As filed with the Securities and Exchange Commission on May 15, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
THE 1855 BANCORP
(Exact name of registrant as specified in its charter)
Massachusetts 6712 04-1659040
(State or other (Primary Standard (I.R.S. employer
jurisdiction Industrial identification
of incorporation Classification number)
or organization) Code Number)
791 Purchase Street
New Bedford, Massachusetts 02740
(508) 984-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------------
Kevin G. Champagne
President and Chief Executive Officer
The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02740
(508) 984-6000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-----------------
Copies to:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
-----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |X|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value...... 38,352,500 shares $10.00 $383,525,000 $113,140
======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
-----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
1855 BANCORP REGISTRATION STATEMENT ON FORM S-1
---------------------
SANDWICH BANCORP, INC. PRELIMINARY PROXY STATEMENT
- --------------------------------------------------------------------------------
The following Sections of 1855 Bancorp's Registration Statement on Form S-1
and Sandwich Bancorp's Preliminary Proxy Statement are identical (except as
otherwise noted below), with the exception of certain differences in cross
references:
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SEACOAST FINANCIAL
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SANDWICH BANCORP
SELECTED UNAUDITED PRO FORMA CONSOLIDATED AND HISTORICAL FINANCIAL DATA OF
SEACOAST FINANCIAL
RISK FACTORS, with the following exceptions
Lead-in sentence ........................................ S-1 only
Second and third paragraphs of "Dilution Resulting
From Issuances of Additional Shares"..................... S-1 only
Role of the Financial Advisor/Best Efforts Offering...... S-1 only
Possible Delays in Completion of the Offering and
the Merger; Irrevocability of Stock Orders............... S-1 only
Possible Delays in Completion of the Merger.............. Proxy only
PRO FORMA DATA
Unaudited Pro Forma Condensed Consolidated Financial Information
Pro Forma Conversion Data
Pro Forma Outstanding Seacoast Financial Common Stock
REGULATORY CAPITAL COMPLIANCE
CAPITALIZATION
USE OF PROCEEDS OF CONVERSION
SEACOAST FINANCIAL'S DIVIDEND POLICY
MARKET FOR SEACOAST FINANCIAL COMMON STOCK
SEACOAST FINANCIAL AND SUBSIDIARY CONSOLIDATED
STATEMENTS OF INCOME
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF SEACOAST FINANCIAL
BUSINESS OF SEACOAST FINANCIAL
BUSINESS OF COMPASS
CERTAIN EFFECTS OF THE MERGER ON SEACOAST FINANCIAL
THE CONVERSION AND THE MERGER
FEDERAL AND STATE TAXATION OF SEACOAST FINANCIAL AND SUBSIDIARIES
REGULATION OF SEACOAST FINANCIAL AND SUBSIDIARIES
MANAGEMENT OF SEACOAST FINANCIAL AND COMPASS
SUMMARY COMPENSATION TABLE
PURCHASES BY MANAGEMENT OF SEACOAST FINANCIAL AND COMPASS
DESCRIPTION OF CAPITAL STOCK OF SEACOAST FINANCIAL
TRANSFER AGENT AND REGISTRAR FOR SEACOAST FINANCIAL COMMON STOCK
LEGAL OPINIONS(except that reference to the opinion of Ryan Beck's
counsel appear only in the S-1, not the proxy).
EXPERTS
<PAGE>
PROSPECTUS
THE 1855 BANCORP
(Holding Company for Compass Bank for Savings)
[LOGO]
24,650,000 (Anticipated Minimum) Shares of Common Stock
33,350,000 (Anticipated Maximum) Shares of Common Stock
38,352,500 (Anticipated Maximum, as Adjusted) Shares of Common Stock
At $10.00 Per Share
The 1855 Bancorp, a Massachusetts mutual holding company and the sole
stockholder of Compass Bank for Savings ("Compass"), New Bedford, Massachusetts,
is offering up to 33,350,000 shares (the "Conversion Shares") of its common
stock, par value $.01 per share ("1855 Common Stock"), in connection with its
conversion from a Massachusetts-chartered mutual holding company to a
Massachusetts-chartered business corporation and stock holding company (the
"Conversion"). In certain circumstances described herein, the maximum number of
Conversion Shares sold may be increased to up to 38,352,500 shares without a
resolicitation of subscribers. The Conversion Shares are being offered for a
purchase price of $10.00 per share (the "Purchase Price"). The 1855 Bancorp
intends to change its name to "Seacoast Financial Services Corporation" in
connection with the Conversion, and is therefore referred to herein as "Seacoast
Financial." The 1855 Common Stock is referred to herein as "Seacoast Financial
Common Stock."
The Offering
The Conversion Shares are being offered under the terms of a Plan of
Conversion (the "Conversion Plan") in a subscription offering, in order of
priority, (i) to eligible depositors of Compass at December 31, 1996, (ii) to
eligible depositors of Compass at June 30, 1997, (iii) to an employee stock
ownership plan of Compass (the "ESOP") and (iv) to employees, officers, trustees
and directors of Seacoast Financial and Compass (together, the "Subscription
Offering"). Concurrently with or at any time during or after the Subscription
Offering, Seacoast Financial may offer Conversion Shares not subscribed for in
the Subscription Offering for sale to certain members of the general public (the
"Community Offering"). Conversion Shares not subscribed for in the Subscription
or Community Offerings may be offered for sale to certain members of the general
public in a Syndicated Community Offering (the "Syndicated Community Offering,"
which would be conducted as soon as practicable after the expiration of the
Community Offering; the Subscription, Community and Syndicated Community
Offerings are referred to herein collectively as the "Offering" or "Offerings").
Subscription rights of depositors to purchase Conversion Shares in the
Subscription Offering are non-transferable. There is no obligation to subscribe
for Conversion Shares. Seacoast Financial reserves the absolute right to reject,
in whole or in part, in its sole discretion, any order received in the Community
and Syndicated Community Offerings. Except for the ESOP, no person may purchase
more than $750,000 of Conversion Shares in the Offering, and no person together
with his or her associates and groups acting in concert may purchase in the
aggregate more than $1.5 million of Conversion Shares in the Offering. The
minimum purchase is 25 shares of Seacoast Financial Common Stock.
The Conversion Shares will be issued at an aggregate Purchase Price equal
to the estimated pro forma market value of such shares based on an independent
appraisal of the Conversion Shares (the "Independent Valuation") prepared by RP
Financial LC., an independent appraisal firm ("RP Financial"). RP Financial has
estimated that the pro forma market value of the Conversion Shares is between
$246.5 million and $333.5 million (the "Estimated Valuation Range"), giving
effect to a merger with Sandwich Bancorp, Inc. ("Sandwich Bancorp"), which
merger is described below. Based on this estimate, Seacoast Financial will issue
a total of between 24,650,000 and 33,350,000 Conversion Shares at the $10.00
Purchase Price per share. RP Financial will update its appraisal immediately
prior to consummation of the sale of the Conversion Shares. As long as the
estimated pro forma market value is not increased by more than 15% above the
maximum, or decreased below the minimum of the Estimated Valuation Range, no
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions. See "The Offerings." The actual number
of Conversion Shares issued will have a corresponding effect on the estimated
net proceeds of the Conversion and the pro forma capitalization and per share
data of Seacoast Financial. See "Use of Proceeds of Conversion,"
"Capitalization" and "Pro Forma Data."
The Subscription Offering will expire at 10:00 a.m., Boston time on
____________, 1998, unless extended by Seacoast Financial, with regulatory
approval, if necessary. The Community Offering, if held, may commence during
<PAGE>
or promptly after the Subscription Offering. The Community and Syndicated
Subscription Offerings must be completed within 45 days of the expiration of the
Subscription Offering, unless extended, with regulatory approval, if necessary.
Stock orders submitted are irrevocable until consummation or termination of the
Conversion, however, if the Offering is not consummated by ___________ 1998, and
Seacoast Financial elects to extend the Offering, subscribers will have the
right to modify or rescind their subscriptions, receiving applicable refunds,
with interest.
Seacoast Financial has engaged Ryan, Beck & Co., Inc. ("Ryan Beck") and
McConnell, Budd & Downes ("McConnell Budd"), registered broker-dealers, to
consult with and advise Seacoast Financial in connection with the sale of the
Conversion Shares in the Conversion. Ryan Beck and McConnell Budd have agreed to
use their best efforts to assist Seacoast Financial and Compass in the
solicitation of subscriptions for the Conversion Shares. Neither Ryan Beck nor
McConnell Budd is obligated to take or purchase any Conversion Shares offered in
the Conversion. See "The Offering -- Plan of Distribution and Selling
Commissions."
Seacoast Financial has [received conditional approval to have the Seacoast
Financial Common Stock listed on the Nasdaq National Market System under the
symbol "_______", subject to the completion of the Conversion and compliance
with certain initial listing conditions.] Seacoast Financial has never issued
stock to the public or to any person and there can be no assurance that an
active and liquid trading market for the Seacoast Financial Common Stock will
develop or that purchasers of Conversion Shares in connection with the
Conversion will be able to sell their shares at or above the Purchase Price.
Ryan Beck and McConnell Budd have advised Seacoast Financial that they intend to
act as market makers for the Seacoast Financial Common Stock following
consummation of the Conversion. See "Market for Seacoast Financial Common Stock"
beginning on Page ___ of this Prospectus.
The Merger
The primary reason that Seacoast Financial's Board of Trustees determined
to undertake the Conversion at this time is to facilitate the consummation of
Seacoast Financial's proposed acquisition of Sandwich Bancorp in a
stock-for-stock exchange. As a mutual institution, Seacoast Financial would not
have shares to issue in such exchange without first undertaking the Conversion.
On March 23, 1998, Seacoast Financial and Compass entered into an Amended and
Restated Affiliation and Merger Agreement (the "Merger Agreement") with Sandwich
Bancorp and its wholly-owned subsidiary, Sandwich Co-operative Bank ("Sandwich
Bank"), pursuant to which Sandwich Bancorp will merge with a corporate
subsidiary of Seacoast Financial (the "Merger"). Pursuant to the terms of the
Merger Agreement, upon consummation of the Merger, each share of common stock,
par value $1.00 per share, of Sandwich Bancorp ("Sandwich Bancorp Common Stock")
and each outstanding option to purchase Sandwich Bancorp Common Stock will
automatically convert into and become exchangeable for a number of shares of
Seacoast Financial Common Stock (the "Exchange Shares") determined by
application of an exchange ratio (the "Exchange Ratio"). The Exchange Ratio will
be determined based upon the trading price of Seacoast Financial Common Stock
for a number of days immediately following the consummation of the Conversion.
See "The Conversion and the Merger -- Description of the Merger and the Exchange
Ratio." The Merger is expected to close on the tenth trading day after
consummation of the Conversion. Although the Conversion and the Merger will not
close simultaneously, they are interdependent transactions, and the Conversion
will not be consummated until all conditions to the consummation of both the
Conversion and the Merger (other than the delivery of the Exchange Shares to the
Sandwich Bancorp stockholders) have been satisfied or waived. Unless otherwise
indicated, all pro forma data presented herein which reflect consummation of the
Conversion also reflect consummation of the Merger. See "The Conversion and the
Merger" and "Pro Forma Offering Data."
For a discussion of certain factors that should be considered by
prospective investors, see "Risk Factors" beginning on page ___ of this
Prospectus.
THE CONVERSION IS CONTINGENT UPON THE SALE OF THE MINIMUM NUMBER OF
CONVERSION SHARES OFFERED, UPON RECEIPT OF ALL REGULATORY APPROVALS RELATING TO
THE CONVERSION AND UPON RECEIPT OF ALL REGULATORY AND SANDWICH BANCORP
STOCKHOLDER APPROVALS RELATING TO THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE MASSACHUSETTS DIVISION OF BANKS, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR BY ANY OTHER FEDERAL AGENCY, OR BY ANY STATE
SECURITIES COMMISSION OR OTHER STATE AGENCY, NOR HAS SUCH COMMISSION, DIVISION,
CORPORATION, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION OR OTHER STATE
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE SHARES OF SEACOAST FINANCIAL COMMON STOCK OFFERED HEREBY ARE NOT
DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND,
THE DEPOSITORS INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT
GUARANTEED BY SEACOAST FINANCIAL OR COMPASS. THE SEACOAST FINANCIAL COMMON STOCK
IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL
INVESTED.
<TABLE>
<CAPTION>
====================================================================================
Estimated
Underwriting
Commissions
Subscription and Other Fees Estimated Net
Price (2) and Expenses (3) Proceeds (4)
====================================================================================
<S> <C> <C> <C>
Per Share(1) .................. $10.00 $0.15 $9.85
- ------------------------------------------------------------------------------------
Minimum Total ................. 246,500,000 3,973,000 $242,527,000
- ------------------------------------------------------------------------------------
Midpoint Total ................ 290,000,000 4,374,000 285,626,000
- ------------------------------------------------------------------------------------
Maximum Total ................. 333,500,000 4,774,000 328,726,000
- ------------------------------------------------------------------------------------
Adjusted Maximum Total (5) .... 383,525,000 5,234,000 378,291,000
====================================================================================
</TABLE>
(1) Estimated fees and expenses per share and estimated net conversion proceeds
per share are based on the midpoint of the Estimated Valuation Range.
(2) Determined in accordance with the Independent Valuation, prepared by RP
Financial and dated as of May 8, 1998, which states that the Estimated
Valuation Range is from $246.5 million to $333.5 million with a midpoint of
$290.0 million. The Independent Valuation is based upon estimates and
projections that are subject to change, and the valuation must not be
construed as a recommendation as to the advisability of purchasing the
Conversion Shares nor an assurance that a purchaser of Conversion Shares
will thereafter be able to sell such shares at prices within the Estimated
Valuation Range. See "The Conversion and the Merger -- Description of the
Conversion -- Stock Pricing and Number of Shares to be Issued."
(3) Consists of the estimated costs to Compass and Seacoast Financial arising
from the Conversion, including estimated fixed expenses of approximately
$1.8 million and marketing fees to be paid to Ryan Beck and McConnell Budd
in connection with the Subscription and Community Offerings which fees are
estimated to be $2,205,000 and $3,006,000 at the minimum and maximum of the
Estimated Valuation Range, respectively. See "The Offerings -- Plan of
Distribution and Selling Commissions." The actual fees and expenses may
vary from the estimates. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.
(4) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold and other factors. The figures in this
column include proceeds from the purchase of Conversion Shares by the ESOP
which is intended to be funded by a loan to the ESOP from a third-party
lender, which will be deducted from Seacoast Financial's stockholders'
equity. See "Use of Proceeds of Conversion" and "Pro Forma Data."
(5) As adjusted to reflect the sale of additional Conversion Shares due to an
increase of up to 15% in the Estimated Valuation Range, without
resolicitation of subscribers or any right of cancellation, due to
regulatory considerations or changes in market and financial conditions, as
supported by the Independent Valuation. See "Pro Forma Data" and "The
Conversion and the Merger -- Description of the Conversion -- Stock Pricing
and Number of Shares to be Issued." For a discussion of the distribution
and allocation of the additional shares, if any, see "The Offerings --
Subscription Offering," "-- Community Offering" and "-- Limitations upon
Purchases of Conversion Shares."
[RYAN BECK LOGO] [MCCONNELL BUDD LOGO]
The Date of this Prospectus is _____________, 1998.
<PAGE>
[Market Area Map]
<PAGE>
SUMMARY OF PROSPECTUS
Generally, this summary highlights selected information from this document
and does not contain all the information that an investor needs to know before
making an informed investment decision. To understand the Conversion and the
Merger fully, persons considering the purchase of Conversion Shares should
carefully read this entire Prospectus, including the consolidated financial
statements and the notes to the consolidated financial statements of Seacoast
Financial and Sandwich Bancorp included herein. References in this document to
"Compass" refer to Compass Bank for Savings. References in this document to the
"Company" or "Seacoast Financial" refer to The 1855 Bancorp, which will change
its name to "Seacoast Financial Services Corporation" before the Conversion.
References to "Sandwich Bancorp" refer to Sandwich Bancorp, Inc. and references
to "Sandwich Bank" refer to The Sandwich Co-operative Bank.
Seacoast Financial Services Corporation
Seacoast Financial is a mutual holding company that was organized in 1994
under the name "The 1855 Bancorp" in connection with Compass's reorganization
from a mutual savings bank to the mutual holding company form of organization.
The 1855 Bancorp intends to change its name to "Seacoast Financial Services
Corporation" in connection with the Conversion and is therefore referred to
herein as "Seacoast Financial." Seacoast Financial's operations have been
limited to the ownership of Compass. Seacoast Financial has never issued, or
been authorized to issue, any capital stock. It is now undertaking a mutual to
stock conversion into a stock holding company (the "Conversion") and issuing
shares (the "Conversion Shares") of its common stock, par value $.01 per share
("Seacoast Financial Common Stock"), in connection with such conversion.
Seacoast Financial is registered with the Board of Governors of the Federal
Reserve System (the "FRB") as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Since its formation, Seacoast
Financial has owned 100% of Compass's outstanding capital stock, and will
continue to do so after consummation of the Conversion. Upon completion of the
Conversion, Seacoast Financial will have no significant liabilities and no
assets other than 100% of the shares of Compass's outstanding common stock, a
portfolio of investment securities (Seacoast Financial held $5.4 million of such
securities as of February 28, 1998) and any net proceeds of the Conversion not
contributed by Seacoast Financial to Compass. Following the Conversion, Seacoast
Financial will not initially engage in any significant business activity other
than to conduct the Merger, hold the outstanding common stock of Compass and
invest any funds it holds. See "Business of Seacoast Financial" and "Use of
Proceeds of Conversion." Seacoast Financial neither owns nor leases any
property, but instead uses the premises, equipment and furniture of Compass. At
the present time, Seacoast Financial does not employ any persons other than
certain officers who are also officers of Compass, but uses the support staff of
Compass from time to time.
At February 28, 1998, Seacoast Financial, on a consolidated basis, had
total assets of $1,143.6 million, total loans (net) of $835.6 million, total
deposits of $951.4 million and total surplus of $103.1 million. Seacoast
Financial also had, as of the same date, a Tier 1 leverage capital ratio of
8.82% and a Tier 1 risk-based capital ratio of 12.66%.
Compass Bank for Savings
Compass was organized in 1855 as a Massachusetts-chartered mutual savings
bank, and reorganized into mutual holding company form (without a minority stock
issuance) in 1994. Compass's principal business has been, and continues to be,
gathering deposits from customers within its market area and investing those
funds in residential and commercial real estate loans, indirect automobile
loans, commercial loans, construction loans, home equity loans and other
consumer loans. Compass conducts business from its corporate headquarters and 23
full-service banking offices, six of which are located in New Bedford,
Massachusetts and the remaining 17 of which are located in the Massachusetts
communities of Fall River (two offices), Plymouth (three offices), Fairhaven,
North Dartmouth, Somerset, Swansea, Westport, Assonet and Carver and the island
of Martha's Vineyard (five offices). Compass also has two limited service high
school branches and five remote service ATMs. In addition, Compass engages in
indirect auto lending in the State of Rhode Island through its subsidiary,
Compass Credit Corporation.
Compass's deposits are insured by the Bank Insurance Fund (the "BIF"), as
administered by the Federal Deposit Insurance Corporation (the "FDIC"), up to
the maximum amount permitted by law, except that certain deposits that Compass
acquired from a savings association are insured by the Savings Association
Insurance Fund (the "SAIF"), also administered by the FDIC. Deposit amounts in
excess of FDIC insurance limits are insured by the Depositors Insurance Fund
(the "DIF"), a deposit insuring entity for savings banks chartered by The
Commonwealth of
<PAGE>
Massachusetts. Compass is subject to comprehensive regulation and examination by
the Massachusetts Commissioner of Banks (the "Commissioner") and the FDIC.
Compass's business strategy includes (i) taking advantage of its position
as a locally based bank to foster a community orientation, (ii) developing a
niche through its expertise in indirect automobile lending, (iii) diversifying
its loan portfolio composition in an effort to broaden its business
opportunities and help manage credit and interest rate risk, (iv) emphasizing
transaction accounts in order to build customer relationships, achieve a low
cost of funds and generate service fee income and (v) expanding its products and
market area, with the goals of achieving a higher profile and increased
opportunities for growth. Compass seeks to pursue its business strategy in a
manner that allows it to maintain quality assets and control operating expenses.
Compass's business strategy has produced the following results:
[bullet] Community Orientation. As a result of mergers over the last several
years, Compass is one of the few remaining savings banks (and the
largest financial institution) headquartered in New Bedford. Throughout
its market area, Compass seeks to provide a high level of personalized
service to individuals and small businesses. Examples of such service
include experienced branch personnel (due to low turnover), prompt
local decisionmaking and a "call center" to address customer questions.
After the Merger with Sandwich Bancorp (as defined in the next
section), Compass will seek to increase its reputation as a small
business lender by promoting commercial loans to the many retail and
tourism-related businesses on Cape Cod.
[bullet] Loan Portfolio Diversity. Compass differs from a typical savings bank.
The latter normally concentrates primarily on residential lending while
Compass has historically diversified its lending focus. As a result,
one- to four-family residential loans represent 43.0% of Compass's loan
portfolio, indirect auto loans represent 26.6% of the portfolio and
commercial real estate loans represent 14.3 % of the loan portfolio.
The remainder of the portfolio consists of commercial loans and other
consumer loans. The addition of Sandwich Bank's loan portfolio
following the Merger will increase the relative percentage of real
estate loans in Compass's portfolio, particularly of those real estate
loans secured by one- to four-family owner-occupied residences. After
the Merger with Sandwich Bancorp, Compass intends to maintain its
presence as a residential mortgage lender, while emphasizing its
indirect auto lending and commercial lending in the new market provided
by Sandwich Bank.
[bullet] Geographic and Product Expansion. Beginning in 1994, Compass has
pursued geographic expansion of its branch network, on a selected
basis, through building and acquiring new branches and acquiring small
financial institutions. The expanded branch network has allowed Compass
to move beyond its Greater New Bedford/Fall River market areas, so that
its primary market area now also includes the island of Martha's
Vineyard and the Greater Plymouth area (geographically the largest town
in Massachusetts). Compass's business activities on Cape Cod are
currently limited. The addition of Sandwich Bank's nine Cape Cod
branches will provide Compass an immediate presence in a contiguous
market. Compass intends to continue its growth strategy on a basis that
management considers prudent, targeting promising market areas and, in
the case of acquisitions, identifying favorable opportunities.
Concurrent with geographic expansion, Compass has in recent years
initiated customer convenience products, such as a debit card and a
"sweep" account for commercial customers. Compass has installed a
telephone voice response system and a telephone "call center," with
extended hours, manned with Compass staff. These services accommodate
customers who have account inquiries, want information about loan
programs or want to conduct banking business by telephone. Later in
1998, Compass expects to expand its telephone voice response system to
include bill payment services, and to offer customers the ability to
conduct certain banking business, also including bill payment services,
over the Internet.
[bullet] Emphasizing Core Deposits. Compass attracts a substantial amount of
money market, NOW (checking), passbook and savings accounts. These
accounts carry a lower cost and generally represent a more stable
source of funds than certificate of deposit accounts. Additionally,
unlike certificate accounts, they provide service fee income. The
weighted average rate paid on Compass's deposits was 4.0% for the four
months ended February 28, 1998. Sandwich Bank's transaction accounts at
March 31, 1998 represented 49.9% of Sandwich Bank's deposits. Through
its own and Sandwich Bank's branch network, Compass will continue to
emphasize transaction accounts after the Merger.
2
<PAGE>
[bullet] Managing Overhead Expense. One of management's goals is to maintain a
reasonable efficiency ratio. The efficiency ratio has consistently
decreased since 1995, when it was 68.0%, to 53.8% for the four months
ended February 28, 1998. Sandwich Bancorp's efficiency ratio was 58.1%
for the three months ended March 31, 1998.
[bullet] Maintenance of Asset Quality. Compass maintains a loan portfolio that
is diversified between residential mortgage, commercial, commercial
real estate and indirect auto loans. Residential mortgage loans
historically pose less credit risk than the other loan types but the
latter offer the advantages of relatively short terms and generally
higher interest rates. Compass pursues a diversified portfolio, while
seeking to maintain quality assets and moderate credit risk. At
February 28, 1998, its ratio of non-performing assets to total assets
was 0.97%. The comparable ratio for Sandwich Bank at March 31, 1998 was
0.60%.
The executive offices of Compass and Seacoast Financial are located at 791
Purchase Street, New Bedford, Massachusetts 02740. Their telephone number is
(508) 984-6000.
The Merger with Sandwich Bancorp, Inc.
Seacoast Financial determined to undertake the Conversion in connection
with its decision to enter into an Amended and Restated Affiliation and Merger
Agreement (the "Merger Agreement") with Sandwich Bancorp and its subsidiary,
Sandwich Bank. The Merger will enable Compass to expand its branch network
geographically into the Cape Cod market, which is contiguous to Compass's
existing market areas. Compass currently operates primarily in the southeastern
Massachusetts region (the "South Coast") just west of Cape Cod, including the
New Bedford, Fall River and Plymouth markets, and also operates on the island of
Martha's Vineyard, off the coast of Cape Cod. Sandwich Bancorp operates
primarily on Cape Cod itself. As a result of the Conversion and the Merger,
Compass will operate 34 full-service banking offices, and, based on pro forma
total assets at February 28, 1998, would be the third largest savings bank in
Massachusetts and the largest financial institution headquartered in
southeastern Massachusetts. For further information about Seacoast Financial's
reasons for undertaking the Merger, see "Certain Effects of the Merger on
Seacoast Financial," and "The Conversion and the Merger -- Seacoast Financial's
Background and Reasons for the Conversion and the Merger."
The Merger Agreement provides for a stock-for-stock exchange. Seacoast
Financial would not have shares to issue in such exchange without first
undertaking the Conversion. Pursuant to the Merger Agreement, Sandwich Bancorp
will merge with a corporate subsidiary of Seacoast Financial (the "Merger") on
the tenth trading day following consummation of the Conversion, and it is
expected that thereafter Sandwich Bank will merge with Compass. Upon completion
of the Merger, each outstanding share of common stock, par value $1.00 per
share, of Sandwich Bancorp ("Sandwich Bancorp Common Stock") (other than shares
held by stockholders exercising dissenters rights or by Seacoast Financial or
Compass) and each outstanding option to purchase Sandwich Bancorp Common Stock
(each such option, a "Sandwich Option" and, the options collectively, the
"Sandwich Options") will automatically convert into and become exchangeable for
shares of Seacoast Financial Common Stock (the "Exchange Shares") and cash in
lieu of any fractional share of Seacoast Financial Common Stock which Sandwich
Bancorp's stockholders and optionholders otherwise would be entitled to receive.
