<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
November 26, 1997
(Date of Earliest Event reported)
MEDFORD BANCORP, INC.
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-3384928
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
29 HIGH STREET, MEDFORD, MASSACHUSETTS 02155
(Address of principal executive offices, including zip code)
(617) 395-7700
(Registrant's telephone number, including area code)
The Exhibit Index appears on page 5.
There are _____ pages in this Report, including exhibits.
<PAGE> 2
ITEM 5. OTHER EVENTS.
On November 26, 1997 at 12:01 a.m. (the "Effective Date") Medford
Bancorp, Inc. (the "Company") and Medford Savings Bank, a Massachusetts savings
bank (the "Bank"), consummated the formation of a holding company for the Bank
(the "Reorganization") pursuant to a Plan of Reorganization and Acquisition
dated as of July 29, 1997 (the "Plan of Reorganization"). Pursuant to the Plan
of Reorganization, at the Effective Date, each issued and outstanding share of
the Bank's common stock ("Bank Common Stock"), par value $0.50 per share
(together with associated preferred stock purchase rights) (except shares held
by stockholders exercising dissenters' rights), automatically and without
consideration was converted into and exchanged for one share of the common
stock, par value $0.50 per share (the "Common Stock") of the Company (together
with associated preferred stock purchase rights). Prior to the completion of the
Reorganization, the Company was a wholly-owned subsidiary of the Bank. On the
Effective Date, the Bank became a wholly-owned subsidiary of the Company and the
stockholders of the Bank became stockholders of the Company. No additional
shares were offered or sold in connection with the Reorganization.
Until the Effective Date, the Bank's common stock was registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and traded on the Nasdaq National Market System. The Bank has filed
reports with the FDIC under Section 12(i) of the Exchange Act since 1993. This
report on Form 8-K is being filed in connection with the registration of the
Common Stock of the Company under Section 12(g) of the Exchange Act pursuant to
Rule 12g-3(a) thereunder. As of the Effective Date, (i) the Company is the
successor issuer to the Bank, (ii) the Common Stock of the Company was held of
record by three hundred or more persons and (iii) the Common Stock of the
Company is listed in place of the common stock of the Bank on the Nasdaq
National Market System under the trading symbol "MDBK."
Pursuant to the Plan of Reorganization, as of the Effective Date, the
Company assumed all of the Bank's obligations under the Bank's stock option
plans, as evidenced by the Company's Stock Option Plan and the Medford Savings
Bank 1986 Stock Option Plan, which was assumed and adopted by the Company as the
Company's stock option plan (the "Stock Option Plans"). Under the Stock Option
Plans, the Company will issue shares of its Common Stock in lieu of shares of
Bank Common Stock. The Company intends to file, concurrently with this Current
Report on Form 8-K, a registration statement on Form S-8 for all Common Stock
issuable under the Stock Option Plans.
In connection with the Reorganization, the Bank's Shareholder Rights
Plan was amended and restated so that it was assumed by the Company following
the Reorganization. Accordingly, as of the Effective Date, the outstanding Bank
Rights (as defined below) issued pursuant to the Bank's Shareholder Rights Plan
were assumed by, and deemed to be rights issued by, the Company (the "Rights").
The Company's Amended and Restated Shareholder Rights Plan (the "Company's
Shareholder Rights Plan") has been converted from the Bank's Shareholder Rights
Plan. The following summary description of the Company's Shareholder Rights Plan
does not
<PAGE> 3
purport to be complete and is qualified in its entirety by reference to the
Company's Shareholder Rights Plan, which has been filed as an exhibit to this
Current Report on Form 8-K.
In connection with the adoption of the Bank's Shareholder Rights Plan,
the Board of Directors of the Bank declared a dividend distribution of one
preferred stock purchase right (a "Bank Right") for each outstanding share of
the Bank's common stock to stockholders of record as of the close of business on
October 8, 1993. On July 29, 1997, in connection with the Reorganization, the
Board of Directors of the Company adopted resolutions assuming the Bank's
Shareholder Rights Plan and converting it into the Company's Shareholder Rights
Plan, which contains substantially the terms and conditions of the Bank's
Shareholder Rights Agreement. On November 25, 1997, the Boards of Directors of
the Bank and the Company adopted resolutions confirming the conversion of the
Bank Rights to the Rights with the conversion and exchange of the Bank's common
stock for the Company's Common Stock. As of the Effective Date, the Rights
currently are not exercisable and are attached to and trade with the outstanding
shares of the Company's Common Stock. Under the Company's Shareholder Rights
Plan, the Rights become exercisable (i) if a person becomes an "acquiring
person" by acquiring 15% or more of the outstanding shares of the Company's
Common Stock, (ii) if a person who owns 10% or more of the Company's Common
Stock is determined to be an "adverse person" by the Board of Directors of the
Company, or (iii) if a person commences a tender offer that would result in that
person owning 15% or more of the Company's Common Stock. In the event that a
person becomes an "acquiring person" or is declared an "adverse person" by the
Board of Directors of the Company, each holder of a Right (other than the
acquiring person or the adverse person) would be entitled to acquire such number
of shares of the Company's preferred stock as are provided for in the Company's
Shareholder Rights Plan.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following is a complete list of exhibits filed or incorporated by
reference as part of this report.
2.1 Plan of Reorganization and Acquisition dated as of July 29, 1997
between the Company and the Bank
3.1 Articles of Organization of the Company
3.2 By-laws of the Company
3.3 Amended and Restated Charter of the Bank
3.4 Amended and Restated By-laws of the Bank
4.1 Specimen certificate for shares of Common Stock of the Company
2
<PAGE> 4
4.2 Articles IV, VI(A), VI(C), VI(I)-(J) of Articles of Organization
of the Company (see Exhibit 3.1)
4.3 Articles II and V of By-laws of the Company (see Exhibit 3.2)
10.1 Amended and Restated Shareholders Rights Agreement, dated
November 26, 1997, between Medford Bancorp, Inc. and Medford
Savings Bank and State Street and Trust Company, as Rights Agent
99.1 Annual Report of the Bank on Form F-2 for the year ended
December 31, 1996, as filed with the Federal Deposit Insurance
Corporation ("FDIC")
99.2 Quarterly Report of the Bank on Form F-4 for the quarter ended
March 31, 1997, as filed with the FDIC
99.3 Current Report of the Bank on Form F-3, as filed with the FDIC
on May 7, 1997
99.4 Quarterly Report of the Bank on Form F-4 for the quarter ended
June 30, 1997, as filed with the FDIC
99.5 Proxy Statement, dated August 4, 1997, delivered to the Bank's
stockholders in connection with the Bank's September 16, 1997
Special Meeting of Stockholders, as filed with the FDIC
99.6 Quarterly Report of the Bank on Form F-4 for the quarter ended
September 30, 1997, as filed with the FDIC
99.7 Current Report of the Bank on Form F-3, as filed with the FDIC
on October 7, 1997
99.8 Notification pursuant to Section 225.17 of Regulation Y (12
C.F.R. ss. 225.17) for a One-Bank Holding Company Formation
filed by the Company with the Federal Reserve Bank of Boston on
September 18, 1997
99.9 Application for Acquisition of a Bank by a Company pursuant to
MGL c. 172, ss. 26B, filed by the Company with the Commissioner
of Banks of the Commonwealth of Massachusetts on September 15,
1997
3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDFORD BANCORP, INC.
Date: November 26, 1997 By: /s/ Arthur H. Meehan
-----------------------------------------------
Arthur H. Meehan
Chairman, President and Chief Executive Officer
4
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
<S> <C> <C>
2.1 Plan of Reorganization and Acquisition dated as of July 29, 1997
between the Company and the Bank
3.1 Articles of Organization of the Company
3.2 By-laws of the Company
3.3 Amended and Restated Charter of the Bank
3.4 Amended and Restated By-laws of the Bank
4.1 Specimen certificate for shares of Common Stock of the Company
4.2 Articles IV, VI(A), VI(C), VI(I)-(J) of Articles of Organization of
the Company (see Exhibit 3.1)
4.3 Articles II and V of By-laws of the Company (see Exhibit 3.2)
10.1 Amended and Restated Shareholders Rights Agreement, dated
November 26, 1997, between Medford Bancorp, Inc. and State Street and
Trust Company, as Rights Agent
99.1 Annual Report of the Bank on Form F-2 for the year ended December 31,
1996, as filed with the Federal Deposit Insurance Corporation
("FDIC")
99.2 Quarterly Report of the Bank on Form F-4 for the quarter ended
March 31, 1997, as filed with the FDIC
99.3 Current Report of the Bank on Form F-3, as filed with the FDIC on
May 7, 1997
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
<S> <C> <C>
99.4 Quarterly Report of the Bank on Form F-4 for the quarter ended
June 30, 1997, as filed with the FDIC
99.5 Proxy Statement, dated August 4, 1997, delivered to the Bank's
stockholders in connection with the Bank's September 16, 1997 Special
Meeting of Stockholders, as filed with the FDIC
99.6 Quarterly Report of the Bank on Form F-4 for the quarter ended
September 30, 1997, as filed with the FDIC
99.7 Current Report of the Bank on Form F-3, as filed with the FDIC on
October 7, 1997
99.8 Notification pursuant to Section 225.17 of Regulation Y
(12 C.F.R. ss. 225.17) for a One-Bank Holding Company Formation filed
by the Company with the Federal Reserve Bank of Boston on September
18, 1997
99.9 Application for Acquisition of a Bank by a Company pursuant to
MGL c. 172, ss. 26B, filed by the Company with the Commissioner of
Banks of the Commonwealth of Massachusetts on September 15, 1997
</TABLE>
- - - ----------------------------
6
<PAGE> 1
Exhibit 2.1
PLAN OF REORGANIZATION AND ACQUISITION
PURSUANT TO SECTION 26B OF CHAPTER 172
OF THE GENERAL LAWS OF MASSACHUSETTS
This Plan of Reorganization and Acquisition (the "Plan") is dated as of
July 29, 1997, and made between Medford Savings Bank, a Massachusetts guaranty
(stock) savings bank (the "Bank"), and Medford Bancorp, Inc., a Massachusetts
corporation ("Bancorp").
The Bank is a stock savings bank, duly organized and validly existing
under the laws of the Commonwealth of Massachusetts, with its principal office
at 29 High Street, Medford, Massachusetts 02155. As of the date hereof, the
authorized capital stock of the Bank consists of (1) 15,000,000 shares of common
stock, par value $0.50 per share (the "Bank Common Stock"), of which 4,541,148
shares are issued and outstanding, 200,000 shares are reserved for issuance
under the Bank's 1993 Stock Option Plan (as the same may be renamed from time to
time), and, 736,000 shares are reserved for issuance under the Bank's 1986 Stock
Option Plan (the 1993 Stock Option Plan and the 1986 Stock Option Plan are
collectively referred to herein as the "Stock Option Plans"), and (2) 5,000,000
shares of preferred stock, par value $0.50 per share, none of which shares are
issued and outstanding.
Bancorp is a corporation, duly organized and validly existing under the
laws of the Commonwealth of Massachusetts, with its principal office at 29 High
Street Medford, Massachusetts 02155. The articles of organization of Bancorp at
the Effective Time (as defined herein) will provide for authorized capital stock
consisting of 15,000,000 shares of common stock, par value $0.50 per share (the
"Bancorp Common Stock"), and 5,000,000 shares of preferred stock, par value
$0.50 per share. As of the date hereof, there are 100 shares of Bancorp Common
Stock issued and outstanding, all of which are held by the Bank.
The Bank and Bancorp have agreed that Bancorp will acquire all of the
issued and outstanding shares of Bank Common Stock (together with associated
preferred stock purchase rights) in exchange for shares of Bancorp Common Stock
(together with associated preferred stock purchase rights) pursuant to the
provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts
and of this Plan. The Plan has been adopted and approved by a vote of a majority
of all the members of the Board of Directors of the Bank, and by a vote of a
majority of all the members of the Board of Directors of Bancorp. The officers
of the Bank and of Bancorp whose respective signatures appear below have been
duly authorized to execute and deliver this Plan.
Now, THEREFORE, in consideration of these premises, the Bank and
Bancorp agree as follows:
<PAGE> 2
SECTION 1 - APPROVAL AND FILING OF PLAN
1.1. The Plan shall be submitted for approval by the holders of Bank
Common Stock at a meeting to be called and held in accordance with the
applicable provisions of law. Notice of such meeting shall be published at least
once a week for two successive weeks in a newspaper of general circulation in
the County of Suffolk, Commonwealth of Massachusetts. Both of said publications
shall be at least fifteen days prior to the date of the meeting.
1.2. Upon approval of the Plan by the affirmative vote of the holders
of 66 2/3% of the outstanding shares of Bank Common Stock as required by law,
the Bank and Bancorp shall submit the Plan to the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Bank Commissioner") for his approval and
filing in accordance with the provisions of Section 26B of Chapter 172 of the
General Laws of Massachusetts. The Plan shall be accompanied by such
certificates of the respective officers of the Bank and Bancorp as may be
required by law and a written request from the Bank that the Plan not be filed
by the Bank Commissioner until such future time as the Bank Commissioner shall
have received from the Bank and Bancorp the written notice described in
Subsection 2.1.
1.3. If the requisite approval of the Plan is obtained at the meeting
of holders of Bank Common Stock referred to in Subsection 1.1, thereafter and
until the Effective Time, as hereinafter defined, the Bank shall issue
certificates for Bank Common Stock, whether upon transfer or otherwise, only if
such certificates bear a legend indicating that the Plan has been approved and
that shares of Bank Common Stock evidenced by such certificates are subject to
acquisition by Bancorp pursuant to the Plan.
SECTION 2 - DEFINITION OF EFFECTIVE TIME
2.1. The Plan shall become effective at 12:01 A.M. on the first
business day following the date on which the Bank and Bancorp advise the Bank
Commissioner in writing (i) that all the conditions precedent to the Plan
becoming effective specified in Section 5 have been satisfied and (ii) that the
Plan has not been abandoned by the Bank or Bancorp in accordance with the
provisions of Section 6, or at such other date and time as is specified in such
written notice to the Bank Commissioner. Such time is hereafter called the
"Effective Time."
SECTION 3 - ACTIONS AT THE EFFECTIVE TIME
3.1. At the Effective Time, Bancorp shall, without any further action
on its part or on the part of the holders of Bank Common Stock, automatically
and by operation of law acquire and become the owner for all purposes of all the
then issued and outstanding shares of Bank Common Stock (together with
associated preferred stock purchase rights) and shall be entitled to have issued
to it by the Bank a certificate or certificates representing such shares.
Thereafter, Bancorp shall have full and exclusive power to vote such shares of
Bank Common Stock, to receive dividends thereon and to exercise all rights of an
owner thereof.
2
<PAGE> 3
3.2. At the Effective Time, the shares of Bancorp Common Stock which
are outstanding immediately prior to the Effective Time shall be canceled.
3.3. At the Effective Time, the holders of the then issued and
outstanding shares of Bank Common Stock (together with associated preferred
stock purchase rights) shall, without any further action on their part or on the
part of Bancorp, automatically and by operation of law cease to own such shares
and shall instead become owners of one share of Bancorp Common Stock (together
with associated preferred stock purchase rights) for each share of Bank Common
Stock held by them immediately prior to the Effective Time. Thereafter, such
persons shall have full and exclusive power to vote such shares of Bancorp
Common Stock, to receive dividends thereon, except as otherwise provided herein,
and to exercise all rights of an owner thereof.
3.4. At the Effective Time, all previously issued and outstanding
certificates representing shares of Bank Common Stock (the "Old Certificates")
shall automatically and by operation of law cease to represent shares of Bank
Common Stock or any interest therein and each Old Certificate shall instead
represent the ownership by the holder thereof of an equal number of shares of
Bancorp Common Stock. No holder of an Old Certificate shall be entitled to vote
the shares of Bank Common Stock formerly represented by such certificate, or to
receive dividends thereon, or to exercise any other rights of ownership in
respect thereof.
3.5. Notwithstanding any of the foregoing, any Dissenting Stockholder,
as defined in Subsection 8.1, shall have such rights as are provided by
Subsection 8.2 and by the laws of the Commonwealth of Massachusetts.
SECTION 4 - ACTIONS AFTER THE EFFECTIVE TIME
As soon as practicable and in any event not more than thirty days after
the Effective Time:
4.1. Bancorp shall deliver to the transfer agent for the Bank and
Bancorp (the "Transfer Agent"), as agent for the then holders of the Old
Certificates (other than Old Certificates representing shares of Bank Common
Stock as to which dissenters' appraisal rights shall have been exercised), a
certificate or certificates for the aggregate number of shares of Bancorp Common
Stock (the "New Certificates"), to which said holders shall be entitled. Each
such holder may surrender his Old Certificate to the Transfer Agent and receive
in exchange therefor a New Certificate for an equal number of shares of Bancorp
Common Stock. However, holders of Old Certificates need not surrender Old
Certificates to the transfer Agent in exchange for a New Certificate. The
Transfer Agent shall treat Old Certificates as representing for all purposes an
equal number of shares of Bancorp Common Stock.
4.2. Bancorp may publish a notice to the holders of all Old
Certificates, specifying the Effective Time of the Plan and notifying such
holders that they may present their Old Certificates to the Transfer Agent for
exchange for a New Certificate representing an equal number of shares of Bancorp
Common Stock. Such notice may likewise be given by mail to such holders at their
addresses on the Bank's records.
3
<PAGE> 4
SECTION 5 - CONDITIONS PRECEDENT
The Plan and the acquisition provided for herein shall not become
effective unless all of the following first shall have occurred:
5.1. The Plan shall have been approved by the affirmative vote of the
holders of two-thirds of the outstanding Bank Common Stock at a meeting of such
stockholders called for such purpose.
5.2. The Plan shall have been approved by the Bank Commissioner and a
copy of the Plan with his approval endorsed thereon shall have been filed in his
office, all as provided in Section 26B of Chapter 172 of the General Laws of
Massachusetts.
5.3. Any approval, consent, or waiver required by the Board of
Governors of the Federal Reserve System shall have been received, and any
waiting period imposed by applicable law shall have expired.
5.4. The Bank shall have received a favorable opinion from its counsel,
satisfactory in form and substance to the Bank, with respect to the federal
income tax consequences of the Plan and the acquisition contemplated thereby.
5.5. The shares of Bancorp Common Stock (together with associated
preferred stock purchase rights) to be issued to the holders of Bank Common
Stock pursuant to the Plan shall have been registered or qualified for such
issuance to the extent required under all applicable state securities laws.
5.6. The Bank and Bancorp shall have obtained all other consents,
permissions and approvals and taken all actions required by law or agreement, or
deemed necessary by the Bank or Bancorp, prior to the consummation of the
acquisition provided for by the Plan and to Bancorp's having and exercising all
rights of ownership with respect to all of the outstanding shares of Bank Common
Stock acquired by it thereunder.
SECTION 6 - ABANDONMENT OF PLAN
6.1. The Plan may be abandoned by either the Bank or Bancorp at any
time before the Effective Time in the event that:
(a) Necessary regulatory approvals cannot be obtained, or the
conditions or obligations associated with such regulatory approvals make
consummation of the acquisition contemplated by the Plan inadvisable in the
opinion of Bank or Bancorp;
(b) The number of shares of Bank Common Stock owned by
Dissenting Stockholders, as defined in Subsection 8.1, shall make consummation
of the acquisition contemplated by the Plan inadvisable in the opinion of the
Bank or Bancorp;
4
<PAGE> 5
(c) Any action, suit, proceeding or claim has been instituted,
made or threatened relating to the Plan which shall make consummation of the
acquisition contemplated by the Plan inadvisable in the opinion of the Bank or
Bancorp; or
(d) For any other reason consummation of the acquisition
contemplated by the Plan is inadvisable in the opinion of the Bank or Bancorp.
Such abandonment shall be effected by written notice by either the Bank
or Bancorp to the other of them, and shall be authorized or approved by the
Board of Directors of the party giving such notice. Upon the giving of such
notice, the Plan shall be terminated and there shall be no liability hereunder
or on account of such on the part of the Bank or Bancorp or the Directors,
officers, employees, agents or stockholders of either of them. In the event of
abandonment of the Plan, the Bank shall pay the fees and expenses incurred by
itself and Bancorp in connection with the Plan and the proposed acquisition. If
either party hereto gives written notice of termination to the other party
pursuant to this section, the party giving such written notice shall
simultaneously furnish a copy thereof to the Bank Commissioner.
SECTION 7 - AMENDMENT OF PLAN
7.1. The Plan may be amended or modified at any time by mutual
agreement of the Boards of Directors of Bancorp and the Bank (i) prior to its
approval by the stockholders of the Bank, in any respect, and (ii) subsequent to
such approval, in any respect, provided that the Bank Commissioner shall approve
of such amendment or modification.
SECTION 8 - RIGHTS OF DISSENTING STOCKHOLDERS
8.1. "Dissenting Stockholders" shall mean those holders of Bank Common
Stock who file with the Bank before the taking of the vote on the Plan, written
objection to the Plan, pursuant to Section 86 of Chapter 156B of the General
Laws of Massachusetts, stating that they intend to demand payment for their
shares of Bank Common Stock if the Plan is consummated and whose shares are not
voted in favor of the Plan.
8.2. Dissenting Stockholders who comply with the provisions of Sections
86 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts and
all other applicable provisions of law shall be entitled to receive from the
Bank payment of the fair value of their shares of Bank Common Stock upon
surrender by such holders of the certificates which previously represented
shares of Bank Common Stock. Certificates so obtained by the Bank, upon payment
of the fair value of such shares as provided by law, shall be canceled. Shares
of Bancorp Common Stock, to which Dissenting Stockholders would have been
entitled had they not dissented, shall be deemed to constitute authorized but
unissued shares of Bancorp Common Stock and may be sold or otherwise disposed of
by Bancorp at the discretion of, and on such terms as may be fixed by, its Board
of Directors.
5
<PAGE> 6
SECTION 9 - STOCK OPTIONS
By voting in favor of the Plan and by consummation of the acquisition
contemplated by the Plan, Bancorp shall have approved adoption by Bancorp of the
Stock Option Plans of the Bank as the Stock Option Plans of Bancorp and shall
have agreed to issue Bancorp Common Stock in lieu of Bank Common Stock pursuant
to stock options then outstanding under the Stock Option Plans. As of the
Effective Time, the unexercised portion of the options outstanding under the
existing Stock Option Plans shall be assumed by Bancorp and thereafter shall be
exercisable only for shares of Bancorp Common Stock, with each such option being
exercisable for a number of shares of Bancorp Common Stock equal to the number
of shares of Bank Common Stock that were available thereunder immediately prior
to the Effective Time, and with no change in the exercise price or any other
term or condition of such option. Bancorp and the Bank shall make appropriate
amendments to the Stock Option Plans to reflect the adoption of such plans as
the Stock Option Plans of Bancorp without adverse effect upon the options
outstanding under the Stock Option Plans.
SECTION 10 - GOVERNING LAW
The Plan shall take effect as a sealed instrument and shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
SECTION 11 - COUNTERPARTS
The Plan may be executed in several identical counterparts, each of
which when executed and delivered by the parties hereto shall be an original,
but all of which together shall constitute a single instrument. In making proof
of the Plan, it shall not be necessary to produce or account for more than one
such counterpart.
6
<PAGE> 7
MEDFORD SAVINGS BANK
By: /s/ Arthur H. Meehan
----------------------------------------
Arthur H. Meehan
Chairman, President and Chief Executive
Officer
ATTEST:
/s/ Eugene R. Murray
- - - ------------------------------
Eugene R. Murray
Clerk
MEDFORD BANCORP, INC.
By: /s/ Arthur H. Meehan
----------------------------------------
Arthur H. Meehan
Chairman, President and Chief Executive
Officer
ATTEST:
/s/ Eugene R. Murray
- - - ------------------------------
Eugene R. Murray
Clerk
I hereby approve this Plan of Reorganization and Acquisition.
October 30, 1997 /s/ Thomas J. Curry
---------------- -------------------
Date Thomas J. Curry
Commissioner of Banks
7
<PAGE> 1
Exhibit 3.1
THE COMMONWEALTH OF MASSACHUSETTS
Examiner:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B)
Name
Approved
ARTICLE I
The exact name of the corporation is:
Medford Bancorp, Inc.
ARTICLE II
The purpose of the corporation is to engage in the
following business activities:
See attached Addendum A to the Articles of Organization.
C _
_
P _
_
M _
_
R.A. _
P.C.
- - - ---------
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate
8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to
more than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
<PAGE> 2
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue.
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
- - - ------------------------------- ---------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- - - ---- ---------------- ---- ---------------- ---------
<S> <C> <C> <C> <C>
Common: 0 Common: 15,000,000 $.50
Preferred: 0 Preferred: 5,000,000 $.50
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See attached Addendum B to the Articles of Organization.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See attached Addendum C to the Articles of Organization.
** If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may
ONLY be changed by filing appropriate Articles of Amendment.
<PAGE> 3
ARTICLE VII
The effective date of organization of the corporation shall be the date
approved and filed by the Secretary of the Commonwealth. If a later effective
date is desired, specify such date which shall not be more than thirty days
after the date of filing.
ARTICLE VIII
THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE
ARTICLES OF ORGANIZATION.
a. The street address (post office boxes are not acceptable) of the
principal office of the corporation in Massachusetts is:
29 High Street, Medford Massachusetts 02155
b. The name, residential address and post office address of each director
and officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President:
Treasurer: See attached Addendum D to the Articles of Organization
Clerk:
Directors:
c. The fiscal year (i.e., tax year) of the corporation shall end on the
last day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation: Eugene R. Murray, Clerk, 29 High Street, Medford, MA 02155
ARTICLE IX
By-laws of the corporation have been duly adopted and the president,
treasurer, clerk and directors whose names are set forth above, have been duly
elected.
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose
signatures(s) appear below as incorporator(s) and whose name(s) and business or
residential address(es) are clearly typed or printed beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws, Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 23rd day of July, 1997.
/s/ Arthur H. Meehan
------------------------------------------
Arthur H. Meehan
29 High Street
Medford, MA 02155
Note: If an existing corporation is acting as incorporator, type in the exact
name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE> 4
ADDENDUM A
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE II
A. To acquire, invest in or hold stock in any subsidiary permitted under
(i) the Bank Holding Company Act of 1956, and (ii) Massachusetts
General Laws, Chapter 167A, as such statutes may be amended from time
to time, and to engage in any other activity or enterprise permitted to
a bank holding company under said statutes or other applicable
law.
B. To buy, sell, invest in, hold and deal in property of every nature and
description, real and personal, tangible and intangible permissible for
such a corporation.
C. To carry on any business or other activity which may be lawfully
carried on by a corporation organized under the Business Corporation
Law of the Commonwealth of Massachusetts, whether or not related to
those referred to in the foregoing paragraphs.
A-1
<PAGE> 5
ADDENDUM B
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE IV. Capital Stock.
The total number of shares of all classes of capital stock which
Medford Bancorp, Inc. ("Bancorp") is authorized to issue is 20,000,000 shares,
of which 15,000,000 shares shall be common stock, $.50 par value per share, and
5,000,000 shares shall be preferred stock, $.50 par value per share. The shares
may be issued by Bancorp from time to time by a vote of its Board of Directors
without the approval of its stockholders. Upon payment of lawful consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of Bancorp which is transferred to
stated capital upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
A description of the different classes and series of Bancorp's capital
stock and a statement of the designations and the relative rights, preferences
and limitation of the shares of each class and series of capital stock are as
follows:
A. Common Stock. Except as provided by law or in this Article IV (or in
any supplemental sections hereto or in any certificate of establishment of any
series of preferred stock), the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder. There shall be no
cumulative voting rights in the election of Directors.
If there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of a sinking fund or a retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of Bancorp,
after there shall have been paid to or set aside for the holders of any class
having preference over the common stock in the event of liquidation, dissolution
or winding up of Bancorp the full preferential amounts to which they are
respectively entitled, the holders of the common stock, and of any class or
series of stock entitled to participate in whole or in part therewith as to
distribution of
B-1
<PAGE> 6
assets, shall be entitled, after payment or provision for payment of all debts
and liabilities of Bancorp, to receive the remaining assets of Bancorp available
for distribution, in cash or in kind, in proportion to their holdings.
B. Preferred Stock. The Board of Directors of Bancorp is authorized by
vote or votes, from time to time adopted, to provide for the issuance of
preferred stock in one or more series and to fix and state the voting powers,
designations, preferences and relative participating, optional or other special
rights of the shares of each series and the qualifications, limitations, and
restrictions thereof, including, but not limited to, determination of one or
more of the following:
(1) The distinctive serial designation and the number of
shares constituting such series;
(2) The dividend rates or the amount of dividends to be paid
on the shares of such series, whether dividends shall be cumulative
and, if so, from which date or dates, the payment date or dates for
dividends and the participating or other special rights, if any, with
respect to dividends;
(3) The voting powers, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on
which, such shares may be redeemed;
(5) The amount or amounts payable upon the shares of such
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of Bancorp;
(6) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price or prices
at which such shares may be redeemable or purchased through the
application of such fund;
(7) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of
any other series of the same or any other class or classes of stock of
Bancorp, and if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof,
if any, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(8) The price or other consideration for which the shares of
such series shall be issued; and
B-2
<PAGE> 7
(9) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
preferred stock and whether such shares may be reissued as shares of
the same or any other series of stock.
Unless otherwise provided by law, any such vote shall become effective
when Bancorp files with the Secretary of State of the Commonwealth of
Massachusetts a certificate of establishment of one or more series of preferred
stock signed by the President or any Vice President and by the Clerk, Assistant
Clerk, Secretary or Assistant Secretary of Bancorp, setting forth a copy of the
vote of the Board of Directors establishing and designating the series and
fixing and determining the relative rights and preferences thereof, the date of
adoption of such vote and a certification that such vote was duly adopted by the
Board of Directors.
B-3
<PAGE> 8
ADDENDUM C
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE VI(A). Certain Business Combinations.
SECTION 1. Vote Required for Certain Business Combinations.
A. Required Vote for Certain Business Combinations. In addition to any
affirmative vote required by the Massachusetts General Laws or by these Articles
of Organization, and except as otherwise expressly provided in Section 2 of this
Article VI(A):
(1) any merger or consolidation of Bancorp or any Subsidiary
(as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation or entity (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder;
(2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of Bancorp or any Subsidiary having an
aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or
more;
(3) the issuance or transfer by Bancorp or any Subsidiary (in
one transaction or a series of transactions) of any securities of
Bancorp or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash,
securities, or other property (or a combination thereof) having an
aggregate Fair Market Value of $1,000,000 or more;
(4) the adoption of any plan or proposal for the liquidation
or dissolution of Bancorp proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(5) any reclassification of securities (including any reverse
stock split), any recapitalization of Bancorp, any merger or
consolidation of Bancorp with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any
Interested Stockholder) which has the effect, directly or indirectly,
of increasing the proportion of the outstanding shares of any class of
equity or convertible securities of Bancorp or any Subsidiary which is
directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
C-1
<PAGE> 9
shall require (subject to Section 2 of this Article VI(A)) the affirmative vote
of the holders of at least eighty percent of the voting power of the then
outstanding shares of capital stock of Bancorp entitled to vote generally in the
election of directors (the "Voting Stock"), voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required or that a lesser percentage may be specified by law.
B. Definition of "Business Combination." The term "Business
Combination" as used in this Article VI(A) shall mean any transaction which is
referred to in any one or more of clauses (1) through (5) of Paragraph A of this
Section 1.
SECTION 2. When Higher Vote is Not Required.
The provisions of Section 1 of this Article VI(A) shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of these Articles of Organization, if all of the conditions specified
in either of the following Paragraphs A or B are met:
A. Approval by Continuing Directors. The Business Combination shall
have been approved by a majority of the Continuing Directors then in office (as
hereinafter defined); or
B. Price and Procedure Requirements. All of the following conditions
shall have been met:
(1) The aggregate amount of cash and the Fair Market Value as
of the date of the consummation of the Business Combination (the
"Consummation Date") of any consideration other than cash to be
received per share by holders of common stock in such Business
Combination shall be at least equal to the highest of the following:
(a) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of common stock
acquired by it (i) within the two-year period
immediately prior to and including the first public
announcement of the proposed Business Combination
(the "Announcement Date") or (ii) in the transaction
in which it became an Interested Stockholder,
whichever is higher;
(b) the highest Fair Market Value per share
of common stock on any date during the one-year
period prior to and including the Announcement Date;
and
(c) (if applicable) the price per share
equal to the product of (i) the Fair Market Value per
share of common stock on the Announcement Date or on
the date on which the Interested Stockholder
C-2
<PAGE> 10
became an Interested Stockholder (such later date is
referred to in this Article VI(A) as the
"Determination Date"), whichever is higher,
multiplied by (ii) the ratio of (x) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by
the Interested Stockholder for any shares of common
stock acquired by it within the two-year period
immediately prior to and including the Announcement
Date to (y) the Fair Market Value per share of common
stock on the first day in such two-year period upon
which the Interested Stockholder acquired any shares
of common stock.
(2) The aggregate amount of the cash and the Fair Market Value
as of the Consummation Date of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock shall be at least
equal to the highest of the following (it being intended that the
requirements of this Paragraph B(2) shall be required to be met with
respect to every other class of outstanding Voting Stock, whether or
not the Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(a) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of such class
of Voting Stock acquired by it (i) within the
two-year period immediately prior to and including
the Announcement Date or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher;
(b) (if applicable) the highest preferential
amount per share which the holders of shares of such
class of Voting Stock are entitled to receive from
Bancorp in the event of any voluntary or involuntary
liquidation, dissolution or winding up of Bancorp;
(c) the highest Fair Market Value per share
of such class of Voting Stock on any date during the
one-year period prior to and including the
Announcement Date; and
(d) (if applicable) the price per share
equal to the product of (i) the Fair Market Value per
share of such class of Voting Stock on the
Announcement Date or on the Determination Date,
whichever is higher, multiplied by (ii) the ratio of
(x) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for
any shares of such class of Voting Stock acquired by
it within the two-year period immediately prior to
and including the Announcement Date to (y) the Fair
Market Value per share of such class of Voting Stock
on the first day in such two-year period
C-3
<PAGE> 11
upon which the Interested Stockholder acquired any
shares of such class of Voting Stock.
(3) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including common stock)
shall be in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting Stock
with varying forms of consideration, the form of consideration for such
class of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock previously
acquired by it.
(4) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of any such Business
Combination:
(a) there shall have been (i) no failure to
declare and pay at regular dates therefor the full
amount of any dividends (whether or not cumulative)
payable on any class or series having a preference
over the common stock of Bancorp as to dividends or
upon liquidation, except as approved by a majority of
the Continuing Directors; (ii) no reduction in the
annual rate of dividends paid on the common stock
(except as necessary to reflect any subdivision of
the common stock), except as approved by a majority
of the Continuing Directors; and (iii) 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 common stock,
unless the failure to so increase such annual rate is
approved by a majority of the Continuing Directors;
and
(b) such Interested Stockholder shall have
not become the beneficial owner of any additional
shares of Voting Stock except as part of the
transaction which results in such Interested
Stockholder's becoming an Interested Stockholder.
(5) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by Bancorp, whether in anticipation of or in connection with
such Business Combination or otherwise, unless such transaction shall
have been approved or ratified by a majority of the Continuing
Directors after such person shall have become an Interested
Stockholder.
C-4
<PAGE> 12
(6) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public stockholders of Bancorp at least
twenty days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
SECTION 3. Certain Definitions.
For the purpose of these Articles of Organization:
A. A "person" shall mean an individual, a group acting in concert, a
corporation, a partnership, a limited liability company, an association, a joint
stock company, a trust, a business trust, a government or political subdivision,
any unincorporated organization and any similar association or entity.
B. "Interested Stockholder" shall mean any person (other than Bancorp
or any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of more
than ten percent of the voting power of the then outstanding shares of
Voting Stock;
(2) is an Affiliate of Bancorp and at any time within the
two-year period immediately prior to and including the date in question
was the beneficial owner, directly or indirectly, of ten percent of
more of the voting power of the then outstanding shares of Voting
Stock; or
(3) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were at any
time within the two-year period immediately prior to and including the
date in question beneficially owned by any Interested Stockholder, if
such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933 and such assignment or
succession was not approved by a majority of the Continuing Directors.
C. A person shall be a "beneficial owner" of any shares of Voting
Stock:
(1) which such person or any of its Affiliates or Associates,
directly or indirectly, has or shares with respect to the Voting Stock
(a) the right to acquire or direct the acquisition of (whether such
right is exercisable immediately or only after the passage of time or
upon the satisfaction of any conditions or both), pursuant to any
agreement, arrangement or understanding or upon the exercise of any
conversion rights, warrants, or options or otherwise; (b) the right to
vote, or direct the voting of,
C-5
<PAGE> 13
pursuant to any agreement, arrangement or understanding or otherwise;
or (c) the right to dispose of or transfer or direct the disposition or
transfer of, pursuant to any agreement, arrangement, understanding or
otherwise; or
(2) 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 of any shares of
Voting Stock.
D. For the purpose of determining whether a person is an Interested
Stockholder pursuant to Paragraph B of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned by such
person through application of Paragraph C of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options or otherwise.
E. "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 amended.
F. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by Bancorp; provided,
however, that for the purposes of the definition of Interested Stockholder set
forth in Paragraph B of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by Bancorp.
G. "Continuing Director" means any member of the Board of Directors of
Bancorp (the "Board") who is not an Affiliate or Associate of the Interested
Stockholder and was a member of the Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a Continuing
Director who is not an Affiliate or Associate of the Interested Stockholder and
is recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. "Fair Market Value" means:
(1) in the case of stock, the highest closing sale price
during the thirty-day period immediately preceding the date in question
of a share of such stock 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 bid quotation with respect to a share of
such stock during the thirty-day period preceding the date in question
on the National Association of Securities Dealers Automated Quotation
System or any comparable system then in use, or if no such quotations
are available, the fair market value on the date in question of a
C-6
<PAGE> 14
share of such stock as determined by at least a majority of the
Continuing Directors of the Board in good faith; and
(2) 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
at least a majority of the Continuing Directors of the Board in good
faith.
I. "Group Acting in Concert" shall mean persons seeking to combine or
pool their voting or other interests in the securities of Bancorp for a common
purpose, pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written, oral or otherwise, or any "group of persons"
as defined under Section 13(d) of the Securities Exchange Act of 1934. When
persons act together for any such purpose, their group is deemed to have
acquired their stock.
J. In the event of any Business Combination in which Bancorp survives,
the phrase "other consideration to be received" as used in Paragraphs B(1) and
(2) of Section 2 of this Article VI(A) shall include the shares of common stock
and/or the shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
SECTION 4. Powers of the Board of Directors.
A majority of the Directors of Bancorp (or, if there is an Interested
Stockholder, a majority of the Continuing Directors then in office) shall have
the power to determine for the purposes of this Article VI (A), on the basis of
information known to them after reasonable inquiry, (A) whether a person is an
Interested Stockholder, (B) the number or percentage of any class of securities
beneficially owned by any person, (C) whether a person is an Affiliate or
Associate of or is affiliated or associated with another, (D) whether the
requirements of Section 2 of this Article VI(A) have been met with respect to
any Business Combination, (E) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by Bancorp or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more and (F)
any other matters of interpretation arising under this Article VI(A). The good
faith determination of a majority of the Directors (or, if there is an
Interested Stockholder, a majority of the Continuing Directors then in office)
on such matters shall be conclusive and binding for all purposes of this Article
VI(A).
SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article VI(A) shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE VI(B). Standards for Board of Directors' Evaluation of Offers.
C-7
<PAGE> 15
The Board of Directors of Bancorp, when evaluating any offer of
another person (as defined in Article VI(A) hereof) to (A) make a tender or
exchange offer for any equity security of Bancorp or any Subsidiary (as defined
in Article VI(A) hereof), (B) merge or consolidate Bancorp or any Subsidiary
with another institution or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of Bancorp or any Subsidiary,
shall, in connection with the exercise of its judgment in determining what is in
the best interests of Bancorp and its stockholders, give due consideration to
all relevant factors including, without limitation, the social and economic
effects of acceptance of such offer on Bancorp's and/or any Subsidiaries'
present and future account holders, borrowers and employees; on the communities
in which Bancorp or any Subsidiary operates or is located; and on the ability of
Bancorp and its Subsidiaries to fulfill their objectives under applicable
statutes and regulations.
ARTICLE VI(C). Pre-emptive Rights.
Holders of the capital stock of Bancorp shall not be entitled to
preemptive rights with respect to any shares of the capital stock of Bancorp
which may be issued.
ARTICLE VI(D). Directors.
Bancorp shall be under the direction of a Board of Directors. The
number of Directors shall not be fewer nor more than permitted by law. The Board
of Directors shall be divided into three classes as nearly equal in number as
possible, with one class to be elected annually.
Any Director (including persons elected by Directors to fill vacancies
in the Board of Directors) may be removed from office, with or without cause, by
an affirmative vote of not less than (i) 80% of the total votes eligible to be
cast by stockholders in the election of directors at a duly constituted meeting
of stockholders called expressly for such purpose, or (ii) 66-2/3% of the
members of the Board of Directors then in office, unless at the time of such
removal there shall be an Interested Stockholder, in which case the affirmative
vote of not less than a majority of the Continuing Directors then in office
shall instead be required for removal by vote of the Board of Directors. At
least thirty days prior to such meeting of stockholders, written notice shall be
sent to the Director whose removal will be considered at the meeting.
ARTICLE VI(E). Transactions with Interested Persons.
SECTION 1. Unless entered into in bad faith or in violation of any provision of
these Articles of Organization, no contract or transaction by Bancorp shall be
void, voidable or in any way affected by reason of the fact that it is with an
Interested Person.
SECTION 2. For the purposes of this Article VI(E), "Interested Person" means any
person or organization in any way interested in Bancorp whether as a director,
officer, stockholder, employee or otherwise, and any other entity in which any
such person or organization of Bancorp is in any way interested.
C-8
<PAGE> 16
SECTION 3. Unless such contract or transaction was entered into in bad faith or
in violation of any provision of these Articles of Organization, no Interested
Person, because of such interest, shall be liable to Bancorp or to any other
person or organization for any loss or expense incurred by reason of such
contract or transaction or shall be accountable for any gain or profit realized
from such contract or transaction.
SECTION 4. The provisions of this Article VI(E) shall be operative
notwithstanding the fact that the presence of an Interested Person was necessary
to constitute a quorum at a meeting of Directors or stockholders of Bancorp at
which such contract or transaction was authorized or that the vote of an
Interested Person was necessary for the authorization of such contract or
transaction.
ARTICLE VI(F). Acting as a Partner.
Bancorp may be a partner in any business enterprise which it would have
power to conduct by itself.
ARTICLE VI(G). Stockholders' Meetings.
Meetings of stockholders may be held at such place in the Commonwealth
of Massachusetts or, if permitted by applicable law, elsewhere in the United
States as the Board of Directors may determine.
ARTICLE VI(H). Call of Special Meetings.
Special meetings of the stockholders for any purpose or purposes may be
called at any time only by the Chairman of the Board, if one is elected, the
President or by the affirmative vote of a majority of the Directors then in
office; provided, however, that if there is an Interested Stockholder, any such
call shall also require the affirmative vote of a majority of the Continuing
Directors then in office. Only those matters set forth in the call of the
special meeting may be considered or acted upon at such special meeting, unless
otherwise provided by law.
ARTICLE VI(I). Amendment of By-Laws.
The By-Laws of Bancorp may be adopted, altered, amended, changed or
repealed by the Board of Directors or the stockholders of Bancorp. Such action
by the Board of Directors shall require the affirmative vote of at least 66-2/3%
of the Directors then in office at a duly constituted meeting of the Board of
Directors, unless at the time of such action there shall be an Interested
Stockholder, in which case such action shall in addition require the affirmative
vote of at least a majority of the Continuing Directors then in office, at such
a meeting. Such action by the stockholders shall require (i) approval by the
affirmative vote of a majority of the Board of Directors of Bancorp then in
office at a duly constituted meeting of the Board of Directors, unless at the
time of such action there shall be an Interested Stockholder, in which
C-9
<PAGE> 17
case such action shall in addition require the affirmative vote of at least a
majority of the Continuing Directors then in office, at such meeting, (ii)
unless waived by the affirmative vote of the Board of Directors (and, if
applicable, Continuing Directors) specified in the preceding sentence, the
submission by the stockholders of written proposals for adopting, altering,
amending, changing or repealing the By-Laws at least sixty days prior to the
meeting at which they are to be considered and (iii) the affirmative vote of at
least 66-2/3% of the total votes eligible to be cast by stockholders in the
election of directors at a duly constituted meeting of stockholders called
expressly for such purpose.
ARTICLE VI(J). Amendment of Articles of Organization. No amendment,
addition, alteration, change or repeal of these Articles of Organization shall
be made, unless the same is first approved by the affirmative vote of a majority
of the Board of Directors of Bancorp then in office, and thereafter approved by
the stockholders by not less than 66-2/3% of the total votes eligible to be cast
at a duly constituted meeting, or, in the case of Articles I, II and VIII and
the first sentence of Article IV as set forth in Addendum B to these Articles of
Organization, by not less than a majority of the total votes eligible to be cast
at a duly constituted meeting; provided, however, that if, at any time within
the sixty day period immediately preceding the meeting at which the stockholder
vote is to be taken, there is an Interested Stockholder, such amendment,
addition, alteration, change or repeal shall also require the affirmative vote
of not less than a majority of the Continuing Directors then in office, prior to
approval by the stockholders. Notwithstanding the foregoing, to the extent that
any provision of these Articles of Organization stipulates stockholder approval
by a vote of more than 66-2/3% of the total votes eligible to be cast by
stockholders in the election of directors, and if, at any time within the sixty
day period immediately preceding the meeting at which the stockholder vote is to
be taken there is an Interested Stockholder, such provision may only be amended,
altered, changed or repealed after approval by the same vote required by such
provision, unless such amendment, alteration or repeal shall also have been
approved by the affirmative vote of not less than a majority of the Continuing
Directors then in office, in which case only the vote of 66-2/3% of the total
votes eligible to be cast by the stockholders shall be required. Unless
otherwise provided by law, any amendment, addition, alteration, change or repeal
so acted upon shall be effective on the date it is filed with the Secretary of
State of the Commonwealth of Massachusetts or on such other date as specified in
such amendment, addition, alteration, change or repeal or as the Secretary of
State may specify.
C-10
<PAGE> 18
ADDENDUM D
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE VIII(B)
The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
PRESIDENT: Arthur H. Meehan 5 Fox Run Road 29 High Street
Dover, MA 02030 Medford, MA 02155
TREASURER: Phillip W. Wong 8 Kelly Street 29 High Street
Medway, MA 02053 Medford, MA 02155
CLERK: Eugene R. Murray 14 Milton Street 29 High Street
E. Falmouth, MA 02536 Medford, MA 02155
DIRECTORS: Paul J. Crowley 15 Old Weston Road 29 High Street
Wayland, MA 01778 Medford, MA 02155
Edward J. Gaffey 43 High Street 29 High Street
Medford, MA 02155 Medford, MA 02155
Andrew D. Guthrie Jr., 30 Cambridge Street 29 High Street
M.D. Winchester, MA 01890 Medford, MA 02155
Edward D. Brickley 79 Mystic Valley Pkwy. 29 High Street
Winchester, MA 01890 Medford, MA 02155
Robert A. Havern III 35 Bartlett Avenue 29 High Street
Arlington, MA 02174 Medford, MA 02155
Francis D. Pizzella 13 Browning Road 29 High Street
Somerville, MA 02145 Medford, MA 02155
David L. Burke 9 Wedgemere Ave. 29 High Street
Winchester, MA 01890 Medford, MA 02155
Mary L. Doherty 87 Yale Street 29 High Street
Medford, MA 02155 Medford, MA 02155
Arthur H. Meehan 5 Fox Run Road 29 High Street
Dover, MA 02030 Medford, MA 02155
Eugene R. Murray 14 Milton Street 29 High Street
E. Falmouth, MA 02536 Medford, MA 02155
</TABLE>
D-1
<PAGE> 19
COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B)
================================================
I hereby certify that, upon examination of these
Articles of Organization, duly submitted to me,
it appears that the provisions of the General
Laws relative to the organization of
corporations have been complied with, and I
hereby approve said articles; and the filing
fee in the amount of $20,000 having been
paid, said articles are deemed to have been
filed with me this 23rd day of July, 1997.
Effective date: July 23, 1997
________________________________
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
FILING FEE: One tenth of one percent of the
total authorized capital stock, but not less
than $200.00. For the purpose of filing, shares
of stock with a par value less than $1.00, or
no par stock, shall be deemed to have a par
value of $1.00 per share.
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Paul W. Lee, P.C.
_______________________________________________
Goodwin, Procter & Hoar LLP
_______________________________________________
Exchange Place, Boston, MA 02109
_______________________________________________
Telephone: (617) 570-1000
____________________________________
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
MEDFORD BANCORP, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Organization....................................................................1
ARTICLE II
Stockholders....................................................................1
SECTION 1. Annual Meeting......................................................1
SECTION 2. Matters to be Considered at the Annual Meeting......................1
SECTION 3. Special Meeting.....................................................4
SECTION 4. Notice of Meetings; Adjournments....................................4
SECTION 5. Quorum..............................................................5
SECTION 6. Voting and Proxies..................................................5
SECTION 7. Action at Meeting...................................................5
ARTICLE III
DIRECTORS.......................................................................6
SECTION 1. Powers..............................................................6
SECTION 2. Composition and Term................................................6
SECTION 3. Director Nominations................................................6
SECTION 4. Qualification.......................................................9
SECTION 5. Resignation.........................................................9
SECTION 6. Removal.............................................................9
SECTION 7. Vacancies...........................................................9
SECTION 8. Compensation........................................................9
SECTION 9. Regular Meetings....................................................9
SECTION 10. Special Meetings...................................................9
SECTION 11. Notice of Meetings................................................10
SECTION 12. Quorum............................................................10
SECTION 13. Action at a Meeting...............................................10
SECTION 14. Action by Consent.................................................10
SECTION 15. Presumption of Assent.............................................11
SECTION 16. Committees........................................................11
SECTION 17. Manner of Participation...........................................11
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
OFFICERS.............................................................................12
SECTION 1. Enumeration..............................................................12
SECTION 2. Election.................................................................12
SECTION 3. Qualification............................................................12
SECTION 4. Tenure...................................................................12
SECTION 5. Removal..................................................................12
SECTION 6. Absence or Disability....................................................13
SECTION 7. Vacancies................................................................13
SECTION 8. Chief Executive Officer..................................................13
SECTION 9. Chairman and Vice Chairman of the Board..................................13
SECTION 10. President...............................................................13
SECTION 11. Vice Presidents, Treasurer and Other Officers...........................13
SECTION 12. Clerk and Assistant Clerks..............................................13
ARTICLE V
CAPITAL STOCK........................................................................14
SECTION 1. Certificates of Stock....................................................14
SECTION 2. Transfers................................................................14
SECTION 3. Record Holders...........................................................14
SECTION 4. Record Date..............................................................14
SECTION 5. Replacement of Certificates..............................................15
SECTION 6. Issuance of Capital Stock................................................15
SECTION 7. Dividends................................................................15
ARTICLE VI
INDEMNIFICATION......................................................................15
SECTION 1. Definitions..............................................................15
SECTION 2. Officers.................................................................16
SECTION 3. Non-Officer Employees....................................................16
SECTION 4. Service at the Request or Direction of the Company.......................16
SECTION 5. Good Faith...............................................................16
SECTION 6. Prior to Final Disposition...............................................17
SECTION 7. Insurance................................................................17
SECTION 8. Other Indemnification Rights.............................................17
ARTICLE VII
MISCELLANEOUS PROVISIONS.............................................................17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amendment of By-laws.....................................................17
SECTION 2. Fiscal Year..............................................................17
SECTION 3. Seal.....................................................................17
SECTION 4. Execution of Instruments.................................................17
SECTION 5. Voting of Securities.....................................................18
SECTION 6. Inapplicability of Control Share Provisions..............................18
SECTION 7. Articles.................................................................18
</TABLE>
(iii)
<PAGE> 5
BY-LAWS
OF
MEDFORD BANCORP, INC.
ARTICLE I
ORGANIZATION
The name of this corporation is "Medford Bancorp, Inc." (the
"Company"). The main office of the Company shall be in the City of Medford,
Massachusetts, or such other location as the Board of Directors may designate,
subject to applicable law. The Company shall conduct the business of a bank
holding company subject to the Bank Holding Company Act of 1956, as amended, and
shall have and may exercise all the powers, privileges and authority, whether
express or implied, now or hereafter conferred by applicable law.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders (the
"Annual Meeting") for the election of Directors and such other business as may
properly come before the Annual Meeting shall be held on the last Monday in
April at 10:00 a.m. at the main office of the Company in Medford, Massachusetts,
unless a different hour, date or place within Massachusetts (or if permitted by
law, elsewhere in the United States) is fixed by the Company's Board of
Directors (the "Board"), the Chairman of the Board, if one is elected, or the
President, consistent with the requirements of Massachusetts law. If no Annual
Meeting has been held on the date fixed as above provided, a special meeting in
lieu thereof may be held and such special meeting shall be treated for all
purposes as an Annual Meeting.
SECTION 2. Matters to be Considered at the Annual Meeting. The purposes
for which the Annual Meeting is to be held, in addition to those prescribed by
law, by the Articles of Organization (the "Articles") or by these By-laws (the
"By-laws"), may be specified by the Board of Directors, the Chairman of the
Board or the President.
At any Annual Meeting or any special meeting in lieu of Annual Meeting,
only such new business shall be conducted, and only such additional proposals
shall be acted upon, as shall have been properly brought before such Annual
Meeting. To be considered as properly brought before an Annual Meeting, business
must be: (a) specified in the notice of meeting; (b) otherwise properly brought
before the meeting by, or at the direction of, the Board of Directors (unless at
the time of such action there is an Interested Stockholder, in which case the
affirmative vote of a majority of the Continuing Directors then in office shall
also be
<PAGE> 6
required); or (c) otherwise properly brought before the Annual Meeting by or on
behalf of any stockholder of record who (i) shall have been a stockholder of
record at the time of the giving of notice as provided in this Section 2; (ii)
shall continue to be a stockholder of record on the record date for such Annual
Meeting and on the Annual Meeting date; and (iii) shall be entitled to vote at
such Annual Meeting.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Clerk of the Company; and (ii) be present at such meeting, either in person or
by a representative. For the first Annual Meeting following the effective date
of these By-Laws, to be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Company not less
than 75 days nor more than 120 days prior to the scheduled Annual Meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the scheduled Annual Meeting is given or made, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the earlier of (a) the day on which such
notice of the date of the scheduled Annual Meeting was mailed, or (b) the day on
which public disclosure was made.
For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Company at its
principal executive office not less than seventy-five (75) days nor more than
one hundred twenty (120) days prior to the anniversary date of the immediately
preceding Annual Meeting (the "Anniversary Date"); provided, however, that in
the event the Annual Meeting is scheduled to be held on a date more than thirty
(30) days before the Anniversary Date or more than sixty (60) days after the
Anniversary Date, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Company at its principal executive office not
later than the close of business on the later of (a) the 75th day prior to the
scheduled date of such Annual Meeting, or (b) the 15th day following the day on
which public disclosure of the date of such Annual Meeting is first made by the
Company.
For purposes of these By-laws, "public disclosure" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service; (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K ); or (iii) a letter or report sent to stockholders of
record of the Company at the time of the mailing of such letter or report.
A stockholder's notice to the Clerk shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting; (ii) the name and
address, as they appear on the Company's stock transfer books, of the
stockholder proposing such business; (iii) the class and number of shares
2
<PAGE> 7
of the Company's capital stock beneficially owned by the stockholder proposing
such business; (iv) the names and addresses of the beneficial owners, if any, of
any capital stock of the Company registered in such stockholder's name on such
books, and the class and number of shares of the Company's capital stock
beneficially owned by such beneficial owners; (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Company's capital stock
beneficially owned by such other stockholders; and (vi) any material interest of
the stockholder proposing to bring such business before such meeting (or any
other stockholders known to be supporting such proposal) in such proposal.
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Section 2. If the Board of Directors
or a designated committee thereof determines that any stockholder proposal was
not made in a timely fashion in accordance with the provisions of this Section 2
or that the information provided in a stockholder's notice does not satisfy the
information requirements of this Section 2 in any material respect, such
stockholder proposal shall not be presented for action at the Annual Meeting in
question. The Clerk of the Company shall notify a stockholder in writing whether
his or her proposal has been made in accordance with the time and informational
requirements of this Section 2.
Notwithstanding the procedure set forth in the above paragraph, if
neither the Board of Directors nor such committee makes a determination as to
the validity of any stockholder proposal in the manner set forth above, the
presiding officer of the Annual Meeting shall determine whether the stockholder
proposal was made in accordance with the time and informational requirements of
this Section 2. If the presiding officer determines that any stockholder
proposal was not made in a timely fashion in accordance with the provisions of
this Section 2 or that the information provided in a stockholder's notice does
not satisfy the information requirements of this Section 2 in any material
respect, such proposal shall not be presented for action at the Annual Meeting
in question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the time and informational requirements of this Section 2, the presiding
officer shall so declare at the Annual Meeting and ballots shall be provided for
use at the Annual Meeting with respect to such proposal. If there is an
Interested Stockholder at the time, any determinations to be made by the Board
of Directors or a designated committee thereof pursuant to the provisions of
this Section 2, shall also require the concurrence of a majority of the
Continuing Directors then in office.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable regulations of the Securities and Exchange
Commission set forth in the Securities Exchange Act of 1934, as amended, with
respect to the matters set forth in this By-Law, and nothing in this By-Law
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in the Company's proxy statement pursuant to such regulations.
3
<PAGE> 8
As used in these By-laws, the terms "Interested Stockholder" and
"Continuing Director" shall have the same respective meanings assigned to them
in the Articles. Any determination of beneficial ownership of securities under
these By-laws shall be made in the manner specified in the Articles.
SECTION 3. Special Meeting. Special meetings of the stockholders for
any purpose or purposes may be called at any time only by the Chairman of the
Board, if one is elected, the President or by a majority of the Directors then
in office; provided however, that if there is an Interested Stockholder, any
such call shall also require the affirmative vote of a majority of the
Continuing Directors then in office. Only those matters set forth in the call of
the special meeting may be considered or acted upon at such special meeting,
unless otherwise provided by law.
SECTION 4. Notice of Meetings; Adjournments. A written notice of the
place, time and date of all annual and special meetings of stockholders shall be
given by the Clerk or Assistant Clerk (or other person authorized by these
By-laws or by law) not less than ten (10) days nor more than sixty (60) days
before the date on which the meeting is to be held to each stockholder entitled
to vote at such meeting by mailing it addressed to such stockholder at the
address of such stockholder as it appears on the stock transfer books of the
Company. Such notice shall be deemed to be delivered when deposited in the mail
so addressed with postage pre-paid.
Notice of an annual or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is executed before or after
such meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of stockholders
need be specified in any written waiver of notice. A written waiver of notice,
executed before or after a meeting by a stockholder or by an authorized
attorney, shall be deemed equivalent to notice of the meeting.
When any annual or special meeting of stockholders is adjourned to
another hour, date or place, notice need not be given of the adjourned meeting
other than an announcement at the meeting at which the adjournment is taken of
the hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given as in the case of the original meeting to each
stockholder of record entitled to vote thereat.
The Chairman of the Board, if one is elected, shall preside at all
stockholder meetings and shall have the power, among other things, to adjourn
such meeting at any time and from time to time, subject to Section 5 of this
Article II. If a Chairman of the Board is not elected
4
<PAGE> 9
or is absent, the Vice Chairman shall preside at all stockholder meetings. If
both the Chairman and the Vice Chairman of the Board are not elected or are
absent, the President shall preside at all stockholder meetings.
SECTION 5. Quorum. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders; but if less than a
quorum is present at a meeting, a majority in interest of the stockholders
present or the presiding officer may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 4 of this Article II. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one (1) vote for
each share of common stock entitled to vote owned by them of record according to
the books of the Company and a proportionate vote for a fractional share, unless
otherwise provided by law or by the Articles. Stockholders may vote either in
person or by written proxy dated not more than six (6) months before the meeting
named therein. Proxies shall be filed with the Clerk of the meeting, or of any
adjournment thereof, before being voted. Except as otherwise limited therein,
proxies shall entitle the persons authorized thereby to vote at any adjournment
of such meeting, but they shall not be valid after final adjournment of such
meeting. A proxy with respect to stock held in the name of two (2) or more
persons shall be valid if executed by or on behalf of any one of them unless at
or prior to the exercise of the proxy the Company receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a stockholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger.
SECTION 7. Action at Meeting. When a quorum is present, any matter
before any annual or special meeting of stockholders shall be decided by vote of
the holders of a majority of the shares of stock voting on such matter, except
where a larger vote is required by law, by the Articles or by these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast,
except where a larger vote is required by law, by the Articles or by these
By-laws.
5
<PAGE> 10
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business and affairs of the Company shall be
managed by a Board of Directors.
SECTION 2. Composition and Term. The Board of Directors shall be
composed of: those persons who are elected as Directors from time to time as
provided herein. The Board of Directors shall consist of not fewer than seven
(7) and not more than twenty-five (25) individuals and shall be divided into
three (3) classes, such classes to be as nearly equal in number as possible. One
of such classes of Directors shall be elected annually by the stockholders.
Subject to the foregoing requirements and applicable law, the Board of Directors
may from time to time fix the number of Directors and their respective
classifications; provided, however, that if at the time of such action there is
an Interested Stockholder such action shall in addition require a majority vote
of the Continuing Directors then in office. Up to two (2) additional Directors
may be elected by vote of a majority of the Directors then in office. Except as
otherwise provided in accordance with these By-laws, the members of each class
shall be elected for a term of three (3) years and until their successors are
elected and qualified.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Company at any Annual Meeting may be made only (a) by, or at
the direction of, a majority of the Board of Directors (unless at the time of
such action there is an Interested Stockholder, in which case the affirmative
vote of a majority of the Continuing Directors then in office shall also be
required), or (b) by or on behalf of any stockholder of record who (i) shall
have been a stockholder of record at the time of the giving of notice as
provided in this Section 3, (ii) shall continue to be a stockholder of record on
the record date for such Annual Meeting and on the Annual Meeting date, and
(iii) shall be entitled to vote at such Annual Meeting. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3 and who seeks to make such a nomination, or his, her or its
representative, must be present in person at the Annual Meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3 shall be
eligible for election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors (or by the Continuing Directors, if required), shall be made
pursuant to timely notice in writing to the Clerk of the Company as set forth in
this Section 3. For the first Annual Meeting following the effective date of
these By-Laws, to be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Company not less
than seventy-five (75) days nor more than one hundred twenty (120) days prior to
the scheduled Annual Meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days' notice or prior
6
<PAGE> 11
public disclosure of the date of the scheduled Annual Meeting is given or made,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the earlier of (a) the day on which
such notice of the date of the scheduled Annual Meeting was mailed, or (b) the
day on which public disclosure was made.
For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Company at its
principal executive office not less than seventy-five (75) days nor more than
one hundred twenty (120) days prior to the Anniversary Date; provided, however,
that in the event the Annual Meeting is scheduled to be held on a date more than
30 days before the Anniversary Date or more than sixty (60) days after the
Anniversary Date, a stockholder's notice shall be timely if delivered to, or
mailed and received by, the Company at its principal executive office not later
than the close of business on the later of (a) the 75th day prior to the
scheduled date of such Annual Meeting, or (b) the 15th day following the day on
which public disclosure of the date of such Annual Meeting is first made by the
Company.
A stockholder's notice to the Clerk shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person; (ii) the principal occupation or employment of such person; (iii) the
class and number of shares of the Company's capital stock which are beneficially
owned by such person on the date of such stockholder notice; (iv) the consent of
each nominee to serve as a director if elected; and (v) any other information
relating to such person that is required to be disclosed in solicitations of
proxies with respect to nominees for election as directors, pursuant to Section
14 of the Securities Exchange Act of 1934, as amended, and Regulation 14A and
Schedule 14A promulgated thereunder by the Securities and Exchange Commission. A
stockholder's notice to the Clerk shall further set forth as to the stockholder
giving such notice: (i) the name and address, as they appear on the Company's
stock transfer books, of such stockholder and of the beneficial owners (if any)
of the Company's capital stock registered in such stockholder's name and the
name and address of other stockholders known by such stockholder to be
supporting such nominee(s); (ii) the class and number of shares of the Company's
capital stock which are held of record, beneficially owned or represented by
proxy by such stockholder and by any other stockholders known by such
stockholder to be supporting such nominee(s) on the record date for the Annual
Meeting in question (if such date shall then have been made publicly available)
and on the date of such stockholder's notice; and (iii) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such stockholder.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Section 3. If the Board
of Directors or a designated committee thereof determines that the information
provided in a stockholder's notice does not satisfy the time and informational
requirements of this Section 3 in any material respect, then
7
<PAGE> 12
the Board of Directors may reject such stockholder's nomination. The Clerk of
the Company shall notify a stockholder in writing whether his or her nomination
has been made in accordance with the time and informational requirements of this
Section 3.
Notwithstanding the procedures set forth in the above paragraph, if
neither the Board of Directors nor such committee makes a determination as to
whether a stockholder nomination was made in accordance with the provisions of
this Section 3, the presiding officer of the Annual Meeting shall determine
whether a nomination was made in accordance with the time and informational
requirements of this Section 3. If the presiding officer determines that any
stockholder nomination was not made in a timely fashion in accordance with the
provisions of this Section 3 or that the information provided in a stockholder's
notice does not satisfy the informational requirements of this Section 3 in any
material respect, such stockholder's nomination shall not be considered at the
Annual Meeting in question. If the Board of Directors, a designated committee
thereof or the presiding officer determines that a stockholder nomination was
made in accordance with the requirements of this Section 3, the presiding
officer shall so declare at the Annual Meeting and ballots shall be provided for
use at the meeting with respect to such nominee. If there is an Interested
Stockholder at the time, any determinations to be made by the Board of Directors
or a designated committee thereof pursuant to the provisions of this Section 3,
shall also require the concurrence of a majority of the Continuing Directors
then in office.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3 or the third paragraph of this Section 3, in
the event that the number of directors to be elected to the Board of Directors
of the Company is increased and there is no public disclosure by the Company
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least seventy-five (75) days prior to the Anniversary
Date, a stockholder's notice required by this Section 3 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if (i) with respect only to the first Annual Meeting following the
effective date of these By-Laws, such notice shall be delivered to, or mailed
and received by the Company at its principal executive office not later than the
close of business on the tenth day following the day on which such public
announcement is first made by the Company; and (ii) for all subsequent Annual
Meetings, such notice shall be delivered to, or mailed to and received by, the
Company at its principal executive office not later than the close of business
on the 15th day following the day on which such public announcement is first
made by the Company.
No person shall be elected by the stockholders as a Director of the
Company unless nominated in accordance with the procedures set forth in this
Section 3. Election of Directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
8
<PAGE> 13
SECTION 4. Qualification. Each Director shall have such qualifications
as are required by applicable law. Unless waived by a vote of the Board of
Directors, no person shall serve as a Director after reaching the age of
seventy-two (72) years.
SECTION 5. Resignation. Any Director may resign at any time by written
notice to the Chief Executive Officer. A resignation shall be effective upon
receipt, unless the resignation otherwise provides.
SECTION 6. Removal. Any Director may be removed from office as provided
in the Articles.
SECTION 7. Vacancies. Any and all vacancies occurring on the Board of
Directors, however occurring, including, without limitation, as a result of a
Director reaching the age of seventy-two (72) or by reason of an increase in the
size of the Board of Directors, or the death, resignation, disqualification or
removal of a Director, shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even if less than a quorum
of the Board of Directors, unless there is an Interested Stockholder in which
case such vacancy shall be filled solely by the affirmative vote of a majority
of the Continuing Directors then in office. Any Director appointed in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of Directors in which the new directorship was created or the
vacancy occurred and until such Director's successor shall have been duly
elected and qualified or until his or her earlier resignation or removal. When
the number of Directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
Directors shall be apportioned; provided, however, that no decrease in the
number of Directors shall shorten the term of any incumbent Director.
SECTION 8. Compensation. The members of the Board of Directors and the
members of standing or special committees shall receive such compensation as the
Board of Directors may determine.
SECTION 9. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-law on the same date
and at the same place as the Annual Meeting following such meeting of
stockholders. The Board of Directors may provide the hour, date and place for
the holding of regular meetings by resolution without other notice than such
resolution. The Board of Directors shall meet in each calendar quarter at a
place or places fixed from time to time by the Board of Directors, the Chairman
of the Board, if one is elected, or the President.
SECTION 10. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of a majority of the Directors, the
Chairman of the Board, if one is elected, or the President. The person or
persons authorized to call special meetings of the Board of Directors may fix
the hour, date and place for holding a special meeting.
9
<PAGE> 14
SECTION 11. Notice of Meetings. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each Director
by the Clerk or Assistant Clerk, or in the case of the death, absence,
incapacity or refusal of such persons, by the officer or one of the Directors
calling the meeting. Notice of any special meeting of the Board of Directors
shall be given to each Director in person, or by telephone, or sent to his or
her business or home address as shown in the Company's records by telegram,
telecopier, facsimile or similar method at least twenty-four (24) hours in
advance of the meeting or by written notice mailed to his or her business or
home address at least forty-eight (48) hours in advance of such meeting. Such
notice shall be deemed to be delivered when hand delivered to such address, read
to such Director by telephone, deposited in the mail so addressed, with postage
thereon prepaid if mailed, delivered to the telegraph company if sent by
telegram, or confirmed as the date and time of receipt if sent by telecopier,
facsimile or similar method. When any Board of Directors' meeting, either
regular or special, is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the hour, date or place of any meeting
adjourned for less than thirty (30) days or of the business to be transacted
thereat, other than an announcement at the meeting at which such adjournment is
taken of the hour, date and place to which the meeting is adjourned. A written
waiver of notice executed before or after a meeting by a Director and filed with
the records of the meeting shall be deemed to be equivalent to notice of the
meeting. The attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting, except where a Director attends a meeting for the
express purpose of objecting to the transaction of any business because such
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 12. Quorum. A majority of the number of Directors then in
office shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 11 of this Article III. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
SECTION 13. Action at a Meeting. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless otherwise prescribed by law, by the Articles or
by these By-laws.
SECTION 14. Action by Consent. Any action required or permitted to be
taken by the Board of Directors at any meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the Directors. Such written consents shall be filed with the records of the
meetings of the Board of Directors and shall be treated for all purposes as a
vote at a meeting of the Board of Directors.
10
<PAGE> 15
SECTION 15. Presumption of Assent. A Director of the Company who is
present at a meeting of the Board of Directors at which action on any Company
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the Clerk of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Clerk of the Company within five (5) days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a Director who voted in favor of such action.
SECTION 16. Committees. The Board of Directors shall elect from its
number not fewer than three (3) members to serve as an Executive Committee and
may elect other committees from its number. It may delegate to the Executive
Committee or such other committees some or all of its powers except those which
by law, by the Articles or by these By-laws may not be delegated. Except as the
Board of Directors may otherwise determine, any such committee may make rules
for the conduct of its business, but unless otherwise provided by the Board of
Directors or in such rules, its business shall be conducted so far as possible
in the same manner as is provided by these By-laws for the Board of Directors.
All members of such committees shall hold such offices at the pleasure of the
Board of Directors. The Board of Directors may abolish any such committee at any
time, subject to applicable law. Any committee to which the Board of Directors
delegates any of its powers or duties shall keep records of its meetings and
shall report its action to the Board of Directors. The Board of Directors shall
have power to rescind any action of any committee, but no such rescission shall
have retroactive effect. With the approval of the Board of Directors, the Chief
Executive Officer may appoint such other committees consisting of such Directors
as the Chief Executive Officer shall select. Any recommendations of such
committees appointed by the Chief Executive Officer shall be submitted to the
Board of Directors.
SECTION 17. Manner of Participation. Members of the Board of Directors
or of committees elected by the Board pursuant to Section 16 of this Article III
may participate in meetings of the Board by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person but shall not constitute attendance for the purpose of compensation
pursuant to Section 8 of this Article III, unless the Board of Directors by
resolution so provides.
11
<PAGE> 16
ARTICLE IV
OFFICERS
SECTION 1. Enumeration. The officers of the Company shall consist of a
President, a Treasurer, a Clerk and such other officers, including, without
limitation, a Chairman of the Board, a Vice Chairman of the Board, a Secretary
and one or more Vice Presidents, Assistant Vice Presidents, Assistant Treasurers
and Assistant Clerks as the Board of Directors may determine to be necessary for
the management of the Company.
SECTION 2. Election. The President shall be elected annually by the
Board of Directors at its first meeting following the Annual Meeting; and the
Clerk shall be elected by the stockholders at their Annual Meeting or at a
special meeting of stockholders duly called for such purpose, so long as the
election of the Clerk is required by law to be by the stockholders, otherwise
the Clerk shall be elected annually by the Board of Directors. Other officers
shall be elected by the Board of Directors and serve at its pleasure.
SECTION 3. Qualification. Any two (2) or more offices may be held by any
person. The President shall be a Director. Any officer may be required by the
Board of Directors to give bond for the faithful performance of his or her
duties in such amount and with such sureties as the Board of Directors may
determine.
SECTION 4. Tenure. Except as otherwise provided by law, by the Articles,
or by these By-laws, the President shall hold office until the first meeting of
the Board of Directors following the next Annual Meeting of the stockholders and
until his or her respective successors are chosen and qualified; the Clerk shall
hold office until the next Annual Meeting of stockholders and until his or her
successor is chosen and qualified; and all other officers shall hold office
until their respective successors are elected by the Board of Directors. The
Chief Executive Officer may resign at any time by written notice to the Board of
Directors or the Clerk. Any other officer may resign at any time by written
notice to the Chief Executive Officer. Such resignation shall be effective upon
receipt unless the resignation otherwise provides. Election or appointment of an
officer, employee or agent shall not of itself create contract rights. The Board
of Directors may, however, authorize the Company to enter into an employment
contract with any officer in accordance with law, but no such contract right
shall impair the right of the Board of Directors to remove any officer at any
time in accordance with Section 5 of this Article IV.
SECTION 5. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the entire number of Directors then in office; provided,
however, that, if at the time of such removal there is an Interested
Stockholder, the affirmative vote of a majority of the Continuing Directors then
in office shall instead be required. Any such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the persons
involved. Any officer
12
<PAGE> 17
may be removed for cause only after reasonable notice and opportunity to be
heard by the Board of Directors.
SECTION 6. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 7. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 8. Chief Executive Officer. The President shall be the Chief
Executive Officer, unless the Board of Directors shall elect a Chairman of the
Board and designate such Chairman to be the Chief Executive Officer. The Chief
Executive Officer shall, subject to the direction of the Board of Directors,
have general supervision and control of the Company's business.
SECTION 9. Chairman and Vice Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the Board of Directors. If a Chairman of
the Board is not elected or is absent, the Vice Chairman, if one is elected,
shall preside at all meetings of the Board of Directors. If both the Chairman
and the Vice Chairman of the Board are not elected or are absent, the President
shall preside at all meetings of the Board of Directors. The Chairman of the
Board shall have such other powers and shall perform such other duties as the
Board of Directors may from time to time designate. If the Chairman of the Board
is not the Chief Executive Officer, he shall also have such powers and perform
such duties as the Chief Executive Officer may from time to time designate.
SECTION 10. President. If neither a Chairman of the Board nor a Vice
Chairman of the Board are elected or are present, the President shall preside at
all meetings of the Board of Directors and of the stockholders. If the President
is not the Chief Executive Officer, he shall have such powers and perform such
duties as the Chief Executive Officer may from time to time designate.
SECTION 11. Vice Presidents, Treasurer and Other Officers. Any Vice
President, or Assistant Vice President, any Treasurer or Assistant Treasurer and
any other officers whose powers and duties are not otherwise specifically
provided for herein shall have such powers and shall perform such duties as the
Chief Executive Officer may from time to time designate.
SECTION 12. Clerk and Assistant Clerks. The Clerk shall keep a record of
the meetings of stockholders. If a Secretary is not elected or is absent, the
Clerk shall keep a record of the meetings of the Board of Directors. In the
absence of the Clerk, an Assistant Clerk, if one is elected, shall perform the
Clerk's duties. Otherwise a Temporary Clerk designated by the person presiding
at the meeting shall perform the Clerk's duties.
13
<PAGE> 18
ARTICLE V
CAPITAL STOCK
SECTION 1. Certificates of Stock. Unless otherwise provided by the Board
of Directors, each stockholder shall be entitled to a certificate representing
the capital stock of the Company in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer.
Such signatures may be facsimile if the certificate is signed by a transfer
agent or by a registrar, other than a Director, officer or employee of the
Company. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Company with the same effect as
if he were such officer at the time of its issue. Every certificate for shares
of stock which are subject to any restriction on transfer and every certificate
issued when the Company is authorized to issue more than one class or series of
stock shall contain such legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
on the books of the Company by the surrender to the Company or its transfer
agent of the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with transfer stamps (if
necessary) affixed, and with such proof of the authenticity of signature as the
Company or its transfer agent, if one is appointed, may reasonably require.
