Bank's common stock outstanding as of July 30, 1997
was: 2,597,158 shares $1.00 par value.
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
TABLE OF CONTENTS
-----------------
PAGE
Item 1. Financial Statements
Statements of Condition (Unaudited)
June 30, 1997 and December 31, 1996 3
Statements of Operations (Unaudited)
Six and Three Months Ended
June 30, 1997 and June 30, 1996 4
Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1997
June 30, 1996 5
Statements of Changes in Stockholders'
Equity (Unaudited)
Six Months Ended June 30, 1997
and June 30, 1996 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-11
SIGNATURES 12
2
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CONDITION (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C>
ASSETS
Cash and due from banks $21,616 $17,855
Interest-bearing deposits 6,335 6,135
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 27,951 23,990
- ------------------------------------------------------------------------------------------------------------------------
Securities:
Available for sale, at fair value (amortized cost of $34,276 in 1997
and $28,020 in 1996) 34,438 28,240
Held to maturity, at amortized cost (fair value of $35,803 in 1997
and $35,611 in 1996) 35,679 35,521
- ------------------------------------------------------------------------------------------------------------------------
Total securities 70,117 63,761
- ------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 218,984 211,686
Less allowance for loan losses 3,460 3,212
- ------------------------------------------------------------------------------------------------------------------------
Loans, net 215,524 208,474
- ------------------------------------------------------------------------------------------------------------------------
Real estate owned, net 867 496
Premises, equipment and capital leases, net 3,620 3,648
Excess of cost over fair value of net assets acquired, net 624 741
Accrued interest and other assets 4,621 4,435
- ------------------------------------------------------------------------------------------------------------------------
Total assets $323,324 $305,545
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $37,759 $36,013
Interest-bearing checking 84,614 76,989
Savings 62,261 61,432
Time deposits under $100 81,785 79,320
Time deposits $100 or more 16,499 12,407
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 282,918 266,161
- ------------------------------------------------------------------------------------------------------------------------
Advances from Federal Home Loan Bank of Boston (FHLB) 14,272 14,564
Accrued interest and other liabilities 2,484 2,255
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 299,674 282,980
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $1 par value
Shares authorized: 8,000,000
Shares issued: 1997 - 2,689,905; 1996 - 2,681,305
Shares outstanding: 1997 - 2,596,658; 1996 - 2,588,058 2,690 2,681
Additional paid-in capital 15,309 15,266
Retained earnings 6,267 5,195
Unrealized gain on securities available for sale, net of tax 107 146
Treasury stock, at cost, shares: 1997 - 93,247; 1996 - 93,247 (723) (723)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 23,650 22,565
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $323,324 $305,545
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
3
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS 0F 0PERATI0NS (Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
---------------- --------------------
1997 1996 1997 1996
DOLLARS IN THOUSANDS, EXCEPT PERSHARE DATA
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $8,762 $8,102 $4,453 $4,024
U.S. Treasury and agency securities 1,888 1,388 962 781
Municipal securities 245 104 133 65
Dividends on FHLB stock 51 48 27 23
Interest-bearing deposits 102 65 73 10
- -------------------------------------------------------------------------------------------------------------
Total interest and dividend income 11,048 9,707 5,648 4,903
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing checking 617 563 324 281
Savings 740 818 371 401
Time deposits under $100 2,152 1,887 1,088 938
Time deposits $100 or more 433 287 231 131
FHLB advances and capital leases 452 162 227 147
- -------------------------------------------------------------------------------------------------------------
Total interest expense 4,394 3,717 2,241 1,898
- -------------------------------------------------------------------------------------------------------------
Net interest and dividend income 6,654 5,990 3,407 3,005
Provision for loan losses 245 150 120 90
- -------------------------------------------------------------------------------------------------------------
Net interest and dividend income
after provision for loan losses 6,409 5,840 3,287 2,915
- -------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 513 471 264 242
Other service charges, commissions and fees 182 152 100 79
Loan servicing fees 18 9 9 5
Net gains from loans sold 152 100 88 39
Other income 55 45 27 27
- -------------------------------------------------------------------------------------------------------------
Total noninterest income 920 777 488 392
- -------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 2,643 2,504 1,298 1,228
Occupancy 481 452 240 217
Furniture and equipment 481 472 247 236
Data processing 124 113 70 54
Federal deposit insurance premiums 16 1 8 --
Stationery, printing and supplies 198 184 115 87
Marketing, advertising and investor relations 215 166 117 81
Legal and professional fees 141 200 78 124
Other general and administrative expense 624 674 349 351
- -------------------------------------------------------------------------------------------------------------
Total general and administrative expense 4,923 4,766 2,522 2,378
Operations of real estate owned 62 42 29 (29)
Amortization of intangible assets 117 117 58 58
- -------------------------------------------------------------------------------------------------------------
Total noninterest expense 5,102 4,925 2,609 2,407
- -------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 2,227 1,692 1,166 900
Provision for income taxes 896 423 469 225
- -------------------------------------------------------------------------------------------------------------
Net income $1,331 $1,269 $697 $675
- -------------------------------------------------------------------------------------------------------------
Net income per share $0.48 $0.47 $0.25 $0.24
- -------------------------------------------------------------------------------------------------------------
Dividends per share $0.100 $0.080 $0.050 $0.040
</TABLE>
See notes to financial statements.