Seacoast Financial will issue in the Merger up to a maximum of 12,543,673
Exchange Shares (assuming that 1,945,756 shares of Sandwich Bancorp Common Stock
and Sandwich Bancorp Options to purchase 143,282 of shares of such stock are
outstanding as of March 31, 1998, and that none of such options are exercised
for cash prior to the consummation of the Merger) in addition to issuing in the
Conversion up to 33,350,000 Conversion Shares (which may be increased to up to
38,352,500, under certain circumstances described herein). In the event all
Sandwich Bancorp Options were exercised for cash prior to the consummation of
the Merger, the number of Exchange Shares would increase by 250,169. See "Pro
Forma Data -- Pro Forma Outstanding Seacoast Financial Common Stock." The Merger
is expected to be accounted for under the pooling-of-interests method of
accounting. See "The Conversion and the Merger -- Accounting Treatment of the
Conversion and the Merger."
The number of Exchange Shares issuable in exchange for each outstanding
share of Sandwich Bancorp Common Stock will be determined by application of an
exchange ratio (the "Exchange Ratio"). The Exchange Ratio will be based upon the
average trading price of Seacoast Financial Common Stock during a period between
the consummation of the Conversion and consummation of the Merger. This average
trading price (the "Seacoast Financial Trading Price") will be determined by
averaging the closing bid and asked prices of Seacoast Financial Common Stock
for each of the second through the ninth trading days, inclusive, following
consummation of the Conversion (the average of the closing bid and asked price
for each such day is referred to as the "Daily Closing Price"), discarding the
two highest and two lowest Daily Closing Prices and averaging the remaining
Daily Closing Prices. The closing bid and asked prices will be as quoted at the
close of business on the Nasdaq National Market System (the "Nasdaq National
Market"). If the Seacoast Financial Trading Price is between $10.01 and $13.50,
the Exchange Ratio will be between
3
<PAGE>
6.3936 and 4.7407 (determined by dividing $64.00 by the Seacoast Financial
Trading Price). If the Seacoast Financial Trading Price is between $13.51 and
$15.00, the Exchange Ratio will be fixed at 4.7407. If the Seacoast Financial
Trading Price exceeds $15.00, the Exchange Ratio will be less than 4.7407
(determined by dividing $71.11 by the Seacoast Financial Trading Price). If the
Seacoast Financial Trading Price is equal to or less than $10.00 per share, the
Exchange Ratio will be 6.4000.
The number of Exchange Shares issuable in exchange for each outstanding
Sandwich Option will be determined by subtracting the per share exercise price
of an option from the product of the Seacoast Financial Trading Price and the
Exchange Ratio and dividing the result by the Seacoast Financial Trading Price.
The reason for the delay between the dates of consummation of the
Conversion and consummation of the Merger is that the calculation of the
Exchange Ratio is based upon the Seacoast Financial Trading Price during a
period following the consummation of the Conversion. Notwithstanding this delay,
the Conversion and the Merger are interdependent transactions, and neither one
will occur unless both of them do. Any person who subscribes for Conversion
Shares will be deemed to have consented to the consummation of the Merger.
Although the Conversion and the Merger will not close simultaneously, it is a
condition to consummation of the Conversion that all conditions to consummation
of the Merger (other than the delivery of the Exchange Shares to Sandwich
Bancorp stockholders and optionholders) shall have been satisfied or waived as
of the date of consummation of the Conversion. Similarly, it is a condition to
consummation of the Merger that the Conversion shall have been consummated.
Completion of the Conversion and the Merger are subject to a number of
conditions, including the final regulatory approval of the Commissioner, the
Massachusetts Board of Bank Incorporation ("BBI"), the FDIC and the FRB and the
approval of the Sandwich Bancorp stockholders. For more information about the
Merger and the terms of the Merger Agreement, see "The Conversion and the Merger
- -- Description of the Merger and the Exchange Ratio" and "-- Description of the
Merger Agreement."
Sandwich Bancorp is a stock bank holding company registered with the FRB and was
organized in 1997 for the purpose of serving as the holding company of Sandwich
Bank. Sandwich Bancorp's business consists primarily of the business of Sandwich
Bank, and Sandwich Bancorp has no significant assets other than the issued and
outstanding capital stock of Sandwich Bank. At March 31, 1998, Sandwich Bancorp,
on a consolidated basis, had total assets of $526.5 million, total deposits of
$426.7 million and stockholders' equity of $42.6 million. At that date, Sandwich
Bancorp and Sandwich Bank employed approximately 153 full-time equivalent
employees.
Sandwich Bank was organized as a Massachusetts-chartered co-operative bank
in 1885 and merged with Wareham Co-operative Bank in May 1982. In July 1986,
Sandwich Bank converted from mutual to stock form. The business of Sandwich Bank
consists primarily of attracting deposits from the general public and
originating construction and residential mortgage loans secured by one- to
four-family homes, consumer loans, home equity loans and commercial and
commercial real estate loans. Sandwich Bank's deposit and lending operations are
conducted through eleven full-service office facilities located in the Cape Cod
towns of Sandwich, South Sandwich, Buzzards Bay, Pocasset, Falmouth, Hyannis,
Chatham, Orleans and South Yarmouth and in the southeastern Massachusetts towns
of Wareham and Cedarville. In addition, Sandwich Bank maintains a loan
production office in Plymouth, Massachusetts. Sandwich Bank's business also
includes investing in money market instruments, federal government and agency
obligations and various types of corporate securities and other authorized
investments.
For further informaton about Sandwich Bancorp and Sandwich Bank, see
"Excerpts from Annual Report on Form 10-K for the Year Ended December 31, 1997"
and "Excerpts from Sandwich Bancorp's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998," attached to this prospectus.
The Plan of Conversion
The Plan of Conversion, which Seacoast Financial's Board of Trustees
adopted on April 23, 1998 (the "Conversion Plan"), provides for the amendment of
Seacoast Financial's charter to authorize the issuance of capital stock (among
other amendments) so that Seacoast Financial will become a stock holding company
rather than a mutual holding company. The Conversion Plan further provides that
Seacoast Financial will offer the Conversion Shares for sale in a subscription
offering (the "Subscription Offering") to Compass's depositors, the ESOP and
directors, trustees, officers and employees of Seacoast Financial and Compass
and may offer Conversion Shares in a community offering (the "Community
Offering") and in a syndicated community offering (the "Syndicated Community
Offering;" the Subscription, Community and Syndicated Community Offerings are
referred to collectively as the "Offering" or "Offerings.") Seacoast Financial
expects to contribute at least 50% of the proceeds of the Offering to Compass.
See "The Conversion and the Merger -- Overview," "The Offerings" and "Use of
Proceeds of Conversion."
The Offerings
4
<PAGE>
Seacoast Financial is offering the Conversion Shares for sale in the
Subscription Offering pursuant to subscription rights in the following order of
priority to: (i) holders of deposit accounts in Compass with an aggregate
balance of $50 or more on December 31, 1996 ("Eligible Account Holders" and the
"Eligibility Record Date"); (ii) holders of aggregate deposit accounts in
Compass with a balance of $50 or more on June 30, 1997 ("Supplemental Eligible
Account Holders" and the "Supplemental Eligibility Record Date"); (iii) the
ESOP; and (iv) employees, officers, trustees and directors of Seacoast Financial
and Compass. Subject to the prior rights of holders of subscription rights,
Seacoast Financial may offer Conversion Shares in the Community Offering to
certain members of the general public with a preference given to residents of
Compass's community (as such community is defined in "The Offering -- Community
Offering"). The Community Offering, if any, will commence concurrently with,
during or promptly after the Subscription Offering. Shares not purchased in the
Subscription and Community Offerings, if any, may be offered for sale to the
general public in the Syndicated Community Offering through a syndicate of
registered broker-dealers (which may include Ryan, Beck & Co., Inc. ("Ryan
Beck") and McConnell, Budd & Downes ("McConnell Budd"), registered broker
dealers, to be formed and managed by Ryan Beck and McConnell Budd acting as
agents of Seacoast Financial to assist Seacoast Financial in the sale of the
Conversion Shares. The Syndicated Community Offering, if any, would occur as
soon as practicable following the close of the Community Offering. Seacoast
Financial reserves the absolute right to reject, in whole or part and in its
sole discretion, any order received in the Community and Syndicated Community
Offerings. See "The Offerings -- Subscription Offering" and "-- Community
Offering."
Offering Expiration Date
The Offering will terminate at 10:00 a.m., Boston Time, on ____________,
1998 (the "Expiration Date"), unless extended by Seacoast Financial with the
approval of the Commissioner and the FRB, if necessary. Orders submitted are
irrevocable until completion of the Offering. However, if the Offering is not
completed by ___________, 1998 and Seacoast Financial elects not to extend the
Offering, all subscribers will have the right to modify or rescind their
subscriptions, in whole or in part, as applicable, receiving applicable refunds,
with interest, or having their withdrawal authorizations cancelled. See "The
Offerings -- Procedure for Purchasing Shares."
Purchase Price and Independent Valuation
Seacoast Financial has established a fixed price of $10.00 per share for
each Conversion Share sold in the Offering (the "Purchase Price"). Federal and
state regulations require that the aggregate Purchase Price of the Conversion
Shares offered in the Offering be based on the appraised pro forma market value
of the Conversion Shares (the "Independent Valuation"), as determined by an
independent appraiser. Seacoast Financial has engaged RP Financial LC., an
independent appraisal firm ("RP Financial"), to conduct such valuation. The
Independent Valuation is not a recommendation for the purchase of Conversion
Shares. RP Financial has estimated that the pro forma market value of the
Conversion Shares is between $246.5 million and $333.5 million (the "Estimated
Valuation Range"). Based on this estimate, Seacoast Financial will issue a total
of between 24,650,000 and 33,350,000 Conversion Shares at the Purchase Price. RP
Financial will update its appraisal immediately prior to completion of the sale
of the Conversion Shares. As long as the estimated pro forma market value is not
increased by more than 15% above the maximum, or decreased below the minimum, of
the Estimated Valuation Range, no resolicitation of subscribers will be made and
subscribers will not be permitted to modify or cancel their subscriptions. See
"The Conversion and the Merger -- Description of the Conversion -- Stock Pricing
and Number of Shares to be Issued." The actual number of Conversion Shares
issued will have a corresponding effect on the estimated net proceeds of the
Conversion and the pro forma capitalization and per share data of Seacoast
Financial. See "Use of Proceeds of Conversion," "Capitalization" and "Pro Forma
Data."
Nontransferability of Subscription Rights
No person may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Conversion Plan or the Conversion Shares to be issued upon the
exercise of such rights. Each person exercising subscription rights will be
required to certify on the Order Form that the purchase of Conversion Shares by
such person is solely for the purchaser's own account and that there is no
agreement or understanding regarding the sale or transfer of such shares.
Seacoast Financial and Compass will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders that they believe involve the transfer of subscription
rights. See "The Offering -- Restrictions on Agreements or Understandings
Regarding Transfer of Conversion Shares to be Purchased in the Offering."
Following the Offering, there generally will be no restrictions on the transfer
or sale of Conversion Shares by purchasers unless such purchasers
5
<PAGE>
are "affiliates" of Seacoast Financial or Compass (as such term is defined in
Rule 144 ("Rule 144"), promulgated under the Securities Act of 1933, as amended,
(the "Securities Act")). In addition, Massachusetts law prohibits (subject to
certain exceptions) for one year after the Offering sales by directors,
trustees, officers and Corporators of Seacoast Financial or Compass of
Conversion Shares. See "The Conversion and the Merger -- Resale Restrictions."
Marketing Agents
Seacoast Financial and Compass have engaged Ryan Beck and McConnell Budd,
registered broker-dealers, to consult with and advise them in connection with
the sale of Conversion Shares in the Offering. Ryan Beck and McConnell Budd have
agreed to use their best efforts to assist Seacoast Financial in soliciting
subscriptions in the Offering. See "The Offering -- Plan of Distribution and
Selling Commissions." Neither Ryan Beck, McConnell Budd nor any registered
broker-dealer shall have any obligation to take or purchase any Conversion
Shares.
Prospectus Delivery and Procedure for Delivering Shares
To ensure that each purchaser receives this Prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Seacoast Financial will
not mail the Prospectus any later than five days prior to the Expiration Date or
hand-deliver the Prospectus any later than two days prior to such date. Order
forms to purchase Conversion Shares ("Order Forms") will be distributed only
with the Prospectus. Seacoast Financial is not obligated to accept for
processing orders not submitted on an original Order Form. Payment by check,
money order or debit authorization to an existing non-transaction account at
Compass must accompany an Order Form. No wire transfers will be accepted. See
"The Offering -- Procedure for Purchasing Shares."
Purchase Limitations
No person (or persons through a single subscription right) may purchase, in
the aggregate, more than $750,000 of Conversion Shares in the Offerings and no
person together with associates or persons acting in concert with such person
may purchase in the aggregate more than $1.5 million of Conversion Shares in the
Offerings. However, Seacoast Financial may, in its sole discretion, and without
notice to or solicitation of subscribers or other prospective purchasers,
increase or decrease such maximum purchase limitations. The minimum purchase is
25 Conversion Shares. The ESOP, however, may purchase in the Subscription
Offering up to 8% of the Conversion Shares issued in the Offering. Prior to
completion of the Offering, if the maximum purchase limitation is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of Seacoast Financial and Compass may be, given the
opportunity to increase their subscriptions up to the then applicable limits.
See "The Offerings."
Conditions to Consummation of Conversion and Merger
The Merger is expected to be completed on the tenth trading day following
completion of the Conversion. Although the Conversion and the Merger will not
close simultaneously, it is a condition to completion of the Conversion that all
conditions to consummation of the Merger (other than the delivery of the
Exchange Shares to the Sandwich Bancorp stockholders and optionholders) shall
have been satisfied or waived and it is a condition to consummation of the
Merger that the Conversion shall have been consummated. Consummation of the
Conversion and the Merger are subject to a number of other conditions, including
final regulatory approval of the Commissioner, the BBI, the FDIC and the FRB and
approval of the Sandwich Bancorp stockholders. See "The Conversion and Merger --
Required Approvals" and "-- Description of the Merger Agreement -- Conditions to
the Merger."
Use of Proceeds of Conversion
Net proceeds from the sale of the Conversion Shares are estimated to be
between $242.5 million and $378.3 million, depending on the number of Conversion
Shares sold and the expenses of the Offering ($375.2 million if the Estimated
Valuation Range is increased by 15%). Up to 50% of the net proceeds of the
Offering will be retained by Seacoast Financial and used for general business
purposes. The net proceeds retained by Seacoast Financial will be invested in
short- and medium-term debt securities, including U.S. Government and Agency
securities, corporate bonds and mortgage-backed securities. Seacoast Financial
will contribute at least 50% of the net proceeds from the Offering to Compass,
to be used for general corporate purposes, including origination of loans and
purchase of investments in the ordinary course of business. Initially, Compass
plans to invest the net proceeds primarily in short- and medium-term debt
securities of the same types as Seacoast Financial's investments. Compass also
intends to use a portion of the proceeds to build a new main office. Compass
also may use the proceeds for the expansion of its facilities, and Compass or
Seacoast Financial may use proceeds to support the
6
<PAGE>
acquisition of other financial institutions, branches thereof or other financial
services businesses. Compass has no arrangements or understandings regarding
acquisitions at this time, other than the Merger with Sandwich Bancorp. See "Use
of Proceeds of Conversion."
Dividend Policy
Upon completion of the Conversion, the Board of Directors of Seacoast
Financial will have the authority to declare dividends on the Seacoast Financial
Common Stock, subject to statutory and regulatory requirements. Although no
decision has been made whether to pay dividends, Seacoast Financial will
consider a policy of paying quarterly cash dividends on the Seacoast Financial
Common Stock, with the first such dividend to be declared and paid no sooner
than the first full quarter following consummation of the Conversion and Merger.
There can be no assurance that dividends will be paid or, if paid, what the
amounts of dividends will be, or whether such dividends, once paid, will
continue to be paid. Declaration of dividends by the Board will be dependent
upon a number of factors, including capital requirements, regulatory
limitations, Seacoast Financial's operating results and financial condition and
general economic conditions. See "Seacoast Financial's Dividend Policy."
Purchases by Management
Officers and directors of Seacoast Financial and Compass have indicated to
Seacoast Financial that they intend to purchase up to $3,865,000 of Conversion
Shares, equal to 1.6%, 1.3%, 1.2% and 1.0% of the number of shares to be issued
in the Conversion, at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, respectively. There is no assurance, however,
that such persons will not purchase more or less than such number of shares or
that there will be sufficient shares available to fill such subscriptions. Such
persons will pay $10.00 per share for such shares. See "Purchases of Conversion
Shares by Management of Seacoast Financial and Compass."
Benefits of Conversion to Management and Directors
Compass has adopted the ESOP, a tax-qualified benefit plan for officers and
employees of Compass, which intends to purchase 8% of the Conversion Shares, or
1,972,000 shares ($19.7 million) and 2,668,000 shares ($26.7 million) at the
minimum and maximum, respectively, of the Estimated Valuation Range. See
"Management of Seacoast Financial and Compass -- Compensation of Officers and
Directors through Benefit Plans -- Employee Stock Ownership Plan and Trust."
Following completion of the Conversion, the Board of Directors may consider
the adoption of a stock option plan for, and a stock plan for the recognition
and retention of, officers and directors of Compass and Seacoast Financial.
Applicable banking regulations would permit the Company to adopt such plans for
presentation to Seacoast Financial's stockholders at a meeting to be held no
earlier than six months after the completion of the Conversion. If the Board
adopts such plans, no options or stock awards would be granted under either plan
until the date on which stockholder approval of the respective plan is received.
See "Management of Seacoast Financial -- Compensation of Officers and Directors
through Benefit Plans -- Stock Option Plan" and "-- Stock Plan."
In connection with the Conversion, Seacoast Financial and Compass have
entered into employment agreements with ___________ and severance agreements
with ____________ that provide for, among other things, payment in event of
termination of employment. See "Management of Seacoast Financial and Compass --
Employment and Change in Control Agreements."
Market for Seacoast Financial Common Stock
As a mutual institution, Seacoast Financial has never issued capital stock,
and consequently, there is no existing market for the Seacoast Financial Common
Stock. Seacoast Financial has [received conditional approval to have the
Seacoast Financial Common Stock quoted on the Nasdaq National Market under the
symbol "______," subject to the completion of the Conversion and compliance with
certain initial listing conditions. See "Market for Seacoast Financial Common
Stock."
No Board Recommendation
Neither the Board of Trustees of Seacoast Financial nor the Board of
Directors of Compass has made any recommendations to depositors or other
potential investors regarding whether such persons should purchase any
7
<PAGE>
Conversion Shares. An investment in the Conversion Shares must be made pursuant
to each investor's evaluation of his or her best interests.
Risk Factors
A purchase of Conversion Shares involves a substantial degree of risk.
Prospective investors should carefully consider the matters set forth under
"Risk Factors."
Stock Information Center
If you have any questions regarding the Conversion, call or visit Seacoast
Financial's Stock Information Center at (508) __________ and (800) ____________.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SEACOAST FINANCIAL
Set forth below are the selected consolidated financial and other data of
Seacoast Financial. The financial data are derived in part from, and should be
read in conjunction with, the Consolidated Financial Statements of Seacoast
Financial and Subsidiary and notes thereto presented elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
At October 31,
At February 28, --------------------------------------------------------------
1998 (1) 1997 1996 1995 1994 1993
-------- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets ........................... $1,143,559 $1,106,590 $1,027,764 $ 983,975 $ 791,989 $ 705,734
Loans (2) .............................. 846,385 820,197 748,113 676,007 509,868 451,114
Allowance for loan losses .............. 10,747 10,642 10,334 9,850 7,002 6,000
Debt securities (3):
Available/held for sale ............. 195,601 205,620 198,783 77,562 68,472 50,328
Held to maturity/held for
investment .......................... 12,322 12,633 11,752 153,805 160,856 143,923
Marketable equity securities (3) ....... 9,450 3,696 1,523 1,064 2,631 2,030
Deposits ............................... 951,449 937,948 882,608 859,723 687,291 622,729
Borrowed funds ......................... 78,553 60,703 49,948 41,178 33,469 16,098
Surplus ................................ 103,118 98,141 84,917 74,604 65,192 61,746
Net unrealized gain (loss) on securities
available for sale, net of taxes,
included in surplus ................. 2,181 1,614 174 16 (1,910) --
Non-performing loans ................... 9,885 10,925 10,326 8,506 15,171 9,906
Non-performing assets .................. 11,131 12,632 12,924 12,424 20,969 16,867
</TABLE>
<TABLE>
<CAPTION>
Four months ended
February 28, Year ended October 31,
------------------------ ------------------------------------------------------------
1998 (1) 1997 (1) 1997 1996 1995 1994 1993
-------- -------- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income .......................... $ 28,323 $ 25,609 $ 80,032 $ 74,126 $ 66,472 $ 50,682 $ 51,215
Interest expense ......................... 14,064 12,613 39,831 37,245 34,539 23,280 23,314
-------- -------- -------- -------- -------- -------- --------
Net interest income ................... 14,259 12,996 40,201 36,881 31,933 27,402 27,901
Provision (credit) for loan losses ....... 183 443 1,865 1,166 (351) 2,524 3,838
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
(credit) for loan losses ........... 14,076 12,553 38,336 35,715 32,284 24,878 24,063
Gains (losses) on sales of securities, net (7) (3) 37 60 (84) 663 1,847
Other non-interest income ................ 2,232 1,859 5,906 5,086 4,487 3,475 2,669
Other real estate owned expense, net ..... 164 164 519 644 1,072 1,026 1,560
Other non-interest expense ............... 8,704 7,966 24,291 23,514 23,618 19,342 16,757
-------- -------- -------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of change in
accounting principle .................. 7,433 6,279 19,469 16,703 11,997 8,648 10,262
Provision for income taxes ............... 3,023 2,559 7,685 6,548 4,511 3,292 4,451
Cumulative effect of change in
accounting principle (4) .............. -- -- -- -- -- -- 2,000
-------- -------- -------- -------- -------- -------- --------
Net income ............................... $ 4,410 $ 3,720 $ 11,784 $ 10,155 $ 7,486 $ 5,356 $ 7,811
======== ======== ======== ======== ======== ======== ========
</TABLE>
(footnotes begin on following page)
9
<PAGE>
<TABLE>
<CAPTION>
Four months ended
February 28, Year ended October 31,
-------------------- ----------------------------------------------------
1998 (1) 1997 (1) 1997 1996 1995 1994 1993
-------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data (5):
Performance Ratios:
Return on average assets .......................... 1.17% 1.08% 1.11% 1.02% 0.82% .71% 1.12%
Return on average surplus ......................... 12.96 12.63 12.73 12.63 10.57 8.42 13.74
Surplus to total assets at end of period .......... 9.02 8.50 8.87 8.26 7.58 8.23 8.75
Net interest rate spread (6) ...................... 3.47 3.52 3.48 3.47 3.33 3.50 3.97
Net interest margin (7) ........................... 3.96 3.96 3.95 3.90 3.69 3.81 4.23
Average interest-earning assets to average
interest-bearing liabilities ................... 112.55 111.58 112.01 110.71 108.94 109.25 107.35
Total non-interest expense to average assets ...... 2.36 2.36 2.33 2.42 2.70 2.66 2.69
Efficiency ratio (8) .............................. 53.80 54.74 53.77 57.48 67.95 64.58 56.50
Regulatory Capital Ratios (9):
Tier 1 leverage capital ........................... 8.82 8.39 8.60 8.13 7.35 8.14 8.72
Tier 1 risk-based capital ......................... 12.66 12.77 12.67 12.47 11.07 12.35 12.84
Total risk-based capital .......................... 13.91 14.02 13.92 13.73 12.31 13.69 14.09
Asset Quality Ratios:
Non-performing loans as a percent of loans (10) ... 1.17 1.86 1.33 1.38 1.26 2.98 2.20
Non-performing assets as a percent of total assets .97 1.61 1.14 1.26 1.26 2.65 2.39
Allowance for loan losses as a percent of loans ... 1.27 1.41 1.30 1.38 1.46 1.37 1.33
Allowance for loan losses as a percent of total
non-performing loans ........................... 108.72 75.50 97.41 100.08 115.80 46.15 60.57
Number of Full Service Customer Facilities(11) ....... 22 22 22 22 22 17 15
</TABLE>
- --------------------
(1) The data presented at and for the four months ended February 28, 1998 and
1997 were derived from unaudited consolidated financial statements and
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the four
months ended February 28, 1998 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1998.
(2) Loans are comprised of gross loan balances, less loans held for sale, net
unadvanced funds on loans, net deferred loan origination fees and unearned
discounts.
(3) Compass adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective November 1, 1993. In November 1995, Compass reclassified
securities having a market value of $138.7 million from its
held-to-maturity portfolio to its available-for-sale portfolio pursuant to
a Financial Accounting Standards Board (the "FASB") interpretation of SFAS
No. 115. Prior to the adoption of SFAS No. 115, debt securities were
classified as either held for sale, in which case they were accounted for
at the lower of amortized cost or market value, or held to maturity, in
which case they were accounted for at amortized cost and marketable equity
securities were stated at the lower of cost or market.
(4) In 1993, the "cumulative effect of change in accounting principle" resulted
from the adoption of SFAS No. 109, "Accounting for Income Taxes."
(5) Asset Quality Ratios and Regulatory Capital Ratios are end-of-period
ratios. With the exception of end-of-period ratios, all ratios are based on
average daily balances during the periods indicated and are annualized
where appropriate.
(6) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(7) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(8) The efficiency ratio represents the ratio of non-interest expenses to the
sum of net interest income and non-interest income.
(9) For definitions and further information relating to Seacoast Financial's
and Compass's regulatory capital requirements and for Seacoast Financial's
pro forma capital levels as a result of the Offering, see "Capitalization"
and "Regulation of Seacoast Financial and Subsidiary -- "Regulatory Capital
Requirements" and "-- Prompt Corrective Action."
(10) Non-performing loans consist of all loans 90 days or more past due and
other loans which have been identified by Compass as presenting uncertainty
with respect to the collectibility of interest or principal. It is
Compass's policy to cease accruing interest on all such loans.
(11) A 23rd branch was opened in the town of Plymouth in May 1998.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SANDWICH BANCORP
Set forth below are the selected consolidated financial and other data of
Sandwich Bancorp. The financial data are derived in part from, and should be
read in conjunction with, the Consolidated Financial Statements of Sandwich
Bancorp and Subsidiaries and notes thereto presented elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
At December 31,
At March 31, ---------------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
-------- ----- ----- ----- ----- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets .......................... $526,529 $518,697 $464,555 $426,515 $408,282 $328,746
Loans ................................. 369,705 370,742 320,844 274,095 253,985 210,618
Allowance for loan losses ............. 4,134 4,100 3,741 3,674 3,255 2,983
Investment securities:
Available for sale ................ 20,629 10,995 13,312 25,770 31,318 --
Held to maturity/held for
investment ........................ 84,157 99,577 99,648 89,468 90,107 89,793
Deposits .............................. 426,729 423,014 388,249 377,973 358,009 279,965
Borrowed funds ........................ 47,601 45,601 32,073 8,148 12,865 14,300
Stockholders' equity .................. 42,562 42,014 38,633 35,744 32,819 31,197
Net unrealized gain on securities, 102 85 27 39 (537) --
available for sale, net of taxes,
included in stockholders' equity ......