SECTION 3. Record Holders. Except as otherwise required by law, by the
Articles or by these By-laws, the Company shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote, regardless
of any transfer, pledge or other disposition of such stock, until the shares
have been transferred on the books of the Company in accordance with the
requirements of these By-laws.
It shall be the duty of each stockholder to notify the Company of his or
her address and any changes thereto.
SECTION 4. Record Date. The Board of Directors may fix in advance a time
of not more than sixty (60) days before the date of any meeting of the
stockholders, the date for the payment of any dividend or the making of any
distribution to stockholders or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case, only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Company after the
record date. Without fixing such record date, the Board of
14
<PAGE> 19
Directors may for any of such purposes close the transfer books for all or any
part of such period.
If no record date is fixed and the transfer books are not closed, (a)
the record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be the close of business on
the date on which the Board of Directors acts with respect thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 6. Issuance of Capital Stock. Except as provided by law, the
Board of Directors shall have the authority to issue or reserve for issue from
time to time the whole or any part of the capital stock of the Company which may
be authorized from time to time, to such persons or organizations, for such
consideration, whether cash, property, services or expenses and on such terms as
the Board of Directors may determine, including, without limitation, the
granting of options, warrants or conversion or other rights to subscribe to said
capital stock.
SECTION 7. Dividends. Subject to applicable law, the Articles and these
By-laws, the Board of Directors may from time to time declare, and the Company
may pay, dividends on outstanding shares of its capital stock.
ARTICLE VI
INDEMNIFICATION
SECTION 1. Definitions. For purposes of this Article: (a) "Officer"
means any person who serves or has served as a Director of the Company or in any
other office filled by election or appointment by the stockholders or the Board
of Directors and any heirs or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Company, but who is not or was not an Officer, and any heirs or personal
representatives of such person; (c) "Proceeding" means any action, suit or
proceeding, civil or criminal, brought or threatened in or before any court,
tribunal administrative or legislative body or agency and any claim which could
be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by
a judgment, order, decree or award in a Proceeding, any amount reasonably paid
in settlement of a Proceeding and any professional fees or other disbursements
reasonably incurred in a Proceeding.
15
<PAGE> 20
SECTION 2. Officers. Except as provided in Sections 4 and 5 of this
Article VI, each Officer of the Company shall be indemnified by the Company
against all Expenses incurred by such Officer in connection with any Proceedings
in which such Officer is involved as a result of serving or having served (a) as
an Officer or employee of the Company; (b) as a director, officer or employee of
any wholly owned subsidiary of the Company; or (c) in any capacity with any
other corporation, organization, partnership, joint venture, trust or other
entity at the request or direction of the Company.
SECTION 3. Non-Officer Employees. Except as provided in Sections 4 and 5
of this Article VI, each Non-Officer Employee of the Company may, in the
discretion of the Board of Directors, be indemnified against any or all Expenses
incurred by such Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved as a result of serving or having served
(a) as a Non-Officer Employee of the Company; (b) as a director, officer or
employee of any wholly owned subsidiary of the Company; or (c) in any capacity
with any other corporation, organization, partnership, joint venture, trust or
other entity at the request or direction of the Company.
SECTION 4. Service at the Request or Direction of the Company. No
indemnification shall be provided to an Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(c) or 3(c) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by vote of the Board of
Directors prior to the occurrence of the event to which the indemnification
relates, and (b) the Company maintains insurance coverage for the type of
indemnification sought. In no event shall the Company be liable for
indemnification under Section 2(c) or 3(c) above for any amount in excess of the
proceeds of insurance received with respect to such coverage as the Company in
its discretion may elect to carry. The Company may but shall not be required to
maintain insurance coverage with respect to indemnification under Section 2(c)
or 3(c) above. Notwithstanding any other provision of this Section 4, but
subject to Section 5 of this Article VI, the Board of Directors may provide an
Officer or Non-Officer Employee with indemnification under Section 2(c) or 3(c)
above as to a specific Proceeding even if one or both of the two conditions
specified in this Section 4 have not been met and even if the amount of the
indemnification exceeds the amount of the proceeds of any insurance which the
Company may have elected to carry, provided that the Board of Directors in its
discretion determines it to be in the best interests of the Company to do so.
SECTION 5. Good Faith. No indemnification shall be provided to an
Officer or to a Non-Officer Employee with respect to a matter as to which such
person shall have been adjudicated in any Proceeding not to have acted in good
faith in the reasonable belief that the action of such person was in the best
interests of the Company. In the event that a Proceeding is compromised or
settled so as to impose any liability or obligation upon an Officer or
Non-Officer Employee, no indemnification shall be provided to said Officer or
Non-Officer Employee with respect to a matter if there be a determination that
with respect to such matter such person did not act in good faith in the
reasonable belief that the action of such person was
16
<PAGE> 21
in the best interests of the Company. The determination shall be made by a
majority vote of those Directors who are not involved in such Proceeding.
However, if more than half of the Directors are involved in such Proceeding, the
determination shall be made by a majority vote of a committee of three
disinterested Directors chosen by the disinterested Directors at a regular or
special meeting. If there are fewer than three (3) disinterested Directors, the
determination shall be based upon the opinion of the Company's regular outside
counsel.
SECTION 6. Prior to Final Disposition. Unless otherwise provided by the
Board of Directors or by the committee pursuant to the procedure specified in
Section 5 of this Article VI, any indemnification provided for under this
Article VI shall include payment by the Company of Expenses incurred in
defending a Proceeding in advance of the final disposition of such Proceeding
upon receipt of an undertaking by the Officer or Non-Officer Employee seeking
indemnification to repay such payment if such Officer or Non-Officer Employee
shall be adjudicated or determined to be not entitled to indemnification under
this Article VI.
SECTION 7. Insurance. The Company may purchase and maintain insurance to
protect itself and any Officer or Non-Officer Employee against any liability of
any character asserted against or incurred by the Company or any such Officer or
Non-Officer Employee, or arising out of any such status, whether or not the
Company would have the power to indemnify such person against such liability by
law or under the provisions of this Article VI.
SECTION 8. Other Indemnification Rights. Nothing in this Article VI
shall limit any lawful rights to indemnification existing independently of this
Article VI.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. Amendment of By-laws. These By-laws may be adopted, altered,
amended, changed or repealed as provided in the Articles.
SECTION 2. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Company shall be the twelve (12) months ending
December 31, or on such other date as may be required by law.
SECTION 3. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Company.
SECTION 4. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the Company
in the ordinary course of its business without Board of Directors' action may be
executed on behalf of the Company by the Chairman of the Board, if one is
elected, the President, the Treasurer or any other officer,
17
<PAGE> 22
employee or agent of the Company as the Board of Directors or the Executive
Committee may authorize.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board
of Directors, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of the Company, or appoint
another person or persons to act as proxy or attorney in fact for the Company
with or without discretionary power and/or power of substitution, at any meeting
of stockholders or shareholders of any other organization, any of whose
securities are held by the Company.
SECTION 6. Inapplicability of Control Share Provisions. The provisions
of Chapter 110D of the Massachusetts Business Corporation Law, as the same may
be amended from time to time, shall not apply to control share acquisitions (as
such term is defined in such chapter) of the Company.
SECTION 7. Articles. All references in these By-laws to the Articles
shall be deemed to refer to the Articles of the Company, as amended and in
effect from time to time.
18
<PAGE> 1
Exhibit 3.3
The Commonwealth of Massachusetts
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS: 02108
FEDERAL IDENTIFICATION
NO. 04-1609330
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 168, SECTION 34C;
CHAPTER 172, SECTION 24 AND CHAPTER 156B, SECTIONS 70, 72
This certificate must be submitted to the Secretary of the
Commonwealth within sixty days after the date of the vote of corporators
adopting the attached amended and restated charter. Make check payable
to the Commonwealth of Massachusetts.
--------
We, Arthur H. Meehan, President
Eugene R. Murray, Clerk
Medford Savings Bank
------------------------------------------------------------------------
(NAME OF BANK)
located at 29 High Street, Medford, Massachusetts 02155
do hereby certify that the attached amended and restated charter of the
Bank was duly adopted at a meeting held on June 29, 1993, at which a
quorum was present, by unanimous consent, being at least two-thirds of
the corporators present and entitled to vote thereon:
1. The name by which the corporation shall be known is: -
Medford Savings Bank
2. The purposes for which the corporation is formed are as
follows: -
See attached Amended and Restated Charter
C / /
P / /
M / /
RA / /
13
- - - -------
P.C.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets
of paper leaving a left hand margin of at least 1 inch for binding.
Additions to more than one article may be continued on a single sheet so
long as each article requiring each such addition is clearly indicated.
<PAGE> 2
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- -----------------------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- - - -------------- ---------------- ---------------- ---------
<S> <C> <C> <C>
Preferred ---------------- 5,000,000 $.50
Common ---------------- 15,000,000 $.50
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
See attached Amended and Restated Charter
*5. The restrictions, if any, imposed by the articles of organization upon the
transfer of shares of stock of any class are as follows:
See attached Amended and Restated Charter
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
See attached Amended and Restated Charter
* If there are no such provisions, state "None".
<PAGE> 3
EXHIBIT A
AMENDED AND RESTATED CHARTER
OF
MEDFORD SAVINGS BANK
WHEREAS, a Charter was granted in the year 1869 to incorporate Medford
Savings Bank (hereinafter referred to as the "Bank"), as a Massachusetts
savings bank; and
WHEREAS, the Bank in accordance with the laws and regulations of the
Commonwealth of Massachusetts converted to a Massachusetts stock savings bank
in 1986;
The Charter of Medford Savings Bank is hereby amended and restated in its
entirety to read as follows:
ARTICLE 1. Corporate Title. The full corporate title of the Bank is
"Medford Savings Bank."
ARTICLE 2. Office. The main office of the Bank is located at 29 High
Street, Medford, Massachusetts 02155 and may be changed from time to time by
the Board of Directors of the Bank.
ARTICLE 3. Powers. The Bank is a stock form savings bank chartered under
Chapter 168 of the Massachusetts General Laws and shall have and may exercise
all powers and authority, express and implied, available to it under law.
ARTICLE 4. Duration. The duration of the Bank is perpetual.
ARTICLE 5. Capital Stock. The total number of shares of all classes of
capital stock which the Bank is authorized to issue is 20,000,000 shares, of
which 15,000,000 shares shall be common stock, $.50 par value per share, and
5,000,000 shares shall be preferred stock $.50 par value per share. The shares
may be issued by the Bank from time to time by a vote of its Board of Directors
without the approval of its stockholders. Upon payment of lawful consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Bank which is transferred to
stated capital upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
A description of the different classes and series of the Bank's capital
stock and a statement of the designations and the relative rights, preferences
and limitations of the shares of each class and series of capital stock are as
follows:
A. Common Stock. Except as provided by law or in this Article 5 (or in
any supplementary sections hereto or in any certificate of establishment of any
series of preferred stock), the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder. There shall be no
cumulative voting rights in the election of Directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full
amount of dividends and of a sinking fund or a retirement fund or other
retirement payments, if any, to which such holders are respectively entitled
in preference to the common stock, then dividends may be paid on the common
stock and on any class or series of stock entitled to participate therewith as
to dividends, out of any assets legally available for the payment of dividends;
but only when and as declared by the Board of Directors.
Subject to Article 9 hereof, in the event of any liquidation, dissolution
or winding up of the Bank, after there shall have been paid to or set aside for
the holders of any class having preference over the common stock in the event
of liquidation, dissolution or winding up of the Bank the full preferential
amounts to which they are respectively entitled, the holders of the common
stock, and of any class or series of stock entitled to participate in whole or
in part therewith as to distribution of assets, shall be entitled, after
payment or provision for payment of all debts and liabilities of the Bank, to
receive the remaining assets of the Bank available for distribution, in cash or
in kind, in proportion to their holdings.
B-1
<PAGE> 4
B. Preferred Stock. Subject to the approval of the provisions of any series
of preferred stock by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner"), if required by law, the Board of Directors
of the Bank is authorized by vote or votes, from time to time adopted, to
provide for the issuance of preferred stock in one or more series and to fix and
state the voting powers, designations, preferences and relative participating,
optional or other special rights of the shares of each series and the
qualifications, limitations, and restrictions thereof, including, but not
limited to, determination of one or more of the following:
(1) The distinctive serial designation and the number of shares
constituting such series;
(2) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends and the
participating or other special rights, if any, with respect to dividends;
(3) The voting powers, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(5) The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of the Bank;
(6) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption
of such shares, and if so entitled, the amount of such fund and the manner
of its application, including the price or prices at which such shares may
be redeemed or purchased through the application of such fund;
(7) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Bank, and
if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which
such conversion or exchange may be made, and any other terms and conditions
of such conversion or exchange;
(8) The price or other consideration for which the shares of such
series shall be issued; and
(9) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock
and whether such shares may be reissued as shares of the same or any other
series of stock.
Unless otherwise provided by law, any such vote shall become effective when
the Bank files with the Secretary of State of the Commonwealth of Massachusetts
a certificate of establishment of one or more series of preferred stock signed
by the President or any Vice President and by the Clerk, Assistant Clerk,
Secretary or Assistant Secretary of the Bank, setting forth a copy of the vote
of the Board of Directors establishing and designating the series and fixing and
determining the relative rights and preferences thereof, the date of adoption of
such vote and a certification that such vote was duly adopted by the Board of
Directors.
ARTICLE 6. Certain Business Combinations.
SECTION 1. Vote Required for Certain Business Combinations.
A. Required Vote for Certain Business Combinations. In addition to any
affirmative vote required by the Massachusetts General Laws or by this Charter,
and except as otherwise expressly provided in Section 2 of this Article 6:
(1) any merger or consolidation of the Bank or any Subsidiary (as
hereinafter defined) with (a) any Interested Stockholder (as herein defined) or
(b) any other corporation or entity (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested Stockholder;
B-2
<PAGE> 5
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of
any assets of the Bank or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $1,000,000 or more;
(3) the issuance or transfer by the Bank or any Subsidiary (in one
transaction or a series of transactions) of any securities of the Bank or
any Subsidiary to any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of
$1,000,000 or more;
(4) the adoption of any plan or proposal for the liquidation or
dissolution of the Bank proposed by or on behalf of any Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(5) any reclassification of securities (including any reverse stock
split), any recapitalization of the Bank, any merger or consolidation of
the Bank with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving any Interested Stockholder) which
has the effect, directly or indirectly, of increasing the proportion of the
outstanding shares of any class of equity or convertible securities of the
Bank or any Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested Stockholder;
share require (subject to Section 2 of this Article 6) the affirmative vote of
the holders of at least eighty percent of the voting power of the then
outstanding shares of capital stock of the Bank entitled to vote generally in
the election of directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact that no
vote may be required or that a lesser percentage may be specified by law.
B. Definition of "Business Combination." The term "Business Combination"
as used in this Article 6 shall mean any transaction which is referred to in
any one or more of clauses (1) through (5) of Paragraph A of this Section 1.
SECTION 2. When Higher Vote Is Not Required.
The provisions of Section 1 of this Article 6 shall not be applicable to
any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other
provision of these Articles, if all of the conditions specified in either of
the following paragraphs A or B are met:
A. Approval by Continuing Directors. The Business Combination shall have
been approved by a majority of the Continuing Directors then in office (as
hereinafter defined); or
B. Price and Procedure Requirements. All of the following conditions have
been met:
(1) The aggregate amount of cash and the Fair Market Value as of the
date of the consummation of the Business Combination (the "Consummation
Date") of any consideration other than cash to be received per share by
holders of common stock in such Business Combination shall be at least
equal to the highest of the following:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder for any shares of common stock
acquired by it (i) within the two-year period immediately prior to and
including the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (ii) in the
transaction in which it became an Interested Stockholder, whichever
is higher.
(b) the highest Fair Market Value per share of common stock on
any date during the one-year period prior to and including the
Announcement Date; and
(c) (if applicable) the price per share equal to the product of
(i) the Fair Market Value per share of common stock on the
Announcement Date or on the date on which the Interested Stockholder
became an Interested Stockholder (such later date is referred to in
this Article 6 as the
B-3
<PAGE> 6
"Determination Date"), whichever is higher, multiplied by (ii) the
ratio of (x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of common stock acquired by it
within the two-year period immediately prior to and including the
Announcement Date to (y) the Fair Market Value per share of common
stock on the first day in such two-year period upon which the
Interested Stockholder acquired any shares of common stock.
(2) The aggregate amount of the cash and the Fair Market Value as of
the Consummation Date of the Business Combination of consideration other
than cash to be received per share by holders of shares of any other class
of outstanding Voting Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this paragraph B(2)
shall be required to be met with respect to every other class of
outstanding Voting Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder for any shares of such class of
Voting Stock acquired by it (i) within the two-year period immediately
prior to and including the Announcement Date or (ii) in the
transaction in which it became an Interested Stockholder, whichever is
higher.
(b) (if applicable) the highest preferential amount per share
which the holders of shares of such class of Voting Stock are entitled
to receive from the Bank in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Bank;
(c) the highest Fair Market Value per share of such class of
Voting Stock on any date during the one-year period prior to and
including the Announcement Date; and
(d) (if applicable) the price per share equal to the product of
(i) the Fair Market Value per share of such class of Voting Stock on
the Announcement Date or on the Determination Date, whichever is
higher, multiplied by (ii) the ratio of (x) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder for any
shares of such class of Voting Stock acquired by it within the
two-year period immediately prior to and including the Announcement
Date to (y) the Fair Market Value per share of such class of Voting
Stock on the first day in such two-year period upon which the
Interested Stockholder acquired any shares of such class of Voting
Stock.
(3) The consideration to be received by holders of a particular class
of outstanding Voting Stock (including common stock) shall be in cash or in
the same form as the Interested Stockholder has previously paid for shares
of such class of Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of consideration,
the form of consideration for such class of Voting Stock shall be either
cash or the form used to acquire the largest number of shares of such class
of Voting Stock previously acquired by it.
(4) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of any such Business
Combination:
(a) there shall have been (i) no failure to declare and pay at
regular dates therefor the full amount of any dividends (whether or
not cumulative) payable on any class or series having a preference
over the common stock of the Bank as to dividends or upon liquidation,
except as approved by a majority of the Continuing Directors; (ii) no
reduction in the annual rate of dividends paid on the common stock
(except as necessary to reflect any subdivision of the common stock),
except as approved by a majority of the Continuing Directors; and
(iii) 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 common
stock, unless the failure to so increase such annual rate is approved
by a majority of the Continuing Directors; and
B-4
<PAGE> 7
(b) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested
Stockholder's becoming an Interested Stockholder.
(5) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the Bank, whether
in anticipation or in connection with such Business Combination or
otherwise, unless such transaction shall have been approved or ratified by
a majority of the Continuing Directors after such person shall have become
an Interested Stockholder.
(6) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be
mailed to public stockholders of the Bank at least 20 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
SECTION 3. Certain Definitions.
For the purpose of this Charter:
A. A "person" shall mean an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a trust, a
business trust, a government or political subdivision, any unincorporated
organization and any similar association or entity.
B. "Interested Stockholder" shall mean any person (other than the Bank or
any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of more than ten
percent of the voting power of the then outstanding shares of Voting Stock;
(2) is an Affiliate of the Bank and at any time within the two-year
period immediately prior to and including the date in question was the
beneficial owner, directly or indirectly, of ten percent or more of the
voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to and including the date in question
beneficially owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933 and such assignment or succession was not approved
by a majority of the Continuing Directors.
C. A person shall be a "beneficial owner" of any shares of Voting Stock:
(1) which such person or any of its Affiliates or Associates,
directly or indirectly, has or shares with respect to Voting Stock (a) the
right to acquire or direct acquisition of (whether such right is
exercisable immediately or only after the passage of time or in the
satisfaction of any conditions or both), pursuant to any agreement,
arrangement or understanding or upon the exercise of any conversion
rights, warrants, or options or otherwise; (b) the right to vote, or
direct the voting of, pursuant to any agreement, arrangement or
understanding or otherwise; or (c) the right to dispose of or transfer or
direct the disposition or transfer of pursuant to any agreement,
arrangement, understanding or otherwise; or
(2) 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 of any shares of Voting Stock.
D. For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph B of this Section 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares
B-5
<PAGE> 8
deemed owned by such person through application of paragraph C of this Section
3 but shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options or otherwise.
E. "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 amended.
F. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Bank; provided,
however, that for the purposes of the definition of Interested Stockholder set
forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Bank.
G. "Continuing Director" means any member of the Board of Directors of the
Bank (the "Board") who is not an Affiliate or Associate of the Interested
Stockholder and was a member of the Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a Continuing
Director who is not an Affiliate or Associate of the Interested Stockholder and
is recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. "Fair Market Value" means:
(1) in the case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a share of
such stock on the 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
bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers Automated Quotation System or any comparable 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 at least
a majority of the Continuing Directors of the Board in good faith; and
(2) 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 at least a
majority of the Continuing Directors of the Board in good faith.
I. "Group Acting in Concert" shall mean persons seeking to combine or pool
their voting or other interests in the securities of the Bank for a common
purpose, pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written, oral or otherwise, or any "group of
persons" as defined under Section 13(d) of the Securities Exchange Act of 1934.
When persons act together for any such purpose, their group is deemed to have
acquired their stock.
J. In the event of any Business Combination in which the Bank survives, the
phrase "other consideration to be received" as used in paragraphs B(1) and (2)
of Section 2 of this Article 6 shall include the shares of common stock and/or
the shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
SECTION 4. Powers of the Board of Directors.
A majority of the Directors of the Bank (or, if there is an interested
Stockholder, a majority of the Continuing Directors then in office) shall have
the power to determine for the purposes of this Article 6, on the basis of
information known to them after reasonable inquiry, (A) whether a person is an
Interested Stockholder, (B) the number or percentage of any class of securities
beneficially owned by any person, (C) whether a person is an Affiliate or
Associate of or is affiliated or associated with another, (D) whether the
requirements of Section 2 of this Article 6 have been met with respect to any
Business Combination, (E) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Bank or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more and (F)
any other matters of interpretation arising under this Article 6. The good
faith determination of a majority of the Directors (or, if there is an
Interested
B-6
<PAGE> 9
Stockholder, a majority of the Continuing Directors then in office) on such
matters shall be conclusive and binding for all purposes of this Article 6.
SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article 6 shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE 7. Standards for Board of Directors' Evaluation of Offers. The
Board of Directors of the Bank, when evaluating any offer of another person (as
defined in Article 6 hereof) to (A) make a tender or exchange offer for any
equity security of the Bank, (B) merge or consolidate the Bank with another
institution or (C) purchase or otherwise acquire all or substantially all of the
properties and assets of the Bank, shall, in connection with the exercise of
its judgment in determining what is in the best interests of the Bank and its
stockholders, give due consideration to all relevant factors including, without
limitation, the social and economic effects of acceptance of such offer on the
Bank's present and future account holders, borrowers and employees; on the
communities in which the Bank operates or is located; and on the ability of the
Bank to fulfill the objectives of a Massachusetts-chartered stock form savings
bank under applicable statutes and regulations.
ARTICLE 8. Pre-emptive Rights. Holders of the capital stock of the Bank
shall not be entitled to preemptive rights with respect to any shares of the
capital stock of the Bank which may be issued.
ARTICLE 9. Liquidation Account. The Bank has established and maintains a
liquidation account for the benefit of account holders as of July 31, 1985
("Eligible Account Holders") in accordance with applicable regulations of the
Commissioner. In the event of a complete liquidation of the Bank, it shall
comply with such regulations with respect to the amount and the priorities on
liquidation of each of the Bank's Eligible Account Holder's interest as a
contingent creditor in the liquidation account, to the extent it is still in
existence; provided, however, that an Eligible Account Holder's interest in the
liquidation account shall not entitle such Eligible Account Holder to any
rights of stockholders of the Bank, including, without limitation, any rights
to vote at meetings of the Bank's stockholders.
ARTICLE 10. (Intentionally Omitted)
ARTICLE 11. Directors.
The Bank shall be under the direction of a Board of Directors. The number
of Directors shall not be fewer nor more than permitted by law. The Board of
Directors shall be divided into three classes as nearly equal in number as
possible, with one class to be elected annually.
Any Director (including persons elected by Directors to fill vacancies in
the Board of Directors) may be removed from office, with or without cause, by an
affirmative vote of not less than (i) eighty percent of the total votes eligible
to be cast by stockholders in the election of directors at a duly constituted
meeting of stockholders called expressly for such purpose, or (ii) two-thirds of
the members of the Board of Directors then in office, unless at the time of such
removal there shall be an Interested Stockholder, in which case the affirmative
vote of not less than a majority of the Continuing Directors then in office
shall instead be required for removal by vote of the Board of Directors. At
least thirty days prior to such meeting of stockholders, written notice shall be
sent to the Director whose removal will be considered at the meeting.
ARTICLE 12. Transactions with Interested Persons.
SECTION 1. Unless entered into in bad faith or in violation of any provision of
this Amended and Restated Charter, no contract or transaction by the Bank shall
be void, voidable or in any way affected by reason of the fact that it is with
an Interested Person.
SECTION 2. For the purposes of this Article 12, "Interested Person" means any
person or organization in any way interested in the Bank whether as a director,
officer, stockholder, employee or otherwise, and any other entity in which any
such person or organization of the Bank is in any way interested.
B-7
<PAGE> 10
SECTION 3. Unless such contract or transaction was entered into in bad faith
or in violation of any provision of this Amended and Restated Charter, no
Interested Person, because of such interest, shall be liable to the Bank or to
any other person or organization for any loss or expense incurred by reason of
such contract or transaction or shall be accountable for any gain or profit
realized from such contract or transaction.
SECTION 4. The provisions of this Article 12 shall be operative
notwithstanding the fact that the presence of an Interested Person was
necessary to constitute a quorum at a meeting of Directors or stockholders of
the Bank at which such contract or transaction was authorized or that the vote
of an Interested Person was necessary for the authorization of such contract or
transaction.
ARTICLE 13. Acting as a Partner. The Bank may be a partner in any business
enterprise which it would have power to conduct by itself.
ARTICLE 14. Stockholders' Meetings. Meetings of stockholders may be held
at such place in the Commonwealth of Massachusetts or, if permitted by
applicable law, elsewhere in the United States as the Board of Directors may
determine.
ARTICLE 15. Call of Special Meetings. Special meetings of the
stockholders for any purpose or purposes may be called at any time only by the
Chairman of the Board, if one is elected, the President or by the affirmative
vote of a majority of the Directors then in office; provided, however, that if
there is an Interested Stockholder, any such call shall also require the
affirmative vote of a majority of the Continuing Directors then in office. Only
those matters set forth in the call of the special meeting may be considered or
acted upon at such special meeting, unless otherwise provided by law.
ARTICLE 16. Amendment of By-Laws. The By-Laws of the Bank may be adopted,
altered, amended, changed or repealed by the Board of Directors or the
stockholders of the Bank. Such action by the Board of Directors shall require
the affirmative vote of at least two-thirds of the Directors then in office at
a duly constituted meeting of the Board of Directors, unless at the time of
such action there shall be an Interested Stockholder, in which case such action
shall in addition require the affirmative vote of at least a majority of the
Continuing Directors then in office, at such a meeting. Such action by the
stockholders shall require (i) approval by the affirmative vote of a majority
of the Board of Directors of the Bank then in office at a duly constituted
meeting of the Board of Directors, unless at the time of such action there
shall be an Interested Stockholder, in which case such action shall in addition
require the affirmative vote of at least a majority of the Continuing Directors
then in office, at such meeting, (ii) unless waived by the affirmative vote of
the Board of Directors (and, if applicable, Continuing Directors) specified in
the preceding sentence, the submission by the stockholders of written proposals
for adopting, altering, amending, changing or repealing the By-Laws at least
sixty days prior to the meeting at which they are to be considered and (iii)
the affirmative vote of at least two-thirds of the total votes eligible to be
cast by stockholders in the election of directors at a duly constituted meeting
of stockholders called expressly for such purpose.
ARTICLE 17. Amendment of Charter. No amendment, addition, alteration,
change or repeal of this Charter shall be made, unless the same is first
approved by the affirmative vote of a majority of the Board of Directors of the
Bank then in office, and thereafter approved by the stockholders by not less
than two-thirds of the total votes eligible to be cast at a duly constituted
meeting, or, in the case of Articles 1, 2, 3 and 9 and the first sentence of
Article 5 of this Charter, by not less than a majority of the total votes
eligible to be cast at a duly constituted meeting; provided, however, that if,
at any time within the sixty day period immediately preceding the meeting at
which the stockholder vote is to be taken, there is an Interested Stockholder,
such amendment, addition, alteration, change or repeal shall also require the
affirmative vote of not less than a majority of the Continuing Directors then
in office, prior to approval by the stockholders. Notwithstanding the
foregoing, to the extent that any provision of this Charter stipulates
stockholder approval by a vote of more than two-thirds of the total votes
eligible to be cast by stockholders in the election of directors, and if, at
any time within the sixty day period immediately preceding the meeting at which
the stockholder vote is to be taken there is an Interested Stockholder, such
provision may only be amended, altered, changed or repealed after approval by
the same vote required by such provision, unless such amendment, alteration or
repeal shall also have been approved by the affirmative vote of not less than
a majority of the Continuing Directors then in office, in which case only the
vote of two-thirds of the total votes eligible to be cast by the stockholders
shall be
B-8
<PAGE> 11
required. Unless otherwise provided by law, any amendment, addition,
alteration, change or repeal so acted upon shall be effective on the date it is
filed with the Secretary of State of the Commonwealth of Massachusetts or on
such other date as specified in such amendment, addition, alteration, change or
repeal or as the Secretary of State may specify.
B-9
<PAGE> 12
*We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles ...............
...............................................................................
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
See attached Amended and Restated Charter
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 22nd day of July in the year 1993
/s/ Arthur H. Meehan
.........................................
Arthur H. Meehan
President and Chief Executive Officer
/s/ Eugene R. Murray
.........................................
Eugene R. Murray
Clerk
<PAGE> 13
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 168, 172 & 156, SECTION 74)
I hereby approve the within Amended and Restated Charter and, the filing fee in
the amount of $300.00 having been paid, said Charter is deemed to have been
filed with me this 26th day of July, 1993.
/s/ Michael Joseph Connolly
--------------------------------
Michael Joseph Connolly
Secretary of State
Amended and Restated Charter
approved this 23rd day of July, 1993
/s/ Alan Morse
- - - ------------------------------------
Commissioner of Banks
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO: Paul W. Lee, Esq.
Goodwin, Procter & Hoar
..........................................................
Exchange Place
..........................................................
Boston, MA 02109
..........................................................
Telephone (617) 570-1590
.................................................
Copy Mailed
<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
MEDFORD SAVINGS BANK
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I
Organization................................................................1
ARTICLE II
Stockholders................................................................1
SECTION 1. Annual Meeting..................................................1
SECTION 2. Matters to be Considered at the Annual Meeting..................1
SECTION 3. Special Meeting.................................................4
SECTION 4. Notice of Meetings; Adjournments................................4
SECTION 5. Quorum..........................................................5
SECTION 6. Voting and Proxies..............................................5
SECTION 7. Action at Meeting...............................................5
ARTICLE III
Directors...................................................................6
SECTION 1. Powers..........................................................6
SECTION 2. Composition and Term............................................6
SECTION 3. Director Nominations............................................6
SECTION 4. Qualification...................................................9
SECTION 5. Resignation.....................................................9
SECTION 6. Removal.........................................................9
SECTION 7. Vacancies.......................................................9
SECTION 8. Compensation....................................................9
SECTION 9. Regular Meetings................................................9
SECTION 10. Special Meetings..............................................10
SECTION 11. Notice of Meetings............................................10
SECTION 12. Quorum........................................................10
SECTION 13. Action at a Meeting...........................................11
SECTION 14. Action by Consent.............................................11
SECTION 15. Presumption of Assent.........................................11
SECTION 16. Committees....................................................11
SECTION 17. Manner of Participation.......................................11
ARTICLE IV
Officers...................................................................12
SECTION 1. Enumeration....................................................12
SECTION 2. Election.......................................................12
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3. Qualification..................................................12
SECTION 4. Tenure.........................................................12
SECTION 5. Removal........................................................12
SECTION 6. Absence or Disability..........................................13
SECTION 7. Vacancies......................................................13
SECTION 8. Chief Executive Officer........................................13
SECTION 9. Chairman and Vice Chairman of the Board........................13
SECTION 10. President.....................................................13
SECTION 11. Vice Presidents, Treasurer and Other Officers.................13
SECTION 12. Clerk and Assistant Clerks....................................13
ARTICLE V
Capital Stock..............................................................14
SECTION 1. Certificates of Stock..........................................14
SECTION 2. Transfers......................................................14
SECTION 3. Record Holders.................................................14
SECTION 4. Record Date....................................................14
SECTION 5. Replacement of Certificates....................................15
SECTION 6. Issuance of Capital Stock......................................15
SECTION 7. Dividends......................................................15
ARTICLE VI
Deposits...................................................................15
ARTICLE VII
Withdrawals................................................................16
ARTICLE VIII
Interest...................................................................16
ARTICLE IX
Indemnification............................................................16
SECTION 1. Definitions....................................................16
SECTION 2. Officers.......................................................16
SECTION 3. Non-Officer Employees..........................................17
SECTION 4. Service at the Request or Direction of the Bank................17
SECTION 5. Good Faith.....................................................17
SECTION 6. Prior to Final Disposition.....................................18
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
SECTION 7. Insurance......................................................18
SECTION 8. Other Indemnification Rights...................................18
ARTICLE X
Conveyances and Foreclosures...............................................18
SECTION 1. General Authority..............................................18
SECTION 2. Foreclosure of Mortgages.......................................18
ARTICLE XI
Miscellaneous Provisions...................................................19
SECTION 1. Amendment of By-laws...........................................19
SECTION 2. Fiscal Year....................................................19
SECTION 3. Seal...........................................................19
SECTION 4. Execution of Instruments.......................................19
SECTION 5. Voting of Securities...........................................19
SECTION 6. Charter........................................................19
</TABLE>
(iii)
<PAGE> 5
AMENDED AND RESTATED
BY-LAWS
OF
MEDFORD SAVINGS BANK
ARTICLE I
ORGANIZATION
The name of this Bank is "Medford Savings Bank" (the "Bank"). The main
office of the Bank shall be in the City of Medford, Massachusetts, or such other
location as the Board of Directors may designate, subject to applicable law.
Branches and deposits heretofore or hereafter established shall be located and
operated in accordance with applicable law. The Bank shall conduct the business
of a savings bank and shall have and may exercise all the powers, privileges and
authority, whether express or implied, now or hereafter conferred by applicable
law.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders (the
"Annual Meeting") for the election of Directors and such other business as may
properly come before the Annual Meeting shall be held on the last Monday in
April at 10:00 a.m. at the main office of the Bank in Medford, Massachusetts,
unless a different hour, date or place within Massachusetts (or if permitted by
law, elsewhere in the United States) is fixed by the Bank's Board of Directors
(the "Board"), the Chairman of the Board, if one is elected, or the President,
consistent with the requirements of Massachusetts law. If no Annual Meeting has
been held on the date fixed as above provided, a special meeting in lieu thereof
may be held and such special meeting shall be treated for all purposes as an
Annual Meeting.
SECTION 2. Matters to be Considered at the Annual Meeting. The purposes
for which the Annual Meeting is to be held, in addition to those prescribed by
law, by the Articles of Incorporation (the "Charter") or by these Amended and
Restated By-laws (the "By-laws"), may be specified by the Board of Directors,
the Chairman of the Board or the President.
At any Annual Meeting or any special meeting in lieu of Annual Meeting,
only such new business shall be conducted, and only such additional proposals
shall be acted upon, as shall have been properly brought before such Annual
Meeting. To be considered as properly brought before an Annual Meeting, business
must be: (a) specified in the notice of meeting;
<PAGE> 6
(b) otherwise properly brought before the meeting by, or at the direction of,
the Board of Directors (unless at the time of such action there is an Interested
Stockholder, in which case the affirmative vote of a majority of the Continuing
Directors then in office shall also be required); or (c) otherwise properly
brought before the Annual Meeting by or on behalf of any stockholder of record
who (i) shall have been a stockholder of record at the time of the giving of
notice as provided in this Section 2; (ii) shall continue to be a stockholder of
record on the record date for such Annual Meeting and on the Annual Meeting
date; and (iii) shall be entitled to vote at such Annual Meeting.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Clerk of the Bank; and (ii) be present at such meeting, either in person or by a
representative. For the first Annual Meeting following the effective date of
these By-Laws, to be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Bank not less
than 75 days nor more than 120 days prior to the scheduled Annual Meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the scheduled Annual Meeting is given or made, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the earlier of (a) the day on which such
notice of the date of the scheduled Annual Meeting was mailed, or (b) the day on
which public disclosure was made.
For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Bank at its principal
executive office not less than seventy-five (75) days nor more than one hundred
twenty (120) days prior to the anniversary date of the immediately preceding
Annual Meeting (the "Anniversary Date"); provided, however, that in the event
the Annual Meeting is scheduled to be held on a date more than thirty (30) days
before the Anniversary Date or more than sixty (60) days after the Anniversary
Date, a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Bank at its principal executive office not later than the close
of business on the later of (a) the 75th day prior to the scheduled date of such
Annual Meeting, or (b) the 15th day following the day on which public disclosure
of the date of such Annual Meeting is first made by the Bank.
For purposes of these By-laws, "public disclosure" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service; (ii) a report or other document filed
publicly with the Federal Deposit Insurance Corporation or the Securities and
Exchange Commission (including, without limitation, a Form F-3); or (iii) a
letter or report sent to stockholders of record of the Bank at the time of the
mailing of such letter or report.
A stockholder's notice to the Clerk shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder
2
<PAGE> 7
desires to bring before such Annual Meeting and the reasons for conducting such
business at such Annual Meeting; (ii) the name and address, as they appear on
the Bank's stock transfer books, of the stockholder proposing such business;
(iii) the class and number of shares of the Bank's capital stock beneficially
owned by the stockholder proposing such business; (iv) the names and addresses
of the beneficial owners, if any, of any capital stock of the Bank registered in
such stockholder's name on such books, and the class and number of shares of the
Bank's capital stock beneficially owned by such beneficial owners; (v) the names
and addresses of other stockholders known by the stockholder proposing such
business to support such proposal, and the class and number of shares of the
Bank's capital stock beneficially owned by such other stockholders; and (vi) any
material interest of the stockholder proposing to bring such business before
such meeting (or any other stockholders known to be supporting such proposal) in
such proposal.
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Section 2. If the Board of Directors
or a designated committee thereof determines that any stockholder proposal was
not made in a timely fashion in accordance with the provisions of this Section 2
or that the information provided in a stockholder's notice does not satisfy the
information requirements of this Section 2 in any material respect, such
stockholder proposal shall not be presented for action at the Annual Meeting in
question. The Clerk of the Bank shall notify a stockholder in writing whether
his or her proposal has been made in accordance with the time and informational
requirements of this Section 2.
Notwithstanding the procedure set forth in the above paragraph, if
neither the Board of Directors nor such committee makes a determination as to
the validity of any stockholder proposal in the manner set forth above, the
presiding officer of the Annual Meeting shall determine whether the stockholder
proposal was made in accordance with the time and informational requirements of
this Section 2. If the presiding officer determines that any stockholder
proposal was not made in a timely fashion in accordance with the provisions of
this Section 2 or that the information provided in a stockholder's notice does
not satisfy the information requirements of this Section 2 in any material
respect, such proposal shall not be presented for action at the Annual Meeting
in question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal was made in accordance
with the time and informational requirements of this Section 2, the presiding
officer shall so declare at the Annual Meeting and ballots shall be provided for
use at the Annual Meeting with respect to such proposal. If there is an
Interested Stockholder at the time, any determinations to be made by the Board
of Directors or a designated committee thereof pursuant to the provisions of
this Section 2, shall also require the concurrence of a majority of the
Continuing Directors then in office.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable regulations of the Federal Deposit
Insurance Corporation set forth in 12 C.F.R. Part 335 with respect to the
matters set forth in this By-Law, and nothing in this
3
<PAGE> 8
By-Law shall be deemed to affect any rights of stockholders to request inclusion
of proposals in the Bank's proxy statement pursuant to such regulations.
As used in these By-laws, the terms "Interested Stockholder" and
"Continuing Director" shall have the same respective meanings assigned to them
in the Charter. Any determination of beneficial ownership of securities under
these By-laws shall be made in the manner specified in the Charter.
SECTION 3. Special Meeting. Special meetings of the stockholders for
any purpose or purposes may be called at any time only by the Chairman of the
Board, if one is elected, the President or by a majority of the Directors then
in office; provided however, that if there is an Interested Stockholder, any
such call shall also require the affirmative vote of a majority of the
Continuing Directors then in office. Only those matters set forth in the call of
the special meeting may be considered or acted upon at such special meeting,
unless otherwise provided by law.
SECTION 4. Notice of Meetings; Adjournments. A written notice of the
place, time and date of all annual and special meetings of stockholders shall be
given by the Clerk or Assistant Clerk (or other person authorized by these
By-laws or by law) not less than ten (10) days nor more than sixty (60) days
before the date on which the meeting is to be held to each stockholder entitled
to vote at such meeting by mailing it addressed to such stockholder at the
address of such stockholder as it appears on the stock transfer books of the
Bank. Such notice shall be deemed to be delivered when deposited in the mail so
addressed with postage pre-paid.
Notice of an annual or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is executed before or after
such meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of stockholders
need be specified in any written waiver of notice. A written waiver of notice,
executed before or after a meeting by a stockholder or by an authorized
attorney, shall be deemed equivalent to notice of the meeting.
When any annual or special meeting of stockholders is adjourned to
another hour, date or place, notice need not be given of the adjourned meeting
other than an announcement at the meeting at which the adjournment is taken of
the hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given as in the case of the original meeting to each
stockholder of record entitled to vote thereat.
4
<PAGE> 9
The Chairman of the Board, if one is elected, shall preside at all
stockholder meetings and shall have the power, among other things, to adjourn
such meeting at any time and from time to time, subject to Section 5 of this
Article II. If a Chairman of the Board is not elected or is absent, the Vice
Chairman shall preside at all stockholder meetings. If both the Chairman and the
Vice Chairman of the Board are not elected or are absent, the President shall
preside at all stockholder meetings.
SECTION 5. Quorum. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders; but if less than a
quorum is present at a meeting, a majority in interest of the stockholders
present or the presiding officer may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 4 of this Article II. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one (1) vote for
each share of common stock entitled to vote owned by them of record according to
the books of the Bank and a proportionate vote for a fractional share, unless
otherwise provided by law or by the Charter. Stockholders may vote either in
person or by written proxy dated not more than six (6) months before the meeting
named therein. Proxies shall be filed with the Clerk of the meeting, or of any
adjournment thereof, before being voted. Except as otherwise limited therein,
proxies shall entitle the persons authorized thereby to vote at any adjournment
of such meeting, but they shall not be valid after final adjournment of such
meeting. A proxy with respect to stock held in the name of two (2) or more
persons shall be valid if executed by or on behalf of any one of them unless at
or prior to the exercise of the proxy the Bank receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a stockholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger.
SECTION 7. Action at Meeting. When a quorum is present, any matter
before any annual or special meeting of stockholders shall be decided by vote of
the holders of a majority of the shares of stock voting on such matter, except
where a larger vote is required by law, by the Charter or by these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast,
except where a larger vote is required by law, by the Charter or by these
By-laws.
ARTICLE III
Directors
5
<PAGE> 10
SECTION 1. Powers. The business and affairs of the Bank shall be
managed by a Board of Directors.
SECTION 2. Composition and Term. The Board of Directors shall be
composed of: those persons who are elected as Directors from time to time as
provided herein. The Board of Directors shall consist of not fewer than seven
(7) and not more than twenty-five (25) individuals and shall be divided into
three (3) classes, such classes to be as nearly equal in number as possible. One
of such classes of Directors shall be elected annually by the stockholders.
Subject to the foregoing requirements and applicable law, the Board of Directors
may from time to time fix the number of Directors and their respective
classifications; provided, however, that if at the time of such action there is
an Interested Stockholder such action shall in addition require a majority vote
of the Continuing Directors then in office. Up to two (2) additional Directors
may be elected by vote of a majority of the Directors then in office. Except as
otherwise provided in accordance with these By-laws, the members of each class
shall be elected for a term of three (3) years and until their successors are
elected and qualified.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Bank at any Annual Meeting may be made only (a) by, or at
the direction of, a majority of the Board of Directors (unless at the time of
such action there is an Interested Stockholder, in which case the affirmative
vote of a majority of the Continuing Directors then in office shall also be
required), or (b) by or on behalf of any stockholder of record who (i) shall
have been a stockholder of record at the time of the giving of notice as
provided in this Section 3, (ii) shall continue to be a stockholder of record on
the record date for such Annual Meeting and on the Annual Meeting date, and
(iii) shall be entitled to vote at such Annual Meeting. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3 and who seeks to make such a nomination, or his, her or its
representative, must be present in person at the Annual Meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3 shall be
eligible for election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the Board
of Directors (or by the Continuing Directors, if required), shall be made
pursuant to timely notice in writing to the Clerk of the Bank as set forth in
this Section 3. For the first Annual Meeting following the effective date of
these By-Laws, to be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Bank not less
than seventy-five (75) days nor more than one hundred twenty (120) days prior to
the scheduled Annual Meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days' notice or prior public disclosure of the date of the
scheduled Annual Meeting is given or made, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the earlier of (a) the day on which such notice of the date of the
scheduled Annual Meeting was mailed, or (b) the day on which public disclosure
was made.
6
<PAGE> 11
For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Bank at its principal
executive office not less than seventy-five (75) days nor more than one hundred
twenty (120) days prior to the Anniversary Date; provided, however, that in the
event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than sixty (60) days after the Anniversary
Date, a stockholder's notice shall be timely if delivered to, or mailed and
received by, the Bank at its principal executive office not later than the close
of business on the later of (a) the 75th day prior to the scheduled date of such
Annual Meeting, or (b) the 15th day following the day on which public disclosure
of the date of such Annual Meeting is first made by the Bank.
A stockholder's notice to the Clerk shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person; (ii) the principal occupation or employment of such person; (iii) the
class and number of shares of the Bank's capital stock which are beneficially
owned by such person on the date of such stockholder notice; (iv) the consent of
each nominee to serve as a director if elected; and (v) any other information
relating to such person that is required to be disclosed in solicitations of
proxies with respect to nominees for election as directors, pursuant to 12
C.F.R. 335.212 promulgated under the Federal Deposit Insurance Corporation under
the Securities Exchange Act of 1934, as amended. A stockholder's notice to the
Clerk shall further set forth as to the stockholder giving such notice: (i) the
name and address, as they appear on the Bank's stock transfer books, of such
stockholder and of the beneficial owners (if any) of the Bank's capital stock
registered in such stockholder's name and the name and address of other
stockholders known by such stockholder to be supporting such nominee(s); (ii)
the class and number of shares of the Bank's capital stock which are held of
record, beneficially owned or represented by proxy by such stockholder and by
any other stockholders known by such stockholder to be supporting such
nominee(s) on the record date for the Annual Meeting in question (if such date
shall then have been made publicly available) and on the date of such
stockholder's notice; and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Section 3. If the Board
of Directors or a designated committee thereof determines that the information
provided in a stockholder's notice does not satisfy the time and informational
requirements of this Section 3 in any material respect, then the Board of
Directors may reject such stockholder's nomination. The Clerk of the Bank shall
notify a stockholder in writing whether his or her nomination has been made in
accordance with the time and informational requirements of this Section 3.
Notwithstanding the procedures set forth in the above paragraph, if
neither the Board of Directors nor such committee makes a determination as to
whether a stockholder nomination
7
<PAGE> 12
was made in accordance with the provisions of this Section 3, the presiding
officer of the Annual Meeting shall determine whether a nomination was made in
accordance with the time and informational requirements of this Section 3. If
the presiding officer determines that any stockholder nomination was not made in
a timely fashion in accordance with the provisions of this Section 3 or that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3 in any material respect, such
stockholder's nomination shall not be considered at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder nomination was made in
accordance with the requirements of this Section 3, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee. If there is an Interested Stockholder at
the time, any determinations are to be made by the Board of Directors or a
designated committee thereof pursuant to the provisions of this Section 3, shall
also require the concurrence of a majority of the Continuing Directors then in
office.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3, in the event that the number of directors to
be elected to the Board of Directors of the Bank is increased and there is no
public disclosure by the Bank naming all of the nominees for director or
specifying the size of the increased Board of Directors at least seventy-five
(75) days prior to the Anniversary Date, a stockholder's notice required by this
Section 3 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if (i) with respect only to the
first Annual Meeting following the effective date of these By-Laws, such notice
shall be delivered to, or mailed and received by the Bank at its principal
executive office not later than the close of business on the tenth day following
the day on which such public announcement is first made by the Bank; and (ii)
for all subsequent Annual Meetings, such notice shall be delivered to, or mailed
to and received by, the Bank at its principal executive office not later than
the close of business on the 15th day following the day on which such public
announcement is first made by the Bank.
No person shall be elected by the stockholders as a Director of the Bank
unless nominated in accordance with the procedures set forth in this Section 3.
Election of Directors at an Annual Meeting need not be by written ballot, unless
otherwise provided by the Board of Directors or presiding officer at such Annual
Meeting. If written ballots are to be used, ballots bearing the names of all the
persons who have been nominated for election as Directors at the Annual Meeting
in accordance with the procedures set forth in this Section shall be provided
for use at the Annual Meeting.
SECTION 4. Qualification. Each Director shall have such qualifications
as are required by applicable law. Each Director shall own, in his or her own
right and free of any lien or encumbrance, common stock, either of the Bank or
of a company owning seventy-five percent (75%) of the stock of the Bank, having
a par value, or a fair market value on the date the person became a Director, of
not less than $1,000. Any Director who ceases to be the owner of the required
number of shares of stock, or who becomes in any other manner disqualified,
8
<PAGE> 13
shall vacate his or her office forthwith. Each Director, when appointed or
elected, shall take an oath that he will faithfully perform the duties of his or
her office and that he is the owner, in his or her own right and free of any
lien or encumbrance, of the amount of stock required by this Section 4. The oath
shall be taken before a notary public or justice of the peace, who is not an
officer of the Bank, and a record of the oath shall be made a part of the
records of the Bank. Unless waived by a vote of the Board of Directors, no
person shall serve as a Director after reaching the age of seventy-two (72)
years.
SECTION 5. Resignation. Any Director may resign at any time by written
notice to the Chief Executive Officer. A resignation shall be effective upon
receipt, unless the resignation otherwise provides.
SECTION 6. Removal. Any Director may be removed from office as provided
in the Charter.
SECTION 7. Vacancies. Any and all vacancies occurring on the Board of
Directors, however occurring, including, without limitation, as a result of a
Director reaching the age of seventy-two (72) or by reason of an increase in the
size of the Board of Directors, or the death, resignation, disqualification or
removal of a Director, shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even if less than a quorum
of the Board of Directors, unless there is an Interested Stockholder in which
case such vacancy shall be filled solely by the affirmative vote of a majority
of the Continuing Directors then in office. Any Director appointed in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of Directors in which the new directorship was created or the
vacancy occurred and until such Director's successor shall have been duly
elected and qualified or until his or her earlier resignation or removal. When
the number of Directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
Directors shall be apportioned; provided, however, that no decrease in the
number of Directors shall shorten the term of any incumbent Director.
SECTION 8. Compensation. The members of the Board of Directors and the
members of standing or special committees shall receive such compensation as the
Board of Directors may determine.
SECTION 9. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this By-law on the same date and at the
same place as the Annual Meeting following such meeting of stockholders. The
Board of Directors may provide the hour, date and place for the holding of
regular meetings by resolution without other notice than such resolution. The
Board of Directors shall meet at least once in each calendar month at a place or
places fixed from time to time by the Board of Directors, the Chairman of the
Board, if one is elected, or the President.
9
<PAGE> 14
SECTION 10. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of a majority of the Directors, the Chairman
of the Board, if one is elected, or the President. The person or persons
authorized to call special meetings of the Board of Directors may fix the hour,
date and place for holding a special meeting.
SECTION 11. Notice of Meetings. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each Director
by the Clerk or Assistant Clerk, or in the case of the death, absence,
incapacity or refusal of such persons, by the officer or one of the Directors
calling the meeting. Notice of any special meeting of the Board of Directors
shall be given to each Director in person, or by telephone, or sent to his or
her business or home address as shown in the Bank's records by telegram,
telecopier, facsimile or similar method at least twenty-four (24) hours in
advance of the meeting or by written notice mailed to his or her business or
home address at least forty-eight (48) hours in advance of such meeting. Such
notice shall be deemed to be delivered when hand delivered to such address, read
to such Director by telephone, deposited in the mail so addressed, with postage
thereon prepaid if mailed, delivered to the telegraph company if sent by
telegram, confirmed as the date and time of receipt if sent by telecopier,
facsimile or similar method. When any Board of Directors' meeting, either
regular or special, is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the hour, date or place of any meeting
adjourned for less than thirty (30) days or of the business to be transacted
thereat, other than an announcement at the meeting at which such adjournment is
taken of the hour, date and place to which the meeting is adjourned. A written
waiver of notice executed before or after a meeting by a Director and filed with
the records of the meeting shall be deemed to be equivalent to notice of the
meeting. The attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting, except where a Director attends a meeting for the
express purpose of objecting to the transaction of any business because such
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 12. Quorum. A majority of the number of Directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 11 of this Article III. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
SECTION 13. Action at a Meeting. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless otherwise prescribed by law, by the Charter or by
these By-laws.
10
<PAGE> 15
SECTION 14. Action by Consent. Any action required or permitted to be
taken by the Board of Directors at any meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the Directors. Such written consents shall be filed with the records of the
meetings of the Board of Directors and shall be treated for all purposes as a
vote at a meeting of the Board of Directors.
SECTION 15. Presumption of Assent. A Director of the Bank who is present
at a meeting of the Board of Directors at which action on any Bank matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he shall file a written dissent to such action with the person acting as the
Clerk of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Clerk of the Bank within five days after the
date a copy of the minutes of the meeting is received. Such right to dissent
shall not apply to a Director who voted in favor of such action.
SECTION 16. Committees. The Board of Directors shall elect from its
number not fewer than three members to serve as an Executive Committee and may
elect other committees from its number. It may delegate to the Executive
Committee or such other committees some or all of its powers except those which
by law, by the Charter or by these By-laws may not be delegated. Except as the
Board of Directors may otherwise determine, any such committee may make rules
for the conduct of its business, but unless otherwise provided by the Board of
Directors or in such rules, its business shall be conducted so far as possible
in the same manner as is provided by these By-laws for the Board of Directors.
All members of such committees shall hold such offices at the pleasure of the
Board of Directors. The Board of Directors may abolish any such committee at any
time, subject to applicable law. Any committee to which the Board of Directors
delegates any of its powers or duties shall keep records of its meetings and
shall report its action to the Board of Directors. The Board of Directors shall
have power to rescind any action of any committee, but no such rescission shall
have retroactive effect. With the approval of the Board of Directors, the Chief
Executive Officer may appoint such other committees consisting of such Directors
as the Chief Executive Officer shall select. Any recommendations of such
committees appointed by the Chief Executive Officer shall be submitted to the
Board of Directors.
SECTION 17. Manner of Participation. Members of the Board of Directors
or of committees elected by the Board pursuant to Section 16 of this Article III
may participate in meetings of the Board by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person but shall not constitute attendance for the purpose of compensation
pursuant to Section 8 of this Article III, unless the Board of Directors by
resolution so provides.
ARTICLE IV
11
<PAGE> 16
Officers
SECTION 1. Enumeration. The officers of the Bank shall consist of a
President, a Treasurer, a Clerk and such other officers, including, without
limitation, a Chairman of the Board, a Vice Chairman of the Board, a Secretary
and one or more Vice Presidents, Assistant Vice Presidents, Assistant Treasurers
and Assistant Clerks as the Board of Directors may determine to be necessary for
the management of the Bank.
SECTION 2. Election. The President shall be elected annually by the
Board of Directors at its first meeting following the Annual Meeting; and the
Clerk shall be elected by the stockholders at their Annual Meeting or at a
special meeting of stockholders duly called for such purpose, so long as the
election of the Clerk is required by law to be by the stockholders, otherwise
the Clerk shall be elected annually by the Board of Directors. Other officers
shall be elected by the Board of Directors and serve at its pleasure.
SECTION 3. Qualification. Any two (2) or more offices may be held by any
person. The President shall be a Director. Any officer may be required by the
Board of Directors to give bond for the faithful performance of his or her
duties in such amount and with such sureties as the Board of Directors may
determine.
SECTION 4. Tenure. Except as otherwise provided by law, by the Charter,
or by these By-laws, the President shall hold office until the first meeting of
the Board of Directors following the next Annual Meeting of the stockholders and
until his or her respective successors are chosen and qualified; the Clerk shall
hold office until the next Annual Meeting of stockholders and until his or her
successor is chosen and qualified; and all other officers shall hold office
until their respective successors are elected by the Board of Directors. The
Chief Executive Officer may resign at any time by written notice to the Board of
Directors or the Clerk. Any other officer may resign at any time by written
notice to the Chief Executive Officer. Such resignation shall be effective upon
receipt unless the resignation otherwise provides. Election or appointment of an
officer, employee or agent shall not of itself create contract rights. The Board
of Directors may, however, authorize the Bank to enter into an employment
contract with any officer in accordance with law, but no such contract right
shall impair the right of the Board of Directors to remove any officer at any
time in accordance with Section 5 of this Article IV.
SECTION 5. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the entire number of Directors then in office; provided,
however, that, if at the time of such removal there is an Interested
Stockholder, the affirmative vote of a majority of the Continuing Directors then
in office shall instead be required. Any such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the persons
involved. Any officer may be removed for cause only after reasonable notice and
opportunity to be heard by the Board of Directors.
12
<PAGE> 17
SECTION 6. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 7. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 8. Chief Executive Officer. The President shall be the Chief
Executive Officer, unless the Board of Directors shall elect a Chairman of the
Board and designate such Chairman to be the Chief Executive Officer. The Chief
Executive Officer shall, subject to the direction of the Board of Directors,
have general supervision and control of the Bank's business.
SECTION 9. Chairman and Vice Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the Board of Directors. If a Chairman of
the Board is not elected or is absent, the Vice Chairman, if one is elected,
shall preside at all meetings of the Board of Directors. If both the Chairman
and the Vice Chairman of the Board are not elected or are absent, the President
shall preside at all meetings of the Board of Directors. The Chairman of the
Board shall have such other powers and shall perform such other duties as the
Board of Directors may from time to time designate. If the Chairman of the Board
is not the Chief Executive Officer, he shall also have such powers and perform
such duties as the Chief Executive Officer may from time to time designate.
SECTION 10. President. If neither a Chairman of the Board nor a Vice
Chairman of the Board are elected or are present, the President shall preside at
all meetings of the Board of Directors and of the stockholders. If the President
is not the Chief Executive Officer, he shall have such powers and perform such
duties as the Chief Executive Officer may from time to time designate.
SECTION 11. Vice Presidents, Treasurer and Other Officers. Any Vice
President, or Assistant Vice President, any Treasurer or Assistant Treasurer and
any other officers whose powers and duties are not otherwise specifically
provided for herein shall have such powers and shall perform such duties as the
Chief Executive Officer may from time to time designate.
SECTION 12. Clerk and Assistant Clerks. The Clerk shall keep a record of
the meetings of stockholders. If a Secretary is not elected or is absent, the
Clerk shall keep a record of the meetings of the Board of Directors. In the
absence of the Clerk, an Assistant Clerk, if one is elected, shall perform the
Clerk's duties. Otherwise a Temporary Clerk designated by the person presiding
at the meeting shall perform the Clerk's duties.
ARTICLE V
Capital Stock
13
<PAGE> 18
SECTION 1. Certificates of Stock. Unless otherwise provided by the Board
of Directors, each stockholder shall be entitled to a certificate of the capital
stock of the Bank in such form as may from time to time be prescribed by the
Board of Directors. Such certificate shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer. Such signatures may be
facsimile if the certificate is signed by a transfer agent or by a registrar,
other than a Director, officer or employee of the Bank. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Bank with the same effect as if he were such officer at the
time of its issue. Every certificate for shares of stock which are subject to
any restriction on transfer and every certificate issued when the Bank is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
on the books of the Bank by the surrender to the Bank or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with transfer stamps (if
necessary) affixed, and with such proof of the authenticity of signature as the
Bank or its transfer agent, if one is appointed, may reasonably require.
SECTION 3. Record Holders. Except as otherwise required by law, by the
Charter or by these By-laws, the Bank shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote, regardless
of any transfer, pledge or other disposition of such stock, until the shares
have been transferred on the books of the Bank in accordance with the
requirements of these By-laws.
It shall be the duty of each stockholder to notify the Bank of his or
her address and any changes thereto.
SECTION 4. Record Date. The Board of Directors may fix in advance a time
of not more than sixty days before the date of any meeting of the stockholders,
the date for the payment of any dividend or the making of any distribution to
stockholders or the last day on which the consent or dissent of stockholders may
be effectively expressed for any purpose, as the record date for determining the
stockholders having the right to notice of and to vote at such meeting, and any
adjournment thereof, or the right to receive such dividend or distribution or
the right to give such consent or dissent. In such case, only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Bank after the record date. Without fixing such
record date, the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
14
<PAGE> 19
If no record date is fixed and the transfer books are not closed, (a)
the record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be the close of business on
the date on which the Board of Directors acts with respect thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 6. Issuance of Capital Stock. Except as provided by law, the
Board of Directors shall have the authority to issue or reserve for issue from
time to time the whole or any part of the capital stock of the Bank which may be
authorized from time to time, to such persons or organizations, for such
consideration, whether cash, property, services or expenses and on such terms as
the Board of Directors may determine, including, without limitation, the
granting of options, warrants or conversion or other rights to subscribe to said
capital stock.
SECTION 7. Dividends. Subject to applicable law, the Charter and these
By-laws, the Board of Directors may from time to time declare, and the Bank may
pay, dividends on outstanding shares of its capital stock.
ARTICLE VI
Deposits
Deposits of any type permitted by law may be received by the Bank on
such terms and subject to such limitations as are from time to time provided by
law and the rules, regulations and By-laws of the Bank, but any deposit may be
refused by the Bank for any legal reason. Each depositor shall sign a statement
signifying assent to the rules, regulations and By-laws of the Bank then in
force or as thereafter added or amended. All rules, regulations and By-laws of
the Bank and all additions and amendments thereto from time to time in effect
shall be binding on all depositors and on all other persons dealing with the
Bank whether or not such statement is signed.
15
<PAGE> 20
ARTICLE VII
Withdrawals
Deposits may be withdrawn by the depositor or by any person legally
authorized to act on the depositor's behalf. Withdrawals may be made by written
order or by any other method permitted by the Bank, subject to such requirements
as may be established from time to time by the Bank or by law. Withdrawals
requesting payment to the depositor or to one or more persons may be honored by
the Bank. Any payment made by the Bank to the depositor in person or pursuant to
any such withdrawal shall discharge the liability of the Bank to all persons to
the extent of such payment. No alleged agreement with a depositor or with any
other person inconsistent with law, these By-laws or with any of the rules or
regulations of the Bank shall be valid or binding upon the Bank.
ARTICLE VIII
Interest
The Bank may pay interest on deposits in accordance with law. Fractional
parts of a dollar shall not be included in principal in computing interest. With
respect to deposit accounts on which interest is payable, the Bank may elect not
to pay interest on accounts that have a balance of less than $10.00, or such
other minimum amount as may be fixed or permitted by law, unless otherwise
provided by law.
ARTICLE IX
Indemnification
SECTION 1. Definitions. For purposes of this Article: (a) "Officer"
means any person who serves or has served as a Director of the Bank or in any
other office filled by election or appointment by the stockholders or the Board
of Directors and any heirs or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Bank, but who is not or was not an Officer, and any heirs or personal
representatives of such person; (c) "Proceeding" means any action, suit or
proceeding, civil or criminal, brought or threatened in or before any court,
tribunal administrative or legislative body or agency and any claim which could
be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by
a judgment, order, decree or award in a Proceeding, any amount reasonably paid
in settlement of a Proceeding and any professional fees or other disbursements
reasonably incurred in a Proceeding.
SECTION 2. Officers. Except as provided in Sections 4 and 5 of this
Article IX, each Officer of the Bank shall be indemnified by the Bank against
all Expenses incurred by such
16
<PAGE> 21
Officer in connection with any Proceedings in which such Officer is involved as
a result of serving or having served (a) as an Officer or employee of the Bank;
(b) as a director, officer or employee of any wholly owned subsidiary of the
Bank; or (c) in any capacity with any other corporation, organization,
partnership, joint venture, trust or other entity at the request or direction of
the Bank.
SECTION 3. Non-Officer Employees. Except as provided in Sections 4 and 5
of this Article IX, each Non-Officer Employee of the Bank may, in the discretion
of the Board of Directors, be indemnified against any or all Expenses incurred
by such Non-Officer Employee in connection with any Proceeding in which such
Non-Officer Employee is involved as a result of serving or having served (a) as
a Non-Officer Employee of the Bank; (b) as a director, officer or employee of
any wholly owned subsidiary of the Bank; or (c) in any capacity with any other
corporation, organization, partnership, joint venture, trust or other entity at
the request or direction of the Bank.
SECTION 4. Service at the Request or Direction of the Bank. No
indemnification shall be provided to an Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(c) or 3(c) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by vote of the Board of
Directors prior to the occurrence of the event to which the indemnification
relates, and (b) the Bank maintains insurance coverage for the type of
indemnification sought. In no event shall the Bank be liable for indemnification
under Section 2(c) or 3(c) above for any amount in excess of the proceeds of
insurance received with respect to such coverage as the Bank in its discretion
may elect to carry. The Bank may but shall not be required to maintain insurance
coverage with respect to indemnification under Section 2(c) or 3(c) above.
Notwithstanding any other provision of this Section 4, but subject to Section 5
of this Article IX, the Board of Directors may provide an Officer or Non-Officer
Employee with indemnification under Section 2(c) or 3(c) above as to a specific
Proceeding even if one or both of the two conditions specified in this Section 4
have not been met and even if the amount of the indemnification exceeds the
amount of the proceeds of any insurance which the Bank may have elected to
carry, provided that the Board of Directors in its discretion determines it to
be in the best interests of the Bank to do so.
SECTION 5. Good Faith. No indemnification shall be provided to an
Officer or to a Non-Officer Employee with respect to a matter as to which such
person shall have been adjudicated in any Proceeding not to have acted in good
faith in the reasonable belief that the action of such person was in the best
interests of the Bank. In the event that a Proceeding is compromised or settled
so as to impose any liability or obligation upon an Officer or Non-Officer
Employee, no indemnification shall be provided to said Officer or Non-Officer
Employee with respect to a matter if there be a determination that with respect
to such matter such person did not act in good faith in the reasonable belief
that the action of such person was in the best interests of the Bank. The
determination shall be made by a majority vote of those Directors who are not
involved in such Proceeding. However, if more than half of the
17
<PAGE> 22
Directors are involved in such Proceeding, the determination shall be made by a
majority vote of a committee of three disinterested Directors chosen by the
disinterested Directors at a regular or special meeting. If there are fewer than
three disinterested Directors, the determination shall be based upon the opinion
of the Bank's regular outside counsel.
SECTION 6. Prior to Final Disposition. Unless otherwise provided by the
Board of Directors or by the committee pursuant to the procedure specified in
Section 5 of this Article IX, any indemnification provided for under this
Article IX shall include payment by the Bank of Expenses incurred in defending a
Proceeding in advance of the final disposition of such Proceeding upon receipt
of an undertaking by the Officer or Non-Officer Employee seeking indemnification
to repay such payment if such Officer or Non-Officer Employee shall be
adjudicated or determined to be not entitled to indemnification under this
Article IX.
SECTION 7. Insurance. The Bank may purchase and maintain insurance to
protect itself and any Officer or Non-Officer Employee against any liability of
any character asserted against or incurred by the Bank or any such Officer or
Non-Officer Employee, or arising out of any such status, whether or not the Bank
would have the power to indemnify such person against such liability by law or
under the provisions of this Article IX.
SECTION 8. Other Indemnification Rights. Nothing in this Article IX
shall limit any lawful rights to indemnification existing independently of this
Article IX.
ARTICLE X
Conveyances and Foreclosures
SECTION 1. General Authority. Any officer is authorized and empowered
severally to execute, acknowledge and deliver, in the name and on behalf of the
Bank, whenever authorized by the Board of Directors or Executive Committee, by
general or specific vote, all deeds and conveyances of real estate, all
assignments, extensions, releases, partial releases and discharges of mortgages,
and all assignments and transfers of bonds and other securities; and in
connection with any of the foregoing, said officers are authorized and empowered
severally to release or assign the interest of the Bank in any policy of
insurance held by it.
SECTION 2. Foreclosure of Mortgages. In the event of a breach of
condition of any mortgage held by the Bank, any officer is authorized and
empowered severally in the name and on behalf of the Bank, whenever authorized
by the Board of Directors or Executive Committee by general or specific vote, to
make entry for the purpose of taking possession of the mortgaged property or
foreclosing such mortgage and to perform any and all acts necessary or proper to
consummate such foreclosure and effect the due execution of any power of sale
contained in such mortgage, including the execution, acknowledgment and delivery
of all deeds and instruments of conveyance to the purchaser and the execution of
all affidavits and certificates required by law or deemed necessary or
appropriate by any of such officers.
18
<PAGE> 23
ARTICLE XI
Miscellaneous Provisions
SECTION 1. Amendment of By-laws. These By-laws may be adopted, altered,
amended, changed or repealed as provided in the Charter.
SECTION 2. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Bank shall be the twelve (12) months ending
December 31, or on such other date as may be required by law.
SECTION 3. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Bank.
SECTION 4. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the Bank in
the ordinary course of its business without Board of Directors' action may be
executed on behalf of the Bank by the Chairman of the Board, if one is elected,
the President, the Treasurer or any other officer, employee or agent of the Bank
as the Board of Directors or the Executive Committee may authorize.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board
of Directors, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of the Bank, or appoint another
person or persons to act as proxy or attorney in fact for the Bank with or
without discretionary power and/or power of substitution, at any meeting of
stockholders or shareholders of any other organization, any of whose securities
are held by the Bank.
SECTION 6. Charter. All references in these By-laws to the Charter
shall be deemed to refer to the Charter of the Bank, as amended and in effect
from time to time.
19
<PAGE> 1
[STOCK CERTIFICATE BACKGROUND]
EXHIBIT 4.1
[MEDFORD BANCORP, INC. LOGO]
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK CITY, NY
COMMON STOCK COMMON STOCK
PAR VALUE $0.50 PAR VALUE $0.50
THIS CERTIFIES that CUSIP 584131 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
AND FOR INFORMATION WITH RESPECT TO
CERTAIN REFERENCES WHICH MAY EXIST
WITH RESPECT TO THE COMMON STOCK
is the owner of
FULLY PAID AND NON-ASSESSABLE $0.50 PAR VALUE SHARES OF COMMON STOCK OF
MEDFORD BANCORP, INC. transferable on the books of the Company by the
holder hereof in person or by duly authorized attorney upon surrender of
this certificate properly endorsed or assigned. This certificate and the
shares of common stock represented hereby are issued and shall be held
subject to the laws of The Commonwealth of Massachusetts and to the Charter
and By-laws of the Company, as in effect and as amended from time to time
hereafter. Such shares are not deposit accounts and are not insured by the
Federal Deposit Insurance Corporation, the Massachusetts Mutual Savings
Central Fund, Inc. or any other insurer. This certificate is not valid
until countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Company and
the facsimile of its duly authorized officers.
Dated:
[MEDFORD BANCORP, INC. SEAL] /s/ Phillip W. Wong /s/ Arthur H. Meehan
Philip W. Wong Arthur H. Meehan
Treasurer President
<PAGE> 2
MEDFORD BANCORP, INC.
The shares of common stock represented by this certificate are issued and
shall be held subject to all the provisions of the Charter and By-laws of the
Company, as in effect and as amended from time to time hereafter, to all of
which the holder by acceptance hereof assents. The Company will furnish to any
stockholder upon written request and without charge, a copy of the Charter and
By-laws of the Company. Such request may be made to the Shareholder Relations
Department.
The Charter authorizes the issuance of shares of preferred stock in one or
more series with such voting, dividend, dissolution and other rights and
preferences as specified by the Board of Directors of the Company at the time of
issuance of the shares. The Charter, in accordance with Massachusetts
regulations, also provides for a liquidation account for the benefit of certain
account holders of Medford Savings bank (the "Bank") as of July 31, 1985 who
continue to maintain their accounts at the Bank, which holders have priority
rights over the common stockholders of the Company in the event of a complete
liquidation of the Bank. A statement of the preferences, powers, qualifications
and rights of the series and classes of such stock and of the terms of the
liquidation account will be furnished to the holder of this certificate upon
written request and without charge.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian ___________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right Under Uniform Gifts to Minors
of survivorship and not as Act _________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _______________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
|______________________________________|________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
represented by the within certificate, and do hereby irrevocably constitute and
appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within-named Company with full
power of substitution in the premises.
Dated ______________________
_____________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the certificate in every particular,
without alteration or enlargement, or any
change whatever.
Signature Guaranteed: _______________________________________________
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER) WHICH IS
A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM ("STAMP"). THE NEW YORK STOCK
EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM
("MSP") OR THE STOCK EXCHANGE MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES BY A
NOTARY PUBLIC ARE NOT ACCEPTABLE.
This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in an Amended and Restated Shareholder Rights Agreement among
Medford Bancorp, Inc., Medford Savings bank, and State Street Bank and Trust
Company, as Rights Agent, dated as of November 26, 1997, as amended, restated,
renewed or extended from time to time (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which is on
file at the principal offices of Medford Bancorp, Inc. and the stock transfer
administration office of the Rights Agent. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. Medford
Bancorp, Inc. may redeem the Rights at a redemption price of $.01 per Right,
subject to adjustment, under the terms of the Rights Agreement. Medford
Bancorp, Inc. will mail to the holder of this certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without charge promptly after
receipt of a written request therefor. Under certain circumstances, Rights
issued to or held by Acquiring Persons, Adverse Persons or any Affiliates or
Associates thereof (as defined in the Rights Agreement), and any subsequent
holder of such Rights, may become null and void. The Rights shall not be
exercisable, and shall be void so long as held, by a holder in any jurisdiction
where the requisite qualification, if any, to the issuance to such holder, or
the exercise by such holder, of the Rights in such jurisdiction shall not have
been obtained or be obtainable.
<PAGE> 1
- - - --------------------------------------------------------------------------------
MEDFORD BANCORP, INC.
and
MEDFORD SAVINGS BANK
and
STATE STREET BANK AND TRUST COMPANY,
as Rights Agent
--------------
Amended and Restated Shareholder Rights Agreement
Dated as of November 26, 1997
- - - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- - - ------- ----
<S> <C>
1. Certain Definitions...................................................................................2
2. Amendment and Restatement of the Original Rights Agreement; Appointment of Rights
Agent..............................................................................................6
3. Issue of Right Certificates...........................................................................7
4. Form of Right Certificates............................................................................9
5. Countersignature and Registration....................................................................10
6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed,
Lost or Stolen Right Certificates.................................................................11
7. Exercise of Rights; Exercise Price; Expiration Date of Rights........................................12
8. Cancellation and Destruction of Right Certificates...................................................14
9. Reservation and Availability of Preferred Stock......................................................14
10. Preferred Stock Record Date..........................................................................16
11. Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights..........................16
12. Certificate of Adjusted Exercise Price or Number of Shares...........................................25
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.................................25
14. Fractional Rights and Fractional Shares..............................................................29
15. Rights of Action.....................................................................................29
16. Agreement of Right Holders...........................................................................30
17. Right Certificate Holder Not Deemed a Shareholder....................................................30
18. Concerning the Rights Agent..........................................................................31
19. Merger or Consolidation or Change of Name of Rights Agent............................................31
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
20. Duties of Rights Agent..............................................................................32
21. Change of Rights Agent..............................................................................34
22. Issuance of New Right Certificates..................................................................35
23. Redemption..........................................................................................35
24. Exchange............................................................................................36
25. Notice of Certain Events............................................................................38
26. Notices.............................................................................................39
27. Supplements and Amendments..........................................................................40
28. Successors..........................................................................................41
29. Determinations and Actions by the Board of Directors................................................41
30. Benefits of this Agreement..........................................................................41
31. Severability........................................................................................41
32. Governing Law.......................................................................................42
33. Counterparts........................................................................................42
34. Descriptive Headings................................................................................42
Exhibit A -- Certificate of Designation of
Series A Junior Participating
Cumulative Preferred Stock
Exhibit B -- Form of Right Certificate
</TABLE>
(ii)
<PAGE> 4
AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT
Amended and Restated Agreement (the "Agreement"), dated as of
November 26, 1997, among Medford Bancorp, Inc., a Massachusetts corporation (the
"Company"), Medford Savings Bank, a Massachusetts savings bank (the "Bank"), and
State Street Bank and Trust Company, a Massachusetts trust company (the "Rights
Agent").