4
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
In thousands
Six months ended June 30,
---------------------------
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,331 $1,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 484 471
Provision for loan losses 245 150
Net amortization of securities 65 41
Deferred income tax benefit (46) -
Loans originated for sale (11,168) (7,108)
Proceeds from loans sold, net 11,225 7,447
Gains from loans sold, net (152) (100)
Realized gains from real estate owned, net (8) (45)
Net increase in interest receivable (248) (474)
Net decrease in other assets 164 107
Net increase in interest payable 27 50
Net increase in other liabilities 236 191
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,155 1,999
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (4,996) (23,809)
Purchases of available for sale (AFS) securities (8,143) (8,240)
Proceeds from maturities of AFS securities 2,003 2,478
Proceeds from maturities of HTM securities 4,793 5,229
Purchases of FHLB stock (136) -
Net loan originations (7,590) (5,409)
Net purchases of premises and equipment (339) (182)
Proceeds from sales of real estate owned (10) 160
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (14,418) (29,773)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in advances from FHLB (290) 17,535
Net increase in time deposits 6,557 1,088
Net increase in checking and savings deposits 10,200 2,945
Cash dividends (259) (205)
Other 16 (5)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,224 21,358
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 3,961 (6,416)
Cash and cash equivalents, beginning of year 23,990 24,582
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $27,951 $18,166
- -------------------------------------------------------------------------------------------------------------------
CASH PAID DURING PERIOD
Interest to depositors and creditors $4,367 $3,667
Income taxes 728 517
NON-CASH TRANSFERS
Transfer of loans to real estate owned 482 123
Net change in unrealized gain on AFS securities (39) (246)
Financed portion of sales of real estate owned 129 519
</TABLE>
See notes to financial statements.
5
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss)
Additional on Securities
Shares Common Paid-in Retained Available for Treasury
in thousands Outstanding Stock Capital Earnings Sale Stock Total
- ----------------------- --------------- ------------- --------------- --------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 2,563 $2,657 $15,142 $2,839 $246 ($727) $20,157
Net income 1,269 1,269
Net change in (246) (246)
unrealized gain
(loss) on
securities
available for sale
Cash dividends (205) (205)
Proceeds from 2 2 24 26
exercise of stock
options
Other 1 1
--------------- ------------- --------------- --------------- --------------- ------------ --------------
JUNE 30, 1996 2,565 $2,659 $15,167 $3,903 - ($727) $21,002
=============== ============= =============== =============== =============== ============ ==============
JANUARY 1, 1997 2,588 $2,681 $15,266 $5,195 $146 ($723) $22,565
Net income 1,331 1,331
Net change in (39) (39)
unrealized gain
(loss) on
securities
available for sale
Cash dividends (259) (259)
Proceeds from
exercise of stock
options 9 9 43 52
--------------- ------------- --------------- --------------- --------------- ------------ --------------
JUNE 30, 1997 2,597 $2,690 $15,309 $6,267 $107 ($723) $23,650
=============== ============= =============== =============== =============== ============ ==============
</TABLE>
See notes to financial statements.
6
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The interim unaudited financial statements of The New Milford Bank & Trust
Company ("NMBT" or "the Bank") have been prepared in accordance with generally
accepted accounting principles. Certain financial information that is normally
included in the financial statements prepared in accordance with generally
accepted accounting principles, but which is not required for interim reporting
purposes, has been condensed or omitted. In preparing the interim financial
statements, Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
In the opinion of Management, the accompanying interim unaudited financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly NMBT's financial position as of June 30, 1997, and
the results of its operations and its cash flows for the six months then ended.