Book value per share .................. $21.87 $21.63 $20.31 $19.43 $17.95 $17.11
Asset Quality Data:
Non-performing loans .................. 2,861 3,581 4,086 4,671 2,063 2,331
Non-performing assets ................. 3,141 4,177 4,551 5,038 3,032 5,198
</TABLE>
<TABLE>
<CAPTION>
Three months
ended March 31, Year ended December 31,
--------------------- -----------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
------- ------- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest and dividend income ..... $9,184 $8,325 $35,917 $32,309 $30,673 $24,077 $20,128
Interest expense.................. 4,762 4,122 18,322 15,792 14,833 10,572 9,245
------ ------ ------- ------- ------- ------- -------
Net interest income .......... 4,422 4,203 17,595 16,517 15,840 13,505 10,883
Provision for loan losses ........ 57 109 750 265 597 340 478
-- --- --- --- --- --- ---
Net interest income .......... 4,365 4,094 16,845 16,252 15,243 13,165 10,405
after provision
for loan losses
Gains on sales of securities, net -- -- 55 -- -- 6 107
Other non-interest income ........ 606 616 2,666 2,839 2,718 2,225 2,364
Non-interest expense.............. 3,033 3,005 12,225 12,333 12,356 11,416 10,984
----- ----- ------ ------ ------ ------ ------
Income before income taxes ....... 1,938 1,705 7,340 6,758 5,605 3,980 1,892
Provision for income taxes ....... 758 658 2,480 2,621 2,169 1,396 241
------ ------ ------ ------ ------ ------ ------
Net income........................ $1,180 $1,047 $4,860 $4,137 $3,436 $2,584 $1,651
====== ====== ====== ====== ====== ====== ======
Basic earnings per share ......... $0.61 $0.55 $2.54 $2.20 $1.87 $1.41 $0.91
----- ----- ----- ----- ----- ----- -----
Diluted earnings per share ....... $0.58 $0.53 $2.45 $2.13 $1.82 $1.38 $0.90
----- ----- ----- ----- ----- ----- -----
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
-------------------- -------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data (2):
Performance Ratios:
Return on average assets ........ 0.91% 0.90% 0.98% 0.94% 0.81% 0.69% 0.52%
Return on average equity ........ 11.50 11.06 12.49 11.47 10.21 7.92 5.40
Average equity to 7.90 8.16 7.84 8.17 7.98 9.06 10.01
average assets ..................
Equity to total assets 8.08 8.24 8.10 8.32 8.38 8.04 9.49
at end of period ................
Net interest rate spread (3) .... 2.75 3.23 3.12 3.38 3.51 3.42 3.54
Net interest margin (4) ......... 3.56 3.78 3.71 3.94 3.98 3.83 3.66
Average interest-earning 114.34 114.86 104.65 104.07 97.36 101.42 102.64
assets to average
interest-bearing liabilities ....
Total non-interest 2.34 2.59 2.46 2.80 2.93 3.05 3.60
expense to average assets .......
Efficiency ratio (5) ............ 58.10 59.64 57.68 60.53 61.61 69.19 78.88
Regulatory Capital Ratios (6):
Tier 1 leverage capital ........ 7.98 8.08 7.86 8.35 7.94 7.30 8.73
Tier 1 risk-based capital ....... 14.01 13.56 13.61 13.43 13.16 12.34 14.14
Total risk-based capital ........ 15.27 14.81 14.86 14.14 14.16 13.59 15.39
Asset Quality Ratios:
Non-performing loans as 0.77 1.32 0.97 1.27 1.70 0.81 1.09
a percent of loans (7) ..........
Non-performing assets as a percent 0.60 1.08 0.81 0.98 1.18 0.74 1.58
of total assets .................
Allowance for loan losses as a 1.12 1.13 1.11 1.17 1.34 1.28 1.42
percent of loans ................
Allowance for loan losses as a 144.49 87.03 114.51 91.56 78.66 157.78 127.97
percent of total non-performing
loans ...........................
Number of Full Service Customer 11 11 11 11 11 11 10
Facilities ........................
</TABLE>
- ------------------------
(1) The data presented at and for the three months ended March 31, 1998 and
1997 were derived from unaudited consolidated financial statements and
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary to present fairly the
results for such interim periods. Interim results at and for the three
months ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
(2) Asset Quality Ratios and Regulatory Capital Ratios are end-of-period
ratios. With the exception of end-of-period ratios, all ratios are based on
average daily balances during the periods indicated and are annualized
where appropriate.
(3) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) The efficiency ratio represents the ratio of non-interest expenses to the
sum of net interest income and non-interest income.
(6) For definitions and further information relating to Sandwich Bancorp's and
Sandwich Bank's regulatory capital requirements, see "Regulation of
Seacoast Financial and Subsidiary -- Regulatory Capital Requirements" and
"-- Prompt Corrective Action."
(7) Non-performing loans consist of all loans 90 days or more past due and
other loans which have been identified by Sandwich Bank as presenting
uncertainty with respect to the collectibility of interest or principal. It
is Sandwich Bank's policy to cease accruing interest on all such loans.
12
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED AND HISTORICAL
COMBINED FINANCIAL DATA OF SEACOAST FINANCIAL
The following tables present certain unaudited pro forma consolidated and
historical combined financial data with respect to Seacoast Financial and its
subsidiary. For each period presented below, the historical combined information
gives effect to the Merger but not the Conversion. The pro forma consolidated
information gives effect to the consummation of both the Conversion and the
Merger, including the sale of Conversion Shares in the Offering and the issuance
of Exchange Shares in the Merger, and includes the anticipated expenses
associated with the ESOP. These historical combined and pro forma financial data
assume that these transactions occurred on each of the dates and at the
beginning of each of the periods presented, that 12,543,673 Exchange Shares are
issued and that 33,350,000 Conversion Shares are sold in the Offerings at the
$10.00 Purchase Price per share, resulting in gross proceeds of $333.5 million
(the maximum of the Estimated Valuation Range). For additional assumptions used
in calculating the pro forma data, see "Unaudited Pro Forma Condensed
Consolidated Financial Information."
In accordance with generally accepted accounting principles ("GAAP"),
the Merger will be accounted for using the pooling-of-interests method. Under
the pooling-of-interests method of accounting, the recorded assets and
liabilities of the parties to the Merger Agreement will be carried forward at
their recorded amounts, and the results of operations of the combined parties
will include the results of operations of Seacoast Financial and Sandwich
Bancorp for the entire year in which the Conversion and the Merger occur and, as
restated, for prior periods. Such accounting treatment requires satisfaction of
certain conditions, including that "affiliates" of the parties to the Merger
Agreement may not dispose of shares of Seacoast Financial Common Stock prior to
the publication of financial results covering at least 30 days of post-closing
combined operations of such parties.
The following selected unaudited pro forma consolidated and historical
combined financial data should be read in conjunction with the consolidated
financial statements and related notes presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At February 28, At October 31,
1998 (1) 1997 (1)
-------------------------------------------- ----------------------------------
Historical Pro Forma Historical Pro Forma
Combined Consolidated Combined Consolidated
--------------------- ---------------------- ---------------- ----------------
(Dollars in thousands)
FINANCIAL CONDITION:
<S> <C> <C> <C> <C>
Total assets............................ $1,670,088 $1,989,763 $1,625,287 $1,945,036
Loans, net.............................. 1,201,209 1,201,209 1,176,197 1,176,197
Investment securities held to maturity. 96,479 12,322 112,210 12,633
Investment securities available for sale 220,505 304,786 220,311 314,911
Deposits................................ 1,378,178 1,378,178 1,360,962 1,360,962
Borrowed funds.......................... 127,884 154,564 108,042 134,722
Total stockholders' equity.............. 140,505 438,625 140,155 433,145
Non-performing loans.................... 12,764 12,764 14,506 14,506
Non-performing assets................... 14,272 14,272 16,809 16,809
Asset quality ratios (period end):
Allowance for loan losses to total loans 1.19% 1.19% 1.24% 1.24%
Non-performing assets as a percent of
total assets 0.86% 0.72% 1.03% 0.86%
Allowance for loan losses to
non-performing loans 116.75% 116.75% 101.63% 101.63%
</TABLE>
(footnotes begin on page following the following page)
13
<PAGE>
<TABLE>
<CAPTION>
Four months ended February 28, (1)
--------------------------------------------------------------------
1998 1997
------------------------------------ -------------------------------
Historical Pro Forma Historical Pro Forma
Combined Consolidated Combined Consolidated
------------------ ---------------- ------------ -----------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS (2):
Net interest income.................................... $20,215 $25,279 $18,825 $23,910
Provision for loan losses.............................. 477 477 662 662
-------- --------- -------- ---------
Net interest income after provision for loan losses.... 19,738 24,802 18,163 23,248
Noninterest income..................................... 3,134 3,134 2,694 2,694
Noninterest expense.................................... 13,003 13,448 12,119 12,564
-------- --------- -------- --------
Income before income taxes............................. 9,869 14,488 8,738 13,378
Income taxes........................................... 3,688 5,536 3,520 5,376
-------- --------- -------- --------
Net income............................................. $ 6,181 $ 8,952 $ 5,218 $ 8,002
======== ========= ======== ========
Diluted earnings per share............................. $ 0.21 $ 0.19
========= ========
SELECTED RATIOS:
Performance ratios: 1.14% 1.37% 1.05% 1.32%
Return on average assets (3) (4)....................
Return on average equity (3) (4).................... 12.95% 6.16% 12.40% 5.74%
</TABLE>
<TABLE>
<CAPTION>
For the year ended October 31, (1)
------------------------------------------------------------------------------
1997 1996 1995
------------------------- -------------------------- -------------------------
Historical Pro Forma Historical Pro Forma Historical Pro Forma
Combined Consolidated Combined Consolidated Combined Consolidated
------------- ----------- ------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (2):
Net interest income......................... $57,796 $73,052 $53,398 $69,141 $47,773 $65,497
Provision for loan losses................... 2,615 2,615 1,431 1,431 246 246
-------- --------- -------- --------- -------- ----------
Net interest income after provision for
loan losses................................ 55,181 70,437 51,967 67,710 47,527 65,251
Noninterest income.......................... 8,664 8,664 7,985 7,985 7,121 7,121
Noninterest expense......................... 37,036 38,370 36,491 37,825 37,046 38,380
-------- -------- ------- -------- -------- --------
Income before income taxes.................. 26,809 40,731 23,461 37,870 17,602 33,992
Income taxes................................ 10,165 15,734 9,169 14,933 6,680 13,236
-------- -------- -------- -------- -------- --------
Net income.................................. $16,644 $24,997 $14,292 $22,937 $10,922 $20,756
======= ======= ======= ======= ======= =======
Diluted earnings per share.................. $ 0.58 $ 0.53 $ 0.48
========= ========= =========
SELECTED RATIOS:
Performance ratios:
Return on average assets (3)............. 1.07% 1.33% 0.99% 1.30% 0.82% 1.28%
Return on average equity (3)............. 12.66% 5.88% 12.27% 5.60% 10.45% 5.23%
</TABLE>
- ------------------
(1) Sandwich Bancorp financial data is included at March 31, 1998 and
December 31, 1997 and for the four-month periods ended March 31, 1998
and 1997 and the fiscal years ended December 31, 1997, 1996 and 1995.
(2) Does not reflect any cost savings or other benefits of the Conversion and
the Merger.
(3) These ratios are based on average daily balances during the historical
combined periods and average of the end of period balances for the pro
forma presentation.
(4) Annualized.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Further, any statements contained in or incorporated into
this Prospectus that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words "expect,"
"anticipate," "plan," "believe," "seek," "estimate," "internal" and similar
words are intended to identify expressions that may be forward-looking
statements. Forward-looking statements involve certain risks and uncertainties,
and actual results may differ materially from those contemplated by such
statements. For example, actual results may be adversely affected by the
following possibilities: (i) competitive pressure among depository institutions
may increase; (ii) changes in interest rates may reduce banking interest
margins; (iii) general economic conditions and real estate values may be less
favorable than contemplated; (iv) adverse legislation or regulatory requirements
may be adopted; (v) contemplated cost savings, revenue enhancements, etc. from
the Merger may not be timely or fully realized; and (vi) the impact of the Year
2000 issue may be more significant than currently anticipated. Many of such
factors are beyond Seacoast Financial's or Sandwich Bancorp's ability to control
or predict. Readers of this Prospectus are accordingly cautioned not to place
undue reliance on forward-looking statements. Seacoast Financial and Sandwich
Bancorp disclaim any intent or obligation to update publicly any of the
forward-looking statements herein, whether in response to new information,
future events or otherwise. Important factors that may cause Seacoast
Financial's or Sandwich Bancorp's actual results to differ from such
forward-looking statements include, but are not limited to, the risk factors
discussed below.
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding to purchase the
Conversion Shares offered hereby.
Construction, Commercial Real Estate, Commercial and Indirect Auto Lending Risks
Residential real estate loans represent a smaller proportion of Compass's
loan portfolio than that of most savings institutions. In general, construction
loans, commercial real estate loans, commercial loans and indirect auto loans
generate higher returns, but also pose greater credit risks, than do
owner-occupied residential mortgage loans.
The repayment of construction and commercial real estate loans depends on
the business and financial condition of borrowers and, in the case of
construction loans, on the economic viability of projects financed. A number of
Compass's borrowers have more than one construction or commercial real estate
loan outstanding with Compass. Moreover, these loans are concentrated primarily
in southeastern Massachusetts. Economic events and changes in government
regulations, which Compass and its borrowers cannot control, could have an
adverse impact on the cash flows generated by properties securing Compass's
construction and commercial real estate loans and on the values of such
properties. Commercial properties tend to decline in value more rapidly than
residential owner-occupied properties during economic recessions. Compass held
$162.0 million in construction and commercial real estate loans in its loan
portfolio as of February 28, 1998 and on a pro forma basis at that date,
assuming consummation of the Merger, it would have had $252.2 million of such
loans in its portfolio.
Compass makes both secured and some short-term unsecured commercial loans,
holding $54.0 million of such loans in its loan portfolio as of February 28,
1998. On a pro forma basis at that date, assuming consummation of the Merger, it
would have had $61 million of commercial loans in its portfolio. Repayment of
both secured and unsecured commercial loans depends substantially on borrowers'
underlying business, financial condition and cash flows. Unsecured loans
generally involve a higher degree of risk of loss than do secured loans because,
without collateral, repayment is wholly dependent upon the success of the
borrowers' businesses. Secured commercial loans are generally collateralized by
equipment, leases, inventory and accounts receivable. Compared to real estate,
such collateral is more difficult to monitor, its value is harder to ascertain,
it may depreciate more rapidly and it may not be as readily saleable if
repossessed.
In 1985, Compass began to make indirect auto loans and its portfolio of
such loans has grown significantly since then. Compass's portfolio of indirect
auto loans, net of unearned discounts, totaled $225.0 million as of February 28,
1998. Although Compass has not experienced significant delinquencies in this
portfolio to date, borrowers may be more likely to become delinquent on an
automobile loan than on a residential mortgage loan secured by their primary
residence. Moreover, automobiles depreciate rapidly and, in the event of
default, principal
15
<PAGE>
loss as a percent of the loan balance depends upon the mileage and condition of
the vehicle at the time of repossession, over which Compass has no control.
The interest rate charged to an indirect auto loan borrower is generally
one to two percentage points higher than the rate earned by Compass. The
difference between the two rates is referred to as the "spread." At loan
inception, the dollar value of the spread over the contractual term of the loan
is prepaid by Compass to an auto dealer. Such prepaid amounts are generally
subject to rebate to Compass in the event the underlying loan is prepaid or
becomes delinquent. The risk of loss of amounts previously advanced to a dealer
is primarily dependent upon loan performance and general economic conditions but
is also dependent upon the financial condition of the dealer. To mitigate this
risk, Compass withholds a portion of the spread at loan origination as a dealer
reserve. The amount withheld, in the aggregate, generally approximates 1% of the
outstanding balance of loans originated by each dealer. However, there is no
assurance that Compass can successfully recover amounts advanced for spreads.
Geographic Concentration of Loans in and Deposits from Southeastern
Massachusetts and Rhode Island
Compass operates primarily in southeastern Massachusetts and, to a much
lesser degree, Rhode Island. Over the past several decades, portions of
Compass's market area, including the cities of New Bedford and Fall River, have
experienced relatively flat economic activity and higher unemployment rates than
most of New England and the country, primarily as a result of a reduction in
manufacturing and marine-related jobs there. The economies of New Bedford and
Fall River did not experience the same growth and increase in real estate values
that characterized much of Massachusetts and New England during the 1980's.
Similarly, during the latter half of the 1990's, the economies, employment rates
and real estate markets of New Bedford and Fall River have remained relatively
flat, continuing to lag behind many other New England regions that have enjoyed
significant economic improvement in recent years.
Compass's current primary market area also includes Martha's Vineyard.
Following consummation of the Merger, Compass's operations will also include
Sandwich Bank's extensive market area on Cape Cod. See "Business of Compass --
Market Area and Competition" and "Certain Effects of the Merger on Seacoast
Financial." The economies of Cape Cod and Martha's Vineyard depend heavily on
tourists who visit primarily during summer months. As a result, many businesses
on Cape Cod and Martha's Vineyard have positive cash flows only during those
months. Tourism-based businesses are customers -- commercial loan borrowers and
depositors -- of both Compass and Sandwich Bank, and seasonal fluctuations
affect these customers' deposit balances as well as their ability to repay their
loans. Compass and Sandwich Bank often structure loans to such customers with
uneven payment schedules, so that the bulk of the annual debt service comes due
in the summer months. Nevertheless, a tourist season may be delayed or cut short
due to conditions beyond Compass's control (such as the weather) and, thus,
Compass's loans to tourism-based businesses are subject to a greater risk of
non-repayment than its other commercial loans.
Potential Impact of Changes in Interest Rates on Seacoast Financial's Earnings
Seacoast Financial's profitability, like that of most financial
institutions, depends to a large extent upon its net interest income, which is
the difference, or spread, between its gross interest income on interest-earning
assets, such as loans and securities, and its interest expense on
interest-bearing liabilities, such as deposits and borrowed funds. Accordingly,
Seacoast Financial's results of operations and financial condition depend
largely on movements in market interest rates and its ability to manage its
interest-rate-sensitive assets and liabilities in response to such movements.
Changes in interest rates could have a material adverse effect on Seacoast
Financial's business, financial condition, results of operations and cash flows.
Because, as a general matter, Seacoast Financial's interest-bearing liabilities
reprice or mature more quickly than its interest-earning assets, an increase in
interest rates generally would result in a decrease in its interest rate spread
and net interest income. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Seacoast Financial -- Management of
Interest Rate Risk."
Changes in interest rates also affect the value of Seacoast Financial's
interest-earning assets, including, in particular, the value of its investment
securities portfolio. Generally, the value of investment securities fluctuates
inversely with changes in interest rates. At February 28, 1998, Seacoast
Financial's securities portfolio totaled $222.5 million, including $205.1
million of securities available for sale. Unrealized gains and losses on
securities available for sale are reported as a separate component of surplus,
net of related taxes. Decreases in the fair value of securities available for
sale therefore would have an adverse affect on Seacoast Financial's
stockholders' equity. See "Business of Seacoast Financial -- Investment
Activities."
16
<PAGE>
Seacoast Financial is also subject to reinvestment risk relating to
interest rate movements. Decreases in interest rates can result in increased
prepayments of loans and mortgage-related securities, as borrowers refinance to
reduce their borrowing costs. Under these circumstances, Seacoast Financial is
subject to reinvestment risk to the extent that it is not able to reinvest funds
from such prepayments at rates that are comparable to the rates on the prepaid
loans or securities. On the other hand, increases in interest rates on
adjustable rate mortgage loans result in larger mortgage payments from
borrowers, which could potentially increase Seacoast Financial's level of loan
delinquencies and defaults.
Risks Related to the Acquisition of Sandwich Bancorp
Compass's future operating performance will depend, in part, on the success
of the Merger. The success of the Merger will, in turn, depend on a number of
factors, including Compass's ability to (i) integrate into Compass Sandwich
Bank's operations and branches, (ii) retain Sandwich Bank's deposits and
customers, (iii) control future non-interest expenses in a manner that enables
Compass to improve its overall operating efficiencies and (iv) retain and
integrate certain personnel of Sandwich Bank into Compass's operations.
Integration of Sandwich Bancorp into Compass following the Merger will require
the dedication of the time and resources of Compass's and Seacoast Financial's
managements, and may temporarily distract managements' attention from the
day-to-day business of Compass. No assurance can be given that Compass will
successfully integrate Sandwich Bancorp's operations into its own, or that
Compass will achieve anticipated benefits of the Merger or achieve earnings
results in the future similar to those it, or Sandwich Bancorp, has achieved in
the past. Further, no assurance can be given that Compass will effectively
manage any growth resulting from the Merger.
Low Return on Equity following the Conversion
Seacoast Financial's ratio of surplus to assets was 9.02% as of February
28, 1998. The consummation of the Conversion will increase this ratio
significantly because the proceeds from the sale of the Conversion Shares will
be added to Seacoast Financial's equity. Seacoast Financial's consolidated ratio
of equity to assets would exceed 20% and 22%, respectively, on a pro forma basis
as of February 28, 1998 assuming the sale of Conversion Shares at the midpoint
and the maximum, respectively, of the Estimated Valuation Range and assuming
consummation of the Merger. Seacoast Financial's ability to leverage this
additional capital will be significantly affected by competition for loans and
deposits and economic conditions. Seacoast Financial currently anticipates that
it will take considerable time to prudently deploy such capital. Management
expects that Seacoast Financial will earn a return on its equity that is below
the industry average (and below its own historical levels) for a period of time
after the Conversion and the Merger.
Since Seacoast Financial expects to account for the Merger as a
pooling-of-interests under generally accepted accounting principles ("GAAP"),
Seacoast Financial's ability to repurchase shares of Seacoast Financial Common
Stock may be restricted during the two-year period that will follow completion
of the Merger. See "Use of Proceeds of Conversion."
Dilution Resulting From Issuances of Additional Shares
The exact number of Conversion Shares to be issued in the Offerings will
not be determined until RP Financial updates its appraisal immediately prior to
the consummation of the sale of the Conversion Shares. The higher the number of
Conversion Shares issued, the lower Seacoast Financial's pro forma net income
per share and pro forma stockholders' equity per share, and the higher the
Purchase Price as a percentage of pro forma stockholders' equity and as a
multiple of net income per share. See "Pro Forma Condensed Consolidated
Financial Information."
The issuance of the Exchange Shares in connection with the Merger will
dilute the ownership interest of purchasers of Conversion Shares in the
Conversion. The trading price of Seacoast Financial Common Stock during the time
period between the consummation of the Conversion and the consummation of the
Merger will determine the number of shares of Seacoast Financial Common Stock
issued by Seacoast Financial to effect the Merger. Generally, the lower the
trading price during that period, the greater the number of Exchange Shares
issuable in the Merger, and the greater such dilution. See "The Conversion and
the Merger -- Description of the Merger and the Exchange Ratio."
In preparing the Independent Valuation, RP Financial considered various
Seacoast Financial Trading Prices and Exchange Ratios for purposes of estimating
the number of Exchange Shares to be issued in the Merger. The actual Seacoast
Financial Trading Price and Exchange Ratio, and therefore the total number of
shares of Seacoast
17
<PAGE>
Financial Common Stock that will be outstanding after consummation of the
Merger, will not be determined until after consummation of the Conversion. As a
result, the actual per share data reported by Seacoast Financial after
completion of the Conversion and the Merger will, in all probability, be
different from the pro forma per share data considered by RP Financial in
preparing the Independent Valuation and disclosed herein.
Pro Forma Pricing Multiples of the Seacoast Financial Common Stock
The Purchase Price as a percentage of pro forma stockholders' equity of
the Conversion Shares ranges from 103.5% at the minimum of the Estimated
Valuation Range to 105.2% at 15% above the Estimated Valuation Range. The
Purchase Price to pro forma stockholders' equity at which the Conversion Shares
are being sold in the Offering substantially exceeds the price to pro forma
stockholders' equity of common stock sold in most mutual-to-stock conversions
that do not also involve acquisitions of other financial institutions.
Prospective investors should be aware that as a result of the relatively high
pro forma pricing multiples, the after-market performance of the Seacoast
Financial Common Stock may be less favorable during the period immediately
following the Conversion than the price performance of common stock sold in
recent mutual-to-stock conversions that do not involve an acquisition of another
institution.
Possible Dilution Resulting From Stock Plans
Seacoast Financial may adopt certain stock plans following the Conversion,
subject to stockholder approval, and such plans could dilute the voting rights
of Seacoast Financial's stockholders. Federal and state banking regulations
allow the Board of Directors of Seacoast Financial, and the Board may decide, to
adopt one or more stock plans for the benefit of employees, officers and
directors of Seacoast Financial and Compass, including stock award plans and
stock option plans. See "Management of Seacoast Financial and Compass --
Compensation of Officers and Directors Through Benefit Plans -- Stock Option
Plan" and "-- Stock Plan." Such plans could purchase and could grant options to
purchase Seacoast Financial Common Stock, and such stock purchases and option
grants could dilute the voting rights of purchasers of Conversion Shares in the
Conversion.
Competition
Compass faces significant competition both in attracting deposits and in
the origination of loans. See "Business of Compass -- Market Area and
Competition." Savings banks, credit unions, savings and loan associations and
commercial banks operating in Compass's primary market area have historically
provided most of Compass's competition for deposits. In addition, and
particularly in times of high interest rates, Compass faces additional and
significant competition for funds from money-market mutual funds and issuers of
corporate and government securities. Competition for the origination of real
estate and other loans comes from other thrift institutions, commercial banks,
insurance companies, finance companies, other institutional lenders and mortgage
companies. Many of Compass's competitors have substantially greater financial
and other resources than those of Compass. Moreover, Compass may face increased
competition in the origination of loans if competing thrift institutions convert
to stock form, because such converting thrifts would likely seek to invest their
new capital into loans. Finally, credit unions do not pay federal or state
income taxes and are subject to fewer regulatory constraints than savings banks.
Numerous credit unions are located in Fall River and Rhode Island and, because
of their tax and regulatory status, they enjoy a competitive advantage over
Compass. This advantage places significant competitive pressure on the prices of
Compass's loan and deposits.
Regulatory Oversight and Legislation
Seacoast Financial and Compass are subject to extensive regulation,
supervision and examination. See "Regulation of Seacoast Financial and
Subsidiaries." Any change in the laws or regulations applicable to Seacoast
Financial and Compass, or in banking regulators' supervisory policies or
examination procedures, whether by the Commissioner, the FDIC, the FRB, other
state or federal regulators, the United States Congress or the Massachusetts
legislature could have a material adverse effect on Seacoast Financial's and
Compass's business, financial condition, results of operations and cash flows.
Compass is subject to regulations promulgated by the Massachusetts Division
of Banks, as its chartering authority, and by the FDIC and the Depositors
Insurance Fund (the "DIF") as insurers of its deposits up to certain limits.
Compass also belongs to the Federal Home Loan Bank System and, as a member of
such system, is subject
18
<PAGE>
to certain limited regulations promulgated by the Federal Home Loan Bank. In
addition, the FRB regulates and oversees Seacoast Financial in Seacoast
Financial's capacity as Compass's holding company.