W I T N E S S E T H
WHEREAS, the Bank and the Rights Agent entered into a Shareholder
Rights Agreement, dated as of September 22, 1993 (the "Original Rights
Agreement"), pursuant to which, among other things, the Board of Directors of
the Bank authorized and declared a dividend distribution of one Right (as
defined in the Original Rights Agreement and hereinafter referred to as a "Bank
Right")) per share of Common Stock, par value $.50 per share, of the Bank ("Bank
Common Stock") outstanding as of the close of business on October 8, 1993 (the
"Record Date"), to then holders of outstanding shares of Bank Common Stock; and
WHEREAS, the Bank and the Company entered into a Plan of Reorganization
and Acquisition (the "Plan of Reorganization"), dated July 29, 1997, duly
approved by the holders of Bank Common Stock at a meeting held on September 16,
1997, pursuant to which the Bank became a wholly-owned subsidiary of the Company
and shares of Bank Common Stock (together with associated preferred stock
purchase rights (i.e., the Bank Rights)), except those held by stockholders
exercising dissenters' rights, were converted and exchanged into an equal number
of shares of Common Stock (as hereinafter defined) (together with associated
preferred stock purchase rights (i.e., the Rights are hereinafter defined)); and
WHEREAS, the Board of Directors of the Company desires to provide
shareholders of the Company with the continued opportunity to benefit from the
long-term prospects and value of the Company and to ensure that shareholders of
the Company receive fair and equal treatment in the event of any proposed
takeover of the Company; and
WHEREAS, in accordance with the Plan of Reorganization, the Board of
Directors of the Company has determined that it is in the best interests of the
shareholders of the Company to amend and restate the Original Rights Agreement
in its entirety to, among other things, confirm that the Bank Rights issued
pursuant to the Original Rights Agreement have been converted to equivalent
preferred stock purchase rights (the "Rights") with respect to the Common Stock;
and
WHEREAS, on November 25, 1997, the Boards of Directors of the Bank and
the Company adopted resolutions confirming the conversion of the Bank Rights to
the Rights concurrently with the conversion and exchange of Bank Common Stock
for the Common Stock; and
<PAGE> 5
WHEREAS, the Company desires to appoint the Rights Agent to act as
rights agent hereunder, in accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person (as hereinafter
defined) who or which, together with all Affiliates (as such term is hereinafter
defined) and Associates (as such term is hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or
more of the shares of Common Stock of the Company then outstanding, but shall
not include (i) the Company, (ii) any Subsidiary (as such term is hereinafter
defined) of the Company, (iii) any employee benefit plan or compensation
arrangement of the Company or any Subsidiary of the Company or (iv) any Person
holding shares of Common Stock of the Company organized, appointed or
established by the Company or any Subsidiary of the Company for or pursuant to
the terms of any such employee benefit plan or compensation arrangement (the
Persons described in clauses (i) through (iv) above are referred to herein as
"Exempt Persons").
Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of the Company's Common Stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or more
of the shares of Common Stock of the Company then outstanding; PROVIDED,
HOWEVER, that if a Person shall become the Beneficial Owner of 15% or more of
the shares of Common Stock of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional shares (other than pursuant to a
stock split, stock dividend or similar transaction) of Common Stock of the
Company and immediately thereafter be the Beneficial Owner of 15% or more of the
shares of Common Stock of the Company then outstanding, then such Person shall
be deemed to be an "Acquiring Person."
In addition, notwithstanding the foregoing, a Person shall not be an
"Acquiring Person" if the Board of Directors of the Company determines that a
Person who would otherwise be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this Section 1(a), has become such inadvertently, and
such Person divests as promptly as practicable (or within such period of time as
the Board of Directors determines is reasonable) a sufficient number of shares
of Common Stock of the Company so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
Section 1(a).
(b) "ADJUSTMENT SHARES" shall have the meaning set forth in
Section 11(a)(iii) hereof.
2
<PAGE> 6
(c) "ADVERSE PERSON" shall mean any Person declared to be an
Adverse Person by the Board of Directors upon a determination of the Board of
Directors that the criteria set forth in Section 11(a)(ii)(B) apply to such
Person.
(d) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations (the "Rules") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as in effect on the date of this Agreement; PROVIDED,
HOWEVER, that no Person who is a director or officer of the Company shall be
deemed an Affiliate or an Associate of any other director or officer of the
Company solely as a result of his or her position as director or officer of the
Company.
(e) A Person shall be deemed the "BENEFICIAL OWNER" of, and
shall be deemed to "BENEFICIALLY OWN," any securities:
(i) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, beneficially owns (as determined
pursuant to Rule 13d-3 of the Rules under the Exchange Act, as in
effect on the date of this Agreement);
(ii) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has:
(A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time or
upon the satisfaction of any conditions or both) pursuant to any
agreement, arrangement or understanding (whether or not in
writing) (other than customary agreements with and between
underwriters and selling group members with respect to a bona
fide public offering of securities) or upon the exercise of
conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; PROVIDED, HOWEVER,
that a Person shall not be deemed the "Beneficial Owner" of, or
to "beneficially own," (1) securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; (2)
securities issuable upon exercise of these Rights at any time
prior to the occurrence of a Triggering Event; or (3) securities
issuable upon exercise of Rights from and after the occurrence
of a Triggering Event, which Rights were acquired by such Person
or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Sections 3(a), 11(i) or 22
hereof; or
(B) the right to vote pursuant to any agreement,
arrangement or understanding (whether or not in writing);
PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this clause (B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a
revocable proxy given in response to
3
<PAGE> 7
a public proxy or consent solicitation made pursuant to, and in
accordance with, the Rules of the Exchange Act and (2) is not
also then reportable by such person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(C) the right to dispose of pursuant to any
agreement, arrangement or understanding (whether or not in
writing) (other than customary arrangements with and between
underwriters and selling group members with respect to a bona
fide public offering of securities); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof)
with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (whether or not in
writing) (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering
of securities) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in clause (B) of Section
1(d)(ii) hereof) or disposing of any securities of the Company;
PROVIDED, HOWEVER, that (1) no Person engaged in business as an underwriter of
securities shall be deemed the Beneficial Owner of any securities acquired
through such Person's participation as an underwriter in good faith in a firm
commitment underwriting until the expiration of forty (40) days after the date
of such acquisition, and (2) no Person who is a director or an officer of the
Company shall be deemed, as a result of his or her position as director or
officer of the Company, the Beneficial Owner of any securities of the Company
that are beneficially owned by any other director or officer of the Company.
(f) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Massachusetts are
authorized or obligated by law or executive order to close.
(g) "CLOSE OF BUSINESS" on any given date shall mean
5:00 P.M., Boston, Massachusetts time, on such date; PROVIDED, HOWEVER, that if
such date is not a Business Day it shall mean 5:00 P.M., Boston, Massachusetts
time, on the next succeeding Business Day.
(h) "COMMON STOCK" when used in reference to the Company shall
mean the common stock, par value $.50 per share, of the Company or any other
shares of capital stock of the Company into which such stock shall be
reclassified or changed. "Common Stock" when used with reference to any Person
other than the Company organized in corporate form shall mean (i) the capital
stock or other equity interest of such Person with the greatest voting power,
(ii) the equity securities or other equity interest having power to control or
direct the management of such Person or (iii) if such Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person and which have issued any such outstanding capital stock,
equity securities or equity interest. "Common Stock" when
4
<PAGE> 8
used with reference to any Person not organized in corporate form shall mean
units of beneficial interest which shall be entitled to exercise the greatest
voting power of such Person or, in the case of a limited partnership, shall have
the power to remove or otherwise replace the general partner or partners.
(i) "CURRENT VALUE" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(j) "DEPOSITARY AGENT" shall have the meaning set forth in
Section 7(c) hereof.
(k) "DISTRIBUTION DATE" shall have the meaning defined in
Section 3(a) hereof.
(l) "EXERCISE PRICE" shall have the meaning defined in Section
4(a) hereof.
(m) "EXPIRATION DATE" and "FINAL EXPIRATION DATE" shall have
the meanings set forth in Section 7(a) hereof.
(n) "FAIR MARKET VALUE" of any securities or other property
shall be as determined in accordance with Section 11(d) hereof.
(o) "GROUP" shall have the meaning set forth in clause (b) of
the definition of "Person."
(p) "PERSON" shall mean (a) an individual, a corporation, a
partnership, an association, a joint stock company, a trust, a business trust, a
government or political subdivision, any unincorporated organization, or any
other association or entity, or (b) a "group" as that term is used for purposes
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (any such
group under this Clause (b), a "Group").
(q) "PREFERRED STOCK" shall mean shares of Series A Junior
Participating Cumulative Preferred Stock, par value $.50 per share, of the
Company having the rights and preferences set forth in the form of Certificate
of Designation attached hereto as EXHIBIT A.
(r) "PREFERRED STOCK EQUIVALENTS" shall have the meaning set
forth in Section 11(b) hereof.
(s) "PRINCIPAL PARTY" shall have the meaning defined in
Section 13(b) hereof.
(t) "REDEMPTION PRICE" shall have the meaning defined in
Section 23 hereof.
(u) "REGISTERED COMMON STOCK" shall have the meaning set forth
in Section 13(b) hereof.
5
<PAGE> 9
(v) "RIGHT CERTIFICATE" shall have the meaning set forth in
Section 3(a) hereof.
(w) "SECTION 11(a)(II) EVENT" shall mean any event described
in Section 11(a)(ii) hereof.
(x) "SECTION 11(a)(II) TRIGGER DATE" shall have the meaning
set forth in Section 11(a)(ii) hereof.
(y) "SECTION 13 EVENT" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(z) "SECTION 24(a)(I) EXCHANGE RATIO" shall have the meaning
set forth in Section 24(a)(i) hereof.
(aa) "SECTION 24(a)(II) EXCHANGE RATIO" shall have the meaning
set forth in Section 24(a)(ii) hereof.
(bb) "SPREAD" shall have then meaning set forth in
Section 11(a)(iii) hereof.
(cc) "STOCK ACQUISITION DATE" shall mean the date of the first
public announcement (which for purposes of this definition shall include,
without limitation, the issuance of a press release or the filing of a
publicly-available report or other document with the Securities and Exchange
Commission or any other governmental agency) by the Company or an Acquiring
Person that an Acquiring Person has become such.
(dd) "SUBSIDIARY" shall mean, with reference to any Person, any
corporation or other entity of which securities or other ownership interest
having ordinary voting power sufficient, in the absence of contingencies, to
elect a majority of the board of directors or other persons performing similar
functions of such corporation or other entity are at the time directly or
indirectly beneficially owned or otherwise controlled by such Person and any
Affiliate of such Person.
(ee) "SUBSTITUTION PERIOD" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ff) "TRIGGERING EVENT" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Section 2. AMENDMENT AND RESTATEMENT OF THE ORIGINAL RIGHTS AGREEMENT;
APPOINTMENT OF RIGHTS AGENT.
(a) The Original Rights Agreement is hereby amended and
restated in its entirety by this Agreement and in connection therewith all Bank
Rights issued pursuant to the
6
<PAGE> 10
Original Rights Agreement are deemed to be automatically converted to Rights as
of the date hereof without further action and no holder of any such Bank Rights
shall have any rights whatsoever with respect to such Bank Rights, whether under
any provision of this Agreement or otherwise.
(b) The Company hereby appoints the Rights Agent to act as
agent for the Company and the holders of the Rights (who, in accordance with
Section 3 hereof, shall prior to the Distribution Date (as hereinafter defined
in Section 3(a)) also be the holders of the Common Stock of the Company) in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable. In the event the Company
appoints one or more Co-Rights Agents, the respective duties of the Rights Agent
and any Co- Rights Agents shall be as the Company shall determine. The Company
shall give 10 days prior written notice to the Rights Agent of the appointment
of one or more Co-Rights Agents and the respective duties of the Rights Agent
and any such Co-Rights Agents. The Rights Agent shall have no duty to supervise,
and in no event shall be liable for, the acts or omissions of any such Co-Rights
Agents.
Section 3. ISSUE OF RIGHT CERTIFICATES.
(a) From the date hereof until the earlier of (i) the Close of
Business on the tenth calendar day after the Stock Acquisition Date, (ii) the
Close of Business on the tenth Business Day (or such other calendar day, if any,
as the Board of Directors may determine in its sole discretion) after the date a
tender or exchange offer by any Person, other than an Exempt Person, is first
published or sent or given within the meaning of Rule 14d-4(a) of the Exchange
Act, or any successor rule, if, upon consummation thereof, such Person would be
the Beneficial Owner of 15% or more of the shares of Common Stock of the Company
then outstanding or (iii) the determination by the Board of Directors of the
Company, pursuant to the criteria set forth in Section 11(a)(ii)(B) hereof, that
a Person is an Adverse Person (including any such date which is after the date
of this Agreement and prior to the issuance of the Rights) (the earliest of such
dates being herein referred to as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for the Common Stock of the Company registered in the names of the
holders of the Common Stock of the Company (which certificates for Common Stock
of the Company shall be deemed also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying shares of Common Stock of the
Company. As soon as practicable after the Distribution Date, the Rights Agent
will, at the Company's expense send, by first-class, insured, postage prepaid
mail, to each record holder of the Common Stock of the Company as of the Close
of Business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more certificates, in substantially the form of
EXHIBIT B hereto (the "Right Certificates"), evidencing one Right for each share
of Common Stock of the Company so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per share of
Common Stock of the Company has been made pursuant to Section 11(o) hereof, the
7
<PAGE> 11
Company may make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) at the time of distribution of the Right
Certificates, so that Right Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of
and after the Close of Business on the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) With respect to certificates for the Common Stock of the
Company issued prior to the Close of Business on the Record Date, the Rights
will be evidenced by such certificates for the Common Stock of the Company on or
until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), and the registered holders of the Common Stock of
the Company also shall be the registered holders of the associated Rights. Until
the Distribution Date (or the earlier redemption, expiration or termination of
the Rights), the transfer of any of the certificates for the Common Stock of the
Company outstanding prior to the date of this Agreement shall also constitute
the transfer of the Rights associated with the Common Stock of the Company
represented by such certificate.
(c) Certificates for the Common Stock of the Company issued
after the Record Date, but prior to the earlier of the Distribution Date or the
redemption, expiration or termination of the Rights, shall be deemed also to be
certificates for Rights, and shall bear a legend, substantially in the form set
forth below:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in an Amended and Restated
Shareholder Rights Agreement among Medford Bancorp, Inc.,
Medford Savings Bank, and State Street Bank and Trust Company,
as Rights Agent, dated as of November 26, 1997, as amended,
restated, renewed or extended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal
offices of Medford Bancorp, Inc. and the stock transfer
administration office of the Rights Agent. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Medford Bancorp, Inc. may redeem
the Rights at a redemption price of $.01 per Right, subject to
adjustment, under the terms of the Rights Agreement. Medford
Bancorp, Inc. will mail to the holder of this certificate a copy
of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request
therefor. Under certain circumstances, Rights issued to or held
by Acquiring Persons, Adverse Persons or any Affiliates or
Associates thereof (as defined in the Rights Agreement), and any
subsequent holder of such Rights, may become null and void. The
Rights shall not be exercisable, and shall be void so long as
8
<PAGE> 12
held, by a holder in any jurisdiction where the requisite
qualification, if any, to the issuance to such holder, or the
exercise by such holder, of the Rights in such jurisdiction
shall not have been obtained or be obtainable.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Common Stock of the Company represented by such certificates
shall be evidenced by such certificates alone until the Distribution Date (or
the earlier redemption, expiration or termination of the Rights), and the
transfer of any of such certificates shall also constitute the transfer of the
Rights associated with the Common Stock of the Company represented by such
certificates. In the event that the Company purchases or acquires any shares of
Common Stock of the Company after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Stock of the Company shall be
deemed canceled and retired so that the Company shall not be entitled to
exercise any Rights associated with the shares of Common Stock of the Company
which are no longer outstanding. The failure to print the foregoing legend on
any such certificate representing Common Stock of the Company or any defect
therein shall not affect in any manner whatsoever the application or
interpretation of the provisions of Section 7(e) hereof.
Section 4. FORM OF RIGHT CERTIFICATES.
(a) The Right Certificates (and the forms of election to
purchase shares and of assignment and certificate to be printed on the reverse
thereof) shall each be substantially in the form of EXHIBIT B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law, rule or regulation or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to customary usage. The Rights Certificates shall be in a
machine printable format and in a form reasonably satisfactory to the Rights
Agent. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates, whenever distributed, shall be dated as of the Record Date, shall
show the date of countersignature, and on their face shall entitle the holders
thereof to purchase such number of one one-hundredths of a share of Preferred
Stock as shall be set forth therein at the price set forth therein (the
"Exercise Price"), but the number of such shares and the Exercise Price shall be
subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by (i) an Acquiring
Person, an Adverse Person or any Associate or Affiliate of an Acquiring Person
or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse
Person (or of any Associate or Affiliate of an Acquiring Person or an Adverse
Person) who becomes a transferee after the Acquiring Person or Adverse Person
becomes such, or (iii) a transferee of an Acquiring Person or an Adverse Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person or Adverse Person becoming such and
receives such
9
<PAGE> 13
Rights pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person or Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom the Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding (whether or not in writing) regarding the transferred Rights, the
shares of Common Stock of the Company associated with such Rights or the Company
or (B) a transfer which the Board of Directors of the Company has determined is
part of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of Section 7(e) hereof, and any Right Certificate issued
pursuant to Section 6, Section 11 or Section 22 upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall have deleted therefrom the second sentence of the existing
legend on such Right Certificate and in substitution therefor shall contain the
following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person, an Adverse Person or an Affiliate or an Associate of an
Acquiring Person or an Adverse Person (as such terms are defined
in the Rights Agreement). This Right Certificate and the Rights
represented hereby may become null and void under certain
circumstances as specified in Section 7(e) of the Rights
Agreement.
The Company shall give notice to the Rights Agent promptly after it becomes
aware of the existence and identity of any Acquiring Person or Adverse Person or
any Associate or Affiliate thereof. The Company shall instruct the Rights Agent
in writing of the Rights which should be so legended. The failure to print the
foregoing legend on any such Right Certificate or any defect therein shall not
affect in any manner whatsoever the application or interpretation of the
provisions of Section 7(e) hereof.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board of Directors, or its President or any Vice
President and by its Treasurer or any Assistant Treasurer, or by its Secretary
or any Assistant Secretary, either manually or by facsimile signature, and shall
have affixed thereto the Company's seal or a facsimile thereof which shall be
attested to by the Secretary or any Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by an authorized signatory of the Rights Agent and shall not be
valid for any purpose unless so countersigned, and such countersignature upon
any Right Certificate shall be conclusive evidence, and the only evidence, that
such Right Certificate has been duly countersigned as required hereunder. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by an authorized
signatory of the Rights Agent, and issued and delivered
10
<PAGE> 14
by the Company with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificates may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at one of its offices designated as the appropriate
place for surrender of Right Certificates upon exercise or transfer, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e)
and Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the Expiration
Date, any Right Certificate or Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Certificates, entitling
the registered holder to purchase a like number of one one-hundredths of a share
of Preferred Stock (or following a Triggering Event, preferred stock, cash,
property, debt securities, Common Stock of the Company or any combination
thereof) as the Right Certificate or Certificates surrendered then entitled such
holder to purchase and at the same Exercise Price. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Certificates to be transferred, split up, combined or
exchanged, with the form of assignment and certificate duly executed, at the
office or offices of the Rights Agent designated for such purpose. Neither the
Rights Agent nor the Company shall be obligated to take any action whatsoever
with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Right Certificate or Certificates, as the case may be, as so
requested. The Company may require payment by the registered holder of a Right
Certificate, of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right
11
<PAGE> 15
Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate, if mutilated, the
Company will execute and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Subject to Section 7(e) hereof, the registered holder of
any Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office or offices of the Rights Agent
designated for such purpose, together with payment of the aggregate Exercise
Price for the total number of one one-hundredths of a share of Preferred Stock
(or other securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercised, at or prior to the earlier of (i) the
Close of Business on September 22, 2003 (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof or (iii)
the time at which such Rights are exchanged as provided in Section 24 hereof
(the earlier of (i), (ii) or (iii) being herein referred to as the "Expiration
Date"). Except as set forth in Section 7(e) hereof and notwithstanding any other
provision of this Agreement, any Person who prior to the Distribution Date
becomes a record holder of shares of Common Stock of the Company may exercise
all of the rights of a registered holder of a Right Certificate with respect to
the Rights associated with such shares of Common Stock of the Company in
accordance with the provisions of this Agreement, as of the date such Person
becomes a record holder of shares of Common Stock of the Company.
(b) The Exercise Price for each one one-hundredth of a share
of Preferred Stock pursuant to the exercise of a Right shall initially be ninety
dollars ($90.00), shall be subject to adjustment from time to time as provided
in Section 11 and Section 13 hereof and shall be payable in lawful money of the
United States of America in accordance with Section 7(c) below.
(c) As promptly as practicable following the Distribution
Date, the Company shall deposit with a corporation, trust, bank or similar
institution in good standing organized under the laws of the United States or
any State of the United States, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by a federal or state authority (such institution is hereinafter
referred to as the "Depositary Agent"), certificates representing the shares of
Preferred Stock that may be acquired upon exercise of the Rights and the Company
shall cause such Depositary Agent to enter into an agreement pursuant to which
the Depositary Agent shall issue receipts representing interests in the shares
of Preferred Stock so deposited. Upon receipt of a Right Certificate
representing exercisable Rights, with the form of election to purchase and the
12
<PAGE> 16
certificate on the reverse side thereof duly executed, accompanied by payment of
the Exercise Price for the shares to be purchased and an amount equal to any
applicable transfer tax (as determined by the Rights Agent) in cash, or by
certified check or bank draft payable to the order of the Company, the Rights
Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) requisition
from the Depositary Agent (or make available, if the Rights Agent is the
Depositary Agent) depositary receipts or certificates for the number of one
one-hundredths of a share of Preferred Stock to be purchased and the Company
hereby irrevocably authorizes the Depositary Agent to comply with all such
requests, (ii) when appropriate, requisition from the Company the amount of
cash, if any, to be paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) promptly after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate. In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash or distribute other
property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash or other property are
available for distribution by the Rights Agent, if and when appropriate. The
payment of the Exercise Price may be made in cash or by certified or bank check
payable to the order of the Company, or by wire transfer of immediately
available funds to the account of the Company (provided that notice of such wire
transfer shall be given by the holder of the related Right to the Rights Agent).
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event or
Section 13 Event, any Rights beneficially owned by (i) an Acquiring Person, an
Adverse Person or any Associate or Affiliate of an Acquiring Person or an
Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person
(or of any Associate or Affiliate of an Acquiring Person or an Adverse Person)
who becomes a transferee after the Acquiring Person or Adverse Person becomes
such or (iii) a transferee of an Acquiring Person or an Adverse Person (or of
any Associate or Affiliate of an Acquiring Person or an Adverse Person) who
becomes a transferee prior to or concurrently with the Acquiring Person or
Adverse Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person or Adverse
Person to holders of equity interests in such Acquiring Person or Adverse Person
or to any Person with whom the Acquiring Person or Adverse Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights, the shares of Common Stock of the Company associated with such Rights or
the Company, or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this
13
<PAGE> 17
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to ensure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or
Adverse Person or any Affiliates or Associates of an Acquiring Person or an
Adverse Person or any transferee of any of them hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of Rights upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any authorized and issued shares of Preferred Stock held in
its treasury, the number of shares of Preferred Stock that will be sufficient to
permit the exercise in full of all outstanding and exercisable Rights. Upon the
occurrence of any events resulting in an increase in the aggregate number of
shares of Preferred Stock issuable upon exercise of all outstanding Rights in
excess of the number then reserved, the Company shall make appropriate increases
in the number of shares so reserved.
(b) The Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares of Preferred Stock
issued or reserved for issuance to be listed, upon official notice of issuance,
upon the principal national securities exchange, if any, upon which the Common
Stock of the Company is listed or, if the principal market for the Common Stock
of the Company is not on any national securities exchange, to be eligible for
14
<PAGE> 18
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any successor thereto or other comparable quotation system.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing and (iii) cause such registration statement to remain
effective (with a prospectus that at all times meets the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities or (B) the Expiration Date. The Company
will also take such action as may be appropriate under, and which will ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. The Company may temporarily
suspend, for a period of time not to exceed ninety (90) days after the date
determined in accordance with the provisions of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon such suspension,
the Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect, in each case with prompt
written notice to the Rights Agent. Notwithstanding any such provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all shares of Preferred Stock
delivered upon the exercise of the Rights shall, at the time of delivery of the
certificates or depositary receipts for such shares (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Right
Certificates or of any certificates for shares of Preferred Stock upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or in respect of the issuance or
delivery of securities in a name other than that of, the registered holder of
the Right Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for securities in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Right Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
15
<PAGE> 19
Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for Preferred Stock (including any fraction of a share of Preferred
Stock) is issued upon the exercise of Rights shall for all purposes be deemed to
have become the holder of record of the shares of Preferred Stock represented
thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Exercise Price (and any applicable transfer taxes) was made; PROVIDED, HOWEVER,
that if the date of such surrender and payment is a date upon which the
Preferred Stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
transfer books of the Company are open; and further PROVIDED, HOWEVER, that if
delivery of shares of Preferred Stock is delayed pursuant to Section 9(c), such
Person shall be deemed to have become the record holder of such shares of
Preferred Stock only when such shares first become deliverable. Prior to the
exercise of the Right evidenced thereby, the holder of a Right Certificate shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Exercise Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Stock transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of a Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of a Right. If an
event occurs which would require an adjustment under both Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
16
<PAGE> 20
(ii) Subject to the provisions of Section 24 hereof, in
the event
(A) any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring Person, or
(B) the Board of Directors of the Company, by
majority vote, shall declare any Person to be an Adverse Person,
after (x) a determination that such Person, alone or together
with its Affiliates and Associates, has become the Beneficial
Owner of 10% or more of the outstanding shares of Common Stock
of the Company and (y) a determination by the Board of
Directors, after reasonable inquiry and investigation, including
such consultation, if any, with such persons as such directors
shall deem appropriate, that (a) such Beneficial Ownership by
such Person is intended to cause, is reasonably likely to cause
or will cause the Company to repurchase the Common Stock of the
Company beneficially owned by such Person or to cause pressure
on the Company to take action or enter into a transaction or
series of transactions which would provide such Person with
short-term financial gain under circumstances where the Board of
Directors determines that the best long-term interests of the
Company and its shareholders, but for the actions and possible
actions of such Person, would not be served by taking such
action or entering into such transactions or series of
transactions at that time or (b) such Beneficial Ownership is
causing or reasonably likely to cause a material adverse impact
(including, but not limited to, impairment of relationships with
customers or impairment of the Company's ability to maintain its
competitive position) on the business or prospects of the
Company. No delay or failure by the Board of Directors to
declare a Person to be an Adverse Person shall in any way waive
or otherwise affect the power of the Board of Directors
subsequently to declare a Person to be an Adverse Person. In the
event that the Board of Directors should at any time determine,
upon reasonable inquiry and investigation, including
consultation with such Persons as the Board of Directors shall
deem appropriate, that such Person has not met or complied with
any condition specified by the Board of Directors, the Board of
Directors may at any time thereafter declare such Person to be
an Adverse Person pursuant to the provisions of this Section
11(a)(ii)(B),
then, and in each such case, promptly following any such occurrence, proper
provision shall be made so that each holder of a Right, except as provided in
Section 7(e) hereof, shall thereafter have a right to receive, upon exercise
thereof at the then current Exercise Price in accordance with the terms of this
Agreement, such number of shares of Preferred Stock of the Company as shall
equal the result obtained by (x) multiplying the then current Exercise Price by
the then number of one one-hundredths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, whether or not such Right was then exercisable, and dividing
that product by (y) 50% of the Fair Market Value per one one-hundredth of a
share of the Preferred Stock (determined pursuant to Section 11(d)) on
17
<PAGE> 21
the date of the occurrence of a Section 11(a)(ii) Event (such number of shares
being referred to as the "Adjustment Shares").
(iii) In lieu of issuing any shares of Preferred
Stock in accordance with Section 11(a)(ii) hereof, the Company,
acting by or pursuant to resolution of the Board of Directors,
may, and in the event that the number of shares of Preferred
Stock which are authorized by the Company's Articles of
Organization but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights is not
sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company, acting by or pursuant to resolution of the
Board of Directors, shall: (A) determine the excess of (X) the
Fair Market Value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value") over (Y) the Exercise
Price attributable to each Right (such excess being referred to
as the "Spread") and (B) with respect to all or a portion of
each Right (subject to Section 7(e) hereof), make adequate
provision to substitute for the Adjustment Shares, upon payment
of the applicable Exercise Price, (1) cash, (2) a reduction in
the Exercise Price, (3) Preferred Stock Equivalents which the
Board of Directors has deemed to have the same value as shares
of Common Stock of the Company, (4) debt securities of the
Company, (5) other assets of the Company or (6) any combination
of the foregoing which, when added to any shares of Preferred
Stock issued upon such exercise, has an aggregate value equal to
the Current Value, where such aggregate value has been
determined by the Board of Directors based upon the advice of a
nationally recognized investment banking firm selected by the
Board of Directors; PROVIDED, HOWEVER, that if the Company shall
not have made adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the later of
(x) the first occurrence of a Section 11(a)(ii) Event and (y)
the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred
to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the
Exercise Price, shares of Preferred Stock (to the extent
available) and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board
of Directors shall determine in good faith that it is likely
that sufficient additional shares of Preferred Stock could be
authorized for issuance upon exercise in full of the Rights, the
30-day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional
shares (such period, as it may be extended, being referred to
herein as the "Substitution Period"). To the extent that the
Company determines that some action need be taken pursuant to
the first and/or second sentences of this Section 11(a)(iii),
the Company (x) shall provide, subject to Section 7(e) hereof,
that such action shall apply uniformly to all
18
<PAGE> 22
outstanding Rights and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order
to seek any authorization of additional shares and/or to decide
the appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event
of any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has
been temporarily suspended and a public announcement at such
time as the suspension is no longer in effect. For purposes of
this Section 11(a)(iii), the value of the Preferred Stock shall
be the Fair Market Value (as determined pursuant to Section
11(d) hereof) per share of the Preferred Stock on the Section
11(a)(ii) Trigger Date and the value of any Preferred Stock
Equivalent shall be deemed to have the same value as the
Preferred Stock on such date.
(b) If the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within forty-five (45) calendar days after such record
date) to subscribe for or purchase Preferred Stock (or securities having the
same or more favorable rights, privileges and preferences as the shares of
Preferred Stock ("Preferred Stock Equivalents")) or securities convertible into
Preferred Stock or Preferred Stock Equivalents at a price per share of Preferred
Stock or per share of Preferred Stock Equivalents (or having a conversion price
per share, if a security convertible into Preferred Stock or Preferred Stock
Equivalents) less than the Fair Market Value (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date, the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock which the aggregate offering price of the total number of shares of
Preferred Stock and/or Preferred Stock Equivalents to be offered (and the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Fair Market Value and the denominator of which
shall be the number of shares of Preferred Stock outstanding on such record
date, plus the number of additional shares of Preferred Stock and Preferred
Stock Equivalents to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); PROVIDED,
HOWEVER, that in no event shall the consideration to be paid upon the exercise
of a Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of a Right. In case such subscription
price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be the Fair Market Value
thereof determined in accordance with Section 11(d) hereof. Shares of Preferred
Stock owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Exercise Price shall be adjusted
to be the Exercise Price which would then be in effect if such record date had
not been fixed.
19
<PAGE> 23
(c) If the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), of evidences of indebtedness, cash (other
than a regular periodic cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
convertible securities, subscription rights or warrants (excluding those
referred to in Section 11(b)), the Exercise Price to be in effect after such
record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per one one-hundredth of a share of Preferred Stock on such record date, less
the Fair Market Value (as determined pursuant to Section 11(d) hereof) of the
portion of the cash, assets or evidences of indebtedness so to be distributed or
of such convertible securities, subscription rights or warrants applicable to
one one-hundredth of a share of Preferred Stock and the denominator of which
shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per one one-hundredth of a share of Preferred Stock; PROVIDED, HOWEVER, that in
no event shall the consideration to be paid upon the exercise of a Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of a Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Exercise Price shall again be adjusted to be the Exercise Price
which would be in effect if such record date had not been fixed.
(d) For the purpose of this Agreement, the "Fair Market Value"
of any share of Preferred Stock, Common Stock or any other stock or any Right or
other security or any other property shall be determined as provided in this
Section 11(d).
(i) In the case of a publicly-traded stock or other
security, the Fair Market Value on any date shall be deemed to
be the average of the daily closing prices per share of such
stock or per unit of such other security for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately
prior to such date; PROVIDED, HOWEVER, that in the event that
the Fair Market Value per share of any share of stock is
determined during a period following the announcement by the
issuer of such stock of (x) a dividend or distribution on such
stock payable in shares of such stock or securities convertible
into shares of such stock or (y) any subdivision, combination or
reclassification of such stock, and prior to the expiration of
the 30 Trading Day period after the ex- dividend date for such
dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each
such case, the Fair Market Value shall be properly adjusted to
take into account ex-dividend trading. The closing price for
each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the securities are not
20
<PAGE> 24
listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal
national securities exchange on which such security is listed or
admitted to trading; or, if not listed or admitted to trading on
any national securities exchange, the last quoted price (or, if
not so quoted, the average of the last quoted high bid and low
asked prices) in the over-the-counter market, as reported by
NASDAQ or such other system then in use; or, if on any such date
no bids for such security are quoted by any such organization,
the average of the closing bid and asked prices as furnished by
a professional market maker making a market in such security
selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in such security,
the Fair Market Value of such security on such date shall be
determined reasonably and with utmost good faith to the holders
of the Rights by the Board of Directors of the Company,
PROVIDED, HOWEVER, that if at the time of such determination
there is an Acquiring Person or an Adverse Person, the Fair
Market Value of such security on such date shall be determined
by a nationally recognized investment banking firm selected by
the Board of Directors, which determination shall be described
in a statement filed with the Rights Agent and shall be binding
on the Rights Agent and the holders of the Rights. The term
"Trading Day" shall mean a day on which the principal national
securities exchange on which such security is listed or admitted
to trading is open for the transaction of business or, if such
security is not listed or admitted to trading on any national
securities exchange, a Business Day.
(ii) If a security is not publicly held or not so listed
or traded, "Fair Market Value" shall mean the fair value per
share of stock or per other unit of such security, determined
reasonably and with utmost good faith to the holders of the
Rights by the Board of Directors of the Company; PROVIDED,
HOWEVER, that if at the time of such determination there is an
Acquiring Person or an Adverse Person, the Fair Market Value of
such security on such date shall be determined by a nationally
recognized investment banking firm selected by the Board of
Directors, which determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights
Agent and the holders of the Rights; PROVIDED, HOWEVER, that for
the purposes of making any adjustment provided for by Section
11(a)(ii) hereof, the Fair Market Value of a share of Preferred
Stock shall not be less than the product of the then Fair Market
Value of a share of Common Stock multiplied by the higher of the
then Dividend Multiple or Vote Multiple (as both of such terms
are defined in the Certificate of Designation attached as
Exhibit A hereto) applicable to the Preferred Stock and shall
not exceed 105% of the product of the then Fair Market Value of
a share of Common Stock multiplied by the higher of the then
Dividend Multiple or Vote Multiple applicable to the Preferred
Stock.
21
<PAGE> 25
(iii) In the case of property other than securities, the
Fair Market Value thereof shall be determined reasonably and
with utmost good faith to the holders of Rights by the Board of
Directors of the Company; PROVIDED, HOWEVER, that if at the time
of such determination there is an Acquiring Person or an Adverse
Person, the Fair Market Value of such property on such date
shall be determined by a nationally recognized investment
banking firm selected by the Board of Directors, which
determination shall be described in a statement filed with the
Rights Agent and shall be binding upon the Rights Agent and the
holders of the Rights.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; PROVIDED,
HOWEVER, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten thousandth of a share of Common Stock of
the Company or one-millionth of a share of Preferred Stock, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment or
(ii) the Expiration Date.
(f) If as a result of any provision of Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Section 11(a), (b), (c), (d), (e),
(g) through (k) and (m), inclusive, and the provisions of Sections 7, 9, 10, 13
and 14 hereof with respect to the Preferred Stock shall apply on like terms to
any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one one-hundredths of a
share of Preferred Stock (or other securities or amount of cash or combination
thereof) purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of one
one-hundredths of a share of Preferred Stock (calculated to the nearest one-
millionth) as the Board of Directors reasonably determines is appropriate to
preserve economic value of the Rights, including, by way of example, that number
obtained by (i) multiplying (x) the number of one one-hundredths of a share of
Preferred Stock for which a Right may be
22
<PAGE> 26
exercisable immediately prior to this adjustment by (y) the Exercise Price in
effect immediately prior to such adjustment of the Exercise Price and (ii)
dividing the product so obtained by the Exercise Price in effect immediately
after such adjustment of the Exercise Price.
(i) The Company may elect on or after the date of any
adjustment of the Exercise Price to adjust the number of Rights, in substitution
for any adjustment in the number of shares of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one one-hundredths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one-ten- thousandth) obtained by dividing the Exercise Price in effect
immediately prior to adjustment of the Exercise Price by the Exercise Price in
effect immediately after adjustment of the Exercise Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Exercise Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Exercise Price) and shall be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Exercise
Price or the number of one one-hundredths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Exercise Price per share and the
number of shares which were expressed in the initial Right Certificates issued
hereunder without prejudice to any adjustment or change.
(k) Before taking any action that would cause an adjustment
reducing the Exercise Price below the then stated value, if any, of the number
of one one-hundredths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Preferred Stock at such
adjusted Exercise Price.
23
<PAGE> 27
(l) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock or other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; PROVIDED,
HOWEVER, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Exercise Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment a majority of
the Board of Directors shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Stock, issuance wholly for cash of
any shares of Preferred Stock at less than the Fair Market Value, issuance
wholly for cash of shares of Preferred Stock or securities which by their terms
are convertible into or exchangeable for shares of Preferred Stock, stock
dividends or issuance of rights, options or warrants referred to hereinabove in
this Section 11, hereafter made by the Company to holders of its Preferred
Stock, shall not be taxable to such shareholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date and so long as the Rights have not been
redeemed pursuant to Section 23 hereof or exchanged pursuant to Section 24
hereof, (i) consolidate with (other than a Subsidiary of the Company in a
transaction that complies with the proviso at the end of this sentence), (ii)
merge with or into, or (iii) sell or transfer (or permit any Subsidiary to sell
or transfer), in one transaction or a series of related transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries taken as a whole, to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with the proviso at the end of this
sentence) if (x) at the time of or immediately after such consolidation, merger
or sale there are any rights, warrants or other instruments outstanding or
agreements or arrangements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale the shareholders of a Person who constitutes, or would constitute, the
"Principal Party" for the purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates; PROVIDED, HOWEVER, that this Section 11(n) shall not affect the
ability of any Subsidiary of the Company to consolidate with, or merge with or
into, or sell or transfer assets or earning power to, any other Subsidiary of
the Company. The Company further covenants and agrees that after the
Distribution Date it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is
24
<PAGE> 28
reasonably foreseeable that such action will substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
(o) Notwithstanding anything in this Agreement to the
contrary, in the event the Company shall at any time after the date of this
Agreement and prior to the Distribution Date (i) declare or pay any dividend on
the outstanding Common Stock of the Company payable in shares of Common Stock of
the Company or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock of the Company (by reclassification or
otherwise than by payment of dividends in shares of Common Stock of the Company)
into a greater or lesser number of shares of Common Stock of the Company, then
in any such case (A) the number of one one-hundredths of a share of Preferred
Stock purchasable after such event upon proper exercise of each Right shall be
determined by multiplying the number of one one-hundredths of a share of
Preferred Stock so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of shares of Common Stock of the Company
outstanding immediately prior to such event and the denominator of which is the
number of shares of Common Stock of the Company outstanding immediately after
such event, and (B) each share of Common Stock of the Company outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each share of Common Stock of the Company outstanding immediately
prior to such event had issued with respect to it. The adjustments provided for
in this Section 11(o) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
(p) The exercise of Rights under Section 11(a)(ii) shall only
result in the loss of rights under Section 11(a)(ii) to the extent so exercised
and shall not otherwise affect the rights of holders of Right Certificates under
this Rights Agreement, including rights to purchase securities of the Principal
Party following a Section 13 Event which has occurred or may thereafter occur,
as set forth in Section 13 hereof. Upon exercise of a Right Certificate under
Section 11(a)(ii), the Rights Agent shall return such Right Certificate duly
marked to indicate that such exercise has occurred.
Section 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Stock and the Common Stock of the Company a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment contained therein and
shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
25
<PAGE> 29
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which is not prohibited by Section 11(n) hereof), and the Company
shall not be the continuing or surviving corporation of such consolidation or
merger, (y) any Person (other than a Subsidiary of the Company in a transaction
which is not prohibited by the proviso at the end of the first sentence of
Section 11(n) hereof) shall consolidate with the Company, or merge with and into
the Company and the Company shall be the continuing or surviving corporation of
such merger and, in connection with such merger, all or part of the shares of
Common Stock of the Company shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property, or (z) the
Company shall sell, mortgage or otherwise transfer (or one or more of its
Subsidiaries shall sell, mortgage or otherwise transfer), in one transaction or
a series of related transactions, assets or earning power aggregating 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to any other Person or Persons (other than the Company or any
Subsidiary of the Company in one or more transactions, each of which is not
prohibited by the proviso at the end of the first sentence of Section 11(n)
hereof), then, and in each such case, proper provision shall be made so that:
(i) each holder of a Right, except as provided in Section 7(e) hereof, shall
have the right to receive, upon the exercise thereof at the then current
Exercise Price in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid and nonassessable shares of freely
tradeable Common Stock of the Principal Party (as hereinafter defined in Section
13(b)), free and clear of rights of call or first refusal, liens, encumbrances,
transfer restrictions or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Exercise Price by the number of one
one-hundredths of a share of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event, and dividing
that product by (2) 50% of the Fair Market Value (determined pursuant to Section
11(d) hereof) per share of the Common Stock of such Principal Party on the date
of consummation of such consolidation, merger, sale or transfer; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale, mortgage or transfer, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply to such Principal
Party; and (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common Stock
to permit exercise of all outstanding Rights in accordance with this Section
13(a) and the making of payments in cash and/or other securities in accordance
with Section 11(a)(iii) hereof) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of Section 13(a), the Person that is
the issuer of any securities into which
26
<PAGE> 30
shares of Common Stock of the Company are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer of
Common Stock that has the highest aggregate Fair Market Value
(determined pursuant to Section 11(d)), and if no securities are so
issued, the Person that is the other party to the merger or
consolidation, or, if there is more than one such Person, the Person
the Common Stock of which has the highest aggregate Fair Market Value
(determined pursuant to Section 11(d)); and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that is
the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each
Person that is a party to such transaction or transactions receives the
same portion of the assets or earning power transferred pursuant to
such transaction or transactions or if the Person receiving the largest
portion of the assets or earning power cannot be determined, whichever
Person the Common Stock of which has the highest aggregate Fair Market
Value (determined pursuant to Section 11(d));
PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act ("Registered Common
Stock") or such Person is not a corporation, and such Person is a direct or
indirect Subsidiary or Affiliate of another Person who has Registered Common
Stock outstanding, "Principal Party" shall refer to such other Person; (2) if
the Common Stock of such Person is not Registered Common Stock or such Person is
not a corporation, and such Person is a direct or indirect Subsidiary of another
Person but is not a direct or indirect Subsidiary of another Person which has
Registered Common Stock outstanding, "Principal Party" shall refer to the
ultimate parent entity of such first-mentioned Person; (3) if the Common Stock
of such Person is not Registered Common Stock or such Person is not a
corporation, and such Person is directly or indirectly controlled by more than
one Person, and one or more of such other Persons has Registered Common Stock
outstanding, "Principal Party" shall refer to whichever of such other Persons is
the issuer of the Registered Common Stock having the highest aggregate Fair
Market Value (determined pursuant to Section 11(d)); and (4) if the Common Stock
of such Person is not Registered Common Stock or such Person is not a
corporation, and such Person is directly or indirectly controlled by more than
one Person, and none of such other Persons has Registered Common Stock
outstanding, "Principal Party" shall refer to whichever ultimate parent entity
is the corporation having the greatest stockholders' equity or, if no such
ultimate parent entity is a corporation, "Principal Party" shall refer to
whichever ultimate parent entity is the entity having the greatest net assets.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless prior thereto (x) the Principal Party shall have
a sufficient number of authorized shares of its Common Stock, which have not
been issued or reserved for issuance, to permit the exercise in full of the
Rights in accordance with this Section 13, and (y) the Company and each
Principal Party and each other Person who may become a Principal Party
27
<PAGE> 31
as a result of such consolidation, merger, sale or transfer shall have executed
and delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in Section 13(a) and (b) and further providing that, as soon as
practicable after the date of any consolidation, merger, sale or transfer of
assets mentioned in Section 13(a), the Principal Party at its own expense will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
reasonable best efforts to cause such registration statement to become
effective as soon as practicable after such filing and use its
reasonable best efforts to cause such registration statement to remain
effective (with a prospectus that at all times meets the requirements
of the Securities Act) until the Expiration Date;
(ii) use its reasonable best efforts to qualify or
register the Rights and the securities purchasable upon exercise of the
Rights under the blue sky laws of such jurisdictions as may be
necessary or appropriate;
(iii) use its reasonable best efforts to list (or continue
the listing of) the Rights and the securities purchasable upon exercise
of the Rights on a national securities exchange or to meet the
eligibility requirements for quotation on NASDAQ; and
(iv) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
which comply in all respects with the requirements for registration on
Form 10 under the Exchange Act.
(d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or By-laws or other
instrument governing its affairs, which provision would have the effect of (i)
causing such Principal Party to issue (other than to holders of Rights pursuant
to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, shares of Common
Stock of such Principal Party at less than the then current Fair Market Value
(determined pursuant to Section 11(d)) or securities exercisable for, or
convertible into, Common Stock of such Principal Party at less than such Fair
Market Value, or (ii) providing for any special payment, tax or similar
provisions in connection with the issuance of the Common Stock of such Principal
Party pursuant to the provisions of this Section 13, then, in such event, the
Company shall not consummate any such transaction unless prior thereto the
Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such
Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
28
<PAGE> 32
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(o)
hereof, or to distribute Right Certificates which evidence fractional Rights. If
the Company elects not to issue such fractional Rights, the Company shall pay,
in lieu of such fractional Rights, to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the Fair Market Value
of a whole Right, as determined pursuant to Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the Fair Market Value of one one-hundredth of a share of Preferred
Stock. For purposes of this Section 14(b), the Fair Market Value of one
one-hundredth of a share of Preferred Stock shall be determined pursuant to
Section 11(d) hereof for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent pursuant to
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (or, prior to the Distribution Date, the registered
holders of the Common Stock of the Company); and any registered holder of any
Right Certificate (or, prior to the Distribution Date, of the Common Stock of
the Company), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of the Common Stock
of the Company), may, in such registered holder's own behalf and for such
registered holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Right evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations
29
<PAGE> 33
hereunder and injunctive relief against actual or threatened violations of the
obligations hereunder of any Person subject to this Agreement. Holders of Rights
shall be entitled to recover the reasonable costs and expenses, including
attorneys' fees, incurred by them in any action to enforce the provisions of
this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, each Right will be
transferable only simultaneously and together with the transfer of shares of
Common Stock of the Company;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer;
(c) subject to Sections 6(a) and 7(f), the Company and the
Rights Agent may deem and treat the person in whose name a Right Certificate
(or, prior to the Distribution Date, the associated certificate representing
Common Stock of the Company) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated certificate representing
Common Stock of the Company made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and, subject to the last sentence of Section
7(e), neither the Company nor the Rights Agent shall be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as the result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligations; PROVIDED, HOWEVER, that the Company must use
its best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of
30
<PAGE> 34
meetings or other actions affecting shareholders (except as provided in
Section 25 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent such
compensation as shall be agreed to in writing between the Company and the Rights
Agent for all services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom, directly
or indirectly. The provisions of this Section 18(a) shall survive the expiration
of the Rights and the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Right
Certificate or certificate representing Common Stock of the Company, Preferred
Stock, or other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it in good faith
and without negligence to be genuine and to be signed and executed by the proper
Person or Persons.
(c) The Rights Agent shall not be liable for consequential
damages under any provision of this Agreement or for any consequential damages
arising out of any act or failure to act hereunder.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or shareholder services business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent
31
<PAGE> 35
may adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations expressly imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel selected
by it (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person or
Adverse Person and the determination of "Fair Market Value") be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof shall be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by a person believed by the Rights Agent to be the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, a Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company and delivered to the Rights
Agent. Any such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its
32
<PAGE> 36
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e) hereof) or any
adjustment required under the provisions of Sections 11, 13 or 23(c) hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after receipt of a certificate describing any such adjustment furnished in
accordance with Section 12 hereof), nor shall it be responsible for any
determination by the Board of Directors of the Company of the Fair Market Value
of the Rights or Preferred Stock pursuant to the provisions of Section 14
hereof; nor shall it by any act hereunder be deemed to make any representation
or warranty as to the authorization or reservation of any shares of Common Stock
of the Company or Preferred Stock to be issued pursuant to this Agreement or any
Right Certificate or as to whether any shares of Common Stock of the Company or
Preferred Stock will, when so issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder and
certificates delivered pursuant to any provision hereof from any person believed
by the Rights Agent to be the Chairman of the Board of Directors, any Vice
Chairman of the Board of Directors, the President, a Vice President, the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of
the Company, and is authorized to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be liable
for any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights
33
<PAGE> 37
Agent shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause (1) or clause
(2) thereof, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company by first class
mail. The Company may remove the Rights Agent or any successor Rights Agent
(with or without cause) upon thirty (30) days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock of the Company and Preferred Stock by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
incumbent Rights Agent or the registered holder of any Right Certificate may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be (a) a corporation organized and doing business under the laws of
the United States or of the Commonwealth of Massachusetts or the State of New
York (or of any other state of the United States so long as such corporation is
34
<PAGE> 38
authorized to do business as a banking institution in the Commonwealth of
Massachusetts or the State of New York), in good standing, which is authorized
under such laws to exercise stock transfer or corporate trust powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate of a corporation described
in clause (a) of this sentence. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock of the Company and the Preferred Stock, and mail a notice
thereof in writing to the registered holders of the Right Certificates. Failure
to give any notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights Agent, as the
case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price per share and the number or kind or class of shares of
stock or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock of the Company
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock of the
Company so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, or upon the exercise, conversion or exchange of
securities hereafter issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Right Certificates representing the appropriate number of Rights in connection
with such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right
Certificate shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustments shall otherwise have
been made in lieu of the issuance thereof.
Section 23. REDEMPTION.
(a) The Board of Directors of the Company may, at its option,
redeem all but not less than all of the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any dividend declared
or paid on the Common Stock of the Company in shares of Common Stock of the
Company or any subdivision or combination of the outstanding shares of Common
Stock of the Company or similar event occurring after the
35
<PAGE> 39
date of this Agreement (such redemption price, as adjusted from time to time,
being hereinafter referred to as the "Redemption Price"). The Rights may be
redeemed only until the earlier to occur of (i) 5:00 P.M., Boston, Massachusetts
time, on the tenth calendar day after the Stock Acquisition Date, (ii) the
declaration by the Board of Directors that any Person is an Adverse Person or
(iii) the Final Expiration Date.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the Board
of Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to the Rights Agent and to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent for the Common Stock of the Company. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set forth in
this Section 23 or Section 24 hereof or in connection with the purchase of
shares of Common Stock of the Company prior to the Distribution Date.
(c) The Company may, at its option, pay the Redemption Price
in cash, shares of Common Stock of the Company (based on the Fair Market Value
of the Common Stock of the Company as of the time of redemption) or any other
form of consideration deemed appropriate by the Board of Directors.
Section 24. EXCHANGE.
(a) (i) The Board of Directors of the Company may, at its
option, at any time on or after the Distribution Date, exchange
all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant
to the provisions of Section 7(e) hereof) for shares of Common
Stock of the Company at an exchange ratio of one share of Common
Stock of the Company per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Section 24(a)(i) Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after
any Person (other than an Exempt Person), together with all
Affiliates and Associates of such Person, becomes the Beneficial
Owner of 50% or more of the Common Stock of the Company.
36
<PAGE> 40
(ii) Notwithstanding the foregoing, the Board of
Directors of the Company may, at its option, at any time on or
after the Distribution Date, exchange all or part of the then
outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of
Section 7(e) hereof) for shares of Common Stock of the Company
at an exchange ratio specified in the following sentence, as
appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date of this
Agreement. Subject to the adjustment described in the foregoing
sentence, each Right may be exchanged for that number of shares
of Common Stock of the Company obtained by dividing the Spread
(as defined in Section 11(a)(iii)) by the then Fair Market Value
per one one-hundredth of a share of Preferred Stock on the
earlier of (x) the date on which any person becomes an Acquiring
Person or (y) the date on which a tender or exchange offer by
any Person (other than an Exempt Person) is first published or
sent or given within the meaning of Rule 14d-4(a) of the
Exchange Act or any successor rule, if upon consummation thereof
such Person would be the Beneficial Owner of more than 15% of
the shares of Common Stock of the Company then outstanding (such
exchange ratio being referred to herein as the "Section
24(a)(ii) Exchange Ratio"). Notwithstanding the foregoing, the
Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than an Exempt
Person), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the
Common Stock of the Company.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
of the Company equal to the number of such Rights held by such holder multiplied
by the Section 24(a)(i) Exchange Ratio or the Section 24(a)(ii) Exchange Ratio,
as applicable. The Company shall promptly give notice of any such exchange in
accordance with Section 26 hereof and shall promptly mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent; PROVIDED, HOWEVER, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the shares of Common
Stock of the Company for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Preferred Stock (or Preferred Stock Equivalent, as
such term is defined in Section 11(b) hereof) for Common Stock of the Company
exchangeable for Rights, at the
37
<PAGE> 41
initial rate of one one-hundredth of a share of Preferred Stock (or Preferred
Stock Equivalent) for each share of Common Stock of the Company, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Stock pursuant to the terms thereof, so that the fraction of a share
of Preferred Stock delivered in lieu of each share of Common Stock of the
Company shall have the same voting rights as one share of Common Stock of the
Company.
(d) In the event that there shall not be sufficient shares of
Common Stock of the Company or Preferred Stock (or Preferred Stock Equivalent)
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional shares of
Common Stock of the Company or Preferred Stock (or Preferred Stock Equivalent)
for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
Common Stock of the Company or to distribute certificates which evidence
fractional shares of Common Stock of the Company. If the Company elects not to
issue such fractional shares of Common Stock of the Company, the Company shall
pay, in lieu of such fractional shares of Common Stock of the Company, to the
registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock of the Company would otherwise be issuable, an
amount in cash equal to the same fraction of the Fair Market Value of a whole
share of Common Stock of the Company. For the purposes of this paragraph (e),
the Fair Market Value of a whole share of Common Stock of the Company shall be
the closing price of a share of Common Stock of the Company (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular periodic cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with, or to effect any sale, mortgage or other transfer (or to
permit one or more of its Subsidiaries to effect any sale, mortgage or other
transfer), in one transaction or a series of related transactions, of 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to, any other Person (other than a Subsidiary of the Company in one
or more transactions each of which is not prohibited by the proviso at the end
of the first sentence of Section 11(n) hereof), (v) to effect the liquidation,
dissolution or winding up of the Company, or (vi) to declare or pay any dividend
on the Common Stock of the Company payable in Common Stock of the Company or to
effect a subdivision, combination or consolidation of the Common Stock of the
Company (by
38
<PAGE> 42
reclassification or otherwise than by payment of dividends in Common Stock of
the Company) then in each such case, the Company shall give to each holder of a
Right Certificate and to the Rights Agent, in accordance with Section 26 hereof,
a notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Common Stock of the
Company and/or Preferred Stock, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i) or (ii) above
at least twenty (20) days prior to the record date for determining holders of
the shares of Preferred Stock for purposes of such action, and in the case of
any such other action, at least twenty (20) days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
the shares of Common Stock of the Company and/or Preferred Stock, whichever
shall be the earlier; PROVIDED, HOWEVER, no such notice shall be required
pursuant to this Section 25 as a result of any Subsidiary of the Company
effecting a consolidation or merger with or into, or effecting a sale or other
transfer of assets or earnings power to, any other Subsidiary of the Company in
a manner not inconsistent with the provisions of this Agreement.
(b) In case any Section 11(a)(ii) Event shall occur, then, in
any such case, the Company shall as soon as practicable thereafter give to each
registered holder of a Right Certificate and to the Rights Agent, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof.
Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, by facsimile transmission or by nationally-recognized
overnight courier addressed (until another address is filed in writing with the
Rights Agent) as follows:
Medford Bancorp, Inc.
29 High Street
Medford, MA 02155
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, by facsimile transmission or by
nationally-recognized overnight courier addressed (until another address is
filed in writing with the Company) as follows:
39
<PAGE> 43
State Street Bank and Trust Company
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Attention: Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate (or, prior to
the Distribution Date, to the holder of any certificate representing shares of
Common Stock of the Company) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement as the Company may deem necessary or
desirable without the approval of any holders of certificates representing
shares of Common Stock of the Company. From and after the Distribution Date, the
Company and the Rights Agent shall, if the Company so directs, supplement or
amend this Agreement without the approval of any holder of Right Certificates in
order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder, or
(iv) to change or supplement the provisions hereof in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person,
Adverse Person or any Affiliate or Associate of an Acquiring Person or Adverse
Person); PROVIDED, HOWEVER, that from and after the Distribution Date this
Agreement may not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and the benefits to, the holders of Rights (other
than an Acquiring Person, Adverse Person or any Affiliate or Associate of an
Acquiring Person or Adverse Person). Without limiting the foregoing, the Company
may at any time prior to such time as any Person becomes an Acquiring Person
amend this Agreement to lower the threshold set forth in Section 1(a) to not
less than the greater of (i) the sum of .001% and the largest percentage of the
outstanding Common Stock of the Company then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Stock of the Company for or pursuant to
the terms of any such plan) and (ii) 10%. Upon the delivery of such certificate
from an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 27, the
Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock of the Company.
Notwithstanding any other provision hereof, the Rights Agent's consent must be
obtained regarding any amendment or supplement pursuant to this Section 27 which
alters the Rights Agent's rights or duties.
40
<PAGE> 44
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock of the Company outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of the Company of which any Person is the Beneficial Owner, shall
be made in accordance with the last sentence of Rule 13d- 3(d)(1)(i) of the
Rules under the Exchange Act as in effect on the date hereof. The Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including without limitation,
the right and power to (i) interpret the provisions of this Agreement and (ii)
make all determinations deemed necessary or advisable for the administration of
this Agreement (including a determination to redeem or not redeem the Rights or
to amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board of Directors in
good faith shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights and all other parties, and (y) not subject any
member of the Board of Directors to any liability to the holders of the Rights
or to any other person.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock of the Company) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock of the Company).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from the Agreement would adversely affect the purpose or effect
of the Agreement, the right of redemption set forth in Section 23 hereof shall
be reinstated and shall not expire until the Close of Business on the tenth day
following the date of such determination by the Board of Directors.
41
<PAGE> 45
Section 32. GOVERNING LAW. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the Commonwealth of Massachusetts and for all purposes shall be governed
by and construed in accordance with the laws of such Commonwealth applicable to
contracts to be made and to be performed entirely within such Commonwealth. The
courts of the Commonwealth of Massachusetts and of the United States of America
located in the Commonwealth of Massachusetts (the "Massachusetts Courts") shall
have exclusive jurisdiction over any litigation arising out of or relating to
this Agreement and the transactions contemplated hereby, and any Person
commencing or otherwise involved in any such litigation shall waive any
objection to the laying of venue of such litigation in the Massachusetts Courts
and shall not plead or claim in any Massachusetts Court that such litigation
brought therein has been brought in an inconvenient forum.
Section 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
[Remainder of page intentionally left blank]
42
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as an instrument under seal and attested, all as of the day and
year first above written.
ATTEST: MEDFORD BANCORP, INC.
By: /s/ Eugene Murray By: /s/ Arthur H. Meehan
---------------------- -------------------------------
Name: Arthur H. Meehan
Title: Chairman, President and
Chief Executive Officer
ATTEST: MEDFORD SAVINGS BANK
By: /s/ Eugene Murray By: /s/ Arthur H. Meehan
---------------------- -------------------------------
Name: Arthur H. Meehan
Title: Chairman, President and
Chief Executive Officer
ATTEST: STATE STREET BANK AND
TRUST COMPANY, as Rights Agent
Justine Alonzo
Account Manager
By: /s/ Justine Alonzo By: /s/ Charles Rossi
----------------------- -------------------------------
Name: Charles Rossi
Title: Vice President
<PAGE> 47
EXHIBIT A
VOTE OF DIRECTORS ESTABLISHING
SERIES A JUNIOR PARTICIPATING CUMULATIVE
PREFERRED STOCK
of
MEDFORD BANCORP, INC.
Pursuant to Section 26 of Chapter 156B of the General Laws of The
Commonwealth of Massachusetts:
VOTED, that pursuant to authority conferred upon and vested in the
Board of Directors by the Articles of Organization, as amended (the "Articles"),
of Medford Bancorp, Inc. (the "Corporation"), the Board of Directors hereby
establishes and designates a series of Preferred Stock of the Corporation, and
hereby fixes and determines the relative rights and preferences of the shares of
such series, in addition to those set forth in the Articles, as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Cumulative Preferred Stock" (the
"Series A Preferred Stock"), and the number of shares constituting such series
shall be 200,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) (i) Subject to the rights of the holders of any shares of any
series of preferred stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of shares of common stock
and of any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the provisions for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of common stock or a subdivision of the outstanding shares of
common stock (by reclassification or otherwise), declared on the common stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. The multiple of
cash and non-cash dividends declared on the common stock to which holders of the
Series A Preferred Stock are entitled, which shall be 100 initially but which
shall be adjusted from
1
<PAGE> 48
time to time as hereinafter provided, is hereinafter referred to as the
"Dividend Multiple." In the event the Corporation shall at any time after
September 22, 1993 (the "Rights Declaration Date") (i) declare or pay any
dividend on common stock payable in shares of common stock, or (ii) effect a
subdivision or combination or consolidation of the outstanding shares of common
stock (by reclassification or otherwise than by payment of a dividend in shares
of common stock) into a greater or lesser number of shares of common stock, then
in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of dividends which holders of shares of Series A
Preferred Stock shall be entitled to receive shall be the Dividend Multiple
applicable immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of common stock outstanding
immediately after such event and the denominator of which is the number of
shares of common stock that were outstanding immediately prior to such event.
(ii) Notwithstanding anything else contained in this
paragraph (A), the Corporation shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series A Preferred Stock as
provided in this paragraph (A) immediately after it declares a dividend or
distribution on the common stock (other than a dividend payable in shares of
common stock); provided that, in the event no dividend or distribution shall
have been declared on the common stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix in
accordance with applicable law a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
Section 3. VOTING RIGHTS. In addition to any other voting rights
required by law, the holders of shares of Series A Preferred Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series
2
<PAGE> 49
A Preferred Stock is entitled to cast, which shall initially be 100 but which
may be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Vote Multiple." In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare or pay any dividend on common
stock payable in shares of common stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of common stock (by
reclassification or otherwise than by payment of a dividend in shares of common
stock) into a greater or lesser number of shares of common stock, then in each
such case the Vote Multiple thereafter applicable to the determination of the
number of votes per share to which holders of shares of Series A Preferred Stock
shall be entitled shall be the Vote Multiple immediately prior to such event
multiplied by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of common stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as otherwise required by applicable law or as set forth
herein, holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of common stock as set forth herein) for taking any
corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series
A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) except as permitted in subsection 4(A)(iv) below, redeem,
purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to
3
<PAGE> 50
dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of any stock ranking on
a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $100.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be distributed
per share to holders of common stock, or (y) to the holders of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare or pay any dividend on
common stock payable in shares of common stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of common stock (by
reclassification or otherwise than by payment of a dividend in shares
4
<PAGE> 51
of common stock) into a greater or lesser number of shares of common stock, then
in each such case the aggregate amount per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event under
clause (x) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of common
stock outstanding immediately after such event and the denominator of which is
the number of shares of common stock that were outstanding immediately prior to
such event.
Neither the consolidation of nor merging of the Corporation with or
into any other corporation or corporations, nor the sale or other transfer of
all or substantially all of the assets of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 6.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of common stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of common stock is changed or exchanged,
plus accrued and unpaid dividends, if any, payable with respect to the Series A
Preferred Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on common stock payable in
shares of common stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of common stock (by reclassification or
otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
Section 8. REDEMPTION. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. RANKING. Unless otherwise provided in the Articles of
Organization of the Corporation or a Certificate of Vote of Directors
Establishing a Class of Stock relating to a subsequently-designated series of
preferred stock of the Corporation, the Series A Preferred Stock shall rank
junior to any other series of the Corporation's preferred stock subsequently
issued, as to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up and shall rank senior to the common
stock.
Section 10. AMENDMENT. The Articles of Organization of the Corporation
and this Certificate of Vote of Directors Establishing a Class of Stock shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely (within the meaning of Section 77 of Chapter 156B
5
<PAGE> 52
of the Massachusetts General Laws) without the affirmative vote of the holders
of two-thirds or more of the outstanding shares of Series A Preferred Stock,
voting separately as a class.
Section 11. FRACTIONAL SHARES. Series A Preferred Stock may be issued
in whole shares or in any fraction of a share that is one one-hundredth
(1/100th) of a share or any integral multiple of such fraction, which shall
entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Preferred Stock. In
lieu of fractional shares, the Corporation may elect to make a cash payment as
provided in the Rights Agreement for fractions of a share other than one
one-hundredth (1/100th) of a share or any integral multiple thereof.
6
<PAGE> 53
Exhibit B
[Form of Right Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER SEPTEMBER 22, 2003 OR EARLIER IF NOTICE OF REDEMPTION IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF MEDFORD BANCORP,
INC., AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE AMENDED AND RESTATED
SHAREHOLDER RIGHTS AGREEMENT AMONG MEDFORD BANCORP, INC., MEDFORD SAVINGS BANK
AND STATE STREET BANK AND TRUST COMPANY, AS RIGHTS AGENT, DATED AS OF NOVEMBER
26, 1997 (THE "RIGHTS AGREEMENT"). UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON, AN ADVERSE PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON OR
AN ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.
Right Certificate
MEDFORD BANCORP, INC.
This certifies that _________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights Agreement
among MEDFORD BANCORP, INC. (the "Company"), MEDFORD SAVINGS BANK and STATE
STREET BANK AND TRUST COMPANY, as Rights Agent (the "Rights Agent"), to purchase
from the Company at any time after the Distribution date (as such term is
defined in the Rights Agreement) and prior to the close of business on September
22, 2003 at the office or offices of the Rights Agent designated for such
purpose, or its successors as Rights Agent, one one-hundredth of a fully paid,
non-assessable share of the Series A Junior Participating Cumulative Preferred
Stock (the "Preferred Stock") of the Company, at a purchase price of $90.00 per
one one-hundredth of a share (the "Exercise Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase and
the related Certificate duly executed. The number of Rights evidenced by this
Right Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Exercise Price per share set
<PAGE> 54
forth above, are the number and Exercise Price as of _____________, based on the
Preferred Stock as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Right
Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement), (ii) a transferee of any such Acquiring Person, Adverse
Person, Associate or Affiliate, or (iii) under certain circumstances specified
in the Rights Agreement, a transferee of a Person who, after such transfer,
became an Acquiring Person or an Adverse Person, or an Affiliate or Associate of
an Acquiring Person or an Adverse Person, such Rights shall become null and void
and no holder hereof shall have any right with respect to such Rights from and
after the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Exercise Price and the number
of shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal office of the
Company and the designated office of the Rights Agent and are also available
upon written request to the Company or the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or offices of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exercised. If this Right
Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii)
of the Rights Agreement, the holder shall be entitled to receive this Right
Certificate duly marked to indicate that such exercise has occurred as set forth
in the Rights Agreement.
Under certain circumstances, subject to the provisions of the Rights
Agreement, the Board of Directors of the Company at its option may exchange all
or any part of the Rights evidenced by this Certificate for shares of the
Company's Common Stock or Preferred Stock
<PAGE> 55
at an exchange ratio (subject to adjustment) of one share of Common Stock or one
one-hundredth of a share of Preferred Stock per Right.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Board of Directors of the Company at
its option at a redemption price of $0.01 per Right (payable in cash, Common
Stock or other consideration deemed appropriate by the Board of Directors).
The Company is not obligated to issue fractional shares of stock upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts). If
the Company elects not to issue such fractional shares, in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock, Common Stock or any other securities of the Company which may
at any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by an authorized signatory of the Rights
Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
[Corporate Seal] MEDFORD BANCORP, INC.
Attested:
By_________________________________
Name:
By___________________________ Title: [Chairman, Vice Chairman,
[Clerk or Assistant Clerk] President or Vice President]
<PAGE> 56
Countersigned:
STATE STREET BANK AND
TRUST COMPANY,
as Rights Agent
____________________________
Authorized Signatory
Date of countersignature:
<PAGE> 57
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ________________________________________ hereby sells,
assigns and transfers unto ________________________________________________
(Please print name and address of transferee) __________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: _____________, _____
_______________________________
Signature
Signature Guaranteed: ____________________
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate are are not being
transferred by or on behalf of a Person who is or was an Acquiring Person, an
Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned did did not directly or indirectly acquire the Rights evidenced
by this Right Certificate from any Person who is, was or became an Acquiring
Person, an Adverse Person or an Affiliate or Associate of any such Person.
Dated: _____________, _____ _______________________________
Signature
<PAGE> 58
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 59
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To MEDFORD BANCORP, INC.:
The undersigned hereby irrevocably elects to exercise _________ Rights
represented by this Right Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of:
Please insert social security
or other identifying taxpayer number: ____________________
_____________________________________________________________
(Please print name and address)
_____________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate or if the Rights are being exercised pursuant to Section
11(a)(ii) of the Rights Agreement, a new Right Certificate for the balance of
such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying taxpayer number: ____________________
_____________________________________________________________
(Please print name and address)
_____________________________________________________________
_____________________________________________________________
Dated: _____________, _____
_______________________________
Signature
Signature Guaranteed: ____________________
<PAGE> 60
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate ____ are ____ are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person, an Adverse Person or an Affiliate or Associate of any such Person (as
such terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned __ did __ did not directly or indirectly acquire the Rights
evidenced by this Right Certificate from any Person who is, was or became an
Acquiring Person, an Adverse Person or an Affiliate or Associate of any such
Person.
Dated: _____________, _____ _______________________________
Signature
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 1
Exhibit 99.1
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20549
FORM F-2
ANNUAL REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended FDIC Certificate Number
December 31, 1996 23290
MEDFORD SAVINGS BANK
(Exact name of Bank as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation or organization)
04-1609330
(I.R.S. Employer
Identification No.)
29 HIGH STREET
MEDFORD, MASSACHUSETTS
(Address of principal office)
02155
(Zip Code)
(617) 395-7700
(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:
Title of Class
Common Stock, par value $0.50 per share
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 the
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 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 aggregate market value of the voting stock held by non-affiliates
of the Bank, based on the closing sale price for the Bank's Common Stock on
February 20, 1997, as reported by NASDAQ, was $114,827,126.
The number of shares outstanding of each of the Bank's classes of
Common Stock, as of the latest practicable date is:
CLASS: COMMON STOCK, PAR VALUE $0.50 PER SHARE
OUTSTANDING AS OF FEBRUARY 20, 1997: 4,539,648
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Medford Savings Bank Notice of Annual Meeting and Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 1997
(Exhibit A) are incorporated by reference into Parts I and III of this Form F-2.
1
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Medford Savings Bank, (the "Bank"), was chartered as a Massachusetts savings
bank in 1869. The Bank converted from mutual to stock form on March 18, 1986 and
issued 3,680,000 shares of common stock. The Bank is principally engaged in the
business of attracting deposits from the general public, originating residential
and commercial real estate mortgages, consumer and commercial loans, and
investing in securities on a continuous basis. The Bank is headquartered in
Medford, Massachusetts, which is located approximately seven miles north of
downtown Boston. The Bank principally offers its products and services through a
network of sixteen banking offices located in Medford, Malden, Arlington,
Belmont, Burlington, North Reading, Waltham, and Wilmington. The Bank's primary
market area includes these communities as well as other cities and towns in
Middlesex County and the surrounding area north of Boston.
The Bank presently has one wholly-owned subsidiary, Medford Securities
Corporation ("MSC"), which became operational on March 1, 1995. MSC engages
exclusively in the buying, selling, dealing in, or holding of securities.
SUPERVISION AND REGULATION
General. As a Massachusetts-chartered savings bank, the Bank is subject to
comprehensive regulation and examination by the Federal Deposit Insurance
Corporation (the "FDIC") which insures its deposits to the maximum extent
permitted by law, and by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner"). The Bank is also subject to certain
requirements established by the Federal Reserve Board and is a member of the
Federal Home Loan Bank of Boston.
Federal Deposit Insurance Corporation. The FDIC insures the Bank's deposit
accounts to the $100,000 maximum per separately insured account. As a
state-chartered, FDIC-insured savings bank, the Bank is subject to regulation,
examination, and supervision by the FDIC and to reporting requirements of the
FDIC. The FDIC has adopted requirements setting minimum standards for capital
adequacy. Pursuant to FDIC requirements, the Bank must maintain a Tier 1 capital
to risk-weighted assets ratio of 4.00% and a total capital to risk-weighted
assets ratio of 8.00%. The FDIC also imposes a leverage capital ratio of at
least 3.00% for the most highly rated banks and a leverage capital ratio between
4.00% and 5.00% for other banks. The Bank exceeded all applicable requirements
at December 31, 1996. Furthermore, under the capital standards established
pursuant to the FDIC Improvement Act of 1991 ("FDICIA"), the Bank is currently
well-capitalized.
Federal Home Loan Bank System. The Federal Home Loan Bank System functions as a
reserve credit source for its member financial institutions and is governed by
the Federal Housing Finance Board ("FHFB"). The Bank is a voluntary member of
the Federal Home Loan Bank of Boston ("FHLBB"). Members of the FHLBB are
required to own capital stock that is directly proportionate to the member's
home mortgage loans and borrowings from the FHLBB outstanding from time to time.
FHLBB advances must be secured by specific types of collateral and may be
obtained only for the purpose of providing funds for residential housing
finance.
Federal Reserve Board Regulations. Regulation D promulgated by the Federal
Reserve Board requires all depository institutions, including the Bank, to
maintain reserves against its transaction accounts (generally, demand deposits,
NOW accounts and certain other types of accounts that permit payments or
transfer to third parties) or non-personal time deposits (generally, money
market deposit accounts or other savings deposits held by corporations or other
depositors that are not natural persons, and certain other types of time
deposits), subject to certain exemptions. Because required reserves must be
maintained in the form of either vault cash, a non-interest bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal Reserve
Board, the effect of this reserve requirement is to reduce the amount of the
institution's interest-bearing assets.
2
<PAGE> 3
Massachusetts Commissioner of Banks. The Bank is also subject to regulation,
examination and supervision by the Commissioner and to the reporting
requirements promulgated by the Commissioner. Massachusetts statutes and
regulations govern, among other things, investment powers, lending powers,
deposit activities, maintenance of surplus and reserve accounts, the
distribution of earnings, the payment of dividends, issuance of capital stock,
branching, acquisitions and mergers and consolidation. Any Massachusetts bank
that does not operate in accordance with the regulations, policies and
directives of the Commissioner may be subject to sanctions for noncompliance.
The Commissioner may, under certain circumstances, suspend or remove officers or
directors who have violated the law, conducted the Bank's business in a manner
which is unsafe, unsound or contrary to the depositor's interest, or been
negligent in the performance of their duties.
In response to a Massachusetts law enacted in 1996, the Commissioner has
proposed rules that generally would give Massachusetts banks powers equivalent
to those of national banks. The Commissioner also has adopted procedures
expediting branching by strongly capitalized banks.
Depositors Insurance Fund. All Massachusetts-chartered savings banks are
required to be members of the Depositors Insurance Fund ("DIF"), a corporation
created by the Commonwealth of Massachusetts for the purpose of insuring savings
bank deposits not covered by federal deposit insurance. To the extent the Bank's
deposit accounts are not insured by federal insurance, such deposits are insured
by the DIF.
Federal Deposit Insurance Corporation Improvement Act of 1991. FDICIA made
extensive changes to the federal banking laws. Among other things, FDICIA
requires federal bank regulatory agencies to take prompt corrective action to
address the problems of, and imposes significant restrictions on,
under-capitalized banks. With certain exceptions, FDICIA prohibits state banks
from making equity investments and engaging, as principals, in activities which
are not permissible for national banks, such as insurance underwriting. FDICIA
required banks to divest any impermissible equity investments by December 19,
1996. FDICIA also amends federal statutes governing extensions of credit to
directors, executive officers and principal shareholders of banks, savings
association and their holding companies, limits the aggregate amount of
depository institutions' loans to insiders to the amount of the institution's
unimpaired capital and surplus, restricts depository institutions that are not
well capitalized from accepting brokered deposits without an express waiver from
the FDIC, and imposes certain advance notice requirements before closing a
branch office. Pursuant to the FDICIA, the FDIC has adopted a framework of
risk-based deposit insurance assessments that take into account different
categories and concentrations of bank assets and liabilities.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal"), different types of interstate transactions and activities will
be permitted, each with different effective dates. Interstate transactions and
activities provided for under the law include: (i) bank holding company
acquisitions of separately held banks in a state other than a bank holding
company's home state; (ii) mergers between banks with different home states,
including consolidations of affiliated banks; (iii) establishment of interstate
branches either de novo or by branch acquisition; and (iv) affiliate banks
acting as agents for one another for certain banking functions without being
considered a "branch". In general, subject to certain limitations, nationwide
interstate acquisitions are now permissible, irrespective of state law
limitations other than limitations related to deposit concentrations and bank
age requirements. Interstate mergers will be permissible on June 1, 1997, unless
a state either passes legislation either to prevent or to permit the earlier
occurrence of interstate mergers. States may at any time enact legislation
permitting interstate branching either de novo or through acquisition.