The results of operations for the periods shown are not necessarily indicative
of the results to be expected for the year ending December 31, 1997. The
accompanying interim unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in NMBT's
1996 Annual Report.
NOTE 2. Recent Relevant Financial Accounting Standards Board Releases
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
128) was issued in March, 1997, and is effective for periods ended after
December 15, 1997. Earlier application is not permitted. SFAS 128 simplifies the
standards for computing earnings per share (EPS) and makes them comparable to
international standards for computing EPS. When effective, this statement will
replace the presentation of primary EPS with a presentation of basic EPS and
will require a dual presentation of basic EPS and diluted EPS on the face of the
Statements of Operations. Had SFAS 128 been applied as of June 30, 1997, NMBT
would have reported basic and diluted EPS of $0.51 and $0.48 per share, and
$0.49 and $0.47 per share, for the six month periods ended June 30, 1997 and
1996, respectively and $0.27 and $0.25 per share, and $0.26 and $0.25 per share,
for the three month periods ended June 30, 1997 and 1996, respectively.
Statements of Financial Accounting Standards No.130 "Reporting Comprehensive
Income" (SFAS 130) and No. 131 "Disclosures About Segments of an Enterprise and
Related Information" (SFAS 131) were issued in June, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income is defined as "the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period, except
7
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
those resulting from investments by owners and distributions to owners." This
statement is effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes the way that public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services geographic areas, and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997.
Both of these statements relate to disclosures that public companies must make
in their financial statements. Accordingly, implementation of these statements
will not have a significant effect on the results of operations or financial
condition, as currently reported by NMBT.
8
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
NMBT has made, and may continue to make, various forward-looking statements with
respect to earnings, credit quality and other financial and business matters for
periods subsequent to June 30, 1997. The Bank cautions that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, and that statements relating to subsequent periods increasingly
are subject to greater uncertainty because of the increased likelihood of
changes in underlying factors and assumptions. Actual results could differ
materially from forward-looking statements.
In addition to those factors previously disclosed by the Bank and those factors
identified elsewhere herein, the following factors could cause actual results to
differ materially from such forward-looking statements: competitive pressures on
loan and deposit product pricing; other actions of competitors; changes in
economic conditions; the extent and timing of actions of the Federal Reserve
Board; customer deposit disintermediation; changes in customers' acceptance of
NMBT's products and services; and the extent and timing of legislative and
regulatory actions and reform.
NMBT's forward-looking statements speak only as of the date on which such
statements are made. By making any forward-looking statements, NMBT assumes no
duty to update them to reflect new, changing or unanticipated events or
circumstances.
Results of Operations
Net income for the six months ended June 30, 1997 increased 4.8% to $1.33
million or $0.48 per share, as compared to net income of $1.27 million or $0.47
per share, for the six months ended June 30, 1996. Net interest and dividend
income (interest and dividend income less interest expense) before provision for
estimated loan losses for the first half of 1997 increased by $0.66 million or
11.1%, from the first half of 1996. This increase is a reflection of growth in
NMBT's interest-earning assets.
The net interest spread, the difference between the yield the Bank earns on its
loans and investments and the rate it pays on its deposits and borrowings, was
4.8% for both the six months ended June 30, 1997 and for the six months ended
June 30, 1996. A fractional decrease in the spread was due to a migration of
deposits from lower cost savings accounts to higher cost certificates. The
provision for estimated loan losses for the first half of 1997 was $0.24 million
as compared to a $0.15 million provision for the same period in 1996.
Also contributing to the NMBT's improved financial performance was an 18.3%
increase in noninterest income due to strong activity in the mortgage banking
area and increased fee income.
The Bank's efficiency ratio, measuring the Bank's ability to generate a dollar
of revenue, has improved from 72% for 1996 to 66% during the first half of 1997.
This ratio is computed by dividing total noninterest expense (excluding
provisions for real estate owned write-downs), by the sum of tax-equivalent net
interest income plus noninterest income (excluding securities gains and losses).
9
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
Financial Condition
Total assets increased 5.8% to $323.32 million as of June 30, 1997 from $305.54
million as of December 31, 1996. This increase of $17.78 million in total assets
is primarily attributable to deposit growth of $16.76 million. During the first
half of 1997, NMBT's purchase of securities, primarily U.S. agency issues and
mortgage-backed securities, resulted in a 10.0% increase in total securities
from $63.76 million to $70.12 million from December 31, 1996. Net loans
increased 3.4% to $215.52 million as of June 30, 1997 from $208.47 million as of
December 31, 1996.
Impaired Loans
The recorded investment in loans considered to be impaired was $2.87 million at
June 30, 1997, and $3.60 million at December 31, 1996, and consists of loans for
which an allowance of $0.40 million and $0.49 million, for the same periods
respectively, has been established. Income recorded on impaired loans during the
first six months of 1997 for the portion of this period that they were impaired
was $.03 million, none of which was recognized on the cash basis. Average
investment in impaired loans during this same period of 1997 was $2.99 million.