Such regulation and supervision limit the activities in which Seacoast
Financial and Compass may engage. The regulation and supervision is intended
primarily to protect the FDIC's and the DIF's insurance funds and Compass's
depositors and borrowers. Regulatory authorities have extensive discretion in
the exercise of their supervisory and enforcement powers. They may, among other
things, impose restrictions on the operation of a banking institution, the
classification of assets by such institution and such institution's allowance
for loan losses. Regulatory and law enforcement authorities also have wide
discretion and extensive enforcement powers under various consumer protection
and civil rights laws, including the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act
and Massachusetts's deceptive acts and practices law. These laws also permit
private individual and class action law suits and provide for the recovery of
attorneys fees in certain instances. No assurance can be given that the
foregoing regulations and supervision will not change.
Absence of Market for Seacoast Financial Common Stock
Seacoast Financial, as a mutual institution, has never issued capital
stock and, consequently, there is currently no existing market for the Seacoast
Financial Common Stock. Seacoast Financial has [received conditional approval to
have the Seacoast Financial Common Stock quoted on the Nasdaq National Market
under the symbol "_____," subject to the completion of the Conversion and
compliance with certain initial listing conditions, including the presence of at
least three market makers.]
A public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the existence of willing buyers and
sellers at any given time, the presence of which is dependent upon the
individual decisions of buyers and sellers over which neither Seacoast Financial
nor any market maker has control. Accordingly, there can be no assurance that an
active and liquid trading market for the Seacoast Financial Common Stock will
develop or that, if developed, it will continue. The failure of an active and
liquid trading market to develop would likely have a material adverse effect on
the value of the Seacoast Financial Common Stock. In addition, no assurance can
be given that a purchaser in the Conversion will be able to resell the
Conversion Shares at or above the Purchase Price, nor can any assurance be given
that a Sandwich Bancorp stockholder receiving Exchange Shares in the Merger will
be able to sell such Exchange Shares at or above the Seacoast Financial Trading
Price used in the calculation of the Exchange Ratio. See "Market for Seacoast
Financial Common Stock."
Certain Anti-Takeover Effects of the Articles of Organization and By-Laws of
Seacoast Financial, the ESOP and Federal and State Regulations and Laws.
Seacoast Financial has adopted Articles of Organization and By-Laws that
will go into effect upon consummation of the Conversion and those Articles and
By-Laws contain provisions (known as "anti-takeover" provisions) which may
impede efforts to acquire Seacoast Financial, or stock purchases in furtherance
of such an acquisition, even though such acquisition efforts or stock purchases
might otherwise have a favorable effect on the price of the Seacoast Financial
Common Stock. The Articles and By-Laws provide for, among other things,
staggered Directors' terms, restrictions on the acquisition of more than 10% of
Seacoast Financial's outstanding voting stock for a period of five years after
consummation of the Conversion and approval of certain actions, including
certain business combinations, by specified percentages of its Disinterested
Directors (as such term is defined in the Articles) or by specified percentages
of the shares outstanding and entitled to vote thereon. The Articles also
authorize the Board of Directors to issue up to 10,000,000 shares of serial
preferred stock, the rights and preferences of which may be designated by the
Board, without the approval of Seacoast Financial's stockholders.
The ESOP, which expects to purchase in the Subscription Offering 8% of the
Conversion Shares sold in the Offering, contains provisions that permit
participating employees to direct the voting of shares held in the ESOP, and
such provisions may have anti-takeover effects.
Federal and state regulations and laws may also have anti-takeover effects.
The Change in Bank Control Act and the BHCA, together with FRB regulations
promulgated under those acts, require that a person obtain the consent of the
FRB before attempting to acquire control of a bank holding company. In addition,
Massachusetts laws place certain limitations on acquisitions of the stock of
banking institutions.
For additional information regarding the anti-takeover effects of Seacoast
Financial's Articles and By-Laws, the ESOP and certain federal and state
regulations and laws, see "Restrictions on Acquisition of Seacoast Financial."
19
<PAGE>
Year 2000 Issue
The Year 2000 issue (commonly referred to as "Y2K") is the result of
computer programs being written using two digits, rather than four digits, to
define the applicable year. The Y2K issue, which is common to most corporations
and especially banks, concerns the inability of information and other systems,
primarily (but not exclusively) computer software programs, to properly
recognize and process date-sensitive information as the year 2000 approaches.
This problem could produce miscalculations, generate erroneous data or even
cause a computer system to fail.
The success of Compass's efforts to address the Y2K issue depends to a
large extent not only on the corrective measures that Compass undertakes, but
also on the efforts undertaken by businesses and other independent entities who
do business with Compass. Since Compass's information systems functions are
either outsourced to service bureaus or processed in-house using software
programs developed by third-party vendors, the direct effort to address Y2K
issues will be undertaken largely by third parties and will therefore not be
within Compass's direct control. Compass's primary service bureau for data
processing functions has advised Compass that it expects to resolve this
potential problem before the year 2000. Compass is in the process of creating
formal test and contingency plans. Moreover, Compass has determined that it will
need to replace some computer hardware and upgrade some software. It currently
estimates that the cost of its efforts to achieve Y2K readiness will not exceed
$1.0 million. However, no assurance can be given that Compass or its third-party
vendors will solve such issues in a successful and timely fashion or that the
costs of such effort will not exceed current estimates. If Compass does not
solve such issues, or does not do so in a timely manner, the Y2K issue could
have a material adverse impact on Compass's business, financial condition,
results of operations and cash flows.
Bank regulatory agencies have recently issued additional guidance under
which they are assessing Y2K readiness. The failure of a financial institution,
such as Compass, to take appropriate action to address deficiencies in the Y2K
project management process may result in enforcement actions which could have a
material adverse effect on such institution, result in the imposition of civil
money penalties, or result in the delay (or receipt of an unfavorable or
critical evaluation of management of a financial institution in connection with
a regulatory review) of applications seeking to acquire other entities or
otherwise expand the institution's activities.
Compass's credit risk associated with its borrowers may increase as a
result of problems such borrowers may have resolving their own Y2K issues.
Although it is not possible to evaluate the magnitude of any potential increased
credit risk at this time, the impact of the Y2K issue on borrowers could result
in increases in Compass's problem loans and credit losses in future years.
For additional information regarding the Year 2000 issue, see "Business of
Compass -- Year 2000 Issue."
Role of the Financial Advisor/Best Efforts Offering
Seacoast Financial and Compass have engaged Ryan Beck and McConnell Budd as
financial and marketing advisors, and Ryan Beck and McConnell Budd have agreed
to use their best efforts to solicit purchase orders for Conversion Shares in
the Offering. Neither Ryan Beck nor McConnell Budd have prepared any report or
opinion constituting a recommendation to Compass or Seacoast Financial, nor have
they prepared an opinion as to the fairness of the Purchase Price or the terms
of the Offering. Moreover, Ryan Beck and McConnell Budd express no opinion as to
the prices at which Conversion Shares to be issued in the Offering may
subsequently trade. Finally, Ryan Beck and McConnell Budd have not verified the
accuracy or completeness of subsequently the information contained in the
Prospectus. See "The Offerings -- Plan of Distribution and Selling Commissions."
Possible Delays in Completion of the Offering and the Merger; Irrevocability of
Stock Orders
Seacoast Financial will hold funds submitted to purchase Conversion Shares
in connection with the Offering until it completes or terminates the Offering,
and it may not complete or terminate the Offering for an extended period of
time. The Offering may be delayed one or more times because its completion will
be subject to various conditions, including the receipt of regulatory approvals
of both the Conversion and the Merger. Moreover, unless Seacoast Financial
terminates the Conversion, orders to purchase Conversion Shares made in
connection with the Offering will be irrevocable. No assurance can be given that
Seacoast Financial will complete or terminate the Offering on or before any
particular date, except that if the Offering is not completed within 120 days
after the date that this Prospectus was declared effective by the Commissioner
(i.e. by _______, 1998), all subscribers will have the right to modify or
rescind their subscriptions and to have applicable subscription funds returned
promptly with interest (or to have applicable withdrawal authorizations
canceled).
20
<PAGE>
PRO FORMA DATA
Unaudited Pro Forma Condensed Consolidated Financial Information
The following Unaudited Pro Forma Condensed Consolidated Balance Sheets
at February 28, 1998 and October 31, 1997 and Unaudited Pro Forma Condensed
Consolidated Statements of Income for the four months ended February 28, 1998
and 1997 and for each of the years ended October 31, 1997, 1996 and 1995 give
effect to the Conversion and the Merger based on the assumptions set forth
below. The unaudited pro forma consolidated financial statements are based on
the unaudited consolidated financial statements of Seacoast Financial for the
four-month periods ended February 28, 1998 and 1997 and of Sandwich Bancorp for
the four-month periods ended March 31, 1998 and 1997 and on the audited
consolidated financial statements of Seacoast Financial for the years ended
October 31, 1997, 1996 and 1995 and of Sandwich Bancorp for the years ended
December 31, 1997, 1996 and 1995. The unaudited pro forma consolidated financial
statements give effect to the Merger using the pooling-of-interests method of
accounting under GAAP.
The pro forma adjustments in the tables assume the sale of 33,350,000
Conversion Shares in the Offerings at the $10.00 Purchase Price per share, which
is the maximum of the Estimated Valuation Range. In addition, the pro forma
adjustments in the tables assume the issuance of 6.4 shares of Seacoast
Financial Common Stock for each share of Sandwich Bancorp Common Stock
(including the effect of outstanding Sandwich Bancorp Stock Options) in
connection with the Merger. The net proceeds in the tables are based upon the
following assumptions: (i) all Conversion Shares will be sold in the
Subscription and Community Offerings; (ii) no fees will be paid to Ryan Beck or
McConnell Budd on shares purchased either by the ESOP or by officers, trustees,
directors, employees and members of their immediate families; (iii) Ryan Beck
and McConnell Budd will receive an aggregate fee equal to 1.00% of the aggregate
Purchase Price for sales in the Subscription Offering (excluding the sale of
shares to the ESOP and to officers, trustees, directors, employees and their
immediate families); and (iv) total expenses of the Conversion, including the
marketing fees of $3.0 million paid to Ryan Beck and McConnell Budd, will be
$4.8 million. Actual expenses may vary from those estimated. The actual amount
of Conversion Shares sold may be more or less than the maximum of the Estimated
Valuation Range. For the effects of such possible changes, see "--Pro Forma
Conversion Data." In addition, the expenses of the Conversion and of the Merger
may vary from those estimated. The fees paid to Ryan Beck and McConnell Budd
will vary from the amounts estimated if more or less shares are sold, or if a
Syndicated Community Offering is conducted. Additionally, certain one-time
charges to operating results (estimated to be $4.0 million, net of income tax
effect) are expected to occur following the Conversion and the Merger. These
items are shown as a reduction in stockholders' equity in the following tables
but are not shown as a reduction in net income for the periods shown in the
following tables.
Pro forma stockholders' equity and net income have been calculated at
February 28, 1998 and October 31, 1997 and for the four months ended February
28, 1998 and 1997 and the years ended October 31, 1997, 1996 and 1995,
respectively, as if the Conversion Shares had been sold (and the Exchange Shares
issued) on the dates indicated (for the Balance Sheets) and the net proceeds had
been invested at the yield on the one year U.S. Treasury Note in effect at the
beginning of the period for each of the periods (for the Income Statements)
presented (rates ranged from 5.37% to 6.15%). This yield is believed to reflect
the interest rate at which the Conversion proceeds will be initially invested.
The effect of withdrawals from deposit accounts at Compass for the purchase of
Conversion Shares in the Offerings has not been reflected. A combined effective
federal and state income tax rate of 40% has been assumed for pro forma
adjustments in all periods. Pro forma earnings per share amounts have been
calculated by dividing pro forma amounts by the number of outstanding shares of
Seacoast Financial Common Stock less ESOP shares which have not been committed
to be released.
The unaudited pro forma information is provided for informational
purposes only. The pro forma financial information presented is not necessarily
indicative of the actual results that would have been achieved had the
Conversion and the Merger been consummated on the dates or at the beginning of
the periods presented, and is not necessarily indicative of future results. The
unaudited pro forma financial information should be read in conjunction with the
consolidated financial statements and the notes thereto of Seacoast Financial
and Sandwich Bancorp contained elsewhere in this Prospectus.
21
<PAGE>
The pro forma stockholders' equity represents the combined book value of
the common stockholders' ownership of Seacoast Financial and Sandwich Bancorp
computed in accordance with GAAP. This amount is not intended to represent fair
market value and does not represent amounts, if any, that would be available for
distribution to stockholders in the event of liquidation.
THE UNAUDITED PRO FORMA COMMON STOCKHOLDERS' EQUITY AND NET INCOME
DERIVED FROM THE ABOVE ASSUMPTIONS ARE QUALIFIED BY THE STATEMENTS SET FORTH
UNDER THIS CAPTION AND SHOULD NOT BE CONSIDERED INDICATIVE OF THE MARKET VALUE
OF SEACOAST FINANCIAL COMMON STOCK OR THE ACTUAL OR FUTURE RESULTS OF OPERATIONS
OF SEACOAST FINANCIAL AND SANDWICH BANCORP FOR ANY PERIOD. SUCH PRO FORMA DATA
MAY BE MATERIALLY AFFECTED BY THE ACTUAL GROSS AND NET PROCEEDS FROM THE SALE OF
CONVERSION SHARES IN THE CONVERSION, THE ACTUAL EXCHANGE RATIO IN THE MERGER AND
OTHER FACTORS. SEE "USE OF PROCEEDS OF CONVERSION."
Unaudited Pro Forma Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
At February 28, 1998 (1)
----------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents....................... $ 43,255 $31,676 $324,726 (2) $ 399,657
Securities available for sale................... 205,051 20,629 79,106 (3) 304,786
Securities held to maturity..................... 12,322 84,157 (84,157)(3) 12,322
Loans held for sale............................. 8,519 -- 8,519
Loans, net...................................... 835,638 365,571 1,201,209
Bank premises and equipment..................... 12,963 6,292 19,255
OREO............................................ 1,246 280 1,526
Net deferred tax asset.......................... 6,187 2,951 9,138
Other assets.................................... 18,378 14,973 33,351
---------- -------- -------- ----------
Total assets.............................. $1,143,559 $526,529 $319,675 $1,989,763
========== ======== ======== ==========
Liabilities and Stockholders' Equity:
Deposits........................................ $ 951,449 $426,729 $ $1,378,178
Borrowed funds.................................. 78,553 49,331 127,884
ESOP borrowings................................. --- --- 26,680 (6) 26,680
Other liabilities............................... 10,439 7,907 50 (3) 18,396
---------- -------- -------- ----------
Total liabilities......................... 1,040,441 $483,967 $ 26,730 $1,551,138
---------- -------- -------- ----------
Stockholders' equity:
Common stock................................. --- 1,946 2,643 (4) 4,589
Additional paid-in capital................... --- 20,167 320,908 (4) 341,075
Retained earnings............................ 100,937 20,347 (4,000)(4)(5) 117,284
Unearned compensation - ESOP................. --- --- (26,680)(6) (26,680)
Unrealized gain on securities available for sale,
net of taxes............................. 2,181 102 74 (3) 2,357
---------- -------- -------- ----------
Total stockholders' equity................ 103,118 42,562 $292,945 $ 438,625
---------- -------- -------- ----------
Total liabilities and stockholders' equity $1,143,559 $526,529 $319,675 $1,989,763
========== ======== ======== ==========
Book value per share............................ $ 21.87 $ 9.56(7)
========= ==========
Book value per equivalent share-- Sandwich Bancorp. $ 61.18(8)
==========
</TABLE>
(footnotes begin on following page)
22
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
At October 31, 1997 (1)
-----------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(In thousand, except per share data)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents....................... $ 32,761 $ 16,068 $324,726 (2) $373,555
Securities available for sale................... 209,316 10,995 94,600 (3) 314,911
Securities held to maturity..................... 12,633 99,577 (99,577)(3) 12,633
Loans held for sale............................. 4,277 --- 4,277
Loans, net...................................... 809,555 366,642 1,176,197
Bank premises and equipment..................... 12,254 6,379 18,633
OREO............................................ 1,707 596 2,303
Net deferred tax asset.......................... 6,988 2,948 9,936
Other assets.................................... 17,099 15,492 32,591
----------- -------- ------- ----------
Total assets $ 1,106,590 $518,697 $319,749 $1,945,036
=========== ======== ======== ==========
Liabilities and Stockholders' Equity:
Deposits........................................ $ 937,948 $423,014 $ $1,360,962
Borrowed funds.................................. 60,703 47,339 108,042
ESOP borrowings................................. --- --- 26,680 (6) 26,680
Other liabilities............................... 9,798 6,330 79 (3) 16,207
----------- -------- ------- ----------
Total liabilities......................... 1,008,449 476,683 26,759 1,511,891
----------- -------- ------- ----------
Stockholders' equity:
Common stock................................. --- 1,942 2,647 (4) 4,589
Additional paid-in capital................... --- 20,139 320,904 (4) 341,043
Retained earnings............................ 96,527 19,848 (4,000) 112,375
Unearned compensation-- ESOP................. --- --- (26,680)(6) (26,680)
Unrealized gain on securities available for sale,
net of taxes................................ 1,614 85 119 (3) 1,818
----------- -------- ------- ----------
Total stockholders' equity................ 98,141 42,014 292,990 433,145
----------- -------- ------- ----------
Total liabilities and stockholders' equity $1,106,590 $518,697 $319,749 $1,945,036
=========== ======== ======= ==========
Book value per share............................ $ 21.63 $9.44(7)
======== ==========
Book value per equivalent share-- Sandwich Bancorp. $60.42(8)
==========
</TABLE>
- -------------------
(1) Reflects Sandwich Bancorp's balance sheets as of March 31, 1998 and
December 31, 1997.
(2) Reflects gross proceeds of $333.5 million from the sale of Conversion
Shares, assuming the maximum of the Estimated Valuation Range less (i)
estimated expenses of the Conversion equal to $4.8 million and (ii) $4.0
million of non-recurring expenses of the Merger, net of taxes.
(3) Reflects transfer of Sandwich investments from held to maturity to
available for sale and retirement of Sandwich Bancorp Common Stock
previously held by Seacoast Financial.
(4) Reflects the adjustments set forth in Note 2 above, plus reclassification
to reflect the retirement of Sandwich Bancorp Common Stock previously held
by Seacoast Financial (assuming no additional purchases or exercises of
options to acquire Sandwich Bancorp Common Stock) and the effects of the
one-time expenses set forth in Note 5 below.
(5) Pro forma stockholders' equity includes the effect of estimated one-time
expenses of approximately $4.0 million, net of income tax, which will be
charged to earnings as incurred following the Merger. Since these expenses
are non-recurring, they have not been reflected in the pro forma condensed
consolidated statements of income and related per share amounts. These
expenses are expected to be incurred prior to or shortly after the Merger.
The estimated non-recurring expenses consist of the following (in
thousands):
23
<PAGE>
<TABLE>
<S> <C>
Merger related professional fees $2,495
Employee severance costs 2,380
Data processing costs 125
------
5,000
Tax benefit (1,000)
------
$4,000
======
</TABLE>
(6) Reflects the purchase of Conversion Shares in the Offering by the ESOP and
the recognition of unrelated third-party lender borrowings by the ESOP. A
total of 2,668,000 Conversion Shares at the Conversion price of $10 is
assumed to be acquired by the ESOP based upon the maximum of the Estimated
Valuation Range.
(7) The pro forma consolidated book value per share was calculated
assuming the exchange of 6.4 shares of Seacoast Financial Common Stock for
each share of Sandwich Bancorp Common Stock, the maximum number of shares
of Seacoast Financial Common Stock to be exchanged for each share of
Sandwich Bancorp Common Stock. This Exchange Ratio assumes that the
Seacoast Financial Trading Price is $10 or less. In the event that the
Seacoast Financial Trading Price is greater than $10, the Exchange Ratio
will be lower. The following reflects the impact of selected higher
Seacoast Financial Trading Prices on the Exchange Ratio, on the pro forma
book value per share of Seacoast Financial Common Stock and the pro forma
book value per equivalent share of Sandwich Bancorp (assuming the issuance
of the maximum number of Conversion Shares as set forth in Note 2 above):
<TABLE>
<CAPTION>
Pro Forma Book Value Per
Pro Forma Book Value Per Share Equivalent Share - Sandwich
---------------------------------------------------------------------------
Seacoast Financial Exchange February 28, October 31, February 28, October 31,
Trading Price Ratio 1998 1997 1998 1997
------------- ------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$11 5.8182 $ 9.80 $ 9.68 $57.02 $56.32
12 5.3333 10.01 9.89 53.39 52.75
13 4.9231 10.20 10.07 50.22 49.58
14 4.7407 10.28 10.16 48.73 48.17
15 4.7407 10.28 10.15 48.73 48.12
16 4.4444 10.42 10.29 46.31 45.73
</TABLE>
(8) As each Sandwich Bancorp shareholder is assumed in this table to receive
6.4 Exchange Shares in exchange for each share of Sandwich Bancorp Common
Stock, the pro forma consolidated book value per share has been multiplied
by 6.4 to present the pro forma impact on Sandwich Bancorp shareholders of
the Conversion and Merger. If the Exchange Ratio is less than 6.4, the pro
forma book value per equivalent share of Sandwich Bancorp would be lower,
as set forth in Note 7 above.
24
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Four months ended February 28, 1998 (1)
----------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income................................ $28,323 $12,357 $ 5,813 (2) $46,493
Interest expense............................... 14,064 6,401 749 (3) 21,214
------- ------- ------- ---------
Net interest income......................... 14,259 5,956 5,064 25,279
Provision for loan losses...................... 183 294 -- 477
------- ------- ------- ---------
Net interest income after
provision for loan losses................ 14,076 5,662 5,064 24,802
Non-interest income............................ 2,225 909 -- 3,134
Non-interest expense........................... 8,868 4,135 445 (3) 13,448
------- ------- ------- ---------
Income before income taxes.................. 7,433 2,436 4,619 14,488
Provision for income taxes..................... 3,023 665 1,848 (4) 5,536
------- ------- ------- ---------
Net income.................................. $ 4,410 $1,771 $ 2,771 $ 8,952(5)
======= ======= ======= =========
Basic earnings per share....................... $ 0.91 $ 0.21(6)
======= ========
Diluted earnings per share..................... $ 0.87 $ 0.21(6)
======= ========
Basic earnings per equivalent share-- Sandwich Bancorp $ 1.34(7)
========
</TABLE>
<TABLE>
<CAPTION>
Four months ended February 28, 1997 (1)
---------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income................................ $25,609 $11,336 $ 5,834 (2) $42,779
Interest expense............................... 12,613 5,507 749 (3) 18,869
-------- -------- -------- --------
Net interest income......................... 12,996 5,829 5,085 23,910
Provision for loan losses...................... 443 219 -- 662
-------- -------- -------- --------
Net interest income after
provision for loan losses................ 12,553 5,610 5,085 23,248
Non-interest income............................ 1,856 838 -- 2,694
Non-interest expense........................... 8,130 3,989 445 (3) 12,564
-------- -------- -------- --------
Income before income taxes.................. 6,279 2,459 4,640 13,378
Provision for income taxes..................... 2,559 961 1,856 (4) 5,376
-------- -------- -------- --------
Net income.................................. $ 3,720 $ 1,498 $ 2,784 $ 8,002(5)
======== ======== ======== ========
Basic earnings per share....................... $ 0.79 $ 0.19(6)
======== ========
Diluted earnings per share..................... $ .075 $ 0.19(6)
======== ========
Basic earnings per equivalent share-- Sandwich Bancorp $ 1.22(7)
========
</TABLE>
(footnotes begin on page following next page)
25
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statements of Income, continued
<TABLE>
<CAPTION>
Year ended October 31, 1997 (1)
-----------------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income................................ $80,032 $35,917 $ 17,503 (2) $133,452
Interest expense............................... 39,831 18,322 2,247 (3) 60,400
-------- -------- ----------- --------
Net interest income......................... 40,201 17,595 15,256 73,052
Provision for loan losses...................... 1,865 750 -- 2,615
-------- -------- ----------- --------
Net interest income after
provision for loan losses................ 38,336 16,845 15,256 70,437
Non-interest income............................ 5,943 2,721 -- 8,664
Non-interest expense........................... 24,810 12,226 1,334 (3) 38,370
-------- -------- ----------- --------
Income before income taxes.................. 19,469 7,340 13,922 40,731
Provision for income taxes..................... 7,685 2,480 5,569 (4) 15,734
-------- -------- ----------- --------
Net income.................................. $11,784 $ 4,860 $ 8,353 $24,997(5)
======== ======== =========== ========
Basic earnings per share....................... $ 2.54 $ 0.58(6)
========= ========
Diluted earnings per share..................... $ 2.45 $ 0.58(6)
========= ========
Basic earnings per equivalent share-- Sandwich Bancorp $ 3.71(7)
========
</TABLE>
<TABLE>
<CAPTION>
Year ended October 31, 1996 (1)
------------------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income................................ $74,126 $32,309 $ 17,990 (2) $124,425
Interest expense............................... 37,245 15,792 2,247 (3) 55,284
-------- -------- --------- --------
Net interest income......................... 36,881 16,517 15,743 69,141
Provision for loan losses...................... 1,166 265 -- 1,431
-------- -------- --------- --------
Net interest income after
provision for loan losses................ 35,715 16,252 15,743 67,710
Non-interest income............................ 5,146 2,839 -- 7,985
Non-interest expense........................... 24,158 12,333 1,334 (3) 37,825
-------- -------- --------- --------
Income before income taxes.................. 16,703 6,758 14,409 37,870
Provision for income taxes..................... 6,548 2,621 5,764 (4) 14,933
-------- -------- --------- --------
Net income.................................. $10,155 $ 4,137 $ 8,645 $22,937(5)
======== ======== ========= ========
Basic earnings per share....................... $ 2.20 $ 0.53(6)
========= ========
Diluted earnings per share..................... $ 2.13 $ 0.53(6)
========= ========
Basic earnings per equivalent share-- Sandwich Bancorp $ 3.39(7)
========
</TABLE>
(footnotes begin next page)
26
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statements of Income, continued
<TABLE>
<CAPTION>
Year ended October 31, 1995 (1)
---------------------------------------------------------------
Seacoast Sandwich Pro forma Pro forma
Financial Bancorp adjustments consolidated
--------- ------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income........................... $66,472 $30,673 $ 19,971(2) $117,116
Interest expense.......................... 34,539 14,833 2,247(3) 51,619
-------- -------- -------- --------
Net interest income.................... 31,933 15,840 17,724 65,497
Provision (credit) for loan losses........ (351) 597 -- 246
---------- ---------- -------- --------
Net interest income after
provision (credit) for loan losses.. 32,284 15,243 17,724 65,251
Non-interest income....................... 4,403 2,718 -- 7,121
Non-interest expense...................... 24,690 12,356 1,334(3) 38,380
-------- -------- -------- --------
Income before income taxes............. 11,997 5,605 16,390 33,992
Provision for income taxes................ 4,511 2,169 6,556(4) 13,236
--------- --------- -------- --------
Net income............................. $ 7,486 $ 3,436 $ 9,834 $20,756(5)
======== ======== ======== ========
Basic earnings per share.................. $1.87 $ 0.48(6)
===== ========
Diluted earnings per share................ $1.82 $ 0.48(6)
===== ========
Basic earnings per equivalent share--
Sandwich Bancorp ....................... $ 3.07(7)
========
</TABLE>
- ---------------------
(1) Sandwich Bancorp's statements of income included in the pro forma
statements of income are for the four months ended March 31, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995.