Affiliated banks may act as agents for one another beginning one year after
enactment. Each of the transactions and activities must be approved by the
appropriate federal bank regulator, with separate and specific criteria
established for each category.
In 1996, Massachusetts enacted interstate banking laws in response to
Riegle-Neal. The laws permit, subject to certain deposit and other limitations,
interstate acquisitions, mergers and branching on a reciprocal basis. The new
interstate banking law is likely to make it easier for out-of-state institutions
to attempt to purchase or otherwise acquire or to compete with the Bank in
Massachusetts, and similarly makes it easier for Massachusetts banks to compete
outside the state.
Community Reinvestment Act. The Community Reinvestment Act of 1974, as amended
(the "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 its safe and sound operation. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the purposes of the CRA. The federal banking agencies jointly
issued final CRA regulations. Under the regulations, the twelve-point system of
assessment factors is replaced by lending, service and investment
performance-based tests.
3
<PAGE> 4
OTHER ACTIVITIES
The Bank owns stock in The Savings Bank Life Insurance Company of Massachusetts.
The Bank sells life insurance and tax-deferred annuities and sold over $1.7
million in SBLI annuities in 1996, making it the top seller of this product in
Massachusetts. In addition, the Bank makes available mutual funds and other
investment products through a third-party company.
The Bank provides safe deposit services at nine of its branches.
The Bank originates 30-year, fixed-rate, residential 1-4 family loans in a
correspondent relationship with Chase Manhattan Mortgage Corporation, whereby
the Bank originates the loans for Chase Manhattan Mortgage Corporation in
exchange for an origination fee.
COMPETITION
The Bank faces substantial competition for loan origination and for the
attraction and retention of deposits. Competition for loan origination arises
primarily from commercial banks, other thrift institutions, credit unions and
mortgage companies. The Bank competes for loans on the basis of product variety
and flexibility, competitive interest rates and fees, service quality and
convenience.
Competition for the attraction and retention of deposits arises primarily from
commercial banks, other thrift institutions, and credit unions having presence
within and around the market area served by the Bank's main office and its
community branch and ATM network. There are approximately 200 of these financial
institutions in the Bank's market area. In addition, the Bank competes with
regional and national firms which offer stocks, bonds, mutual funds and other
investment alternatives to the general public. The Bank competes on its ability
to satisfy such requirements of savers and investors as product alternatives,
competitive rates, liquidity, service quality, convenience, and safety against
loss of principal and earnings.
Management believes that the Bank's emphasis on personal service and
convenience, coupled with active involvement within the communities it serves,
contribute to its ability to compete successfully.
EMPLOYEES
As of December 31, 1996, the Bank employed 211 full time staff including 34
officers, and 91 part-time staff. None of the Bank's employees is represented by
a labor union.
ITEM 2. PROPERTIES
All of the Bank's branches located in Medford, (except for the West Medford
branch), the branch located in Arlington, and the Malden Center, Maplewood and
Oak Grove branches located in Malden are owned by the Bank. All other branches
are leased from unrelated third parties. The Bank also owns a building that
houses the Bank's finance department, an office building that formerly was a
Bank branch and is currently available for sale, and an office building
currently housing the Bank's lending and certain administrative offices.
Additional space in this building is leased to third parties, and the remainder
is available for the Bank's expansion needs. On January 13, 1997, the Bank
signed an agreement to purchase an office building in Medford. This building is
located between the main branch office in Medford and the lending and
administrative office building. The Bank also signed an agreement on January 21,
1997 to purchase a tract of land in the City of Tewksbury with plans to
construct a new branch office. Subject to the foregoing, the Bank believes that
its properties are adequate for its present needs.
The Bank has also acquired properties through foreclosure which are presently
being marketed by local real estate brokers or the Bank's lending staff.
4
<PAGE> 5
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Bank is a party or to which
any of its property is subject, although the Bank is a party to ordinary routine
litigation incidental to its business.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
section captioned "Ownership by Management and Other Stockholders" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 1997
(the "Proxy Statement").
5
<PAGE> 6
PART II
ITEM 5. MARKET FOR BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Bank's common stock is quoted on the NASDAQ National Market System under the
symbol "MDBK". The following table sets forth cash dividends declared on common
stock and the high and low closing prices for the quarters indicated. All prices
set forth below are based on information provided by the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
Common Stock Prices
------------------- Dividends Declared
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
1996 1st quarter $24 1/4 $20 $0.17
2nd quarter 23 1/4 19 3/4 0.17
3rd quarter 24 1/2 20 3/4 0.17
4th quarter 27 23 0.32
1995 1st quarter $17 1/2 $13 1/2 $0.14
2nd quarter 18 3/4 16 0.15
3rd quarter 23 18 3/4 0.15
4th quarter 22 1/2 20 1/2 0.27
</TABLE>
At December 31, 1996, according to the Bank's transfer agent, the Bank had
approximately 1,221 record holders of its common stock.
The declaration of future dividends is subject to future operating results,
financial conditions, tax and legal considerations and other factors. FDICIA
limits the ability of undercapitalized insured banks to pay dividends. Moreover,
under Massachusetts law, a stock-form savings bank may pay dividends only out of
its net profits and only to the extent such dividends do not impair the bank's
capital and surplus accounts. Provided that the bank can meet these
requirements, Massachusetts law permits a bank to distribute net profits as a
dividend so long as, after such distribution, either (i) the bank's capital and
surplus accounts equal at least 10% of its deposit liabilities or (ii) the
bank's surplus account equals 100% of its capital account, subject to certain
exceptions. Under FDIC regulations, the Bank would be prohibited from declaring
dividends, if among other things, it was not in compliance with applicable
regulatory capital requirements. If there is no surplus, dividends may be paid
out of net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. Funds held by the Bank are available for various
corporate uses, including the payment of future dividends.
(Remainder of page intentionally left blank)
6
<PAGE> 7
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $1,039,098 $955,933 $915,055 $831,939 $831,440
Investment securities 424,966 363,599 332,248 294,390 280,859
Loans, net 560,855 529,424 523,125 478,632 483,614
Deposits 792,141 791,851 791,780 735,753 741,683
Stockholders' equity 92,521 86,076 76,363 71,352 67,964
Book value per share, excluding treasury shares 20.40 19.46 17.37 16.45 15.37
Stockholders' equity to total assets 8.90% 9.00% 8.35% 8.58% 8.17%
Number of offices 16 16 15 12 13
</TABLE>
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Interest and dividend income $68,711 $64,405 $ 55,401 $55,868 $ 60,189
Interest expense 36,462 32,724 24,523 25,642 33,481
------- ------- -------- ------- ----------
Net interest income 32,249 31,681 30,878 30,226 26,708
------- ------- -------- ------- ----------
Provision for loan losses 215 772 583 2,110 4,157
Other income:
Gain (loss) on investment securities, net 413 96 (65) 753 1,720
All other income 2,902 3,050 2,960 2,383 2,551
------- ------- -------- ------- ----------
Total other income 3,315 3,146 2,895 3,136 4,271
------- ------- -------- ------- ----------
Operating expenses 18,075 18,169 19,645 19,418 19,270
------- ------- -------- ------- ----------
Income before income taxes and cumulative
effect of change in accounting principle 17,274 15,886 13,545 11,834 7,552
Provision for income taxes 6,845 6,463 5,292 4,665 3,508
------- ------- -------- ------- ----------
Income before cumulative effect of change in
accounting principle 10,429 9,423 8,253 7,169 4,044
Cumulative effect of change in method of accounting
for income taxes -- -- -- -- 1,379
------- ------- -------- ------- ----------
Net income $10,429 $ 9,423 $ 8,253 $ 7,169 $ 5,423
======= ======= ======== ======= ==========
Primary earnings per share:
Income before cumulative effect of change in
accounting principle $ 2.21 $ 2.02 $ 1.78 $ 1.57 $ 0.87
Cumulative effect of change in method of
accounting for income taxes -- -- -- -- 0.30
------- ------- -------- ------- ----------
Net income $ 2.21 $ 2.02 $ 1.78 $ 1.57 $ 1.17
======= ======= ======== ======= ==========
Fully diluted earnings per share:
Income before cumulative effect of change in
accounting principle $ 2.20 $ 2.01 $ 1.78 $ 1.56 $ 0.86
Cumulative effect of change in method of
accounting for income taxes -- -- -- -- 0.29
------- ------- -------- ------- ----------
Net income $ 2.20 $ 2.01 $ 1.78 $ 1.56 $ 1.15
======= ======= ======== ======= ==========
Cash dividends declared per share $ 0.83 $ 0.71 $ 0.62 $ 0.50 $ 0.32
======= ======= ======== ======= ==========
SELECTED RATIOS
Return on average assets 1.05% 1.01% 0.95% 0.87% 0.65%
Return on average equity 11.72 11.52 11.14 10.21 8.03
Average equity to average assets 8.98 8.75 8.53 8.49 8.12
Weighted average rate spread 3.00 3.20 3.50 3.64 3.21
Net yield on average earning assets 3.39 3.54 3.74 3.86 3.48
Dividend payout ratio 37.56 35.15 34.83 31.85 27.35
</TABLE>
- - - --------------------------------------------------------------------------------
On May 6, 1994, the Bank acquired certain assets and assumed certain liabilities
of the former Commercial Bank and Trust Company ("CBTC").
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form F-2 contains certain statements that may be considered forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results could differ materially from those projected in the
forward-looking statements as a result, among other factors, of changes in
general, national or regional economic conditions, changes in loan default and
charge-off rates, reductions in deposit levels necessitating increased borrowing
to fund loans and investments, changes in interest rates, and changes in the
assumptions used in making such forward-looking statements.
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and selected consolidated financial data
included within this report.
GENERAL
The Bank's net income is primarily attributable to its level of net interest
income, which represents the difference between interest and dividend income
earned on earning assets and interest paid on deposits and other borrowed money.
The main components of the Bank's earning assets are loans, investment
securities and short-term investments. Interest-bearing deposits include NOW,
savings, money market and term certificates of deposit. The net interest income
performance of the Bank is significantly affected by general economic
conditions, by the Bank's corporate strategies, its asset/liability management,
tactical programs and by the policies of regulatory authorities. Sources of
non-interest income such as loan servicing fees, gains/losses on sales of
investment securities and other fees derived from various banking services
contribute positively to the Bank's results. The principal operating expenses of
the Bank are salaries and employee benefits, occupancy and equipment expenses,
data processing expenses, deposit insurance premiums, amortization of
intangibles, advertising and marketing and other general and administrative
expenses. In recent years, operating results have been significantly affected by
declining deposit insurance premiums. As the Bank continued to experience
positive trends in credit quality during 1996, the provision for loan losses was
reduced. In 1995, the Bank successfully disposed of certain foreclosed real
estate and recorded a net gain on sales. A net loss on foreclosed real estate
was recorded in 1996.
In 1996, the Bank invested approximately $1.7 million in the purchase and
installation of a new loan and deposit processing system. The one-time expenses
charged to operations in 1996 to convert to the new system were approximately
$378,000.
The Bank achieved record net income of $10,429,000, an increase of $1,006,000,
or 10.7% compared to net income of $9,423,000 for 1995. Earnings per share for
1996 were $2.21 ($2.20 on a fully-diluted basis) compared with $2.02 ($2.01 on a
fully diluted basis) for 1995, an increase of 19 cents or 9.4% compared to the
previous year.
Total assets increased 8.7% from $956.0 million at December 31, 1995 to $1.04
billion at December 31, 1996. Total deposits were $792.1 million at December 31,
1996, a slight increase from $791.9 million at December 31, 1995. Stockholders'
equity increased 7.5% to $92.5 million at December 31, 1996 representing a book
value of $20.40 per share, up from $19.46 at December 31, 1995. The Bank's
capital to assets ratio at December 31, 1996 was 8.90%, exceeding all regulatory
requirements.
FINANCIAL CONDITION
INVESTMENT PORTFOLIO
The investment policy of the Bank is structured to provide an adequate level of
liquidity in order to meet anticipated deposit outflows, normal working capital
needs and expansion of the loan portfolio with guidelines approved by the Board
of Directors while earning market returns. Accordingly, the majority of
investments are in shorter-term government, agency, or high-quality (rated "A"
or better) corporate securities. Investment bonds purchased generally have
maturities of three years or less. At December 31, 1996, 28.6% of the investment
portfolio will mature or reprice within one year, 85.8% within three years, and
97.3% within 5 years. Although the emphasis on short-term and medium-term
investments reduces the overall yield, this strategy is in accordance with the
Bank's desire to minimize interest rate risk.
Investment securities increased 16.9% from $363.6 million at December 31, 1995
to $425.0 million at December 31, 1996. The increase was primarily in U.S.
government and federal agency obligations, in addition to corporate bonds
designated as "available for sale". During 1996, the Bank implemented a strategy
using the investment portfolio to increase earning assets and generate higher
levels of interest income.
8
<PAGE> 9
Investments in debt securities that management has the positive intent and
ability to hold to maturity are classified as "held to maturity" and reflected
at amortized cost. All other marketable investment securities are classified as
"available for sale" and reflected on the balance sheet at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity. As of December 31, 1996, the net unrealized
loss on investments classified as "available for sale" was $423,000 and the net
unrealized gain on investments classified as "held to maturity" was $255,000.
In November 1995, the Financial Accounting Standards Board issued guidance
allowing a one-time reassessment of an entity's investment classifications
during the period November 15, 1995 to December 31, 1995. As a result, the
amortized cost of securities held to maturity that were transferred to available
for sale amounted to $26,987,000 and the related unrealized loss amounted to
$206,000.
In addition, the Bank also held limited amounts of equity securities subject to
the investment limitations imposed by FDICIA and the Commissioner.
The following table sets forth certain information concerning the investment
portfolio at carrying value:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Investment securities:
Debt securities:
U.S. Government and federal agency $224,519 $193,106 $210,787
Mortgage-backed securities 27,814 32,780 22,619
State and municipal 89 232 323
Corporate bonds 159,892 126,545 93,447
Equity securities 12,652 10,936 5,072
-------- -------- --------
Total investment securities $424,966 $363,599 $332,248
======== ======== ========
</TABLE>
The following table sets forth the maturity distribution of debt securities
(excluding mortgage-backed securities) at carrying value, with related weighted
average yields:
<TABLE>
<CAPTION>
At December 31, 1996
----------------------------------------------------------------------------------
Weighted Weighted Weighted
Within Average Over 1 Year Average Over 5 Years Average
1 Year Yield to 5 Years Yield to 10 Years Yield
------ ----- ---------- ----- ----------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agency $ 46,871 6.59% $168,802 6.01% $ 8,846 6.41%
State and municipal 89 6.75 -- -- -- --
Other 49,995 6.24 109,897 6.28 -- --
-------- -------- --------
$ 96,955 $278,699 $ 8,846
======== ======== =======
</TABLE>
Tax-exempt obligations of states and municipalities are shown at their actual
yields rather than on a tax equivalent basis.
At December 31, 1996, there was one obligation of an issuer other than the U. S.
Government or its agencies for which the aggregate book values and market values
of $10.0 million, exceeded 10 percent of the Bank's total stockholders' equity.
9
<PAGE> 10
LOAN PORTFOLIO
The Bank offers a variety of lending products, including fixed-rate and
adjustable-rate residential mortgages, equity lines of credit, fixed-rate and
adjustable-rate commercial mortgages, construction loans, consumer loans,
student loans, and commercial business loans. As a portfolio lender, the Bank
retains all newly originated loans except for 30-year, fixed-rate residential
loans. The 30-year, fixed-rate residential loan is offered whereby the Bank
originates the loan for a correspondent and collects an origination fee.
Real estate and commercial loan originations are initiated by the Bank's
officers and lending personnel from a number of sources including referrals from
realtors, builders, attorneys, and customers. Direct mail to existing and
potential customers is used to solicit other loan services. Advertising media is
also used to promote loans. The Bank employs on-the-road originators and pays
them commissions for loan originations. Applications for residential and
consumer loans are accepted at all of the Bank's locations and are referred to
the main office for processing.
The Bank has lending policies in place which are intended to control credit risk
inherent in the origination and retention of loans in portfolio. Among other
considerations, these policies delineate the Bank's geographic market region,
and establish credit procedures and acceptable loan-to-value ratios for all
loans. Additional specific policies are in effect for commercial and commercial
real estate loans.
Management expects continued intense competition for loans, especially given
moderate growth forecasts for the regional economy. Within this framework, the
Bank created the necessary infrastructure in 1995 and 1996 to facilitate
commercial and commercial real estate portfolio growth. Through an intensified
calling program, commercial lenders are now offering a range of loan products to
small-to-middle market companies in a variety of industries, and have initiated
new marketing efforts for asset-based lending opportunities.
Composition of portfolio. The following table shows the composition of the loan
portfolio by type of loan:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1996 1995 1994
---------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Commercial loans $ 11,014 $ 9,075 $ 10,270
Construction loans, net of unadvanced funds 8,719 8,591 7,577
Loans secured by real estate:
Residential * 380,627 353,172 350,013
Commercial 123,158 125,771 125,190
Second mortgages 1,928 2,175 2,441
Equity lines of credit 21,169 20,819 20,080
Consumer loans 20,548 16,710 14,396
--------- --------- --------
567,163 536,313 529,967
Add: Net premium on loans acquired 354 504 648
Net deferred costs 569 73 49
Less: Allowance for loan losses (7,231) (7,466) (7,539)
--------- --------- --------
Loans, net $ 560,855 $ 529,424 $ 523,125
========= ========= ========
</TABLE>
* Residential first mortgages represent qualified collateral under a blanket
lien securing FHLBB borrowings. See "Borrowings" for a more detailed
explanation of this lien.
10
<PAGE> 11
The following table presents the maturity distribution of commercial and
construction loans at December 31, 1996:
<TABLE>
<CAPTION>
Maturities
---------------------------------------------------------
1 Year Over 1 Year Over
or Less to 5 Years 5 Years Total
--------- ------------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Commercial loans $6,524 $3,445 $1,045 $11,014
Construction loans 8,719 -- -- 8,719
</TABLE>
Generally, construction loans provide for payments of interest only during the
construction period, and then payments of principal and interest throughout the
life of the loans. In all cases, these loans have adjustable interest rates.
Commercial loans with maturities of over one year will be subject to interest
rate adjustment or maturity according to the following schedule:
<TABLE>
<CAPTION>
Scheduled Maturity or Rate Adjustment
----------------------------------------
Over 1 Year Over
to 5 Years 5 Years Total
------------- --------- --------
(In thousands)
<S> <C> <C> <C>
Predetermined rates $ 1,261 $ 39 $1,300
Adjustable rates 2,184 1,006 3,190
------- ------ ------
$ 3,445 $1,045 $4,490
======= ====== ======
</TABLE>
NON-PERFORMING ASSETS
It is the Bank's general policy to discontinue the accrual of interest on loans
over 90 days past due. Interest accrual ceases, and all previously accrued but
unpaid interest is reversed, when a loan is placed on non-accrual status. At the
option of management, a loan may be placed on non-accrual status prior to being
90 days past due if the collection of future interest and principal is, in the
opinion of management, doubtful.
On January 1, 1995, the Bank adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." Under this
Statement, a loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. All of the Bank's loans which have been identified as
impaired have been measured by the fair value of existing collateral. When
impaired loans become 90 days or more delinquent, they are maintained on
non-accrual status whereby interest income is recognized only when received. The
restatement of previously issued financial statements to conform with SFAS No.
114 is expressly prohibited. The Bank does not apply SFAS No. 114 to individual
consumer loans which are collectively evaluated for impairment.
11
<PAGE> 12
The following table sets forth information with respect to non-accrual loans,
restructured loans and foreclosed real estate at the dates indicated. The Bank
did not have any loans 90 days or more past due and still accruing at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Impaired loans accounted for on a non-accrual basis $2,752 $4,239 $ n/a
Other loans accounted for on a non-accrual basis 687 82 1,740
Troubled debt restructurings n/a n/a 829
Foreclosed real estate 276 350 1,444
------ ------ ------
$3,715 $4,671 $4,013
====== ====== ======
</TABLE>
At December 31, 1996, $687,000 of loans were 90 days or more past due but were
not considered impaired. Management expects the two commercial real estate
borrowers involved to resume scheduled payments of principal and interest in
accordance with the contractual terms of the loan agreements.
The balance of in-substance foreclosures that would have been restated and
classified as impaired loans in accordance with SFAS No. 114 at December 31,
1994 was $302,000. The increase in non-accrual loans in 1995 was primarily
attributable to the death of a commercial real estate borrower. Subsequent to
the borrower's death, the debt was assumed by a new borrower and loan
performance resumed.
Loans accounted for on a non-accrual basis at December 31, 1996 had gross
interest income of $307,000 that would have been recorded during 1996 if the
loans had remained current in accordance with original terms. The amount of
interest income on such loans that was included in net income for the period was
$131,000.
The Bank's holdings of foreclosed real estate decreased from $350,000 at
December 31, 1995 to $276,000 at December 31, 1996 as the Bank continued to
dispose of such properties.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged through the statement of income. Assessing the adequacy of the allowance
for loan losses involves substantial uncertainties and is based on management's
evaluation of the amount required to absorb estimated losses inherent in the
loan portfolio after weighing various factors. Among the factors that management
considers are the quality of specific loans, risk characteristics of the loan
portfolio, level of non-performing loans, current economic conditions, trends in
delinquency and charge-offs and collateral value of the underlying security.
Ultimate losses may vary significantly from current estimates.
Quarterly reviews of the loan portfolio are performed to identify loans for
which specific allowance allocations are considered prudent. After specific
allocations are made, a review is made to determine whether the remaining
unallocated portion of the allowance is adequate to cover possible unidentified
loan losses.
The Bank recorded a provision for loan losses for the year ended December 31,
1996 of $215,000, compared with $772,000 for the year ended December 31, 1995.
At December 31, 1996, the allowance for loan losses totaled $7.2 million or
210.3% of non-accrual loans at that date, compared with $7.5 million or 172.8%
of non-accrual loans at December 31, 1995. Non-accrual loans at December 31,
1996 were $3.4 million or 0.61% of total net loans, compared with $4.3 million
or 0.82% of total net loans at December 31, 1995.
12
<PAGE> 13
An analysis of the allowance for loan losses is presented in the following
table:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Allowance for loan losses, beginning of year $ 7,466 $ 7,539 $ 7,007
---------- ---------- ----------
Loans charged-off --- Residential real estate (64) (66) (267)
--- Commercial real estate (656) (884) --
--- Consumer (89) (28) (34)
--- Commercial (21) (100) (8)
Recoveries --- Residential real estate 7 104 218
--- Commercial real estate 348 102 35
--- Consumer 8 10 5
--- Commercial 17 17 --
---------- ---------- ----------
Net charge-offs (450) (845) (51)
---------- ---------- ----------
Provision for loan losses, charged to operations 215 772 583
---------- ---------- ----------
Allowance for loan losses, end of year $ 7,231 $ 7,466 $ 7,539
========== ========== ==========
Ratio of net charge-offs to average loans 0.08% 0.16% 0.01%
========== ========== ==========
</TABLE>
An analysis of the allocation of the allowance for loan losses is presented in
the following table:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------ --------------------------
Percent Percent Percent
of Loans of Loans of Loans
To Total To Total To Total
Amount Loans Amount Loans Amount Loans
---------- ----------- --------- ----------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 1,179 71.23% $ 1,036 70.17% $ 2,669 70.29%
Commercial real estate 5,711 21.68 6,118 23.43 4,553 23.62
Construction 131 1.53 129 1.60 114 1.43
Consumer 44 3.62 47 3.11 49 2.72
Commercial 166 1.94 136 1.69 154 1.94
---------- ----------- --------- ----------- ---------- -----------
Total $ 7,231 100.00% $ 7,466 100.00% $ 7,539 100.00%
========== =========== ========= =========== ========== ===========
</TABLE>
While management considers the allowance for loan losses to be adequate at
December 31, 1996, there is no assurance that additional charge-offs and
provisions will not be necessary in 1997. The provision for loan losses during
1997 will depend primarily on market conditions and the Bank's actual
experience.
LOAN CONCENTRATIONS
Other than the focus of the Bank's lending activities to its market area, the
Bank does not have a concentration of loans exceeding 10% of total loans at the
end of 1996.
13
<PAGE> 14
DEPOSITS
Deposits historically have been the Bank's primary source of funds. The Bank
offers a wide variety of deposit programs to attract both short-term and
long-term deposits from individuals, partnerships and corporations, non-profits
and municipalities. Deposit products include regular savings accounts, NOW
accounts, money market deposit accounts, individual retirement accounts, term
certificates, and retail and commercial demand deposit accounts. The Bank also
solicits corporate and municipal jumbo term deposits.
The Bank's Retail Banking Division places emphasis on sales of its products and
quality of service to attract and retain customers. Management measures the
sales performance of platform personnel in terms of cross-sales of additional
products above the primary product which the customer requests. Platform
personnel are evaluated in part, based on a cross-sell ratio which is the total
number of these additional products sold to a customer divided by the number of
customers. For 1996 this cross-sell ratio was 2.03, meaning for each customer
"buying" one product, the customer was "sold" a total of 2.03 products, or
approximately two products per customer.
The Bank utilizes products and services such as its FREEDOM 55(TM) mature market
program targeted to particular market segments to attract depositors interested
in long-term savings and to create multiple account relationships with these
depositors. Management believes that the customers attracted to these programs
have an increased sense of loyalty to the Bank, and accordingly, the funds
deposited into these programs are less volatile than other deposits.
While deposit flows are by nature unpredictable, management controls the Bank's
deposit growth through selective pricing and sales oriented marketing programs.
Deposit levels and the mix of deposits have remained fairly stable from December
31, 1995 to December 31, 1996. The average deposit balances as shown in the
table below, however, are indicative of a shift in the deposit mix from 1994 to
1995, as the Bank experienced disintermediation from regular savings deposits
and money market deposits to certificates of deposits. The Bank's strategy was
to maintain stable deposit rates and to grow deposit levels through selective
promotions. To increase core deposits, the Bank has been promoting its
"ComboPlus" account which combines a statement savings and a demand account into
one convenient account. This account has contributed to an increase in statement
savings and checking deposits. The low interest rate environment, coupled with
continued strength in the stock market and mutual funds presented management
with the challenge of attracting and retaining deposits.
Total deposits were $792.1 million at December 31, 1996, a slight increase over
$791.9 at December 31, 1995 and $791.8 million at December 31, 1994.
The following table indicates the balances in various deposit accounts at the
end of each reported period:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1996 1995 1994
------------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Demand accounts $ 40,124 $ 36,427 $ 37,867
NOW accounts 60,839 63,248 64,243
Savings and money market accounts 315,771 314,813 371,630
Term certificates 375,407 377,363 318,040
------------- ------------- ------------
$ 792,141 $ 791,851 $ 791,780
============= ============= ============
</TABLE>
The following table sets forth the average deposits of the Bank with related
average rates paid during each reported period:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------ -------------------------
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
--------- --------- --------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts $ 30,935 - % $ 25,752 - % $ 26,315 - %
NOW accounts 61,317 1.10 62,178 1.47 59,921 1.50
Savings and money market deposits 316,498 2.80 334,739 2.68 398,027 2.56
Term certificates 378,680 5.52 357,031 5.32 279,660 4.31
</TABLE>
14
<PAGE> 15
Included in term certificates of deposit are certificates having balances of
$100,000 or more. At December 31, 1996, such term certificates had the following
maturities:
<TABLE>
<CAPTION>
At December 31, 1996
---------------------------------------------------------------------------------------
3 Months Over 3 Months Over 6 Months Over
or Less to 6 Months to 12 Months 12 Months Total
------------ ---------------- ------------------ ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
$ 15,565 $ 6,620 $ 12,499 $ 11,880 $ 46,564
</TABLE>
BORROWED FUNDS
The Bank is a voluntary member of the FHLBB. As such, the Bank may borrow up to
its qualified collateral, as defined by the FHLBB.
The Bank has selectively borrowed funds from the FHLBB to fund purchases of
loans or large loan originations in addition to purchases of mortgage-backed
securities. Short-term borrowings typically fund purchases or originations of
one-year adjustable-rate loans, or are used to meet the Bank's daily liquidity
needs. Long-term debt typically funds purchases of three-year adjustable-rate
residential mortgage loans or the origination of certain commercial real estate
loans. The Bank also enters into repurchase or reverse repurchase agreements
with a number of authorized brokers as an alternative source of funds.
Securities sold under agreements to repurchase are borrowings that mature within
one year and are secured by U.S. government obligations. Total borrowed funds
increased to $148.5 million at December 31, 1996 from $72.4 million at December
31, 1995.
(Remainder of page intentionally left blank)
15
<PAGE> 16
The following table presents, by category, the borrowings of the Bank for the
reported periods:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Short-term borrowings:
FHLBB advances $ 30,000 $ 20,000 $ 59
Federal Reserve Bank of Boston advances 1,233 -- --
Securities sold under agreements to repurchase 49,584 20,281 16,866
---------- ---------- ----------
Total short-term borrowings $ 80,817 $ 40,281 $ 16,925
========== ========== ==========
Weighted average rate 5.82% 5.92% 6.27%
Average balance of short-term borrowings during
the year $ 49,123 $ 34,594 $ 5,942
Weighted average rate paid on short-term
borrowings during the year 5.37% 6.17% 4.17%
Maximum amount outstanding at any month-end
during the year $ 80,817 $ 42,406 $ 16,925
Long-term debt:
FHLBB advances $ 67,647 $ 32,147 $ 25,247
========== ========== ==========
Weighted average rate 6.10% 6.19% 5.59%
Average balance of long-term debt during the year $ 55,276 $ 29,307 $ 20,972
Weighed average rate paid on long-term
debt during the year 6.14% 5.88% 5.29%
Maximum amount outstanding at any month-end
during the year $ 68,647 $ 32,147 $ 25,647
</TABLE>
STOCKHOLDERS' EQUITY
The Bank's capital to assets ratio was 8.90% at December 31, 1996, compared to
9.00% at December 31, 1995. The Bank's capital ratios at December 31, 1996 and
1995 exceeded all regulatory requirements. Book value at December 31, 1996 was
$20.40 per share, compared with $19.46 per share at December 31, 1995. (See
"Liquidity and Capital Resources.")
16
<PAGE> 17
RESULTS OF OPERATIONS
GENERAL
In 1996, the Bank reported consolidated net income of $10.4 million, or $2.21
per share, as compared to net income of $9.4 million, or $2.02 per share, in
1995 and net income of $8.3 million, or $ 1.78 per share, in 1994. Fully diluted
earnings per share were $2.20, $2.01, and $1.78 for 1996, 1995 and 1994,
respectively. 1996 consolidated net income increased 11% over 1995 and 26% over
1994 while return on assets was 1.05% in 1996 as compared to 1.01% in 1995 and
.95% in 1994. The Bank's return on equity was 11.72% in 1996 as compared to
11.52% in 1995 and 11.14% in 1994.
The increased earnings in 1996 when compared to 1995 reflect a slight increase
in net interest income, a reduction in the provision for loan losses as loan
quality improved and increased securities gains.
When determining "core" operating expenses, net gains and losses from foreclosed
real estate and one-time expenses are excluded. In 1996, the Bank incurred
$378,000 of one-time expenses concurrent with the purchase and installation of a
new loan and deposit processing system which is expected to enhance customer
service and improve management information. A total of $1.7 million was invested
in 1996 in this new system and is represented by hardware and software which was
capitalized. As shown in the following schedule, the exclusion of the
aforementioned gains and losses and these one-time expenses reveals a "core"
operating expense reduction of $806,000 between 1996 and 1995. This reduction
arises, in large part, from the virtual elimination in 1996 of deposit insurance
expense.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 Change
--------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Operating expenses as reported $ 18,075 $18,169 $ (94)
Less: Losses on foreclosed real estate, net (65) -- (65)
Plus: Gains on foreclosed real estate, net -- 269 (269)
Less: One-time expenses for systems conversion (378) -- (378)
-------- ------- -----
"Core" operating expenses $ 17,632 $18,438 $(806)
======== ======= =====
Deposit insurance $ 13 $ 927 $(914)
======== ======= =====
</TABLE>
Ongoing control of 1995 operating expenses, aided by the FDIC insurance
assessment reduction, foreclosed real estate recoveries, and continued growth in
net interest income resulting from an increase in average earning assets, were
the primary factors contributing to the 14% improvement of 1995 earnings as
compared to those of 1994.
NET INTEREST INCOME
Net interest income was $32.2 million in 1996; an increase of $568,000 or 1.8%
from $31.7 million earned in 1995. Average earning assets in 1996 increased
$56.7 million as compared to $43.0 million of increased interest-bearing
liabilities; the difference resulting from higher demand deposits and capital.
As a result, the excess of earning assets to interest-bearing liabilities
increased 17.8% to $89.8 million from the $76.2 million in 1995. In addition,
the Bank maintained its earning assets to total assets ratio at 96.0%; up from
95.6% in the prior year. The earnings on this excess flows directly to interest
income.
Changes in the mix of earning assets and higher funding costs reduced the net
interest margin in 1996 to 3.39% from 3.54% in 1995 and 3.74% in 1994. During
1996, management continued to seek to maintain a stable net interest margin by
closely monitoring the behavior of the loan portfolio under varying market rate
environments in order to maximize the yield on earning assets. During 1996,
average loan balances represented 54.9% of average assets. This compares with
57.4% in 1995. The average investment securities balance was 41.1% of average
assets in 1996 as compared to 38.1% in 1995. As the percentage of loans to
assets decreases and the percentage of investments to assets increase the net
interest margin declines as loans are typically a higher yielding asset than the
types of securities in which the Bank mostly invests.
17
<PAGE> 18
INTEREST AND DIVIDEND INCOME
Interest and dividend income totalled $68.7 million for 1996; an increase of
$4.3 million or 6.7% from 1995 and $13.3 million or 24.0% from 1994. The
weighted average yield on earning assets was 7.23% in 1996 compared to 7.20% and
6.71% for 1995 and 1994, respectively.
Interest income on loans was $43.5 million in 1996 compared with $42.7 million
in 1995, as modest increases in average loans outstanding and yield combined to
generate $774,000 in additional interest income on loans. Interest income on
residential 1-4 family loans increased $248,000 in 1996 compared to 1995 levels
as loan volume increased. The yield on residential loans remained stable from
year to year at approximately 7.50%. Interest income on commercial real estate
increased $393,000 from 1995 levels; $251,000 of which related to recoveries
that had been charged-off in a prior period. The remaining increase is
attributable to the upward repricing of adjustable rate loans. Interest income
on consumer loans increased $154,000 in 1996; primarily as a result of growth in
student loan volume. The increases were offset by a decrease in interest income
on commercial loans of $21,000 as the yield on loans declined. As in 1995, the
Bank elected not to price loan products aggressively, thereby generating only a
modest increase in volume. The overall yield on loans increased from 7.94% in
1995 to 7.99% in 1996.
Interest income on investments was $25.3 million in 1996 compared with $21.7
million in 1995. The increase of $49.4 million in the average balance on
investments in 1996 coupled with an increase in the yield on investments
contributed an additional $3.5 million in interest income. During 1996, the Bank
increased its investment in U.S. government and agency obligations, and
corporate bonds with the intent to generate additional interest income. The
weighted average yield on investment securities including short-term investments
increased to 6.20% in 1996 from 6.09% in 1995, reflecting the purchase of
additional investment securities and the reinvestment of matured and sold
investment securities at higher yields.
Interest and dividend income was $64.4 million for the year ended December 31,
1995, compared with $55.4 million for the year ended December 31, 1994. The
weighted average yield on earning assets was 7.20% for the year ended December
31, 1995 as compared to 6.71% for the year ended December 31, 1994. Interest on
loans of $42.7 million for the year ended December 31, 1995 was up from $38.3
million in 1994. The average loan volume increased $39.7 million primarily in
residential mortgages. In addition, the upward repricing of adjustable-rate real
estate loans, equity lines of credit, and commercial real estate loans increased
the average yield on loans by 24 basis points. In 1994, the Bank was more
aggressive in offering competitive introductory rates on residential adjustable
rate mortgages. Management's focus during the interest rate cycle in 1995 was to
maintain a stable net interest margin which resulted in less aggressive pricing
and more moderate residential loan growth. The increased loan volume and
increase in the yield on loans contributed $4.4 million in additional interest
income on loans when comparing 1995 to 1994. Interest income on investments
accounted for $21.7 million in 1995 as compared to $17.1 million in 1994. The
average balance of investments increased $28.5 million in 1995 over the prior
year, and the average yield on investments increased 89 basis points to 6.09%.
The increased volume and increase in the yield on investments contributed $4.6
million in additional interest income from investments in 1995 when compared to
1994.
INTEREST EXPENSE
Interest expense was $36.5 million in 1996, up $3.7 million or 11.4% from 1995,
and $11.9 million or 48.7% from 1994. The cost of funds increased to 4.23% in
1996 compared with 4.00% and 3.21% in 1995 and 1994, respectively.
Interest expense on deposits was $30.4 million and interest expense on borrowed
funds was $6.0 million in 1996, compared with $28.9 million and $3.9 million,
respectively, in 1995. While interest-bearing deposit levels remained stable in
1996 as compared with 1995, a certain level of disintermediation from lower rate
passbook savings accounts to higher rate core deposits and term certificates
increased the average cost of interest-bearing deposits. In addition, the Bank
leveraged its strong capital position by increasing average borrowed funds to
$104.4 million at an average cost of 5.78% in 1996 from $63.9 million at an
average cost of 6.04% in 1995. This cost reduction was achieved by adjusting the
borrowed funds mix, in part towards greater short term secured borrowings, such
as repurchase agreements, at rates averaging 5.07% in 1996 versus 5.93% in 1995.
This rate decline more than offset the higher average rates paid for increased
average levels of long term FHLBB advances, at 6.14% in 1996 versus 5.88% in
1995.
Interest expense was $32.7 million for the year ended December 31, 1995 compared
to $24.5 million for the year ended December 31, 1994. The increase in interest
expense was primarily attributable to a shift from core deposits into
certificates of deposits paying a higher rate, in addition to an increased level
of borrowings used to fund asset growth. In an effort to control interest
expense while continuing to attract and retain deposits, the Bank implemented a
strategy of selectively promoting certificates of deposit throughout the year.
As a result, the cost of funds on interest-bearing deposits in 1995 increased 79
basis points to 4.00%. Average borrowings in 1995 with a cost of 6.09% increased
$37.0 million from 1994. Interest expense on borrowings was $3.9 million in
1995, compared with $1.4 million in 1994.
18
<PAGE> 19
RATE/VOLUME ANALYSIS
The following table presents, for the periods indicated, changes in interest and
dividend income and changes in interest expense attributable to changes in
interest rates and volumes of interest-bearing assets and liabilities. Changes
attributable to both rate and volume have been allocated proportionally to the
two categories.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
-------------------------------- ---------------------------------
Volume Rate Total Volume Rate Total
------- ------ -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Short-term investments $ 54 $ (50) $ 4 $ 7 $ 140 $ 147
Mortgage-backed investments 333 106 439 (502) 96 (406)
Other investment securities 2,727 362 3,089 2,081 2,817 4,898
Loans 505 269 774 3,126 1,239 4,365
------- ------ ------- ------- ------- -------
Total interest and dividend income 3,619 687 4,306 4,712 4,292 9,004
------- ------ ------- ------- ------- -------
INTEREST EXPENSE
NOW deposits (12) (226) (238) 33 (18) 15
Savings deposits and MMDA (500) 392 (108) (1,678) 432 (1,246)
Term certificates 1,179 736 1,915 3,758 3,172 6,930
Short-term borrowings 808 (307) 501 1,717 171 1,888
Long-term debt 1,590 78 1,668 480 134 614
------- ------ ------- ------- ------- -------
Total interest expense 3,065 673 3,738 4,310 3,891 8,201
------- ------ ------- ------- ------- -------
Net interest income $ 554 $ 14 $ 568 $ 402 $ 401 $ 803
======= ===== ======= ======= ======= =======
</TABLE>
(Remainder of page intentionally left blank)
19
<PAGE> 20
DISTRIBUTION OF ASSETS AND LIABILITIES; INTEREST RATES AND INTEREST DIFFERENTIAL
The following presents an analysis of average yields earned and rates paid for
the years indicated. Average balances are computed using daily averages except
for average stockholders' equity for which month-end balances are used.
<TABLE>
<CAPTION>
Years Ended December 31, 1996 December 31, 1995 December 31, 1994
- - - ------------------------------------ ---------------------------- --------------------------- ------------------------------
Interest Average Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
-------- -------- ------- -------- -------- ------- -------- -------- -------
(Dollars in thousands)
ASSETS
Earnings assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments $ 8,257 $ 438 5.30% $ 7,289 $ 434 5.95% $ 7,118 $ 287 4.03%
Mortgage-backed
investments 29,506 1,833 6.21 24,059 1,394 5.79 32,795 1,800 5.49
Other investment securities 369,421 22,986 6.22 325,504 19,897 6.11 288,284 14,999 5.20
Loans (a) 543,547 43,454 7.99 537,226 42,680 7.94 497,527 38,315 7.70
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 950,731 68,711 7.23 894,078 64,405 7.20 825,724 55,401 6.71
Other assets 40,101 -- -- 41,457 -- -- 43,515 -- --
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $990,832 -- -- $935,535 -- -- $869,239 -- --
===================================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW deposits $ 61,317 $ 676 1.10% $ 62,178 $ 914 1.47% $ 59,921 $ 899 1.50%
Savings deposits and MMDA 316,498 8,851 2.80 334,739 8,959 2.68 398,027 10,205 2.56
Term certificates 378,680 20,906 5.52 357,031 18,991 5.32 279,660 12,061 4.31
Short-term borrowings 49,123 2,637 5.37 34,594 2,136 6.17 5,942 248 4.17
Long-term debt 55,276 3,392 6.14 29,307 1,724 5.88 20,972 1,110 5.29
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 860,894 36,462 4.23 817,849 32,724 4.00 764,522 24,523 3.21
Other liabilities 40,982 -- -- 35,868 -- -- 30,608 -- --
Stockholders' equity 88,956 -- -- 81,818 -- -- 74,109 -- --
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $990,832 -- -- $935,535 -- -- $869,239 -- --
===================================================================================================================================
Net interest income $32,249 $31,681 $30,878
Weighted average rate spread (b) 3.00% 3.20% 3.50%
Net yield on average earning assets (c) 3.39% 3.54% 3.74%
===================================================================================================================================
</TABLE>
(a) Includes non-accrual loans.
(b) Weighted average yield on earning assets less weighted average rate
paid on interest-bearing liabilities.
(c) Net interest income divided by average earning assets.
20
<PAGE> 21
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors including the quality of specific loans,
risk characteristics of the loan portfolio, the level of non-performing loans,
current economic conditions, trends in delinquency and charge-offs, and
collateral values of the underlying security. Ultimate losses may vary from
current estimates.
The Bank recorded $215,000 in provisions for loan losses in 1996. This compares
with a provision of $772,000 for the year ended December 31, 1995 and $583,000
for the year ended December 31, 1994. In 1996, the Bank experienced positive
trends in credit quality. Net loans charged-off totaled $450,000, $845,000 and
$51,000, respectively, for the years ended December 31, 1996, 1995 and 1994.
Moreover, at December 31, 1996, the allowance for loan losses totaled $7.2
million or 210.3% of non-accrual loans at that date, compared with $7.5 million
or 172.8% of non-accrual loans at December 31, 1995, and $7.5 million or 433.3%
of non-accrual loans at December 31, 1994.
While management considers the allowance for loan losses to be adequate at
December 31, 1996, there is no assurance that additional charge-offs and
provisions will not be necessary in 1997. The provision for loan losses during
1997 will depend primarily on market conditions and the Bank's actual
experience.
OTHER INCOME
Total other income amounted to $3.3 million for the year ended December 31,
1996, as compared to $3.1 million for year ended December 31, 1995. Customer
service fees declined $189,000, in part reflecting lower revenues on NOW
accounts as lower balance accounts were replaced by demand deposits with reduced
service fee charges. Net gains on the sale of securities was $413,000 in 1996,
compared with net gains of $96,000 in 1995. As in prior years, management sold
securities when tactical opportunities arose to do so without impairing the
yield or liquidity of the investment portfolio.
Total other income amounted to $3.1 million for the year ended December 31,
1995, as compared to $2.9 million for the year ended December 31, 1994. The
acquisition of the CBTC deposit relationships and increases in the demand, NOW,
savings and other fee producing products were beneficial toward increasing the
customer service fees in 1995 when compared to 1994. A net gain on the sale of
investment securities of $96,000 was recorded in 1995, as compared to a net loss
of $65,000 in 1994. In 1995, the Bank sold debt securities as they neared
maturity in order to reinvest at higher yields in anticipation of a declining
rate environment. Since the debt securities were within three months of
maturity, the gains and losses on sales were insignificant.
OPERATING EXPENSES
Operating expenses were $18.1 million for 1996, down $94,000 or 0.5% from $18.2
million in 1995. As shown in the table below, "core" operating expenses,
excluding gains and losses on the sale of foreclosed real estate and $378,000 of
one-time expenses associated with the conversion to new operating systems, were
comparable to 1995 except for the virtual elimination of FDIC deposit insurance
assessments in 1996. The $378,000 one-time expenses are shown by category in the
table below:
<TABLE>
<CAPTION>
"Core" Comparable
1996 Conversion- 1995
Operating Related Operating
Expenses, One-time Expenses,
as Reported Expenses Net as Reported Change
----------- ----------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 9,778 $ 12 $ 9,766 $ 9,551 $ 215
Occupancy and equipment 1,998 10 1,988 1,910 78
Deposit insurance 13 -- 13 927 (914)
Data processing 1,606 179 1,427 1,452 (25)
Professional fees 517 19 498 577 (79)
Amortization of intangibles 1,248 -- 1,248 1,293 (45)
Advertising and marketing 722 28 694 692 2
Other general and administrative 2,128 130 1,998 2,036 (38)
------- ---- ------- ------- -----
Totals $18,010 $378 $17,632 $18,438 $(806)
======= ==== ======= ======= =====
</TABLE>
21
<PAGE> 22
Salaries and employee benefits increased 2.4% as a result of regular annual
merit increases. Occupancy and equipment expenses increased in 1996 over 1995 as
the Bank incurred a full year of operating expenses associated with the Waltham
branch which was opened in April 1995. Management continues to exercise diligent
expense control and measured growth, resulting in an improved efficiency ratio
of 48.1% as compared to the 49.3% for 1995.
PROVISION FOR INCOME TAXES
The Bank's effective tax rate for the year ended December 31, 1996 was 39.6% as
compared with 40.7% and 39.1% for the years ended December 31, 1995 and 1994.
The effective tax rates exceeded the statutory federal tax rates of 34.0% for
taxable income up to $10.0 million and 35.0% for taxable income exceeding $10.0
million principally due to state taxes. The passage of tax legislation in 1995
reduced the Bank's state tax rate. In the fourth quarter of 1994, the Bank
received $449,000 in prior years' state tax abatements reducing the effective
tax rate for the year.
(Remainder of page intentionally left blank)
22
<PAGE> 23
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary effect of inflation on the operations of the Bank is reflected in
increased operating costs. Unlike most industrial companies, virtually all
assets of a financial institution are monetary in nature. As a result, interest
rates have a more significant effect 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.
ASSET-LIABILITY MANAGEMENT
Through the Bank's Asset-Liability Management Committee ("ALCO"), which is
comprised of certain senior and middle management personnel, the Bank closely
monitors the level and general mix of interest rate-sensitive assets and
liabilities. The primary objective of the Bank's ALCO program is to manage the
assets and liabilities of the Bank to enhance profitability and capital at
prudent levels of liquidity and interest rate, credit, and market risk.
It is ALCO's general policy to closely match the maturity or rate sensitivity of
its assets and liabilities. Strategies implemented to improve the match between
interest-rate sensitive assets and liabilities include, but are not limited to:
daily monitoring of the Bank's changing cash requirements, with particular
concentration on investment in shorter-term securities; a general policy of
originating adjustable-rate and fifteen-year, fixed-rate mortgage loans for the
Bank's own portfolio, the cost and composition of deposits; and generally using
matched borrowings to fund specified purchases of loan packages and large loan
originations. Occasionally, management may choose to deviate somewhat from
specific matching of maturities of assets and liabilities to take advantage of
an opportunity to enhance yields.
The Bank seeks to manage its liability portfolio in order to effectively plan
and manage growth and maturities of deposits. Plans designed to achieve growth
of different deposit types are reviewed regularly. Programs which are designed
to build multiple relationships with customers and to enhance the Bank's ability
to retain deposits at controlled rates of interest have been implemented.
Management has also adopted a policy of reviewing interest rates on an ongoing
basis on all deposit accounts in order to monitor deposit growth and interest
costs.
In addition to attracting deposits, the Bank has selectively borrowed funds
using advances from the FHLBB and reverse repurchase agreements.
(Remainder of page intentionally left blank)
23
<PAGE> 24
The following table presents, as of December 31, 1996, interest-rate sensitive
assets and liabilities. GAP is the difference between assets and liabilities
that will mature or become subject to repricing during a given interval of time.
Investments classified as "available for sale" are listed at their fair value in
the table below.
<TABLE>
<CAPTION>
(Dollars in thousands) 0-6 mo. 6 mo.-1 yr. 1-2 yrs. 2-3 yrs. 3-5 yrs. 5-10 yrs. Total
---------- ----------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Short-term investments $ 4,529 $ -- $ -- $ -- $ -- $ -- $ 4,529
Mortgage-backed investments 6,769 2,488 8,024 2,914 6,043 1,576 27,814
Other securities 62,600 47,436 116,497 111,197 42,291 9,488 389,509
Adjustable-rate mortgages 131,057 83,839 76,892 89,365 28,276 -- 409,429
Fixed-rate mortgages 8,826 9,545 14,653 13,350 23,703 53,576 123,653
All other loans 28,490 1,064 1,131 594 158 128 31,565
- - - -------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets 242,271 144,372 217,197 217,420 100,471 64,768 986,499
- - - -------------------------------------------------------------------------------------------------------------------------
Rate-sensitive liabilities:
NOW accounts 1,684 -- 29,578 29,577 -- -- 60,839
Regular savings -- 61,472 61,475 61,472 61,472 -- 245,891
Money market accounts 69,880 -- -- -- -- -- 69,880
Term certificates 130,958 116,641 88,729 24,491 14,579 9 375,407
Borrowings 85,817 20,047 32,200 5,000 5,000 400 148,464
- - - -------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities 288,339 198,160 211,982 120,540 81,051 409 900,481
- - - -------------------------------------------------------------------------------------------------------------------------
GAP (46,068) (53,788) 5,215 96,880 19,420 64,359 --
- - - -------------------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP (46,068) (99,856) (94,641) 2,239 21,659 86,018 --
- - - -------------------------------------------------------------------------------------------------------------------------
PERCENT TO TOTAL ASSETS -4.43% -9.61% -9.11% 0.22% 2.08% 8.28% --
- - - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The deficiency gap is a reflection of the greater speed and magnitude of
interest rate changes of liabilities as compared with the Bank's ability to
adjust the rates of its earning assets in response to such changes. So long as
any excess or deficiency exists, the Bank's earnings are likely to be affected
by changes in prevailing interest rates.
The one-year gap is a common benchmark for comparison of a financial
institution's susceptibility to changes in interest rates. A negative one-year
gap, such as the Bank's, implies that an institution's liabilities reprice
faster than its assets. Accordingly, a decline in interest rates would be likely
to benefit the institution by improving its interest rate spread, and
accordingly, its net interest income. Conversely, a rising interest rate
environment would be likely to adversely affect such an institution's interest
rate spread.
In the above table, loans reflect regular amortization of principal and
prepayment estimates. In addition, fixed-rate loans are shown in the period
corresponding to contractual maturity, whereas adjustable-rate loans are shown
in the period corresponding to the earliest possible interest rate adjustment
date. Based on the Bank's experience with such loans, partial or full payment
prior to contractual maturity can be expected and is reflected in the table. The
table does not include loans which have been placed on non-accrual status.
Although savings and NOW deposit accounts are subject to immediate withdrawal,
based on the Bank's history, management considers these liabilities to have
longer effective lives as illustrated in the table above.
24
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are customer deposits, amortization and
payoff of existing loan principal, and sales or maturities of various investment
securities. The Bank is a voluntary member of the FHLBB and as such, may take
advantage of the FHLBB's borrowing programs to enhance liquidity and leverage
its favorable capital position. The Bank also may draw on lines of credit at the
FHLBB and a large commercial bank or enter into repurchase or reverse repurchase
agreements with authorized brokers. These various sources of liquidity are used
to fund withdrawals, new loans, and investments.
Management seeks to promote deposit growth while controlling the Bank's cost of
funds. Sales-oriented programs to attract new depositors and the cross-selling
of various products to its existing customer base are currently in place.
Management reviews, on an ongoing basis, possible new products, with particular
attention to products and services which will aid in retaining the Bank's base
of lower-costing deposits.
Maturities and sales of investment securities provide significant liquidity to
the Bank. The Bank's policy of purchasing shorter-term debt securities reduces
market risk in the bond portfolio while providing significant cash flow. For the
year ended December 31, 1996, cash flow from maturities of securities was $87.9
million and proceeds from sales of securities totaled $32.6 million, compared to
maturities of securities of $124.0 million and proceeds from sales of securities
of $25.4 million for the year ended December 31, 1995. Principal payments on
mortgage-backed investments during the years ended December 31, 1996 and 1995
totaled $4.8 million for both years. Purchases of securities during 1996 and
1995 totaled $188.7 million and $179.7 million, respectively. These purchases
consisted primarily of short-term debt instruments. During periods of high
interest rates or active mortgage origination, maturities in the bond portfolio
have provided significant liquidity to the Bank, generally at a lower cost than
borrowings.
Amortization and pay-offs of the loan portfolio contribute significant liquidity
to the Bank. Traditionally, amortization and pay-offs are reinvested into loans.
Excess liquidity is invested in short-term debt instruments.
The Bank has also used borrowed funds as a source of liquidity. At December 31,
1996, the Bank's outstanding borrowings from the FHLBB were $97.6 million. The
Bank also utilizes repurchase agreements to fund loan purchases or to leverage
the balance sheet. At December 31, 1996, securities sold under agreements to
repurchase totaled $49.6 million.
Residential and commercial mortgage loan originations for the years ended
December 31, 1996, 1995 and 1994 totaled $96.4 million, $65.4 million and $95.1
million, respectively. In 1994, the Bank participated in a $26.1 million
purchased loan program. The Bank discontinued the program in 1995. Commitments
to originate mortgages at December 31, 1996 were $9.4 million, excluding
unadvanced construction funds totaling $9.4 million. Management believes that
adequate liquidity is available to fund loan commitments utilizing deposits,
loan amortization, maturities of securities, or borrowings.
The Bank's capital position (total stockholders' equity) was $92.5 million, or
8.90% of total assets at December 31, 1996, compared with $86.1 million, or
9.00% of total assets at December 31, 1995.
The FDIC imposes capital guidelines on the Bank. The guidelines define core or
"tier 1" capital and supplementary or "tier 2" capital and assign weights to
broad categories of assets and certain off-balance sheet items. Ratios of tier 1
and tier 1 plus tier 2 capital to assets are then calculated. Banks must
maintain a tier 1 capital to risk-weighted assets ratio of 4.00% and a total
capital to risk-weighted assets ratio of 8.00%. The Bank's tier 1 risk-based
capital ratio, as defined by the FDIC, at December 31, 1996 was 14.8%, which
exceeds both risk-based capital requirements.
Massachusetts-chartered savings banks insured by the FDIC are required to
maintain minimum leverage capital (tier 1 capital) of 3.0% to 5.0% of total
assets, as adjusted, depending on an individual bank's rating. The Bank's
capital ratio, as defined by the FDIC, was 8.4%, which exceeds the FDIC's
requirements.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Independent Auditors' Report............................................. 27
Consolidated Balance Sheets.............................................. 28
Consolidated Statements of Income........................................ 29
Consolidated Statements of Changes in Stockholders' Equity............... 30
Consolidated Statements of Cash Flows.................................... 31-32
Notes to Consolidated Financial Statements............................... 33-56
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Medford Savings Bank:
We have audited the consolidated balance sheets of Medford Savings Bank and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Medford Savings Bank
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 24, 1997
27
<PAGE> 28
MEDFORD SAVINGS BANK
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- ---------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,900 $ 14,599
Short-term investments (Note 3) 4,529 14,171
----------- ---------
Cash and cash equivalents 16,429 28,770
Investment securities (Note 4) 424,966 363,599
Loans (Notes 5 and 8) 568,086 536,890
Less allowance for loan losses (7,231) (7,466)
----------- ---------
Loans, net 560,855 529,424
----------- ---------
Foreclosed real estate 276 350
Banking premises and equipment, net (Note 6) 10,896 9,650
Accrued interest receivable 9,291 7,877
Other assets (Notes 2 and 10) 16,385 16,263
----------- ---------
Total assets $ 1,039,098 $ 955,933
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 792,141 $ 791,851
Short-term borrowings (Note 8) 80,817 40,281
Long-term debt (Note 9) 67,647 32,147
Accrued taxes and expenses (Note 13) 3,701 3,285
Other liabilities 2,271 2,293
----------- ---------
Total liabilities 946,577 869,857
----------- ---------
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 12 and 14):
Serial preferred stock, $.10 par value, 5,000,000 shares authorized;
none issued -- --
Common stock, 15,000,000 shares authorized; $.50 par value,
4,534,648 and 4,423,190 shares issued, respectively 2,267 2,212
Additional paid-in capital 28,848 27,642
Retained earnings 61,634 54,966
----------- ---------
92,749 84,820
Net unrealized gain (loss) on securities available for sale,
after tax effects (Notes 4 and 10) (228) 1,256
----------- ---------
Total stockholders' equity 92,521 86,076
----------- ---------
Total liabilities and stockholders' equity $ 1,039,098 $ 955,933
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995 1994
---------- ------------ ------------
(Dollars in thousands, except per share data)
Interest and dividend income:
<S> <C> <C> <C>
Interest and fees on loans $ 43,454 $ 42,680 $ 38,315
Interest on debt securities 24,167 20,864 16,330
Dividends on equity securities 652 427 469
Interest on short-term investments 438 434 287
---------- ----------- -----------
Total interest and dividend income 68,711 64,405 55,401
---------- ----------- -----------
Interest expense:
Interest on deposits 30,433 28,864 23,165
Interest on short-term borrowings 2,637 2,136 248
Interest on long-term debt 3,392 1,724 1,110
---------- ----------- -----------
Total interest expense 36,462 32,724 24,523
---------- ----------- -----------
Net interest income 32,249 31,681 30,878
Provision for loan losses (Note 5) 215 772 583
---------- ----------- -----------
Net interest income, after provision for loan losses 32,034 30,909 30,295
---------- ----------- -----------
Other income:
Customer service fees 2,158 2,347 2,194
Gain (loss) on sales of investment securities, net (Note 4) 413 96 (65)
Miscellaneous 744 703 766
---------- ----------- -----------
Total other income 3,315 3,146 2,895
---------- ----------- -----------
Operating expenses:
Salaries and employee benefits (Notes 13 and 15) 9,778 9,551 9,608
Occupancy and equipment (Notes 6 and 11) 1,998 1,910 1,842
Deposit insurance 13 927 1,718
Data processing 1,606 1,452 1,308
Professional fees 517 577 767
Amortization of intangibles (Note 2) 1,248 1,293 1,249
Foreclosed real estate, net 65 (269) 346
Advertising and marketing 722 692 704
Other general and administrative 2,128 2,036 2,103
---------- ----------- -----------
Total operating expenses 18,075 18,169 19,645
---------- ----------- -----------
Income before income taxes 17,274 15,886 13,545
Provision for income taxes (Note 10) 6,845 6,463 5,292
---------- ----------- -----------
Net income $ 10,429 $ 9,423 $ 8,253
========== =========== ===========
Weighted averages shares outstanding:
Primary 4,723,649 4,659,059 4,628,793
========== =========== ===========
Fully diluted 4,741,542 4,685,693 4,628,793
========== =========== ===========
Earnings per share:
Primary $ 2.21 $ 2.02 $ 1.78
========== =========== ===========
Fully diluted $ 2.20 $ 2.01 $ 1.78
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss) on
Common Stock Additional Securities
----------------------- Paid-In Retained Available
Shares Dollars Capital Earnings for Sale
--------- ------- ---------- -------- --------------
(In thousands, except number of shares)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,168,595 $1,084 $ 27,563 $ 43,136 $ --
Net income -- -- -- 8,253 --
Cash dividends declared ($.62 per share) -- -- -- (2,712) --
Issuance of common stock under stock
option plan and related income tax benefits 42,500 22 919 -- --
Stock split (2 for 1) 2,184,695 1,092 (1,092) -- --
Change in method of accounting for investment
securities, after tax effects -- -- -- -- 572
Change in net unrealized gain (loss) on securities
available for sale, after tax effects -- -- -- -- (2,474)
Decrease in unearned compensation -- ESOP -- -- -- -- --
--------- ------ -------- -------- -------
Balance at December 31, 1994 4,395,790 2,198 27,390 48,677 (1,902)
Net income -- -- -- 9,423 --
Cash dividends declared ($.71 per share) -- -- -- (3,134) --
Issuance of common stock under stock
option plan and related income tax benefits 27,400 14 252 -- --
Change in net unrealized gain (loss) on securities
available for sale, after tax effects -- -- -- -- 3,158
--------- ------ -------- -------- -------
Balance at December 31, 1995 4,423,190 2,212 27,642 54,966 1,256
Net income -- -- -- 10,429 --
Cash dividends declared ($.83 per share) -- -- -- (3,761) --
Issuance of common stock under stock
option plan and related income tax benefits 111,458 55 1,206 -- --
Change in net unrealized gain (loss) on securities
available for sale, after tax effects -- -- -- -- (1,484)
--------- ------ -------- -------- -------
Balance at December 31, 1996 4,534,648 $2,267 $ 28,848 $ 61,634 $ (228)
========= ====== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Unearned
Compensation
ESOP Total
------------ ---------
<S> <C> <C>
Balance at December 31, 1993 $(431) $ 71,352
Net income -- 8,253
Cash dividends declared ($.62 per share) -- (2,712)
Issuance of common stock under stock
option plan and related income tax benefits -- 941
Stock split (2 for 1) -- --
Change in method of accounting for investment
securities, after tax effects -- 572
Change in net unrealized gain (loss) on securities
available for sale, after tax effects -- (2,474)
Decrease in unearned compensation -- ESOP 431 431
----- --------
Balance at December 31, 1994 -- 76,363
Net income -- 9,423
Cash dividends declared ($.71 per share) -- (3,134)
Issuance of common stock under stock
option plan and related income tax benefits -- 266
Change in net unrealized gain (loss) on securities
available for sale, after tax effects -- 3,158
----- --------
Balance at December 31, 1995 -- 86,076
Net income -- 10,429
Cash dividends declared ($.83 per share) -- (3,761)
Issuance of common stock under stock
option plan and related income tax benefits -- 1,261
Change in net unrealized gain (loss) on securities
available for sale, after tax effects -- (1,484)
----- --------
Balance at December 31, 1996 $ -- $ 92,521
===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ -----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,429 $ 9,423 $ 8,253
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for loan and foreclosed real estate losses 265 611 750
Depreciation and amortization, net 2,205 1,640 3,268
Net (gain) loss on sales of foreclosed real estate (15) (299) 4
(Gains) losses on sales of investment securities, net (413) (96) 65
Increase in accrued interest receivable and other assets (2,294) (1,341) (646)
Deferred tax benefit (295) (402) (385)
Increase in accrued taxes and expenses
and other liabilities 1,576 727 656
--------- --------- ---------
Net cash provided by operating activities 11,458 10,263 11,965
--------- --------- ---------
Cash flows from investing activities:
Proceeds received in connection with acquisition of failed
institution -- -- 27,012
Maturities of investment securities available for sale 38,168 26,210 35,490
Sales of investment securities available for sale 32,602 25,363 10,678
Purchases of investment securities available for sale (153,844) (103,142) (54,487)
Maturities of investment securities held to maturity 49,780 97,782 73,000
Purchases of investment securities held to maturity and FHLBB stock (34,886) (76,519) (116,212)
Principal amortization of mortgage-backed investments
available for sale 4,746 4,796 9,076
Loans originated and purchased, net of amortization and payoffs (32,163) (8,492) (45,432)
Sales of foreclosed real estate 384 2,920 1,781
Purchases of bank premises and equipment, net (2,018) (755) (436)
--------- --------- ---------
Net cash used in investing activities (97,231) (31,837) (59,530)
--------- --------- ---------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
------------- ------------ -------------
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 290 71 27,522
Net increase in borrowings with maturities of three months
or less 35,536 23,356 16,925
Proceeds of short-term borrowings with maturities in
excess of three months 25,000 25,000 --
Repayment of short-term borrowings with maturities in
excess of three months (20,000) (25,000) (5,000)
Proceeds from long-term debt 39,000 16,400 13,247
Repayment of long-term debt (3,500) (9,500) (3,600)
Issuance of common stock 610 150 307
Cash dividends paid (3,504) (2,907) (2,547)
-------- -------- --------
Net cash provided by financing activities 73,432 27,570 46,854
-------- -------- --------
Net change in cash and cash equivalents (12,341) 5,996 (711)
Cash and cash equivalents at beginning of year 28,770 22,774 23,485
-------- -------- --------
Cash and cash equivalents at end of year $ 16,429 $ 28,770 $ 22,774
======== ======== ========
Supplementary information:
Interest paid on deposit accounts $ 30,474 $ 28,773 $ 23,125
Interest paid on borrowed funds 5,640 3,662 1,296
Income taxes paid, net of refunds 6,671 6,234 5,547
Non-cash investing activity:
Assets acquired from failed institution, excluding
cash and equivalents -- -- 1,609
Liabilities assumed from failed institution -- -- 28,621
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Medford Savings
Bank (the "Bank") and its wholly-owned subsidiaries, Medford Securities
Corporation which engages in the buying, selling, dealing in, or holding of
securities, and in 1995 and 1994, Medco Realty, Inc. which engaged in property
rental and development. The Bank elected to dissolve Medco Realty, Inc. in
January 1996, and to acquire all of its assets and liabilities. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
consolidated balance sheet and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. A
material estimate that is particularly susceptible to significant change in the
near term relates to the determination of the allowance for losses on loans.
BUSINESS
The Bank is principally engaged in the business of attracting deposits from the
general public, originating residential and commercial real estate mortgages and
consumer and commercial loans, and investing in securities. The Bank is
headquartered in Medford, Massachusetts, which is located approximately seven
miles north of downtown Boston. It has a network of sixteen banking offices
located in Medford, Malden, Arlington, Belmont, Burlington, North Reading,
Waltham, and Wilmington. The Bank's primary market area includes these
communities as well as other cities and towns in Middlesex County and the
surrounding area north of Boston.
RECLASSIFICATION
Certain amounts have been reclassified in the 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, amounts due from banks and short-term
investments.
SHORT-TERM INVESTMENTS
Short-term investments mature within one year and are carried at cost.
33
<PAGE> 34
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
INVESTMENT SECURITIES
Effective January 1, 1994, the Bank adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, investments in debt
securities that management has the positive intent and ability to hold to
maturity are classified as "held to maturity" and reflected at amortized cost.
All other marketable investment securities are classified as "available for
sale" and reflected on the balance sheet at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity. The cumulative effect of the change in accounting
principle at January 1, 1994, net of tax effects, was to increase stockholders'
equity by $572,000. There was no effect on net income in 1994.
Restricted equity securities are reflected at cost. Purchase premiums and
discounts on debt securities are amortized to earnings by a method which
approximates the interest method over the terms of the investments. Declines in
the value of investments that are deemed to be other than temporary are
reflected in earnings when identified. Gains and losses on disposition of
investments are recorded on the trade date and computed by the specific
identification method.
LOANS
The Bank grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans in
the eastern New England area. The ability of the Bank's debtors to honor their
obligations is dependent upon the real estate, construction, and general
economic sectors of that region.
Loans, as reported, have been increased by the net premium on loans acquired and
net deferred loan costs, and reduced by unadvanced loan funds and the allowance
for loan losses.
Interest on loans is recognized on a simple interest basis and is not accrued on
loans which are ninety days or more past due. Loans may be placed on non-accrual
status prior to becoming ninety days past due if the collection of principal and
interest is, in the opinion of management, doubtful. Generally, loans which are
identified as impaired are placed on non-accrual status. Interest income
previously accrued on such loans is reversed against current period earnings.
Interest income on all non-accrual loans is recognized only to the extent of
interest payments received.
Premiums and discounts on loans acquired and net deferred loan costs are
amortized as an adjustment of the related loan yields by the interest method
over the contractual lives of the loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged to operations and is maintained at a level considered adequate to
provide for reasonably foreseeable loan losses.
The provision and the level of the allowance are evaluated on a regular basis by
management and are based upon management's periodic review of the collectibility
of the loans in light of historical experience, known inherent risks in the
nature and volume of the loan portfolio, levels of non-performing loans, adverse
situations that may affect the borrower's ability to repay, trends in
delinquencies and charge-offs, estimated value of any underlying collateral, and
prevailing economic conditions. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant change. Ultimate losses
may vary from current estimates and future additions to the allowance may be
necessary.
Loan losses are charged against the allowance when management believes the
collectibility of the loan balance is unlikely. Subsequent recoveries, if any,
are credited to the allowance.
34
<PAGE> 35
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
On January 1, 1995, the Bank adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118. Under this Statement, a loan
is considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect the scheduled principal or
interest when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal
and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. An impaired loan
is required to be measured on a loan-by-loan basis by either the present value
of expected future cash flows discounted at the loan's effective interest rate,
the loan's obtainable market price, or the fair value of the collateral if the
loan is collateral dependent. All of the Bank's loans which have been identified
as impaired have been measured by the fair value of existing collateral.
The Statement is not applicable to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment. Accordingly, the Bank has
not applied SFAS No. 114 to its consumer loan portfolio.
The adoption of SFAS No. 114 had no effect on the Bank's assessment of the
overall adequacy of the allowance for loan losses. The restatement of previously
issued financial statements to conform with SFAS No. 114 was expressly
prohibited.
FORECLOSED REAL ESTATE
Foreclosed real estate includes both formally foreclosed properties and
in-substance foreclosed properties, whereby the Bank has taken physical
possession of the property without formal foreclosure proceedings. Real estate
properties acquired through foreclosure are initially recorded at the lower of
cost or fair value at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed. Valuations are periodically performed by management, and
an allowance for losses is established through a charge to operations if the
carrying value of a property exceeds its fair value less estimated costs to
sell.
BANKING PREMISES AND EQUIPMENT AND REAL ESTATE HELD FOR INVESTMENT
Land is carried at cost. Buildings and equipment are carried at cost, less
accumulated depreciation computed on the straight-line method over the estimated
useful lives of the assets. It is the Bank's general practice to charge the cost
of maintenance and repairs to earnings when incurred; major expenditures for
betterments are capitalized and depreciated.
INTANGIBLE ASSETS
Intangible assets pertaining to core deposits acquired are amortized over 15
years on an accelerated basis, based on the expected run-off of the related
deposits. Goodwill is amortized by the straight-line method over periods ranging
from 10 to 15 years.
35
<PAGE> 36
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted accordingly
through the provision for income taxes. The Bank's base amount of its federal
income tax reserve for loan losses is a permanent difference for which there is
no recognition of a deferred tax liability. However, the loan loss allowance
maintained for financial reporting purposes is a temporary difference with
allowable recognition of a related deferred tax asset, if deemed realizable.
PENSION PLAN
The compensation cost of an employee's pension benefit is recognized on the net
periodic pension cost method over the employee's approximate service period. The
aggregate cost method is utilized for funding purposes.
STOCK COMPENSATION PLANS
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation." This Statement encourages
all entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby 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, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby 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. Stock options issued under the
Bank's stock option plans have no intrinsic value at the grant date, and under
Option No. 25 no compensation cost is recognized for them. The Bank has elected
to remain with the accounting in Opinion No. 25. The pro forma impact of
accounting for stock options granted during 1996 and 1995 in accordance with
SFAS No. 123 was not material to net income and earnings per share for the years
ended December 31, 1996 and 1995.
EMPLOYEES' STOCK OWNERSHIP PLAN ("ESOP")
Compensation expense is recognized based on cash contributions paid or committed
to be paid to the ESOP. All shares held by the ESOP are deemed outstanding for
purposes of earnings per share calculations. Dividends declared on all shares
held by the ESOP are charged to retained earnings.
STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
On August 30, 1994, the Board of Directors approved a two-for-one stock split of
the Bank's common stock. The stock split was effective on October 15, 1994 to
shareholders of record as of September 15, 1994. Par value remained at $0.50 per
share. The stock split resulted in the issuance of 2,184,695 additional shares
of common stock from authorized but unissued shares.
The primary earnings per share computation includes common stock and dilutive
common stock equivalents attributable to outstanding stock options. Fully
diluted earnings per share computations reflect the higher market price of the
Bank's common stock at the end of the period and assume further dilution
applicable to outstanding stock options.
36
<PAGE> 37
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
accounting and reporting standards of this Statement are based on a financial
components approach that focuses on control, whereby after a transfer of
financial assets, an entity recognizes only financial and servicing assets it
controls and liabilities it has incurred. Liabilities incurred will be initially
recognized at fair value, if practicable. Financial assets will be derecognized
when control has been surrendered, and liabilities will be derecognized when
extinguished. The determination of whether control over a financial asset has
been surrendered is based on meeting specific criteria as defined in the
Statement.
The Statement provides standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings, and impacts
the accounting for various transactions including the servicing of financial
assets, securitizations, securities lending transactions, repurchase agreements
including "dollar rolls," "wash sales," loan syndications and participations,
and transfers of receivables with recourse.
The Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied on a prospective basis. In December 1996, the FASB voted to defer for
one year the provisions of the Statement that relate to secured borrowings and
collateral.
Management is currently evaluating the impacts of the Statement on its secured
borrowings such as repurchase agreements but does not expect , based on the
general terms of its current agreements, that the Statement will significantly
change its accounting for similar transactions in the future. Other provisions
of the Statement will not, in management's opinion, have a significant impact on
the consolidated financial statements, except that certain loan participations
that the Bank will service for other investors may be reflected on the balance
sheet at their gross amount with a related liability to the participant for the
participant's portion. Such transactions are currently reflected on a net basis
in the Bank's loan portfolio.
2. ACQUISITIONS
On May 6, 1994, the Bank acquired certain assets and assumed certain liabilities
of the former Commercial Bank and Trust Company ("CBTC") located in Lowell,
Massachusetts from the Federal Deposit Insurance Corporation (the "FDIC"),
pursuant to a Purchase and Assumption Agreement (the "CBTC Agreement") among the
FDIC, as Receiver of CBTC, the FDIC and Medford Savings Bank. Pursuant to the
CBTC Agreement, the Bank paid a premium of $1,225,000 to the FDIC and the fair
values of assets and liabilities assumed amounted to $7,472,000 and $28,621,000,
respectively. The CBTC acquisition has been accounted for using the purchase
method of accounting. At December 31, 1996 and 1995, the goodwill applicable to
the CBTC transaction amounted to $1,001,000 and $1,085,000, respectively.
In 1992, the Bank acquired certain assets and assumed the insured deposits and
related liabilities of the former Bank for Savings, in Malden, Massachusetts.
The acquisition was accounted for using the purchase method of accounting. At
December 31, 1996 and 1995, intangible assets applicable to the Bank for Savings
transaction, including goodwill and core deposit intangible, amounted to
$5,895,000 and $7,002,000, respectively.