Nonaccruing loans at June 30, 1997, included $2.12 million of loans considered
to be impaired, as compared with $2.81 million at December 31, 1996.
Nonperforming Assets
Nonperforming loans, consisting principally of residential and commercial loans
collateralized by real estate, and real estate acquired through foreclosures
(real estate owned) have decreased $0.98 million or 23.1% from December 31,
1996. Nonperforming assets and relevant ratios were as follows:
- -------------------------------------------------------------------------------
06/30/97 12/31/96
-------- --------
(Dollars in thousands)
Total nonperforming loans $3,097 $4, 025
Real estate owned 867 496
------ -------
Total nonperforming assets $3,964 $4,521
====== =======
Total nonperforming loans/Total loans 1.41% 1.90%
Total nonperforming assets/Total assets 1.23% 1.48%
Allowance for estimated loan losses/
Total nonperforming loans 111.73% 79.79%
- -------------------------------------------------------------------------------
Liquidity Management
For information about NMBT's liquidity position, see Management's Discussion and
Analysis in its 1996 Annual Report to Stockholders, which was also incorporated
into NMBT's Annual Report to the FDIC on Form F-2. There has been no material
change in that data since it was reported.
10
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
Capital
At June 30, 1997, NMBT had $23.65 million in stockholders' equity, compared with
$22.56 million at December 31, 1996. The growth in stockholders' equity from the
end of 1996 reflected a $0.04 million adjustment for the decrease in unrealized
gains on securities available for sale in accordance with SFAS 115, proceeds of
$0.05 million from the exercise of stock options, the retention of $1.33 million
in net earnings, less the cash dividends paid on February 7, and May 7, 1997,
totaling $0.26 million.
The following reflects the NMBT's capital ratios (which exclude intangible
assets and the SFAS 115 adjustment):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Regulatory
06/30/97 12/31/96 Minimum
-------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital ratio 11.81% 11.74% 4.00%
Total capital ratio 13.07% 13.00% 8.00%
Leverage ratio 7.36% 7.24% 3.00% (1)
Tier 1 capital $22, 919 $21,678
Total risk-based capital $25,357 $23,997
Total risk-adjusted assets $194,059 $184, 623
</TABLE>
(1) Plus an additional cushion of at least 1 to 2 % for all but the most highly
rated institutions.
- --------------------------------------------------------------------------------
For further information about NMBT's capital, see Management's Discussion and
Analysis in its 1996 Annual Report to Stockholders, which was also incorporated
into NMBT's Annual Report to the FDIC on Form F-2.
11
<PAGE>
F-4 June 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Bank has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE NEW MILFORD BANK & TRUST COMPANY
Date July 30, 1997 By /s/ Michael D. Carrigan
----------------------------- --------------------------------
Michael D. Carrigan
President
Date July 30, 1997 By /s/ Jay C. Lent
----------------------------- --------------------------------
Jay C. Lent
Chief Financial Officer
Date July 30, 1997 By /s/ Deborah L. Fish
----------------------------- --------------------------------
Deborah L. Fish
Treasurer
12
FEDERAL DEPOSIT INSURANCE CORPORATION
550 17th Street, N.W.
Washington, D.C. 20429
---------
FORM F-4
---------
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1997
FDIC Insurance Certificate Number 21977-1
THE NEW MILFORD BANK & TRUST COMPANY
------------------------------------
(Exact name of bank as specified in its charter)
Connecticut
-----------
(State or other jurisdiction of incorporation or organization)
06-0914281
----------
(I.R.S. Employer Identification No.)
55 Main Street, New Milford, Connecticut
----------------------------------------
(Address of principal executive offices)
06776-2400
----------
(Zip Code)
(860) 355-1171
--------------
(Bank's telephone number, including area code)
Indicate by check mark if the Bank, as a "small business issuer" as defined
under 17 CFR 240.12b-2, is providing alternative disclosures as permitted for
small business issuers in this Form F-4. [X]
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. YES X NO ___
The number of shares of the Bank's common stock outstanding as of November 13,
1997 was: 2,600,358 shares, $1.00 par value.