(2) The increase in interest income reflects interest on investment of net cash
proceeds from the sale of Conversion Shares less cash used to fund one-time
expenses discussed in Note 5 to the Pro Forma Condensed Consolidated
Balance Sheets.
(3) Reflects 20 year amortization of the ESOP expense (including interest at
the prime rate of 8.5%).
(4) Reflects an assumed effective tax rate of 40% on pro forma adjustments.
(5) No merger-related operational cost savings have been assumed in the
accompanying pro forma statements of income.
(6) Earnings per share have been computed assuming the issuance of 33,350,000
Conversion Shares and an Exchange Ratio of 6.4:1 in connection with the
Merger. As discussed in Note 7 to the Pro Forma Condensed Consolidated
Balance Sheets, this ratio will vary based on the Seacoast Financial
Trading Price. The following tables indicate the impact on pro forma
earnings per share and earnings per equivalent share - Sandwich for the
four months ended February 28, 1998 and 1997 and for the years ended
October 31, 1997, 1996 and 1995 (basic and diluted) at selected Seacoast
Financial Trading Prices. In no event can the Exchange Ratio exceed 6.4:1.
<TABLE>
<CAPTION>
Pro Forma Earnings Per Share
-------------------------------------------------------------------------------------------
Seacoast Financial Exchange Four Months Ended Four Months Ended Year Ended Year Ended Year Ended
Trading Price Ratio February 28, 1998 February 28, 1997 October 31, 1997 October 31, 1996 October 31, 1995
------------- ----- ----------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$11 5.8182 $0.21 $0.19 $0.59 $0.55 $0.50
12 5.3333 0.22 0.19 0.61 0.56 0.51
13 4.9231 0.22 0.20 0.62 0.57 0.52
14 4.7407 0.22 0.20 0.62 0.58 0.52
15 4.7407 0.22 0.20 0.62 0.58 0.52
16 4.4444 0.23 0.20 0.63 0.58 0.53
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Basic Earnings Per Equivalent Share -- Sandwich
-------------------------------------------------------------------------------------------
Seacoast Financial Exchange Four Months Ended Four Months Ended Year Ended Year Ended Year Ended
Trading Price Ratio February 28, 1998 February 28, 1997 October 31, 1997 October 31, 1996 October 31, 1995
------------- ----- ----------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$11 5.8182 $1.22 1.11 3.43 3.20 2.91
12 5.3333 1.17 1.01 3.25 2.99 2.72
13 4.9231 1.08 0.98 3.05 2.81 2.56
14 4.7407 1.04 0.95 2.94 2.74 2.47
15 4.7407 1.04 0.95 2.94 2.74 2.47
16 4.4444 1.02 0.89 2.80 2.58 2.36
</TABLE>
(7) As each Sandwich Bancorp stockholder is assumed in this table to receive
6.4 Exchange Shares in exchange for each share of Sandwich Bancorp Common
Stock, the pro forma consolidated basic earnings per share has been
multiplied by 6.4 to present the pro forma equivalent earnings for
Sandwich Bancorp stockholders. If the Exchange Ratio is less than 6.4,
the pro forma consolidated basic earnings per equivalent share of
Sandwich Bancorp would be lower, as set forth in Note 6 above.
Pro Forma Conversion Data
The tables on the following pages provide unaudited pro forma data with
respect to Seacoast Financial's stockholders' equity, net income and related per
share amounts based upon the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range at February 28, 1998 and for the four
months then ended and at October 31, 1997 and for the year then ended. The
actual net proceeds from the sale of the Conversion Shares cannot be determined
until the Conversion is completed. However, net proceeds are currently estimated
to be between $242.5 million and $328.7 million ($378.3 million in the event the
Estimated Valuation Range is increased by 15%) based upon the following
assumptions: (i) all Conversion Shares will be sold in the Subscription
Offering; (ii) Ryan Beck and McConnell Budd will receive an aggregate fee equal
to 1% of the aggregate Purchase Price for sales in the Subscription Offering
(excluding the sale of shares to the ESOP and officers, directors, trustees,
employees and their immediate families); and (iii) total expenses of the
Conversion, including the marketing fees paid to Ryan Beck and McConnell Budd,
will range from $4.0 million to $5.2 million. Actual expenses may vary from
those estimated.
Pro forma unaudited consolidated stockholders' equity, net income and
related per share amounts of Seacoast Financial have been calculated in the same
manner and based upon the same assumptions as set forth with respect to the
preceding pro forma unaudited presentations.
The following pro forma unaudited information is based, in part, on
historical information related to Seacoast Financial and Sandwich Bancorp and on
assumptions as to future events. For these and other reasons, the pro forma
unaudited financial data may not be representative of the financial effects of
the Conversion and the Merger at the dates on which such transactions actually
occur and should not be taken as indicative of future results of operations. Pro
forma stockholders' equity represents the difference between the stated amount
of assets and liabilities of Seacoast Financial computed in accordance with
GAAP.
The following table gives effect to the issuance of the Exchange Shares
in the Merger and certain non-recurring expenses expected to be incurred as a
result of the Merger. For information related to the four-month period ended
February 28, 1998 and for the year ended October 31, 1997, the table assumes the
issuance of 12,537,392 and 12,393,048 Exchange Shares, based upon the number of
shares of Sandwich Bancorp Common Stock and Sandwich Options outstanding at the
beginning of each period, respectively. For information related to February 28,
1998 and October 31, 1997, the table assumes the issuance of 12,543,673 and
12,537,392 Exchange Shares, based upon the number of shares of Sandwich Bancorp
Common Stock and Sandwich Options outstanding on such dates, respectively. The
pro forma stockholders' equity is not intended to represent the fair market
value of the Seacoast Financial Common Stock and may be different than amounts
that would be available for distribution to stockholders in the event of
liquidation of Seacoast Financial.
28
<PAGE>
Pro Forma Conversion Data, continued
<TABLE>
<CAPTION>
At or for the four months ended February 28, 1998
----------------------------------------------------------------
38,352,500
24,650,000 29,000,000 33,350,000 shares sold at
shares sold at shares sold at shares sold at $10.00
$10.00 $10.00 $10.00 per share
per share per share per share (15% above
(minimum (midpoint (maximum maximum
of estimated of estimated of estimated of estimated
valuation valuation valuation valuation
range) range) range) range)
------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Gross proceeds............................................. $246,500 $290,000 $333,500 $383,525
Less: estimated Offering expenses.......................... (3,973) (4,374) (4,774) (5,234)
-------- -------- -------- --------
Estimated net proceeds.................................. 242,527 285,626 328,726 378,291
Less: Non-recurring Merger expenses, net of taxes.......... (4,000) (4,000) (4,000) (4,000)
-------- -------- -------- --------
Estimated net investable proceeds....................... $238,527 $281,626 $324,726 $374,291
======== ======== ======== ========
Net income:
Historical combined........................................ $ 6,181 $ 6,181 $ 6,181 $ 6,181
Pro forma income on estimated net investable proceeds...... 2,562 3,025 3,488 4,020
Pro forma ESOP adjustment (1).............................. (529) (623) (717) (824)
-------- -------- -------- --------
Pro forma net income.................................... $ 8,214 $ 8,583 $ 8,952 $ 9,377
========= ========= ========= =========
Net income per share (4):
Historical combined..................................... $ 0.18 $ 0.16 $ 0.15 $ 0.13
Pro forma income on estimated net investable proceeds... 0.07 0.08 0.08 0.08
Pro forma ESOP adjustment (1)........................... (0.02) (0.02) (0.02) (0.02)
-------- -------- -------- --------
Pro forma net income per share....................... $ 0.23 $ 0.22 $ 0.21 $ 0.19
========= ========= ========= =========
Stockholders' equity (2):
Historical combined..................................... $145,680 $145,680 $145,680 $145,680
Estimated net proceeds.................................. 242,527 285,626 328,726 378,291
Less: Seacoast Financial Common Stock acquired by the ESOP (19,720) (23,200) (26,680) (30,682)
Less: Non-recurring Merger expenses, net of taxes (4,000) (4,000) (4,000) (4,000)
Less: Shares of Sandwich Bancorp Common Stock
owned by Seacoast Financial........................... (5,175) (5,175) (5,175) (5,175)
Add: Change in unrealized gain on securities
available for sale, net of taxes...................... 74 74 74 74
-------- -------- -------- --------
Pro forma stockholders' equity....................... $359,386 $399,005 $438,625 $484,188
========= ========= ========= ========
Stockholders' equity per share (3 and 4):
Historical combined..................................... $ 3.92 $ 3.51 $ 3.17 $ 2.86
Net proceeds............................................ 6.52 6.87 7.17 7.43
Less: Seacoast Financial Common Stock acquired by the ESOP (0.53) (0.56) (0.58) (0.60)
Less: Non-recurring Merger expenses, net of taxes..... (0.11) (0.10) (0.09) (0.08)
Less: Shares of Sandwich Bancorp Common Stock
owned by Seacoast Financial.......................... (0.14) (0.12) (0.11) (0.10)
-------- -------- -------- --------
Pro forma stockholders' equity per share............. $ 9.66 $ 9.60 $ 9.56 $ 9.51
========= ========= ========= =========
Purchase price as a percentage of
pro forma stockholders' equity per share................ 103.52% 104.17% 104.60% 105.15%
========== ========= ========== ==========
Purchase price as a multiple of pro forma
net income per share-- annualized....................... 14.49x 15.15x 15.87x 17.54x
========== ========== ========== ==========
</TABLE>
(footnotes begin on following page)
29
<PAGE>
- ------------------
(1) It is assumed that 8% of the Conversion Shares issued in the Conversion
will be purchased by the ESOP. The funds used to acquire such shares are
assumed to have been borrowed by the ESOP from a third-party lender. The
amount to be borrowed is reflected as a borrowing and as a reduction of
stockholders' equity. Pro forma net income assumes that the ESOP shares are
released over a twenty-year period at an average fair value of $10.00 per
share. Only ESOP shares committed to be released (1/3 of 1/20 for the four
month period) were considered outstanding for purposes of the net income
per share calculation.
(2) The retained earnings of Seacoast Financial will continue to be restricted
after the Conversion. See "Dividend Policy," "Description of Capital Stock
of Seacoast Financial -- Seacoast Financial Common Stock -- Liquidation or
Dissolution," "Regulation of Seacoast Financial and Subsidiaries --
Massachusetts Bank Regulation" and "The Conversion and the Merger --
Effects of the Conversion and the Merger -- Liquidation Rights."
(3) Stockholders' equity per share data is based on a total of 37,193,673,
41,543,673, 45,893,673 and 50,896,173 shares outstanding representing
shares sold in the Conversion and Exchange Shares issued in the Merger.
(4) All per share data has been computed assuming an exchange ratio in
connection with the Merger of 6.4:1. This ratio assumes that the Seacoast
Financial Trading Price used for calculating the Exchange Ratio is $10 or
less. In no event can the Exchange Ratio exceed 6.4:1. In the event that
the Seacoast Trading Price is greater than $10, the Exchange Ratio will be
reduced. The following tables reflect pro forma per share data based on
selected higher trading prices of Seacoast Financial Common Stock:
<TABLE>
<CAPTION>
Net Income Per Share
------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
------------- ----- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,537,392 $0.23 $0.22 $0.21 $0.20
11 5.8182 11,397,630 0.24 0.23 0.21 0.20
12 5.3333 10,447,827 0.25 0.24 0.22 0.20
13 4.9231 9,644,148 0.25 0.24 0.22 0.21
14 4.7407 9,293,660 0.26 0.24 0.22 0.21
15 4.7407 9,305,872 0.26 0.24 0.22 0.21
16 4.4444 8,724,173 0.26 0.24 0.23 0.21
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity Per Share
------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
------------- ----- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,543,673 $9.66 $9.60 $9.56 $9.51
11 5.8182 11,403,339 9.97 9.88 9.80 9.73
12 5.3333 10,453,061 10.24 10.11 10.01 9.92
13 4.9231 9,648,979 10.48 10.32 10.20 10.09
14 4.7407 9,298,146 10.59 10.42 10.28 10.16
15 4.7407 9,310,059 10.58 10.42 10.28 10.16
16 4.4444 8,728,118 10.77 10.58 10.42 10.28
</TABLE>
(footnote continued on following page)
30
<PAGE>
<TABLE>
<CAPTION>
Purchase Price as a Percentage of Pro Forma Stockholders' Equity Per Share
---------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
------------- ---------- ---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,543,673 103.5% 104.2% 104.6% 105.2%
11 5.8182 11,403,339 100.3 101.3 102.0 102.8
12 5.3333 10,453,061 97.7 98.9 99.9 100.8
13 4.9231 9,648,978 95.4 96.9 98.0 99.1
14 4.7407 9,295,146 94.5 96.0 97.2 98.4
15 4.7407 9,310,059 94.5 96.0 97.3 98.4
16 4.4444 8,728,118 92.9 94.6 95.9 97.2
</TABLE>
<TABLE>
<CAPTION>
Purchase Price as a Multiple of Pro Forma Net Income Per Share -- Annualized
---------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
------------- ---------- ---------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,537,392 14.5x 15.2x 15.9x 17.5x
11 5.8182 11,397,630 13.8 14.8 15.7 16.6
12 5.3333 10,447,827 13.5 14.4 15.3 16.3
13 4.9231 9,644,148 13.1 14.1 15.0 16.0
14 4.7407 9,293,660 13.0 14.0 14.9 15.9
15 4.7407 9,305,872 13.0 14.0 14.9 15.9
16 4.4444 8,724,193 12.8 13.8 14.7 15.7
</TABLE>
31
<PAGE>
Pro Forma Conversion Data, continued
<TABLE>
<CAPTION>
At or for the year ended October 31, 1997
----------------------------------------------------------------
38,352,500
24,650,000 29,000,000 33,350,000 shares
shares shares shares sold at
sold at sold at sold at $10.00
$10.00 $10.00 $10.00 per share
per share per share per share (15% above
(minimum (midpoint (maximum maximum
of valuation of valuation of valuation of valuation
range) range) range) range)
------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Gross proceeds............................................. $246,500 $290,000 $333,500 $383,525
Less: estimated Offering expenses.......................... (3,973) (4,374) (4,774) (5,234)
-------- -------- -------- --------
Estimated net proceeds.................................. 242,527 285,626 328,726 378,291
Less: Non-recurring Merger expenses, net of taxes.......... (4,000) (4,000) (4,000) (4,000)
-------- -------- -------- --------
Estimated net investable proceeds....................... $238,527 $281,626 $324,726 $374,291
======== ======== ======== ========
Net income:
Historical combined........................................ $ 16,644 $ 16,644 $ 16,644 $ 16,644
Pro forma income on estimated net investable proceeds...... 7,714 9,108 10,502 12,105
Pro forma ESOP adjustment (1).............................. (1,588) (1,869) (2,149) (2,472)
-------- -------- -------- --------
Pro forma net income.................................... $ 22,770 $ 23,883 $ 24,997 $ 26,277
======== ======== ======== ========
Net income per share (4):
Historical combined..................................... $ 0.48 $ 0.43 $ 0.39 $ 0.35
Pro forma income on estimated net investable proceeds... 0.22 0.23 0.24 0.25
Pro forma ESOP adjustment (1)........................... (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net income per share....................... $ 0.65 $ 0.61 $ 0.58 $ 0.55
========= ========= ========= ========
Stockholders' equity (2):
Historical combined..................................... $140,155 $140,155 $140,155 $140,155
Estimated net proceeds.................................. 242,527 285,626 328,726 378,291
Less: Seacoast Financial Common Stock acquired by the ESOP (19,720) (23,200) (26,680) (30,682)
Less: Non-recurring Merger expenses, net of taxes..... (4,000) (4,000) (4,000) (4,000)
Add: Change in unrealized gain on securities
available for sale, net of taxes...................... 119 119 119 119
Less: Shares of Sandwich Bancorp Common Stock
owned by Seacoast Financial........................... (5,175) (5,175) (5,175) (5,175)
-------- -------- -------- --------
Pro forma stockholders' equity ............................ $353,906 $393,525 $433,145 $478,708
========= ========= ========= ========
Stockholders' equity per share (3 and 4):
Historical combined..................................... $ 3.77 $ 3.37 $ 3.05 $ 2.75
Net proceeds............................................ 6.53 6.88 7.17 7.44
Less: Seacoast Financial Common Stock acquired by the ESOP (.53) (.56) (.58) (.60)
Less: Non-recurring Merger expenses, net of taxes...... (.11) (.10) (.09) (.08)
Less: Shares of Sandwich Bancorp Common Stock
owned by Seacoast Financial.......................... (.14) (.12) (.11) (.10)
-------- -------- -------- --------
Pro forma stockholders' equity per share............. $ 9.52 $ 9.47 $ 9.44 $ 9.41
========= ========= ========= ========
Purchase price as a percentage of
pro forma stockholders' equity per share................ 105.04% 105.60% 105.93% 106.27%
Purchase price as a multiple of pro forma
net income per share ................................... 15.38x 16.39x 17.24x 18.18.x
========= ========= ========= ========
</TABLE>
(footnotes begin on following page)
32
<PAGE>
- ------------------
(1) It is assumed that 8% of the Conversion Shares issued in the Conversion
will be purchased by the ESOP. The funds used to acquire such shares are
assumed to have been borrowed by the ESOP from a third-party lender. The
amount to be borrowed is reflected as a borrowing and as a reduction of
stockholders' equity. Pro forma net income assumes that the ESOP shares are
released over a twenty-year period at an average fair value of $10.00 per
share. Only ESOP shares committed to be released (1/20 for the annual
period) were considered outstanding for purposes of the net income per
share calculation.
(2) The retained earnings of Seacoast Financial will continue to be restricted
after the Conversion. See "Dividend Policy," "Description of Capital Stock
of Seacoast Financial -- Seacoast Financial Common Stock -- Liquidation or
Dissolution, "Regulation of Seacoast Financial and Subsidiaries --
Massachusetts Bank Regulation" and "The Conversion and the Merger --
Effects of the Conversion and the Merger -- Liquidation Rights."
(3) Stockholders' equity per share data is based on a total of 37,187,392,
41,537,392, 45,887,392 and 50,889,892 shares outstanding representing
shares sold in the Conversion and issued in the Merger.
(4) All per share data has been computed assuming an exchange ratio in
connection with the Merger of 6.4:1, the maximum ratio which could occur.
This exchange ratio assumes that the Seacoast Financial Trading Price is
$10 or less. In the event the Seacoast Financial Common Stock in such
period trades at prices greater than $10, the Exchange Ratio will be
reduced. The following table reflects pro forma per share data based on
selected higher trading prices of Seacoast Financial Common Stock:
<TABLE>
<CAPTION>
Net Income Per Share
----------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range of Valuation Range
------------- --------- --------------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,393,048 $0.65 $0.61 $0.58 $0.55
11 5.8182 11,266,408 0.67 0.63 0.59 0.56
12 5.3333 10,327,540 0.69 0.64 0.61 0.57
13 4.9231 9,533,114 0.70 0.66 0.62 0.58
14 4.7407 9,185,344 0.71 0.66 0.62 0.59
15 4.7407 9,195,043 0.71 0.66 0.62 0.59
16 4.4444 8,620,291 0.73 0.67 0.63 0.60
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity Per Share
----------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range of Valuation Range
------------- --------- --------------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,537,293 $9.52 $9.47 $9.44 $9.41
11 5.8182 11,397,630 9.82 9.74 9.68 9.62
12 5.3333 10,447,827 10.08 9.98 9.89 9.81
13 4.9231 9,644,148 10.32 10.18 10.07 9.97
14 4.7407 9,293,660 10.43 10.28 10.16 10.05
15 4.7407 9,305,877 10.42 10.27 10.15 10.04
16 4.4444 8,724,193 10.60 10.43 10.29 10.17
</TABLE>
(footnote continued on following page)
33
<PAGE>
<TABLE>
<CAPTION>
Purchase Price as a Percentage of Pro Forma Stockholders' Equity Per Share
--------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range of Valuation Range
------------- --------- --------------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,537,392 105.0% 105.6% 105.9% 106.3%
11 5.8182 11,397,603 101.9 102.7 103.3 103.9
12 5.3333 10,447,827 99.2 100.2 101.1 101.9
13 4.9231 9,644,148 96.9 98.2 99.3 100.3
14 4.7407 9,293,660 95.9 97.3 98.5 99.5
15 4.7407 9,305,872 95.9 97.3 98.5 99.6
16 4.4444 8,724,193 94.3 95.9 97.1 98.3
</TABLE>
<TABLE>
<CAPTION>
Purchase Price as a Multiple of Pro Forma Net Income Per Share
---------------------------------------------------------------------------
Seacoast
Financial Exchange Exchange Shares Minimum of Midpoint of Maximum of 15% Above Maximum
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range of Valuation Range
------------- --------- --------------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,393,048 15.4x 16.4x 17.2x 18.2x
11 5.8182 11,664,408 15.0 15.9 16.8 17.8
12 5.3333 10,327,540 14.5 15.5 16.5 17.4
13 4.9231 9,533,114 14.2 15.2 16.1 17.1
14 4.7407 9,155,344 14.0 15.1 16.0 17.0
15 4.7407 9,195,043 14.0 15.1 16.0 17.0
16 4.4444 8,620,291 13.8 14.8 15.8 16.8
</TABLE>
Pro Forma Outstanding Seacoast Financial Common Stock
The following table sets forth, for the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, the total number of
Conversion Shares to be issued, and, for various possible Exchange Ratios, (i)
the total number of Exchange Shares to be issued (taking into consideration both
the outstanding Sandwich Bancorp Common Stock and the outstanding Sandwich
Bancorp Options) and (ii) the total Seacoast Common Stock outstanding following
consummation of both the Conversion and the Merger.
<TABLE>
<CAPTION>
Total Outstanding Seacoast Financial Common Stock based on
-------------------------------------------------------------------------------------
38,352,500
24,650,000 29,000,000 33,350,000 Conversion Shares
Seacoast Conversion Shares Conversion Shares Conversion Shares Issued (15% above
Financial Exchange Issued (Minimum Issued (Midpoint Issued (Maximum Maximum of
Trading Exchange Shares of Estimated of Estimated of Estimated Estimated
Price Ratio Issued Valuation Range) Valuation Range) Valuation Range) Valuation Range)
- ---------- ----------- ------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$10 6.4000 12,543,673 37,193,673 41,543,673 45,893,673 50,896,173
11 5.8182 11,403,339 36,053,339 40,403,339 44,753,339 49,755,839
12 5.3333 10,453,061 35,103,061 39,453,061 43,803,061 48,805,561
13 4.9231 9,648,979 34,298,979 38,648,979 42,998,979 48,001,479
14 4.7407 9,298,146 33,948,116 38,298,146 42,648,146 47,650,646
15 4.7407 9,310,059 33,960,059 38,310,059 42,660,059 47,662,559
16 4.4444 8,728,118 33,378,118 37,728,118 42,078,118 47,080,618
</TABLE>
34
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At February 28, 1998, Compass and Sandwich Bank each exceeded all of their
regulatory capital requirements. The following table sets forth the approximate
pro forma regulatory capital of Seacoast Financial and Compass after giving
effect to the Conversion, the Merger and the Bank Merger, based upon the banks'
respective regulatory capital at that date and the sale of the number of shares
shown in the table. The pro forma regulatory capital amounts reflect the receipt
by Compass of 50% of the estimated net Conversion proceeds. The pro forma
risk-based capital amounts assume the investment of the estimated net proceeds
received in U.S. Treasury Notes which have a risk-weight of 0% under applicable
regulations as if such net proceeds had been received and so applied at February
28, 1998. The FRB has adopted capital adequacy guidelines for bank holding
companies (on a consolidated basis) substantially similar to the FDIC's capital
requirements for Compass. On a pro forma basis after the Conversion and the
consummation of the Merger, Seacoast Financial's and Compass's pro forma
regulatory capital will exceed these requirements. See "Regulation of Seacoast
Financial and Subsidiaries -- Holding Company Regulation."
<TABLE>
<CAPTION>
Pro Forma Combined for Seacoast Financial and Compass at February 28, 1998 based on
------------------------------------------------------------------------------------------------------
24,650,000 29,000,000 33,350,000 38,352,500
Conversion Shares Conversion Shares Conversion Shares Conversion Shares
sold at $10.00 per share sold at $10.00 per share sold at $10.00 per share sold at $10.00 per share
------------------------- ------------------------- ------------------------ ------------------------
Percent Percent Percent Percent
of of of of
Amount assets (1) Amount assets (1) Amount assets (1) Amount assets (1)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seacoast Financial -
Tier 1 leverage:
Actual....................... $354,126 18.85% $393,745 20.49% $433,365 22.05% $478,928 23.77%
Requirement.................. 75,158 4.00 76,882 4.00 78,606 4.00 80,589 4.00
Excess....................... 278,968 14.85 316,863 16.49 354,759 18.05 398,339 19.77
Tier 1 risk-based capital:
Actual....................... 354,126 32.93 393,745 36.62 433,365 40.30 478,928 44.48
Requirement.................. 43,011 4.00 43,011 4.00 43,011 4.00 43,011 4.00
Excess....................... 311,115 28.93 350,734 32.62 390,354 36.30 435,917 40.48
Total risk-based capital:
Actual....................... 367,585 34.18 407,204 37.87 446,824 41.55 492,387 45.73
Requirement.................. 86,021 8.00 86,021 8.00 86,021 8.00 86,021 8.00
Excess....................... 281,564 26.18 321,183 29.87 360,803 33.55 406,366 37.73
Compass -
Tier 1 leverage:
Actual....................... 254,074 14.55 275,624 15.59 297,173 16.61 321,956 17.75
Requirement.................. 69,843 4.00 70,705 4.00 71,567 4.00 72,559 4.00
Excess....................... 184,230 10.55 204,919 11.59 225,606 12.61 249,397 13.75
Tier 1 risk-based capital:
Actual....................... 254,074 24.16 275,624 26.21 297,173 28.26 321,956 30.61
Requirement.................. 42,066 4.00 42,066 4.00 42,066 4.00 42,066 4.00
Excess....................... 212,008 20.16 233,558 22.21 255,107 24.26 279,890 26.61
Total risk-based capital:
Actual....................... 267,241 25.41 288,791 27.46 310,341 29.51 335,123 31.87
Requirement.................. 84,133 8.00 84,133 8.00 84,133 8.00 84,133 8.00
Excess....................... 183,108 17.41 204,658 19.46 226,208 21.51 250,990 23.87
</TABLE>
- ----------------------
(1) Adjusted total or adjusted risk-weighted assets, as appropriate.