37
<PAGE> 38
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Federal funds sold $4,500 $ 9,171
Other interest-bearing deposits 29 5,000
------ -------
Total short-term investments $4,529 $14,171
====== =======
</TABLE>
4. INVESTMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
-------------- ---------------
(In thousands)
<S> <C> <C>
Securities available for sale, at fair value $268,379 $192,585
Securities held to maturity, at amortized cost 150,591 165,671
Restricted equity securities:
Federal Home Loan Bank stock 4,882 4,229
Massachusetts Savings Bank Life Insurance stock 1,114 1,114
-------- --------
$424,966 $363,599
======== ========
</TABLE>
38
<PAGE> 39
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT SECURITIES (continued)
The amortized cost and fair value of investment securities, with gross
unrealized gains and losses at December 31, 1996 and 1995, follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- - - ------------------------------------------------------ --------------- ------------- -------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 88 $ 1 $ - $ 89
Corporate bonds 150,774 745 (350) 151,169
Mortgage-backed 28,101 82 (369) 27,814
U.S. Government and federal agency 83,301 280 (930) 82,651
-------- ------ ------- --------
Total debt securities 262,264 1,108 (1,649) 261,723
Marketable equity securities 6,538 236 (118) 6,656
-------- ------ ------- --------
Total securities available
for sale $268,802 $1,344 $(1,767) $268,379
======== ====== ======= ========
Securities Held to Maturity
U.S. Government and federal agency $141,868 $ 522 $ (299) $142,091
Corporate bonds 8,723 32 - 8,755
-------- ------ ------- --------
Total securities held to maturity $150,591 $ 554 $ (299) $150,846
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- - - ------------------------------------------------------ --------------- ------------- -------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 236 $ - $ (4) $ 232
Corporate bonds 114,166 1,763 (62) 115,867
Mortgage-backed 32,423 417 (60) 32,780
U.S. Government and federal agency 38,083 127 (97) 38,113
-------- ------ ----- --------
Total debt securities 184,908 2,307 (223) 186,992
Marketable equity securities 5,633 14 (54) 5,593
-------- ------ ----- --------
Total securities available
for sale $190,541 $2,321 $(277) $192,585
======== ====== ===== ========
Securities Held to Maturity
U.S. Government and federal agency $154,993 $2,317 $(210) $157,100
Corporate 10,678 159 - 10,837
-------- ------ ----- --------
Total securities held to maturity $165,671 $2,476 $(210) $167,937
======== ====== ===== ========
</TABLE>
39
<PAGE> 40
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT SECURITIES (concluded)
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-------------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- --------------- --------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 49,839 $ 50,084 $ 46,871 $ 47,068
After 1 year through 5 years 175,259 174,979 103,720 103,778
After 5 years through 10 years 9,065 8,846 - -
-------- -------- -------- --------
234,163 233,909 150,591 150,846
Mortgage-backed 28,101 27,814 - -
-------- -------- -------- --------
$262,264 $261,723 $150,591 $150,846
======== ======== ======== ========
</TABLE>
At December 31, 1996, U.S. Government obligations with an amortized cost of
$49,340,000, a fair value of $48,930,000 and accrued interest receivable of
$440,000 have been pledged as collateral for securities sold under agreements to
repurchase. In addition, U.S. Government obligations with an amortized cost of
$8,047,000 and a fair value of $8,088,000 have been pledged as collateral for a
line of credit and to secure public funds. (See Note 8.)
For the years ended December 31, 1996, 1995 and 1994, proceeds from the sales of
securities available for sale amounted to $32,602,000, $25,363,000 and
$10,678,000, respectively. Gross realized gains amounted to $412,000, $211,000
and $51,000, respectively. Gross realized losses amounted to $56,000, $26,000
and $116,000, respectively. For the years ended December 31, 1996 and 1995,
proceeds from the sales of securities held to maturity that were sold within
three months of maturity amounted to $29,973,000 and $59,782,000, respectively.
These sales have been included in the Statement of Cash Flows as maturities.
Gross realized gains on these sales amounted to $61,000 and $4,000,
respectively, and gross realized losses amounted to $4,000 and $93,000,
respectively.
Mortgage-backed investments consist of adjustable-rate collateralized mortgage
obligations and fixed-rate participation certificates guaranteed by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation or the
Government National Mortgage Association.
In November 1995, the FASB issued guidance allowing a one-time reassessment of
an entity's investment classifications during the period November 15, 1995 to
December 31, 1995. As a result, the amortized cost of securities held to
maturity that were transferred to available for sale amounted to $26,987,000 and
the related unrealized loss amounted to $206,000.
40
<PAGE> 41
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LOANS
A summary of the balances of loans follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
---------------- ----------------
(In thousands)
<S> <C> <C>
Mortgage loans on real estate:
Residential 1 - 4 family $ 380,627 $ 353,172
Commercial 123,158 125,771
Construction 18,155 15,341
Second mortgages 1,928 2,175
Equity lines of credit 21,169 20,819
--------- ---------
545,037 517,278
Less: Unadvanced loan funds (9,436) (6,750)
--------- ---------
535,601 510,528
--------- ---------
Other loans:
Commercial 11,014 9,075
Personal 2,219 2,193
Education and other 18,329 14,517
--------- ---------
31,562 25,785
--------- ---------
Add Net premium on loans acquired 354 504
Net deferred loan costs 569 73
--------- ---------
Total loans 568,086 536,890
Less allowance for loan losses (7,231) (7,466)
--------- ---------
Loans, net $ 560,855 $ 529,424
========= =========
</TABLE>
41
<PAGE> 42
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LOANS (concluded)
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995 1994
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 7,466 $ 7,539 $ 7,007
Provision for loan losses 215 772 583
------- ------- -------
7,681 8,311 7,590
Recoveries 380 233 258
Loans charged-off (830) (1,078) (309)
------- ------- -------
Balance at end of year $ 7,231 $ 7,466 $ 7,539
======= ======= =======
</TABLE>
At December 31, 1996 and 1995, the Bank had loans amounting to $3,439,000 and
$4,321,000, respectively, which had been placed on non-accrual status. Interest
not accrued on such loans at December 31, 1996 and 1995 amounted to $451,000 and
$558,000, respectively, and was excluded from interest income.
The following is a summary of the recorded investment in impaired loans:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
--------------- ---------------
(In Thousands)
<S> <C> <C>
Loans with no valuation allowance $ 870 $ 804
Loans with a corresponding valuation allowance 3,154 3,435
------ ------
Total impaired loans $4,024 $4,239
====== ======
Corresponding valuation allowance $ 968 $1,705
====== ======
</TABLE>
No additional funds are committed to be advanced in connection with impaired
loans.
For the years ended December 31, 1996 and 1995, the average recorded investment
in impaired loans amounted to $4,751,000 and $3,827,000, respectively. The Bank
recognized, on a cash basis, $153,000 in 1996 and $167,000 in 1995 of interest
income on impaired loans, during the period that they were impaired.
42
<PAGE> 43
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation of banking premises and
equipment and their estimated useful lives follows:
<TABLE>
<CAPTION>
December 31, Estimated
-----------------------------
1996 1995 Useful Lives
------------- ------------ ----------------------
(In thousands)
<S> <C> <C> <C>
Banking Premises:
Land $ 782 $ 782 -
Buildings 9,634 9,575 5 - 50 years
Equipment 6,780 4,992 3 - 25 years
----------- --------
17,196 15,349
Less accumulated depreciation (6,300) (5,699)
----------- ---------
$ 10,896 $ 9,650
=========== =========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
amounted to $772,000, $713,000 and $663,000, respectively.
7. DEPOSITS
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995
-------------- --------------
(In thousands)
<S> <C> <C>
Demand $ 40,124 $ 36,427
NOW 60,839 63,248
Regular savings 245,891 244,370
Money market deposits 69,880 70,443
-------- --------
Total non-certificate accounts 416,734 414,488
-------- --------
Term certificates ($100,000 or more) 46,564 39,943
Other term certificates 328,843 337,420
-------- --------
Total term certificates 375,407 377,363
-------- --------
Total deposits $792,141 $791,851
======== ========
</TABLE>
43
<PAGE> 44
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEPOSITS (concluded)
A summary of term certificate accounts, by maturity, is as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------------------- ----------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
--------------- ---------------- --------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Within 1 year $247,599 5.17% $296,287 5.64%
Over 1 year to 3 years 113,220 5.64 55,866 5.56
Over 3 years to 5 years 14,579 6.18 25,103 5.93
Over 5 years 9 6.08 107 5.50
-------- --------
$375,407 5.35% $377,363 5.65%
======== ========
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------------- --------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------- --------------- ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities sold under agreements
to repurchase $49,584 5.99% $20,281 5.81%
Federal Reserve Bank of Boston advances 1,233 5.00 - -
Federal Home Loan Bank of Boston ("FHLBB") advances 30,000 5.56 20,000 6.03
------- -------
$80,817 5.82% $40,281 5.92%
======= =======
</TABLE>
Securities sold under agreements to repurchase are borrowings that mature within
one year and are secured by U.S. Government obligations. (See Note 4.) The
amount of securities collateralizing the agreements to repurchase remains in
investment securities and the obligation to repurchase securities sold is
reflected as a liability in the consolidated balance sheets. The maximum amount
of repurchase agreements outstanding at any month end during 1996 was
$54,840,000. The average balance of repurchase agreements for the year ended
December 31, 1996 amounted to $25,047,000.
The Bank has a $2,000,000 (treasury, tax and loan) line of credit with the
Federal Reserve Bank of Boston of which $767,000 was available to be advanced at
December 31, 1996. The interest rate adjusts weekly and certain U.S. Government
obligations have been pledged as collateral for the line of credit. (See Note
4.)
The Bank also has an available line of credit with the FHLBB at an interest rate
that adjusts daily. Borrowings under the line are limited to 2% of the Bank's
total assets. All borrowings from the FHLBB are secured by a blanket lien on
qualified collateral, defined principally as 75% of the carrying value of first
mortgage loans on owner-occupied residential property and 90% of the market
value of U.S. Government and federal agency securities.
44
<PAGE> 45
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT
Long-term debt consists of Federal Home Loan Bank of Boston advances secured by
a blanket lien on qualified collateral (see Note 8), as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------------- --------------------------------
Weighted Weighted
Average Average
Maturity Amount Rate Amount Rate
- - - ------------------------ ------------- ------------- ------------- -------------
(Amount in thousands)
<S> <C> <C> <C> <C>
1996 $ - - % $ 3,500 4.93%
1997 25,047 6.23 15,047 6.50
1998 32,200 5.86 3,200 5.03
1999 5,000 5.87 5,000 5.87
2000 5,000 7.22 5,000 7.22
2005 400 5.61 400 5.61
---------- ----------
$ 67,647 6.10% $ 32,147 6.19%
========== ===========
</TABLE>
10. INCOME TAXES
Allocation of the provision for federal and state income taxes between current
and deferred portions is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
------------ ----------- -----------
(In thousands)
<S> <C> <C> <C>
Current tax provision:
Federal $ 5,774 $ 5,206 $ 4,325
State 1,366 1,659 1,352
------- ------- -------
7,140 6,865 5,677
------- ------- -------
Deferred tax benefit:
Federal (240) (306) (264)
State (55) (96) (121)
------- ------- -------
(295) (402) (385)
------- ------- -------
$ 6,845 $ 6,463 $ 5,292
======= ======= =======
</TABLE>
45
<PAGE> 46
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The reasons for the differences between the statutory federal income tax rate
and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Statutory rates 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 5.0 6.6 6.0
Other, net .6 .1 (.9)
---- ---- ----
Effective tax rates 39.6% 40.7% 39.1%
==== ==== ====
</TABLE>
The components of the net deferred tax asset, included in other assets, are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
------------ --------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Federal $ 4,175 $ 3,616
State 1,629 1,584
------- -------
5,804 5,200
Valuation reserve on assets - (67)
------- -------
5,804 5,133
------- -------
Deferred tax liabilities:
Federal (1,774) (2,253)
State (601) (729)
------- -------
(2,375) (2,982)
------- -------
Net deferred tax asset $ 3,429 $ 2,151
======= =======
</TABLE>
46
<PAGE> 47
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (concluded)
The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Cash basis of accounting $ 55 $ 617
Investments:
Net unrealized (gain) loss on securities available for sale 195 (788)
Other (193) (214)
Depreciation (901) (862)
Deferred loan fees (231) (31)
Allowance for loan losses 2,465 2,472
Employee benefit plans 1,128 1,040
Other 911 (16)
------- -------
3,429 2,218
Valuation reserve - (67)
------- -------
Net deferred tax asset $ 3,429 $ 2,151
======= =======
</TABLE>
A summary of the change in the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $2,151 $ 3,915 $2,152
Deferred tax effect of the change in net unrealized
gains and losses on securities available for sale 983 (2,166) 1,378
Deferred tax benefit for the year 295 402 385
------ ------- ------
Balance at end of year $3,429 $ 2,151 $3,915
====== ======= ======
</TABLE>
The federal income tax reserve for loan losses at the Bank's base year is
$8,265,000. If any portion of the reserve is used for purposes other than to
absorb the losses for which established, approximately 150% of the amount
actually used (limited to the amount of the reserve) would be subject to
taxation in the fiscal year in which used. As the Bank intends to use the
reserve only to absorb loan losses, a deferred income tax liability of
$3,389,000 has not been provided.
<PAGE> 48
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial statements.
EMPLOYMENT AND SPECIAL TERMINATION AGREEMENTS
The Bank has entered into an employment agreement with the President and Chief
Executive Officer that provides for a specified minimum annual compensation and
the continuation of benefits currently received. However, such employment may be
terminated for cause, as defined, without incurring any continuing obligations.
The Bank has also entered into special termination agreements with the President
and Chief Executive Officer and certain senior executives. The agreements
generally provide for certain lump-sum severance payments within a three-year
period following a "change in control," as defined in the agreements.
LOAN COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Such commitments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized on the consolidated balance sheet. The Bank's exposure
to credit loss is represented by the contractual amount of these commitments.
The Bank uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
The following financial instruments were outstanding whose contract amounts
represent credit risk:
<TABLE>
<CAPTION>
Contract Amount
at December 31,
-----------------------------
1996 1995
---------- -----------
(In thousands)
<S> <C> <C>
Commitments to grant loans $ 13,607 $ 4,667
Unadvanced funds on equity lines of credit 20,479 18,760
Unadvanced funds on commercial lines of credit 6,884 4,197
</TABLE>
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. The commitments for lines of credit may expire without
being drawn upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. Funds disbursed under these financial
instruments are generally collateralized by real estate, except for the
commercial lines of credit which are generally secured by the business assets of
the borrower.
48
<PAGE> 49
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (concluded)
OPERATING LEASE COMMITMENTS
Pursuant to the terms of noncancelable lease agreements in effect at December
31, 1996, pertaining to banking premises and equipment, future minimum rent
commitments aggregate $702,000 through the year 2000. In addition, the leases
contain options to extend for periods up to fifteen years. Total rent expense
for the years ended December 31, 1996, 1995 and 1994 amounted to $282,000,
$270,000 and $185,000, respectively.
OTHER COMMITMENTS AND CONTINGENCIES
In January, 1997, the Bank entered into agreements to purchase two properties
for business expansion totaling $1,171,000.
Various legal claims also arise from time to time in the normal course of
business which, in the opinion of management, will not have a material effect on
the Bank's consolidated financial statements.
12. STOCKHOLDERS' EQUITY
RESTRICTIONS ON DIVIDENDS
Federal and state banking regulations place certain restrictions on dividends
paid. No dividends may be paid by the Bank if such dividends would reduce the
Bank's capital to a level below minimum regulatory capital requirements.
MINIMUM REGULATORY REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of its assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1996, that the Bank meets all
capital adequacy requirements to which it is subject.
49
<PAGE> 50
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCKHOLDERS' EQUITY (concluded)
MINIMUM REGULATORY REQUIREMENTS (concluded)
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the following table. There are no
conditions or events since the notification that management believes have
changed the Bank's category. The Bank's actual capital amounts and ratios as of
December 31, 1996 are also presented in the table.
<TABLE>
<CAPTION>
Minimum
To Be Well
For Minimum Capitalized Under
Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------- -------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- --------- ------------- --------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital $ 92,796 16.0% $ 46,409 8.0% $ 58,012 10.0%
(to risk weighted assets)
Tier 1 Capital 85,565 14.8 23,205 4.0 34,807 6.0
(to risk weighted assets)
Tier 1 Capital 85,565 8.4 40,752 - 4.0 - 50,940 5.0
(to average assets) 50,940 5.0
</TABLE>
SHAREHOLDER RIGHTS PLAN
The Bank has a Shareholder Rights Plan which distributed one preferred stock
purchase right for each outstanding share of common stock. Such rights only
become exercisable, or transferable apart from the common stock, ten business
days after a person or group acquires beneficial ownership of, or commences a
tender or exchange offer for, 15% or more of the Bank's common stock, or the
declaration by the Board of Directors that any person is an Adverse Person. Each
right may then be exercised to acquire one one-hundredth of a share of Series A
Junior Participating Cumulative Preferred Stock at an exercise price of $90,
subject to adjustment. If the Bank is acquired in a merger or other business
combination transaction, or 50% of the Bank's assets or earning power is sold,
the rights entitle holders to acquire common stock of the Acquiring Person
having a value twice the exercise price of the rights. The rights may be
redeemed in whole by the Bank at $.01 per right at any time prior to (i) the
declaration of a person as an Adverse Person, (ii) the tenth day following
public announcement that a 15% position has been acquired, or (iii) the
occurrence of a merger or other business combination. The rights will expire on
September 22, 2003.
50
<PAGE> 51
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Bank provides basic and supplemental pension benefits for eligible employees
through the Savings Banks Employees Retirement Association Pension Plan. Each
employee reaching the age of 21 and having completed at least 1,000 hours of
service in one twelve-month period beginning with such employee's date of
employment, or any anniversary thereof, automatically becomes a participant in
the pension plan. Participants are fully vested after three years of such
service.
Net periodic pension expense for the plan years ended October 31, 1996, 1995 and
1994 consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 514 $ 395 $ 427
Interest cost on projected benefits 305 283 276
Actual return on plan assets (503) (544) (201)
Net amortization and deferral (19) (19) (19)
Net (gain) loss 218 292 (51)
----- ----- -----
$ 515 $ 407 $ 432
===== ===== =====
</TABLE>
Total pension expense for the years ended December 31, 1996, 1995 and 1994
amounted to $540,000, $402,000 and $432,000, respectively.
According to the Association's actuary, a reconciliation of the funded status of
the plan is as follows:
<TABLE>
<CAPTION>
October 31,
-----------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Plan assets at fair value $ 3,994 $ 3,334
Projected benefit obligation 4,180 4,355
------- -------
Excess of projected benefit obligation over plan as (186) (1,021)
Unamortized net surplus since adoption of SFAS No 87 (284) (303)
Unrecognized net gain (1,431) (443)
------- -------
Accrued pension liability $(1,901) $(1,767)
======= =======
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1996 amounted to $2,613,000, which was less than the fair value of plan assets
at that date.
For the plan years ended October 31, 1996, 1995 and 1994, actuarial assumptions
include an assumed discount rate on benefit obligations of 7.50%, 7.00% and
8.00%, respectively, and an expected long-term rate of return on plan assets of
8.00%, 8.00% and 7.00%, respectively. An annual salary increase of 5% was
utilized for all years.
51
<PAGE> 52
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE BENEFIT PLANS (concluded)
401(k) PLAN
As of November 1, 1994, the Bank adopted a 401(k) plan. The plan provides for
voluntary contributions by participating employees ranging from 1 percent to 15
percent of their compensation, subject to certain limits based on federal tax
laws. Each employee reaching the age of 21 and having completed at least 1,000
hours of service in one twelve-month period beginning with such employee's date
of employment, or any anniversary thereof, becomes eligible to participate in
the plan. The Bank may choose to match a portion of the employees'
contributions. During the years ended December 31, 1996 and 1995, the Bank made
matching contributions equal to twenty-five percent (25%) of the first six
percent (6%) of annual compensation contributed to the plan. For the years ended
December 31, 1996 and 1995, expense attributable to the Plan amounted to $69,000
and $75,000, respectively.
INCENTIVE PLAN
The Bank has an executive incentive plan whereby all management executives are
eligible to receive a bonus, proportionate to their respective salary, if the
Bank meets or exceeds certain base standards. The structure of the plan is
reviewed on an annual basis by a designated committee, and performance goals are
then established. Incentive compensation expense amounted to $101,000, $181,000
and $338,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
The Bank has entered into a supplemental executive retirement plan with its
President, effective November 1, 1994. The agreement is designed to provide the
benefits lost under defined benefit plans due to the reduction in the IRC
compensation ceiling effective November 1, 1994. The present value of future
benefits is being accrued over the term of employment. Supplemental compensation
expense for the years ended December 31, 1996 and 1995 amounted to $36,000 and
$42,000, respectively.
14. STOCK OPTION PLANS
The Bank has stock option plans, for the benefit of directors, officers and
full-time employees, covering 736,000 shares of common stock under the 1986
Stock Option Plan and 200,000 shares of common stock under the 1993 Stock Option
Plan. Both "Incentive Stock Options" and "Non-qualified Stock Options" may be
granted under the plans, with a maximum option term of ten years. Under the
terms of the plans, stock options may be granted as determined appropriate by
the Option Committee of the Board of Directors, and will have an exercise price
equal to, or in excess of, the fair market value of a share of common stock of
the Bank on the date the option is granted. The Bank applies APB Opinion 25 and
related interpretations in accounting for the plans. (See Note 1.) The plans
also permit the inclusion of stock appreciation rights ("SARs") in any option
granted which would permit the optionee to surrender an option (or portion
thereof) for cancellation and to receive cash or common stock equal to the
excess, if any, of the then fair market value of the common stock subject to
such option or portion thereof over the option exercise price. No SARs have been
granted to date.
52
<PAGE> 53
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCK OPTION PLANS (concluded)
Stock option activity under the plans is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ------------------------------ --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Amount Price Amount Price Amount Price
------------ ------------ ------------- ------------- ------------- ----------
Shares under option:
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 453,634 $ 8.90 482,034 $ 8.71 446,644 $ 6.23
Granted 12,000 22.13 6,000 18.09 94,590 18.25
Cancelled -- -- (7,000) 17.38 (600) 6.13
Exercised (111,458) 5.48 (27,400) 5.47 (58,600) 5.23
-------- ---- ------- ---- ------- ----
Outstanding at end of year 354,176 10.42 453,634 8.90 482,034 8.71
======= ===== ======= ==== ======= ====
Exercisable at end of year 315,299 9.33 377,980 7.35 330,228 5.87
======= ==== ======= ==== ======= ====
</TABLE>
Information pertaining to options outstanding at December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- --------------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$5.19 - $6.13 154,700 4.1 years $ 5.26 154,700 $ 5.26
$7.63 - $10.88 90,886 5.7 9.50 90,886 9.50
$12.25 - $14.44 16,000 7.1 13.99 11,200 13.81
$17.25 - $19.44 77,590 7.6 18.83 54,313 18.83
$20.75 - $25.75 15,000 9.4 22.05 4,200 21.04
------------ -----------
Outstanding at end of year 354,176 5.6 years $ 10.42 315,299 $ 9.33
=============== ===========
</TABLE>
15. EMPLOYEES' STOCK OWNERSHIP PLAN
The Bank has an Employees' Stock Ownership Plan ("ESOP") for the benefit of each
employee that has reached the age of 21 and has completed at least 500 hours of
service with the Bank in the previous twelve-month period. The Bank may
contribute to the ESOP cash or shares of common stock as voted by the Board of
Directors, not to exceed the maximum amount deductible for federal income tax
purposes. At December 31, 1996, the ESOP held 258,794 shares, all of which have
been allocated to participants. Dividends on all shares held by the ESOP are
allocated to participants on a pro rata basis.
The ESOP previously had a loan agreement with a third-party lender whereby
$1,500,000 was borrowed for the purpose of purchasing additional shares of the
Bank's common stock. Shares purchased with loan proceeds were held in a suspense
account and released for allocation to participants as the loans were repaid.
The loan provided for quarterly interest payments and varying annual principal
payments. The principal balance was fully paid during 1994. Total compensation
and interest expense applicable to the ESOP amounted to $465,000 for the year
ended December 31, 1994.
53
<PAGE> 54
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosures of estimated fair values of all financial instruments where it is
practicable to estimate such values. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Accordingly, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating fair
value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts of cash and short-term
instruments approximate fair values.
Investment securities: Fair values for investment securities, excluding
restricted equity securities, are based on quoted market prices. The carrying
values of restricted equity securities approximate fair values.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. Fair values for
other loans (e.g., commercial real estate and investment property, mortgage
loans, commercial and industrial loans) are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for non-performing
loans are estimated using discounted cash flow analyses or underlying collateral
values, where applicable.
Deposits: The fair values disclosed for non-certificate accounts are, by
definition, equal to the amount payable on demand at the reporting date which is
the carrying amount. 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.
Borrowings: The carrying amounts of short-term borrowings maturing within 90
days approximate their fair values. Fair values of other borrowings are
estimated using discounted cash flow analyses based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.
Accrued interest: The carrying amounts of accrued interest approximate fair
value.
Off-balance-sheet instruments: Fair values for off-balance-sheet lending
commitments 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, and are not material.
54
<PAGE> 55
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16.FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)
The estimated fair values, and related carrying amounts, of the Bank's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1996 1995
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
(In thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 16,429 $ 16,429 $ 28,770 $ 28,770
Investment securities 424,966 425,221 363,599 365,865
Loans, net 560,855 558,971 529,424 529,620
Accrued interest receivable 9,291 9,291 7,877 7,877
Financial liabilities:
Deposits 792,141 791,875 791,851 792,995
Short-term borrowings 80,817 80,817 40,281 40,298
Long-term debt 67,647 67,997 32,147 32,710
Accrued interest payable 851 851 504 504
</TABLE>
55
<PAGE> 56
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY DATA (UNAUDITED)
A summary of consolidated operating results on a quarterly basis is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest and dividend income $ 17,764 $ 17,139 $ 16,992 $ 16,816
Interest expense (9,598) (9,091) (8,979) (8,794)
-------- -------- -------- --------
Net interest income 8,166 8,048 8,013 8,022
Provision for loan losses (20) (45) (90) (60)
-------- -------- -------- --------
Net interest income, after provision for loan losses 8,146 8,003 7,923 7,962
Other income 920 742 759 894
Operating expenses (4,549) (4,595) (4,514) (4,417)
-------- -------- -------- --------
Income before income taxes 4,517 4,150 4,168 4,439
Provision for income taxes (1,825) (1,646) (1,632) (1,742)
-------- -------- -------- --------
Net income $ 2,692 $ 2,504 $ 2,536 $ 2,697
======== ======== ======== ========
Earnings per share:
Primary $ 0.57 $ 0.53 $ 0.54 $ 0.57
======== ======== ======== ========
Fully diluted $ 0.57 $ 0.53 $ 0.54 $ 0.57
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest and dividend income $ 16,563 $ 16,290 $ 16,159 $ 15,393
Interest expense (8,771) (8,618) (8,101) (7,234)
-------- -------- -------- --------
Net interest income 7,792 7,672 8,058 8,159
Provision for loan losses (130) (200) (196) (246)
-------- -------- -------- --------
Net interest income, after provision for loan losses 7,662 7,472 7,862 7,913
Other income 813 822 866 645
Operating expenses (4,508) (4,289) (4,917) (4,455)
-------- -------- -------- --------
Income before income taxes 3,967 4,005 3,811 4,103
Provision for income taxes (1,651) (1,551) (1,551) (1,710)
-------- -------- -------- --------
Net income $ 2,316 $ 2,454 $ 2,260 $ 2,393
======== ======== ======== ========
Earnings per share:
Primary $ 0.49 $ 0.52 $ 0.49 $ 0.52
======== ======== ======== ========
Fully diluted $ 0.49 $ 0.52 $ 0.49 $ 0.52
======== ======== ======== ========
</TABLE>
56
<PAGE> 57
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK
DIRECTORS OF THE BANK:
The response to this item is incorporated by reference from the discussion under
the captions entitled "Directors" and "The Board of Directors and its
Committees" in the Proxy Statement.
PRINCIPAL OFFICERS OF THE BANK:
Arthur H. Meehan, age 61, is President and Chief Executive Officer of the Bank
and Chairman of the Board of Directors. Mr. Meehan commenced his employment with
the Bank in February 1992. Prior to this date, Mr. Meehan served as Executive
Vice President of the Bank of New England Corporation.
George A. Bargamian, age 48, is Senior Vice President of the Bank. He was hired
by the Bank as Director of Marketing in 1988, and was promoted to Vice President
and Senior Vice President of the Bank during 1988. Mr. Bargamian formerly served
as Assistant Vice President of Marketing for First Mutual of Boston.
Eric B. Loth, age 54, is Senior Vice President of the Bank. Mr. Loth commenced
his employment with the Bank at this level in August 1994. Prior to this date,
Mr. Loth served as Vice President of Lending at Sterling Bank in Waltham,
Massachusetts.
William F. Rivers, age 41, is Senior Vice President of the Bank. He has been
with the Bank since 1974, serving as Assistant Treasurer from 1980-1985, and as
Vice President from 1985-1989.
Phillip W. Wong, age 47, is Senior Vice President and Chief Financial Officer of
the Bank. Mr. Wong commenced his employment with the Bank at this level in
December 1992. Prior to this date, Mr. Wong served as Chief Financial Officer of
Guaranty-First Trust Co. in Waltham, Massachusetts.
FAMILY RELATIONSHIPS AND INVOLVEMENTS IN CERTAIN LEGAL PROCEEDINGS
The response to this item is incorporated by reference from the discussion under
the caption, "Relationships and Transactions with the Bank", in the Proxy
Statement. The directors and officers had no involvement in any material legal
proceedings.
ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS
The response to this item is incorporated by reference from the discussion under
the caption entitled "Executive Compensation" in the Proxy Statement and the
discussion concerning Section 16 Compliance therein.
57
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
MEDFORD SAVINGS BANK:
Under date of January 24, 1997, we reported on the consolidated balance sheets
of Medford Savings Bank as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which are included in this Form F-2. In connection with our audit of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules III and V included in this Form F-2.
These financial statement schedules are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 24, 1997
58
<PAGE> 59
MEDFORD SAVINGS BANK
SCHEDULE III
LOANS AND LEASE FINANCING RECEIVABLES
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------- ------------
(In thousands)
Loans secured by real estate:
<S> <C> <C>
Construction and land development $ 8,719 $ 8,591
Secured by farm land -- --
Secured by 1-4 family residential properties 404,078 376,670
Secured by multifamily residential properties 28,603 27,754
Secured by nonfarm, nonresidential properties 94,555 98,017
Loans to depository institutions -- --
Loans to finance agricultural production and other
loans to farmers -- --
Commercial and industrial loans (1) 11,014 9,075
Loans to individuals for households, family and other
personal expenditures:
Credit card and related plans 722 700
Other 19,826 16,010
Loans to foreign governments and official institutions -- --
Obligations (other than securities) of states and political
subdivisions in the U.S. -- --
Other loans -- --
-------- --------
567,517 536,817
Deferred loan costs 569 73
-------- --------
$568,086 $536,890
======== ========
</TABLE>
(1) All commercial loans are to U.S. addresses
59
<PAGE> 60
MEDFORD SAVINGS BANK
SCHEDULE V
INVESTMENTS IN, INCOME FROM DIVIDENDS, AND EQUITY IN EARNINGS OR
LOSSES OF SUBSIDIARIES AND ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
For the Year Ended
At December 31, 1996 December 31, 1996
----------------------------------------------- -----------------------------
Percent of Equity in
Voting Underlying Amount Bank's
Stock Total Net of Share of
Owned Investment Assets Dividends Earnings (1)
----------- -------------- -------------- ------------- ------------
Name of Issuer (In thousands)
<S> <C> <C> <C> <C> <C>
Medford Securities Corporation 100% $ 107,825 $ 107,825 $ -- $ 4,484
=========== ============== ============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
At December 31, 1995 December 31, 1995
----------------------------------------------- -----------------------------
Percent of Equity in
Voting Underlying Amount Bank's
Stock Total Net of Share of
Owned Investment Assets Dividends Earnings (1)
----------- -------------- -------------- ------------- ------------
Name of Issuer (In thousands)
<S> <C> <C> <C> <C> <C>
Medco Realty, Inc. (2) 100% $ 130 $ 130 $ -- $ 157
=========== ============== ============== ============= ============
Medford Securities Corporation 100% $ 103,834 $ 103,834 $ -- $ 2,126
=========== ============== ============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
At December 31, 1994 December 31, 1994
----------------------------------------------- -----------------------------
Percent of Equity in
Voting Underlying Amount Bank's
Stock Total Net of Share of
Owned Investment Assets Dividends Earnings (1)
----------- -------------- -------------- ------------- ------------
Name of Issuer (In thousands)
<S> <C> <C> <C> <C> <C>
Medco Realty, Inc. 100% $ (27) $ (27) $ -- $ 132
=========== ============== ============== ============= ============
</TABLE>
(1) Exclusive of income tax effect.
(2) Medco Realty, Inc. was dissolved in January 1996 and the Bank acquired all
of its assets and liabilities.
60
<PAGE> 61
PART IV
ITEM 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM F-3
(a) CONTENTS:
(1) Financial Statements: All Financial Statements are included as
Part II, Item 8 of this Report.
(2) Financial Statement Schedules: Schedules I, IV and VI are
omitted because the required information is contained in or
may be obtained from the consolidated financial statement or
notes thereto included as Item 8 of this Report. Schedule II
is omitted because it is not applicable. Schedules III and V
are set forth in this Item 11 of this Report.
(3) No new exhibits required by Item 11(c) are being filed with
this report.
(b) REPORTS ON FORM F-3: None filed during the fourth quarter of 1996.
(c) EXHIBITS:
(1) Articles of Incorporation and Bylaws
(a) Amended and Restated Articles of Incorporation of
Medford Savings Bank**
(b) Amended and Restated Bylaws of Medford Savings Bank**
(2) Instruments Defining the Rights of Security Holders
(a) Amended and Restated Articles of Incorporation of
Medford Savings Bank**
(b) Amended and Restated Bylaws of Medford Savings Bank**
(c) Specimen Certificate of Medford Savings Bank's Common
Stock, $.50 per value per share**
(d) Shareholder Rights Agreement dated September 22, 1993
by and between the Bank and State Street Bank and
Trust Co., as Rights Agent***
(3) Material Contracts
(a) Stock Option Plans:
(i) Medford Savings Bank 1986 Stock Option
Plan**
(ii) Medford Savings Bank 1993 Stock Option
Plan**
(b) Employment Agreement with Arthur H. Meehan**
(c) Termination Agreements
(i) Termination Agreement with Arthur H.
Meehan**
(ii) Termination Agreement with William F.
Rivers**
(iii) Termination Agreement with George A.
Bargamian**
(iv) Termination Agreement with Joseph S.
Winning**
(v) Termination Agreement with Phillip W. Wong**
(vi) Termination Agreement with Eric B. Loth*
(d) Executive Supplemental Benefit Agreements
(i) Executive Supplemental Benefit Agreement
with Thomas F. O'Connor**
(ii) Supplemental Executive Retirement Plan with
Arthur H. Meehan*
(e) Deferred Investment Plan for Outside Directors**
* Filed pursuant to Item 11 of the Annual Report for the fiscal year
ended December 31, 1994, previously filed with the FDIC.
** Filed pursuant to Item 11 of the Annual Report for the fiscal year
ended December 31, 1993, previously filed with the FDIC.
*** Filed as Exhibit 1 to the Registration Statement on Form F-10 filed
with the FDIC on September 27, 1993.
61
<PAGE> 62
(4) Statement Regarding Computation of Per Share Earnings
Such computation can be clearly determined from the material
contained in this Annual Report on Form F-2.
(5) Statement Regarding Computation of Ratios
As the Bank does not have any debt securities registered under
Section 12 of the Act, no ratio of earnings to fixed charges
appears in this Annual Report on Form F-2.
(6) Annual Report to Security Holders
The Medford Savings Bank 1996 Annual Report is furnished only
for the information of the FDIC and is not deemed to be filed
herewith.
(7) Letter Regarding Change in Accounting Principles
None.
(8) Previously Unfiled Documents
None.
(9) List of all Subsidiaries of the Bank, the State or Other
Jurisdiction of Incorporation or Organization of each, and the
Names under which such Subsidiaries do Business
Medford Securities Corporation
- Incorporated in Massachusetts
62
<PAGE> 63
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.
MEDFORD SAVINGS BANK
By: /s/Arthur H. Meehan
------------------------------------------------
Arthur H. Meehan
Chairman, President, Chief Executive Officer
and Director
Date: February 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Bank and in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/Arthur H. Meehan Chairman, President, Chief February 25, 1997
- - - ----------------------- Executive Officer and Director
Arthur H. Meehan
/s/Phillip W. Wong Senior Vice President February 25, 1997
- - - ----------------------- and Chief Financial Officer
Phillip W. Wong
/s/Edward D. Brickley Director February 25, 1997
- - - -----------------------
Edward D. Brickley
/s/David L. Burke Director February 25, 1997
- - - -----------------------
David L. Burke
- - - ----------------------- Director February 25, 1997
Paul J. Crowley
/s/Mary L. Doherty Director February 25, 1997
- - - -----------------------
Mary L. Doherty
- - - ----------------------- Director February 25, 1997
Edward J. Gaffey
/s/Andrew D. Guthrie, Jr. Director February 25, 1997
- - - -----------------------
Andrew D. Guthrie, Jr.
/s/Robert A. Havern, III Director February 25, 1997
- - - -----------------------
Robert A. Havern, III
/s/Hugh J. MacIsaac Director February 25, 1997
- - - -----------------------
Hugh J. MacIsaac
/s/Eugene R. Murray Clerk and Director February 25, 1997
- - - -----------------------
Eugene R. Murray
/s/Francis D. Pizzella Director February 25, 1997
- - - -----------------------
Francis D. Pizzella
</TABLE>
63
<PAGE> 1
Exhibit 99.2
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended March 31, 1997
F.D.I.C. Insurance Certificate No.23290
MEDFORD SAVINGS BANK
(Exact name of bank as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation or organization)
04-1609330
(IRS Employer Identification Number)
29 HIGH STREET, MEDFORD, MASSACHUSETTS
(Address of principal executive office)
02155
(Zip Code)
(617) 395-7700
(Bank's telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed
since last report)
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 outstanding of the Bank's common stock as of May
9, 1997 - 4,539,648
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ITEM 1 - FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets............................................................1
Consolidated Statements of Income ...................................................2-3
Consolidated Statements of Changes in Stockholders' Equity ............................4
Consolidated Statements of Cash Flows................................................5-6
Notes to Consolidated Financial Statements.............................................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Financial Condition.........................................................8-15
Results of Operations..............................................................16-18
Liquidity and Capital Resources....................................................19-20
Asset and Liability Management........................................................21
Impact of Inflation...................................................................21
Signatures........................................................................... 22
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
MEDFORD SAVINGS BANK
CONSOLIDATED BALANCE SHEETS
March 31, Dec. 31,
1997 1996
--------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,015 $ 11,900
Short-term investments 2,616 4,529
----------- -----------
Cash and cash equivalents 12,631 16,429
----------- -----------
Investment securities 439,867 424,966
Loans 570,589 568,086
Less allowance for loan losses (6,942) (7,231)
----------- -----------
Loans, net 563,647 560,855
----------- -----------
Foreclosed real estate, net 356 276
Banking premises and equipment, net 10,829 10,896
Accrued interest receivable 9,485 9,291
Other assets 17,260 16,385
----------- -----------
TOTAL ASSETS $ 1,054,075 $ 1,039,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 798,815 $ 792,141
Short-term borrowings 63,760 80,817
Long-term debt 92,647 67,647
Accrued taxes and expenses 4,330 3,701
Other liabilities 1,783 2,271
----------- -----------
Total liabilities 961,335 964,577
----------- -----------
Stockholders' equity:
Serial preferred stock, $.10 par value, 5,000,000 shares authorized;
none issued; -- --
Common stock, 15,000,000 shares authorized;
$.50 par value, 4,539,648 and 4,534,648 shares issued, respectively 2,270 2,267
Additional paid-in capital 28,917 28,848
Retained earnings 63,648 61,634
----------- -----------
94,835 92,749
Net unrealized loss on securities available for sale,
after tax effects (2,095) (228)
----------- -----------
Total stockholders' equity 92,740 92,521
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,054,075 $ 1,039,098
=========== ===========
See accompanying notes to consolidated financial statements.
1
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1997 1996
-------------------------
(Dollars in thousands
except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 11,289 $10,823
Interest on debt securities 6,678 5,642
Dividend income 155 162
Interest on short-term investments 47 189
-------- -------
Total interest and dividend income 18,169 16,816
-------- -------
Interest expense:
Interest on deposits 7,438 7,611
Interest on short-term borrowings 1,063 613
Interest on long-term debt 1,246 570
-------- -------
Total interest expense 9,747 8,794
-------- -------
Net interest income 8,422 8,022
Provision for loan losses 75 60
-------- -------
Net interest income, after provision for loan losses 8,347 7,962
-------- -------
Other income:
Customer service fees 500 549
Gain on sales of securities, net 265 183
Miscellaneous 236 162
-------- -------
Total other income 1,001 894
-------- -------
Operating expenses:
Salaries and employee benefits 2,565 2,406
Occupancy and equipment 607 509
Data Processing 330 359
Professional fees 109 136
Amortization of intangibles 304 320
Advertising and marketing 143 157
Other general and administrative 566 530
-------- -------
Total operating expenses 4,624 4,417
-------- -------
Income before income taxes 4,724 4,439
Provision for income taxes 1,893 1,742
-------- -------
Net income $ 2,831 $ 2,697
======== =======
See accompanying notes to consolidated financial statements.
(continued)
2
</TABLE>
<PAGE> 5
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
(concluded)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------------------------------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Earnings per share:
Primary $0.60 $0.57
Fully Diluted $0.60 $0.57
Cash dividends declared per share $0.18 $0.17
Weighted average shares outstanding
Primary 4,755,977 4,710,451
Fully Diluted 4,755,977 4,712,288
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
<TABLE>
<CAPTION>
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net Unrealized
Additional Gain (Loss)on
Common Paid-in Retained Securities
Stock Capital Earnings Available for Sale Total
----- ------- -------- ------------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,267 $ 28,848 $ 61,634 $( 228) $ 92,521
Net income -- -- 2,831 2,831
Issuance of common stock under
stock option plan and related income
tax benefits 3 69 -- -- 72
Cash dividends declared ($.18 per share) -- -- (817) -- (817)
Change in net unrealized gain (loss) on
securities available for sale, after
tax effects -- -- -- (1,867) (1,867)
-------- -------- -------- -------- --------
Balance at March 31, 1997 $ 2,270 $ 28,917 $ 63,648 $ (2,095) $ 92,740
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain (Loss) on
Common Paid-in Retained Securities
Stock Capital Earnings Available for Sale Total
----- ------- -------- ------------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 2,212 $ 27,642 $ 54,966 $ (1,256) $ 86,076
Net income -- -- 2,697 -- 2,697
Issuance of common stock under
stock option plan and related
income tax benefits 53 1,058 -- -- 1,111
Cash dividends declared ($.17 per share) -- -- (770) -- (770)
Change in net unrealized gain (loss)
on securities available for sale,
after tax effects -- -- -- (1,945) (1,945)
-------- -------- -------- -------- --------
Balance at March 31, 1996 $ 2,265 $ 28,700 $ 56,893 $ (689) $ 87,169
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
<TABLE>
<CAPTION>
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1997 1996
--------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities: $ 2,831 $ 2,697
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Provisions for loan losses 75 60
Depreciation and amortization, net 401 524
Foreclosed real estate losses and provisions, net (1) 15
Gain on sales of securities, net (265) (183)
Decrease (increase) in accrued interest receivable
and other assets (198) 310
(Decrease)increase in accrued taxes and expenses
and other liabilities 728 (527)
--------- ---------
Net cash provided by operating activities 3,571 2,896
--------- ---------
Cash flows from investing activities:
Maturities of investment securities available for sale 14,485 5,450
Purchases of investment securities available for sale (52,341) (68,456)
Sales of investment securities available for sale 7,891 21,718
Maturities of investment securities held to maturity 11,000 10,750
Purchases of investment securities held to maturity
and FHLBB stock (250) (144)
Principal amortization of mortgage-backed investments 1,445 1,201
Loans originated and purchased, net of amortization and payoffs (3,108) 4,855
Purchases of bank premises and equipment, net 189 (60)
Sales of, and principal payments received on,
foreclosed real estate 128 --
--------- ---------
Net cash used in investing activities (20,561) (24,686)
--------- ---------
(continued)
See accompanying notes to consolidated financial statements.
5
</TABLE>
<PAGE> 8
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------------------------------
(In thousands)
<S> <C> <C>
Cash Flows from financing activities:
Net increase in deposits 6,674 (1,167)
Net increase (decrease) in borrowings with maturities of three
months or less (17,057) 8,206
Proceeds from short-term borrowings with maturities in
excess of three months -- --
Proceeds from long-term debt 25,000 15,000
Issuance of common stock 26 585
Cash dividends paid (1,451) (1,194)
-------- -------
Net cash provided by financing activities 13,192 23,764
-------- -------
Net change in cash and cash equivalents (3,798) 1,974
Cash and cash equivalents, beginning
of period 16,429 28,770
-------- -------
Cash and cash equivalents, end of period $ 12,631 $ 30,744
======== =======
See accompanying notes to consolidated financial statements.
6
</TABLE>
<PAGE> 9
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION
Certain amounts have been reclassified in the March 31, 1996 financial
statements to conform to the 1997 presentation.
The consolidated interim financial statements of Medford Savings Bank
(the "Bank") and subsidiary presented herein are intended to be read in
conjunction with the consolidated financial statements presented in its annual
report for the year ended December 31, 1996.
The consolidated financial information for the three months ended
March 31, 1997 and 1996 is unaudited; however, in the opinion of management, the
consolidated financial information reflects all adjustments (consisting solely
of normal recurring accruals) necessary for a fair presentation in accordance
with generally accepted accounting principles. Interim results are not
necessarily indicative of results to be expected for the entire year.
NOTE 2. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
Primary earnings per share computations include common stock and
dilutive common stock equivalents attributable to outstanding stock options.
Fully diluted earnings per share computations reflect the higher market price of
the Bank's common stock at the end of the period, if applicable, and assume
further dilution applicable to outstanding stock options.
NOTE 3. COMMITMENTS
At March 31, 1997 the Bank had outstanding commitments to originate
residential and commercial real estate mortgage loans of approximately $12.6
million which are not reflected on the consolidated balance sheet. Unadvanced
construction and commercial loan funds not included in the above amount totaled
approximately $7.0 million at March 31, 1997.
(Remainder of this page intentionally left blank)
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This Form F-4 contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. The Bank's actual results could differ materially from those
projected in the forward-looking statements as a result, among other factors,
of changes in general national or regional economic conditions, changes in loan
default and charge off rates, reductions in deposit levels necessitating
increased borrowing to fund loans and investments, changes in interest rates,
and changes in the assumptions used in making such forward-looking statements.
Consolidated net income was $2.8 million, or $0.60 per share for the quarter
ended March 31, 1997, an increase of 5.0% on a per share basis from $2.7 million
or $0.57 per share for the same quarter in 1996. The annualized return on assets
was 1.09% and the annualized return on equity was 12.29% for the first three
months of 1997.
The improved earnings for the three months ended March 31, 1997 was attributable
in part to an increase of $400,000 in net interest income due to higher earning
asset levels and an increase in net gains on the sale of securities of $82,000.
Partially offsetting this improvement was a $207,000 increase in operating
expenses due in large part to increases in salary and benefit costs and
depreciation costs associated with the Bank's investment to upgrade technology
and systems which was completed in the fourth quarter of 1996. As a percentage
of average assets, operating expenses actually declined to 1.78% on an
annualized basis from 1.82% experienced in the prior year.
The Bank's provision for loan losses increased to $75,000 for the quarter ended
March 31, 1997 from $60,000 for the same prior year quarter. Non-performing
assets were $4,745,000 or 0.45% of total assets at March 31, 1997 compared to
$5,422,000 or 0.55% of total assets at March 31, 1996. At March 31, 1997, the
allowance for loan losses was $6,942,000 which represents approximately 158%
coverage of non-accrual loans and 1.22% of total loans.
The Bank had total assets of $1.1 billion, and total deposits of $798.8 million
at March 31, 1997 compared to total assets of $1.0 billion, and total deposits
of $792.1 million at December 31, 1996. Net loans of $563.6 million at March 31,
1997 increased from $560.9 million at December 31, 1996. Investment securities
increased $14.9 million during the period to $439.9 million at March 31, 1997.
8
<PAGE> 11
Stockholders' equity was $92.7 million at March 31, 1997, representing a book
value of $20.43 per share. The Bank's primary capital to assets ratio at March
31, 1997 was 8.80% exceeding all regulatory requirements.
A more detailed discussion and analysis of the Bank's financial condition and
results of operations follows.
(The remainder of this page intentionally left blank.)
9
<PAGE> 12
INVESTMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Securities available for sale, at fair value $293,952 $268,379
Securities held to maturity, at amortized cost 139,669 150,591
Restricted equity securities:
Federal Home Loan Bank stock 5,132 4,882
Massachusetts Savings Bank Life Insurance stock 1,114 1,114
-------- --------
$439,867 $424,966
======== ========
</TABLE>
The amortized cost and fair value of investment securities at March 31, 1997,
and December 31, 1996 with gross unrealized gains and losses, follows:
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 67 $ 1 $ -- $ 68
Mortgage - backed 45,854 1 (1,004) 44,851
U.S. Government and
federal agency 82,358 1 (1,729) 80,630
Other 162,399 272 (1,163) 161,508
-------- -------- -------- --------
Total debt securities 290,678 275 (3,896) 287,057
Marketable equity
securities 6,799 376 (280) 6,895
-------- -------- -------- --------
Total securities
available for sale $297,477 $ 651 $ (4,176) $293,952
======== ======== ======== ========
Securities Held to Maturity
U.S. Government
and federal agency $130,934 $ 209 $ (645) $130,498
Other 8,735 10 (24) 8,721
-------- -------- -------- --------
Total securities
held to maturity $139,669 $ 219 $ (669) $139,219
======== ======== ======== ========
10
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 88 $ 1 $ -- $ 89
Mortgage - backed 28,101 82 (369) 27,814
U.S. Government and
federal agency 83,301 280 (930) 82,651
Other 150,774 745 (350) 151,169
-------- -------- -------- --------
Total debt securities 262,264 1,108 (1,649) 261,723
Marketable equity securities 6,538 236 (118) 6,656
-------- -------- -------- --------
Total securities
available for sale $268,802 $ 1,344 $ (1,767) $268,379
======== ======== ======== ========
Securities Held to Maturity
U.S. Government
and federal agency $141,868 $ 522 $ (299) $142,091
Other 8,723 32 -- 8,755
-------- -------- -------- --------
Total securities
held to maturity $150,591 $ 554 $ (299) $150,846
======== ======== ======== ========
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity at
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------------
Available for Sale Held to Maturity
------------------------ -------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 52,754 $ 52,968 $ 59,919 $ 60,087
After 1 year through 5 years 192,070 189,238 79,750 79,132
-------- -------- -------- --------
244,824 242,206 139,669 139,219
Mortgage - backed securities 45,854 44,851 -- --
-------- -------- -------- --------
$290,678 $287,057 $139,669 $139,219
======== ======== ======== ========
11
</TABLE>
<PAGE> 14
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Available for Sale Held to Maturity
------------------------ -------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 49,839 $ 50,084 $ 46,871 $ 47,068
After 1 year through 5 years 175,259 174,979 103,720 103,778
After 5 years through 10 years 9,065 8,846 -- --
-------- -------- -------- --------
234,163 233,909 150,591 150,846
Mortgage - backed securities 28,101 27,814 -- --
-------- -------- -------- --------
$262,264 $261,723 $150,591 $150,846
======== ======== ======== ========
</TABLE>
Investment securities increased $14.9 million from $425.0 million at December
31, 1996 to $439.9 million at March 31, 1997. The increase was primarily in
mortgage-backed securities and corporate bonds designated as available for sale.
The investment in mortgage-backed securities was increased for the purpose of
generating a higher yield in the investment portfolio. Borrowings from various
sources are utilized to fund investment purchases. At March 31, 1997, the
securities portfolio classified as "available for sale" reflects a $3.5 million
depreciation in market value as a result of rising interest rates. In accordance
with the Bank's asset-liability management strategies, investment securities are
generally short-term with maturities of five years or less.
(The remainder of this page intentionally left blank.)
12
<PAGE> 15
LOANS
A summary of the Bank's outstanding loan balances follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Mortgage loans on real estate:
Residential 1-4 family $380,695 $380,627
Commercial 123,095 123,158
Construction 16,348 18,155
Second mortgages 1,738 1,928
Equity lines of credit 21,094 21,169
--------- ---------
542,970 545,037
Less: Unadvanced loan funds (7,001) (9,436)
--------- ---------
535,969 535,601
--------- ---------
Other loans:
Commercial loans 12,124 11,014
Personal loans 2,176 2,219
Education and other 19,327 18,329
--------- ---------
33,627 31,562
--------- ---------
Add: Premium on loans acquired 316 354
Net deferred fees 677 569
--------- ---------
Total loans 570,589 568,086
Less: Allowance for loan losses (6,942) (7,231)
--------- ---------
Loans, net $563,647 $560,855
========= =========
</TABLE>
The Bank's loan portfolio experienced a modest increase during the first three
months of 1997 principally in the construction, commercial and education loans.
All other loan categories remained stable from December 31, 1996 as new loan
originations replaced amortization and payoffs for the period. The Bank
continues to experience intense competition for loans within its geographic
region.
13
<PAGE> 16
NON-PERFORMING ASSETS
It is the Bank's general policy to place on non-accrual status all loans when
they become 90 days contractually delinquent or the collectability of principal
or interest payments becomes doubtful. Interest accrual ceases, and all
previously accrued but unpaid interest is reversed when a loan is placed on
non-accrual status. Non-performing assets totaled $4.7 million at March 31,
1997, compared with $3.7 million at December 31, 1996.
The principal balance of non-accrual loans was $4.4 million, or 0.42% of total
assets, at March 31, 1997, compared to non-accrual loans of $3.4 million or
0.33% of total assets as December 31, 1996. The increase is the result of
placing one borrower on non-accrual status as of March 31, 1997. Foreclosed real
estate totaled $356,000 at March 31, 1997 compared to $276,000 at December 31,
1996.
In accordance with SFAS No. 114, a loan is considered impaired, when, based on
current information and events, it is probable that a borrower will be unable to
meet the scheduled payments of principal or interest when due according to the
original terms of the contractual loan agreement. It is the Bank's general
policy to place impaired loans on non-accrual status when they become 90 days
contractually delinquent. The principal balance of impaired loans was $3.6
million all of which were included in the balance of non-accrual loans at March
31, 1997. The loan loss reserve allocated to impaired loans at March 31, 1997
was $751,000.
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Balance at the beginning
of the period $ 7,231 $ 7,466
Provisions 75 60
Recoveries 28 68
Less: Charge-offs (392) (243)
------- -------
Balance at the end of the period $ 6,942 $ 7,351
======= =======
</TABLE>
The allowance for loan losses is established through a provision for loan losses
charged through the statement of income. Assessing the adequacy of the allowance
for loan losses involves substantial uncertainties and is based on management's
evaluation of the amount required to absorb estimated losses inherent in the
loan portfolio after weighing various factors. Among the factors that management
considers are the quality of specific loans, risk characteristics of the loan
portfolio generally, the level of non-performing loans, current economic
conditions, trends in delinquency, and charge-offs, and the value of the
underlying collateral. Ultimate loan losses may vary significantly from current
estimates.
14
<PAGE> 17
The allowance for loan losses was $6.9 million at March 31, 1997, a reserve
coverage of 158% of non-accrual loans and 1.22% of total loans. At December 31,
1996, the allowance for loan losses was $7.2 million representing a 210.3%
reserve coverage of non-accrual loans and 1.27% of total loans.
Management considers the allowance for loan losses to be adequate at March 31,
1997, although there can be no assurance that the allowance is adequate or that
additional provisions to the allowance for loan losses will not be necessary.
DEPOSITS
Total deposits increased $6.7 million from December 31, 1996 to $798.8 million
at March 31, 1997. The Bank's strategy has been to maintain stable deposit rates
and to grow deposit levels through selective core deposit and term deposit
promotions. To retain core deposits, the Bank has been promoting the "ComboPlus"
account which combines a statement savings and a demand account into one
convenient account. This account has contributed to an increase in savings
deposits by $5.0 million from December 31, 1996. The Bank put in place a special
two-year term certificate promotion during the first quarter of 1997 intended to
extend deposit maturities. As a result of this promotion, term certificates
increased $6.9 million. Corporate money market deposits increased $1.6 million
from December 31, 1996 as the Bank continues to offer competitive rates to
attract new corporate accounts. Offsetting the increases in savings, money
market and term certificate deposits was a decrease of $2.1 million in NOW
accounts and $4.4 million in demand deposit accounts.
The following table indicates the balances in various deposit accounts at the
dates indicated.
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Demand accounts $ 35,679 $ 40,124
NOW accounts 58,695 60,839
Savings & money market accounts 322,090 315,771
Term certificates 382,351 375,407
-------- --------
$798,815 $792,141
======== ========
</TABLE>
15
<PAGE> 18
BORROWED FUNDS
The Bank has selectively engaged in long-term borrowings from the FHLBB to fund
loans and has entered into short-term repurchase agreements to fund investment
securities purchases. Total borrowed funds increased to $156.4 million at March
31, 1997 from $148.5 million at December 31, 1996, reflecting management's
decision to utilize borrowings as a supplement to current deposit activity
levels and to increased net interest income. The Bank took advantage of
relatively low interest rates to increase long term borrowings which were
employed to fund the residential loan portfolio and purchases of mortgage-backed
securities.
STOCKHOLDERS' EQUITY
The Bank's capital to assets ratio was 8.80% at March 31, 1997 compared with
8.90% at December 31, 1996.
The FDIC imposes capital guidelines on the Bank. In addition to the capital
ratio described above, the guidelines define core or "tier 1" capital and
supplementary or "tier 2" capital and assign weights to broad categories of
assets and certain off-balance sheet items. Ratios of tier 1 and tier 1 plus
tier 2 capital to risk-weighted assets are then calculated. To be considered
adequately capitalized, Banks must maintain a tier 1 risk-based capital ratio of
4.00% and a total risk-based capital ratio of 8.00%. At March 31, 1997, the
Bank's tier 1 capital to risk-weighted assets was 14.76% and the Bank's tier 1
plus tier 2 capital, or total to risk-weighted assets was 15.93%.
Massachusetts-chartered savings banks insured by the FDIC are required to
maintain a leverage capital (tier 1 capital) to assets ratio of 3.00% to 5.00%
of total assets, as adjusted, depending on the individual bank's rating. At
March 31, 1997, the Bank's leverage capital ratio was 8.41% as defined by the
FDIC. As a result of the foregoing leverage and risk-based capital ratios, the
Bank is considered "well capitalized" under the FDIC's prompt corrective action
guidelines.
Book value at March 31, 1997 was $20.43 per share, compared with $20.40 per
share at December 31, 1996.
16
<PAGE> 19
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
INTEREST AND DIVIDEND INCOME
Interest and dividend income from loans and investments for the first quarter in
1997 totaled $18.2 million, an increase of $1.4 million or 8.0% when compared to
the same prior year quarter. Interest income for the three months ended March
31, 1996 was positively impacted by a $171,000 recovery of commercial real
estate loan income on a loan that had been previously charged-off in a prior
period. Average earning assets increased $90.7 million when the periods are
compared, with $55.3 million of that amount from short and long term investment
securities, and $35.4 million in loans. The yield on earning assets decreased to
7.19% for the first quarter in 1997 compared with 7.30% for the same quarter in
1996. The yield on investment securities increased to 6.22% from 6.20%,
reflecting the purchase of additional investment securities and reinvestment
of matured and sold investment securities at higher yields. Investment
securities contributed $887,000 of additional interest and dividend income when
comparing the first quarter of 1997 to the same prior year quarter. The increase
in average balance on loans more than offset the decline in yield to 7.95%
compared with 8.12%, contributing $466,000 of additional interest income on
loans. The increase in interest income and average balance is primarily in
residential 1-4 family mortgage loans, with a modest increase in commercial and
education loans. Excluding the one-time commercial real estate interest income
recovery in the first quarter of 1996, interest income on commercial real estate
loans decreased $37,000, primarily as a result of a lower average balance.
Changes in the mix of earning assets and higher funding costs reduced the net
interest margin in the first quarter of 1997 to 3.29% from 3.47% in the same
period in 1996.
INTEREST EXPENSE
Total interest expense for the three months ended March 31, 1997 was $9.7
million representing an increase of $953,000 or 10.8% over the same period in
1996. This is principally due to an increase of $80.0 million in average
interest bearing liabilities. The average balance in deposits increased $2.6
million, and the average balance in borrowed funds increased $77.4 million. The
Bank experienced a downward repricing on term certificates lowering the overall
cost of deposits to 3.98% from 4.06% resulting in a savings of interest expense
of $173,000 when comparing the first quarter in 1997 to the first quarter in
1996. As short-term borrowings with the FHLBB matured, they were replaced with
longer term FHLBB borrowings to fund the growth in the residential loan
portfolio. Repurchase agreements at favorable rates were used to fund increases
in the investment portfolio. Interest expense on borrowings increased $1.1
million in the first quarter of 1997 when compared to the first quarter in 1996
due principally to the increase in average balance. The overall cost of interest
bearing liabilities increased to 4.29% from 4.21% when the periods are compared,
resulting in a reduction in the interest rate spread to 2.90% from 3.09%.
17
<PAGE> 20
<TABLE>
<CAPTION>
MEDFORD SAVINGS BANK
INTEREST RATE SPREAD
Three Months Ended
March 31,
---------
1997 1996
------- -------
<S> <C> <C>
Weighted average yield earned on:
Short-term investments 5.01% 5.35%
Investment securities 6.22 6.20
Loans 7.95 8.12
------- -------
All earning assets 7.19% 7.30%
------- -------
Weighted average rate paid on:
Deposits 3.98% 4.06%
Borrowed funds 5.77 5.66
------- -------
All interest-bearing liabilities 4.29% 4.21%
------- -------
Weighted average rate spread 2.90% 3.09%
------- -------
Net interest margin 3.29% 3.47%
======= =======
18
</TABLE>
<PAGE> 21
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors including the quality of specific loans,
risk characteristics of the loan portfolio generally, the level of
non-performing loans, current economic conditions, trends in delinquency and
charge-offs, and collateral values of the underlying security. Management
considers the allowance for loan losses to be adequate at March 31, 1997,
although there can be no assurance that the allowance is adequate or that
additional provisions to the allowance for loan losses will not be necessary.
The Bank recorded $75,000 in provisions for loan losses during the three months
ended March 31, 1997, up from $60,000 for the comparable prior year period. Net
loan charge-offs for the three months ended March 31, 1997 totalled to $364,000
as compared to $175,000 for the same prior year period.
OTHER INCOME
Other income, such as customer service fees and gains and losses on the sale of
securities, increased 12.0% to $1.0 million in the first quarter of 1997 as
compared to the first quarter of 1996, principally due to an increase in net
gains on the sale of securities.
OPERATING EXPENSES
Operating expenses, including the net gain or loss from foreclosed real estate,
was $4.6 million for the first quarter of 1997 compared with $4.4 million for
the first quarter in 1996. Salary and benefit costs increased 6.6% from one year
ago. Other increases include equipment depreciation resulting from the Bank's
investment of $1.7 million in new technology in the third quarter of 1996.
Despite the increase in operating expenses when comparing the two quarters, the
efficiency ratio for the first quarter in 1997 was 47.5%, which is better than
the industry average.
19
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are customer deposits,
amortization and payoff of existing loan principal, and sales or maturities of
various investment securities. The Bank is a voluntary member of the FHLBB and
as such, may take advantage of the FHLBB's borrowing programs to enhance
liquidity and leverage its favorable capital position. The Bank also may draw on
lines of credit at the FHLBB and a large commercial bank or pledge U.S.
Government securities to borrow from certain investment firms and the Mutual
Savings Central Fund of Massachusetts. These various sources of liquidity are
used to fund withdrawals, new loans, and investments.
Management continually seeks to optimize deposit growth while controlling
the Bank's cost of funds. Sales oriented programs to attract new depositors and
the cross-selling of various products to its existing customer base are
currently in place. Management reviews, on an ongoing basis, possible new
products, with particular attention to products and services which will aid in
retaining the Bank's base of lower-costing deposits.
Maturities and sales of investment securities provide significant
liquidity to the Bank. The Bank's policy of purchasing debt instruments maturing
in five years or less reduces market risk in the bond portfolio while providing
significant cash flow. For the three months ended March 31, 1997 cash flow from
maturities and sales of securities was $33.4 million compared to cash flow from
maturities and sales of securities of $37.9 million for the three months ended
March 31, 1996. Principal payments on mortgage-backed investments during the
three months ended March 31, 1997 and 1996 totalled $1.4 million and $1.2
million, respectively. During periods of high interest rates or active mortgage
origination, maturities in the bond portfolio have provided significant
liquidity at a lower cost than borrowings.
Amortization and pay-offs of the loan portfolio contribute significant
liquidity to the Bank. Traditionally, the amortization and payoffs have been
reinvested into loans. When payoff rates exceed origination rates, excess
liquidity from loan payoffs is shifted into the investment portfolio.
The Bank also uses borrowed funds as a source of liquidity. These
borrowings generally contribute toward funding over-all loan growth. At March
31, 1997 the Bank's outstanding borrowings from the FHLBB were $97.6 million, as
compared to $67.1 million at March 31, 1996. The Bank also utilizes repurchase
agreements as a source of funding when management deems market conditions to be
conducive to such activities. The balance in repurchase agreements at March 31,
1997 was $57.2 million, as compared to $28.5 million at March 31, 1996.
Commitments to originate residential and commercial real estate mortgage
loans at March 31, 1997 excluding unadvanced construction funds of $7.0 million,
was $12.6 million. Management believes that adequate liquidity is available to
fund loan commitments utilizing deposits, loan amortization, maturities of
securities, or borrowings.
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)
Purchases of securities during the three months ended March 31, 1997
totalled $52.6 million consisting of debt instruments maturing in less than
five years and equities. This compares with purchases of $68.6 million for the
three months ended March 31, 1996.
Residential and commercial real estate mortgage loan origination for the
three months ended March 31, 1997 totalled $13.5 million, compared with $11.6
million for the three months ended March 31, 1996.
The Bank's capital position (total stockholders' equity) was $92.7 million
or 8.80% of total assets at March 31, 1997 compared with $92.5 million or 8.90%
of total assets at December 31, 1996. The Bank's capital position exceeds all
regulatory requirements.
(The remainder of this page intentionally left blank.)
21
<PAGE> 24
ASSET-LIABILITY MANAGEMENT
Through the Bank's Asset-Liability Management Committee ("ALCO"), which is
comprised of certain senior and middle management personnel, the Bank monitors
the level and general mix of interest rate-sensitive assets and liabilities. The
primary objective of the Bank's ALCO program is to manage the assets and
liabilities of the Bank to provide for optimum profitability and capital at
prudent levels of liquidity and interest rate, credit, and market risk.
It is ALCO's general policy to closely match the maturity or rate
sensitivity of its assets and liabilities. In accordance with this policy,
certain strategies have been implemented to improve the match between interest
rate sensitive assets and liabilities. These strategies include, but are not
limited to: daily monitoring of the Bank's changing cash requirements, with
particular concentration on investment in short term securities; originating
adjustable and fixed rate mortgage loans for the Bank's own portfolio; managing
the cost and structure of deposits; and generally using matched borrowings to
fund specific purchases of loan packages and large loan origination.
Occasionally, management may choose to deviate from specific matching of
maturities of assets and liabilities, if an attractive opportunity to enhance
yields becomes available.
The Bank actively manages its liability portfolio in order to effectively
plan and manage growth and maturities of deposits. Management recognizes the
need for strict attention to all deposits. Accordingly, plans for growth of all
deposit types are reviewed regularly. Programs are in place which are designed
to build multiple relationships with customers and to enhance the Bank's ability
to retain deposits at controlled rates of interest, and management has adopted a
policy of reviewing interest rates on an ongoing basis on all deposit accounts,
in order to control deposit growth and interest costs.
In addition to attracting deposits, the Bank has selectively borrowed
funds using advances from the FHLBB and upon occasion, reverse repurchase
agreements. These funds have generally been used to purchase loans typically
having a matched repricing date.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary effect of inflation on the operations of the Bank is reflected in
increased operating costs. Unlike most industrial companies, virtually all
assets of a financial institution are monetary in nature. As a result, interest
rates have a more significant effect 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.
22
<PAGE> 25
SIGNATURES
Under to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be on its behalf signed by the undersigned
thereunto duly authorized.
MEDFORD SAVINGS BANK
Date: May 9, 1997
/s/ Arthur H. Meehan
------------------------------------------------
Arthur H. Meehan
Chairman/President/CEO
Date: May 9, 1997
/s/ Phillip W. Wong
-------------------------------------------------
Phillip W. Wong
Senior Vice President and Chief Financial Officer
23
<PAGE> 1
Exhibit 99.3
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
-----------------
FORM F-3
CURRENT REPORT
Under Section 13 of the
Securities Exchange Act of 1934
FOR THE MONTH OF APRIL, 1997
MEDFORD SAVINGS BANK
(Exact name of bank as specified in charter)
29 HIGH STREET, MEDFORD, MASSACHUSETTS
(Address of principal executive offices)
(617) 395-7700
(Bank's telephone number, including area code)
<PAGE> 2
Item 9 -- Submission of Matters to a Vote of Security Holders
On April 28, 1997, Medford Savings Bank (the "Bank") held its Annual
Meeting of Stockholders (the "Meeting"). There were 4,539,581 shares issued,
outstanding and eligible to vote as of March 3, 1997. A total of 3,847,136
shares, or 84.746% of the eligible voting shares, were present in person or by
proxy at the Meeting.
At the Meeting, the stockholders elected the following three
individuals as Directors of the Bank, with the following vote total for each
nominee:
<TABLE>
<CAPTION>
BROKER NON-VOTES
NOMINEE FOR WITHHELD AND ABSTENTIONS
- - - ------- --- -------- ---------------
<S> <C> <C> <C>
Edward D. Brickley 3,802,229.861 44,906.242 0
Robert A. Havern, III 3,806,958.157 40,177.946 0
Francis D. Pizzella 3,798,113.861 49,022.242 0
</TABLE>
In addition to the above Directors elected at the Meeting, the Bank has
seven Directors whose term of office as such continued after the Meeting: David
L. Burke, Paul J. Crowley, Mary Lou Doherty, Edward J. Gaffey, Andrew D.
Guthrie, Jr., Arthur H. Meehan, and Eugene R. Murray.
At the Meeting, the stockholders also elected Eugene R. Murray as Clerk
of the Bank. The number of votes cast for, against or withheld, as well as the
number of abstentions and broker non-votes, as to Eugene R. Murray's election is
as follows:
<TABLE>
<CAPTION>
BROKER NON-VOTES
FOR AGAINST AND ABSTENTIONS
- - - --- ------- ---------------
<S> <C> <C>
3,801,282.168 25,760.866 20,093.069
</TABLE>
1
<PAGE> 3
SIGNATURES
Under 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.
MEDFORD SAVINGS BANK
Date: May 6, 1997 By: /s/ Arthur H. Meehan
--------------------
Arthur H. Meehan
Chairman, President and Chief Executive
Officer
2
<PAGE> 1
EXHIBIT 99.4
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended June 30, 1997
F.D.I.C. Insurance Certificate No.23290
MEDFORD SAVINGS BANK
(Exact name of bank as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation or organization)
04-1609330
(IRS Employer Identification Number)
29 HIGH STREET, MEDFORD, MASSACHUSETTS
(Address of principal executive office)
02155
(Zip Code)
(617) 395-7700
(Bank's telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed
since last report)
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 outstanding of the Bank's common stock
as of August 12, 1997 - 4,541,148
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets............................................................1
Consolidated Statements of Income .................................................. 2-5
Consolidated Statements of Changes in Stockholders' Equity ........................... 6
Consolidated Statements of Cash Flows................................................7-8
Notes to Consolidated Financial Statements.............................................9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Financial Condition........................................................10-18
Results of Operations..............................................................19-23
Liquidity and Capital Resources....................................................24-25
Asset and Liability Management........................................................26
Impact of Inflation...................................................................26
Other Events..........................................................................27
Signatures............................................................................28
</TABLE>
<PAGE> 3
MEDFORD SAVINGS BANK
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, Dec. 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,688 $ 11,900
Short-term investments 4,693 4,529
----------- -----------
Cash and cash equivalents 19,381 16,429
----------- -----------
Investment securities 451,731 424,966
Loans 572,304 568,086
Less allowance for loan losses (6,968) (7,231)
----------- -----------
Loans, net 565,336 560,855
----------- -----------
Foreclosed real estate, net 79 276
Banking premises and equipment, net 10,734 10,896
Accrued interest receivable 9,001 9,291
Other assets 16,295 16,385
----------- -----------
TOTAL ASSETS $ 1,072,557 $ 1,039,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 824,611 $ 792,141
Short-term borrowings 48,842 80,817
Long-term debt 97,439 67,647
Accrued taxes and expenses 3,449 3,701
Other liabilities 1,758 2,271
----------- -----------
Total liabilities 976,099 946,577
----------- -----------
Stockholders' equity:
Serial preferred stock, $.50 par value, 5,000,000 shares authorized;
none issued; -- --
Common stock, 15,000,000 shares authorized;
$.50 par value, 4,541,148 and 4,534,648 shares issued, respectively 2,271 2,267
Additional paid-in capital 28,924 28,848
Retained earnings 65,923 61,634
----------- -----------
97,118 92,749
Net unrealized loss on securities available for sale,
after tax effects (660) (228)
----------- -----------
Total stockholders' equity 96,458 92,521
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,072,557 $ 1,039,098
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
---- ----
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $11,512 $10,696
Interest on debt securities 6,850 6,010
Dividend income 165 146
Interest on short-term investments 59 140
------- -------
Total interest and dividend income 18,586 16,992
------- -------
Interest expense:
Interest on deposits 7,744 7,624
Interest on short-term borrowings 903 553
Interest on long-term debt 1,486 802
------- -------
Total interest expense 10,133 8,979
------- -------
Net interest income 8,453 8,013
Provision for loan losses 50 90
------- -------
Net interest income, after provision for loan losses 8,403 7,923
------- -------
Other income:
Customer service fees 487 559
Gain on sales of securities, net 408 12
Gain on sales of loans, net 306 --
Miscellaneous 87 188
------- -------
Total other income 1,288 759
------- -------
Operating expenses:
Salaries and employee benefits 2,529 2,430
Occupancy and equipment 549 475
Data Processing 369 436
Professional fees 153 138
Amortization of intangibles 302 312
Advertising and marketing 158 172
Other general and administrative 507 551
------- -------
Total operating expenses 4,567 4,514
------- -------
Income before income taxes 5,124 4,168
Provision for income taxes 2,032 1,632
------- -------
Net income $ 3,092 $ 2,536
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
(CONTINUED)
2
<PAGE> 5
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
(concluded)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
---- ----
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Earnings per share:
Primary $0.65 $0.54
Fully Diluted $0.65 $0.54
Cash dividends declared per share $0.18 $0.17
Weighted average shares outstanding
Primary 4,752,688 4,716,570
Fully Diluted 4,764,222 4,727,419
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $22,801 $21,519
Interest on debt securities 13,528 11,652
Dividend income 320 308
Interest on short-term investments 106 329
------- -------
Total interest and dividend income 36,755 33.808
------- -------
Interest expense:
Interest on deposits 15,182 15,236
Interest on short-term borrowings 1,966 1,165
Interest on long-term debt 2,732 1,372
------- -------
Total interest expense 19,880 17,773
------- -------
Net interest income 16,875 16,035
Provision for loan losses 125 150
------- -------
Net interest income, after provision for loan losses 16,750 15,885
------- -------
Other income:
Customer service fees 987 1,107
Gain on sales of securities, net 673 195
Gain on sales of loans, net 306 --
Miscellaneous 323 351
------- -------
Total other income 2,289 1,653
------- -------
Operating expenses:
Salaries and employee benefits 5,094 4,836
Occupancy and equipment 1,155 984
Data Processing 699 795
Professional fees 263 274
Amortization of intangibles 606 632
Advertising and marketing 301 330
Other general and administrative 1,073 1,080
------- -------
Total operating expenses 9,191 8,931
------- -------
Income before income taxes 9,848 8,607
Provision for income taxes 3,925 3,374
------- -------
Net income $ 5,923 $ 5,233
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
(CONTINUED)
4
<PAGE> 7
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
(concluded)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Earnings per share:
Primary $1.25 $1.11
Fully Diluted $1.24 $1.11
Cash dividends declared per share $0.36 $0.34
Weighted average shares outstanding
Primary 4,754,384 4,713,499
Fully Diluted 4,763,757 4,722,536
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain (Loss)on
Common Paid-in Retained Securities
Stock Capital Earnings Available for Sale Total
----- ------- -------- ------------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $2,267 $28,848 $ 61,634 $ (228) $ 92,521
Net income -- -- 5,923 5,923
Issuance of common stock under
stock option plan and related income
tax benefits 4 76 -- -- 80
Cash dividends declared ($.36 per share) -- -- (1,634) -- (1,634)
Change in net unrealized gain (loss) on
securities available for sale, after
tax effects -- -- -- (432) (432)
------ ------- -------- ------- --------
Balance at June 30, 1997 $2,271 $28,924 $ 65,923 $ (660) $ 96,458
====== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain (Loss)on
Common Paid-in Retained Securities
Stock Capital Earnings Available for Sale Total
----- ------- -------- ------------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $2,212 $27,642 $ 54,966 $ 1,256 $ 86,076
Net income -- -- 5,233 -- 5,233
Issuance of common stock under
stock option plan and related
income tax benefits 54 1,129 -- -- 1,183
Cash dividends declared ($.34 per share) -- -- (1,540) -- (1,540)
Change in net unrealized gain (loss)
on securities available for sale,
after tax effects -- -- -- (2,612) (2,612)
------ ------- -------- ------- --------
Balance at June 30, 1996 $2,266 $28,771 $ 58,659 $(1,356) $ 88,340
====== ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 9
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities: $ 5,923 $ 5,233
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Provisions for loan losses 125 150
Depreciation and amortization, net 1,216 1,120
Foreclosed real estate losses and provisions, net (22) 31
Gain on sales of securities, net (673) (195)
Gain on sales of loans, net (306) --
Loss on sale of fixed assets 53 9
Decrease (increase) in accrued interest receivable
and other assets 159 (109)
Decrease in accrued taxes and expenses
and other liabilities (179) (986)
--------- --------
Net cash provided by operating activities 6,296 5,253
--------- --------
Cash flows from investing activities:
Maturities of investment securities available for sale 33,685 14,450
Purchases of investment securities available for sale (111,837) (79,076)
Sales of investment securities available for sale 18,626 33,708
Maturities of investment securities held to maturity 30,034 24,778
Purchases of investment securities held to maturity
and FHLBB stock (250) (34,611)
Principal amortization of mortgage-backed investments 2,901 2,604
Proceeds from sale of loans, net 11,613 --
Loans originated and purchased, net of amortization and payoffs (16,187) (8,521)
Purchases of bank premises and equipment, net (407) (165)
Sales of, and principal payments received on,
foreclosed real estate 425 300
--------- --------
Net cash used in investing activities (31,397) (46,533)
--------- --------
</TABLE>
(continued)
7
<PAGE> 10
See accompanying notes to consolidated financial statements.