<PAGE>
F-4 September 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
TABLE OF CONTENTS
PAGE
Item 1. Financial Statements
Statements of Condition (Unaudited) September 30,
1997 and December 31, 1996 2
Statements of Operations (Unaudited) Nine and Three
Months Ended September 30, 1997 and
September 30, 1996 3
Statements of Cash Flows (Unaudited) Nine Months
Ended September 30, 1997 and September 30, 1996 4
Statements of Changes in Stockholders' Equity
(Unaudited) Three Months Ended September 30,
1997 and September 30, 1996 5
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial 8 - 11
Condition and Results of Operations
SIGNATURES
1
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CONDITION (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks $18,749 $17,855
Interest-bearing deposits 9,095 6,135
- ------------------------------------------------------------------------------ ----------- ------------
Cash and cash equivalents 27,844 23,990
- ------------------------------------------------------------------------------ ----------- ------------
Securities:
Available for sale, at fair value (amortized cost of $41,711 in 1997
and $28,020 in 1996) 42,119 28,240
Held to maturity, at amortized cost (fair value of $34,930 in 1997 and
$35,611 in 1996) 34,536 35,521
- ------------------------------------------------------------------------------ ----------- ------------
Total securities 76,655 63,761
- ------------------------------------------------------------------------------ ----------- ------------
Loans, net of unearned income 219,847 211,686
Less allowance for loan losses 3,597 3,212
- ------------------------------------------------------------------------------ ----------- ------------
Loans, net 216,250 208,474
- ------------------------------------------------------------------------------ ----------- ------------
Real estate owned, net 389 496
Premises, equipment and capital leases, net 3,722 3,648
Excess of cost over fair value of net assets acquired, net 565 741
Accrued interest and other assets 4,793 4,435
- ------------------------------------------------------------------------------ ----------- ------------
Total assets $330,218 $305,545
============================================================================== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $36,201 $36,013
Interest-bearing checking 83,610 76,989
Savings 60,832 61,432
Time deposits under $100 83,231 79,320
Time deposits $100 or more 16,649 12,407
- ------------------------------------------------------------------------------ ----------- ------------
Total deposits 280,523 266,161
- ------------------------------------------------------------------------------ ----------- ------------
Advances from Federal Home Loan Bank of Boston (FHLB) 22,580 14,564
Accrued interest and other liabilities 2,657 2,255
- ------------------------------------------------------------------------------ ----------- ------------
Total liabilities 305,760 282,980
- ------------------------------------------------------------------------------ ----------- ------------
Stockholders' equity:
Common stock, $1 par value
Shares authorized: 8,000,000
Shares issued: 1997 - 2,693,405; 1996 - 2,681,305
Shares outstanding: 1997 - 2,600,158; 1996 - 2,588,058 2,694 2,681
Additional paid-in capital 15,329 15,266
Retained earnings 6,889 5,195
Unrealized gain on securities available for sale, net of tax 269 146
Treasury stock, at cost, shares: 1997 - 93,247; 1996 - 93,247 (723) (723)
- ------------------------------------------------------------------------------ ----------- ------------
Total stockholders' equity 24,458 22,565
- ------------------------------------------------------------------------------ ----------- ------------
Total liabilities and stockholders' equity $330,218 $305,545
============================================================================== =========== ============
</TABLE>
See notes to financial statements.
2
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $13.277 $12,246 $4,515 $4,144
U.S. Treasury and agency securities 2,861 2,333 973 945
Municipal securities 409 190 164 86
Dividends on FHLB stock 79 73 28 25
Interest-bearing deposits 193 70 91 5
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Total interest and dividend income 16,819 14,912 5,771 5,205
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
INTEREST EXPENSE
Interest-bearing checking 990 848 373 285
Savings 1,118 1,213 378 395
Time deposits under $100 3,274 2,853 1,122 966
Time deposits $100 or more 657 432 224 145
FHLB advances and capital leases 736 477 284 315
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Total interest expense 6,775 5,823 2,381 2,106
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Net interest and dividend income 10,044 9,089 3,390 3,099
Provision for loan losses 455 240 210 90
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Net interest and dividend income after provision
for loan losses 9,589 8,849 3,180 3,009
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
NONINTEREST INCOME
Service charges on deposit accounts 770 713 257 242
Other service charges, commissions and fees 273 261 91 109
Loan servicing fees 29 15 11 6
Net gains from loans sold 259 144 107 44
Other income 98 69 43 24
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Total noninterest income 1,429 1,202 509 425
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 4,011 3,743 1,368 1,239
Occupancy 724 672 243 220
Furniture and equipment 675 710 194 238
Data processing 199 181 75 68
Federal deposit insurance premiums 24 2 8 1
Stationery, printing and supplies 305 271 107 87
Marketing, advertising and investor relations 283 244 68 78
Legal and professional fees 198 292 57 92
Other general and administrative expense 928 988 304 314
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Total general and administrative expense 7,347 7,103 2,424 2,337
Operations of real estate owned 15 105 (47) 63
Amortization of intangible assets 176 176 59 59
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Total noninterest expense 7,538 7,384 2,436 2,459
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Income before provision for income taxes 3,480 2,667 1,253 975
Provision for income taxes 1,384 667 488 244
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Net income $ 2,096 $ 2,000 $ 765 $ 731
======================================================== =============== =============== =============== ===============
Net income per share $ 0.76 $ 0.75 $ 0.27 $ 0.28
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
Dividends per share $ 0.155 $ 0.125 $ 0.055 $ 0.045
- -------------------------------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
See notes to financial statements.