35
<PAGE>
CAPITALIZATION
The following table presents the actual capitalization of Seacoast
Financial and Sandwich Bancorp at February 28, 1998 and March 31, 1998,
respectively, and the approximate pro forma consolidated capitalization of
Seacoast Financial after giving effect to the Conversion and the Merger, based
upon the companies' respective capitalization at those dates, the sale of the
number of shares indicated in the table and the other assumptions set forth
under "Pro Forma Data -- Pro Forma Conversion Data."
<TABLE>
<CAPTION>
Seacoast Financial pro forma based upon
the sale of Conversion Shares at $10.00 per share
----------------------------------------------------
38,352,500
24,650,000 29,000,000 33,350,000 shares
shares shares shares (15% above
(minimum (midpoint (maximum maximum
Seacoast of the of the of the of the
Seacoast Sandwich Financial estimated estimated estimated estimated
Financial Bancorp combined valuation valuation valuation valuation
Historical Historical Historical range) range) range) range (1))
---------- ---------- ---------- ------ ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits (2)............................ $ 951,449 $ 426,729 $1,378,178 $1,378,178 $1,378,178 $1,378,178 $1,378,178
Borrowed funds(6)...................... 78,553 49,331 127,884 147,604 151,084 154,564 158,566
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total deposits and borrowed funds... $1,030,002 $ 476,060 $1,506,062 $1,525,782 $1,529,262 $1,532,742 $1,536,744
========== =========== ========== ========== ========== ========== ==========
Stockholders' equity:
Preferred Stock, $.01 par value,
10,000,000 shares authorized;
none to be issued ............... $ -- $ -- $ -- $ -- $ -- $ -- $ --
---------- ----------- ---------- ---------- ---------- ---------- ----------
Common Stock, $.01 par value,
100,000,000 shares authorized (3). 0 1,946 1,946 3,719 4,154 4,589 5,090
Additional paid-in capital (3)...... 0 20,167 20,167 255,746 298,410 341,074 390,139
Retained earnings (4)(5)............ 100,937 20,347 121,284 117,284 117,284 117,284 117,284
Less:
Unearned Compensation - ESOP(6)..... -- --- --- (19,720) (23,200) (26,680) (30,682)
Net unrealized gain on securities
available for sale, net of taxes. 2,181 102 2,283 2,358 2,358 2,358 2,358
---------- ----------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity............. $ 103,118 $ 42,562 $ 145,680 $ 359,387 $ 399,006 $ 438,625 $ 484,189
========== =========== ========== ========== ========== ========== ==========
Total stockholders' equity as a % of
Total assets..................... 9.02% 8.08% 8.72% 18.88% 20.50% 22.04% 23.74%
========== ============ ========== ========== ========== ========== ==========
</TABLE>
- ------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% as a result of regulatory considerations or changes in market or
general financial and economic conditions following the commencement of the
Subscription Offerings in Compass.
(2) Does not reflect withdrawals from deposit accounts in Compass for the
purchase of Seacoast Financial Common Stock in the Conversion. Such
withdrawals would reduce pro forma deposits by the amount of such
withdrawals.
(3) Reflects the issuance of 12,543,673 Exchange Shares in the Merger and the
sale of a number of Conversion Shares as noted in the headings above. See
"The Conversion and the Merger -- Description of the Conversion -- Stock
Pricing and Number of Conversion Shares to be Issued" and "-- Description
of the Merger and the Exchange Ratio."
(4) The retained earnings of Compass will be restricted at the time of the
Conversion. See "Description of Capital Stock of Seacoast Financial --
Seacoast Financial Common Stock -- Liquidation or Dissolution."
(5) Pro forma stockholders' equity includes the effects of estimated
non-recurring expenses of approximately $4.0 million net of tax benefit.
Since the expenses are non-recurring, they have not been reflected in the
pro forma condensed consolidated statements of income and related per share
amounts. See Note 5 to the Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheets.
(6) It is assumed that 8% of the Conversion Shares issued in the Conversion
will be purchased by the ESOP. The funds used to acquire such shares are
assumed to have been borrowed by the ESOP from a third-party lender. The
amount to be borrowed is reflected as a borrowing and a reduction of
stockholders' equity.
36
<PAGE>
USE OF PROCEEDS OF CONVERSION
Although the actual net proceeds from the sale of the Conversion Shares
cannot be determined until the Conversion is completed, it is presently
anticipated that such proceeds will be between $242.5 million and $328.7 million
($378.3 million if the Estimated Valuation Range is increased by 15%). See "Pro
Forma Data" and "The Conversion and Merger -- Stock Pricing and the Number of
Shares to be Offered in the Conversion" for a description and discussion of the
assumptions used to arrive at such amounts. Seacoast Financial will be unable to
utilize any of the net proceeds of the Conversion until the consummation of the
Conversion.
Seacoast Financial will contribute at least 50% of the net proceeds of the
Conversion to Compass, or $121.3 million to $164.4 million at the minimum and
maximum, respectively, of the Estimated Valuation Range. Compass intends to add
such funds to its general funds, to be used for general corporate purposes,
including investments in short- and medium-term, investment-grade debt
securities, including U.S. Government and Agency securities, corporate bonds and
mortgage-backed securities. Depending on market conditions, Compass also intends
to use the funds to increase its loan originations and may use funds to open new
branches.
Seacoast Financial intends to invest the net proceeds of the Offering
retained by it in short- and medium-term, investment-grade debt securities,
including U.S. Government and Agency securities, corporate bonds and
mortgage-backed securities. Seacoast Financial may also use a portion of the net
proceeds it retains to pay dividends on its issued and outstanding capital
stock. See "Seacoast Financial's Dividend Policy."
Seacoast Financial and Compass may also use the funds to expand operations
through acquisitions of other banks or branch offices of other banks or
acquisitions of other financial services companies, such as insurance agencies.
However, neither Seacoast Financial nor Compass has any current arrangements,
understandings or agreements regarding any such transactions, other than the
Merger, (for which neither will use any of the Conversion proceeds because the
Merger is structured as a stock-for-stock exchange). Seacoast and Compass also
intend to use a portion of the funds for the construction of a new main office.
To the extent that the stock-based benefit programs which Seacoast
Financial or Compass may adopt subsequent to the Conversion are not funded with
authorized but unissued Seacoast Financial Common Stock, Seacoast Financial or
Compass may use net proceeds from the Conversion to fund the purchase of
Seacoast Financial Common Stock to be awarded under such stock benefit programs,
if any. See "Management of Compass -- Compensation of Officers and Directors
through Benefit Plans -- Stock Option Plan" and "-- Compensation of Officers and
Directors through Benefit Plans -- Stock Plan."
Finally, although it has no current intention to do so, Seacoast Financial
may in the future decide to repurchase shares of its issued and outstanding
capital stock, to the extent that such repurchases are consistent with the
preservation of pooling-of-interests accounting treatment under GAAP of the
Merger and of possible future acquisitions, if any. Any such stock repurchase
program would be based upon facts and circumstances at the time of adoption of
such a program, including but not limited to: (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in such alternatives, the ability to increase
the book value and/or earnings per share of the remaining outstanding shares and
the opportunity to improve Seacoast Financial's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or to fund stock plans; and (iii) any
other circumstances in which repurchases would be in the best interests of
Seacoast Financial and its stockholders.
In order to preserve pooling-of-interests accounting treatment under GAAP
of the Merger, Seacoast Financial's ability to repurchase shares of its common
stock may be limited during the two-year period following consummation of the
Merger. Moreover, in the event Seacoast Financial determines to repurchase
stock, such repurchases will be made at market prices which may be in excess of
the Purchase Price in the Offering. Any stock repurchases will be subject to the
determination of the Board of Directors that both Seacoast Financial and Compass
will be capitalized in excess of all applicable regulatory requirements after
any such repurchases and that such capital will be adequate, taking into
account, among other things, the level of non-performing and other risk assets,
Seacoast Financial's and Compass's current and projected results of operations
and asset/liability structure, the economic environment, tax and other
considerations. The repurchase of stock or payment of dividends, however, would
be prohibited if Compass's net worth would be reduced below the amount required
for the liquidation account to be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. See "The Conversion
and the Merger -- Effects of the Conversion and the Merger -- Liquidation
Rights."
37
<PAGE>
SEACOAST FINANCIAL'S DIVIDEND POLICY
Upon completion of the Conversion, the Board of Directors of Seacoast
Financial will have the authority to declare dividends on the Seacoast Financial
Common Stock, subject to statutory and regulatory requirements. Although no
decision has been made whether to pay dividends, Seacoast Financial will
consider a policy of paying quarterly cash dividends on the Seacoast Financial
Common Stock, with the first such dividend to be declared and paid no sooner
than the first full quarter following consummation of the Conversion and the
Merger. There can be no assurance that dividends will be paid or, if paid, what
the amounts of dividends will be, or whether such dividends, once paid, will
continue to be paid. Declaration of dividends by the Board of Directors will be
dependent upon a number of factors, including capital requirements, regulatory
limitations, Seacoast Financial's operating results and financial condition and
general economic conditions.
The source of funds for the payment of any dividends by Seacoast Financial
will depend, in part, upon dividends paid from Compass to Seacoast Financial, in
addition to the net Conversion proceeds retained by Seacoast Financial and
earnings thereon. Compass's ability to pay cash dividends is subject to various
federal and state restrictions. Under FDIC regulations, Compass would be
prohibited from paying dividends if, among other things, Compass was not in
compliance with applicable regulatory capital requirements. Under Massachusetts
law, a stock-form savings bank may pay dividends only out of its net profits and
only to the extent such payments do not impair its capital and surplus accounts.
Provided that Compass can meet these requirements, Massachusetts law permits net
profits of a bank to be distributed as a dividend so long as, after such a
distribution, either (i) the capital and surplus accounts of the bank equal at
least 10% of its deposit liabilities or (ii) the surplus account of the bank
equals 100% of its capital account, subject to certain statutory exceptions.
MARKET FOR SEACOAST FINANCIAL COMMON STOCK
Seacoast Financial has [received conditional approval to have the Seacoast
Financial Common Stock quoted on the Nasdaq National Market under the symbol
"_____," subject to the completion of the Conversion and compliance with certain
initial listing conditions, including the presence of at least three registered
market makers.] Seacoast Financial will seek to encourage and assist at least
three market makers to make a market in its common stock. Although under no
obligation to do so, each of Ryan Beck and McConnell Budd has indicated its
intention to act as a market maker for the Seacoast Financial Common Stock
following consummation of the Conversion. Making a market involves maintaining
bid and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. There can be no assurance that the Seacoast
Financial Common Stock will be able to meet the applicable criteria to maintain
its quotation on the Nasdaq National Market or that an active and liquid trading
market in such stock will develop or, if developed, will be maintained. A public
market having the desirable characteristics of depth, liquidity and orderliness
depends upon the presence in the marketplace of both willing buyers and sellers
at any given time, which is not within the control of Seacoast Financial.
No assurance can be given that a purchaser in the Conversion will be able
to resell the Conversion Shares at or above the Purchase Price, nor can any
assurance be given that a Sandwich Bancorp stockholder receiving Exchange Shares
in the Merger will be able to sell such Exchange Shares at or above the Seacoast
Financial Trading Price used in the calculation of the Exchange Ratio. See "Risk
Factors -- Absence of Market for Common Stock" and "The Conversion and the
Merger -- Descriptions of the Merger and the Exchange Ratio."
38
<PAGE>
SEACOAST FINANCIAL AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Seacoast Financial and
Subsidiary for each of the years in the three year period ended October 31, 1997
have been audited by Arthur Andersen LLP, independent public accountants, whose
report thereon appears elsewhere in this Prospectus. With respect to information
for the four months ended February 28, 1998 and 1997, which is unaudited, in the
opinion of management, all adjustments necessary for a fair presentation of such
periods have been included and are of a normal recurring nature. Results for the
four months ended February 28, 1998 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1998. These
statements should be read in conjunction with the "Seacoast Financial's
Consolidated Financial Statements and Notes Thereto" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Seacoast Financial" included elsewhere herein.
<TABLE>
<CAPTION>
Four Months Ended
February 28, Years Ended October 31,
------------------------- --------------------------------------
1998 1997 1997 1996 1995
---- ----- ----- ----- ----
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and Dividend Income:
Interest on loans $23,320 $20,949 $65,499 $60,423 $52,459
Interest and dividends on investment securities 4,512 4,219 13,298 12,756 12,756
Interest on federal funds sold and short-term 491 441 1,235 947 1,257
investments
------ ------ ------ ------ ------
Total interest and dividend income 28,323 25,609 80,032 74,126 66,472
------ ------ ------ ------ ------
Interest Expense:
Interest on deposits 12,571 11,455 36,109 34,621 31,852
Interest on borrowed funds 1,493 1,158 3,722 2,624 2,687
------ ------ ------ ------ ------
Total interest expense 14,064 12,613 39,831 37,245 34,539
------ ------ ------ ------ ------
Net interest income 14,259 12,996 40,201 36,881 31,933
Provision (credit) for possible loan losses 183 443 1,865 1,166 (351)
------ ------ ------ ------ ------
Net interest income after provision
(credit) for loan losses 14,076 12,553 38,336 35,715 32,284
------ ------ ------ ------ ------
Noninterest Income:
Deposit and other banking fees 1,038 1,013 3,213 2,733 2,271
Loan servicing fees 179 197 571 607 584
Card fee income, net 100 58 398 354 402
Other loan fees 214 141 449 412 386
Gain (loss) on sales of investment securities, net (7) (3) 37 60 (84)
Gain on sales of loans, net 371 186 542 181 94
Other income 330 264 733 799 750
------ ------ ------ ------ ------
Total non-interest income 2,225 1,856 5,943 5,146 4,403
------ ------ ------ ------ ------
Noninterest Expense:
Salaries and employee benefits 4,852 4,588 13,633 12,890 12,747
Occupancy and equipment expenses 1,144 1,048 3,344 3,276 2,970
Data processing expenses 751 690 2,192 2,049 1,896
Marketing expenses 407 202 1,225 743 901
Professional services expenses 414 352 1,044 975 950
Deposit insurance premiums 52 19 121 392 1,198
Other real estate owned expenses, net 164 164 519 644 1,072
Other operating expenses 1,084 1,067 2,732 3,189 2,956
------ ------ ------ ------ ------
Total noninterest expense 8,868 8,130 24,810 24,158 24,690
------ ------ ------ ------ ------
Income before provision for income taxes 7,433 6,279 19,469 16,703 11,997
Provision for income taxes 3,023 2,559 7,685 6,548 4,511
------ ------ ------ ------ ------
Net income $4,410 $3,720 $11,784 $10,155 $7,486
====== ====== ======= ======= ======
</TABLE>
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SEACOAST FINANCIAL
General
Seacoast Financial's results of operations depend primarily on its net
interest income, which is the difference between the income earned on its loan
and securities portfolios and its cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by Seacoast
Financial's provision for loan losses, income and expenses pertaining to other
real estate owned, gains and losses from sales of loans and securities and
non-interest expenses. Seacoast Financial's non-interest expenses consist
principally of compensation and employee benefits, occupancy, data processing,
marketing and professional services costs and other operating expenses. Results
of operations are also significantly affected by general economic and
competitive conditions and changes in interest rates as well as government
policies and actions of regulatory authorities. Future changes in applicable
law, regulations or government policies may materially affect Seacoast Financial
and Compass. See "Risk Factors -- Regulatory Oversight and Legislation."
Seacoast Financial's and Compass's fiscal years end on October 31.
References to a year in this Management's Discussion and Analysis and in
"Business of Compass" refer to a fiscal year ended on October 31.
Management Strategy
Historically, Seacoast Financial (through its banking subsidiary, Compass)
has focused on offering deposit products in New Bedford, Fall River and Plymouth
and their surrounding communities as well as on the island of Martha's Vineyard.
Compass's lending activities are concentrated primarily in Southeastern
Massachusetts (including Cape Cod, primarily for indirect auto lending) and, to
a much lesser degree, Rhode Island. After the Merger, Cape Cod will become a
targeted market area for both Compass's deposit and its loan products. Seacoast
Financial generates its earnings primarily by originating loans, investing in
debt and equity securities, attracting and retaining deposits by paying
competitive interest rates, borrowing from the Federal Home Loan Bank of Boston
("FHLB") and controlling its operating expense ratio.
Compass's business strategy includes (i) taking advantage of its position
as a locally based bank to foster a community orientation, (ii) developing a
niche through its expertise in indirect automobile lending, (iii) diversifying
its loan portfolio composition in an effort to broaden its business
opportunities and help manage credit and interest rate risk, (iv) emphasizing
transaction accounts in order to build customer relationships, achieve a low
cost of funds and generate service fee income and (v) expanding its products and
market area, with the goals of achieving a higher profile and increased
opportunities for growth. Seacoast Financial seeks to pursue its business
strategy in a manner that allows it to maintain quality assets and control
operating expenses.
Management of Credit Risk
Management considers credit risk to be the most important risk factor
affecting the financial condition and operating results of Compass. The
potential for loss associated with this risk factor is managed through a
combination of policies established by Compass's Board of Directors, the
monitoring of compliance with these policies and the periodic reporting and
evaluation of loans with problem characteristics. Policies relate to the maximum
amount that can be granted to a single borrower and his or her related
interests, the aggregate amount of loans outstanding by type in relation to
total assets and capital, loan concentrations, loan to collateral value ratios,
approval limits and other underwriting criteria. Policies also exist with
respect to performing periodic credit reviews, the rating of loans, when loans
should be placed in a non-performing status and the factors that should be
considered in establishing Compass's allowance for loan losses. See "Business of
Compass -- Lending Activities."
Management of Market and Interest Rate Risk
General. The chief market risk factor affecting the financial condition and
operating results of Seacoast Financial is interest rate risk. This risk is
managed by periodic evaluation of the interest rate risk inherent in certain
balance sheet accounts, determination of the level of risk considered
appropriate given Compass's capital and liquidity requirements, business
strategy, performance objectives and operating environment and maintenance of
such risks within guidelines approved by the Board. Through such management,
Compass seeks to reduce the vulnerability of its net earnings to changes in
interest rates. Compass's Asset/Liability Committee, comprised of senior
management, is responsible for managing interest rate risk and reviewing with
the Board of Directors on a quarterly basis its
40
<PAGE>
activities and strategies, the effect of those strategies on Compass's and
Seacoast Financial's operating results, Compass's interest rate risk position
and the effect changes in interest rates would have on Compass's net interest
income. The extent of movement of interest rates is an uncertainty that could
have a negative impact on the earnings of Seacoast Financial. See "Risk Factors
- -- Potential Impact of Changes in Interest Rates on Seacoast Financial's
Earnings."
The principal strategies Seacoast Financial and Compass use to manage
interest rate risk include (i) emphasizing the origination and retention of
adjustable-rate loans, origination of indirect auto loans which have relatively
short maturities and origination of loans with maturities matched with those of
the deposits and borrowings funding the loans, (ii) investing in debt securities
with relatively short maturities and (iii) classifying a significant portion of
its investment portfolio as available for sale so as to provide sufficient
flexibility in liquidity management.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is deemed to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The "interest rate
sensitivity gap" is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest bearing-liabilities maturing or repricing within that
same time period. At February 28, 1998, Seacoast Financial's cumulative one-year
gap position, the difference between the amount of interest-earning assets
maturing or repricing within one year and interest-bearing liabilities maturing
or repricing within one year, was negative $96.1 million, or negative 8.4% of
total assets. A gap is positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. Accordingly, during a period of rising
interest rates, a bank with a negative gap position generally would not be in as
favorable a position, compared to an institution with a positive gap, to invest
in higher yielding assets. The resulting yield on a bank's assets generally
would increase at a slower rate than the increase in its cost of
interest-bearing liabilities. Conversely, during a period of falling interest
rates, a bank with a negative gap would tend to experience a repricing of its
assets at a slower rate than its interest-bearing liabilities which,
consequently, would generally result in its net interest income growing at a
faster rate than the net interest income of a bank with a positive gap position.
The following table (the "GAP Table") sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at February
28, 1998 which Seacoast Financial expects, based upon certain assumptions, to
reprice or mature in each of the future time periods shown. Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the contractual maturity
or, if earlier, the term to repricing of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
February 28, 1998, on the basis of contractual maturities, anticipated
prepayments and scheduled rate adjustments within a three month period and
subsequent selected time intervals. The loan amounts in the table reflect
principal balances expected to be redeployed and/or repriced as a result of
contractual amortization and anticipated prepayments of adjustable-rate and
fixed-rate loans and as a result of contractual rate adjustments on
adjustable-rate loans. Loans and mortgage-backed securities with prepayment
options (fixed and adjustable) have been modeled utilizing an industry standard
financial modeling system to project cash flows based upon current interest
rates. Deposits that do not possess contractual maturity dates or are not
directly linked to an interest rate index are modeled utilizing deposit decay
rates based on information provided by the DIF. These deposits include deposits
in savings accounts, NOW accounts and money market accounts. See "Business of
Compass -- Lending Activities," "-- Investment Activities" and "-- Sources of
Funds."
41
<PAGE>
<TABLE>
<CAPTION>
More More More More More
than than than than than
three six one three five
Up to months months year to years years
Three to six to one three to five to ten
months months year years years years
---------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1):
Short-term investments $ 15,973 $ -- $ -- $ -- $ -- $ --
Debt securities (4) 34,744 20,632 29,036 83,102 32,776 6,346
Loans held for sale 8,519 -- -- -- -- --
Mortgage loans (2) 36,472 47,083 106,017 194,043 83,767 43,205
Commercial loans 22,583 4,663 11,162 10,880 2,494 1,991
Indirect auto loans 24,878 23,432 41,826 106,081 28,130 672
Other consumer loans 2,782 1,838 2,602 7,519 4,041 6,073
--------- ---------- --------- -------- -------- --------
Total interest-earning assets 145,951 97,648 190,643 401,625 151,208 58,287
--------- ---------- --------- -------- -------- --------
Interest-bearing liabilities:
NOW and money market savings accounts 7,068 3,927 33,755 59,271 26,301 44,749
Savings accounts 15,195 8,442 10,130 33,767 25,325 33,767
Certificate of deposit accounts 170,496 137,058 120,791 68,508 8,526 --
Borrowed funds 15,666 4,492 3,304 16,038 22,785 8,955
--------- ---------- --------- ------- -------- --------
Total interest-bearing liabilities 208,425 153,919 167,980 177,584 82,937 87,471
--------- ---------- --------- -------- -------- --------
Interest sensitivity gap (3) $(62,474) $ (56,271) $ 22,663 $224,041 $ 68,271 ($29,184)
========= ========== ========= ======== ========= ========
Cumulative interest sensitivity gap $(62,474) $(118,745) $(96,082) $127,959 $196,230 $167,046
========= ========== ========= ======== ========= ========
Cumulative interest sensitivity gap
as percentage of total assets (5.46%) (10.38%) (8.40%) 11.19% 17.16% 14.61%
Cumulative interest sensitivity gap
as a percentage of total interest-earning (5.80%) (11.02%) (8.91%) 11.87% 18.20% 15.50%
assets
Cumulative interest-earning assets as a
percentage of cumulative interest-bearing
liabilities 70.03% 67.23% 81.88% 118.08% 124.81% 119.02%
<CAPTION>
More
than
ten
years Total
-----------------------
(Dollars in thousands)
<S> <C> <C>
Interest-earning assets (1):
Short-term investments $ -- $ 15,973
Debt securities (4) 431 207,067
Loans held for sale -- 8,519
Mortgage loans (2) 31,345 541,932
Commercial loans 201 53,974
Indirect auto loans 0 225,019
Other consumer loans 605 25,460
-------- ---------
Total interest-earning assets 32,582 1,077,944
-------- ---------
Interest-bearing liabilities:
NOW and money market savings accounts 48,676 223,747
Savings accounts 42,208 168,834
Certificate of deposit accounts -- 505,379
Borrowed funds 7,313 78,553
-------- ---------
Total interest-bearing liabilities 98,197 976,513
-------- ---------
Interest sensitivity gap (3) $(65,615) $ 101,431
======== =========
Cumulative interest sensitivity gap $101,431
========
Cumulative interest sensitivity gap
as percentage of total assets 8.87%
Cumulative interest sensitivity gap
as a percentage of total interest-earning 9.41%
assets
Cumulative interest-earning assets as a
percentage of cumulative interest-bearing
liabilities 110.39%
</TABLE>
- -------------------
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) For purposes of the gap analysis, allowances for loan losses, deferred loan
fees, unearned discounts and non-performing loans have been excluded.
(3) The interest sensitivity gaps represent the differences between
interest-earning assets and interest-bearing liabilities, expressed as a
dollar amount.
(4) Debt securities are presented at amortized cost.
42
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the GAP Table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in presenting the GAP table. Finally, the ability of certain
borrowers to service their adjustable-rate loans may decrease in the event of an
interest rate increase.
Interest rate gap analysis provides a static view of the maturity and
repricing characteristics of balance sheet positions. Seacoast Financial
quantifies its interest-rate risk exposures using a sophisticated simulation
model as well as the simpler gap analysis presented above. Simulation analysis
is used to measure the exposure of net interest income to changes in interest
rates over a specified time horizon. Simulation analysis involves projecting
future interest income and expense under various rate scenarios. Compass's
internal guidelines on interest rate risk specify that for every 100 basis
points immediate shift in interest rates, its estimated net interest income over
the next 12 months should decline by less than 5%. As of February 28, 1998,
Seacoast Financial's estimated exposure as a percentage of estimated net
interest income for the next twelve and twenty-four month periods are as
follows:
<TABLE>
<CAPTION>
Percentage Change in Estimated
Net Interest Income Over:
-----------------------------------
12 months 24 months
--------------- ----------------
<S> <C> <C>
200 basis point increase in rates (8.22)% (4.73)%
200 basis point decrease in rates (0.03)% (4.45)%
</TABLE>
Based on the scenarios above, net income would be adversely affected (within
Compass's internal guidelines) in both the twelve and twenty-four month periods.
For each one percentage point change in net interest income, the adverse effect
on net income would be $268,000, assuming a 40% tax rate.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them.