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Cash Flows from financing activities:
Net increase in deposits 32,470 13,317
Net decrease in borrowings with maturities of three
months or less (31,975) (7,162)
Proceeds from long-term debt 29,792 30,000
Issuance of common stock 34 659
Cash dividends paid (2,268) (1,964)
-------- --------
Net cash provided by financing activities 28,053 34,850
-------- --------
Net change in cash and cash equivalents 2,952 (6,430)
Cash and cash equivalents, beginning
of period 16,429 28,770
-------- --------
Cash and cash equivalents, end of period $ 19,381 $ 22,340
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 11
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION
Certain amounts have been reclassified in the June 30, 1996 financial
statements to conform to the 1997 presentation.
The consolidated interim financial statements of Medford Savings Bank
(the "Bank") and subsidiary presented herein are intended to be read in
conjunction with the consolidated financial statements presented in its annual
report for the year ended December 31, 1996.
The consolidated financial information for the three and six months
ended June 30, 1997 and 1996 is unaudited; however, in the opinion of
management, the consolidated financial information reflects all adjustments
(consisting solely of normal recurring accruals) necessary for a fair
presentation in accordance with generally accepted accounting principles.
Interim results are not necessarily indicative of results to be expected for the
entire year.
NOTE 2. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
Primary earnings per share computations include common stock and
dilutive common stock equivalents attributable to outstanding stock options.
Fully diluted earnings per share computations reflect the higher market price of
the Bank's common stock at the end of the period, if applicable, and assume
further dilution applicable to outstanding stock options.
NOTE 3. COMMITMENTS
At June 30, 1997 the Bank had outstanding commitments to originate new
residential and commercial real estate mortgage loans of approximately $19.9
million, which are not reflected on the consolidated balance sheet. Unadvanced
funds on equity lines were $22.8 million, unadvanced construction loan funds
were $7.8 million, and unadvanced funds on commercial lines of credit were $7.6
million at June 30, 1997.
(Remainder of this page intentionally left blank)
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This form F-4 contains certain statements that may be considered forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Bank's actual results could differ materially from those projected in the
forward-looking statements as a result, among other factors, of changes in
general national or regional economic conditions, changes in loan default and
charge off rates, reductions in deposit levels necessitating increased borrowing
to fund loans and investments, changes in interest rates, and changes in the
assumptions used in making such forward-looking statements.
Consolidated net income was $3.1 million, or $.65 per share for the three months
ended June 30, 1997, a 22% increase when compared to $2.5 million or $.54 per
share for the same quarter in 1996. For the second quarter of 1997, the
annualized return on assets was 1.16% and the annualized return on equity was
13.17%, compared to 1.04% and 11.66% for the comparable periods in 1996.
Consolidated net income for the first six months of 1997 was $5.9 million or
$1.25 per share ($1.24 per share on a fully diluted basis) reflecting a 13%
increase when compared to $5.2 million or $1.11 per share for the comparable
period last year. The annualized return on assets was 1.13% and the annualized
return on equity was 12.73% for the six months ended June 30, 1997, compared to
1.08% and 12.07% for the comparable periods in 1996.
The convergence of one-time, special events and continuing management of
resources resulted in exceptional financial results for the quarter and
year-to-date. During the second quarter of 1997, the Bank sold a former branch
property resulting in a $53,000 loss and sold equity holdings in bank stocks
producing net gains of $287,000. The Bank began a program to liquidate lower
yielding U.S. Treasury securities, resulting in net gains of $121,000 and
reinvested those proceeds into higher yielding mortgage-backed securities to
improve net interest income The Bank also sold $11 million of education loans,
and recorded net gains of $306,000. These special events during the quarter
brought year-to-date net gains on the sale of assets to $926,000. The gains from
the sale of assets in addition to increased net interest income for the quarter
and year-to-date, more than offset the increase in operating expenses and income
taxes.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The provision for loan losses was decreased to $50,000 for the quarter and
$125,000 for the six months ended June 30, 1997, compared to $90,000 and
$150,000 for the three and six months ended June 30, 1996. Other real estate
owned property decreased from $276,000 at December 31, 1996 to $79,000 at June
30, 1997. Total non-performing assets were $3.9 million at June 30, 1997 or .37%
of total assets, compared to $3.7 million or .36% at December 31, 1996. The
allowance for loans losses at June 30, 1997 was $7.0 representing 176% of
non-performing assets compared with $7.2 million representing 196% of
non-performing assets at December 31, 1996.
As of June 30, 1997, loans increased $4.2 million, investments increased $26.8
million, deposits increased $32.5 million, short-term borrowings decreased $32.0
million, and long-term borrowings increased $29.8 million from December 31,
1996. The Bank had total assets of $1.1 billion, and total deposits of $824.6
million at June 30, 1997. Stockholders equity was $96.5 million representing a
book value of $21.24 per share, and a capital to assets ratio of 8.99%,
exceeding all regulatory requirements.
A more detailed discussion and analysis of the Bank's financial condition and
results of operations follows.
(The remainder of this page intentionally left blank.)
11
<PAGE> 14
INVESTMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Securities available for sale, at fair value $324,756 $268,379
Securities held to maturity, at amortized cost 120,729 150,591
Restricted equity securities:
Federal Home Loan Bank stock 5,132 4,882
Massachusetts Savings Bank Life Insurance stock 1,114 1,114
-------- --------
$451,731 $424,966
======== ========
</TABLE>
The amortized cost and fair value of investment securities, excluding restricted
securities, at June 30, 1997, and December 31, 1996 with gross unrealized gains
and losses, follows:
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 52 $ 1 $ -- $ 53
Mortgage - backed 75,979 2 (330) 75,651
U.S. Government and
federal agency 82,338 122 (969) 81,491
Other 160,891 450 (412) 160,929
-------- ---- ------- --------
Total debt securities 319,260 575 (1,711) 318,124
Marketable equity
securities 6,646 90 (104) 6,632
-------- ---- ------- --------
Total securities
available for sale $325,906 $665 $(1,815) $324,756
======== ==== ======= ========
Securities Held to Maturity
U.S. Government
and federal agency $111,982 $273 $ (210) $112,045
Other 8,747 17 (1) 8,763
-------- ---- ------- --------
Total securities
held to maturity $120,729 $290 $ (211) $120,808
======== ==== ======= ========
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 88 $ 1 $ -- $ 89
Mortgage - backed 28,101 82 (369) 27,814
U.S. Government and
federal agency 83,301 280 (930) 82,651
Other 150,774 745 (350) 151,169
-------- ------ ------- --------
Total debt securities 262,264 1,108 (1,649) 261,723
Marketable equity securities 6,538 236 (118) 6,656
-------- ------ ------- --------
Total securities
available for sale $268,802 $1,344 ($1,767) $268,379
======== ====== ======= ========
Securities Held to Maturity
U.S. Government
and federal agency $141,868 $ 522 $ (299) $142,091
Other 8,723 32 -- 8,755
-------- ------ ------- --------
Total securities
held to maturity $150,591 $ 554 $ (299) $150,846
======== ====== ======= ========
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity at
June 30, 1997 is as follows:
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------------------------------
Available for Sale Held to Maturity
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 44,615 $ 44,765 $ 62,923 $ 63,115
After 1 year through 5 years 198,666 197,708 57,806 57,693
-------- -------- -------- --------
243,281 242,473 120,729 120,808
Mortgage - backed securities 75,979 75,651 -- --
-------- -------- -------- --------
$319,260 $318,124 $120,729 $120,808
======== ======== ======== ========
</TABLE>
13
<PAGE> 16
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Available for Sale Held to Maturity
------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 49,839 $ 50,084 $ 46,871 $ 47,068
After 1 year through 5 years 175,259 174,979 103,720 103,778
After 5 years through 10 years 9,065 8,846 -- --
-------- -------- -------- --------
234,163 233,909 150,591 150,846
Mortgage - backed securities 28,101 27,814 -- --
-------- -------- -------- --------
$262,264 $261,723 $150,591 $150,846
======== ======== ======== ========
</TABLE>
Investment securities increased $26.8 million from $425.0 million at December
31, 1996 to $451.7 million at June 30, 1997. To improve the investment portfolio
yield, management implemented a program of replacing U.S. Treasury securities as
they matured or were sold, with mortgage-backed securities and corporate bonds.
In addition to the sale of $11 million in student loans, borrowings from various
sources were utilized to fund investment purchases. At June 30, 1997, the
securities portfolio classified as "available for sale" reflected a $1.2 million
depreciation in market value as a result of fluctuations in interest rates. In
accordance with the Bank's asset-liability management strategies, investment
securities are generally short-term with maturities of five years or less.
(The remainder of this page intentionally left blank.)
14
<PAGE> 17
LOANS
A summary of the Bank's outstanding loan balances follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Mortgage loans on real estate:
Residential 1-4 family $ 390,731 $ 380,627
Commercial 122,058 123,158
Construction 16,975 18,155
Second mortgages 1,707 1,928
Equity lines of credit 21,532 21,169
--------- ---------
553,003 545,037
Less: Unadvanced construction
loan funds (7,819) (9,436)
--------- ---------
545,184 535,601
--------- ---------
Other loans:
Commercial loans 15,734 11,014
Personal loans 2,423 2,219
Education and other 7,945 18,329
--------- ---------
26,102 31,562
--------- ---------
Add: Premium on loans acquired 301 354
Net deferred fees 717 569
--------- ---------
Total loans 572,304 568,086
Less: Allowance for loan losses (6,968) (7,231)
--------- ---------
Loans, net $ 565,336 $ 560,855
========= =========
</TABLE>
Loans experienced a modest increase for the first six months of 1997,
principally in residential 1-4 family and commercial loans. The 42.9% increase
in commercial loans is the result of intensified marketing efforts for asset
based lending opportunities. The Bank sold $11 million of education loans in the
second quarter of 1997 and recorded a net gain on sale of $306,000. It is the
Bank's intention to sell education loans in the repayment stage as conditions
warrant. All other loan categories remained stable from December 31, 1996 as new
loan originations replaced amortization and payoffs for the period. The Bank
continues to experience intense competition for loans within its geographic
region despite improvement in the regional economy.
15
<PAGE> 18
NON-PERFORMING ASSETS
It is the Bank's general policy to place on non-accrual status all loans when
they become 90 days contractually delinquent or the collectability of principal
or interest payments becomes doubtful. Interest accrual ceases, and all
previously accrued but unpaid interest is reversed when a loan is placed on
non-accrual status. Non-performing assets totaled $3.9 million at June 30, 1997,
compared with $3.7 million at December 31, 1996.
The principal balance of non-accrual loans was $3.9 million, or 0.36% of total
assets, at June 30, 1997, compared to $3.4 million or 0.33% of total assets at
December 31, 1996. Foreclosed real estate totaled $79,000 at June 30, 1997
compared to $276,000 at December 31, 1996.
In accordance with SFAS No. 114, a loan is considered impaired, when, based on
current information and events, it is probable that a borrower will be unable to
meet the scheduled payments of principal or interest when due according to the
original terms of the contractual loan agreement. The principal balance of
impaired loans was $3.6 million all of which were included in the balance of
non-accrual loans at June 30, 1997. The loan loss reserve allocated to impaired
loans at June 30, 1997 was $762,000.
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
June 30, June 30,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Balance at the beginning
of the period $ 7,231 $ 7,466
Provisions 125 150
Recoveries 41 83
Less: Charge-offs (429) (329)
------- -------
Balance at the end of the period $ 6,968 $ 7,370
======= =======
</TABLE>
The allowance for loan losses is established through a provision for loan losses
charged through the statement of income. Assessing the adequacy of the allowance
for loan losses involves substantial uncertainties and is based on management's
evaluation of the amount required to absorb estimated losses inherent in the
loan portfolio after weighing various factors. Among the factors that management
considers are the quality of specific loans, risk characteristics of the loan
portfolio generally, the level of non-performing loans, current economic
conditions, trends in delinquency, and charge-offs, and the value of the
underlying collateral. Ultimate loan losses may vary significantly from current
estimates.
16
<PAGE> 19
The allowance for loan losses was $7.0 million at June 30, 1997, a reserve
coverage of 180.1% of non-accrual loans and 1.22% of total loans. At December
31, 1996, the allowance for loan losses was $7.2 million representing a 210.3%
reserve coverage of non-accrual loans and 1.27% of total loans.
Management considers the allowance for loan losses to be adequate at June 30,
1997, although there can be no assurance that the allowance is adequate or that
additional provisions to the allowance for loan losses will not be necessary.
DEPOSITS
Total deposits increased $32.5 million from December 31, 1996 levels to $824.6
million at June 30, 1997. The Bank's strategy has been to maintain stable
deposit rates and to grow deposit levels through selective core deposit and term
deposit promotions. To retain core deposits, the Bank has been promoting the
"ComboPlus" account which combines a statement savings and a demand account into
one convenient account. This account has contributed to an increase in savings
and demand deposits. The Bank put in place a special two-year term certificate
promotion during the first six months of 1997 intended to extend deposit
maturities and attract new customer accounts. As a result of this promotion,
term certificates of deposit increased $30.9 million. Money market deposits
increased from December 31, 1996 as the Bank continues to offer competitive
rates to attract new corporate accounts.
The following table indicates the balances in various deposit accounts at the
dates indicated.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Demand accounts $ 42,495 $ 40,124
NOW accounts 57,489 60,839
Savings & money market accounts 318,288 315,771
Term certificates 406,339 375,407
-------- --------
$824,611 $792,141
======== ========
</TABLE>
17
<PAGE> 20
BORROWED FUNDS
The Bank has selectively engaged in long-term borrowings to fund loans and has
entered into short-term repurchase agreements to fund investment securities
purchases. Total borrowed funds decreased to $146.3 million at June 30, 1997
from $148.5 million at December 31, 1996, reflecting management's decision to
utilize borrowings as a supplement to current deposit activity levels. The Bank
took advantage of relatively low interest rates to shift into long-term
borrowings which were employed to fund the residential loan portfolio and
purchases of mortgage-backed securities.
STOCKHOLDERS' EQUITY
The Bank's capital to assets ratio was 8.99% at June 30, 1997 compared with
8.90% at December 31, 1996.
The FDIC imposes capital guidelines on the Bank. In addition to the capital
ratio described above, the guidelines define core or "tier 1" capital and
supplementary or "tier 2" capital and assign weights to broad categories of
assets and certain off-balance sheet items. Ratios of tier 1 and tier 1 plus
tier 2 capital to risk-weighted assets are then calculated. To be considered
adequately capitalized, Banks must maintain a tier 1 risk-based capital ratio of
4.00% and a total risk-based capital ratio of 8.00%. At June 30, 1997, the
Bank's tier 1 capital to risk-weighted assets was 14.89% and the Bank's tier 1
plus tier 2 capital, or total to risk-weighted assets was 16.03%.
Massachusetts-chartered savings banks insured by the FDIC are required to
maintain a leverage capital (tier 1 capital) to assets ratio of 3.00% to 5.00%
of total assets, as adjusted, depending on the individual bank's rating. At June
30, 1997, the Bank's leverage capital ratio was 8.54% as defined by the FDIC. As
a result of the foregoing leverage and risk-based capital ratios, the Bank is
considered "well capitalized" under the FDIC's prompt corrective action
guidelines.
Book value at June 30, 1997 was $21.24 per share, compared with $20.40 per share
at December 31, 1996.
18
<PAGE> 21
RESULTS OF OPERATIONS
NET INTEREST INCOME
Interest and dividend income from loans and investments increased 9.4% or $1.6
million to $18.6 million for the second quarter in 1997 when compared to the
same quarter in 1996. Average earning assets increased $81.0 million, or 8.6%
when the prior periods are compared with $44.4 million coming from short and
long-term investment securities and $36.6 million coming from loans. The yield
on earning assets which increased to 7.24% for the second quarter in 1997, was
the result of higher yields on investment securities and loans. The yield on
investment securities increased to 6.25% from 6.18%, reflecting the purchase of
additional higher yielding investment securities and reinvestment of matured and
sold investment securities at higher yields. Investment securities contributed
$778,000 of additional interest and dividend income when comparing the second
quarter of 1997 to the second quarter in 1996. The increase in the average
balance on loans; coupled with an increase in the weighted average yield on
loans to 8.04% from 7.98%, contributed $816,000 of additional interest income on
loans. The principal increase in interest income was from residential 1-4 family
mortgage loans as loans repriced upward and new loans were originated at higher
rates. Increased levels of commercial and education loans also contributed to
the increase in interest income on loans.
Total interest expense for the three months ended June 30, 1997 was $10.1
million reflecting an increase of $1.1 million or 12.9% over the same period in
1996. This was principally due to an increase of $74.1 million in average
interest bearing liabilities over the comparable prior year period. This
increase can be attributed to the average balance in deposits increasing $9.3
million, and the average balance in borrowed funds increasing $64.8 million. The
Bank experienced a downward repricing on term certificates offsetting a modest
increase in the higher savings rate paid on "ComboPlus" statement savings
deposits, thus maintaining the overall cost of deposits at 4.04%; level with the
comparable prior year period. Overall, interest expense on deposits increased
$120,000. As short-term borrowings matured, they were replaced with longer term
FHLBB borrowings to fund the growth in the residential loan portfolio.
Repurchase agreements at favorable rates were used to fund increases in the
investment portfolio. Interest expense on borrowed funds increased $1.0 million
in the second quarter of 1997 when compared to the second quarter in 1996. The
overall cost of interest bearing liabilities increased to 4.36% from 4.21% when
comparing the two quarters.
Net interest income increased 5.5% or $440,000 to $8.5 million despite a decline
in the interest rate spread and net interest margin when comparing the second
quarter in 1997 to the same quarter in 1996. This is primarily due to increased
levels of earning assets. While the yield on earning assets increased 5 basis
points when comparing the second quarter in 1997 to the second quarter in 1996,
this increase was more than offset by a 15 basis point increase in the cost of
interest bearing liabilities. This resulted in a reduction of the net interest
margin and interest rate spread to 3.30% and 2.88% respectively for the three
months ended June 30, 1997, compared with 3.38% and 2.98% for the three months
ended June 30, 1996.
19
<PAGE> 22
RESULTS OF OPERATIONS
(continued)
NET INTEREST INCOME
Interest and dividend income from loans and investments for the first six months
of 1997 totalled $36.8 million, an increase of $2.9 million or 8.7% from the
same prior year period. The increase in average earning assets of $85.9 million,
or 9.2% can be attributed to a $49.9 million increase in short and long-term
investment securities, and a $36.0 million increase in loans. The yield on
earning assets declined from 7.24% for the six months ended June 30, 1996 to
7.21% for the six months ended June 30, 1997, principally due to a lower yield
on commercial real estate loans. Nevertheless, interest income on loans for the
six months ended June 30, 1997 increased $1.3 million over prior year. An
increase in the yield on investment securities from 6.19% to 6.24%, in addition
to higher balances, contributed $1.7 million of additional interest income over
the prior year period. Interest income for the six months ending June 30, 1996
also was positively impacted by a $171,000 recovery of commercial real estate
loan income on a loan that had been previously charged-off in a prior period.
Total interest expense increased $2.1 million or 11.9% over the comparable
period in 1996 to $19.9 million for the six months ended June 30, 1997. The
increase is principally due to increased levels of borrowed funds. An increase
over the comparable period in 1996 of $71 million for the average balance in
borrowings, in addition to a 31 basis point increase in the rate paid, increased
interest expense on borrowed funds by $2.2 million. The weighted average rate
paid on deposits declined to 4.01% from 4.05% in the prior year. The lower rate
paid on deposits more than offset the increased average balance, thus decreasing
interest expense on deposits by $54,000 when comparing the six month periods
year to year. The Bank's overall cost of funds for the six months ended June 30,
1997 increased to 4.33% from 4.21%.
Net interest income increased 5.2% or $840,000 to $16.9 million despite a
decline in the interest rate spread and net interest margin when comparing the
six months ended June 30, 1997 to the six months ended June 30, 1996. This is
primarily due to increased levels of earning assets. The decrease in the yield
on earning assets of 3 basis points, in addition to a 12 basis point increase in
the cost of funds resulted in a decline in the net interest margin and interest
rate spread to 3.29% and 2.88%, respectively, for the first six months of 1997
compared to 3.42% and 3.03% for the prior year period.
20
<PAGE> 23
MEDFORD SAVINGS BANK
INTEREST RATE SPREAD
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average yield earned on:
Short-term investments 5.38% 5.15%
Investment securities 6.25 6.18
Loans 8.04 7.98
---- ----
All earning assets 7.24% 7.19%
---- ----
Weighted average rate paid on:
Deposits 4.04% 4.04%
Borrowed funds 5.88 5.49
---- ----
All interest-bearing liabilities 4.36% 4.21%
---- ----
Weighted average rate spread 2.88% 2.98%
---- ----
Net interest margin 3.30% 3.38%
==== ====
</TABLE>
21
<PAGE> 24
MEDFORD SAVINGS BANK
INTEREST RATE SPREAD
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average yield earned on:
Short-term investments 5.21% 5.26%
Investment securities 6.24 6.19
Loans 7.99 8.05
---- ----
All earning assets 7.21% 7.24%
---- ----
Weighted average rate paid on:
Deposits 4.01% 4.05%
Borrowed funds 5.84 5.53
---- ----
All interest-bearing liabilities 4.33% 4.21%
---- ----
Weighted average rate spread 2.88% 3.03%
---- ----
Net interest margin 3.29% 3.42%
==== ====
</TABLE>
22
<PAGE> 25
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors including the quality of specific loans,
risk characteristics of the loan portfolio generally, the level of
non-performing loans, current economic conditions, trends in delinquency and
charge-offs, and collateral values of the underlying security. Management
considers the allowance for loan losses to be adequate at June 30, 1997,
although there can be no assurance that the allowance is adequate or that
additional provisions to the allowance for loan losses will not be necessary.
The Bank recorded $50,000 and $125,000 in provisions for loan losses during the
three and six months ended June 30, 1997, down from $90,000 and $150,000 for the
comparable prior year periods. Net loan charge-offs for the three and six months
ended June 30, 1997 totalled $24,000 and $388,000, as compared to $72,000 and
$246,000 for the same periods in 1996.
OTHER INCOME
Other income, such as customer service fees and gains and losses on the sale of
assets, increased $529,000 to $1.3 million in the second quarter of 1997 as
compared to the second quarter of 1996. The increase was principally due to
$396,000 in additional net gains on the sale of securities, and $306,000 in net
gains on the sale of loans over the comparable period in 1996, partially offset
by a $53,000 net loss on the sale of a former branch property, and a $72,000
reduction in customer service fees.
Other income increased $636,000 to $2.3 million for the first six months of 1997
when compared to the first six months of 1996. The increase is principally
attributable to $478,000 of additional net gains on the sale of securities and
$306,000 in net gains on the sale of loans over the comparable period in 1996,
offset by $44,000 increases in losses on the sale of fixed assets and a $120,000
reduction in customer service fees.
OPERATING EXPENSES
Operating expenses were $4.6 million and $9.2 million for the three and six
months ended June 30, 1997 compared to $4.5 million and $8.9 million for the
same periods in 1996. The most significant increases were in salary and benefit
costs, which increased 4.1%, and 5.3%, respectively, when comparing the three
and six month periods ended June 30, 1997 and 1996. Other increases within these
periods include equipment depreciation resulting from the Bank's investment of
$1.7 million in new technology in the third quarter of 1996 and an additional
$175,000 in the second quarter of 1997 for a telephone banking center. The
increased occupancy and equipment costs are for the most part offset by lower
data processing costs as the Bank improves operating efficiencies. The Bank's
annualized expense ratio which is the ratio of non-interest expense as a
percentage of average assets was 1.73% for the six months ended June 30, 1997.
The Bank continues to focus on cost containment with the intent to be a low cost
provider
23
<PAGE> 26
of high quality banking products and services.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are customer deposits,
amortization and payoff of existing loan principal, and sales or maturities of
various investment securities. The Bank is a voluntary member of the FHLBB, and
as such may take advantage of the FHLBB's borrowing programs to enhance
liquidity and leverage its favorable capital position. The Bank also may draw on
lines of credit at the FHLBB and a large commercial bank or pledge U.S.
Government securities to borrow from certain investment firms and the Mutual
Savings Central Fund of Massachusetts. These various sources of liquidity are
used to fund withdrawals, new loans, and investments.
Management continually seeks to optimize deposit growth while controlling
the Bank's cost of funds. Sales oriented programs to attract new depositors and
the cross-selling of various products to its existing customer base are
currently in place. Management reviews, on an ongoing basis, possible new
products, with particular attention to products and services which will aid in
retaining the Bank's base of lower-costing deposits.
Maturities and sales of investment securities provide significant
liquidity to the Bank. The Bank's policy of purchasing debt instruments maturing
in five years or less reduces market risk in the bond portfolio while providing
significant cash flow. For the first six months of 1997, cash flow from
maturities and sales of securities was $82.3 million compared to cash flow from
maturities and sales of securities of $72.9 million for the first six months of
1996. Principal payments received on mortgage-backed investments during the six
months ended June 30, 1997 and 1996 totalled $2.9 million and $2.6 million,
respectively. During periods of high interest rates maturities in the bond
portfolio have provided significant liquidity at a lower cost than borrowings.
Amortization and pay-offs of the loan portfolio contribute significant
liquidity to the Bank. Traditionally, the amortization and payoffs have been
reinvested into loans. When payoff rates exceed origination rates, excess
liquidity from loan payoffs is shifted into the investment portfolio.
The Bank also uses borrowed funds as a source of liquidity. These
borrowings generally contribute toward funding over-all loan growth. At June 30,
1997 the Bank's outstanding borrowings from the FHLBB were $97.4 million, as
compared to $87.1 million at June 30, 1996. The Bank also utilizes repurchase
agreements as a source of funding when management deems market conditions to be
conducive to such activities. The balance in repurchase agreements at June 30,
1997 was $47.6 million, as compared to $6.7 million at June 30, 1996.
Commitments to originate residential and commercial real estate mortgage
loans at June 30, 1997 excluding unadvanced construction funds of $7.8 million,
was $19.9 million. Management believes that adequate liquidity is available to
fund loan commitments utilizing deposits, loan amortization, maturities of
securities, or borrowings.
24
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)
Purchases of securities during the six months ended June 30, 1997 totalled
$112.1 million consisting of debt instruments maturing in less than five years
and equities. This compares with purchases of $113.7 million for the six months
ended June 30, 1996.
Residential and commercial real estate mortgage loan origination for the
six months ended June 30, 1997 totalled $46.9 million, compared with $44.7
million for the six months ended June 30, 1996. The Bank also purchased
residential 1-4 family loans amounting to $1.2 million from a third party during
the first six months of 1997.
The Bank's capital position (total stockholders' equity) was $96.5 million
or 8.99% of total assets at June 30, 1997 compared with $92.5 million or 8.90%
of total assets at December 31, 1996. The Bank's capital position exceeds all
regulatory requirements.
(The remainder of this page intentionally left blank.)
25
<PAGE> 28
ASSET-LIABILITY MANAGEMENT
Through the Bank's Asset-Liability Management Committee ("ALCO"), which is
comprised of certain senior and middle management personnel, the Bank monitors
the level and general mix of interest rate-sensitive assets and liabilities. The
primary objective of the Bank's ALCO program is to manage the assets and
liabilities of the Bank to provide for optimum profitability and capital at
prudent levels of liquidity and interest rate, credit, and market risk.
It is ALCO's general policy to closely match the maturity or rate
sensitivity of its assets and liabilities. In accordance with this policy,
certain strategies have been implemented to improve the match between interest
rate sensitive assets and liabilities. These strategies include, but are not
limited to: daily monitoring of the Bank's changing cash requirements, with
particular concentration on investment in short term securities; originating
adjustable and fixed rate mortgage loans for the Bank's own portfolio; managing
the cost and structure of deposits; and generally using matched borrowings to
fund specific purchases of loan packages and large loan origination.
Occasionally, management may choose to deviate from specific matching of
maturities of assets and liabilities, if an attractive opportunity to enhance
yields becomes available.
The Bank actively manages its liability portfolio in order to effectively
plan and manage growth and maturities of deposits. Management recognizes the
need for strict attention to all deposits. Accordingly, plans for growth of all
deposit types are reviewed regularly. Programs are in place which are designed
to build multiple relationships with customers and to enhance the Bank's ability
to retain deposits at controlled rates of interest, and management has adopted a
policy of reviewing interest rates on an ongoing basis on all deposit accounts,
in order to control deposit growth and interest costs.
In addition to attracting deposits, the Bank has selectively borrowed
funds using advances from the FHLBB and upon occasion, reverse repurchase
agreements. These funds have generally been used to purchase loans typically
having a matched repricing date.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary effect of inflation on the operations of the Bank is reflected in
increased operating costs. Unlike most industrial companies, virtually all
assets of a financial institution are monetary in nature. As a result, interest
rates have a more significant effect 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.
26
<PAGE> 29
OTHER EVENTS
The Board of Directors of the Bank has approved the establishment of a holding
company for the Bank currently expected to be named Medford Bancorp, Inc. Proxy
materials to obtain shareholder approval of the holding company formation were
first mailed on August 4, 1997 to shareholders of record as of July 31, 1997.
The reasons for the proposed establishment of the holding company were discussed
in detail in the proxy materials. If the required shareholder and regulator
approvals are obtained, the transaction is anticipated to be consummated in the
fourth quarter of 1997.
As is also detailed in the proxy materials pursuant to the reorganization,
shares of Bank common stock (together with associated stock purchase rights)
would be converted automatically into shares of holding company common stock
(together with associated preferred stock purchase rights).
27
<PAGE> 30
SIGNATURES
Under to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be on its behalf signed by the undersigned
thereunto duly authorized.
MEDFORD SAVINGS BANK
Date: August 12, 1997
/s/ Arthur H. Meehan
------------------------------------------------
Arthur H. Meehan
Chairman/President/CEO
Date: August 12, 1997
/s/ Phillip W. Wong
-------------------------------------------------
Phillip W. Wong
Senior Vice President and Chief Financial Officer
28
<PAGE> 1
Exhibit 99.5
MEDFORD SAVINGS BANK
29 HIGH STREET
MEDFORD, MASSACHUSETTS 02155
TELEPHONE (617) 395-7700
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
(the "Special Meeting") of Medford Savings Bank (the "Bank") to be held at Five
High Street, Suite 202, Medford, Massachusetts, at 10:00 a.m., local time, on
Tuesday, September 16, 1997.
The Special Meeting has been called for the following purposes:
1. To consider and vote upon the formation of a holding company for the
Bank by approval of a Plan of Reorganization and Acquisition, dated as
of July 29, 1997 (the "Plan of Reorganization") between the Bank and
Medford Bancorp, Inc. ("Bancorp"), a newly-formed Massachusetts
corporation organized at the direction of the Bank, and each of the
transactions contemplated thereby, pursuant to which the Bank will
become a wholly owned subsidiary of Bancorp, and each issued and
outstanding share of common stock of the Bank, par value $0.50 per
share (together with associated preferred stock purchase rights), other
than shares held by stockholders, if any, exercising dissenters'
rights, will be converted into and exchanged for one share of common
stock of Bancorp, par value $0.50 (together with associated preferred
stock purchase rights) per share (the "Reorganization"). A copy of the
Plan of Reorganization is attached as Exhibit A to the accompanying
Proxy Statement; and
2. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on July 31, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS THAT AT THE SPECIAL MEETING
YOU VOTE "FOR" PROPOSAL ONE.
Very truly yours,
/s/ Arthur H. Meehan
-------------------------------
ARTHUR H. MEEHAN
Chairman, President and Chief
Executive Officer
August 4, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
SPECIAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN PERSON, YOU MAY DO
SO.
<PAGE> 2
MEDFORD SAVINGS BANK
29 HIGH STREET
MEDFORD, MASSACHUSETTS 02155
TELEPHONE (617) 395-7700
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 16, 1997
Notice Is Hereby Given that the Special Meeting of Stockholders (the
"Special Meeting") of Medford Savings Bank (the "Bank") will be held at Five
High Street, Suite 202, Medford, Massachusetts, at 10:00 a.m., local time, on
Tuesday, September 16, 1997, for the following purposes:
1. To consider and vote upon the formation of a holding company for the
Bank by approval of a Plan of Reorganization and Acquisition, dated as
of July 29, 1997 (the "Plan of Reorganization") between the Bank and
Medford Bancorp, Inc. ("Bancorp"), a newly-formed Massachusetts
corporation organized at the direction of the Bank, and each of the
transactions contemplated thereby, pursuant to which the Bank will
become a wholly owned subsidiary of Bancorp, and each issued and
outstanding share of common stock of the Bank, par value $0.50 per
share ("Bank Common Stock") (together with associated preferred stock
purchase rights), other than shares held by stockholders, if any,
exercising dissenters' rights, will be converted into and exchanged for
one share of common stock of Bancorp, par value $0.50 per share
(together with associated preferred stock purchase rights) (the
"Reorganization"). A copy of the Plan of Reorganization is attached as
Exhibit A to the accompanying Proxy Statement; and
2. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
Pursuant to the By-laws, the Board of Directors has fixed the close of
business on July 31, 1997 as the record date for the determination of
stockholders entitled to notice of and to vote at the Special Meeting.
Any holder of Bank Common Stock (i) who files with the Bank before the
taking of the vote on the approval of the Plan of Reorganization written
objection to the Plan of Reorganization, stating that he or she intends to
demand payment for his shares if the Reorganization is consummated, and (ii)
whose shares are not voted in favor of the Plan of Reorganization has or may
have the right to demand in writing from the Bank, within 20 days after the date
of mailing to him or her of notice in writing that the Reorganization has become
effective, payment for his or her shares and an appraisal of the value thereof.
The Bank and any such stockholder shall follow the procedures set forth in
Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts. See "Proposal One -- Formation of Holding Company -- Rights of
Dissenting Stockholders" in the accompanying Proxy Statement for a description
of procedures to be followed to exercise such rights. A copy of certain
provisions of the General Laws of Massachusetts relating to the rights of
dissenting stockholders is attached as Exhibit B to the accompanying Proxy
Statement.
The above matters are described in detail in the accompanying Proxy
Statement.
By Order of the Board of Directors
/s/ Eugene R. Murray
---------------------------------
EUGENE R. MURRAY
Clerk
August 4, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN PERSON,
YOU MAY DO SO.
<PAGE> 3
MEDFORD SAVINGS BANK
29 HIGH STREET
MEDFORD, MASSACHUSETTS 02155
TELEPHONE (617) 395-7700
------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 16, 1997
VOTING, REVOCATION, AND SOLICITATION OF PROXIES
SPECIAL MEETING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Medford Savings Bank (the "Bank") for use
at the Special Meeting of Stockholders of the Bank to be held at Five High
Street, Suite 202, Medford, Massachusetts, at 10:00 a.m., local time, on
Tuesday, September 16, 1997, and any adjournments or postponements thereof (the
"Special Meeting"), for the purposes set forth in this Proxy Statement.
At the Special Meeting, stockholders of the Bank will be asked to consider
and vote upon the following matters:
1. To consider and vote upon the formation of a holding company for the
Bank by approval of the Plan of Reorganization and Acquisition, dated
as of July 29, 1997 (the "Plan of Reorganization") between the Bank and
Medford Bancorp, Inc. ("Bancorp"), a newly-formed Massachusetts
corporation organized at the direction of the Bank, and each of the
transactions contemplated thereby, pursuant to which a newly formed
Massachusetts corporation will be organized at the direction of the
Bank, the Bank will become a wholly owned subsidiary of Bancorp, and
each issued and outstanding share of common stock of the Bank, par
value $0.50 per share ("Bank Common Stock")(together with associated
preferred stock purchase rights), other than shares held by
stockholders, if any, exercising dissenters' rights, will be converted
into and exchanged for one share of common stock of Bancorp, par value
$0.50 per share ("Bancorp Common Stock")(together with associated
preferred stock purchase rights) (the "Reorganization"). A copy of the
Plan of Reorganization is attached as Exhibit A to the accompanying
Proxy Statement; and
2. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
RECORD DATE
This Proxy Statement is first being mailed to stockholders of the Bank on
or about August 4, 1997, in connection with the solicitation of proxies for the
Special Meeting. The Board of Directors (the "Board") has fixed the close of
business on July 31, 1997 as the record date for the determination of
stockholders entitled to notice of and to vote at the Special Meeting and any
adjournments or postponements thereof (the "Record Date"). Only holders of Bank
Common Stock, at that time will be entitled to notice of and to vote at the
Special Meeting and any adjournments or postponements thereof. As of the Record
Date, there were 4,541,148 shares of Bank Common Stock outstanding and each such
share is entitled to one vote at the Special Meeting. As of the Record Date,
there were approximately 1,196 holders of record of the outstanding Bank Common
Stock.
PROXIES
Stockholders of the Bank are requested to complete, date, sign and promptly
return the accompanying form of proxy in the enclosed envelope. Bank Common
Stock represented by properly executed proxies
<PAGE> 4
received by the Bank and not revoked will be voted at the Special Meeting in
accordance with the instructions contained therein. If instructions are not
given therein, properly executed proxies will be voted FOR Proposal One. It is
not anticipated that any matters other than those set forth in this Proxy
Statement will be presented at the Special Meeting. If other matters are
presented, proxies will be voted in accordance with the best judgment of the
proxy holders.
Any properly completed proxy may be revoked at any time before it is voted
by filing a written notice of such revocation with, or by delivering a duly
executed proxy bearing a later date to, the Clerk of the Bank, or by attending
the Special Meeting and voting in person. Attendance at the Special Meeting will
not in and of itself constitute revocation of a proxy.
STOCKHOLDER VOTE REQUIRED
The presence, in person or by proxy, of at least a majority in interest of
the total number of the issued and outstanding shares of Bank Common Stock
entitled to vote is necessary to constitute a quorum for transaction of business
at the Special Meeting. A quorum being present, approval of Proposal One
(Formation of Holding Company) requires the affirmative vote of the holders of
at least 66 2/3% of the issued and outstanding shares of Bank Common Stock
entitled to vote by stockholders of record at the close of business on the
Record Date.
Abstentions and "broker non-votes" will be counted as present for
determining the presence or absence of a quorum for the transaction of business
at the Special Meeting. A "broker non-vote" is a proxy from a broker or other
nominee indicating that such person has not received instructions from the
beneficial owner or other person entitled to vote the shares on a particular
matter with respect to which the broker or other nominee does not have
discretionary voting power. Abstentions and broker non-votes will not be counted
as votes for Proposal One and, therefore, will have the effect of negative
votes.
BUSINESS OF THE BANK
The Bank was chartered as a Massachusetts savings bank in 1869. The Bank
converted from mutual to stock form on March 18, 1986 and issued 3,680,000
shares of Bank Common Stock. The Bank adopted a holding company structure on
August 14, 1987, whereby the Bank became a wholly owned subsidiary of Regional
Bancorp, Inc. ("Regional") and all Bank Common Stock was exchanged on a
one-for-one basis for 100% of Regional's common stock. On July 22, 1993, the
holding company structure was eliminated. Each share of Regional's common stock
was exchanged for one share of Bank Common Stock.
The Bank is principally engaged in the business of attracting deposits from
the general public, originating residential and commercial real estate mortgages
and consumer and commercial loans, and investing in securities. The Bank is
headquartered in Medford, Massachusetts, which is located approximately seven
miles north of downtown Boston. It has a network of sixteen banking offices
located in Medford, Malden, Arlington, Belmont, Burlington, North Reading,
Waltham, and Wilmington. The Bank's primary market area includes these
communities as well as other cities and towns in Middlesex County and the
surrounding area north of Boston.
Until January 1996, the Bank had two wholly owned subsidiaries: Medco
Realty, Inc. ("Medco") and Medford Securities Corporation ("MSC"). Medco engaged
in the ownership and maintenance of certain buildings leased to the Bank and, to
the extent excess space was available, third parties. The Bank elected to
dissolve Medco in January, 1996 and acquired all of its assets and liabilities.
MSC was established as a wholly owned subsidiary of Medford Savings Bank in
February, 1995. MSC engages exclusively in the buying, selling, dealing in, or
holding of securities, and became operational on March 1, 1995.
COPIES OF THE BANK'S 1996 ANNUAL REPORT, AND COPIES OF THE BANK'S FORM F-2
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FORM F-4 FOR THE QUARTER ENDED JUNE 30,
1997 AS FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION (WITHOUT EXHIBITS),
ARE AVAILABLE UPON REQUEST, WITHOUT CHARGE, FROM THE BANK. SUCH REQUESTS SHOULD
BE DIRECTED TO: MEDFORD SAVINGS BANK, 29 HIGH STREET, MEDFORD, MASSACHUSETTS
02155, ATTENTION: SHAREHOLDER RELATIONS.
2
<PAGE> 5
PROPOSAL ONE
FORMATION OF HOLDING COMPANY
The following descriptions are qualified in their entirety by reference and
made subject to the Plan of Reorganization attached hereto as Exhibit A, certain
provisions of the General Laws of Massachusetts relating to the rights of
dissenting stockholders attached hereto as Exhibit B, and the form of Articles
of Organization of Bancorp attached hereto as Exhibit C.
DESCRIPTION OF THE PLAN OF REORGANIZATION
Bancorp has been organized as a Massachusetts corporation at the direction
of the Bank for the purpose of becoming the holding company of the Bank. Bancorp
and the Bank have entered into the Plan of Reorganization, which provides,
subject to the exercise of dissenters' rights, for the acquisition of all the
outstanding shares of Bank Common Stock by Bancorp in exchange for an equal
number of shares of Bancorp Common Stock pursuant to the provisions of Section
26B of Chapter 172 of the General Laws of Massachusetts.
After consummation of the Reorganization, the Bank, as a subsidiary of
Bancorp, will continue to serve the communities it presently serves from its
existing office locations. The assets, property, rights and powers, debts,
liabilities, obligations and duties of the Bank will not be changed by the
Reorganization, except for the proposed initial transfer, subject to applicable
law and any agreements of the Bank with regulatory agencies, of up to
approximately $7 million from the Bank to Bancorp. See "Regulation of Bancorp
and the Bank." Similarly, the Charter and By-laws of the Bank will not be
affected by consummation of the Reorganization. The Medford Savings Bank 1993
Stock Option Plan and the Medford Savings Bank 1986 Stock Option Plan
(collectively, the "Stock Option Plans") will become stock option plans of
Bancorp. All other stock related benefit plans of the Bank will be unchanged by
the Reorganization, except that any plan which refers to Bank Common Stock, such
as the Employee Stock Ownership Plan (the "ESOP"), will, following the
completion of the Reorganization, be deemed to refer instead to Bancorp Common
Stock. The Directors, officers and other employees of the Bank will be unchanged
by the Reorganization. The Directors of Bancorp will initially consist of the
ten persons currently serving as members of the Board of Directors of the Bank.
The President and Chief Executive Officer, Chief Financial Officer and the Clerk
of the Bank will initially be the persons serving as the executive officers of
Bancorp.
Under the Plan of Reorganization, Bancorp will become the owner of all the
outstanding shares of the Bank Common Stock, and each stockholder of the Bank
who does not exercise dissenters' rights with respect to the Plan of
Reorganization will become the owner of one share of Bancorp Common Stock for
each share of Bank Common Stock held immediately prior to the consummation of
the Reorganization, together with associated preferred stock purchase rights.
See "Shareholder Rights Plan." On the effective date of the Reorganization, each
share of Bank Common Stock (together with associated preferred stock purchase
rights) will be automatically converted into and exchanged for one share of
Bancorp Common Stock (together with associated preferred stock purchase rights).
The Reorganization will become effective at 12:01 a.m. on a business day
following the date on which the Bank and Bancorp advise the Massachusetts
Commissioner of Banks (the "Commissioner" or the "Commissioner of Banks") in
writing that all the conditions precedent to the Reorganization becoming
effective have been satisfied and that the Plan of Reorganization has not been
abandoned by the Bank or Bancorp (the "Effective Time"). As a condition to the
consummation of the Reorganization, Bancorp and the Bank must receive certain
regulatory approvals. See "Conditions of the Reorganization." Neither Bancorp
nor the Bank can predict with any certainty whether such approvals on terms
satisfactory to Bancorp and the Bank will be obtained, and, if so, the timing of
such approvals. Accordingly, the consummation of the Reorganization may be
subject to a delay, which may, under certain circumstances, be significant. If
the stockholders approve the Plan of Reorganization at the Special Meeting,
Bancorp and the Bank shall have the right to consummate the Reorganization at
any time thereafter.
The number of shares of Bancorp Common Stock (together with associated
preferred stock purchase rights) to be issued at the Effective Time will equal
the number of shares of Bank Common Stock (together with associated preferred
stock purchase rights) issued and outstanding immediately prior thereto, less
the
3
<PAGE> 6
number of shares of Bank Common Stock held by dissenting stockholders. Shares of
Bancorp Common Stock that would have been issued had dissenting stockholders not
dissented will remain as authorized but unissued shares of Bancorp Common Stock.
The shares of Bancorp Common Stock that are outstanding prior to the Effective
Time, all of which are presently held by the Bank, will be canceled as part of
the Reorganization.
The outstanding stock certificates of Bank Common Stock that, prior to the
Reorganization, represented shares of Bank Common Stock, will thereafter for all
purposes represent an equal number of shares of Bancorp Common Stock, except for
certificates held by dissenting stockholders and as further described below.
After the Effective Time, Bancorp and the Bank will notify stockholders by mail
at their addresses as shown on the Bank's records and by publication that they
may present their certificates to the transfer agent (the "Transfer Agent") for
exchange. However, stockholders need not surrender stock certificates
representing Bank Common Stock to the Transfer Agent in exchange for new
certificates representing Bancorp Common Stock. The Transfer Agent will treat
certificates for Bank Common Stock as representing, for all purposes, an equal
number of shares of Bancorp Common Stock, and the holders of those certificates
will have all the other rights of stockholders of Bancorp.
REASONS FOR THE HOLDING COMPANY FORMATION
The Board of Directors of the Bank believes that a holding company
structure will provide flexibility for meeting the future financial needs of the
Bank or other subsidiaries of Bancorp and responding to competitive conditions
in the financial services market. As a bank holding company, Bancorp will not be
subject to the same regulatory restrictions as the Bank, and will be able to
acquire and invest more freely in certain bank and bank-related activities as
well as such other activities as might be permitted by regulatory authorities.
In addition, Bancorp will not be subject to the same regulatory limitations on
the amounts which it can invest in its subsidiaries and other businesses and
will not be required to obtain regulatory approval before issuing shares of its
capital stock, except under certain circumstances. See "Regulation of Bancorp
and the Bank." Moreover, providing even further operational flexibility, the
repurchase of stock by Bancorp will not be subject to the same significant
adverse tax consequences as a repurchase of stock by the Bank, and except under
certain circumstances, no regulatory approval is required for such repurchase by
Bancorp. There are no current agreements or understandings with respect to any
investments or the issuance of any additional shares of capital stock by either
the Bank or Bancorp, except pursuant to options granted under the Stock Option
Plans.
The holding company structure will also facilitate the acquisition of other
banks as well as other companies engaged in bank-related activities if and when
opportunities arise. A holding company structure would permit an acquired entity
to operate on a more autonomous basis as a wholly owned subsidiary of Bancorp
rather than as a division of the Bank. For example, the acquired institution
could retain its own directors, officers, corporate name and local identity.
This more autonomous operation may be decisive in acquisition negotiations. In
addition, the stock of Bancorp may serve as appropriate consideration in any
such acquisition.
While the Bank is, from time to time, exploring various acquisition
possibilities, there are no current agreements or understandings for the
acquisition of any financial institution or other company and there are no
assurances that any such acquisitions will occur. It is recognized that some
increased costs, including administrative expenses, will be incurred in the
formation and operation of Bancorp. However, such increased costs are not
expected to have a material adverse effect on the consolidated financial results
of Bancorp and the Bank.
BUSINESS OF BANCORP
Bancorp is a business corporation organized under the laws of the
Commonwealth of Massachusetts in July, 1997. The only office of Bancorp, and its
principal place of business, is located at the main office of the Bank at 29
High Street, Medford, Massachusetts 02155, and its telephone number is (617)
395-7700. Bancorp was organized for the purpose of becoming the holding company
of the Bank. Upon completion of the Reorganization, the Bank will be a wholly
owned subsidiary of Bancorp, which will thereby become a bank holding company.
Each stockholder of the Bank, upon completion of the Reorganization, will,
subject to dissenters' appraisal rights, become a stockholder of Bancorp without
change in the number of shares owned
4
<PAGE> 7
or in respective ownership percentages. Bancorp has not yet undertaken any
business activities and there are no operating business activities currently
proposed for Bancorp. In the future, Bancorp may become an operating company or
acquire banks or companies engaged in bank-related activities and may engage in
or acquire such other business or activities as may be permitted by applicable
law. Upon consummation of the Reorganization, Bancorp will own all of the
outstanding Bank Common Stock.
FINANCIAL RESOURCES OF BANCORP
In connection with the Reorganization, the Bank currently intends, subject
to applicable law and any agreements of the Bank with regulatory agencies, to
transfer up to approximately $7.0 million to Bancorp, which amount does not
exceed the accumulated earnings and profits for tax purposes of the Bank as of
June 30, 1997. The actual amount of funds which may be transferred, however, is
subject to change and may be greater or less than this amount, depending on a
number of factors, including Bancorp's future financial requirements and
applicable regulatory restrictions. Moreover, the amount of capital which will
initially be transferred from the Bank to Bancorp may be reduced to the extent
necessary to avoid any taxable income to the Bank. See "Income Tax
Consequences."
A transfer of $7.0 million to Bancorp would reduce the Bank's stockholders'
equity as of June 30, 1997, to approximately $89.5 million. See
"Capitalization." If such a transfer to Bancorp had been made on June 30, 1997,
the leverage, Tier 1 risk-based, and total risk-based capital ratios of the Bank
would have been approximately 7.93%, 14.14% and 15.32%, respectively.
Upon consummation of the Reorganization, the currently outstanding shares
of Bancorp, all of which are owned by the Bank, will be canceled.
The Bank is contemplating contributing up to $7 million to Bancorp to
provide its holding company with flexibility in its ongoing operations. This sum
is anticipated to enable Bancorp, as market conditions warrant, to engage in
general corporate activities, such as funding of regular quarterly dividends and
stock repurchases, and also to establish nonbank subsidiaries to engage in new
activities, without having to rely solely on new dividends from the Bank to
support those activities. However, although it is contemplated that regular
quarterly dividends will occur after Bancorp is the holding company of the Bank,
no definite plans exist at this time as to any other of the corporate activities
described above. It should also be noted, however that bank holding companies,
such as Bancorp, have a much more extensive array of permissible investments
than banks, such as the Bank. Of course, any contribution to Bancorp would be
subject to receipt of all necessary federal and state bank regulatory approvals.
Additional financial resources may be available to Bancorp in the future
through borrowings, debt or equity financings, or dividends from the Bank, other
acquired entities or new businesses. In addition, the Bank may lend amounts to
Bancorp both prior to the consummation of the Reorganization and thereafter,
subject to certain restrictions on transactions with insured bank affiliates
under the Federal Reserve Act. There can be no assurance, however, as to the
amount of additional financial resources which will be available to Bancorp. In
particular, dividends from the Bank to Bancorp will be subject to tax
considerations and regulatory limitations. See "Income Tax Consequences,"
"Regulation of Bancorp and the Bank -- Certain Federal Tax Matters," "Comparison
of Stockholder Rights -- Common Stock -- Dividend Rights."
5
<PAGE> 8
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Bank as of June 30, 1997; (ii) the pro forma consolidated capitalization of the
Bank as of June 30, 1997 after giving effect to the Reorganization (which
reflects the proposed maximum transfer of $7 million from the Bank's retained
earnings to Bancorp), and (iii) the pro forma capitalization of Bancorp on a
consolidated basis after giving effect to the Reorganization. The pro forma
consolidated capitalization of Bancorp as of June 30, 1997 will be the same as
the consolidated capitalization of the Bank as of that date. However, the pro
forma capitalization of the Bank is changed as a result of the $7 million
proposed transfer by the Bank to Bancorp.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------------
BANK BANK BANCORP
(ACTUAL (PRO FORMA (PRO FORMA
CONSOLIDATED) CONSOLIDATED) CONSOLIDATED)
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits................................................. $ 824,611 $ 824,611 $ 824,611
======== ======== ========
Securities sold under agreements to repurchase........... $ 47,580 $ 47,580 $ 47,580
Federal Home Loan Bank advances.......................... 97,439 97,439 97,439
Federal Reserve Bank of Boston advances.................. 1,262 1,262 1,262
-------- -------- --------
146,281 146,281 146,281
-------- -------- --------
Stockholders' equity:
Serial preferred stock -- par value $0.50 per share;
5,000,000 shares authorized, none issued(1)....... $ -- $ -- $ --
Common stock -- par value $0.50 per share;
15,000,000 shares authorized, [4,541,148]
issued(2)......................................... 2,271 2,271 2,271
Additional paid-in capital.......................... 28,924 28,924 28,924
Retained earnings................................... 65,923 58,923(3) 65,923
-------- -------- --------
97,118 90,118 97,118
-------- -------- --------
Net unrealized gain (loss) on investment securities
available for sale, after tax effects.................. (660) (660) (660)
-------- -------- --------
Total stockholders' equity..................... $ 96,458 $ 89,458 $ 96,458
======== ======== ========
</TABLE>
- - - ---------------
(1) Represents, in the case of Bancorp, 5,000,000 shares of authorized, but
unissued, preferred stock, par value $0.50 per share.
(2) Represents, in the case of Bancorp, 15,000,000 shares of authorized common
stock, par value $0.50 per share of which 4,541,148 shares are to be issued
to stockholders of the Bank in exchange for the equivalent number of shares
of Bank Common Stock as part of the Reorganization, with the assumption that
no holders of Bank Common Stock exercised dissenter's rights. Does not
include the following shares of Bank Common Stock that were issuable as of
the Record Date: 936,000 shares of Bank Common Stock reserved for issuance
in the aggregate under the Stock Option Plans. Upon consummation of the
Reorganization, the Stock Option Plans will become stock option plans of
Bancorp and an identical number of shares will be reserved for issuance
thereunder as are reserved immediately prior to the consummation of the
Reorganization.
(3) Reduction reflects contribution of $7 million to Bancorp.
CONDITIONS OF THE REORGANIZATION
The Plan of Reorganization provides that it shall not become effective, and
thus the Reorganization will not occur, until all of the following first shall
have occurred: (i) the Plan of Reorganization shall have been approved by a vote
of the holders of two-thirds of the outstanding Common Stock of the Bank, (ii)
the Plan of Reorganization shall have been approved by the Commissioner of Banks
under Section 26B of Chapter 172 of the General Laws of Massachusetts, (iii) any
approval, consent, waiver, or confirmation of no objection required by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board") shall
have
6
<PAGE> 9
been received and any waiting period imposed by applicable law shall have
expired, (iv) the Bank and Bancorp shall have received a favorable opinion from
counsel concerning the federal income tax consequences of the Reorganization,
(v) Bancorp Common Stock to be issued in exchange for Bank Common Stock shall
have been registered or qualified, if necessary, for issuance under applicable
state securities laws, and (vi) the Bank and Bancorp shall have obtained all
other necessary consents or approvals required for the holding company
formation.
The Bank intends to file an application with the Commissioner of Banks to
obtain approval of the Plan of Reorganization under Section 26B of Chapter 172
of the General Laws of Massachusetts after the date of this Proxy Statement. The
Commissioner will not grant his approval until the Plan of Reorganization has
been approved by the Bank's stockholders. In addition, the Bank intends to file,
after the date hereof, a notice of one bank holding company formation with the
Federal Reserve Board. Bancorp also currently intends to file an application to
register with the Federal Reserve Board as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Any delays which are
encountered in seeking any of the foregoing regulatory approvals could result in
a delay in the consummation of the Reorganization. See "Regulation of Bancorp
and the Bank."
If the Plan of Reorganization is approved by the Bank's stockholders at the
Special Meeting, the formation of the holding company structure is currently
expected to become effective as soon thereafter as the required regulatory
approvals are received. Bank and Bancorp have the right under the terms of the
Plan of Reorganization to abandon the Reorganization if, among other things,
regulatory approvals cannot be obtained or if the conditions or obligations
associated with such regulatory approvals make the Reorganization inadvisable in
the opinion of the Bank or Bancorp.
In addition, the Plan of Reorganization also provides that it may be
abandoned by the Board of Directors of the Bank or Bancorp if, among other
things (i) the number of shares of Bank Common Stock owned by dissenting
stockholders will make consummation of the Reorganization inadvisable in the
opinion of the Bank or Bancorp, (ii) any action, suit, proceeding or claim has
been instituted, made or threatened relating to the Plan which will make
consummation of the Reorganization inadvisable in the opinion of the Bank or
Bancorp, or (iii) for any other reason consummation of the Reorganization is
inadvisable in the opinion of the Bank or Bancorp. Moreover, the Plan of
Reorganization may be amended by the mutual consent of the Boards of Directors
of Bancorp and the Bank (i) prior to its approval by the stockholders of the
Bank, in any respect, and (ii) subsequent to such approval, in any respect,
provided that the Commission shall approve of such amendment or modification.
If the Plan of Reorganization is not approved at the Special Meeting or all
of the necessary regulatory approvals are not obtained, the Bank will continue
to operate without a holding company structure. All expenses in connection with
the Reorganization will be paid by the Bank whether or not the Plan of
Reorganization is approved by its stockholders or the Reorganization is
consummated.
The Bank intends to seek approval for the listing of Bancorp Common Stock
in substitution for Bank Common Stock on the NASDAQ National Market System using
the symbol "MDBK" subject to completion of the holding company formation. The
Bank expects that approval for this substitution will be received prior to
consummation of the Reorganization.
RIGHTS OF DISSENTING STOCKHOLDERS
Any holder of Bank Common Stock (i) who files with the Bank before the
taking of the vote on the approval of the Plan of Reorganization written
objection to the Plan of Reorganization, stating that he or she intends to
demand payment for his or her shares if the Reorganization is consummated, and
(ii) whose shares are not voted in favor of the Plan of Reorganization, has or
may have the right to demand in writing from the Bank, within 20 days after the
date of mailing to him or her of notice in writing that the Reorganization has
become effective, payment for his or her shares and an appraisal of the value
thereof. The Bank and any such stockholder shall follow the procedures set forth
in Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts. A brief summary of those sections of the General Laws of
Massachusetts is set forth below. However, this summary does not purport to be a
complete statement of the procedures to be
7
<PAGE> 10
followed by stockholders desiring to exercise their rights to dissent from the
Reorganization and is qualified in its entirety by express reference to such
sections, which are included in this Proxy Statement as Exhibit B.
A holder of Bank Common Stock intending to exercise his or her dissenter's
right to receive payment for his or her shares must file with the Bank, before
the Special Meeting and the vote on the Plan of Reorganization, written
objection to the proposed Plan of Reorganization, stating that he or she intends
to demand payment for his or her shares if the Reorganization is consummated,
and must not vote in favor of the Reorganization at the Special Meeting. Within
ten days after the Reorganization becomes effective, the Bank will give written
notice of such effectiveness by registered or certified mail to each holder of
Bank Common Stock who filed such written objection and who did not vote in favor
of the Plan of Reorganization. Such written notice of effectiveness will be
addressed to the stockholder at his or her last known address as it appears in
the stock record books of the Bank. Within 20 days after the mailing of such
notice, any holder of Bank Common Stock to whom the Bank was required to give
such notice may make written demand for payment for his or her shares from the
Bank, and, in such event, the Bank will be required to pay to him or her the
fair value of such shares within 30 days after the expiration of the period
during which such demand may be made. If during such 30-day period the Bank and
the dissenting stockholder fail to agree as to the fair value of such shares,
the Bank or such stockholder may have the fair value of the stock of all
dissenting stockholders determined by judicial proceedings by filing a bill in
equity in the Superior Court in Suffolk County, Massachusetts, within four
months after the expiration of such 30-day period. For the purposes of any such
Superior Court determination, the value of the shares of the Bank is to be
determined as of the day preceding the date of the vote of the stockholders
approving the Plan of Reorganization and shall be exclusive of any element of
value arising from the expectation or accomplishment of the Reorganization. Upon
making such written demand for payment, the dissenting stockholder will not
thereafter be entitled to notices of meetings of stockholders, to vote, or to
dividends unless no suit is filed within four months after such 30-day period to
determine the value of the stock, any such suit is dismissed as to that
stockholder, or the stockholder withdraws his objection in writing with the
written approval of the Bank.
The enforcement by a dissenting stockholder of his or her right to receive
payment for his Bank Common Stock in the manner provided by Sections 86 through
98 of Chapter 156B of the General Laws of Massachusetts will be his or her
exclusive remedy, except that a stockholder shall not be excluded from bringing
or maintaining an appropriate proceeding to obtain relief on the ground that
consummation of the Reorganization will be or is illegal or fraudulent as to him
or her.
INCOME TAX CONSEQUENCES
The Bank will not seek a ruling from the Internal Revenue Service
concerning the federal income tax consequences of the proposed holding company
formation, but will instead rely on an opinion of its counsel, Goodwin, Procter
& Hoar LLP. Unlike a private letter ruling from the Internal Revenue Service, an
opinion of counsel has no binding effect on the Internal Revenue Service. Based
on such opinion, the material federal tax results of the Reorganization would be
as follows:
1. No gain or loss will be recognized by the stockholders of the Bank
upon the exchange of their Common Stock of the Bank solely for Bancorp
Common Stock.
2. No gain or loss will be recognized by the Bank as a result of the
proposed transaction (except to the extent that, as described below, the
Bank may have taxable income as a result of payments to stockholders who
exercise dissenters' rights and/or the transfer to Bancorp of an amount
that exceeds the current and accumulated earnings and profits of the Bank).
3. No gain or loss will be recognized by Bancorp upon the receipt of
shares of Bank Common Stock solely in exchange for Bancorp Common Stock.
4. The basis of the Bancorp Common Stock to be received by each
stockholder of the Bank will be the same as the basis of Bank Common Stock
surrendered in exchange therefor.
8
<PAGE> 11
5. The holding period of the Bancorp Common Stock to be received by
each stockholder of the Bank will include the holding period of Bank Common
Stock surrendered in exchange therefor, provided that such Bank Common
Stock was held as a capital asset in the hands of such stockholder.
6. Stockholders of the Bank who exercise their dissenters' appraisal
rights and receive cash in exchange for their shares of Bank Common Stock
will recognize taxable income or gain or loss for federal income tax
purposes in connection with the transaction. The amount of that income or
gain or loss and the character of that income or gain or loss (that is,
whether it constitutes ordinary income, short-term capital gain or loss or
long-term capital gain or loss) will turn upon a number of factual
considerations peculiar to the individual stockholder.
If a stockholder exercises his or her dissenter's appraisal rights with
respect to all of his or her shares of Bank Common Stock, and if no shares are
constructively owned by him under the rules of Section 318(a) (or if such
constructive ownership is waived under the rules of Section 302(c)(2)), then the
transaction should qualify as a sale or exchange of the stock under Section
302(a), rather than a dividend. If the shares of Bank Common Stock qualify as
"capital assets" in the hands of such a stockholder and if the shares have been
held for more than one year, then any gain recognized on the exchange should
qualify for long-term capital gain treatment. If, however, a stockholder fails
to exercise dissenters' appraisal rights as to all shares owned by him or her
(or is considered to constructively own shares under Section 318(a)), then the
transaction might be treated as a dividend to the stockholder, depending upon
whether or not it qualifies as "not essentially equivalent to a dividend" within
the meaning of Section 302(b)(1), or as "a substantially disproportionate
redemption" within the meaning of Section 302(b)(2). If the transaction were
treated as a dividend, then the entire payment could be taxable as ordinary
income, depending upon the circumstances.
Any stockholder of the Bank considering exercising his or her dissenter's
appraisal rights with respect to any shares of Bank Common Stock should consult
his personal income tax advisor for specific advice with respect to the federal
income tax consequences of that exercise.
Payments made by the Bank to stockholders who exercise their dissenters'
appraisal rights may result in taxable income to the Bank to the extent the
payments are deemed made out of the Bank's bad debt reserve. In addition, any
dividend distributions by the Bank (including any distribution made to provide
working capital to Bancorp and any payments to dissenting stockholders that are
treated as dividends) that exceed the current and accumulated earnings and
profits of the Bank will result in taxable income to the Bank to the extent that
they are deemed made out of the Bank's bad debt reserve.
The determination of current and accumulated earnings and profits turns
upon the application of a complicated set of legal rules to a number of factual
issues arising over an extended period of years. Because of the inherently
factual issues associated with determining accumulated earnings and profits,
Goodwin, Procter & Hoar LLP does not intend to confirm the amount of the Bank's
earnings and profits and thus its opinion will not address whether or not the
proposed transfer of funds to Bancorp will exceed the current and accumulated
earnings and profits of Bancorp.
ACCOUNTING TREATMENT
It is anticipated that the Reorganization will be accounted for as similar
to a "pooling of interests" transaction under generally accepted accounting
principles.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the holding company formation, stockholders of the Bank,
whose rights are presently governed by Massachusetts banking law, will become
stockholders of Bancorp, a Massachusetts corporation, and as such their rights
will be governed by Massachusetts corporate law. Certain differences in the
rights of stockholders arise from this change in governing law, however, the
provisions of the Bank's Restated Articles of Organization (the "Charter") and
By-laws and Bancorp's Articles of Organization (the "Articles") and By-laws are
substantively identical. Certain differences and similarities of the rights of
stockholders of the Bank and Bancorp are discussed below. The following
discussion does not purport to be a complete statement of such similarities and
differences affecting the rights of stockholders of the Bank but is intended as
a
9
<PAGE> 12
summary only. The form of Articles of Bancorp attached as Exhibit C to this
Proxy Statement should be reviewed carefully by each stockholder.
Capital Stock
Authorized and Issued Stock. The Bank had, as of the Record Date,
15,000,000 shares of authorized Common Stock of which 4,541,148 shares were
issued and outstanding and 936,000 shares were reserved for issuance under the
Stock Option Plans. As of such date, the Bank also had 5,000,000 shares of
authorized but unissued preferred stock.
The Articles of Bancorp will provide for 15,000,000 shares of authorized
Bancorp Common Stock and 5,000,000 shares of preferred stock, of which 100
shares of Bancorp Common Stock are currently issued and outstanding, all of
which are owned by the Bank. After the consummation of the Reorganization, and
subject to the exercise of dissenters' appraisal rights, the number of issued
and outstanding shares, shares reserved for issuance under the Stock Option
Plans and non-reserved shares of Bancorp Common Stock available for future
issuance by Bancorp will be the same as the number of such shares of Bank Common
Stock immediately prior to the Effective Time.
Issuance of Stock. Under the provisions of Massachusetts banking law, the
issuance of capital stock by the Bank requires the prior approval of the
Commissioner of Banks. In contrast, Bancorp is authorized to issue shares of
capital stock without obtaining prior approval of the Commissioner of Banks.
Although the issuance of Bancorp Common Stock in connection with the
Reorganization is exempt from registration under the Securities Act, future
issuances of Bancorp Common Stock would be subject to registration under the
Securities Act, unless another exemption were available. See "Regulation of
Bancorp and the Bank--Consequences of the Reorganization Under Federal
Securities Laws." Bank Common Stock is exempt from registration under the
Securities Act. There are no current agreements or understandings with respect
to the issuance of any additional shares of Bancorp capital stock.
Pre-emptive Rights. The stockholders of Bancorp, like the stockholders of
the Bank, will not be entitled to pre-emptive rights with respect to any shares
of capital stock which may be issued.
Common Stock
Dividend Rights. The stockholders of the Bank are entitled to dividends
when and as declared by the Bank's Board of Directors. Under Massachusetts
banking law, Massachusetts stock-form savings banks such as the Bank may pay
dividends only out of net profits without impairing their capital stock and
surplus accounts. Such dividend payments are also subject to a number of
additional statutory limitations. Bancorp may pay dividends if, as, and when
declared by its Board of Directors. The holders of Bancorp Common Stock will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors out of funds legally available therefor. Although
Massachusetts corporate law does not have a specific statute regulating the
payment of dividends by Massachusetts corporations, the directors of a
corporation are jointly and severally liable to the corporation if a payment of
dividends (i) is made when the corporation is insolvent, (ii) renders the
corporation insolvent, or (iii) violates the corporation's articles of
organization. In any case, any issuance by the Bank or Bancorp of preferred
stock with a preference over common stock as to dividends may affect the
dividend rights of common stock holders.
Voting Rights. All voting rights in the Bank are currently vested in the
holders of the Bank's issued and outstanding Common Stock. Each share of Bank
Common Stock is entitled to one vote on all matters, without any right to
cumulative voting, without any right to cumulative voting in the election of
Directors. Following the formation of the holding company, all voting rights in
Bancorp will be vested in the holders of Bancorp Common Stock, and each share of
Bancorp Common Stock will be entitled to one vote on all matters. In both cases,
any issuance by the Bank or Bancorp of preferred stock with voting rights may
affect the voting rights of holders of common stock.
10
<PAGE> 13
Preferred Stock
Both under the Charter of the Bank and under the Articles of Bancorp, the
respective Boards of Directors (or a committee thereof in the case of Bancorp)
of the Bank and Bancorp are authorized to issue preferred stock in series (and
classes in the case of Bancorp) and to fix the powers, designations,
preferences, or other rights of the shares of each such series (or class in the
case of Bancorp) and the qualifications, limitations, and restrictions thereof.
The issuance of preferred stock by the Bank, unlike the issuance of preferred
stock by Bancorp, would be subject to approval by the Commissioner of Banks.
Preferred stock issued by Bancorp after the Reorganization may rank prior to the
Bancorp Common Stock as to dividend rights, liquidation preferences, or both,
may have full or limited voting rights (including multiple voting rights and
voting rights as a class), and may be convertible into shares of Bancorp Common
Stock. Bancorp has no present plans or understandings for the issuance of any
preferred stock.
Directors
Number and Staggered Terms. The By-laws of Bancorp provide that the Board
of Directors shall consist of not less than seven directors. The Board of
Directors of Bancorp will initially be composed of ten Directors. The By-laws of
the Bank provide that the Board shall consist of not less than seven nor more
than 25 Directors. The By-laws of the Bank and Bancorp provide that the Board of
Directors may fix the number and classification of Directors, unless at the time
there is an Interested Stockholder (as defined in the Bank's Charter and
Bancorp's Articles, respectively), in which case a majority vote of the
Continuing Directors (as defined in the Bank's Charter and Bancorp's Articles,
respectively) is also required.
Both the Bylaws of the Bank and the Bylaws of Bancorp provide for three
classes of Directors with one class elected each year for three-year staggered
terms, so that ordinarily no more than approximately one-third of the Directors
will stand for election in any one year, and that there will be no cumulative
voting in the election of Directors.
Removal of Directors. The Bank's Charter and Bancorp's Articles provide
that any Director (subject to the rights of any outstanding preferred stock) may
be removed from office, with or without cause, by an affirmative vote of (i) at
least 80% of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose, or (ii)
at least 66 2/3% of the members of the Board of Directors then in office, unless
at the time of such removal there shall be an Interested Stockholder, in which
case the affirmative vote of not less than a majority of the Continuing
Directors then in office shall instead be required for removal by vote of the
Board of Directors.
Vacancies. The By-laws of the Bank and the By-laws of Bancorp both provide
that any vacancy occurring on the Board of Directors as a result of resignation,
removal, disqualification or death or by reason of an increase in the number of
Directors may be filled by vote of a majority of the remaining Directors, unless
at the time of such action there is an Interested Stockholder, in which case a
majority vote of the Continuing Directors then in office is required instead.
Any Director of the Bank or Bancorp so appointed would serve for the remainder
of the unexpired term of the class to which such Director was appointed and
until such Director's successor shall have been duly elected or qualified or
until his or her earlier resignation or removal. When the number of directors is
increased, the Board of Directors determines the class or classes to which such
number is apportioned.
Massachusetts Law Regarding Directors. Under Section 50A of Massachusetts
General Laws Chapter 156B, a publicly-held Massachusetts corporation which has
not opted out of that statute must have a classified board of directors. In
general, Section 50A provides that the board of directors of the corporation
must be divided into three classes, each of which would contain approximately
one-third of the total number of the members of the board of directors. Section
50A provides that each class shall serve a staggered term, with approximately
one-third of the total number of directors being elected each year. The
stockholders may remove a director from the board prior to the expiration of his
term only for cause, upon the affirmative vote of the holders of a majority of
the shares then entitled to vote in an election of directors. Section 50A
provides that the number of directors shall be fixed by the board, and that any
vacancy occurring on the board, including a vacancy created by an increase in
the number of directors or resulting from death, resignation,
11
<PAGE> 14
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the directors
then in office.
Section 50A does not apply to the Bank by its terms and Massachusetts
banking statutes under which the Bank is governed do not contain a similar
provision. The Board of Directors of Bancorp has voted to expressly opt out of
Section 50A, and the Board may at any time in the future vote to subject Bancorp
to the express provisions of Section 50A. Notwithstanding such action, Bancorp's
Articles (like the Bank's Charter) contain provisions substantially similar to
that of Section 50A regarding a classified board of directors, as described
above.
Meetings of Stockholders
The Bank's Charter and By-laws and Bancorp's Articles and By-laws provide
that special meetings of the stockholders may be called only by the Chairman of
the Board, if one is elected, the President, or by a majority of the Directors
then in office; provided, however, that if there is an Interested Stockholder,
any such call shall also require the affirmative vote of a majority of the
Continuing Directors then in office. Only those matters set forth in the call of
the special meeting may be considered or acted upon at such special meeting,
unless otherwise provided by law.
Both the Bank's By-laws and Bancorp's By-laws set forth certain advance
notice and informational requirements and time limitations on any Director
nomination or any new business that a stockholder wishes to propose for
consideration at an annual or special meeting of stockholders. Any such
nomination or new business must be stated in writing and must generally be filed
with the Clerk at least 75 days, but no more than 120 days, before the date of
the meeting prior to the anniversary date of the immediately preceding annual
meeting. The Board of Directors of the Bank or Bancorp, as the case may be, or
the officer presiding at the meeting of the stockholders of Bancorp or the Bank,
as the case may be, may reject such nomination or new business proposal not
timely made or supported by insufficient information. In addition, the By-laws
of the Bank and the By-Laws of Bancorp provide that, if at the time there is an
Interested Stockholder, any determination by the Board of Directors with respect
to such nomination or new business proposal shall also require the concurrence
of a majority of the Continuing Directors then in office.
Stockholder Vote Required to Approve Mergers and Certain Business Combinations
Stockholder Vote Required for Mergers. Massachusetts law provides that a
vote of 66 2/3% of the shares of each class of stock outstanding and entitled to
vote thereon is generally required to authorize a merger or the sale, lease or
exchange of all or substantially all of a corporation's property and assets,
except that the articles of organization of a Massachusetts corporation may
provide for a different percentage vote, but not less than a majority.
Fair Price Provision. The Bank's Charter and Bancorp's Articles contain a
so-called "fair price" provision pursuant to which any Business Combination (as
defined in the Bank's Charter and Bancorp's Articles) involving an Interested
Stockholder or an affiliate of an Interested Stockholder and the Bank or Bancorp
(or any subsidiary), as the case may be, would require approval by the
affirmative vote of the holders of at least 80% of the voting power of the then
outstanding shares of voting stock of the Bank or Bancorp, as the case may be,
entitled to vote in the election of directors voting together as a single class.
The fair price provision provides that the 80% stockholder vote is not required
if the Business Combination is approved by a majority of the Continuing
Directors or if certain procedures and price requirements are met.