3
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1997 1996
------------------ ------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,096 $2,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 687 708
Provision for loan losses 455 240
Provision for losses from real estate owned - 38
Net amortization of securities 103 72
Deferred income tax benefit (48) -
Loans originated for sale (18,441) (10,713)
Proceeds from loans sold, net 19,378 11,138
Gains from loans sold, net (258) (144)
Realized gains from real estate owned, net (102) (76)
Net increase in interest receivable (419) (435)
Net decrease in other assets 121 103
Net increase in interest payable 68 113
Net increase in other liabilities 375 255
- ------------------------------------------------------------------------------ ------------------ ------------------
Net cash provided by operating activities 4,015 3,299
- ------------------------------------------------------------------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (4,996) (28,242)
Purchases of available for sale (AFS) securities (17,233) (8,594)
Proceeds from maturities of AFS securities 3,726 2,723
Proceeds from maturities of HTM securities 5,911 8,213
Purchases of FHLB stock (218) -
Net loan originations (9,117) (11,509)
Net purchases of premises and equipment (584) (302)
Proceeds from sales of real estate owned 340 219
- ------------------------------------------------------------------------------ ------------------ ------------------
Net cash used for investing activities (22,171) (37,492)
- ------------------------------------------------------------------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in advances from FHLB 8,016 23,611
Net increase in time deposits 8,153 6,147
Net increase (decrease) in checking and savings deposits 6,209 (1,199)
Cash dividends (402) (321)
Other 34 (30)
- ------------------------------------------------------------------------------ ------------------ ------------------
Net cash provided by financing activities 22,010 28,208
- ------------------------------------------------------------------------------ ------------------ ------------------
Increase (decrease) in cash and cash equivalents 3,854 (5,985)
Cash and cash equivalents, beginning of year 23,990 24,582
- ------------------------------------------------------------------------------ ------------------ ------------------
Cash and cash equivalents, end of period $27,844 $18,597
============================================================================== ================== ==================
CASH PAID DURING PERIOD
Interest to depositors and creditors $6,708 $5,710
Income taxes 1,062 717
NON-CASH TRANSFERS
Transfer of loans to real estate owned 525 547
Net change in unrealized gains on AFS securities 123 (185)
Financed portion of sales of real estate owned 393 697
</TABLE>
See notes to financial statements.
4
<PAGE>
THE NEW MILFORD BANK & TRUST COMPANY
THE NEW MILFORD BANK & TRUST COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Additional Securities
in thousands Shares Common Paid-In Retained Available Treasury
Outstanding Stock Capital Earnings for Sale Stock Total
- --------------------------------- -------------- ---------- ----------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 2,563 $2,657 $15,142 $2,839 $246 ($727) $20,157
Net Income 2,000 2,000
Net change in unrealized gain
(loss) on securities
available for sale (185) (185)
Cash dividends (321) (321)
Proceeds from exercise of stock
options 2 2 13 15
Other 1 1
-------------- ---------- ----------- ----------- ------------- ---------- -----------
SEPTEMBER 30, 1996 2,565 $2,659 $15,156 $4,518 $61 $ (727) $21,667
============== ========== =========== =========== ============= ========== ===========
JANUARY 1, 1997 2,588 $2,681 $15,266 $5,195 $146 $ (723) $22,565
Net income 2,096 2,096
Net change in unrealized gain
(loss) on securities
available for sale 123 123
Cash dividends (402) (402)
Proceeds from exercise of stock
options 12 13 63 76
-------------- ---------- ----------- ----------- ------------- ---------- -----------
SEPTEMBER 30, 1997 2,600 $2,694 $15,329 $6,889 $269 $(723) $24,458
============== ========== =========== =========== ============= ========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
F-4 September 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
---------------------
The interim unaudited financial statements of The New Milford Bank & Trust
Company ("NMBT" or "the Bank") have been prepared in accordance with generally
accepted accounting principles. Certain financial information that is normally
included in the financial statements prepared in accordance with generally
accepted accounting principles, but which is not required for interim reporting
purposes, has been condensed or omitted. In preparing the interim financial
statements, Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
In the opinion of Management, the accompanying interim unaudited financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly NMBT's financial position as of September 30, 1997,
and the results of its operations and its cash flows for the nine months then
ended. The results of operations for the periods shown are not necessarily
indicative of the results to be expected for the year ending December 31, 1997.