43
<PAGE>
Average Balance Sheet. The following tables set forth certain information
relating to Seacoast Financial for the four months ended February 28, 1998 and
1997 and the years ended October 31, 1997, 1996 and 1995. The average yields and
costs are derived by dividing income or expenses by the average balances of
interest-earning assets or interest-bearing liabilities, respectively, for the
periods shown and reflect annualized yields and costs. Average balances are
derived from average daily balances. The yields and costs include fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
Four months ended February 28,
------------------------------------------------------------------------------
1998 1997
---------------------------------------- ------------------------------------
Average Average Average Average
balance Interest yield/cost balance Interest yield/cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments ........................ $ 21,555 $ 491 6.83% $ 19,869 $ 441 6.66%
Debt securities (1) ........................... 212,419 4,371 6.17 204,820 4,103 6.01
Equity securities (1) ......................... 9,402 141 4.50 6,908 116 5.04
Mortgage loans (2) ............................ 543,974 15,089 8.32 515,182 14,407 8.39
Commercial loans (2) .......................... 52,676 1,722 9.81 47,792 1,544 9.69
Indirect auto loans (2) ....................... 215,280 5,765 8.03 167,566 4,356 7.80
Other consumer loans (2) ...................... 24,958 744 8.94 22,070 642 8.73
---------- ------- ------- ---------- ------- -------
Total interest-earning assets .............. 1,080,264 28,323 7.87 984,207 25,609 7.81
---------- ------- ------- ---------- ------- -------
Allowance for loan losses ........................ (10,653) (10,396)
Non-interest earning assets ...................... 57,000 58,856
---------- ----------
Total assets ............................... $1,126,611 $1,032,667
========== ==========
Liabilities and Surplus:
Interest-bearing liabilities:
NOW accounts .................................. $ 78,896 $ 379 1.44% $ 70,345 $ 337 1.44%
Savings accounts .............................. 167,480 1,430 2.56 170,645 1,453 2.55
Money market savings accounts ................. 144,731 1,318 2.73 136,233 1,273 2.80
Certificate of deposit accounts ............... 497,269 9,444 5.70 451,794 8,392 5.57
---------- ------- ------- ---------- ------- -------
Total deposits ............................. 888,376 12,571 4.25 829,017 11,455 4.15
Borrowed funds:
Short-term borrowings (3) .................. 10,988 180 4.91 3,909 78 5.99
FHLB advances .............................. 60,417 1,313 6.52 49,139 1,080 6.59
---------- ------- ------- ---------- ------- -------
Total borrowings ........................ 71,405 1,493 6.27 53,048 1,158 6.55
---------- ------- ------- ---------- ------- -------
Total interest-bearing liabilities ... 959,781 14,064 4.40 882,065 12,613 4.29
---------- ------- ------- ---------- ------- -------
Non-interest bearing demand
checking accounts ............................. 55,037 53,542
Other liabilities ................................ 9,697 8,695
---------- ----------
Total liabilities ....................... 1,024,515 944,302
Surplus .......................................... 102,096 88,365
---------- ----------
Total liabilities and surplus ........... $1,126,611 $1,032,667
========== ==========
Net interest income/
interest rate spread (4) ...................... $14,259 3.47% $12,996 3.52%
======= ======= ======= =======
Net interest margin (5) .......................... 3.96% 3.96%
======= =======
Ratio of interest-earning assets
to interest-bearing liabilities ............... 112.55% 111.58%
======= =======
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------------------
1997 1996
-------------------------------- -------------------------------
Average Average
Average yield/ Average yield/
balance Interest cost balance Interest cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments ............................. $ 21,516 $ 1,235 5.74% $ 15,969 $ 947 5.93%
Debt securities (1) ................................ 211,304 12,910 6.11 208,665 12,370 5.93
Equity securities (1) .............................. 7,290 388 5.32 7,296 386 5.29
Mortgage loans (2) ................................. 523,376 43,977 8.40 498,185 42,162 8.46
Commercial loans (2) ............................... 50,361 4,972 9.87 45,283 4,456 9.84
Indirect auto loans (2) ............................ 180,600 14,497 8.03 150,070 11,927 7.95
Other consumer loans (2) ........................... 23,195 2,053 8.85 20,795 1,878 9.03
---------- ------- ------ -------- ------- ------
Total interest-earning assets ................... 1,017,642 80,032 7.86 946,263 74,126 7.83
------- ------ ------- ------
Allowance for loan losses ............................. (10,570) (10,109)
Non-interest earning assets ........................... 59,094 61,480
---------- --------
Total liabilities and surplus ................... $1,066,166 $997,634
========== ========
Liabilities and Surplus:
Interest-bearing liabilities:
Deposits:
NOW accounts .................................... $ 72,837 $ 1,065 1.46% $ 68,156 $ 1,008 1.46%
Savings accounts ................................ 171,157 4,434 2.59 176,311 4,660 2.64
Money market savings accounts ................... 140,413 3,959 2.82 136,322 3,888 2.85
Certificate of deposit accounts ................. 466,942 26,651 5.71 434,930 25,065 5.76
---------- ------- ---- -------- ------- ----
Total deposits ............................... 851,349 36,109 4.24 815,719 34,621 4.24
Borrowed funds:
Short-term borrowings (3) ....................... 5,666 283 4.99 1,727 100 5.79
FHLB advances ................................... 51,490 3,439 6.68 37,288 2,524 6.77
---------- ------- ---- -------- ------- ----
Total borrowings ............................. 57,156 3,722 6.51 39,015 2,624 6.73
---------- ------- ---- -------- ------- ----
Total interest-bearing liabilities............ 908,505 39,831 4.38 854,734 37,245 4.36
Non-interest bearing demand
checking accounts ............................... 56,284 53,684
Other liabilities ..................................... 8,807 8,807
---------- --------
Total liabilities ............................... 973,596 917,225
Surplus ............................................... 92,570 80,409
---------- --------
Total liabilities and surplus ................... $1,066,166 $997,634
========== ========
Net interest income/
interest rate spread (4) ........................... $40,201 3.48% $36,881 3.47%
======= ====== ======= ======
Net interest margin (5) ............................... 3.95% 3.90%
====== ======
Ratio of interest-earning assets
to interest-bearing liabilities .................... 112.01% 110.71%
====== ======
<CAPTION>
Year Ended October 31,
-----------------------------
1995
-----------------------------
Average
Average yield/
balance Interest cost
------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments ............................. $ 17,263 $ 1,257 7.28%
Debt securities (1) ................................ 210,680 12,280 5.83
Equity securities (1) .............................. 8,484 475 5.60
Mortgage loans (2) ................................. 451,497 37,813 8.37
Commercial loans (2) ............................... 35,610 3,522 9.89
Indirect auto loans (2) ............................ 124,850 9,502 7.61
Other consumer loans (2) ........................... 17,204 1,623 9.43
-------- ------- ------
Total interest-earning assets ................... 865,588 66,472 7.68
------- ------
Allowance for loan losses ............................. (9,811)
Non-interest earning assets ........................... 58,298
--------
Total liabilities and surplus ................... $914,075
========
Liabilities and Surplus:
Interest-bearing liabilities:
Deposits:
NOW accounts .................................... $ 61,366 $ 1,078 1.76%
Savings accounts ................................ 173,700 5,107 2.94
Money market savings accounts ................... 129,920 3,916 3.01
Certificate of deposit accounts ................. 388,708 21,751 5.60
-------- ------- ----
Total deposits ............................... 753,694 31,852 4.23
Borrowed funds:
Short-term borrowings (3) ....................... 1,326 84 6.33
FHLB advances ................................... 39,552 2,603 6.58
-------- ------- ----
Total borrowings ............................. 40,878 2,687 6.57
-------- ------- ----
Total interest-bearing liabilities............ 794,572 34,539 4.35
Non-interest bearing demand
checking accounts ............................... 41,824
Other liabilities ..................................... 6,845
--------
Total liabilities ............................... 843,241
Surplus ............................................... 70,834
--------
Total liabilities and surplus ................... $914,075
========
Net interest income/
interest rate spread (4) ........................... $31,933 3.33%
======= ======
Net interest margin (5) ............................... 3.69%
======
Ratio of interest-earning assets
to interest-bearing liabilities .................... 108.94%
======
</TABLE>
- --------------------------
1) Average balances include unrealized gains on securities available for
sale. Equity securities include marketable equity securities and
restricted equity securities.
2) Loans on non-accrual status are included in the average balances.
3) Short-term borrowings include immaterial balances of other
borrowings.
4) Net interest spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
5) Net interest margin represents annualized net interest income divided
by average interest-earning assets.
45
<PAGE>
<TABLE>
<CAPTION>
Four months ended Year ended Year ended
February 28, 1998 October 31, 1997 October 31, 1996
compared to compared to compared to
four months ended year ended year ended
February 28, 1997 October 31, 1996 October 31, 1995
---------------------------------------------------------------------------------
Increase (decrease) Increase (decrease) Increase (decrease)
due to due to due to
---------------------------------------------------------------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
---------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments ................... $ 38 $ 12 $ 50 $ 319 $ (31) $ 288 $ (89) $(221) $ (310)
Debt securities .......................... 155 113 268 158 382 540 (118) 208 90
Equity securities ........................ 77 (52) 25 -- 2 2 (64) (25) (89)
Mortgage loans ........................... 1,207 (525) 682 2,119 (304) 1,815 3,947 402 4,349
Commercial loans ......................... 159 19 178 501 15 516 952 (18) 934
Indirect auto loans ...................... 1,274 135 1,409 2,450 120 2,570 1,989 436 2,425
Other consumer loans ..................... 86 16 102 213 (38) 175 327 (72) 255
------- ----- ------- ------- ----- ------- ------- ----- -------
Total interest-earning assets ......... $ 2,996 $(282) $ 2,714 $ 5,760 $ 146 $ 5,906 $ 6,944 $ 710 $ 7,654
------- ----- ------- ------- ----- ------- ------- ----- -------
Liabilities and Surplus:
Interest-bearing liabilities:
Deposits:
NOW accounts .......................... $ 41 $ 1 $ 42 $ 69 $ (12) $ 57 $ 112 $(182) $ (70)
Savings accounts ...................... (41) 18 (23) (135) (91) (226) 76 (523) (447)
Money market savings accounts ......... 170 (125) 45 116 (45) 71 188 (216) (28)
Certificate of deposit accounts ....... 860 192 1,052 1,829 (243) 1,586 2,648 666 3,314
------- ----- ------- ------- ----- ------- ------- ----- -------
Total deposits ..................... 1,030 86 1,116 1,879 (391) 1,488 3,024 (255) 2,769
------- ----- ------- ------- ----- ------- ------- ----- -------
Borrowed funds:
Short-term borrowings ................. 169 (67) 102 199 (16) 183 24 (8) 16
FHLB borrowings ....................... 291 (58) 233 950 (35) 915 (152) 73 (79)
------- ----- ------- ------- ----- ------- ------- ----- -------
Total borrowings ................... 460 (125) 335 1,149 (51) 1,098 (128) 65 (63)
------- ----- ------- ------- ----- ------- ------- ----- -------
Total interest-bearing
liabilities ........................ 1,490 (39) 1,451 3,028 (442) 2,586 2,896 (190) 2,706
------- ----- ------- ------- ----- ------- ------- ----- -------
Net change in net interest income ........ $ 1,506 $(243) $ 1,263 $ 2,732 $ 588 $ 3,320 $ 4,048 $ 900 $ 4,948
======= ===== ======= ======= ===== ======= ======= ===== =======
</TABLE>
46
<PAGE>
Comparison of Financial Condition at February 28, 1998 and October 31, 1997
Total assets increased by $37.0 million, or 3.3%, from $1,106.6 million
at October 31, 1997 to $1,143.6 million at February 28, 1998. This growth was
due primarily to a $10.5 million, or 32.0%, increase in cash and cash
equivalents and a $26.2 million, or 3.2%, increase in loans. Asset growth was
funded primarily by a $13.5 million, or 1.4%, increase in deposits and a $15.9
million, or 31.1%, increase in FHLB advances.
The increase in cash and cash equivalents at February 28, 1998 was
temporary in nature and attributable to normal fluctuations in activity.
The increase in net loans occurred primarily in Seacoast Financial's
construction and indirect auto loan portfolios. From October 31, 1997 to
February 28, 1998, construction loans increased by $7.3 million, or 21.6%, and
indirect auto loans (net of unearned discounts) increased by $17.0, or 8.2%. The
growth during the four months ended February 28, 1998 is primarily attributable
to the favorable interest rate environment and economic conditions which
prevailed during this period.
Total deposits at February 28, 1998 were $951.4 million, an increase of
$13.5 million, or 1.4%, compared to $937.9 million at October 31, 1997. The
increase in deposits was only moderate, primarily due to a continuing low
interest rate environment wherein Seacoast Financial had to compete against
other instruments available to the public such as mutual funds and annuities, as
well as to seasonal outflow of deposits, a significant portion of which is
attributable to the resort nature of the economy of Martha's Vineyard. Total
borrowed funds were $78.6 million at February 28, 1998 compared to $60.7 million
at October 31, 1997, an increase of $17.9 million, or 29.4%. During the four
months ended February 28, 1998, Seacoast Financial's net borrowings from the
FHLB increased by $15.9 million at a weighted average rate of 5.99%.
The increase in surplus of $5.0 million to $103.1 million at February
28, 1998 resulted from net earnings of $4.4 million for the four months ended
February 28, 1998 and a $567,000 increase in unrealized gains (net of taxes) on
securities available for sale, most of which pertained to Seacoast Financial's
marketable equity securities portfolio.
Comparison of Financial Condition at October 31, 1997 and October 31, 1996
Total assets were $1,106.6 million at October 31, 1997 compared to
$1,027.8 million at October 31, 1996, an increase of $78.8 million, or 7.7%.
Substantially all of the growth was due to a $71.8 million, or 9.7%, increase in
net loans. Asset growth was funded primarily from increased deposits ($55.3
million), increased borrowings from the FHLB ($5.6 million), increased
borrowings through repurchase agreements ($7.6 million) and increased surplus
($13.2 million). Total net loans increased from $737.8 million at October 31,
1996 to $809.6 million at October 31, 1997. Between those dates, total real
estate loans increased by $21.9 million, or 4.3%, to $536.1 million, and total
commercial loans increased by $5.2 million, or 11.2%, to $51.4 million. The most
significant area of real estate loan growth was in residential real estate loans
which increased by $19.8 million, or 5.8%, to $363.0 million. While the
residential real estate loan market was strong throughout the year due to a
favorable interest rate environment, so too was the competition for such
business. Many borrowers took advantage of the increased competition to
refinance their loans. This factor, along with an increase in the sales of
fixed-rate mortgage loans, caused Seacoast Financial's net growth in real estate
loans in 1997 ($21.9 million) to be less than that achieved in 1996 ($39.9
million) despite approximately the same level of loan originations in each year.
The most significant area of overall loan growth in 1997 and 1996 was
in the area of indirect auto loans. During 1997, such loans increased, before
unearned discount, $48.2 million, or 25.4%, to $238.1 million at October 31,
1997. During 1996 such loans increased $30.4 million, or 19.1%, to $189.9
million at October 31, 1996. This growth is primarily attributable to the
expansion of the network of auto dealerships offering Compass's auto financing
program. This expansion resulted in an increase in the number of new loan
originations from 8,181 in 1996 to 9,817 in 1997, an increase of 20%.
Total investments increased modestly from $216.7 million at October 31,
1996 to $227.1 million at October 31, 1997. Among debt securities, Seacoast
Financial increased its holdings of U.S. Government and Agency obligations by
$2.8 million and corporate bonds by $23.4 million while decreasing its holdings
of mortgage-backed securities by $18.5 million. These shifts were caused by a
change in tax regulations and an opportunity to increase portfolio yield without
extending portfolio duration.
47
<PAGE>
Total deposits increased 6.3% from $882.6 million at October 31, 1996
to $937.9 million at October 31, 1997. The overall growth in deposits in 1997
was favorably affected by Compass's introduction and promotion of
relationship-based retail checking account products offering a package of
benefits, including enhanced pricing on certificates of deposits. The
acquisition of competing local financial institutions by larger regional banks
also contributed to Compass's deposit growth in 1997 as customers who prefer to
bank with a locally-based community institution shifted their deposits to
Compass.
Of the $55.3 million increase in deposits in 1997, $37.4 million
occurred in certificates of deposit, continuing a gradual shift of deposits to
higher-yielding accounts. The remaining deposit growth of $17.9 million, or
4.1%, resulted from an increase in retail and business checking accounts.
Compass also offers customers with checking accounts the opportunity to "sweep"
funds into a higher-yielding, non-insured, investments under a repurchase
agreement. The balance in these accounts increased by $7.6 million from October
31, 1996 to October 31, 1997. Funds invested under repurchase agreements are
classified as short-term borrowings rather than as deposits.
Customers also moderated inflows of deposits by opting to invest their
funds in alternative investments, such as mutual funds and annuities, that
Compass does not offer directly (other than through its affiliation with INVEST
Financial Corporation), rather than in deposit products perceived to have less
attractive returns.
Compass increased its borrowings from the FHLB from $45.4 million at
October 31, 1996 to $51.0 million at October 31, 1997 as part of its Affordable
Home Loan Program. Under that program, Compass borrows funds under a special
fixed-rate, amortizing program to provide low cost financing for first time home
buyers in the low-to-moderate income categories.
The increase in surplus of $13.2 million to $98.1 million at October
31, 1997 resulted from net earnings of $11.8 million and a $1.4 million increase
in unrealized gains (net of taxes) on securities available for sale.
Comparison of Operating Results for the Four Months Ended February 28, 1998 and
February 28, 1997
General. Net income increased by $690,000, or 18.5%, from $3.7 million
for the four months ended February 28, 1997 to $4.4 million for the four months
ended February 28, 1998. The improvement was attributable to higher net interest
income of $1.3 million, a $260,000 decrease in the provision for loan losses due
to a continuation of the favorable trends in the various factors considered by
management in evaluating the adequacy of the allowance for loan losses and an
increase in gains on sales of loans of $185,000. The improvement was partially
offset by an increase of $738,000 in non-interest expense due to higher
salaries, occupancy and equipment expenses and marketing costs. The increase in
net interest income was due primarily to growth in average interest-earning
assets.
Interest Income. Interest income for the four months ended February
28, 1998 was $28.3 million, compared to $25.6 million for the four months ended
February 28, 1997, an increase of $2.7 million, or 10.6%. Substantially all of
the increase in interest income resulted from growth in average interest-earning
assets of $96.1 million, or 9.8%. The principal areas of growth related to real
estate loans (up $28.8 million, or 5.6%) and indirect auto loans (up $47.7
million, or 28.5%). Most of the real estate loan growth resulted from increased
originations of one- to four-family real estate loans. The increase in indirect
auto loans resulted from an improved economic environment within Compass's local
markets plus the expansion of such lending into Rhode Island.
Interest Expense. Interest expense for the four months ended February
28, 1998 was $14.1 million, compared to $12.6 million for the four months ended
February 28, 1997, an increase of $1.5 million, or 11.5%. This increase resulted
from a higher average balance of interest-bearing liabilities ($77.7 million, or
8.8%) which was partially offset by a 28 basis point reduction in the average
rate paid for borrowed funds. Average interest-bearing deposit balances
increased $59.4 million, or 7.2%, as a result of the introduction and promotion
of relationship-based retail checking account products in 1996 and 1997.
Compass increased its borrowings from the FHLB during the four months
ended February 28, 1998. Interest expense on borrowed funds increased $335,000,
or 28.9%, in the four months ended February 28, 1998 due to a $18.4 million, or
34.6%, increase in the average balance of such funds to $71.4 million, which was
partially offset by a 28 basis point reduction in the average rate paid on
borrowed funds to 6.27% in the 1998 period compared to the 1997 period.
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Provision for Loan Losses. Compass establishes provisions for loan
losses, which are charged to operations, in order to maintain the allowance for
loan losses at a level that management estimates is appropriate to absorb future
charge-offs of loans deemed uncollectible. In determining the appropriate level
of the allowance for loan losses, management considers past and anticipated loss
experience, evaluations of real estate collateral, current and anticipated
economic conditions, volume and type of lending and the levels of nonperforming
and other classified loans. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management assesses the
allowance for loan losses on a quarterly basis and makes provisions for loan
losses monthly in order to maintain the adequacy of the allowance.
Compass provided $183,000 for loan losses in the four month period
ended February 28, 1998 compared to $443,000 in the four month period ended
February 28, 1997, a decrease of $260,000, or 58.7%. This decrease was primarily
influenced by a reduction in the balance of adversely classified loans and fewer
delinquencies.
Non-Interest Income. Non-interest income is comprised of fees and
charges for bank services, net interchange fees on the processing of merchant
credit card receipts, gains or losses from sales of assets, loan servicing fees
and other income resulting from miscellaneous transactions. Total non-interest
income was $2.2 million for the four months ended February 28, 1998 compared to
$1.9 million for the four months ended February 28, 1997, an increase of
$369,000, or 19.9%. The increase resulted primarily from an increase of $185,000
in the gain on sale of mortgage loans, from $186,000 in the four months ended
February 28, 1997 to $371,000 in the four months ended February 28, 1998.
Compass generally sells in the secondary mortgage market fixed rate residential
mortgage loans with terms of more than 15 years. With the reduction in interest
rates on 15- and 30-year fixed rate mortgages which occurred in 1997 and into
1998, the volume of fixed-rate mortgage loan originations increased which
contributed to this increase.
Non-Interest Expense. Non-interest expense increased by $738,000, or
9.1%, from $8.1 million for the four months ended February 28, 1997 to $8.9
million for the four months ended February 28, 1998. Of this increase, $264,000
related to compensation and employee benefits, which rose 5.8% to $4.9 million
for the four months ended February 28, 1998. The higher level of compensation
and employee benefits was caused by overall salary increases averaging 4% and
staffing increases in the lending area and in a new branch location.
Seacoast Financial expects compensation and employee benefits expenses
to increase after the Offering, primarily as a result of the adoption of the
ESOP in connection with the Offering. In this regard, the proposed ESOP, which
intends to purchase 8% of the Conversion Shares issued in connection with the
Offering, would result in increased compensation and employee benefits expenses
as the ESOP shares are allocated. See "Management of Seacoast Financial and
Compass -- Compensation of Officers and Trustees through Benefit Plans --
Employee Stock Ownership Plan and Trust." Following the Conversion, Seacoast
Financial may also adopt a stock plan for the recognition and retention of
management. If such a stock plan were adopted, compensation and employee benefit
expense would increase as stock plan awards were granted.
Occupancy and equipment expenses increased $96,000, or 9.2%, to $1.1
million for the four months ended February 28, 1998. This increase was due to an
increase in ATM maintenance costs, partially offset by a one-time reduction in
rent expense in 1997 of $36,000 attributable to a leased facility which Compass
no longer utilized.
Marketing expenses increased $205,000, or 101.5%, to $407,000 for the
four months ended February 28, 1998. This increase was primarily attributable to
advertising campaigns related to the new ROTH IRA accounts allowed by changes in
the tax law, Compass's commercial loan programs and the advertising of Compass's
Preferred Checking account program.
Comparison of Operating Results for the Years Ended October 31, 1997 and October
31, 1996
General. Net income was $11.8 million in 1997 compared to $10.2
million in 1996, an increase of $1.6 million or 15.7%. Due primarily to an
increase in average interest-earning assets of $71.4 million, or 7.5%, net
interest income increased by $3.3 million, or 9.0%, from $36.9 million in 1996
to $40.2 million in 1997. The other significant factors affecting the change in
net income was an increase of $797,000 in non-interest income offset by an
increase of $699,000 in the provision for loan losses and an increase of
$652,000 in non-interest expense.
Interest Income. Interest income was $80.0 million in 1997, compared
to $74.1 million in 1996, an increase of $5.9 million, or 8.0%. This increase in
interest income resulted almost exclusively from interest-earning asset growth.
The yield on interest-earning assets increased three basis points in 1997 from
7.83% in 1996 to 7.86% in 1997.
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A significant portion of the increase in interest-earning assets was
attributable to the indirect auto loan portfolio, which increased from $165.6
million at October 31, 1996 to $208.0 million at October 31, 1997, and the real
estate portfolio, which increased from $514.2 million to $536.1 million, at
those dates, respectively.
Interest Expense. Interest expense increased by $2.6 million, or 6.9%,
from $37.2 million in 1996 to $39.8 million in 1997. The increase resulted from
a $53.8 million, or 6.3%, increase in average interest-bearing liabilities and a
two basis point increase in the average rate paid on such liabilities. Total
average interest-bearing deposits increased by $35.6 million, or 4.4%, with most
of the increase occurring in certificates of deposit because of the higher rates
offered on such deposits in comparison to those offered on other types of
deposits. Because of the level of loan growth, Compass increased its borrowings
from the FHLB with the average amount of such borrowings outstanding increasing
by $14.2 million, or 38.1%, from $37.3 million in 1996 to $51.5 million in 1997.
Provision for Loan Losses. Seacoast Financial's provision for loan
losses increased by $699,000, or 60.0%, from $1.2 million in 1996 to $1.9
million in 1997. With net loan charge-offs of $1.6 million in 1997 (as compared
to $682,000 in 1996), Seacoast Financial's allowance for loan losses increased
by $308,000 in 1997. The total allowance of $10.6 million at October 31, 1997
represented 1.30% of total loans, a slight decrease from 1.38% at October 31,
1996.
The increase of $875,000 in net charge-offs in 1997 resulted from the
resolution of certain commercial and commercial real estate loans as well as the
impact of the increasing indirect auto loan portfolio.
Non-Interest Income. Total non-interest income was $5.9 million in
1997, an increase of $797,000, or 15.5%, from $5.1 million in 1996. The increase
in deposit and other banking fees from $2.7 million in 1996 to $3.2 million in
1997 was primarily attributable to a $141,000 increase in monthly checking
account fees and $182,000 in additional returned check fees. Each of these
increases was caused by an increase in the monthly maintenance fee on basic
checking accounts attributed to higher checking account fees in 1997. Returned
check fees increased in 1997 because of price increases on check returns.
The remaining growth in non-interest income resulted from gains on
sales of loans, which increased by $361,000, or 200%, from $181,000 in 1996 to
$542,000 in 1997. Of this increase, $255,000 was attributable to the initial
application of SFAS No.125. As more fully disclosed in Note 1 to the
accompanying consolidated financial statements of Seacoast Financial, SFAS No.
125 required that Seacoast Financial capitalize, for the first time, the value
of servicing rights on loans originated and sold to others with servicing
retained by Seacoast Financial. The remaining increase of $106,000 in gains on
sales of loans was attributable to an increase in the volume of loan sales from
$15.5 million in 1996 to $30.1 million in 1997.
Non-Interest Expense. Total non-interest expense was $24.8 million in
1997, compared to $24.2 million in 1996, an increase of $652,000, or 2.7%. This
increase was primarily attributable to an increase of $743,000, or 5.8%, in
salaries and employee benefits and an increase of $482,000, or 64.9%, in
marketing expenses, which increases were partially offset by a decrease of
$271,000 in deposit insurance premiums, $125,000 in other real estate owned
expenses, and a $416,000 recovery of life insurance premiums recognized when an
insurance company emerged from receivership in 1997.
The increase in salaries and employee benefits in 1997 was caused by an
increase of $415,000, or 3.4%, in salaries and employee benefits and a $328,000,
or 47.1%, increase in bonuses paid in accordance with Compass's bonus plan.
These increases were primarily driven both by individual and institutional
performance in 1997 as the average number of full-time equivalent employees in
1997 remained almost flat at 336 compared to 334 in 1996.
The increase in marketing expense in 1997 was due to significant
promotional activities associated with the introduction of the Preferred
Checking and Prime for Life equity loan programs. In addition, Compass
introduced its website on the Internet.
FDIC insurance expense decreased by $271,000 in 1997 because of a
reduction in the annual premiums charged by the FDIC on insurable deposits.
Other real estate owned ("OREO") expenses declined by $125,000 in 1997
primarily due to a reduction in the number of properties held as OREO and stable
real estate market values.