Massachusetts Law. Chapter 110F of the Massachusetts General Laws,
entitled "Business Combinations with Interested Shareholders" ("Chapter 110F")
provides that a Massachusetts corporation with more than 200 stockholders
generally may not engage in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless (i) the interested
stockholder obtains the approval of the Board of Directors prior to becoming an
interested stockholder, (ii) the interested stockholder acquires 90% of the
outstanding voting stock of the corporation (excluding shares held by certain
affiliates of the corporation) at the time it becomes an interested stockholder,
or (iii) the business combination is approved by both the Board of Directors and
the
12
<PAGE> 15
holders of 66 2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at an annual or special meeting of
stockholders. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, in certain cases, at any time within the
prior three years did own) 5% or more of the outstanding voting stock of the
corporation. A "business combination" includes a merger, certain stock or asset
sales, and certain other specified transactions resulting in a financial benefit
to the interested stockholder.
Chapter 110F is by its terms applicable to both the Bank and Bancorp. A
Massachusetts corporation is permitted to opt out of Chapter 110F, however,
neither the Bank nor Bancorp has opted out of Chapter 110F.
Provisions Relating to Exercise of Business Judgment by Board of Directors
The Charter of the Bank provides that its Board of Directors, when
evaluating any tender, exchange, merger, acquisition or similar offer of another
person, must in connection with the exercise of its judgment in determining what
is in the best interests of the Bank and its stockholders, give due
consideration to all relevant factors including, without limitation, the social
and economic effects of acceptance of such an offer on the Bank's present and
future account holders, borrowers and employees, on the communities in which the
Bank operates or is located, and on the ability of the Bank to fulfill its
objectives as a Massachusetts-chartered stock form savings bank under applicable
statutes and regulations. The Articles of Bancorp contain a substantially
similar provision that states, in addition, that such evaluation shall include
an examination of the effect of such a transaction on any subsidiary of Bancorp.
Control Share Acquisition Statute
Chapter 110D of the Massachusetts General Laws Chapter 110D, entitled
"Regulation of Control Share Acquisitions" ("Chapter 110D") provides that any
person who makes a bona fide offer to acquire, or acquires (the "acquiror")
shares of stock of a corporation in an amount equal to or greater than
one-fifth, one-third or a majority of the voting stock of the corporation (the
"thresholds") must obtain the approval of a majority of shares of all
stockholders except the acquiror and the officers and inside directors of the
corporation in order to vote the shares that the acquiror acquires in crossing
the thresholds.
Chapter 110D does not apply to the Bank by its terms and Massachusetts
banking statutes under which the Bank is governed do not contain a similar
provision. As permitted under Chapter 110D, Bancorp's By-laws contain a
provision opting out of Chapter 110D, making Chapter 110D inapplicable to
Bancorp's stockholders. The Board of Directors of Bancorp may amend the By-laws
at any time in the future to allow Bancorp to opt into this statute
prospectively.
Indemnification
The By-laws of the Bank provide that Directors and officers of the Bank
shall, and in the discretion of the Board of Directors, non-officer employees
may, be indemnified by the Bank against liabilities and expenses arising out of
service for or on behalf of the Bank. The By-laws of the Bank provide that such
indemnification shall not be provided if it is determined that the action giving
rise to the liability was not taken in good faith in the reasonable belief that
the action was in the best interests of the Bank. The By-laws of the Bank
provide that the indemnification provision in the By-laws does not limit any
other right to indemnification existing independently of the By-laws. The
By-laws of Bancorp contain a similar indemnification provision.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to Directors,
officers or persons controlling Bancorp pursuant to the foregoing provisions, it
is the position of the Securities and Exchange Commission (the "SEC") that such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
Shareholder Rights Plan
In connection with the Reorganization, the Bank's Shareholder Rights Plan
will be amended so that it will be assumed by Bancorp following the
Reorganization. Accordingly, the outstanding Rights (as defined below) issued
pursuant to the Shareholder Rights Plan will be assumed by, and deemed to be
Rights issued
13
<PAGE> 16
by, Bancorp. The Shareholder Rights Plan, as amended, will be substantially
similar to the plan as currently in effect. The purpose of the Shareholder
Rights Plan is, among other things, to enable stockholders to receive fair and
equal treatment in the event of any proposed acquisition or other business
combination transaction involving Bancorp. The Shareholder Rights Plan could
make it more difficult for a third party to acquire, or could discourage a third
party from acquiring, Bancorp or a large block of Bancorp's common stock. The
following summary description of the Shareholder Rights Plan does not purport to
be complete and is qualified in its entirety by reference to the Bank's
Shareholder Rights Plan, a copy of which is available upon request.
In connection with the adoption of the Shareholder Rights Plan, the Board
of Directors of the Bank declared a dividend distribution of one preferred stock
purchase right (a "Right") for each outstanding share of the Bank's common stock
to stockholders of record as of the close of business on October 8, 1993. The
Rights currently are not exercisable and are attached to and trade with the
outstanding shares of the Bank's common stock. Under the Shareholder Rights
Plan, the Rights become exercisable (i) if a person becomes an "acquiring
person" by acquiring 15% or more of the outstanding shares of the Bank's common
stock, (ii) if a person who owns 10% or more of the Bank's common stock is
determined to be an "adverse person" by the Board of Directors, or (iii) if a
person commences a tender offer that would result in that person owning 15% or
more of the Bank's common stock. In the event that a person becomes an
"acquiring person" or is declared an "adverse person" by the Board of Directors,
each holder of a Right (other than the acquiring person or the adverse person)
would be entitled to acquire such number of shares of the Bank's preferred stock
which are convertible into such number of shares of common stock having a value
of twice the then-current exercise price of the Right. If the Bank is acquired
in a merger or other business combination transaction after any such event, each
holder of a Right would then be entitled to purchase, at the then-current
exercise price, shares of the acquiring company's common stock having a value of
twice the exercise price of the Right.
Amendment of Charter and Articles
The Bank's Charter and Bancorp's Articles both provide that any amendment
thereof must be first approved by a majority of the Board of Directors, and then
approved by at least 66 2/3% of the total votes eligible to be cast at a duly
constituted meeting (but only a majority of the stockholders in the case of
amendments to provisions in the Bank's Charter or Bancorp's Articles, as the
case may be, relating to the name, office, powers, and authorized capital stock)
except that if at any time within the 60 day period immediately preceding the
meeting at which the stockholder vote is to be taken on such amendment there is
an Interested Stockholder, such amendment shall also require the vote of at
least a majority of the Continuing Directors, prior to approval by the
stockholders. Notwithstanding the foregoing, the Bank's Charter and Bancorp's
Articles both state that to the extent any provision thereof requires approval
by a vote of more than 66 2/3% of the total votes eligible to be cast by
stockholders in the election of director, and if, at any time within the 60 day
period immediately preceding the meeting at which a stockholder vote is to be
taken there is an Interested Stockholder, such provision may only be amended
after approval of the same vote required by such provision unless such amendment
shall also have been approved by the affirmative vote of not less than a
majority of the Continuing Directors then in office, in which case only the vote
of 66 2/3% of the total votes eligible to be cast by the stockholders shall be
required.
Under Massachusetts law, certain amendments to a corporation's articles of
organization require a vote of a majority of the outstanding shares of each
class of stock entitled to vote thereon, while other amendments require a
66 2/3% vote. In either case, the articles of organization may provide for a
greater or lesser percentage vote, but not less than a majority. Massachusetts
law requires a class vote under certain circumstances when an amendment of the
articles of organization will adversely affect the special rights of a class of
stock.
Amendment of By-laws
The Charter of the Bank and the Articles of Bancorp provide that their
respective By-laws may be adopted or amended either by their respective Board of
Directors or stockholders. Such action by the Board of Directors of the Bank or
Bancorp, as the case may be, shall require the affirmative vote of at least
66 2/3% of the Directors then in office, unless, in the case of both the Bank
and Bancorp, at the time of such action there shall be an Interested
Stockholder, in which case such action shall also require the affirmative vote
of at least a
14
<PAGE> 17
majority of the Continuing Directors. Such action by the stockholders of the
Bank or Bancorp, as the case may be, shall require (i) approval by the majority
of the Board of Directors of the Bank (and, if there is an Interested
Stockholder at the time of such action, such action shall also require the
affirmative vote of a majority of the Continuing Directors), (ii) unless waived
by the majority of the Board of Directors (and, if applicable, the Continuing
Directors), the submission by the stockholders of written proposals for amending
the By-laws at least 60 days prior to the meeting at which the amendment is to
be considered, and (iii) the vote of at least 66 2/3% of the total votes
eligible to be cast by stockholders in the election of directors at a duly
constituted meeting of stockholders called expressly for such purpose.
EFFECT ON CURRENT MARKET VALUE OF OUTSTANDING BANK STOCK
Although the Board of Directors does not know of any reason why
implementation of the Plan of Reorganization would cause the market value of the
stock of Bancorp to be different from the market value of the stock of the Bank
immediately prior to consummation of the Reorganization, it is possible that the
public trading market could perceive that the stock of Bancorp has a different
value from the stock of the Bank. It is not known whether the public trading
market will attribute any additional or lesser value to Bancorp Common Stock
than it would attribute to Bank Common Stock. On July 28, 1997, the last trading
day prior to the day on which the Board of Directors adopted a resolution
approving the Plan of Reorganization, the high and low sale prices of Bank
Common Stock as quoted on the NASDAQ National Market were $30 3/4 and $30 3/8
per share, respectively.
ANTI-TAKEOVER PROVISIONS
A number of provisions of the Bank's Charter and By-laws and similarly of
Bancorp's Articles and By-laws deal with matters of corporate governance and
rights of stockholders. Certain of those provisions discussed above may be
deemed to have an "anti-takeover" effect, and may discourage takeover attempts
not first approved by the Directors (including takeovers which certain
stockholders might deem to be in their interests). Although the Board of
Directors of Bancorp is not aware of any effort that might be made to gain
control of Bancorp after the Reorganization, the Board of Directors believes
that those provisions are appropriate to protect the interests of Bancorp and
its stockholders from certain hostile takeovers that the Board of Directors
believes would not be in the best interests of Bancorp and all of its
stockholders. In addition, the Bank has entered into agreements with certain of
its officers which require the Bank to make certain payments to such officers
upon the termination of their employment under certain circumstances.
LEGAL INVESTMENTS
Under the laws of some jurisdictions, shares of Bank Common Stock may be
legal investments for certain institutions and fiduciaries, whereas shares of
Bancorp Common Stock may not be legal investments for such investors.
REGULATION OF BANCORP AND THE BANK
The following summaries of statutes and regulations affecting banks and
holding companies do not purport to be complete. Such summaries are qualified in
their entirety by reference to such statutes and regulations.
Holding Company Regulation. As a bank holding company, Bancorp would be
subject to regulation and supervision by the Federal Reserve Board under the BHC
Act. The regulations of the Federal Reserve Board restrict or require prior
approval for acquisitions of ownership or control of banks or other companies,
restrict transactions between bank holding companies and their affiliates,
restrict tying arrangements, limit nonbanking activities of bank holding
companies and their subsidiaries, require the filing of annual and periodic
reports and give the Federal Reserve Board supervisory authority over various
activities of bank holding companies. The Bank is not currently subject to the
regulations or authority of the Federal Reserve Board, except as certain of such
regulations are made applicable to the Bank by law or regulations of the FDIC.
Certain Federal and State Restrictions on Acquisition of Stock. Any
attempt to acquire control of the Bank, currently, or Bancorp, following
completion of the Reorganization, through the purchase of stock would
15
<PAGE> 18
be subject to regulation under Massachusetts law, and the BHC Act or the federal
Change in Bank Control Act of 1978, as amended (the "CBCA").
With respect to acquisitions of Common Stock of the Bank, Massachusetts law
prohibits any person from acquiring voting stock of a bank that would result in
such person having the power, directly or indirectly, to direct the management
or policies of such bank or to vote 25% or more of such stock unless such person
has provided the Commissioner with 60 days' prior notice and certain information
in connection therewith, and the acquisition has not been disapproved by the
Commissioner. An exemption from these requirements is provided for acquiring
persons who have complied with substantially similar procedures under the
federal law provisions outlined below.
The Federal Reserve Board's regulations promulgated under the CBCA
generally require persons who at any time intend to acquire control of a bank
holding company to provide 60 days' prior written notice and certain financial
and other information to the Federal Reserve Board. The 60-day notice period
does not commence until the information is deemed to be substantially complete.
Control for the purpose of the CBCA exists in situations in which the acquiring
party would have voting control of at least 25% of any class of a holding
company's voting stock. However, under Federal Reserve Board regulations,
control would be presumed to exist where the acquiring party would have voting
control of at least 10% of any class of the holding company's voting securities
if (i) the holding company has a class of voting securities which is registered
under Section 12 of the Exchange Act, or (ii) the acquiring party would be the
largest holder of a class of voting shares of the holding company. The statute
and underlying regulations authorize the Federal Reserve Board to disapprove the
proposed acquisition on certain specified grounds. The FDIC has adopted
substantially similar regulations under the CBCA which would apply to the
acquisition of control of an FDIC-insured bank such as the Bank.
Under the BHC Act, prior approval of the Federal Reserve Board is generally
required for an acquisition of control of a bank by any "company" defined under
the BHCA. Control for purposes of the BHCA would be based on a 25% voting stock
test or on the ability of the acquiror otherwise to control the election of a
majority of the Board of Directors of the Bank or Bancorp or on the ability of
the acquiror to exert controlling influence over the management or policies of
the Bank or Bancorp (as set forth in the BHCA). As part of such acquisition, the
acquiring company (unless already so registered) would be required to register
as a bank holding company under the BHCA. In addition, an existing bank holding
company would have to obtain prior approval from the Federal Reserve Board under
the BHCA if it sought to acquire in excess of 5% of any class of the voting
stock of another bank holding company, such as Bancorp.
A bank holding company's business activities are generally limited to those
activities which the Federal Reserve Board determines to be so closely related
to banking or managing or controlling banks as to be a proper incident thereto.
Registration as a bank holding company would generally require divestiture or
other termination of other business activities not approved for bank holding
companies by the Federal Reserve Board under the foregoing test.
In addition to the aforementioned state and federal laws governing the
acquisition of stock of a bank or a bank holding company, there are various
provisions of Massachusetts law which apply to the acquisition of stock of
business corporations and banks.
Bank Regulation. As a Massachusetts-chartered, FDIC-insured savings bank,
the Bank is subject to regulation and supervision by the Commissioner and the
FDIC. After the Reorganization, the Bank will continue to be subject to such
regulation and supervision.
Massachusetts Law. As a Massachusetts-chartered, stock form savings bank,
the Bank now is, and following consummation of the Reorganization will continue
to be, subject to regulation and examination by the Commissioner. The
Massachusetts statutes and regulations govern, among other things, lending and
investment powers, deposit activities, borrowings, maintenance of surplus and
reserve accounts, distribution of earnings, and payment of dividends. The Bank
is also subject to state regulatory provisions covering such matters as issuance
of capital stock, branching, and mergers and acquisitions. Bancorp has been
incorporated
16
<PAGE> 19
as a business corporation under Massachusetts law. Thus, Bancorp is subject to
regulation by the Secretary of State of Massachusetts and the rights of its
stockholders are governed by Massachusetts corporate law.
Proposed Legislation. From time to time, various types of federal and
state legislation have been proposed that could result in additional regulation
of, and restrictions on, the business of the Bank or Bancorp It cannot be
predicted whether any legislation currently being considered will be adopted or
how such legislation or any other legislation that might be enacted in the
future would affect the business of the Bank or Bancorp.
Certain Federal Tax Matters. If the Reorganization is consummated, Bancorp
and the Bank intend to file consolidated federal income tax returns, which would
have the effect of eliminating inter-company distributions, including dividends,
in the computation of consolidated taxable income. Bancorp and the Bank are
required to file unconsolidated state income tax returns. Although Bancorp and
the Bank plan to file consolidated federal income tax returns, distributions
from the Bank to Bancorp would have significant adverse tax consequences to the
Bank to the extent that the distributions were deemed to be out of the Bank's
bad debt reserve balance as of the close of its last taxable year beginning
before January 1, 1988 (which amount otherwise generally is not subject to
recapture notwithstanding the repeal in 1996 of the special thrift bad debt
reserve tax rules) rather than its current or accumulated earnings and profits.
The amount deemed distributed out of the bad debt reserve would increase the
Bank's federal taxable income and be subject to federal income tax. However, a
dividend distribution will be deemed to be out of the bad debt reserve only if
it exceeds the sum of the current and accumulated earnings and profits of the
Bank. Some or all of the Bank's accumulated earnings and profits for tax
purposes is expected to be transferred to Bancorp by the Bank as part of the
Reorganization. The actual amount of the distribution may be adjusted to the
extent necessary to avoid any taxable income to the Bank. See "Financial
Resources of Bancorp." Bancorp has no present intention of causing the Bank to
pay cash dividends that would result in the Bank being required to recognize
taxable income.
Consequences of the Reorganization Under Federal Securities Laws. Upon
consummation of the Reorganization, the reporting obligations of the Bank under
the Exchange Act, as administered by the FDIC, will be replaced with
substantially similar obligations of Bancorp under the Exchange Act, as
administered by the SEC. Pursuant to the Exchange Act, Bancorp will file annual,
quarterly and periodic reports with the SEC. Bancorp will also be subject to the
insider trading requirements of Sections 16(a) and 16(b) of the 1934 Act as
administered by the SEC. In connection with the Reorganization, the Bank will
deregister the Bank's Common Stock under the Exchange Act.
Upon consummation of the Reorganization, Bancorp intends to file a
Registration Statement on Form S-8 to register the issuance of shares of Bancorp
Common Stock under the Stock Option Plans.
The issuance of Bancorp Common Stock (together with associated preferred
stock purchase rights) in connection with the Reorganization is exempt from
registration under the Securities Act, as a result of Section 3(a)(12) of the
Securities Act. Section 3(a)(12) exempts securities issued in connection with
the acquisition of a bank by a newly formed holding company from the
registration requirements of the Securities Act. In order to qualify for the
exemption (i) the acquisition must occur solely as part of a reorganization in
which security holders exchange their shares of the bank for shares of a newly
formed holding company with no significant assets other than securities of the
bank and its existing subsidiaries, (ii) the security holders must receive the
same proportional share interests in the holding company as they held in the
bank (except for changes resulting from elimination of fractional interests and
the exercise of dissenters' rights), (iii) the rights and interests of security
holders in the holding company must be substantially the same as those in the
bank prior to the transaction, other than as required by law, and (iv) the
assets and liabilities of the holding company on a consolidated basis must be
substantially the same assets and liabilities as the bank prior to the
transaction.
The exemption under Section 3(a)(12) would not apply to future issuances of
Bancorp Common Stock. Such future issuances would be subject to the registration
requirements of the Securities Act, unless another exemption under the
Securities Act were available. In addition, the Section 3(a)(12) exemption does
not cover the resale of any of Bancorp Common Stock issued in connection with
the Reorganization. Bancorp
17
<PAGE> 20
Common Stock received by persons who are not deemed to be "affiliates" (as such
term is defined under the Securities Act) of the Bank or Bancorp may be resold
without registration. Shares of Bancorp Common Stock received by persons who are
deemed to be "affiliates" of the Bank or Bancorp in connection with the
Reorganization will be subject to the resale restrictions of Rule 145 under the
Securities Act (or Rule 144 under the Securities Act in the case of such persons
who become affiliates of Bancorp), which are substantially the same as the
restrictions of Rule 144. Persons who may be deemed to be "affiliates" of the
Bank or Bancorp generally include individuals or entities that at the time the
Plan of Reorganization is submitted for a vote of the stockholders of the Bank
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
stockholders of such party.
Under the terms of the proposed Reorganization whereby the Bank will become
a subsidiary of Bancorp, the Stock Option Plans will be continued as and become
the stock option plans of Bancorp if the Reorganization is approved at the
Special Meeting and consummated. Stock options with respect to shares of Bank
Common Stock granted under the Stock Option Plans and outstanding prior to
consummation of the Reorganization will automatically become options to purchase
the same number of shares of Bancorp Common Stock following the Reorganization,
upon identical terms and conditions and for an identical price, and Bancorp will
assume all of the Bank's obligations with respect to such outstanding options.
If the Plan of Reorganization is not approved by the stockholders of the Bank,
then the Stock Option Plans will continue to be the stock option plans of the
Bank.
RELATED PARTY TRANSACTIONS
Certain Directors and officers of the Bank and members of their immediate
families are at present, as in the past, customers of the Bank and have
transactions with the Bank in the ordinary course of business. In addition,
certain of the Directors are at present, as in the past, also directors,
officers or shareholders of corporations or members of partnerships which are
customers of the Bank and which have transactions with the Bank in the ordinary
course of business. Such transactions with Directors and officers of the Bank
and with such corporations and partnership are on terms comparable to those
charged to other customers of the Bank. Included in such transactions are loans
to Directors and officers and their associates which were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and which did not involve more than the normal risk of
collectability or present other features unfavorable to the Bank.
EMPLOYMENT CONTRACT, SPECIAL TERMINATION AGREEMENTS
The present employment agreement between the Chairman, President and Chief
Executive Officer of the Bank, which provides for a specified minimum annual
compensation and the continuation of benefits currently received, will be
amended to include Bancorp as a party. Such employment may be terminated for
cause, as defined, without incurring any continuing obligations. Similarly,
amended special termination agreements with the President and Chief Executive
Officer and certain senior executives currently in place with the Bank will be
further amended to include Bancorp as a party. The amended special termination
agreements generally provide for certain lump-sum severance payments within a
three-year period following a "change in control," as defined therein.
RECOMMENDATION OF DIRECTORS
The Plan of Reorganization has been unanimously approved by the Board of
Directors of the Bank and Bancorp. THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT
LEAST 66 2/3% OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK ELIGIBLE TO
BE CAST BY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON THE RECORD DATE
WILL BE REQUIRED TO APPROVE THE PLAN OF REORGANIZATION AND EACH OF THE
TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD OF DIRECTORS OF THE BANK BELIEVES
THAT THE PLAN OF REORGANIZATION IS IN THE BEST INTERESTS OF THE BANK AND ITS
STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS OF THE BANK VOTE FOR APPROVAL OF THE PLAN OF REORGANIZATION AND
EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY.
18
<PAGE> 21
ACCOUNTANTS
The firm of Wolf & Company, P.C. served as the Bank's independent public
accountants for the year ended December 31, 1996 and is expected to serve as the
Bank's independent public accountants for 1997. Representatives of Wolf &
Company, P.C. are expected to be present at the Special Meeting to be available
to respond to appropriate questions, and to have the opportunity to make a
statement if they so desire.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders of Bancorp (or the Bank in the event the Reorganization
does not occur) must be filed with the Clerk of Bancorp or the Bank, as the case
may be, at least 75 days, but not more than 120 days, prior to the 1998 Annual
Meeting of Stockholders, in the case of Bancorp, or the anniversary date of the
prior meeting, in the case of the Bank, and no other nominations or proposals by
stockholders shall be acted upon at the meeting; provided, however, in the case
of the Bank, that if the Annual Meeting is scheduled to be held on a date more
than 30 days before the Anniversary Date or more than 60 days after the
Anniversary Date, notice by the stockholder must be so delivered or received no
later than the close of business on the 75th day prior to the scheduled date of
the Annual Meeting or the 15th day following the day on which public disclosure
of the date of such meeting is first made by the Bank. Any such proposal should
be mailed to: Clerk, Medford Savings Bank or Clerk, Medford Bancorp, Inc., as
the case may be, 29 High Street, Medford, Massachusetts 02155.
OTHER MATTERS
At the time of the preparation of this proxy material, the Board of
Directors of the Bank does not know of any other matter to be presented for
action at the Annual Meeting. If any other matters should come before the
meeting, proxy holders have discretionary authority to vote their shares
according to their best judgment.
The cost of soliciting proxies will be borne by the Bank. In addition to
solicitation by mail, officers and regular employees of the Bank, who will
receive no compensation for their services other than their salaries, may
solicit proxies personally, by telephone or by telegraph. Brokerage houses,
nominees, fiduciaries, and other custodians are requested to forward soliciting
material to the beneficial owners of shares held of record by them and will be
reimbursed for their expenses. The Bank also intends to employ the services of
Corporate Investors Communications ("CIC") to solicit proxies. It is estimated
that CIC will receive approximately $4,300, plus reimbursement of certain
out-of-pocket expenses, for its service in connection with such solicitation of
proxies.
19
<PAGE> 22
EXHIBIT A
PLAN OF REORGANIZATION AND ACQUISITION
PURSUANT TO SECTION 26B OF CHAPTER 172
OF THE GENERAL LAWS OF MASSACHUSETTS
This Plan of Reorganization and Acquisition (the "Plan") is dated as of
July 29, 1997, and made between Medford Savings Bank, a Massachusetts guaranty
(stock) savings bank (the "Bank"), and Medford Bancorp, Inc., a Massachusetts
corporation ("Bancorp").
The Bank is a stock savings bank, duly organized and validly existing
under the laws of the Commonwealth of Massachusetts, with its principal office
at 29 High Street, Medford, Massachusetts 02155. As of the date hereof, the
authorized capital stock of the Bank consists of (1) 15,000,000 shares of
common stock, par value $0.05 per share (the "Bank Common Stock"), of which
4,541,148 shares are issued and outstanding, 200,000 shares are reserved for
issuance under the Bank's 1993 Stock Option Plan (as the same may be renamed
from time to time), and, 736,000 shares are reserved for issuance under the
Bank's 1986 Stock Option Plan (the 1993 Stock Option Plan and the 1986 Stock
Option Plan are collectively referred to herein as the "Stock Option Plans"),
and (2) 5,000,000 shares of preferred stock, par value $0.50 per share, none of
which shares are issued and outstanding.
Bancorp is a corporation, duly organized and validly existing under the
laws of the Commonwealth of Massachusetts, with its principal office at 29 High
Street Medford, Massachusetts 02155. The articles of organization of Bancorp at
the Effective Time (as defined herein) will provide for authorized capital
stock consisting of 15,000,000 shares of common stock, par value $0.50 per
share (the "Bancorp Common Stock"), and 5,000,000 shares of preferred stock,
par value $0.50 per share. As of the date hereof, there are 100 shares of
Bancorp Common Stock issued and outstanding, all of which are held by the Bank.
The Bank and Bancorp have agreed that Bancorp will acquire all of the
issued and outstanding shares of Bank Common Stock (together with associated
preferred stock purchase rights) in exchange for shares of Bancorp Common stock
(together with associated preferred stock purchase rights) pursuant to the
provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts
and of this Plan. The Plan has been adopted and approved by a vote of a
majority of all the members of the Board of Directors of the Bank, and by a
vote of a majority of all the members of the Board of Directors of Bancorp. The
officers of the Bank and of Bancorp whose respective signatures appear below
have been duly authorized to execute and deliver this Plan.
Now, THEREFORE, in consideration of these premises, the Bank and Bancorp
agree as follows:
<PAGE> 23
SECTION 1 - APPROVAL AND FILING OF PLAN
1.1 The Plan shall be submitted for approval by the holders of Bank
Common Stock at a meeting to be called and held in accordance with the
applicable provisions of law. Notice of such meeting shall be published at
least once a week for two successive weeks in a newspaper of general
circulation in the County of Suffolk, Commonwealth of Massachusetts. Both of
said publications shall be at least fifteen days prior to the date of the
meeting.
1.2 Upon approval of the Plan by the affirmative vote of the holders of
66 2/3% of the outstanding shares of Bank Common Stock as required by law, the
Bank and Bancorp shall submit the Plan to the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Bank Commissioner") for his approval and
filing in accordance with the provisions of Section 26B of Chapter 172 of the
General Laws of Massachusetts. The Plan shall be accompanied by such
certificates of the respective officers of the Bank and Bancorp as may be
required by law and a written request from the Bank that the Plan not be filed
by the Bank Commissioner until such future time as the Bank Commissioner shall
have received from the Bank and Bancorp the written notice described in
Subsection 2.1.
1.3 If the requisite approval of the Plan is obtained at the meeting of
holders of Bank Common Stock referred to in Subsection 1.1, thereafter and
until the Effective Time, as hereinafter defined, the Bank shall issue
certificates for Bank Common Stock, whether upon transfer or otherwise, only if
such certificates bear a legend indicating that the Plan has been approved and
that shares of Bank Common Stock evidenced by such certificates are subject to
acquisition by Bancorp pursuant to the Plan.
SECTION 2 - DEFINITION OF EFFECTIVE TIME
2.1 The Plan shall become effective at 12:01 A.M. on the first business
day following the date on which the Bank and Bancorp advise the Bank
Commissioner in writing (i) that all the conditions precedent to the Plan
becoming effective specified in Section 5 have been satisfied and (ii) that the
Plan has not been abandoned by the Bank or Bancorp in accordance with the
provisions of Section 6, or at such other date and time as is specified in such
written notice to the Bank Commissioner. Such time is hereafter called the
"Effective Time."
SECTION 3 - ACTIONS AT THE EFFECTIVE TIME
3.1 At the Effective Time, Bancorp shall, without any further action on
its part or on the part of the holders of Bank Common Stock, automatically and
by operation of law acquire and become the owner for all purposes of all the
then issued and outstanding shares of Bank Common Stock (together with
associated preferred stock purchase rights) and shall be entitled to have issued
to it by the Bank a certificate or certificates representing such shares.
Thereafter, Bancorp shall have full and exclusive power to vote such shares of
Bank Common Stock, to receive dividends thereon and to exercise all rights of an
owner thereof.
2
<PAGE> 24
3.2. At the Effective Time, the shares of Bancorp Common Stock which are
outstanding immediately prior to the Effective Time shall be canceled.
3.3. At the Effective Time, the holders of the then issued and outstanding
shares of Bank Common Stock (together with associated preferred stock purchase
rights) shall, without any further action on their part or on the part of
Bancorp, automatically and by operation of law cease to own such shares and
shall instead become owners of one share of Bancorp Common Stock (together with
associated preferred stock purchase rights) for each share of Bank Common Stock
held by them immediately prior to the Effective Time. Thereafter, such persons
shall have full and exclusive power to vote such shares of Bancorp Common Stock,
to receive dividends thereon, except as otherwise provided herein, and to
exercise all rights of an owner thereof.
3.4. At the Effective Time, all previously issued and outstanding
certificates representing shares of Bank Common Stock (the "Old Certificates")
shall automatically and by operation of law cease to represent shares of Bank
Common Stock or any interest therein and each Old Certificate shall instead
represent the ownership by the holder thereof of an equal number of shares of
Bancorp Common Stock. No holder of an Old Certificate shall be entitled to vote
the shares of Bank Common Stock formerly represented by such certificate, or to
receive dividends thereon, or to exercise any other rights of ownership in
respect thereof.
3.5. Notwithstanding any of the foregoing, any Dissenting Stockholder, as
defined in Subsection 8.1, shall have such rights as are provided by Subsection
8.2 and by the laws of the Commonwealth of Massachusetts.
SECTION 4 - ACTIONS AFTER THE EFFECTIVE TIME
As soon as practicable and in any event not more than thirty days after the
Effective Time:
4.1. Bancorp shall deliver to the transfer agent for the Bank and Bancorp
(the "Transfer Agent"), as agent for the then holders of the Old Certificates
(other than Old Certificates representing shares of Bank Common Stock as to
which dissenters' appraisal rights shall have been exercised), a certificate or
certificates for the aggregate number of shares of Bancorp Common Stock (the
"New Certificates"), to which said holders shall be entitled. Each such holder
may surrender his Old Certificate to the Transfer Agent and receive in exchange
therefor a New Certificate for an equal number of shares of Bancorp Common
Stock. However, holders of Old Certificates need not surrender Old Certificates
to the transfer Agent in exchange for a New Certificate. The Transfer Agent
shall treat Old Certificates as representing for all purposes an equal number
of shares of Bancorp Common Stock.
4.2. Bancorp may publish a notice to the holders of all Old Certificates,
specifying the Effective Time of the Plan and notifying such holders that they
may present their Old Certificates to the Transfer Agent for exchange for a
New Certificate representing an equal number of shares of Bancorp Common Stock.
Such notice may likewise be given by mail to such holders at their addresses on
the Bank's records.
3
<PAGE> 25
SECTION 5--CONDITIONS PRECEDENT
The Plan and the acquisition provided for herein shall not become
effective unless all of the following first shall have occurred:
5.1 The Plan shall have been approved by the affirmative vote of the
holders of two-thirds of the outstanding Bank Common Stock at a meeting of such
stockholders called for such purpose.
5.2 The Plan shall have been approved by the Bank Commissioner and a copy
of the Plan with his approval endorsed thereon shall have been filed in his
office, all as provided in Section 26B of Chapter 172 of the General Laws of
Massachusetts.
5.3 Any approval, consent, or waiver required by the Board of Governors
of the Federal Reserve System shall have been received, and any waiting period
imposed by applicable law shall have expired.
5.4 The Bank shall have received a favorable opinion from its counsel,
satisfactory in form and substance to the Bank, with respect to the federal
income tax consequences of the Plan and the acquisition contemplated thereby.
5.5 The shares of Bancorp Common Stock (together with associated
preferred stock purchase rights) to be issued to the holders of Bank Common
Stock pursuant to the Plan shall have been registered or qualified for such
issuance to the extent required under all applicable state securities laws.
5.6 The Bank and Bancorp shall have obtained all other consents,
permissions and approvals and taken all actions required by law or agreement,
or deemed necessary by the Bank or Bancorp, prior to the consummation of the
acquisition provided for by the Plan and to Bancorp's having and exercising all
rights of ownership with respect to all of the outstanding shares of Bank
Common Stock acquired by it thereunder.
SECTION 6--ABANDONMENT OF PLAN
6.1 The Plan may be abandoned by either the Bank or Bancorp at any time
before the Effective Time in the event that:
(a) Necessary regulatory approvals cannot be obtained, or the
conditions or obligations associated with such regulatory approvals make
consummation of the acquisition contemplated by the Plan inadvisable in the
opinion of Bank or Bancorp;
(b) The number of shares of Bank Common Stock owned by Dissenting
Stockholders, as defined in Subsection 8.1, shall make consummation of the
acquisition contemplated by the Plan inadvisable in the opinion of the Bank or
Bancorp;
4
<PAGE> 26
(c) Any action, suit, proceeding or claim has been instituted, made or
threatened relating to the Plan which shall make consummation of the
acquisition contemplated by the Plan inadvisable in the opinion of the Bank or
Bancorp; or
(d) For any other reason consummation of the acquisition contemplated
by the Plan is inadvisable in the opinion of the Bank or Bancorp.
Such abandonment shall be effected by written notice by either the Bank or
Bancorp to the other of them, and shall be authorized or approved by the Board
of Directors of the party giving such notice. Upon the giving of such notice,
the Plan shall be terminated and there shall be no liability hereunder or on
account of such on the part of the Bank or Bancorp or the Directors, officers,
employees, agents or stockholders of either of them. In the event of
abandonment of the Plan, the Bank shall pay the fees and expenses incurred by
itself and Bancorp in connection with the Plan and the proposed acquisition. If
either party hereto gives written notice of termination to the other party
pursuant to this section, the party giving such written notice shall
simultaneously furnish a copy thereof to the Bank Commissioner.
SECTION 7 -- AMENDMENT OF PLAN
7.1. The Plan may be amended or modified at any time by mutual agreement of
the Boards of Directors of Bancorp and the Bank (i) prior to its approval by
the stockholders of the Bank, in any respect, and (ii) subsequent to such
approval, in any respect, provided that the Bank Commissioner shall approve of
such amendment or modification.
SECTION 8 -- RIGHTS OF DISSENTING STOCKHOLDERS
8.1. "Dissenting Stockholders" shall mean those holders of Bank Common
Stock who file with the Bank before the taking of the vote on the Plan, written
objection to the Plan, pursuant to Section 86 of Chapter 156B of the General
Laws of Massachusetts, stating that they intend to demand payment for their
shares of Bank Common Stock if the Plan is consummated and whose shares are not
voted in favor of the Plan.
8.2. Dissenting Stockholders who comply with the provisions of Sections 86
to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts and all
other applicable provisions of law shall be entitled to receive from the Bank
payment of the fair value of their shares of Bank Common Stock upon surrender
by such holders of the certificates which previously represented shares of Bank
Common Stock. Certificates so obtained by the Bank, upon payment of the fair
value of such shares as provided by law, shall be canceled. Shares of Bancorp
Common Stock, to which Dissenting Stockholders would have been entitled had
they not dissented, shall be deemed to constitute authorized but unissued
shares of Bancorp Common Stock and may be sold or otherwise disposed of by
Bancorp at the discretion of, and on such terms as may be fixed by, its Board
of Directors.
5
<PAGE> 27
SECTION 9 -- STOCK OPTIONS
By voting in favor of the Plan and by consummation of the acquisition
contemplated by the Plan, Bancorp shall have approved adoption by Bancorp of
the Stock Option Plans of the Bank as the Stock Option Plans of Bancorp and
shall have agreed to issue Bancorp Common Stock in lieu of Bank Common Stock
pursuant to stock options then outstanding under the Stock Option Plans. As of
the Effective Time, the unexercised portion of the options outstanding under
the existing Stock Option Plans shall be assumed by Bancorp and thereafter
shall be exercisable only for shares of Bancorp Common Stock, with each such
option being exercisable for a number of shares of Bancorp Common Stock equal to
the number of shares of Bank Common Stock that were available thereunder
immediately prior to the Effective Time, and with no change in the exercise
price or any other term or condition of such option. Bancorp and the Bank shall
make appropriate amendments to the Stock Option Plans to reflect the adoption of
such plans as the Stock Option Plans of Bancorp without adverse effect upon the
options outstanding under the Stock Option Plans.
SECTION 10 -- GOVERNING LAW
The Plan shall take effect as a sealed instrument and shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
SECTION 11 -- COUNTERPARTS
The Plan may be executed in several identical counterparts, each of which
when executed and delivered by the parties hereto shall be an original, but all
of which together shall constitute a single instrument. In making proof of the
Plan, it shall not be necessary to produce or account for more than one such
counterpart.
6
<PAGE> 28
MEDFORD SAVINGS BANK
By: /s/ Arthur H. Meehan
---------------------------------
Arthur H. Meehan
Chairman, President and Chief
Executive Officer
ATTEST:
/s/ Eugene R. Murray
- - - --------------------------------------
Eugene R. Murray
Clerk
MEDFORD BANCORP, INC.
By: /s/ Arthur H. Meehan
---------------------------------
Arthur H. Meehan
Chairman, President and Chief
Executive Officer
ATTEST:
/s/ Eugene R. Murray
- - - --------------------------------------
Eugene R. Murray
Clerk
7
<PAGE> 29
EXHIBIT B
PROVISIONS OF THE GENERAL LAW OF MASSACHUSETTS
RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS
(Sections 86 to 98 of Chapter 156B of the
General Laws of Massachusetts)
SECTION 86. Sections Applicable To Appraisal; Prerequisites. If a
corporation proposes to take a corporate action as to which any section of this
chapter provides that a stockholder who objects to such action shall have the
right to demand payment for his shares and an appraisal thereof, sections
eighty-seven to ninety-eight, inclusive, shall apply except as otherwise
specifically provided in any section of this chapter. Except as provided in
sections eighty-two and eighty-three, no stockholder shall have such right
unless (1) he files with the corporation before the taking of the vote of the
shareholders on such corporate action, written objection to the proposed action
stating that he intends to demand payment for his shares if the action is taken
and (2) his shares are not voted in favor of the proposed action.
SECTION 87. Statement Of Rights Of Objecting Stockholder In Notice of
Meeting; Form. The notice of the meeting of stockholders at which the approval
of such proposed action is to be considered shall contain a statement of
the rights of objecting stockholders. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock, and the directors may authorize the inclusion in any such
notice of a statement of opinion by the management as to the existence or
non-existence of the right of the stockholders to demand payment for their
stock on account of the proposed corporate action. The notice may be in such
form as the directors or officers calling the meeting deem advisable, but the
following form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall
follow the procedure set forth in Sections 88 to 98, inclusive, of Chapter 156B
of the General Laws of Massachusetts."
SECTION 88. Notice Of Effectiveness Of Action Objected To. The
corporation taking such action, or in the case of a merger or consolidation the
surviving or resulting corporation, shall, within ten days after the date on
which such corporate action became effective, notify each stockholder who filed
a written objection meeting the requirements of section eighty-six and whose
shares were not voted in favor of the approval of such action, that the action
approved at the meeting of the corporation of which he is a stockholder has
become effective. The giving of such notice shall not be deemed to create any
rights in any stockholder receiving the same to demand payment for his stock.
The notice shall be sent by registered or certified mail, addressed to the
stockholder at his last known address as it appears in the records of the
corporation.
SECTION 89. Demand For Payment; Time For Payment. If within twenty days
after the date of mailing of a notice under subsection (e) of section
eighty-two, subsection (f) of section eighty-three, or section eighty-eight,
any stockholder to whom the corporation was required to give such notice shall
demand in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment
for his stock, the corporation upon which such demand is made shall pay to him
<PAGE> 30
the fair value of his stock within thirty days after the expiration of the
period during which such demand may be made.
SECTION 90. Demand For Determination of Value; Bill In Equity; Venue. If
during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county
where the corporation in which such objecting stockholder held stock had or has
its principal office in the commonwealth.
SECTION 91. Parties To Suit To Determine Value; Service. If the bill is
filed by the corporation, it shall name as parties respondent all stockholders
who have demanded payment for their shares and with whom the corporation has
not reached agreement as to the value thereof. If the bill is filed by a
stockholder, he shall bring the bill in his own behalf and in behalf of all
other stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof, and service of
the bill shall be made upon the corporation by subpoena with a copy of the bill
annexed. The corporation shall file with its answer a duly verified list of all
such other stockholders, and such stockholders shall thereupon be deemed to
have been added as parties to the bill. The corporation shall give notice in
such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION 92. Decree Determining Value And Ordering Payments; Valuation
Date. After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment
of such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and
shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
SECTION 93. Reference to Special Master. The court in its discretion may
refer the bill or any question arising thereunder to a special master to hear
the parties, make findings and report the same to the court, all in accordance
with the usual practice in suits in equity in the superior court.
SECTION 94. Notation On Stock Certificates Of Pendency Of Bill. On motion
the court may order stockholder parties to the bill to submit their
certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. Costs; Interest. The costs of the bill, including the
reasonable compensation and expenses of any master appointed by the court, but
exclusive of fees of counsel or of experts retained by any party, shall be
determined by the court and taxed upon the parties to the bill, or any of them,
in such manner as appears to be equitable, except that all costs of giving
notice to stockholders as provided in this chapter shall
B-2
<PAGE> 31
be paid by the corporation. Interest shall be paid upon any award from the date
of the vote approving the proposed corporate action, and the court may on
application of any interested party determine the amount of interest to be paid
in the case of any stockholder.
SECTION 96. Dividends And Voting Rights After Demand For Payment. Any
stockholder who has demanded payment for his stock as provided in this chapter
shall not thereafter be entitled to notice of any meeting of stockholders or to
vote such stock for any purpose and shall not be entitled to the payment of
dividends or other distribution on the stock (except dividends or other
distributions payable to stockholders of record at a date which is prior to the
date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the
resulting or surviving corporation, deliver to it a written
withdrawal of his objections to and an acceptance of such
corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. Status Of Shares Paid For. The shares of the corporation paid
for by the corporation pursuant to the provisions of this chapter shall have the
status of treasury stock, or in the case of a consolidation or merger the shares
or the securities of the resulting or surviving corporation into which the
shares of such objecting stockholder would have been converted had he not
objected to such consolidation or merger shall have the status of treasury stock
or securities.
SECTION 98. Exclusive Remedy; Exception. The enforcement by a stockholder
of his right to receive payment for his shares in the manner provided in this
chapter shall be an exclusive remedy except that this chapter shall not exclude
the right of such stockholder to bring or maintain an appropriate proceeding to
obtain relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
B-3
<PAGE> 32
EXHIBIT C
THE COMMONWEALTH OF MASSACHUSETTS
- - - ---------
Examiner William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B)
- - - ---------
Name
Approved
ARTICLE I
The exact name of the corporation is:
Medford Bancorp, Inc.
ARTICLE II
The purpose of the corporation is to engage
in the following business activities:
See attached Addendum A to the Articles of Organization.
C / / Note: If the space provided under any article or item on this form is
P / / insufficient, additions shall be set forth on one side only of
M / / separate 8 1/2 x 11 sheets of paper with a left margin of at least 1
R.A. / / inch. Additions to more than one article may be made on a single sheet
so long as each article requiring each addition is clearly indicated.
- - - ----------
P.C.
<PAGE> 33
ARTICLE III
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue.
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
- - - ------------------------------- --------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- - - ---- ---------------- ---- ---------------- ---------
<S> <S> <S> <S> <S>
Common: 0 Common: 15,000,000 $.50
- - - -------------------------------------------------------------------------------
Preferred: 0 Preferred: 5,000,000 $.50
- - - -------------------------------------------------------------------------------
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
See attached Addendum B to the Articles of Organization.
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None.
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See attached Addendum C to the Articles of Organization.
**If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may
ONLY be changed by filing appropriate Articles of Amendment.
<PAGE> 34
ADDENDUM A
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE II
A. To acquire, invest in or hold stock in any subsidiary permitted under (i)
the Bank Holding Company Act of 1956, and (ii) Massachusetts General Laws,
Chapter 167A, as such statutes may be amended from time to time, and to
engage in any other activity or enterprise permitted to a bank holding
company under said statutes or other applicable law.
B. To buy, sell, invest in, hold and deal in property of every nature and
description, real and personal, tangible and intangible permissible for
such a corporation.
C. To carry on any business or other activity which may be lawfully carried
on by a corporation organized under the Business Corporation Law of the
Commonwealth of Massachusetts, whether or not related to those referred
to in the foregoing paragraphs.
A-1
<PAGE> 35
ADDENDUM B
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE IV. Capital Stock.
The total number of shares of all classes of capital stock which Medford
Bancorp, Inc. ("Bancorp") is authorized to issue is 20,000,000 shares, of which
15,000,000 shares shall be common stock, $.50 par value per share, and
5,000,000 shares shall be preferred stock, $.50 par value per share. The shares
may be issued by Bancorp from time to time by a vote of its Board of Directors
without the approval of its stockholders. Upon payment of lawful consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case of
a stock dividend, that part of the surplus of Bancorp which is transferred to
stated capital upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
A description of the different classes and series of Bancorp's capital
stock and a statement of the designations and the relative rights, preferences
and limitation of the shares of each class and series of capital stock are as
follows:
A. Common Stock. Except as provided by law or in this Article IV (or in
any supplemental sections hereto or in any certificate of establishment of any
series of preferred stock), the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder. There shall be no
cumulative voting rights in the election of Directors.
If there shall have been paid, or declared and set aside for payment, to
the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of a sinking fund or a retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of Bancorp,
after there shall have been paid to or set aside for the holders of any class
having preference over the common stock in the event of liquidation,
dissolution or winding up of Bancorp the full preferential amounts to which
they are respectively entitled, the holders of the common stock, and of any
class or series of stock entitled to participate in whole or in part therewith
as to distribution of
B-1
<PAGE> 36
assets, shall be entitled, after payment or provision for payment of all debts
and liabilities of Bancorp, to receive the remaining assets of Bancorp
available for distribution, in cash or in kind, in proportion to their holdings.
B. Preferred Stock. The Board of Directors of Bancorp is authorized by
vote or votes, from time to time adopted, to provide for the issuance of
preferred stock in one or more series and to fix and state the voting powers,
designations, preferences and relative participating, optional or other special
rights of the shares of each series and the qualifications, limitations, and
restrictions thereof, including, but not limited to, determination of one or
more of the following:
(1) The distinctive serial designation and the number of shares
constituting such series;
(2) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends and the
participating or other special rights, if any, with respect to dividends;
(3) The voting powers, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(5) The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of Bancorp;
(6) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemable or purchased through the application of such fund;
(7) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of Bancorp, and
if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which
such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(8) The price or other consideration for which the shares of such
series shall be issued; and
B-2
<PAGE> 37
(9) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
preferred stock and whether such shares may be reissued as shares of the
same or any other series of stock.
Unless otherwise provided by law, any such vote shall become effective
when Bancorp files with the Secretary of State of the Commonwealth of
Massachusetts a certificate of establishment of one or more series of preferred
stock signed by the President or any Vice President and by the Clerk, Assistant
Clerk, Secretary or Assistant Secretary of Bancorp, setting forth a copy of the
vote of the Board of Directors establishing and designating the series and
fixing and determining the relative rights and preferences thereof, the date of
adoption of such vote and a certification that such vote was duly adopted by
the Board of Directors.
B-3
<PAGE> 38
ADDENDUM C
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE VI(A). Certain Business Combinations.
SECTION 1. Vote Required for Certain Business Combinations.
A. Required Vote for Certain Business Combinations. In addition to any
affirmative vote required by the Massachusetts General Laws or by these
Articles of Organization, and except as otherwise expressly provided in Section
2 of this Article VI(A):
(1) any merger or consolidation of Bancorp or any Subsidiary (as
hereinafter defined) with (a) any Interested Stockholder (as hereinafter
defined) or (b) any other corporation or entity (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder;
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of
any assets of Bancorp or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $1,000,000 or more;
(3) the issuance or transfer by Bancorp or any Subsidiary (in one
transaction or a series of transactions) or any securities of Bancorp
or any Subsidiary to any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities, or other
property (or a combination thereof) having an aggregate Fair Market
Value of $1,000,000 or more;
(4) the adoption of any plan or proposal for the liquidation or
dissolution of Bancorp proposed by or on behalf of any Interested
Stockholder of any Affiliate of any Interested Stockholder; or
(5) any reclassification of securities (including any reverse stock
split), any recapitalization of Bancorp, any merger or consolidation of
Bancorp with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving any Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportion
of the outstanding shares of any class of equity or convertible securities
of Bancorp or any Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested Stockholder;
C-1
<PAGE> 39
shall require (subject to Section 2 or this Article VI(A)) the affirmative vote
of the holders of at least eighty percent of the voting power of the then
outstanding shares of capital stock of Bancorp entitled to vote generally in
the election of directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact that no
vote may be required or that a lesser percentage may be specified by law.
B. Definition of "Business Combination." The term "Business
Combination" as used in this Article VI(A) shall mean any transaction which is
referred to in any one or more of clauses (1) through (5) of Paragraph A of
this Section 1.
SECTION 2. When Higher Vote is Not Required.
The provisions of Section 1 of this Article VI(A) shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of these Articles of Organization, if all of the conditions specified in either
of the following Paragraphs A or B are met:
A. Approval by Continuing Directors. The Business Combination shall have
been approved by a majority of the Continuing Directors then in office (as
hereinafter defined); or
B. Price and Procedure Requirements. All of the following conditions
shall have been met:
(1) The aggregate amount of cash and the Fair Market Value as of the
date of the consummation of the Business Combination (the "Consummation
Date") of any consideration other than cash to be received per share by holders
of common stock in such Business Combination shall be at least equal to the
highest of the following:
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of common
stock acquired by it (i) within the two-year period immediately
prior to and including the first public announcement of the
proposed Business Combination (the "Announcement Date") or (ii)
in the transaction in which it became an Interested Stockholder,
whichever is higher;
(b) the highest Fair Market Value per share of common stock
on any date during the one-year period prior to and including the
Announcement Date; and
(c) (if applicable) the price per share equal to the product
of (i) the Fair Market Value per share of common stock on the
Announcement Date or on the date on which the Interested
Stockholder
C-2
<PAGE> 40
became an Interested Stockholder (such later date is referred to
in this Article VI(A) as the "Determination Date"), whichever
is higher, multiplied by (ii) the ratio of (x) the highest per
share price (including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Interest Stockholder
for any shares of common stock acquired by it within the two-year
period immediately prior to and including the Announcement Date
to (y) the Fair Market Value per share of common stock on the
first day in such two-year period upon which the Interested
Stockholder acquired any shares of common stock.
(2) The aggregate amount of the cash and the Fair Market Value as of
the Consummation Date of the Business Combination of consideration other than
cash to be received per share by holders of any other class of outstanding
Voting Stock shall be at least equal to the highest of the following (it being
intended that the requirements of this Paragraph B(2) shall be required to be
met with respect to every other class of outstanding Voting Stock, whether or
not the Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of such
class of Voting Stock acquired by it (i) within the two-year
period immediately prior to and including the Announcement Date
or (ii) in the transaction in which it became an Interested
Stockholder, whichever is higher;
(b) (if applicable) the highest preferential amount per share
which the holders of shares of such class of Voting Stock are
entitled to receive from Bancorp in the event of any voluntary or
involuntary liquidation, dissolution or winding up of Bancorp;
(c) the highest Fair Market Value per share of such class of
Voting Stock on any date during the one-year period prior to and
including the Announcement Date; and
(d) (if applicable) the price per share equal to the product of
(i) the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date, whichever
is higher, multiplied by (ii) the ratio of (x) the highest per
share price (including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it
within the two-year period immediately prior to and including the
Announcement Date to (y) the Fair Market Value per share of such
class of Voting Stock on the first day in such two-year period
C-3
<PAGE> 41
upon which the Interested Stockholder acquired any shares of
such class of Voting Stock.
(3) The consideration to be received by holders of a particular class of
outstanding Voting Stock (including common stock) shall be in cash or in the
same form as the Interested Stockholder has previously paid for shares of such
class of Voting Stock. If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(4) After such Interested Stockholder has become an Interested Stockholder
and prior to the consummation of any such Business Combination:
(a) there shall have been (i) no failure to declare and pay at
regular dates therefor the full amount of any dividends (whether or
not cumulative) payable on any class or series having a preference
over the common stock of Bancorp as to dividends or upon liquidation,
except as approved by a majority of the Continuing Directors; (ii) no
reduction in the annual rate of dividends paid on the common stock
(except as necessary to reflect any subdivision of the common stock),
except as approved by a majority of the Continuing Directors; and
(iii) 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 common
stock, unless the failure to so increase such annual rate is approved
by a majority of the Continuing Directors; and
(b) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder's
becoming an Interested Stockholder.
(5) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by Bancorp, whether in anticipation of or in
connection with such Business Combination or otherwise, unless such transaction
shall have been approved or ratified by a majority of the Continuing Directors
after such person shall have become an Interested Stockholder.
C-4
<PAGE> 42
(6) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
public stockholders of Bancorp at least twenty days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
SECTION 3. Certain Definitions.
For the purpose of these Articles of Organization:
A. A "person" shall mean an individual, a group acting in concert, a
corporation, a partnership, a limited liability company, an association, a
joint stock company, a trust, a business trust, a government or political
subdivision, any unincorporated organization and any similar association or
entity.
B. "Interested Stockholder" shall mean any person (other than Bancorp or
any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of more than ten
percent of the voting power of the then outstanding shares of Voting Stock;
(2) is an Affiliate of Bancorp and at any time within the two-year
period immediately prior to and including the date in question was the
beneficial owner, directly or indirectly, of ten percent of more of the
voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to and including the date in question
beneficially owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933 and such assignment or succession was not approved
by a majority of the Continuing Directors.
C. A person shall be a "beneficial owner" of any shares of Voting Stock:
(1) which such person or any of its Affiliates or Associates, directly
or indirectly, has or shares with respect to the Voting Stock (a) the right
to acquire or direct the acquisition of (whether such right is exercisable
immediately or only after the passage of time or upon the satisfaction of
any conditions or both), pursuant to any agreement, arrangement or
understanding or upon the exercise of any conversion rights, warrants, or
options or otherwise; (b) the right to vote, or direct the voting of,
C-5
<PAGE> 43
pursuant to any agreement, arrangement or understanding or otherwise; or
(c) the right to dispose of or transfer or direct the disposition or
transfer of, pursuant to any agreement, arrangement, understanding or
otherwise; or
(2) 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 of any shares of Voting
Stock.
D. For the purpose of determining whether a person is an Interested
Stockholder pursuant to Paragraph B of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned by such
person through application of Paragraph C of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options or otherwise.
E. "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 amended.
F. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by Bancorp; provided,
however, that for the purposes of the definition of Interested Stockholder set
forth in Paragraph B of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by Bancorp.
G. "Continuing Director" means any member of the Board of Directors of
Bancorp (the "Board") who is not an Affiliate or Associate of the Interested
Stockholder and was a member of the Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a Continuing
Director who is not an Affiliate or Associate of the Interested Stockholder and
is recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. "Fair Market Value" means:
(1) in the case of stock, the highest closing sale price during the
thirty-day period immediately preceding the date in question of a share of
such stock 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
bid quotation with respect to a share of such stock during the thirty-day
period preceding the date in question on the National Association of
Securities Dealers Automated Quotation System or any comparable system
then in use, or if no such quotations are available, the fair market value
on the date in question of a
C-6
<PAGE> 44
share of such stock as determined by at least a majority of the Continuing
Directors of the Board in good faith; and
(2) 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 at least a
majority of the Continuing Directors of the Board in good faith.
I. "Group Acting in Concert" shall mean persons seeking to combine or pool
their voting or other interests in the securities of Bancorp for a common
purpose, pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written, oral or otherwise, or any "group of
persons" as defined under Section 13(d) of the Securities Exchange Act of 1934.
When persons act together for any such purpose, their group is deemed to have
acquired their stock.
J. In the event of any Business Combination in which Bancorp survives, the
phrase "other consideration to be received" as used in Paragraphs B(1) and (2)
of Section 2 of this Article VI(A) shall include the shares of common stock
and/or the shares of any other class of outstanding Voting Stock retained by
the holders of such shares.
SECTION 4. Powers of the Board of Directors.
A majority of the Directors of Bancorp (or, if there is an Interested
Stockholder, a majority of the Continuing Directors then in office) shall have
the power to determine for the purposes of this Article VI(A), on the basis of
information known to them after reasonable inquiry, (A) whether a person is an
Interested Stockholder, (B) the number or percentage of any class of securities
beneficially owned by any person, (C) whether a person is an Affiliate or
Associate of or is affiliated or associated with another, (D) whether the
requirements of Section 2 of this Article VI(A) have been met with respect to
any Business Combination, (E) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by Bancorp or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more and (F)
any other matters of interpretation arising under this Article VI(A). The good
faith determination of a majority of the Directors (or, if there is an
Interested Stockholder, a majority of the Continuing Directors then in office)
on such matters shall be conclusive and binding for all purposes of this Article
VI(A).
SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article VI(A) shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE VI(B). Standards for Board of Directors' Evaluation of Offers.
C-7
<PAGE> 45
The Board of Directors of Bancorp, when evaluating any offer of another
person (as defined in Article VI(A) hereof) to (A) make a tender or exchange
offer for any equity security of Bancorp or any Subsidiary (as defined in
Article VI(A) hereof), (B) merge or consolidate Bancorp or any Subsidiary with
another institution or (C) purchase or otherwise acquire all or substantially
all of the properties and assets of Bancorp or any Subsidiary, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of Bancorp and its stockholders, give due consideration to all
relevant factors including, without limitation, the social and economic effects
of acceptance of such offer on Bancorp's and/or any Subsidiaries' present and
future account holders, borrowers and employees; on the communities in which
Bancorp or any Subsidiary operates or is located; and on the ability of
Bancorp and its Subsidiaries to fulfill their objectives under applicable
statutes and regulations.
ARTICLE VI(C). Pre-emptive Rights.
Holders of the capital stock of Bancorp shall not be entitled to
preemptive rights with respect to any shares of the capital stock of Bancorp
which may be issued.
ARTICLE VI(D). Directors.
Bancorp shall be under the direction of a Board of Directors. The number
of Directors shall not be fewer nor more than permitted by law. The Board of
Directors shall be divided into three classes as nearly equal in number as
possible, with one class to be elected annually.
Any Director (including persons elected by Directors to fill vacancies in
the Board of Directors) may be removed from office, with or without cause, by
an affirmative vote of not less than (i) 80% of the total votes eligible to be
cast by stockholders in the election of directors at a duly constituted meeting
of stockholders called expressly for such purpose, or (ii) 66 2/3% of the
members of the Board of Directors then in office, unless at the time of such
removal there shall be an Interested Stockholder, in which case the affirmative
vote of not less than a majority of the Continuing Directors then in office
shall instead be required for removal by vote of the Board of Directors. At
least thirty days prior to such meeting of stockholders, written notice shall
be sent to the Director whose removal will be considered at the meeting.
ARTICLE VI(E). Transactions with Interested Persons.
SECTION 1. Unless entered into in bad faith or in violation of any provision of
these Articles of Organization, no contract or transaction by Bancorp shall be
void, voidable or in any way affected by reason of the fact that it is with an
Interested Person.
SECTION 2. For the purposes of this Article VI(E), "Interested Person" means
any person or organization in any way interested in Bancorp whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such person or organization of Bancorp is in any way interested.
C-8
<PAGE> 46
SECTION 3. Unless such contract or transaction was entered into in bad faith or
in violation of any provision of these Articles of Organization, no Interested
Person, because of such interest, shall be liable to Bancorp or to any other
person or organization for any loss or expense incurred by reason of such
contract or transaction or shall be accountable for any gain or profit realized
from such contract or transaction.
SECTION 4. The provisions of this Article VI(E) shall be operative
notwithstanding the fact that the presence of an Interested Person was
necessary to constitute a quorum at a meeting of Directors or stockholders of
Bancorp at which such contract or transaction was authorized or that the vote
of an Interested Person was necessary for the authorization of such contract or
transaction.
ARTICLE VI(F). Acting as a Partner.
Bancorp may be a partner in any business enterprise which it would have
power to conduct by itself.
ARTICLE VI(G). Stockholders' Meetings.
Meetings of stockholders may be held at such place in the Commonwealth of
Massachusetts or, if permitted by applicable law, elsewhere in the United
States as the Board of Directors may determine.
ARTICLE VI(H). Call of Special Meetings.
Special meetings of the stockholders for any purpose or purposes may be
called at any time only by the Chairman of the Board, if one is elected, the
President or by the affirmative vote of a majority of the Directors then in
office; provided, however, that if there is an Interested Stockholder, any such
call shall also require the affirmative vote of a majority of the Continuing
Directors then in office. Only those matters set forth in the call of the
special meeting may be considered or acted upon at such special meeting, unless
otherwise provided by law.
ARTICLE VI(I). Amendment of By-Laws.
The By-Laws of Bancorp may be adopted, altered, amended, changed or
repealed by the Board of Directors or the stockholders of Bancorp. Such action
by the Board of Directors shall require the affirmative vote of at least
66-2/3% of the Directors then in office at a duly constituted meeting of the
Board of Directors, unless at the time of such action there shall be an
Interested Stockholder, in which case such action shall in addition require the
affirmative vote of at least a majority of the Continuing Directors then in
office, at such a meeting. Such action by the stockholders shall require (i)
approval by the affirmative vote of a majority of the Board of Directors of
Bancorp then in office at a duly constituted meeting of the Board of Directors,
unless at the time of such action there shall be an Interested Stockholder, in
which
C-9
<PAGE> 47
case such action shall in addition require the affirmative vote of at least a
majority of the Continuing Directors then in office, at such meeting, (ii)
unless waived by the affirmative vote of the Board of Directors (and, if
applicable, Continuing Directors) specified in the preceding sentence, the
submission by the stockholders of written proposals for adopting, altering,
amending, changing or repealing the By-Laws at least sixty days prior to the
meeting at which they are to be considered and (iii) the affirmative vote of at
least 66 2/3% of the total votes eligible to be cast by stockholders in the
election of directors at a duly constituted meeting of stockholders called
expressly for such purpose.
ARTICLE VI(J). Amendment of Articles of Organization. No amendment,
addition, alteration, change or repeal of these Articles of Organization shall
be made, unless the same is first approved by the affirmative vote of a majority
of the Board of Directors of Bancorp then in office, and thereafter approved by
the stockholders by not less than 66 2/3% of the total votes eligible to be cast
at a duly constituted meeting, or, in the case of Articles I, II and VIII and
the first sentence of Article IV as set forth in Addendum B to these Articles of
Organization, by not less than a majority of the total votes eligible to be cast
at a duly constituted meeting; provided, however, that if, at any time within
the sixty day period immediately preceding the meeting at which the stockholder
vote is to be taken, there is an Interested Stockholder, such amendment,
addition, alteration, change or repeal shall also require the affirmative vote
of not less than a majority of the Continuing Directors then in office, prior to
approval by the stockholders. Notwithstanding the foregoing, to the extent that
any provision of these Articles of Organization stipulates stockholder approval
by a vote of more than 66 2/3% of the total votes eligible to be cast by
stockholders in the election of directors, and if, at any time within the sixty
day period immediately preceding the meeting at which the stockholder vote is to
be taken there is an Interested Stockholder, such provision may only be amended,
altered, changed or repealed after approval by the same vote required by such
provision, unless such amendment, alteration or repeal shall also have been
approved by the affirmative vote of not less than a majority of the Continuing
Directors then in office, in which case only the vote of 66 2/3% of the total
votes eligible to be cast by the stockholders shall be required. Unless
otherwise provided by law, any amendment, addition, alteration, change or repeal
so acted upon shall be effective on the date it is filed with the Secretary of
State of the Commonwealth of Massachusetts or on such other date as specified in
such amendment, addition, alteration, change or repeal or as the Secretary of
State may specify.
C-10
<PAGE> 48
ADDENDUM D
TO THE
ARTICLES OF ORGANIZATION
OF
MEDFORD BANCORP, INC.
ARTICLE VIII(B)
The name, residential address and post office address of each director and
officer of the corporation is as follows:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C>
President: Arthur H. Meehan 5 Fox Run Road 29 High Street
Dover, MA 02030 Medford, MA 02155
Treasurer: Phillip W. Wong 8 Kelly Street 29 High Street
Medway, MA 02053 Medford, MA 02155
Clerk: Eugene R. Murray 14 Milton Street 29 High Street
E. Falmouth, MA 02536 Medford, MA 02155
Directors: Paul J. Crowley 15 Old Weston Road 29 High Street
Wayland, MA 01778 Medford, MA 02155
Edward J. Gaffey 43 High Street 29 High Street
Medford, MA 02155 Medford, MA 02155
Andrew D. Guthrie Jr., 30 Cambridge Street 29 High Street
M.D. Winchester, MA 01890 Medford, MA 02155
Edward D. Brickley 79 Mystic Valley Pkwy. 29 High Street
Winchester, MA 01890 Medford, MA 02155
Robert A. Havern III 35 Bartlett Avenue 29 High Street
Arlington, MA 02174 Medford, MA 02155
Francis D. Pizzella 13 Browning Road 29 High Street
Somerville, MA 02145 Medford, MA 02155
David L. Burke 9 Wedgemere Ave. 29 High Street
Winchester, MA 01890 Medford, MA 02155
Mary L. Doherty 87 Yale Street 29 High Street
Medford, MA 02155 Medford, MA 02155
Arthur H. Meehan 5 Fox Run Road 29 High Street
Dover, MA 02030 Medford, MA 02155
Eugene R. Murray 14 Milton Street 29 High Street
E. Falmouth, MA 02536 Medford, MA 02155
</TABLE>
D-1
<PAGE> 49
ARTICLE VII
The effective date of organization of the corporation shall be the date
approved and filed by the Secretary of the Commonwealth. If a later effective
date is desired, specify such date which shall not be more than thirty days
after the date of filing.
ARTICLE VIII
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address (post office boxes are not acceptable) of the principal
office of the corporation in Massachusetts is:
29 High Street, Medford Massachusetts 02155
b. The name, residential address and post office address of each director and
officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
President:
Treasurer: See attached Addendum D to the Articles of Organization
Clerk:
Directors:
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is: Eugene R. Murray, Clerk 29 High Street, Medford, MA 02155
ARTICLE IX
By-laws of the corporation have been duly adopted and the president, treasurer,
clerk and directors whose names are set forth above, have been duly elected.
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose
signature(s) appear below as incorporator(s) and whose name(s) and business or
residential address(es) are clearly typed or printed beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws, Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 23rd day of July, 1997.
/s/ Arthur H. Meehan
- - - ------------------------------------------------------------------------------
Arthur H. Meehan
- - - ------------------------------------------------------------------------------
29 High Street
- - - ------------------------------------------------------------------------------
Medford, MA 02155
- - - ------------------------------------------------------------------------------
Note: If an existing corporation is acting as incorporator, type in the exact
name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE> 50
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B)
================================================================================
I hereby certify that, upon examination of these Articles of Organization, duly
submitted to me, it appears that the provisions of the General Laws relative to
the organization of corporations have been complied with, and I hereby approve
said articles; and the filing fee in the amount of $ having been paid,
said articles are deemed to have been filed with me this day of July 1997.
Effective date: July 1997
- - - -----------------------------------------------------------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
FILING FEE: One tenth of one percent of the total authorized capital stock, but
not less than $200.00. For the purpose of filing, shares of stock with a par
value less than $1.00, or no par stock, shall be deemed to have a par value of
$1.00 per share.
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Paul W. Lee, P.C.
- - - --------------------------------------------------------------------------------
Goodwin, Procter & Hoar LLP
- - - --------------------------------------------------------------------------------
Exchange Place, Boston, MA 02109
- - - --------------------------------------------------------------------------------
Telephone: (617) 570-1000
---------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.6
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 30, 1997
F.D.I.C. Insurance Certificate No. 23290
MEDFORD SAVINGS BANK
(Exact name of bank as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation or organization)
04-1609330
(IRS Employer Identification Number)
29 HIGH STREET, MEDFORD, MASSACHUSETTS
(Address of principal executive office)
02155
(Zip Code)
(617) 395-7700
(Bank's telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed
since last report)
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 outstanding of the Bank's common stock as of
November 7, 1997 - 4,541,148
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ITEM 1 - FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets............................................................1
Consolidated Statements of Income ...................................................2-5
Consolidated Statements of Changes in Stockholders' Equity.............................6
Consolidated Statements of Cash Flows................................................7-8
Notes to Consolidated Financial Statements.............................................9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Financial Condition........................................................10-18
Results of Operations..............................................................19-23
Liquidity and Capital Resources....................................................24-25
Asset and Liability Management........................................................26
Impact of Inflation...................................................................26
Other Events..........................................................................27
Signatures............................................................................28
</TABLE>
<PAGE> 3
MEDFORD SAVINGS BANK
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,439 $ 11,900
Short-term investments 5,605 4,529
----------- -----------
Cash and cash equivalents 17,044 16,429
----------- -----------
Investment securities 472,606 424,966
Loans 586,784 568,086
Less allowance for loan losses (6,601) (7,231)
----------- -----------
Loans, net 580,183 560,855
----------- -----------
Foreclosed real estate, net 214 276
Banking premises and equipment, net 10,966 10,896
Accrued interest receivable 9,385 9,291
Other assets 15,947 16,385
----------- -----------
TOTAL ASSETS $ 1,106,345 $ 1,039,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 824,183 $ 792,141
Short-term borrowings 64,509 80,817
Long-term debt 112,439 67,647
Accrued taxes and expenses 3,710 3,701
Other liabilities 1,766 2,271
----------- -----------
Total liabilities 1,006,607 946,577
----------- -----------
Stockholders' equity:
Serial preferred stock, $.50 par value, 5,000,000 shares authorized;
none issued; -- --
Common stock, 15,000,000 shares authorized;
$.50 par value, 4,541,148 and 4,534,648 shares issued, respectively 2,271 2,267
Additional paid-in capital 28,924 28,848
Retained earnings 67,815 61,634
----------- -----------
99,010 92,749
Net unrealized gain (loss) on securities available
for sale, after tax effects 728 (228)
----------- -----------
Total stockholders' equity 99,738 92,521
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,106,345 $ 1,039,098
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE> 4
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
------------------------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $11,638 $10,823
Interest on debt securities 7,221 6,067
Dividend income 204 186
Interest on short-term investments 51 63
------- -------
Total interest and dividend income 19,114 17,139
------- -------
Interest expense:
Interest on deposits 8,104 7,610
Interest on short-term borrowings 817 525
Interest on long-term debt 1,664 956
------- -------
Total interest expense 10,585 9,091
------- -------
Net interest income 8,529 8,048
Provision for loan losses -- 45
------- -------
Net interest income, after provision for loan losses 8,529 8,003
------- -------
Other income:
Customer service fees 504 536
Gain on sales of securities, net 119 85
Miscellaneous 140 121
------- -------
Total other income 763 742
------- -------
Operating expenses:
Salaries and employee benefits 2,589 2,467
Occupancy and equipment 571 498
Data processing 354 438
Professional fees 188 245
Amortization of intangibles 302 312
Advertising and marketing 156 177
Other general and administrative 636 458
------- -------
Total operating expenses 4,796 4,595
------- -------
Income before income taxes 4,496 4,150
Provision for income taxes 1,786 1,646
------- -------
Net income $ 2,710 $ 2,504
======= =======
(CONTINUED)
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
(concluded)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
--------------------------
<S> <C> <C>
Earnings per share:
Primary $0.57 $0.53
Fully diluted $0.57 $0.53
Cash dividends declared per share $0.18 $0.17
Weighted average shares outstanding
Primary 4,774,826 4,722,614
Fully diluted 4,789,064 4,727,521
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-------------------------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $34,439 $32,342
Interest on debt securities 20,749 17,719
Dividend income 524 494
Interest on short-term investments 157 392
------- -------
Total interest and dividend income 55,869 50,947
------- -------
Interest expense:
Interest on deposits 23,286 22,846
Interest on short-term borrowings 2,783 1,690
Interest on long-term debt 4,396 2,328
------- -------
Total interest expense 30,465 26,864
------- -------
Net interest income 25,404 24,083
Provision for loan losses 125 195
------- -------
Net interest income, after provision for loan losses 25,279 23,888
------- -------
Other income:
Customer service fees 1,491 1,643
Gain on sales of securities, net 792 280
Gain on sales of loans, net 306 --
Miscellaneous 463 472
------- -------
Total other income 3,052 2,395
------- -------
Operating expenses:
Salaries and employee benefits 7,683 7,303
Occupancy and equipment 1,726 1,482
Data Processing 1,053 1,233
Professional fees 451 519
Amortization of intangibles 908 944
Advertising and marketing 457 507
Other general and administrative 1,709 1,538
------- -------
Total operating expenses 13,987 13,526
------- -------
Income before income taxes 14,344 12,757
Provision for income taxes 5,711 5,020
------- -------
Net income $ 8,633 $ 7,737
======= =======
(CONTINUED)
See accompanying notes to consolidated financial statements.
4
</TABLE>
<PAGE> 7
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
(concluded)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-----------------------------
<S> <C> <C>
Earnings per share:
Primary $1.81 $1.64
Fully diluted $1.80 $1.64
Cash dividends declared per share $0.54 $0.51
Weighted average shares outstanding
Primary 4,761,769 4,716,544
Fully diluted 4,788,089 4,725,277
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain (Loss)on
Common Paid-in Retained Securities
Stock Capital Earnings Available for Sale Total
----- ------- -------- ------------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,267 $ 28,848 $ 61,634 $ (228) $ 92,521
Net income -- -- 8,633 8,633
Issuance of common stock under
stock option plan and related income
tax benefits 4 76 -- -- 80
Cash dividends declared ($.54 per share) -- -- (2,452) -- (2,452)
Change in net unrealized gain (loss) on
securities available for sale, after
tax effects -- -- -- 956 956
-------- -------- -------- -------- --------
Balance at September 30, 1997 $ 2,271 $ 28,924 $ 67,815 $ 728 $ 99,738
======== ======== ======== ======== ========
<CAPTION>
Net Unrealized
Additional Gain (Loss)on
Common Paid-in Retained Securities
Stock Capital Earnings Available for Sale Total
----- ------- -------- ------------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 2,212 $ 27,642 $ 54,966 $ 1,256 $ 86,076
Net income -- -- 7,737 -- 7,737
Issuance of common stock under
stock option plan and related
income tax benefits 55 1,143 -- -- 1,198
Cash dividends declared ($.51 per share) -- -- (2,310) -- (2,310)
Change in net unrealized gain (loss)
on securities available for sale,
after tax effects -- -- -- (2,166) (2,166)
-------- -------- -------- -------- --------
Balance at September 30, 1996 $ 2,267 $ 28,785 $ 60,393 $ (910) $ 90,535
======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
6
</TABLE>
<PAGE> 9
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities: $ 8,633 $ 7,737
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Provisions for loan losses 125 195
Depreciation and amortization, net 1,721 1,651
Foreclosed real estate (gains), losses and provisions, net (22) 31
Gain on sales of securities, net (792) (280)
Gain on sales of loans, net (306) --
Loss on sale of fixed assets 53 41
Decrease in accrued interest receivable and other assets (1,170) (448)
Increase (decrease) in accrued taxes and expenses
and other liabilities 90 (771)
--------- ---------
Net cash provided by operating activities 8,332 8,156
--------- ---------
Cash flows from investing activities:
Maturities of investment securities available for sale 43,685 19,020
Purchases of investment securities available for sale (147,094) (117,089)
Sales of investment securities available for sale 19,428 36,840
Maturities of investment securities held to maturity 34,034 40,786
Purchases of investment securities held to maturity
and FHLBB stock (740) (34,611)
Principal amortization of mortgage-backed investments 5,427 3,571
Proceeds from sale of loans 11,613 --
Loans originated and purchased, net of amortization and payoffs (31,127) (14,053)
Purchases of bank premises and equipment, net (842) (580)
Sales of, and principal payments received on,
foreclosed real estate 425 300
--------- ---------
Net cash used in investing activities (65,191) (65,816)
--------- ---------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 10
MEDFORD SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---------------------------
(In thousands)
<S> <C> <C>
Cash Flows from financing activities:
Net increase (decrease) in deposits 32,042 (2,157)
Net increase (decrease) in borrowings with maturities
of three months or less (16,308) 20,136
Proceeds from long-term debt 44,792 30,500
Issuance of common stock 34 674
Cash dividends paid (3,086) (2,735)
-------- --------
Net cash provided by financing activities 57,474 46,418
-------- --------
Net change in cash and cash equivalents 615 (11,242)
Cash and cash equivalents, beginning of period 16,429 28,770
-------- --------
Cash and cash equivalents, end of period $ 17,044 $ 17,528
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 11
MEDFORD SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION
Certain amounts have been reclassified in the September 30, 1996
financial statements to conform to the 1997 presentation.