The accompanying interim unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in NMBT's
1996 Annual Report.
NOTE 2. Recent Relevant Financial Accounting Standards Board Releases
-------------------------------------------------------------
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
128) was issued in March, 1997, and is effective for periods ended after
December 15, 1997. Earlier application is not permitted. SFAS 128 simplifies the
standards for computing earnings per share (EPS) and makes them comparable to
international standards for computing EPS. When effective, this statement will
replace the presentation of primary EPS with a presentation of basic EPS and
will require a dual presentation of basic EPS and diluted EPS on the face of the
Statements of Operations. Had SFAS 128 been applied as of September 30, 1997,
NMBT would have reported basic and diluted EPS of $0.81 and $0.76 per share, and
$0.78 and $0.74 per share, for the nine month periods ended September 30, 1997
and 1996, respectively and $0.30 and $0.28 per share, and $0.29 and $0.27 per
share, for the three month periods ended September 30, 1997 and 1996,
respectively.
Statements of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" (SFAS 130) and No. 131 "Disclosures About Segments of an Enterprise and
Related Information" (SFAS 131) were issued in June, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income
6
<PAGE>
F-4 September 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income is defined as "the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period, except those resulting from investments by owners and
distributions to owners." This statement is effective for fiscal years beginning
after December 15, 1997.
SFAS 131 establishes the way that public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997.
Both of these statements relate to disclosures that public companies must make
in their financial statements. Accordingly, implementation of these statements
will not have a significant effect on the results of operations or financial
condition, as currently reported by NMBT.
7
<PAGE>
F-4 September 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
- --------------------------
NMBT has made, and may continue to make, various forward-looking statements with
respect to earnings, credit quality and other financial and business matters for
periods subsequent to September 30, 1997. The Bank cautions that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, and that statements relating to subsequent periods increasingly
are subject to greater uncertainty because of the increased likelihood of
changes in underlying factors and assumptions. Actual results could differ
materially from forward-looking statements.
In addition to those factors previously disclosed by the Bank and those factors
identified elsewhere herein, the following factors could cause actual results to
differ materially from such forward-looking statements: competitive pressures on
loan and deposit product pricing; other actions of competitors; changes in
economic conditions; the extent and timing of actions of the Federal Reserve
Board; customer deposit disintermediation; changes in customers' acceptance of
NMBT's products and services; and the extent and timing of legislative and
regulatory actions and reform.
NMBT's forward-looking statements speak only as of the date on which such
statements are made. By making any forward-looking statements, NMBT assumes no
duty to update them to reflect new, changing or unanticipated events or
circumstances.
Results of Operations
- ---------------------
Net income for the nine months ended September 30, 1997 increased 4.8% to $2.10
million or $0.76 per share, as compared to net income of $2.00 million or $0.75
per share, for the nine months ended September 30, 1996. Net interest and
dividend income (interest and dividend income less interest expense) before
provision for estimated loan losses for the first three quarters of 1997
increased by $0.95 million or 10.5%, from the first three quarters of 1996. This
increase is a reflection of growth in NMBT's interest-earning assets.
The net interest spread, the difference between the yield the Bank earns on its
loans and investments and the rate it pays on its deposits and borrowings, was
4.7% for both the nine months ended September 30, 1997 and for the nine months
ended September 30, 1996. A fractional decrease in the spread was due to a
migration of deposits from lower cost savings accounts to higher cost
certificates.
Management estimates the allowance for loan losses based on an evaluation of
NMBT's past loan experience, known and inherent risks in the portfolio,
estimated value of underlying collateral, and current economic conditions.
Establishing the allowance for loan losses involves significant management
judgments utilizing the best information available at the time. Those judgments
are subject to further review by various sources, including NMBT's regulators.
Adjustments to the allowance for loan losses may be necessary in the future
based on changes in economic and real
8
<PAGE>
F-4 September 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
estate market conditions, further information obtained regarding known problem
loans, the identification of additional problem loans, and other factors. The
provision for estimated loan losses for the first three quarters of 1997 was
$0.45 million as compared to a $0.24 million provision for the same period in
1996. In management's judgment the allowance for loan losses is adequate to
absorb probable losses in the existing portfolio.
Also contributing to NMBT's improved financial performance was an 18.9% increase
in noninterest income due to strong activity in the mortgage banking area and
increased fee income.