The consolidated interim financial statements of Medford Savings Bank
(the "Bank") and subsidiary presented herein are intended to be read in
conjunction with the consolidated financial statements presented in its annual
report for the year ended December 31, 1996.
The consolidated financial information for the three and nine months
ended September 30, 1997 and 1996 is unaudited; however, in the opinion of
management, the consolidated financial information reflects all adjustments
(consisting solely of normal recurring accruals) necessary for a fair
presentation in accordance with generally accepted accounting principles.
Interim results are not necessarily indicative of results to be expected for the
entire year.
NOTE 2. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
Primary earnings per share computations include common stock and
dilutive common stock equivalents attributable to outstanding stock options.
Fully diluted earnings per share computations reflect the higher market price of
the Bank's common stock at the end of the period, if applicable, and assume
further dilution applicable to outstanding stock options.
NOTE 3. COMMITMENTS
At September 30, 1997 the Bank had outstanding commitments to
originate new residential and commercial real estate mortgage loans of
approximately $20.2 million, which are not reflected on the consolidated balance
sheet. Unadvanced funds on equity lines were $24.3 million, unadvanced
construction loan funds were $8.0 million, and unadvanced funds on commercial
lines of credit were $8.8 million at September 30, 1997.
(Remainder of this page intentionally left blank)
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This form F-4 contains certain statements that may be considered forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Bank's actual results could differ materially from those projected in the
forward-looking statements as a result, among other factors, of changes in
general national or regional economic conditions, changes in loan default and
charge-off rates, reductions in deposit levels necessitating increased borrowing
to fund loans and investments, changes in interest rates, and changes in the
assumptions used in making such forward-looking statements.
Consolidated net income was $2.7 million, or $.57 per share for the three months
ended September 30, 1997, an 8% increase when compared to $2.5 million or $.53
per share for the same quarter in 1996. For the third quarter of 1997, the
annualized return on assets was 0.98% and the annualized return on equity was
10.98%, compared to 1.01% and 11.30% for the comparable period in 1996.
Consolidated net income for the nine months ended September 30, 1997 was $8.6
million or $1.81 per share ($1.80 per share on a fully diluted basis) reflecting
a 12% increase when compared to $7.7 million or $1.64 per share for the
comparable period last year. The annualized return on assets was 1.08% and the
annualized return on equity was 12.13% for the nine months ended September 30,
1997, compared to 1.06% and 11.76% for the comparable period in 1996.
The increases in earnings for the three and nine months ended September 30, 1997
was the result, in large part, of improved net interest income due to an
increase in average earning assets, a reduction in the provision for loan losses
due to positive credit quality trends, and an increase in net gains on the sale
of securities and loans in the second quarter.
Net interest income totalled $8.5 million for the quarter ended September 30,
1997, with a net interest margin of 3.29%, compared to $8.0 million and a net
interest margin of 3.42% for the quarter ended September 30, 1996. Net interest
income for the nine months ended September 30, 1997 totalled $25.4 million with
a net interest margin of 3.29%, compared with $24.1 million and a net interest
margin of 3.42% for the same prior year period.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Total operating expenses increased $201,000 or 4.4% when comparing the three
months ended September 30, 1997 to the same period in 1996. Included in this
increase was approximately $100,000 of expenses related to the formation of a
holding company for the Bank. Year-to-date operating expenses increased $461,000
or 3.4% when comparing the nine months ended September 30, 1997 to the same
prior year period.
The provision for loan losses for the nine months ended September 30, 1997 was
$125,000 compared with $195,000 for the nine months ended September 30, 1996.
Total non-performing assets were $3.0 million or 0.27% of total assets at
September 30, 1997, compared to $3.7 million or 0.36% of total assets at
December 31, 1996. The allowance for loan losses at September 30, 1997 was $6.6
million, representing 219% of non-performing assets and 1.12% of total loans. At
December 31, 1996, the allowance for loan losses was $7.2 million representing
196% of non-performing assets and 1.27% of total loans. Other real estate owned
decreased to $214,000 at September 30, 1997 from $276,000 at December 31, 1996.
The Bank had total assets of $1.1 billion and deposits of $824.2 million at
September 30, 1997, and the capital to assets ratio was 9.02%, exceeding all
regulatory requirements. When comparing balances from December 31, 1996,
investment securities increased $47.6 million or 11.2% to $472.6 million, total
loans increased $18.7 million or 3.3% to $586.8 million, and deposits and
borrowings increased $60.5 million, or 6.4% to $1.0 billion.
A more detailed discussion and analysis of the Bank's financial condition and
results of operations follows.
(The remainder of this page intentionally left blank.)
11
<PAGE> 14
INVESTMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Securities available for sale, at fair value $349,084 $268,379
Securities held to maturity, at amortized cost 116,786 150,591
Restricted equity securities:
Federal Home Loan Bank stock 5,622 4,882
Massachusetts Savings Bank Life Insurance stock 1,114 1,114
-------- --------
$472,606 $424,966
======== ========
</TABLE>
The amortized cost and fair value of investment securities, excluding restricted
securities, at September 30, 1997, and December 31, 1996 with gross unrealized
gains and losses, follows:
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 23 $ -- $ -- $ 23
Mortgage - backed 84,983 276 -- 85,259
U.S. Government and
federal agency 92,304 266 (471) 92,099
Other 164,607 995 (133) 165,469
-------- ------ ----- --------
Total debt securities 341,917 1,537 (604) 342,850
Marketable equity
securities 6,007 285 (58) 6,234
-------- ------ ----- --------
Total securities
available for sale $347,924 $1,822 $(662) $349,084
======== ====== ===== ========
Securities Held to Maturity
U.S. Government
and federal agency $108,027 $ 378 $ (79) $108,326
Other 8,759 26 -- 8,785
-------- ------ ----- --------
Total securities
held to maturity $116,786 $ 404 $ (79) $117,111
======== ====== ===== ========
12
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
State and municipal $ 88 $ 1 $ -- $ 89
Mortgage - backed 28,101 82 (369) 27,814
U.S. Government and
federal agency 83,301 280 (930) 82,651
Other 150,774 745 (350) 151,169
-------- ------ ------- --------
Total debt securities 262,264 1,108 (1,649) 261,723
Marketable equity securities 6,538 236 (118) 6,656
-------- ------ ------- --------
Total securities
available for sale $268,802 $1,344 ($1,767) $268,379
======== ====== ======= ========
Securities Held to Maturity
U.S. Government
and federal agency $141,868 $ 522 $ (299) $142,091
Other 8,723 32 -- 8,755
-------- ------ ------- --------
Total securities
held to maturity $150,591 $ 554 $ (299) $150,846
======== ====== ======= ========
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity at
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------------------------------
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 43,560 $ 43,687 $ 75,681 $ 75,796
After 1 year through 5 years 213,374 213,904 41,105 41,315
------- -------- -------- --------
256,934 257,591 116,786 117,111
Mortgage - backed securities 84,983 85,259 - -
-------- -------- -------- --------
$341,917 $342,850 $116,786 $117,111
======== ======== ======== ========
13
</TABLE>
<PAGE> 16
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------
Available for Sale Held to Maturity
------------------------- ----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 49,839 $ 50,084 $ 46,871 $ 47,068
After 1 year through 5 years 175,259 174,979 103,720 103,778
After 5 years through 10 years 9,065 8,846 - -
-------- -------- -------- --------
234,163 233,909 150,591 150,846
Mortgage - backed securities 28,101 27,814 - -
-------- -------- -------- --------
$262,264 $261,723 $150,591 $150,846
======== ======== ======== ========
</TABLE>
Investment securities increased $47.6 million from $425.0 million at December
31, 1996 to $472.6 million at September 30, 1997. To improve the investment
portfolio yield, management implemented a program of replacing U.S. Treasury
securities as they matured or were sold, with mortgage-backed securities and
corporate bonds. In addition to the sale of $11 million in student loans,
borrowings from various sources were utilized to fund investment purchases. At
September 30, 1997, the securities portfolio classified as "available for sale"
reflected a $1.2 million appreciation in market value as a result of
fluctuations in interest rates. In accordance with the Bank's asset-liability
management strategies, investment securities are generally short-term with
maturities of five years or less.
(The remainder of this page intentionally left blank.)
14
<PAGE> 17
LOANS
A summary of the Bank's outstanding loan balances follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Mortgage loans on real estate:
Residential 1-4 family $ 400,836 $ 380,627
Commercial 121,947 123,158
Construction 19,398 18,155
Second mortgages 1,642 1,928
Equity lines of credit 22,326 21,169
--------- ---------
566,149 545,037
Less: Unadvanced construction
loan funds (8,043) (9,436)
--------- ---------
558,106 535,601
--------- ---------
Other loans:
Commercial loans 15,921 11,014
Personal loans 2,296 2,219
Education and other 9,387 18,329
--------- ---------
27,604 31,562
--------- ---------
Add: Premium on loans acquired 285 354
Net deferred fees 789 569
--------- ---------
Total loans 586,784 568,086
Less: Allowance for loan losses (6,601) (7,231)
--------- ---------
Loans, net $ 580,183 $ 560,855
========= =========
</TABLE>
Loans experienced a modest increase for the nine months ended September 30,
1997, principally in residential 1-4 family and commercial loans. Residential
1-4 family loans increased $20.2 million or 5.3%, with approximately 37% of the
increase in 15 year fixed rate, and 63% in adjustable rate mortgages. The
increase in commercial loans of 44.6% is the result of intensified marketing
efforts for asset-based lending opportunities. The Bank sold $11 million of
education loans in the second quarter of 1997 and recorded a net gain on sale of
$306,000. It is the Bank's intention to sell education loans in the repayment
stage as conditions warrant. All other loan categories remained stable from
December 31, 1996 as new loan originations replaced amortization and payoffs for
the period. The Bank continues to experience intense competition for loans
within its geographic region despite improvement in the regional economy.
15
<PAGE> 18
NON-PERFORMING ASSETS
Total non-performing assets were $3.0 million at September 30, 1997, compared
with $3.7 million at December 31, 1996.
The principal balance of non-accrual loans was $2.8 million, or 0.25% of total
assets, at September 30, 1997, compared to $3.4 million, or 0.33% of total
assets, at December 31, 1996. Foreclosed real estate totaled $214,000 at
September 30, 1997 compared to $276,000 at December 31, 1996. It is the Bank's
general policy to place on non-accrual status all loans when they become 90 days
contractually delinquent or the collectability of principal or interest payments
becomes doubtful. Interest accrual ceases, and all previously accrued but unpaid
interest is reversed when a loan is placed on non-accrual status.
In accordance with SFAS No. 114, a loan is considered impaired when, based on
current information and events, it is probable that a borrower will be unable to
meet the scheduled payments of principal or interest when due according to the
original terms of the contractual loan agreement. The principal balance of
impaired loans was $2.2 million, all of which were included in the balance of
non-accrual loans at September 30, 1997. The allowance for loan losses allocated
to impaired loans at September 30, 1997 was $141,000.
ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the periods indicated is as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------
September 30, September 30,
1997 1996
------ -----
(In thousands)
<S> <C> <C>
Balance at the beginning
of the period $ 7,231 $ 7,466
Provisions 125 195
Recoveries 59 106
Less: Charge-offs (814) ( 368)
-------- ----------
Balance at the end of the period $ 6,601 $ 7,399
======== ========
</TABLE>
The allowance for loan losses is established through a provision for loan losses
charged through the statement of income. Assessing the adequacy of the allowance
for loan losses involves substantial uncertainties and is based on management's
evaluation of the amount required to absorb estimated losses inherent in the
loan portfolio after weighing various factors. Among the factors that management
considers are the quality of specific loans, risk characteristics of the loan
portfolio generally, the level of non-performing loans, current economic
conditions, trends in delinquency, and charge-offs, and the value of the
underlying collateral. Ultimate loan losses may vary significantly from current
estimates.
16
<PAGE> 19
The allowance for loan losses was $6.6 million at September 30, 1997,
representing a 235.8% reserve coverage of non-accrual loans and 1.12% of total
loans. At December 31, 1996, the allowance for loan losses was $7.2 million
representing a 210.3% reserve coverage of non-accrual loans and 1.27% of total
loans.
Management considers the allowance for loan losses to be adequate at September
30, 1997, although there can be no assurance that the allowance is adequate or
that additional provisions to the allowance for loan losses will not be
necessary.
DEPOSITS
Total deposits increased $32.0 million from December 31, 1996 levels to $824.2
million at September 30, 1997. The Bank's strategy has been to maintain stable
deposit rates and to grow deposit levels through selective core deposit and term
deposit promotions. To retain core deposits, the Bank has been promoting the
"ComboPlus" account which combines a statement savings and a demand account into
one convenient account. This account has contributed to an increase in savings
and demand deposits. The Bank put in place a special two-year term certificate
promotion during the first six months of 1997 intended to extend deposit
maturities and attract new customer accounts. As a result of this promotion,
term certificates of deposit increased $23.9 million. Money market deposits
increased from December 31, 1996 as the Bank continues to offer competitive
rates to attract new corporate accounts.
The following table indicates the balances in various deposit accounts at the
dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------ -----
(In thousands)
<S> <C> <C>
Demand accounts $ 43,029 $ 40,124
NOW accounts 58,621 60,839
Savings & money market accounts 323,260 315,771
Term certificates 399,273 375,407
-------- --------
$824,183 $792,141
======== ========
</TABLE>
17
<PAGE> 20
BORROWED FUNDS
The Bank has selectively engaged in long-term borrowings to fund loans and
mortgage-backed securities, and has entered into short-term repurchase
agreements to fund investment securities purchases. Total borrowed funds
increased to $176.9 million at September 30, 1997 from $148.5 million at
December 31, 1996, reflecting management's decision to utilize borrowings as a
supplement to current deposit activity levels. The Bank took advantage of
relatively low interest rates to shift from short-term into long-term borrowings
which were employed to fund the residential loan portfolio and purchases of
mortgage-backed securities.
STOCKHOLDERS' EQUITY
The Bank's capital to assets ratio was 9.02% at September 30, 1997 compared with
8.90% at December 31, 1996.
The FDIC imposes capital guidelines on the Bank. In addition to the capital
ratio described above, the guidelines define core or "tier 1" capital and
supplementary or "tier 2" capital and assign weights to broad categories of
assets and certain off-balance sheet items. Ratios of tier 1 and tier 1 plus
tier 2 capital to risk-weighted assets are then calculated. To be considered
adequately capitalized, Banks must maintain a tier 1 risk-based capital ratio of
4.00% and a total risk-based capital ratio of 8.00%. At September 30, 1997, the
Bank's tier 1 capital to risk-weighted assets was 14.85% and the Bank's tier 1
plus tier 2 capital, or total to risk-weighted assets was 15.90%.
Massachusetts-chartered savings banks insured by the FDIC are required to
maintain a leverage capital (tier 1 capital) to assets ratio of 3.00% to 5.00%
of total assets, as adjusted, depending on the individual bank's examination
rating. At September 30, 1997, the Bank's leverage capital ratio was 8.53% as
defined by the FDIC. As a result of the foregoing leverage and risk-based
capital ratios, the Bank is considered "well capitalized" under the FDIC's
prompt corrective action guidelines.
Book value at September 30, 1997 was $21.96 per share, compared with $20.40 per
share at December 31, 1996.
18
<PAGE> 21
RESULTS OF OPERATIONS
NET INTEREST INCOME
Interest and dividend income from loans and investments increased 11.5%, or $2.0
million, to $19.1 million for the third quarter in 1997 when compared to the
same quarter in 1996. Average earning assets increased $100.7 million, or 10.6%,
when comparing the third quarter of 1997 to the third quarter of 1996, with
$69.2 million coming from short and long-term investment securities and $31.5
million coming from loans. The yield on earning assets increased to 7.27% from
7.21% and was the result of higher yields in all earning assets categories. The
yield on investment securities increased to 6.32% from 6.25%, reflecting the
purchase and reinvestment of additional higher yielding investment securities
such as mortgage-backed securities and corporate bonds. Investments contributed
$1.2 million of additional interest and dividend income when comparing the third
quarter of 1997 to the third quarter of 1996. The increase in the average
balance of loans, coupled with an increase in the weighted average yield on
loans to 8.06% from 7.93%, contributed $815,000 of additional interest. An
increase in 1-4 family mortgage loan volume contributed $595,000, commercial
real estate contributed $141,000, and commercial loans contributed $131,000,
respectively, to the increase in interest income on loans. Interest income on
consumer loans decreased $52,000 when compared to the prior year period as a
result of the sale of student loans.
Total interest expense for the three months ended September 30, 1997 was $10.6
million reflecting an increase of $1.5 million or 16.4% over the same period in
1996. This was principally due to an increase of $91.2 million in average
interest bearing liabilities over the comparable prior year period. This
increase can be attributed to the average balance in deposits increasing $25.7
million, and the average balance in borrowed funds increasing $65.5 million. The
Bank experienced migration from the lower rate passbook savings deposit into the
higher rate "ComboPlus" statement savings deposit. This coupled with an increase
in the rate paid on high balance money market accounts increased the overall
cost of deposits 11 basis points to 4.10%. To manage interest expense on
deposits, the Bank elected not to offer premium term deposit products during the
quarter. Interest expense on deposits increased $494,000 when comparing the
three months ended September 30, 1997 to the three months ended September 30,
1996. As short-term borrowings matured, they were replaced with longer term
FHLBB borrowings to fund the growth in the residential loan portfolio.
Repurchase agreements at favorable rates were used to fund increases in the
investment portfolio. Interest expense on borrowed funds increased $1.0 million
in the third quarter of 1997 when compared to the third quarter in 1996. The
overall cost of interest bearing liabilities increased to 4.41% from 4.20% when
comparing the two quarters.
Net interest income increased $481,000 or 6.0% to $8.5 million when comparing
the third quarter in 1997 to the same quarter in 1996 despite a decline in the
interest rate spread and net interest margin. This is primarily due to increased
levels of earning assets. While the yield on earning assets increased 6 basis
points when comparing the third quarter in 1997 to the third quarter in 1996,
this increase was more than offset by a 21 basis point increase in the cost of
interest bearing liabilities. This resulted in a reduction
19
<PAGE> 22
RESULTS OF OPERATIONS
(CONTINUED)
of the net interest margin and interest rate spread to 3.29% and 2.86%,
respectively, for the three months ended September 30, 1997, compared with 3.42%
and 3.01% for the three months ended September 30, 1996.
Interest and dividend income from loans and investments for the first nine
months of 1997 totalled $55.9 million, an increase of $4.9 million or 9.7% from
the same prior year period. The increase in average earning assets of $90.9
million, or 9.7%, can be attributed to a $56.4 million increase in short and
long-term investment securities, and a $34.5 million increase in loans. The
yield on earning assets remained unchanged at 7.23% for the nine months ended
September 30, 1997 and 1996. An increase in the yield on investment securities
from 6.21% to 6.26%, in addition to higher average balances, contributed $2.8
million of additional interest income over the prior year period. Interest
income on loans for the nine months ended September 30, 1997 increased $2.1
million over the same prior year period. Interest income for the nine months
ended September 30, 1996 was positively impacted by a $171,000 recovery of
commercial real estate loan income on a loan that had been previously
charged-off in a prior period.
Total interest expense increased $3.6 million or 13.4% over the comparable
period in 1996 to $30.5 million for the nine months ended September 30, 1997.
The increase is principally due to increased levels of borrowed funds. An
increase over the comparable period in 1996 of $69.3 million for the average
balance in borrowings, in addition to a 18 basis point increase in the rate
paid, increased interest expense on borrowed funds by $3.2 million. The weighted
average rate paid on deposits increased to 4.04% from 4.03% in the comparable
prior year period. The Bank continues to focus on increasing core deposit
accounts. As a result, pricing strategies were implemented increasing certain
core deposit product rates while lowering term certificate rates. The increase
in the weighted average rate paid on deposits is principally due to
disintermediation from the lower rate passbook savings into the higher rate
"ComboPlus" statement savings, an increase in the money market rates, and the 2
year certificate of deposit promotion during the first six months of the year.
Interest expense on deposits increased $440,000 when comparing the nine month
periods year to year. The Bank's overall cost of funds for the nine months ended
September 30, 1997 increased to 4.35% from 4.21%.
Net interest income increased $1.3 million or 5.5% to $25.4 million despite a
decline in the interest rate spread and net interest margin when comparing the
nine months ended September 30, 1997 to the nine months ended September 30,
1996. This is primarily due to increased levels of earning assets. The flat
yield on earning assets, and the 14 basis point increase in the cost of funds
resulted in a decline in the net interest margin and interest rate spread to
3.29% and 2.88%, respectively, for the first nine months of 1997 compared to
3.42% and 3.02% for the comparable prior year period.
20
<PAGE> 23
MEDFORD SAVINGS BANK
INTEREST RATE SPREAD
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Weighted average yield earned on:
Short-term investments 5.21% 5.12%
Investment securities 6.32 6.25
Loans 8.06 7.93
---- ----
All earning assets 7.27% 7.21%
----- -----
Weighted average rate paid on:
Deposits 4.10% 3.99%
Borrowed funds 5.88 5.80
---- ----
All interest-bearing liabilities 4.41% 4.20%
----- -----
Weighted average rate spread 2.86% 3.01%
----- -----
Net interest margin 3.29% 3.42%
===== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Weighted average yield earned on:
Short-term investments 5.21% 5.24%
Investment securities 6.26 6.21
Loans 8.02 8.01
---- ----
All earning assets 7.23% 7.23%
----- -----
Weighted average rate paid on:
Deposits 4.04% 4.03%
Borrowed funds 5.85 5.67
---- ----
All interest-bearing liabilities 4.35% 4.21%
----- -----
Weighted average rate spread 2.88% 3.02%
----- -----
Net interest margin 3.29% 3.42%
===== =====
</TABLE>
21
<PAGE> 24
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors including the quality of specific loans,
risk characteristics of the loan portfolio generally, the level of
non-performing loans, current economic conditions, trends in delinquency and
charge-offs, and collateral values of the underlying security. Management
considers the allowance for loan losses to be adequate at September 30, 1997,
although there can be no assurance that the allowance is adequate or that
additional provisions to the allowance for loan losses will not be necessary.
The Bank did not record a provision for loan losses in the third quarter of
1997, while $45,000 was provided in the third quarter of 1996. The provision
for loan losses for the nine months ended September 30, 1997, was $125,000
compared with $195,000 for the comparable prior year period. Net loan
charge-offs for the three and nine months ended September 30, 1997 totalled
$367,000 and $755,000 as compared to $16,000 and $262,000 for the same periods
in 1996.
At September 30, 1997, the allowance for loan losses represented a 235.8%
reserve coverage of non-accrual loans and 1.12% of total loans compared to
210.3% and 1.27%, respectively at December 31, 1996.
OTHER INCOME
Other income increased $657,000 to $3.1 million for the nine months ended
September 30, 1997 when compared to the nine months ended September 30, 1996.
The increase is principally attributable to $512,000 of additional net gains on
the sale of securities and $306,000 in net gains on the sale of loans, offset by
a decrease of $161,000 in customer service fees and miscellaneous income as
customers migrate to deposit products with lower fees such as the "ComboPlus".
(Remainder of this page intentionally left blank)
22
<PAGE> 25
OPERATING EXPENSES
Operating expenses were $4.8 million and $14.0 million for the three and nine
month periods ended September 30, 1997 compared to $4.6 million and $13.5
million for the same periods in 1996. Included in professional fees and other
general and administrative operating expenses for the third quarter of 1997 was
$100,000 associated with the formation of Medford Bancorp, as the holding
company of the Bank. The most significant increases were in salary and benefit
costs, which increased 4.9% and 5.2% respectively, when comparing the three and
nine months ended September 30, 1997 and 1996. Other increases within these
periods include equipment depreciation resulting from the Bank's investment of
$1.7 million in new technology in the third quarter of 1996 and an additional
$175,000 in the second quarter of 1997 for a telephone banking center. The
increased occupancy and equipment costs are for the most part offset by lower
data processing costs as a result of the investment in new technology. The
Bank's annualized expense ratio which is the ratio of operating expenses as a
percentage of average assets was 1.75% for the nine months ended September 30,
1997 compared to 1.84% for the prior year period. The Bank continues to focus on
cost containment with the intent to be a low cost provider of high quality
banking products and services.
(Remainder of this page intentionally left blank)
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are customer deposits,
amortization and payoff of existing loan principal, and sales or maturities of
various investment securities. The Bank is a voluntary member of the FHLBB, and
as such may take advantage of the FHLBB's borrowing programs to enhance
liquidity and leverage its favorable capital position. The Bank also may draw on
lines of credit at the FHLBB and a large commercial bank or pledge U.S.
Government securities to borrow from certain investment firms and the Mutual
Savings Central Fund of Massachusetts. These various sources of liquidity are
used to fund withdrawals, new loans, and investments.
Management continually seeks to optimize deposit growth while controlling
the Bank's cost of funds. Sales oriented programs to attract new depositors and
the cross-selling of various products to its existing customer base are
currently in place. Management reviews, on an ongoing basis, possible new
products, with particular attention to products and services which will aid in
retaining the Bank's base of lower-costing deposits.
Maturities and sales of investment securities provide significant
liquidity to the Bank. The Bank's policy of purchasing debt instruments maturing
in five years or less reduces market risk in the bond portfolio while providing
significant cash flow. For the nine months ended September 30, 1997, cash flow
from maturities and sales of securities was $97.1 million compared to cash flow
from maturities and sales of securities of $96.6 million for the nine months
ended September 30, 1996. Principal payments received on mortgage-backed
investments during the nine months ended September 30, 1997 and 1996 totalled
$5.4 million and $3.6 million, respectively. During periods of high interest
rates maturities in the bond portfolio have provided significant liquidity at a
lower cost than borrowings.
Amortization and pay-offs of the loan portfolio contribute significant
liquidity to the Bank. Traditionally, the amortization and payoffs have been
reinvested into loans. When payoff rates exceed origination rates, excess
liquidity from loan payoffs is shifted into the investment portfolio.
The Bank also uses borrowed funds as a source of liquidity. These
borrowings generally contribute toward funding over-all loan growth. At
September 30, 1997 the Bank's outstanding borrowings from the FHLBB were $112.4
million, as compared to $87.6 million at September 30, 1996. The Bank also
utilizes repurchase agreements as a source of funding when management deems
market conditions to be conducive to such activities. The balance in repurchase
agreements at September 30, 1997 was $62.8 million, as compared to $35.0 million
at September 30, 1996.
Commitments to originate residential and commercial real estate mortgage
loans at September 30, 1997, excluding unadvanced construction funds of $8.0
million, was $20.2 million. Management believes that adequate liquidity is
available to fund loan commitments utilizing deposits, loan amortization,
maturities of securities, or borrowings.
24
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)
Purchases of securities during the nine months ended September 30, 1997
totalled $147.8 million consisting of debt instruments maturing in less than
five years and equities. This compares with purchases of $151.7 million for the
nine months ended September 30, 1996.
Residential and commercial real estate mortgage loan originations for the
nine months ended September 30, 1997 totalled $80.5 million, compared with $68.4
million for the nine months ended September 30, 1996. The Bank also purchased
residential 1-4 family loans amounting to $1.3 million from a third party during
the first nine months of 1997.
The Bank's capital position (total stockholders' equity) was $99.7 million
or 9.02% of total assets at September 30, 1997 compared with $92.5 million or
8.90% of total assets at December 31, 1996. The Bank's capital position exceeds
all regulatory requirements.
(The remainder of this page intentionally left blank.)
25
<PAGE> 28
ASSET-LIABILITY MANAGEMENT
Through the Bank's Asset-Liability Management Committee ("ALCO"), which is
comprised of certain senior and middle management personnel, the Bank monitors
the level and general mix of interest rate-sensitive assets and liabilities. The
primary objective of the Bank's ALCO program is to manage the assets and
liabilities of the Bank to provide for optimum profitability and capital at
prudent levels of liquidity and interest rate, credit, and market risk.
It is ALCO's general policy to closely match the maturity or rate
sensitivity of its assets and liabilities. In accordance with this policy,
certain strategies have been implemented to improve the match between interest
rate sensitive assets and liabilities. These strategies include, but are not
limited to: daily monitoring of the Bank's changing cash requirements, with
particular concentration on investment in short term securities; originating
adjustable and fixed rate mortgage loans for the Bank's own portfolio; managing
the cost and structure of deposits; and generally using matched borrowings to
fund specific purchases of loan packages and large loan origination.
Occasionally, management may choose to deviate from specific matching of
maturities of assets and liabilities, if an attractive opportunity to enhance
yields becomes available.
The Bank actively manages its liability portfolio in order to effectively
plan and manage growth and maturities of deposits. Management recognizes the
need for strict attention to all deposits. Accordingly, plans for growth of all
deposit types are reviewed regularly. Programs are in place which are designed
to build multiple relationships with customers and to enhance the Bank's ability
to retain deposits at controlled rates of interest, and management has adopted a
policy of reviewing interest rates on an ongoing basis on all deposit accounts,
in order to control deposit growth and interest costs.
In addition to attracting deposits, the Bank has selectively borrowed
funds using advances from the FHLBB and upon occasion, reverse repurchase
agreements. These funds have generally been used to purchase loans typically
having a matched repricing date.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary effect of inflation on the operations of the Bank is reflected in
increased operating costs. Unlike most industrial companies, virtually all
assets of a financial institution are monetary in nature. As a result, interest
rates have a more significant effect 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.
26
<PAGE> 29
OTHER EVENTS
At a special meeting on September 16, 1997 the shareholders of the Bank approved
the establishment of a holding company to be named Medford Bancorp, Inc. The
reasons for the proposed establishment of the holding company were discussed in
detail in the proxy materials mailed out to all shareholders. More recently, the
Bank received all necessary regulatory approvals to consummate the
reorganization The transaction is anticipated to be completed in the fourth
quarter of 1997.
As is also detailed in the proxy materials pursuant to the reorganization,
shares of Bank common stock (together with associated stock purchase rights)
would be converted automatically into shares of holding company common stock
(together with associated preferred stock purchase rights).
27
<PAGE> 30
SIGNATURES
Under to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be on its behalf signed by the undersigned
thereunto duly authorized.
MEDFORD SAVINGS BANK
Date: November 7, 1997
/s/ Arthur H. Meehan
------------------------------------------------
Arthur H. Meehan
Chairman/President/CEO
Date: November 7, 1997
/s/ Phillip W. Wong
-------------------------------------------------
Phillip W. Wong
Senior Vice President and Chief Financial Officer
28
<PAGE> 1
Exhibit 99.7
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
-----------------
FORM F-3
CURRENT REPORT
Under Section 13 of the
Securities Exchange Act of 1934
FOR THE MONTH OF SEPTEMBER, 1997
MEDFORD SAVINGS BANK
(Exact name of bank as specified in charter)
29 HIGH STREET, MEDFORD, MASSACHUSETTS
(Address of principal office)
(617) 395-7700
(Bank's telephone number, including area code)
<PAGE> 2
Item 9 -- Submission of Matters to a Vote of Security Holders
On September 16, 1997, Medford Savings Bank (the "Bank") held a Special
Meeting of Stockholders (the "Meeting"). There were 4,541,077 shares issued,
outstanding and eligible to vote as of July 31, 1997. A total of 3,212,259
shares, or 70.74% of the eligible voting shares, were present in person or by
proxy at the Meeting.
At the Meeting, the stockholders voted on the proposal to approve the
Plan of Reorganization and Acquisition dated as of July 29, 1997 (the "Plan of
Reorganization"), between the Bank and Medford Bancorp, Inc., providing for the
formation of a holding company for the Bank, and each of the transactions
contemplated thereby. The number of votes cast for or against the proposal, as
well as the number of abstentions, is as follows:
FOR: 3,142,285.013
AGAINST: 39,770.506
ABSTAIN: 30,203.877
Item 13 -- Financial Statements and Exhibits
(a) Financial Statements
None.
(b) Exhibits
7. The description of the proposal in the proxy statement (the
"Proxy Statement") with respect to the Meeting, filed with the
FDIC on August 5, 1997, is incorporated herein by reference.
Moreover, a copy of the Plan of Reorganization described in
Item 9 is attached as Exhibit A to the Proxy Statement.
1
<PAGE> 3
SIGNATURES
Under 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.
MEDFORD SAVINGS BANK
Date: September 30, 1997 By: /s/ Arthur H. Meehan
--------------------
Arthur H. Meehan
Chairman, President and Chief Executive
Officer
2
<PAGE> 1
Exhibit 99.8
NOTICE
by
MEDFORD BANCORP, INC.
to the
FEDERAL RESERVE BANK OF BOSTON
pursuant to
SECTION 225.17 OF REGULATION Y (12 C.F.R. Section 225.17)
for a
ONE-BANK HOLDING COMPANY FORMATION
Medford Bancorp, Inc., Medford, Massachusetts, a Massachusetts
corporation ("Bancorp"), hereby submits this notice (the "Notice") to the
Federal Reserve Bank of Boston ("Reserve Bank") under Section 225.17 of
Regulation Y ("Section 225.17") of the proposed acquisition by Bancorp of 100%
of the voting shares of Medford Savings Bank, Medford, Massachusetts, a
Massachusetts-chartered savings bank ("Medford") (the "Proposed
Reorganization"). Medford currently is a publicly held bank, with its stock
listed on the NASDAQ National Market System ("NASDAQ").
As is more fully discussed below, the Proposed Reorganization involves
a change in the corporate structure of Medford by which Bancorp would become the
holding company of Medford and a unitary bank holding company with its stock
traded on NASDAQ. As is also discussed more fully below, Medford believes a
holding company structure provides more flexibility to respond to market demands
and thus will enable it to compete more effectively against the much larger
competitors in its market.
The first part of this Notice describes the parties, purposes and terms
of the Proposed Reorganization. The second part then addresses each of the
specific requirements of Section 225.17. All factual information stated herein
has been provided by Medford.
INTRODUCTION
DESCRIPTION OF THE PARTIES
Bancorp
Bancorp was organized as a Massachusetts corporate subsidiary of
Medford in July, 1997 for the sole purpose of becoming the holding company of
Medford in accordance with Massachusetts law. Upon completion of the Proposed
Reorganization, Medford will be a wholly owned subsidiary of Bancorp, and
Bancorp will thereby become a bank holding company.
<PAGE> 2
Bancorp currently is a shell subsidiary. When Bancorp becomes the
holding company of Medford, its principal activities will be related to its
holding of Medford stock. In the future, upon receipt of all necessary
regulatory approvals, Bancorp may acquire banks or companies engaged in
bank-related activities and may engage in such activities as may be permitted by
applicable law, although no such activities or acquisitions are contemplated at
this time.
Medford
Medford was organized in 1869 as a Massachusetts mutual savings bank.
Medford converted from mutual to stock form on March 18, 1986 and issued
3,680,000 shares of common stock.
Until January, 1996, Medford had two wholly-owned subsidiaries: Medco
Realty, Inc. ("Medco") and Medford Securities Corporation ("MSC"). Medco engaged
in the ownership and maintenance of certain buildings leased to Medford and, to
the extent excess space was available, third parties. Medford elected to
dissolve Medco in January, 1996, and acquired all of its assets and liabilities.
MSC was established as a wholly owned subsidiary of Medford in February, 1995
and became operational on March 1, 1995. MSC is a securities corporation engaged
exclusively in bank-permissible buying and selling of securities.
Medford is principally engaged in the business of attracting deposits
from the general public, originating residential and commercial real estate
mortgages and consumer and commercial loans, and investing in securities.
Medford is headquartered in Medford, Massachusetts, which is located
approximately seven miles north of downtown Boston. It has a network of sixteen
banking offices located in Medford, Malden, Arlington, Belmont, Burlington,
North Reading, Waltham, and Wilmington. Medford's primary market area includes
these communities as well as other cities and towns in Middlesex County and the
surrounding area north of Boston.
Medford also offers savings bank life insurance ("SBLI") in accordance
with Massachusetts law. Medford intends to continue offering SBLI after the
Proposed Reorganization, and submits that such activity would continue to be
permissible pursuant to Section 3(f) of the Bank Holding Company Act of 1956, as
amended.
At June 30, 1997, Medford had total assets of $1,072,557,000, total
deposits of $824,611,000, and total stockholders' equity of $96,458,000. For the
fiscal year ended December 31, 1996 and the six month period ended June 30,
1997, Medford had net income of $10,429,000 and $5,923,000 respectively. On June
30, 1997, Medford's leverage ratio was 8.49% and its Tier 1 risk-based and total
risk-based capital ratios were 14.89% and 16.03%, respectively. As a result,
Medford is considered "well-capitalized" under applicable prompt corrective
action regulations. Copies of Medford's 1996 Annual Report and most recent
quarterly report on Form F-4 are attached hereto as Exhibit 1.
2
<PAGE> 3
PURPOSE OF THE TRANSACTION
The Board of Directors of Medford believes that a holding company
structure will provide flexibility for meeting the future financial needs of
Medford and responding to competitive conditions in the financial services
market. For example, although no transactions are presently contemplated, the
holding company structure will facilitate the acquisition of other banks as well
as other companies engaged in bank-related activities if and when opportunities
arise. In this regard, a holding company structure would permit an acquired
entity to operate on a more autonomous basis as a wholly-owned subsidiary of
Bancorp rather than as a division of Medford. This more autonomous operation may
be decisive in acquisition negotiations. In addition, the stock of Bancorp might
serve as appropriate consideration in any such acquisition.
Moreover, as a bank holding company, Bancorp will not be subject to the
same regulatory restrictions as Medford, and will be able to acquire and invest
more freely in certain bank and bank-related activities as well as such other
activities as might be permitted by regulatory authorities. In addition, Bancorp
will not be subject to the same regulatory limitations on the amounts which it
can invest in its subsidiaries and other businesses and will not be required to
obtain regulatory approval before issuing shares of its capital stock, except
under certain circumstances. Moreover, providing even further operational
flexibility, the repurchase of stock by Bancorp will not be subject to the same
significant adverse tax consequences as a repurchase of stock by Medford, and,
except under certain circumstances, no regulatory approval is required for such
repurchase by Bancorp.
DESCRIPTION OF THE PROPOSED REORGANIZATION
The Proposed Reorganization will be effected pursuant to a Plan of
Reorganization and Acquisition dated as of July 29, 1997, by and between Bancorp
and Medford (the "Plan of Reorganization"), a copy of which is attached as
Exhibit 2 hereto, in accordance with Massachusetts General Laws, Chapter 172,
Section 26B ("Section 26B").(1)
- - - --------
(1) The Plan of Reorganization provides that it shall not become effective
until all of the following first shall have occurred: (i) the Plan of
Reorganization shall have been approved by the affirmative vote of the holders
of two-thirds of the outstanding common stock of Medford at a meeting of such
stockholders called for such purpose, (ii) the Plan of Reorganization shall have
been approved by the Massachusetts Commissioner of Banks and a copy of the Plan
of Reorganization with his approval endorsed thereon shall have been filed in
his office, all as provided in Section 26B, (iii) any approval, consent or
waiver required by the Board of Governors of the Federal Reserve System shall
have been received and any waiting period imposed by applicable law shall have
expired, (iv) Medford shall have received a favorable opinion from its counsel,
satisfactory in form and substance to Medford, with respect to the federal
income tax consequences of the Plan of Reorganization and the acquisition
contemplated thereby, (v) the shares of Bancorp common stock (together with
associated preferred stock purchase rights) to be issued to the holders of
common stock of Medford pursuant to the Proposed Reorganization shall have been
registered or qualified for such issuance to the extent required under all
applicable state securities laws, and (vi) Medford and Bancorp shall have
obtained all other consents, permissions and approvals and taken all actions
required by law or agreement, or deemed necessary by Medford or Bancorp, prior
to the consummation of
3
<PAGE> 4
In accordance with Section 26B, the Plan of Reorganization was approved
by the Board of Directors of Bancorp and Medford on July 29, 1997. The Plan of
Reorganization also was approved by the holders of more than two-thirds of the
outstanding shares of Medford's common stock entitled to vote at a special
meeting of Medford's stockholders held on September 16, 1997. A copy of the
proxy statement delivered to the stockholders in connection with the Proposed
Reorganization (the "Proxy Statement") is attached hereto as Exhibit 3.
Under the Plan of Reorganization, Bancorp will become the owner of all
the outstanding shares of the common stock of Medford, and each stockholder of
Medford who does not exercise dissenters' rights with respect to the Plan of
Reorganization will become the owner of one share of Bancorp common stock for
each share of common stock of Medford held immediately prior to the consummation
of the Proposed Reorganization, together with certain associated preferred stock
purchase rights issued pursuant to Medford's Shareholder Rights Plan (see below
in this section for a discussion of the Shareholder Rights Plan). On the
effective date of the Proposed Reorganization, each share of common stock of
Medford will be automatically converted into and exchanged for one share of
Bancorp common stock (together with associated preferred stock purchase rights).
The number of shares of Bancorp common stock to be issued at the
effective time of the Proposed Reorganization will equal the number of shares of
common stock of Medford issued and outstanding immediately prior thereto, less
the number of shares of common stock of Medford held by dissenting
stockholders.(2) Shares of Bancorp common stock that would have been issued had
dissenting stockholders not dissented will remain as authorized but unissued
shares of Bancorp common stock. The shares of Bancorp common stock that are
outstanding prior to the effective time of the Proposed Reorganization, all of
which are presently held by Medford, will be cancelled as part of the Proposed
Reorganization.
After consummation of the Proposed Reorganization, Medford, as a
subsidiary of Bancorp, will continue to serve the communities it presently
serves from its existing office locations. In connection with the Proposed
Reorganization, Medford currently intends to transfer up to approximately $7
million to Bancorp, which amount does not exceed the accumulated earnings and
profits for tax purposes of Medford as of June 30, 1997. If such a transfer to
Bancorp had been made on June 30, 1997, the leverage, Tier 1 risk-based, and
total risk-based capital ratios of Medford would have been approximately 7.88%,
13.89% and
- - - --------
the acquisition provided for by the Plan of Reorganization and to Bancorp's
having and exercising all rights of ownership with respect to all of the
outstanding shares of common stock of Medford acquired by it thereunder.
(2) Medford has received a letter from a single stockholder objecting to
the Proposed Reorganization and demanding payment for his shares if the Proposed
Reorganization is consummated. The stockholder holds 2,170 shares of Medford
common stock, which represents less than 0.1% of the total number of shares
outstanding. Medford is uncertain whether the stockholder intends to complete
the statutory dissent process.
4
<PAGE> 5
15.05%, respectively, resulting in it still being considered
"well-capitalized" under the applicable prompt corrective action regulations.(3)
The Charter and By-laws of Medford will not be affected by consummation
of the Proposed Reorganization, and the Articles of Organization and By-laws of
Bancorp are substantially identical to those of Medford. The Medford Savings
Bank 1993 Stock Option Plan and the Medford Savings Bank 1986 Stock Option Plan
will become stock option plans of Bancorp. All other stock related benefit plans
of Medford will be unchanged by the Proposed Reorganization, except that any
plan which refers to the common stock of Medford, such as the Employee Stock
Ownership Plan, will, following the completion of the Proposed Reorganization,
be deemed to refer instead to Bancorp common stock.
Medford's Shareholder Rights Plan, pursuant to which the preferred
stock purchase rights were provided to shareholders, will be amended so that it
will be assumed by Bancorp following the Proposed Reorganization. Accordingly,
the outstanding rights issued pursuant to the Shareholder Rights Plan will be
assumed by, and deemed to be rights issued by, Bancorp. The Shareholder Rights
Plan, as amended, will be substantially similar to the plan as currently in
effect. The Shareholders Rights Plan is more fully described on page 13 of the
Proxy Statement.
The Directors, officers and other employees of Medford will be
unchanged by the Proposed Reorganization. The Directors of Bancorp will
initially consist of the ten persons currently serving as members of the Board
of Directors of Medford. The President and Chief Executive Officer, Chief
Financial Officer and the Clerk of Bancorp will initially be the persons serving
identical roles with respect to Medford.
NOTICE REQUIREMENTS
Having provided in the Introduction a general description of the
Proposed Reorganization, the parties thereto, and the purposes thereof, this
Notice now specifically details why the Proposed Reorganization qualifies for
eligibility under the notice procedures of Section 225.17(a), and further
discusses why the Proposed Reorganization satisfies each of the requirements set
forth in Section 225.17(b) and is worthy of Federal Reserve System approval. For
ease of review, the text of each applicable item of Section 225.17 has been
enclosed in a box.
- - - --------
(3) Due to a recent update of financial information regarding Medford,
these pro forma capital ratios differ immaterially from those stated in the
Proxy Statement. As already mentioned, however, Medford will remain
"well-capitalized" pursuant to applicable prompt corrective action regulations
under the revised numbers.
5
<PAGE> 6
SECTION 225.17(a) ELIGIBILITY REQUIREMENTS
To qualify for the notice procedure under Section 225.17, a proposal
must satisfy the criteria set forth at Section 225.17(a) of Regulation Y. As
discussed below, the Proposed Reorganization satisfies each of the first seven
conditions and will satisfy the eighth condition upon expiration of the 30-day
period following notice to the Reserve Bank, assuming no objection or a request
for an application under Section 225.15 of Regulation Y is received during such
period.
(1) THE SHAREHOLDER OR SHAREHOLDERS WHO CONTROL AT LEAST 67
PERCENT OF THE SHARES OF THE BANK WILL CONTROL, IMMEDIATELY
AFTER THE REORGANIZATION, AT LEAST 67 PERCENT OF THE SHARES OF
THE HOLDING COMPANY IN SUBSTANTIALLY THE SAME PROPORTION,
EXCEPT FOR CHANGES IN SHAREHOLDERS' INTERESTS RESULTING FROM
THE EXERCISE OF DISSENTING SHAREHOLDERS' RIGHTS UNDER STATE OR
FEDERAL LAW;
In accordance with the Plan of Reorganization, Bancorp will become the
owner of all the outstanding shares of common stock of Medford and each
stockholder of Medford who does not exercise dissenters' rights with respect to
the Plan of Reorganization will become the owner of one share of Bancorp common
stock for each share of common stock of Medford held immediately prior to the
consummation of the Proposed Reorganization. As a result, this condition is
satisfied.
(2) NO SHAREHOLDER, OR GROUP OF SHAREHOLDERS ACTING IN CONCERT,
WILL, FOLLOWING THE REORGANIZATION, OWN OR CONTROL 10 PERCENT
OR MORE OF ANY CLASS OF VOTING SHARES OF THE BANK HOLDING
COMPANY, UNLESS THAT SHAREHOLDER OR GROUP OF SHAREHOLDERS WAS
AUTHORIZED, AFTER REVIEW UNDER THE CHANGE IN BANK CONTROL ACT
OF 1978 (12 U.S.C. 1817(j)) BY THE APPROPRIATE FEDERAL BANKING
AGENCY FOR THE BANK, TO OWN OR CONTROL 10 PERCENT OR MORE OF
ANY CLASS OF VOTING SHARES OF THE BANK;
Based on Medford's stockholders, a list of which as of the record date
(July 31, 1997) of the special meeting of stockholders to consider the Proposed
Reorganization is attached hereto as Confidential Exhibit 4, no stockholder, or
group of stockholders acting in concert, is contemplated to own or control 10%
or more of any class of voting shares of Bancorp following the Proposed
Reorganization.(4)
With respect to the footnote in Section 225.17 concerning this
requirement, no company (other than Bancorp) will be required to register as a
bank holding company as a result of the Proposed Reorganization. Furthermore, as
indicated above, Bancorp is not being organized in mutual form.
- - - --------
(4) Medford has not become aware of any information since the record date
which would lead to a belief that any significant shifting in stock ownership
has occurred since the record date or will occur prior to the consummation of
the Proposed Reorganization.
6
<PAGE> 7
(3) THE BANK IS ADEQUATELY CAPITALIZED (AS DEFINED IN SECTION 38
OF THE FEDERAL DEPOSIT INSURANCE ACT (12 U.S.C. 1831O));
As is discussed in the Introduction, Medford currently is
well-capitalized under applicable prompt corrective action regulations.
(4) THE BANK HAS RECEIVED AT LEAST A COMPOSITE "SATISFACTORY"
RATING AT ITS MOST RECENT EXAMINATION, IN THE EVENT THAT THE
BANK WAS EXAMINED;
As demonstrated in the certificate attached hereto as Confidential
Exhibit 5, the requirements of Section 225.17(a)(4) have been satisfied.
(5) AT THE TIME OF THE REORGANIZATION, NEITHER THE BANK NOR ANY OF
ITS OFFICERS, DIRECTORS, OR PRINCIPAL SHAREHOLDERS IS INVOLVED
IN ANY UNRESOLVED SUPERVISORY OR ENFORCEMENT MATTERS WITH ANY
APPROPRIATE FEDERAL BANKING AGENCY;
Neither Medford nor any of its officers or directors is involved in any
unresolved supervisory or enforcement matters with any appropriate federal
banking agency. Medford had no principal shareholders (as defined in Section
225(2)(n)(2) of Regulation Y) as of July 31, 1997, and none are contemplated to
exist at the consummation of the Proposed Reorganization.
(6) THE COMPANY DEMONSTRATES THAT ANY DEBT THAT IT INCURS AT THE
TIME OF THE REORGANIZATION, AND THE PROPOSED MEANS OF RETIRING
THIS DEBT, WILL NOT PLACE UNDUE BURDEN ON THE HOLDING COMPANY
OR ITS SUBSIDIARY ON A PRO FORMA BASIS;
Bancorp will not assume any debt at the effective time of the Proposed
Reorganization.
(7) THE HOLDING COMPANY WILL NOT, AS A RESULT OF THE
REORGANIZATION, ACQUIRE CONTROL OF ANY ADDITIONAL BANK OR
ENGAGE IN ANY ACTIVITIES OTHER THAN THOSE OF MANAGING AND
CONTROLLING BANKS; AND
Bancorp, as a result of the Proposed Reorganization, will only directly
acquire Medford and indirectly acquire Medford's existing subsidiary, MSC.
Bancorp has no current plans to acquire any other banking or nonbanking
interests. Attached as Exhibit 6 hereto is a pro forma organizational chart for
Bancorp.
(8) DURING THIS PERIOD, NEITHER THE APPROPRIATE RESERVE BANK NOR
THE BOARD OBJECTED TO THE PROPOSAL OR REQUIRED THE FILING OF
AN APPLICATION UNDER SECTION 225.15 OF THIS SUBPART.
7
<PAGE> 8
Expiration of the 30-day period following receipt of this Notice by the
Reserve Bank without such objection or request will satisfy this requirement.
SECTION 225.17(b) NOTICE REQUIREMENTS
Having detailed why the Proposed Reorganization qualifies for the
notice procedure under Section 225.17, this Notice now demonstrates why the
Proposed Reorganization would be worthy of Reserve Bank approval under Section
225.17(b) of Regulation Y.
(1) CERTIFICATION BY THE NOTIFICANT'S BOARD OF DIRECTORS THAT THE
REQUIREMENTS OF 12 U.S.C. 1842(a)(C) AND THIS SECTION ARE MET
BY THE PROPOSAL;
A copy of the required certification by Bancorp is attached as Exhibit
7 hereto.
(2) A LIST IDENTIFYING ALL PRINCIPAL SHAREHOLDERS OF THE BANK
PRIOR TO THE REORGANIZATION AND OF THE HOLDING COMPANY
FOLLOWING THE REORGANIZATION, AND SPECIFYING THE PERCENTAGE OF
SHARES HELD BY EACH PRINCIPAL SHAREHOLDER IN THE BANK AND
PROPOSED TO BE HELD IN THE NEW HOLDING COMPANY;
As discussed above, Medford had no principal shareholders (as defined
in Section 225(2)(n)(2) of Regulation Y) as of July 31, 1997, and none are
contemplated to exist at the consummation of the Proposed Reorganization. A list
of all stockholders of Medford as of July 31, 1997, the record date for the
special meeting of stockholders to consider the Proposed Reorganization, is
attached hereto as Confidential Exhibit 4.
(3) A DESCRIPTION OF THE RESULTING MANAGEMENT OF THE PROPOSED BANK
HOLDING COMPANY AND ITS SUBSIDIARY BANK, INCLUDING (i)
BIOGRAPHICAL INFORMATION REGARDING ANY SENIOR OFFICERS AND
DIRECTORS OF THE RESULTING BANK HOLDING COMPANY WHO WERE NOT
SENIOR OFFICERS OR DIRECTORS OF THE BANK PRIOR TO THE
REORGANIZATION; AND (ii) A DETAILED HISTORY OF THE INVOLVEMENT
OF ANY OFFICER, DIRECTOR, OR PRINCIPAL SHAREHOLDER OF THE
RESULTING BANK HOLDING COMPANY IN ANY ADMINISTRATIVE OR
CRIMINAL PROCEEDING, AND
Management of Medford will remain unchanged after the effective time of
the Proposed Reorganization. A list of the management of Bancorp after the
effective time of the Proposed Reorganization is attached as Exhibit 8 hereto.
As discussed above, the initial directors of Bancorp will consist of the ten
persons currently serving as members of the Board of Directors of Medford. The
President and Chief Executive Officer, Chief Financial Officer and the Clerk of
Bancorp will initially be the persons serving identical roles with respect to
8
<PAGE> 9
Medford. No officer is involved in any administrative or criminal proceeding. As
discussed above, Medford did not have any principal shareholders as of July 31,
1997.
(4) PRO FORMA FINANCIAL STATEMENTS FOR THE HOLDING COMPANY, AND A
DESCRIPTION OF THE AMOUNT, SOURCE, AND TERMS OF DEBT, IF ANY,
THAT THE BANK HOLDING COMPANY PROPOSES TO INCUR, AND
INFORMATION REGARDING THE SOURCES AND TIMING FOR DEBT SERVICE
AND RETIREMENT.
Medford's 1996 year-end and most recent quarterly balance sheets and
income statements are included in its annual report and quarterly report on Form
F-4, attached as Exhibit 1. Attached as Confidential Exhibit 9 are a pro forma
consolidated balance sheet at June 30, 1997 for Bancorp and pro forma capital
ratios as of June 30, 1997 for Medford. As discussed more fully above, Bancorp
will incur no debt at the effective time of the Proposed Reorganization.
REQUEST FOR CONFIDENTIAL TREATMENT
Bancorp requests the Federal Reserve System to accord confidential
treatment to the materials in the separately bound Confidential Exhibits volume
in accordance with Part 261 of the Rules of the Board of Governors Regarding
Disclosure of Information and applicable exemptions from the Freedom of
Information Act. The materials contained in the Confidential Exhibits volume
include privileged and confidential commercial and financial information that is
not otherwise publicly available and disclosure of which would likely cause
significant competitive harm to Bancorp and Medford, and material that is
contained in, or related to, confidential supervisory information prepared by a
federal financial institution supervisory agency that deems such information
confidential. Examples of this type of information include the pro forma
financial statements for Bancorp and Medford, the list of stockholders of
Medford, and a certificate regarding Medford's rating at its most recent
examination. As such, these materials are exempt from public disclosure
requirements and entitled to confidential treatment under Section 261.8(a)(2)
and (a)(3) and Section 261.17 of the Board's Rules and the Freedom of
Information Act, 5 U.S.C. Section 552(b).
9
<PAGE> 10
We appreciate your attention to this Notice. Please confirm receipt of
an original and 6 copies of this Notice, including the Confidential Exhibits
volume provided herewith, by signing or date-stamping the enclosed receipt copy
of this letter and returning it to the messenger. As always, if you require
additional information or have any questions concerning this Notice, please do
not hesitate to call me at 570-1329 or Josefina Rotman Childress at 570-1374.
Sincerely,
/s/ Gregory J. Lyons
--------------------
Gregory J. Lyons
cc: Arthur H. Meehan
Chairman, President and Chief Executive Officer
Phillip W. Wong
Senior Vice President and Chief Financial Officer
Paul W. Lee, P.C.
<PAGE> 1
Exhibit 99.9
THE COMMONWEALTH OF MASSACHUSETTS
DIVISION OF BANKS
LEVERETT SALTONSTALL BUILDING
100 CAMBRIDGE STREET, BOSTON, MASSACHUSETTS 02202
APPLICATION FOR ACQUISITION OF A BANK BY A COMPANY
PURSUANT TO MASSACHUSETTS GENERAL LAWS CHAPTER 172, SECTION
26B, APPLICATION IS HEREBY MADE BY
APPLICANT: Medford Bancorp, Inc.
ADDRESS: 29 High Street
Medford, MA 02155
MAILING ADDRESS,
IF DIFFERENT: N/A
TELEPHONE: (617) 395-7700
FOR WRITTEN APPROVAL OF THE COMMISSIONER OF BANKS TO ACQUIRE THE
FOLLOWING BANK.
BANK TO BE
ACQUIRED: Medford Savings Bank
ADDRESS: 29 High Street
Medford, MA 02155
TELEPHONE: (617) 395-7700
THREE COPIES OF THIS APPLICATION MUST BE FILED WITH AN
APPLICATION FEE IN THE AMOUNT OF $1,500.00 PAYABLE TO THE DIVISION OF
BANKS.
APPLICATION
COORDINATOR: Gregory J. Lyons, Esq. and Josefina R.
Childress, Esq.
TITLE: Attorneys
ADDRESS: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
TELEPHONE: (617) 570-1000
DATE: September 15, 1997
<PAGE> 2
INTRODUCTORY STATEMENT
Medford Bancorp, Inc., a corporation organized under the laws of the
Commonwealth of Massachusetts ("Bancorp"), hereby applies to the Massachusetts
Commissioner of Banks ("Commissioner of Banks") pursuant to Massachusetts
General Laws, Chapter 172, Section 26B ("Section 26B") for approval of its
acquisition of all of the capital stock of Medford Savings Bank, a
Massachusetts-chartered savings bank in stock form ("Medford") (such acquisition
hereinafter referred to as the "Proposed Reorganization"). All factual
information stated herein has been provided by Medford.
As is discussed more fully below, Medford believes a holding company
structure provides more flexibility to respond to market demands and thus will
enable it to compete more effectively against the much larger competitors in its
market.
Description of the Parties
A. Bancorp
Bancorp was organized as a Massachusetts corporate subsidiary of
Medford, in July, 1997, for the sole purpose of becoming the holding company of
Medford in accordance with Massachusetts law. Upon completion of the Proposed
Reorganization, Medford will be a wholly owned subsidiary of Bancorp, and
Bancorp will thereby become a bank holding company.
Bancorp currently is a shell subsidiary. When Bancorp becomes the
holding company of Medford, its principal activities will be related to its
holding of Medford stock. In the future, upon receipt of all necessary
regulatory approvals, Bancorp may acquire banks or companies engaged in
bank-related activities and may engage in such activities as may be permitted by
applicable law, although no such activities or acquisitions are contemplated at
this time. In any event, in accordance with Section 26B, Bancorp will engage
directly or indirectly only in such activities as are now or may hereafter be
proper activities for bank holding companies registered under the Federal Bank
Holding Company Act of 1956.
B. Medford
Medford was organized in 1869 as a Massachusetts mutual savings bank.
Medford converted from mutual to stock form on March 18, 1986 and issued
3,680,000 shares of common stock.
Until January, 1996, Medford had two wholly-owned subsidiaries: Medco
Realty, Inc. ("Medco") and Medford Securities Corporation ("MSC"). Medco engaged
in the ownership and maintenance of certain buildings leased to Medford and, to
the extent excess space was available, third parties. Medford elected to
dissolve Medco in January, 1996, and acquired all
<PAGE> 3
of its assets and liabilities. MSC was established as a wholly owned subsidiary
of Medford in February, 1995, and became operational on March 1, 1995. MSC is a
securities corporation engaged exclusively in bank-permissible buying and
selling of securities.
Medford is principally engaged in the business of attracting deposits
from the general public, originating residential and commercial real estate
mortgages and consumer and commercial loans, and investing in securities.
Medford is headquartered in Medford, Massachusetts, which is located
approximately seven miles north of downtown Boston. It has a network of sixteen
banking offices located in Medford, Malden, Arlington, Belmont, Burlington,
North Reading, Waltham, and Wilmington. Medford's primary market area includes
these communities as well as other cities and towns in Middlesex County and the
surrounding area north of Boston.
Medford also offers savings bank life insurance ("SBLI") in accordance
with Massachusetts law. Medford intends to continue offering SBLI after the
Proposed Reorganization, a permissible activity pursuant to Section 3(f) of the
Bank Holding Company Act of 1956, as amended.
At June 30, 1997, Medford had total assets of $1,072,557,000, total
deposits of $824,611,000, and total stockholders' equity of $96,458,000. For the
fiscal year ended December 31, 1996 and the six month period ended June 30,
1997, Medford had net income of $10,429,000 and $5,923,000, respectively. On
June 30, 1997, Medford's leverage ratio was 8.49% and its Tier 1 risk-based and
total risk-based capital ratios were 14.89% and 16.03%, respectively. As a
result, Medford is considered "well-capitalized" under applicable prompt
corrective action regulations. Copies of Medford's most recent financial
statements are attached hereto as Appendix H.
Description of the Transaction
The Proposed Reorganization will be effected pursuant to a Plan of
Reorganization and Acquisition dated as of July 29, 1997, by and between Bancorp
and Medford (the "Plan of Reorganization"), a copy of which is included in
Appendix A hereto, in accordance with Section 26B.(1)
- - - --------
(1) The Plan of Reorganization provides that it shall not become
effective until all of the following first shall have occurred: (i) the Plan of
Reorganization shall have been approved by the affirmative vote of the holders
of two-thirds of the outstanding common stock of Medford at a meeting of such
stockholders called for such purpose, (ii) the Plan of Reorganization shall have
been approved by the Commissioner of Banks and a copy of the Plan of
Reorganization with his approval endorsed thereon shall have been filed in his
office, all as provided in Section 26B, (iii) any approval, consent or waiver
required by the Board of Governors of the Federal Reserve System shall have been
received and any waiting period imposed by applicable law shall have expired,
(continued...)
2
<PAGE> 4
In accordance with Section 26B, the Plan of Reorganization was approved
by the Board of Directors of Bancorp and Medford on July 29, 1997. The Plan of
Reorganization is anticipated to be approved by the holders of more than
two-thirds of the outstanding shares of Medford's common stock entitled to vote
at a special meeting of Medford's stockholders to be held on September 16, 1997.
A copy of the proxy statement delivered to the stockholders in connection with
the Proposed Reorganization (the "Proxy Statement") is attached hereto as
Exhibit 2.
Under the Plan of Reorganization, Bancorp will become the owner of all
the outstanding shares of the common stock of Medford, and each stockholder of
Medford who does not exercise dissenters' rights with respect to the Plan of
Reorganization will become the owner of one share of Bancorp common stock for
each share of common stock of Medford held immediately prior to the consummation
of the Proposed Reorganization, together with certain associated preferred stock
purchase rights issued pursuant to Medford's Shareholder Rights Plan (see below
in this section for a discussion of the Shareholder Rights Plan). On the
effective date of the Proposed Reorganization, each share of common stock of
Medford will be automatically converted into and exchanged for one share of
Bancorp common stock (together with associated preferred stock purchase rights).
The number of shares of Bancorp common stock to be issued at the
effective time of the Proposed Reorganization will equal the number of shares of
common stock of Medford issued and outstanding immediately prior thereto, less
the number of shares of common stock of Medford held by dissenting
stockholders.(2) Shares of Bancorp common stock that would have been issued had
dissenting stockholders not dissented will remain as authorized but unissued
shares of Bancorp common stock. The shares of Bancorp common stock that are
outstanding prior to the effective time of the Proposed Reorganization, all of
which are presently held by Medford, will be cancelled as part of the Proposed
Reorganization.
- - - --------
(1)(continued...)
(iv) Medford shall have received a favorable opinion from its counsel,
satisfactory in form and substance to Medford, with respect to the federal
income tax consequences of the Plan of Reorganization and the acquisition
contemplated thereby, (v) the shares of Bancorp common stock (together with
associated preferred stock purchase rights) to be issued to the holders of
common stock of Medford pursuant to the Proposed Reorganization shall have been
registered or qualified for such issuance to the extent required under all
applicable state securities laws, and (vi) Medford and Bancorp shall have
obtained all other consents, permissions and approvals and taken all actions
required by law or agreement, or deemed necessary by Medford or Bancorp, prior
to the consummation of the acquisition provided for by the Plan of
Reorganization and to Bancorp's having and exercising all rights of ownership
with respect to all of the outstanding shares of common stock of Medford
acquired by it thereunder.
(2) As of the date of this filing, Bancorp is not aware of any
dissenting stockholders. In the event Bancorp becomes aware of any dissenting
stockholders, it will promptly inform the Commissioner of Banks of the fact.
3
<PAGE> 5
After consummation of the Proposed Reorganization, Medford, as a
subsidiary of Bancorp, will continue to serve the communities it presently
serves from its existing office locations. In connection with the Proposed
Reorganization, Medford currently intends, to transfer up to approximately $7
million to Bancorp, which amount does not exceed the accumulated earnings and
profits for tax purposes of Medford as of June 30, 1997. As detailed below, if
such a transfer to Bancorp had been made on June 30, 1997, Medford would have
been still considered "well-capitalized" under the applicable prompt corrective
action regulations.
The Charter and By-laws of Medford will not be affected by consummation
of the Proposed Reorganization, and the Articles of Organization and By-laws of
Bancorp are substantially identical to those of Medford. The Medford Savings
Bank 1993 Stock Option Plan and the Medford Savings Bank 1986 Stock Option Plan
(collectively, the "Stock Option Plans") will become stock option plans of
Bancorp. All other stock related benefit plans of Medford will be unchanged by
the Proposed Reorganization, except that any plan which refers to the common
stock of Medford, such as the Employee Stock Ownership Plan, will, following the
completion of the Proposed Reorganization, be deemed to refer instead to Bancorp
common stock.
Medford's Shareholder Rights Plan, pursuant to which the preferred
stock purchase rights were provided to shareholders, will be amended so that it
will be assumed by Bancorp following the Proposed Reorganization. Accordingly,
the outstanding rights issued pursuant to the Shareholder Rights Plan will be
assumed by, and deemed to be rights issued by, Bancorp. The Shareholder Rights
Plan, as amended, will be substantially similar to the plan as currently in
effect. The Shareholder Rights Plan is more fully described on page 13 of the
Proxy Statement.
The Directors, officers and other employees of Medford will be
unchanged by the Proposed Reorganization. The Directors of Bancorp will
initially consist of the ten persons currently serving as members of the Board
of Directors of Medford. The President and Chief Executive Officer, Chief
Financial Officer and the Clerk of Bancorp will initially be the persons serving
identical roles with respect to Medford.
In accordance with Section 26B, the expenses in connection with the
Proposed Reorganization and the development of the Plan of Reorganization, in
the aggregate, will not exceed 2% of the capital stock, surplus account and
undivided profits of Medford.
4
<PAGE> 6
APPLICATION FOR ACQUISITION OF A BANK BY A COMPANY
UNDER MASSACHUSETTS GENERAL LAWS CHAPTER 172, SECTION 26B
PART A
1. A written plan of acquisition.
A copy of the Plan of Reorganization is included in Appendix A attached
hereto.
2. A statement addressing the issues of whether competition among banking
institutions will be unreasonably affected and whether public advantage
will be promoted.
Effect on Competition
The Proposed Reorganization does not raise any competitive issues. The
Proposed Reorganization will not result in the addition of a new banking
presence to the markets presently served by Medford or in the consolidation of
existing bank operations. Medford's relative market share will not be altered by
the Proposed Reorganization. Following consummation of the Proposed
Reorganization, Medford will continue to serve the same markets as it did prior
to the Proposed Reorganization and each of those markets will continue to be
served by a variety of significant financial institutions and will remain highly
competitive. Indeed, the town of Medford is within seven miles of Boston,
Massachusetts, the largest city in and financial services focal point of New
England.
Rather than raising competitive concerns, it is expected that the
Proposed Reorganization will promote healthy competition in the geographic
market areas now served by Medford. As in the remainder of the United States,
the banking industry in the area serviced by Medford has experienced substantial
consolidation, with Medford now facing significant competition from several
competitors much larger in asset size and deposits. The bank holding company
structure will provide flexibility for meeting the future financial needs of
Medford and adequately responding to the increasing demands of the financial
services market.
Public Advantage
The Proposed Reorganization is expected to promote public advantage and
result in net new benefits in several respects. First, as a bank holding
company, Bancorp will not be subject to the same regulatory restrictions as
Medford, and will be able to acquire and invest more freely in certain bank and
bank-related activities as well as such other activities as might be permitted
by regulatory authorities. Second, although no new consumer and business
services are currently contemplated, it is anticipated that the bank holding
company structure will facilitate the provision of new, wide ranging financial
services to consumers and businesses in Medford's market areas in response to
market demands.
5
<PAGE> 7
The anticipated operating efficiencies, financial strength and
flexibility gained by the Proposed Reorganization should over time result in the
following other "net new benefits": (1) capital investments; (2) job creation
for Massachusetts citizens; and (3) a continued commitment by Medford to
maintain and open branches in its delineated local community, as market
conditions warrant.
As to capital investments, although no significant capital investments
are currently contemplated in connection with the Proposed Reorganization,
Medford and Bancorp believe that the expanded business opportunities that will
result from the bank holding company structure and any operating efficiencies
gained thereby will lead to increased profits and retained earnings. This
strengthened financial position will help meet the lending demands of Medford's
communities and enhance Medford's ability to service the needs of both the
citizens and the businesses of its communities.
As to job creation, Bancorp's ability to invest in certain bank and
bank-related activities may result in the expansion of its business which could
translate into more job opportunities for Massachusetts citizens. Furthermore,
in addition to the potential for internal capital investments and job creation,
Medford's contemplated enhanced ability to act as a source of financial services
for the communities it serves should assist the businesses and citizens in those
communities to expand and create jobs in their markets. This community benefit
is even further augmented by Medford's commitment to the low and middle income
residents in those areas as demonstrated by its most recent satisfactory
Community Reinvestment Act rating. A copy of Medford's CRA Statement and Notice
is attached hereto as Appendix E.
Finally, as to branch issues, Medford has historically demonstrated its
commitment to maintain and open branches in its communities. No branch closings
are expected to result from the Proposed Reorganization. Instead, it is
anticipated that the flexibility and financial strength that will result from
the Proposed Reorganization will enable Medford to continue to open or acquire
additional branches within its communities, as market conditions warrant.
As the foregoing demonstrates, the Proposed Reorganization is
anticipated to have a positive effect on competition and is also anticipated to
result in public advantage, including net new benefits. More generally, the
proposed holding company structure is anticipated to permit Bancorp and Medford
to effectively compete against competitors having a substantially larger
percentage of deposits in its markets.
3. A statement on the financing plans for the company.
As mentioned in the Introductory Statement, in connection with the
Proposed Reorganization and in accordance with applicable law, Medford currently
contemplates to transfer up to approximately $7 million to Bancorp, which amount
does not exceed the accumulated earnings and profits for tax purposes of Medford
as of June 30, 1997. A transfer
6
<PAGE> 8
of $7 million to Bancorp would reduce Medford's stockholders' equity as of June
30, 1997, to approximately $89.5 million. If such a transfer to Bancorp had been
made on June 30, 1997, the leverage, Tier 1 risk-based, and total risk-based
capital ratios of Medford would have been approximately 7.88%, 13.90% and
15.06%, respectively, resulting in its still being considered "well-capitalized"
under applicable prompt corrective action regulations.(3)
Attached as Exhibit 1 hereto is a table which sets forth (i) the
consolidated capitalization of Medford as of June 30, 1997; (ii) the pro forma
consolidated capitalization of Medford as of June 30, 1997 after giving effect
to the Proposed Reorganization (which reflects the proposed transfer of $7
million from Medford's retained earnings to Bancorp); and (iii) the pro forma
capitalization of Bancorp on a consolidated basis after giving effect to the
Proposed Reorganization. Neither Medford nor Bancorp plans to incur any debt in
connection with the Proposed Reorganization.
4. A statement on the business objectives of the company.
The Board of Directors of Medford believes that a holding company
structure will provide flexibility for meeting the future financial needs of
Medford and responding to competitive conditions in the financial services
market. For example, although no transactions are presently contemplated, the
holding company structure will facilitate the acquisition of other banks as well
as other companies engaged in bank-related activities if and when opportunities
arise. In this regard, a holding company structure would permit an acquired
entity to operate on a more autonomous basis as a wholly owned subsidiary of
Bancorp rather than as a division of Medford. This more autonomous operation may
be decisive in acquisition negotiations. In addition, the stock of Bancorp might
serve as appropriate consideration in any such acquisition.
Moreover, as a bank holding company, Bancorp will not be subject to the
same regulatory restrictions as Medford, and will be able to acquire and invest
more freely in certain bank and bank-related activities as well as such other
activities as might be permitted by regulatory authorities. In addition, Bancorp
will not be subject to the same regulatory limitations on the amounts which it
can invest in its subsidiaries and other businesses and will not be required to
obtain regulatory approval before issuing shares of its capital stock, except
under certain circumstances. Moreover, providing even further operational
flexibility, the repurchase of stock by Bancorp will not be subject to the same
significant adverse tax consequences as a repurchase of stock by Medford, and
except under certain circumstances, no regulatory approval is required for such
repurchase by Bancorp.
- - - --------
(3) Due to a recent update of financial information regarding Medford,
these pro forma capital ratios differ immaterially from those stated in the
Proxy Statement. As already mentioned, however, Medford will remain
"well-capitalized" pursuant to applicable prompt corrective action regulations
under the revised numbers.
7
<PAGE> 9
5. Provide a copy of a prospectus and any other information describing the
transaction.
A copy of the Proxy Statement, which includes a description of the
Proposed Reorganization, is attached hereto as Exhibit 2.
6. Provide a corporate structure chart for the company and the bank which
includes any subsidiaries. Indicate the relational structure of the
corporate entities including all subsidiaries.
A copy of an organizational chart for Bancorp and Medford, including
Medford's only subsidiary, MSC, is attached hereto as Exhibit 3.
7. Provide information on all required regulatory approvals necessary to
complete the transaction; include information on the status of each
application and include a copy of any approvals received.
In connection with the Proposed Reorganization, Bancorp is concurrently
filing a notice with the Federal Reserve Bank of Boston pursuant to Section
225.17 of Regulation Y (12 C.F.R. Section 225.17) to form a bank holding company
(the "FRB Notice"). A copy of the FRB Notice, excluding any confidential
sections, is attached hereto as Appendix F.
PART B
If applicable, submit a request for approval to acquire more than ten
percent of a savings bank or a co-operative bank in stock form pursuant
to 209 CMR 33.08(6)(c) and include the date of such conversion.
This item is not applicable. Medford converted from mutual form to
stock form in 1986. Since more than three years have elapsed since the
conversion, Bancorp's acquisition of more than ten percent of any class of
common stock of Medford does not implicate 209 C.M.R. 33.08(6)(c).
8
<PAGE> 10
LIST OF EXHIBITS
1. Pro Forma Capitalization Table.
2. Proxy Statement furnished in connection with the special meeting of the
stockholders of Medford to be held on September 16, 1997.
3. An organizational chart for Bancorp, Medford and Medford's only
subsidiary.
<PAGE> 11
APPENDICES
A. A CERTIFICATE OF THE PRESIDENT, SECRETARY OR CLERK OF THE
COMPANY, CERTIFYING THAT THE PLAN WAS APPROVED BY A MAJORITY
OF THE BOARD OF DIRECTORS OF THE COMPANY.
B. A CERTIFICATE OF THE PRESIDENT, SECRETARY OR TREASURER OF THE
BANK, CERTIFYING THAT THE PLAN WAS APPROVED BY A MAJORITY OF
THE BOARD OF DIRECTORS AT THE BANK AND BY A 2/3 VOTE OF THE
SHAREHOLDERS.
C. A COPY OF NOTICE OF THE SHAREHOLDER MEETING THAT WAS
PUBLISHED TWICE, ONE WEEK APART IN LOCAL NEWSPAPER.
D. A COPY OF NOTICE OF THE SHAREHOLDER MEETING THAT WAS MAILED
TO INDIVIDUAL SHAREHOLDERS.
E. COMMUNITY REINVESTMENT ACT STATEMENT AND NOTICE OF THE BANK.
F. COPIES OF ANY APPLICATION, EXCLUDING CONFIDENTIAL SECTION,
SUBMITTED TO A FEDERAL AGENCY.
G. IDENTIFY THE DAILY NEWSPAPER OR NEWSPAPERS OF GENERAL
CIRCULATION PUBLISHING IN THE AREA OF THE BANK'S MAIN OFFICE. IF
THERE IS MORE THAN ONE SUCH NEWSPAPER, LIST THE LATEST AUDIT
BUREAU OF CIRCULATION'S STATEMENT FOR EACH NEWSPAPER.
H. PROVIDE THE MOST RECENT INCOME STATEMENT AND BALANCE SHEET
OF THE BANK.