The Bank's efficiency ratio, measuring the Bank's ability to generate a dollar
of revenue, has improved from 72% for 1996 to 65% during the first three
quarters of 1997. This ratio is computed by dividing total noninterest expense
(excluding provisions for real estate owned write-downs), by the sum of
tax-equivalent net interest income plus noninterest income (excluding securities
gains and losses)
Financial Condition
- -------------------
Total assets increased 8.1% to $330.22 million as of September 30, 1997 from
$305.54 million as of December 31, 1996. This increase of $24.67 million in
total assets is primarily attributable to deposit growth of $14.36 million.
During the first three quarters of 1997, NMBT's purchase of securities,
primarily U.S. agency issues and mortgage-backed securities, resulted in a 20.2%
increase in total securities from $63.76 million to $76.66 million from December
31, 1996. Net loans increased 3.7% to $216.25 million as of September 30, 1997
from $208.47 million as of December 31, 1996.
Impaired Loans
- --------------
The recorded investment in loans considered to be impaired was $3.44 million at
September 30, 1997, and $3.60 million at December 31, 1996, and consists of
loans for which an allowance of $0.41 million and $0.49 million, for the same
periods respectively, has been established. Income recorded on impaired loans
during the first nine months of 1997 for the portion of this period that they
were impaired was $.05 million, none of which was recognized on the cash basis.
Average investment in impaired loans during this same period of 1997 was $3.54
million. Nonaccruing loans at September 30, 1997, included $2.55 million of
loans considered to be impaired, as compared with $2.81 million at December 31,
1996.
Nonperforming Assets
- --------------------
Nonperforming loans, consisting principally of residential and commercial loans
collateralized by real estate, and real estate acquired through foreclosures
(real estate owned) have decreased $1.31 million or 28.9% from December 31,
1996.
Nonperforming assets and relevant ratios were as follows:
9
<PAGE>
F-4 September 30, 1997
THE NEW MILFORD BANK & TRUST COMPANY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------- ---------------- -----------------
09/30/97 12/31/96
-------- --------
(Dollars in thousands)
<S> <C> <C>
Total nonperforming loans $2,824 $4,025
Real estate owned 389 496
------ ------
Total nonperforming assets $3,213 $4,521
====== ======
Total nonperforming loans/Total loans 1.28% 1.90%
Total nonperforming assets/Total assets 0.97% 1.48%
Allowance for estimated loan losses/Total nonperforming loans 127.39% 79.79%
- ---------------------------------------------------------------------------------- ---------------- -----------------
</TABLE>
Liquidity Management
- --------------------
For information about NMBT's liquidity position, see Management's Discussion and
Analysis in its 1996 Annual Report to Stockholders, which was also incorporated
into NMBT's Annual Report to the FDIC on Form F-2. There has been no material
change in that data since it was reported.
Capital
- -------
At September 30, 1997, NMBT had $24.46 million in stockholders' equity, compared
with $22.56 million at December 31, 1996. The growth in stockholders' equity
from the end of 1996 reflected a $0.12 million adjustment for the increase in
unrealized gains on securities available for sale in accordance with SFAS 115,
proceeds of $0.08 million from the exercise of stock options, the retention of
$2.10 million in net earnings, less the cash dividends paid on February 7, May
7, and August 6, 1997, totaling $0.40 million.
The following reflects the NMBT's capital ratios (which exclude intangible
assets and the SFAS 115 adjustment):
<TABLE>
<CAPTION>
- ------------------------------------ -------------------- ------------------- -------------------
Regulatory
09/30/97 12/31/96 Minimum
-------- -------- -------
<S> <C> <C> <C>
(Dollars in Thousands)
Risk-based capital ratios:
Tier 1 capital ratio 11.95% 11.74% 4.00%
Total capital ratio 13.21% 13.00% 8.00%
Leverage Ratio 7.31% 7.24% 3.00%(1)
Tier 1 Capital $23,609 $21,678
Total risk-based capital $26,095 $23,997
Total risk-adjusted assets $197,501 $184,623
(1) Plus an additional 1 to 2% for all but the most highly rated institutions.
- ------------------------------------- -------------------- ------------------- -------------------
</TABLE>
For further information about NMBT's capital, see Management's Discussion and
Analysis in its 1996 Annual Report to Stockholders, which was also incorporated
into NMBT's Annual Report to the FDIC on Form F-2.
10
<PAGE>
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE NEW MILFORD BANK & TRUST COMPANY
Date November 13, 1997 By /s/ Michael D. Carrigan
--------------------------- --------------------------------
Michael D. Carrigan
President
Date November 13, 1997 By /s/ Jay C. Lent
--------------------------- ------------------------
Jay C. Lent
Chief Financial Officer
Date November 13, 1997 By /s/ Deborah L. Fish
--------------------------- ----------------------------
Deborah L. Fish
Treasurer
11