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Income Taxes. Total income tax expense was $7.7 million in 1997
compared to $6.5 million in 1996. The effective tax rate was slightly higher in
1997 (39.5%) than in 1996 (39.2%) primarily because Compass's effective Federal
statutory tax rate increased by 1% with the growth in taxable income partially
offset by a reduction in the effective state tax rate caused by Compass's
greater utilization of non-bank subsidiaries that were taxed at a lower rate
than their parent.
Comparison of Operating Results for the Years Ended October 31, 1996 and October
31, 1995
General. Net income increased by $2.7 million, or 35.7%, from $7.5
million in 1995 to $10.2 million in 1996. Contributing to the increase in net
income was a $4.9 million, or 15.5%, improvement in net interest income,
$462,000 more in deposit and other banking fees, $428,000 less in expenses
relating to other real estate owned and an $806,000 reduction in premiums paid
to the FDIC for deposit insurance. Partially offsetting these additions to
income was a $2.0 million increase in the provision for income taxes and a $1.5
million increase in the provision for loan losses.
Interest Income. Interest income was $74.1 million in 1996, compared to
$66.5 million in 1995, an increase of $7.6 million, or 11.5%. Of this increase,
$710,000 resulted from higher asset yields and $6.9 million from a higher volume
of interest-earning assets. The 15 basis point increase in the average yield on
interest-earning assets was caused by the upward movement in the prime rate
throughout 1994 and most of 1995. This movement was beneficial to Seacoast
Financial since the interest rates on much of its commercial loan portfolio are
based on the prime rate. In addition, Seacoast Financial's growth in
interest-earning assets was entirely within the higher yielding loan portfolio
while the investment portfolio was reduced slightly in 1996. Total average
interest-earning assets increased by $80.7 million, or 9.3%, to $946.3 million
in 1996. Most of the loan growth was in real estate loans (up $46.7 million, or
10.3%) and in indirect auto loans (up $25.2 million, or 20.2%).
Interest Expense. Interest expense was $37.2 million in 1996, compared
to $34.5 million in 1995, an increase of $2.7 million, or 7.8%. This increase
was due to higher levels of deposits as the average rate paid on
interest-bearing liabilities was virtually unchanged. Average interest-bearing
deposits increased by $62.0 million, or 8.2%. Of this increase, $46.2 million,
or 74.5%, was attributable to certificates of deposit. With the gradual decline
in money market and other savings deposit account rates which began in 1995 and
remained flat in 1996, depositors continued to shift more of their funds to
higher paying certificate of deposit accounts. Consequently, NOW, savings and
money market accounts increased, in the aggregate, only $15.8 million, or 4.3%,
in 1996. Despite the shift in deposit mix toward term certificates having higher
rates, the cost of funds for all deposits was only one basis point higher in
1996 at 4.24%. The average balance of borrowed funds decreased $1.9 million from
$40.9 million in 1995 to $39.0 million in 1996 while the average cost of such
borrowings increased from 6.57% in 1995 to 6.73% in 1996.
Provision for Loan Losses. In 1996, Seacoast Financial provided $1.2
million for loan losses. Because a credit of $351,000 existed at the end of
1995, the provision increased by $1.5 million in 1996. During 1995, Compass
acquired Martha's Vineyard National Bank which had an allowance for loan losses
of $3.5 million at the date of acquisition. In assessing its overall reserve
requirements, management of Seacoast Financial determined that such reserves
could be reduced in 1995 and recorded a credit of $351,000. While the 1996
provision reflects a significant increase from 1995, such provision is
comparable to amounts recorded in recent years.
Non-Interest Income. Non-interest income increased to $5.1 million in
1996 from $4.4 million in 1995 primarily as a result of a $462,000 increase in
basic monthly fees and returned check charges on checking accounts. These
increased fees resulted from the introduction of a standard monthly fee assessed
on certain checking accounts and an increase in the fee charged on returned
checks, both of which changes were implemented during 1996. In addition, ATM
service fees contributed to the increase in non-interest income in 1996.
To a lesser extent, gains from the sale of both investment securities
and residential real estate loans contributed to the 1996 increase as Seacoast
Financial realized a net gain on security transactions as compared to a net loss
in 1995 and favorable rates on real estate loans made it possible to increase
sales of fixed rate loans in the secondary market.
Non-Interest Expense. Total non-interest expense was $24.2 million in
1996, compared to $24.7 million in 1995, a decrease of $532,000, or 2.2%. The
decrease was attributable to a $806,000 reduction in premiums paid to the FDIC
for deposit insurance, from $1.2 million in 1995 to $392,000 in 1996, and a
$428,000 decrease in net
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expenses related to other real estate owned, a reduction consistent with the
decline in foreclosed properties held. Other categories of non-interest expense
increased by an aggregate of $702,000, or 2.9%, in 1996, principally due to the
impact of Seacoast Financial's acquisition of Martha's Vineyard National Bank on
December 28, 1994. Accordingly, the activities of the acquired bank are fully
reflected in 1996 while 1995 includes only 10 months of combined operations.
Income Taxes. Income tax expense was $6.5 million in 1996 and $4.5
million in 1995, an increase of $2.0 million, or 44.4%. The effective tax rate
increased from 37.6% in 1995 to 39.2% in 1996 primarily as a result of an
increase in state income taxes resulting from a relative decline in the portion
of income taxed at lower rates applicable to non-bank subsidiaries.
Liquidity and Capital Resources
Seacoast Financial's primary sources of funds are deposits, principal
and interest payments on loans and debt securities and borrowings from the FHLB.
While maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by interest
rate trends, economic conditions and competition.
Total assets increased by $37.0 million, $78.8 million, $43.8 million,
and $192.0 million (including $128.7 million resulting from the acquisition of
Martha's Vineyard National Bank) for the four months ended February 28, 1998 and
the years ended October 31, 1997, 1996 and 1995. These increases included $26.2
million, $72.1 million, $72.1 million and $166.1 million (including $104.4
million resulting from the acquisition of Martha's Vineyard National Bank),
respectively, of growth in Seacoast Financial's gross loan portfolio.
During the past few years, the combination of generally low interest
rates on deposit products, and the attraction of alternative investments, such
as mutual funds and annuities, has significantly affected deposit mix and flows.
Seacoast Financial experienced a $13.5 million net deposit inflow for the four
months ended February 28, 1998 and net deposit inflows of $55.3 million, $22.9
million and $172.4 million (including $116.1 million of deposits acquired in the
acquisition of Martha's Vineyard National Bank) for the years ended October 31,
1997, 1996 and 1995, respectively. During the period from November 1, 1994 to
February 28, 1998, time deposits increased from 43.1% to 53.0% of total
deposits.
Compass has expanded its use of borrowings from the FHLB as part of its
management of interest rate risk. Such borrowings increased by $15.9 million,
$5.6 million, $6.0 million and $7.9 million during the four months ended
February 28, 1998 and the years ended October 31, 1997, 1996 and 1995,
respectively. At February 28, 1998, total borrowings from the FHLB amounted to
$66.9 million and Compass had the capacity to increase that total to $381.1
million. Depending on market conditions and Compass's liquidity and GAP
position, Compass may continue to borrow from the FHLB.
Seacoast Financial's most liquid assets are cash and due from banks,
short-term investments and debt securities. The levels of these assets are
dependent on Seacoast Financial's operating, financing, lending and investment
activities during any given period. At February 28, 1998, cash and due from
banks, short-term investments and debt securities maturing within one year
amounted to $75.9 million, or 6.6% of total assets.
At February 28, 1998, Compass had commitments to originate loans,
unused outstanding lines of credit, standby letters of credit and undisbursed
proceeds of loans totaling $101.0 million. Compass anticipates that it will have
sufficient funds available to meet its current loan commitments. Certificates of
deposit maturing within one year from February 28, 1998 amounted to $428.3
million. Compass expects that substantially all maturing certificate accounts
will be retained by Compass at maturity. At February 28, 1998, Compass exceeded
all of its regulatory requirements with a leverage capital of $95.8 million, or
8.51% of average assets, which is above the required level of $45.0 million or
4.00%, and total risk-based capital of $105.6 million, or 13.48% of adjusted
assets, which is above the required level of $62.6 million, or 8.00%. Seacoast
Financial also exceeded all regulatory capital requirements applicable to bank
holding companies. See "Regulation of Seacoast Financial and Subsidiaries --
Regulatory Capital Requirements" and "-- Insurance of Accounts and Regulation by
the FDIC."
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Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with GAAP, which requires the
measurement of financial position and operating results in terms of historical
dollar amounts without considering changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of Seacoast Financial's operations. Unlike industrial companies,
nearly all of the assets and liabilities of Seacoast Financial are monetary in
nature. As a result, interest rates have a greater impact on Seacoast
Financial's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
Impact of New Accounting Standards
Accounting for Stock-Based Compensation. In November 1995, the FASB
issued SFAS No. 123, "Accounting for Stock Based Compensation." The statement
established financial accounting standards for stock-based employee compensation
plans. SFAS No. 123 permits Seacoast Financial to choose either a new fair value
based method or the Accounting Principles Board (the "APB") Opinion 25 intrinsic
value based method of accounting for its stock-based compensation arrangements.
SFAS No. 123 requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under APB Opinion 25. SFAS No. 123 applies to all
stock-based employee compensation plans in which an employer grants shares of
its stock or other equity instruments to employees except for employee stock
ownership plans. SFAS No. 123 also applies to plans in which the employer incurs
liabilities to employees in amounts based on the price of the employer's stock
(e.g., stock option plans, stock purchase plans, restricted stock plans and
stock appreciation rights). The statement also specifies the accounting for
transactions in which a company issues stock options or other equity instruments
for services provided by nonemployees or to acquire goods or services from
outside suppliers or vendors. The recognition provisions of SFAS No. 123 for
companies choosing to adopt the new fair value based method of accounting for
stock-based compensation arrangements is applicable to all transactions entered
into in fiscal years that begin after December 15, 1995. Any effect that this
statement will have on Seacoast Financial will be applicable upon consummation
of the Offering.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. 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 prospectively. Earlier
or retroactive application of the Statement is not permitted. In December 1996,
the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of SFAS No. 125." That statement requires the deferral of
implementation as it relates to repurchase agreements, dollar-rolls, securities
lending and similar transactions until years beginning after December 31, 1997.
Earlier or retroactive application of SFAS No. 125 is not permitted. Adoption of
SFAS No. 125 and SFAS No. 127 has not had a material impact on the financial
position or operating results of Seacoast Financial.
Earnings Per Share. In February 1997, the FASB issued SFAS No. 128,
"Earnings Per Share." This statement, which supersedes APB Opinion 15,
simplifies the reporting of earnings per share by eliminating the presentation
of primary earnings per share and requiring the presentation of basic earnings
per share. The calculation of basic earnings per share excludes the effect of
potential common shares to be issued, thus resulting in no dilution. The
statement requires entities with complex capital structures to present basic and
diluted earnings per share on the face of the income statement and eliminates
the modified treasury stock method of computing potential common shares. The
statement is effective for financial statements issued for fiscal years ending
after December 15, 1997. Seacoast Financial will follow the guidance of SFAS No.
128 when it is required to report earnings per share.
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Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income." The statement requires entities
presenting a complete set of financial statements to include details of
comprehensive income that arise in the reporting period. Comprehensive income
consists of net income or loss for the current period and other comprehensive
income consisting of revenue, expenses, gains and losses that bypass the income
statement and are reported directly in a separate component of equity. Other
comprehensive income includes, for example, unrealized gains and losses on
certain investment securities, minimum pension liability adjustments and foreign
currency items. SFAS No. 130 requires that components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. At February 28, 1998, Seacoast Financial's other
comprehensive income consisted of unrealized gains on securities classified as
available for sale. The statement is effective for fiscal years beginning after
December 15, 1997 and requires restatement of prior period financial statements
presented for comparative purposes.
Disclosures about Segments of an Enterprise and Related Information.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The statement changes the current practice
for reporting segment information under SFAS No. 14, "Financial Reporting for
Segments of an Enterprise." Public entities are required to report financial and
descriptive information about their reportable operating segments. An operating
segment is a component of an entity for which financial information is developed
and evaluated by the entity's chief operating decision maker to assess
performance and to make decisions about resource allocation. Disclosures about
operating segments should generally be based on the information used internally.
The statement is effective for financial statements for periods beginning after
December 15, 1997. On adoption, comparative information for earlier years is to
be restated.
Employers' Disclosures About Pensions and Other Postretirement
Benefits. In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits," which is to
become effective for fiscal years beginning after December 15, 1997. This
statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available.
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BUSINESS OF SEACOAST FINANCIAL
Seacoast Financial is a mutual holding company that was formed in 1994
in connection with Compass's reorganization into the mutual holding company form
of organization. Seacoast Financial is registered with the FRB as a bank holding
company under the BHCA. Since the formation of Seacoast Financial, it has owned
100% of Compass's outstanding capital stock, and will continue to do so after
consummation of the Conversion.
In addition to the capital stock of Compass, Seacoast Financial's
assets consist primarily of approximately $5.6 million in investment securities
and cash as of February 28, 1998. Seacoast Financial is subject to regulation
and supervision by the FRB and the Commissioner. See "Regulation of Seacoast
Financial and Subsidiaries -- Holding Company Regulation."
Upon completion of the Conversion and the Merger, Seacoast Financial
will have no significant liabilities and no assets other than 100% of the shares
of Compass's outstanding common stock, its investment securities and any net
proceeds of the Conversion not contributed to Compass.
On a consolidated basis, Seacoast Financial's total assets and deposits
have grown from $1,027.8 million and $882.6 million, respectively, as of October
31, 1996 to $1,106.6 million and $937.9 million, respectively, as of October 31,
1997. At February 28, 1998, total assets and deposits were $1,143.6 million and
$951.4 million, respectively. Seacoast Financial's gross loan portfolio has
increased from $748.1 million as of October 31, 1996 to $846.4 million on
February 28, 1998. See "Management's Discussion and Analysis or Results of
Operations and Financial Condition of Seacoast -- Comparison of Financial
Condition at October 31, 1997 and October 31, 1996" and "-- Comparison of
Financial Condition at February 28, 1998 and October 31, 1997."
The management of Seacoast Financial is set forth under "Management of
Seacoast Financial and Compass." Seacoast Financial neither owns nor leases any
property but instead uses the premises, equipment and furniture of Compass. At
the present time, Seacoast Financial does not employ any persons other than
certain officers who are also officers of Compass but uses the support staff of
Compass from time to time. Additional employees may be hired as appropriate to
the extent Seacoast Financial expands its business in the future.
The fiscal years of both Seacoast Financial and Compass end on October
31.
BUSINESS OF COMPASS
General
Based on total assets, Compass was the sixth largest savings bank in
Massachusetts as of October 31, 1997. Compass is principally engaged in the
business of attracting deposits from the general public and investing those
deposits in loans and investment securities. Individual and business customers
of Compass have a variety of deposit accounts with Compass, including NOW
(checking) and other demand deposit accounts, passbook savings accounts, money
market deposit accounts, Individual Retirement Accounts ("IRAs") and various
certificates of deposit. Compass's loan portfolio includes residential and
commercial real estate loans, indirect auto loans, construction loans and
consumer and commercial loans. With its emphasis on commercial and commercial
real estate lending as well as its indirect auto loan program, management
believes that Compass differs from the typical savings bank. Savings banks
normally concentrate to a greater degree on residential mortgage lending.
Compass's investment portfolio consists primarily of U.S. Government and Agency
securities, corporate debt obligations, mortgage-backed securities and, to a
lesser extent, marketable equity securities.
Compass's results of operations depend to a large degree on its net
interest income, which is the difference between interest income from loans and
investments and interest expense for deposits and borrowings. See "Risk Factors
- -- Potential Impact of Changes in Interest Rates on Seacoast Financial's
Earnings."
For a description of certain effects of the Merger on Seacoast
Financial's and Compass's business, see "Certain Effects of the Merger on
Seacoast Financial."
Market Area and Competition
Compass is a community-oriented savings bank offering a variety of
financial products and services to meet the needs of the communities it serves.
Compass's deposit gathering is concentrated in the communities surrounding its
23 full service branch offices located in the southeastern Massachusetts areas
of Greater New Bedford, Greater Fall
55
<PAGE>
River, Greater Plymouth and the island of Martha's Vineyard. Compass also
maintains five free-standing ATM machines and two limited-service high school
branches. Compass primarily originates loans secured by one- to four-family
residential properties and commercial real estate, indirect auto loans,
commercial loans and consumer loans within southeastern Massachusetts and, to a
much lesser degree, Rhode Island.
Compass's main office is located in New Bedford, Massachusetts. New
Bedford had an estimated population of 99,088 in 1995 and is located in the
southeastern, or "South Coast," region of Massachusetts, approximately 60 miles
south of Boston and 30 miles east of Providence, Rhode Island. The City of New
Bedford was historically a major center of the New England fishery and textile
industries. Compass also operates in the City of Fall River, another city with a
history of textile manufacturing. Fall River had an estimated population of
92,560 in 1995 and is located to the west of New Bedford and just north of the
southern Massachusetts coastline. Over the past several decades, the cities of
New Bedford and Fall River have experienced relatively flat economic activity
and higher unemployment rates than most of New England and the country,
primarily as a result of a reduction in manufacturing and marine-related jobs
there. Although the economy in New Bedford and Fall River has not generally been
as strong as that of the rest of Massachusetts and New England, neither has it
been as volatile. For example, these areas did not experience the rapid economic
growth and increase in real estate values that characterized much of
Massachusetts and New England during the 1980's, and therefore were not hit as
hard by the economic recession suffered by New England in the late 1980's and
early 1990's. Similarly, while the economies and real estate markets of parts of
New England have improved significantly since the end of the recession in the
early 1990's, the economies of and real estate markets in New Bedford and Fall
River, although relatively stable, lag behind the rest of the region. However,
many well-known manufacturers, such as Titleist Footjoy Worldwide, American
Flexible Conduit, Acushnet Rubber, Globe Manufacturing and Quaker Fabrics, are
still located in the New Bedford and Fall River areas. In addition, the recent
designation of the New Bedford Waterfront and adjoining Historic District as a
National Park dedicated to New Bedford's history as the "Whaling Capital of the
World" could have a positive impact on the local economy.
Compass also operates in the towns surrounding New Bedford and Fall
River, which have experienced significant growth over the last decade. The
University of Massachusetts at Dartmouth has been a regional source for
educational opportunities and a catalyst for economic development. Single family
home construction has accelerated in the suburban towns of Dartmouth, Acushnet,
Westport, Somerset and Swansea during the past five years.
Compass's market area also includes the resort island of Martha's
Vineyard. Compass opened a loan production office on Martha's Vineyard in 1986,
and acquired the Martha's Vineyard National Bank in December 1994. A well-known
and affluent vacation destination, the island's economy is cyclical, driven
primarily by the tourist industry, which includes second homes, restaurants,
inns, hotels, small service businesses and tradespeople.
In 1994, Compass entered Plymouth County through its acquisition of a
significant portion of the deposits of the Plymouth Federal Savings Bank
("Plymouth Federal") from the Resolution Trust Corporation. Plymouth is, by
area, the largest town in Massachusetts. Its size and direct highway and rail
access to Boston have created recent increased demand for mortgage and
residential construction loans there. Compass continues to operate one of the
former Plymouth Federal branch offices, and has opened three additional branches
in the area in order to increase deposit and lending opportunities, one in the
town of Carver, one in Manomet (a section of the town of Plymouth) and the third
in the town of Plymouth. Compass has also become an active real estate lender in
the communities north of Plymouth which are generally desirable suburban towns
populated by Boston commuters.
Compass's current business activity in the Cape Cod market is
primarily restricted to its indirect auto lending program. Following the Merger,
Compass's market area will expand to include Sandwich's substantial Cape Cod
market. Like Martha's Vineyard, Cape Cod is a tourist destination, with a
cyclical economy based primarily on second homes, restaurants, inns, hotels and
small service businesses. See "Certain Effects of the Merger on Seacoast
Financial."
Compass faces significant competition both in generating loans and in
attracting deposits. Compass's primary market area is highly competitive and
Compass faces direct competition from a significant number of financial
institutions, many with a state-wide, a regional and, in some cases, a national
presence. Many of these financial institutions are significantly larger and have
greater financial resources than Compass. Compass's competition for loans comes
principally from commercial banks, savings banks, credit unions, mortgage
brokers, mortgage banking companies and insurance companies. Its most direct
competition for deposits has historically come from savings,
56
<PAGE>
cooperative and commercial banks and credit unions, particularly in Fall River
and New Bedford. In addition, Compass faces increasing competition for deposits
from non-bank institutions, such as brokerage firms and insurance companies
which offer instruments like short-term money-market funds, corporate and
government securities funds, mutual funds and annuities. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions. Finally, credit unions do not pay federal or state
income taxes and are subject to fewer regulatory constraints than savings banks.
Numerous credit unions are located in Fall River and Rhode Island and, because
of their tax and regulatory status, they enjoy a competitive advantage over
Compass. This advantage places significant competitive pressure on the prices of
Compass's loan and deposits. See "Risk Factors -- Competition."
Lending Activities
General. Compass's gross loan portfolio totaled $846.4 million as of
February 28, 1998, representing 74.0% of Compass's total assets on that date.
Compass primarily makes residential real estate loans secured by one- to
four-family residences, indirect auto loans and commercial real estate loans.
Such loans represented 43.0%, 26.6% (net of unearned discounts) and 14.3%,
respectively, of Compass's gross loan portfolio as of February 28, 1998. Compass
started making indirect auto loans in 1985 and, between October 31, 1995 and
February 28, 1998, that portion of Compass's loan portfolio grew by 61.3%.
Compass also makes home equity line of credit loans, residential and commercial
construction loans, commercial loans, fixed rate home equity loans, personal
installment loans, education loans and passbook loans. Real estate secures a
majority of Compass's loans as of February 28, 1998, including some loans
classified as commercial loans.
Compass makes loans throughout its market area and originated $393.6
million in loans during 1997 and $153.3 million in loans during the four months
ended February 28, 1998. It sold, on a servicing retained basis, $33.2 million
and $21.3 million in residential loans in the secondary market during those same
periods, respectively.
The types of loans that Compass may originate are subject to federal
and state law and regulations. Interest rates charged by Compass on loans are
affected primarily by the demand for such loans, the supply of money available
for lending purposes and the rates offered by competitors. These factors are, in
turn, affected by national, regional and local economic conditions, the levels
of federal government spending and revenue, monetary policies of the FRB and tax
policies.
57
<PAGE>
The following table summarizes the composition of Compass's gross loan
portfolio as of certain dates:
<TABLE>
<CAPTION>
At February 28, At October 31,
------------------ ------------------------------------------------------------
1998 1997 1996 1995
------------------ ------------------ ------------------ -----------------
Percent Percent Percent Percent
Amount of total Amount of total Amount of total Amount of total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential (one- to four-family) .......... $364,173 43.03% $363,030 44.26% $343,204 45.88% $336,489 49.78%
Commercial (1) ............................. 120,740 14.26 124,059 15.13 128,707 17.20 103,096 15.25
Home equity lines of credit ................ 15,790 1.87 15,133 1.85 17,288 2.31 18,857 2.79
Construction, net .......................... 41,229 4.87 33,894 4.13 25,007 3.34 15,877 2.35
-------- -------- -------- -------- -------- -------- -------- --------
Total real estate loans ............. 541,932 64.03 536,116 65.37 514,206 68.73 474,319 70.17
-------- -------- -------- -------- -------- -------- -------- --------
Commercial loans .............................. 53,974 6.38 51,371 6.26 46,211 6.18 43,402 6.42
-------- -------- -------- -------- -------- -------- -------- --------
Consumer loans:
Indirect auto loans ........................ 256,093 30.26 238,114 29.03 189,865 25.38 159,433 23.58
Other ...................................... 25,460 3.01 24,662 3.01 22,063 2.95 18,764 2.78
-------- -------- -------- -------- -------- -------- -------- --------
Consumer loans ...................... 281,553 262,776 211,928 178,197
Less: unearned discount .................... 31,074 30,066 24,232 19,911
-------- -------- -------- --------
Total consumer loans ................ 250,479 29.59 232,710 28.37 187,696 25.09 158,286 23.41
-------- -------- -------- -------- -------- -------- -------- --------
Total loans ......................... $846,385 100.00% $820,197 100.00% $748,113 100.00% $676,007 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
At October 31,
---------------------------------------
1994 1993
------------------ ------------------
Percent Percent
Amount of total Amount of total
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Residential (one- to four-family) .......... $268,010 52.56% $251,623 55.78%
Commercial (1) ............................. 67,784 13.30 61,938 13.73
Home equity lines of credit ................ 11,448 2.25 13,016 2.89
Construction, net .......................... 14,844 2.91 13,719 3.04
-------- -------- -------- --------
Total real estate loans ............. 362,086 71.02 340,296 75.44
-------- -------- -------- --------
Commercial loans .............................. 20,763 4.07 17,061 3.78
-------- -------- -------- --------
Consumer loans:
Indirect auto loans ........................ 125,667 24.65 90,159 19.99
Other ...................................... 15,433 3.03 14,120 3.13
-------- -------- -------- --------
Consumer loans ...................... 141,100 104,279
Less: unearned discount .................... 14,081 10,522
-------- --------
Total consumer loans ................ 127,019 24.91 93,757 20.78
-------- -------- -------- --------
Total loans ......................... $509,868 100.00% $451,114 100.00%
======== ====== ======== ======
</TABLE>
- ----------------------
(1) In September 1996, Compass reclassified approximately $28.0 in multifamily
loans from residential real estate to commercial real estate. Corresponding
prior-period reclassifications have not been made.
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<PAGE>
Loan Origination and Underwriting. Loan officers based in each of
Compass's four regions -- Plymouth, Fall River, New Bedford and Martha's
Vineyard -- originate and underwrite Compass's mortgage and commercial loans.
Compass underwrites consumer loans at its main office, although it originates
such loans at its branches and, in the case of indirect auto loans, through a
network of car dealers. Compass also employs nine traveling loan originators,
based in the four regions, who originate residential mortgage loans. To date,
Compass has not purchased loans from mortgage brokers. Compass is currently
considering entering into agreements for the origination of adjustable rate
residential mortgage loans by Boston area mortgage correspondents.
Compass relies on print, radio, television and cable advertising, on
referrals from existing customers, attorneys and real estate professionals and
on relationships with existing borrowers to originate loans. In addition,
Compass solicits consumer loans, including home equity loans, by direct mail to
existing deposit and residential mortgage loan customers. Compass tries to
develop relationships with its customers in which customers see Compass as a
source of support in the management of their personal finances or in the conduct
of their businesses. Based on those relationships, many customers have more than
one account with and/or loan from Compass. Finally, Compass relies on
relationships with automobile dealers operating throughout its current market
area (except for Martha's Vineyard), Rhode Island and on Cape Cod to generate
new indirect auto loans. The dealers originate the loans, send loan applications
to Compass and Compass underwrites them. Compass maintains frequent contact with
its dealers through its Senior Vice President, Consumer Lending, and through a
sales officer who devotes all of his time to servicing this business.
Compass's underwriting of loans varies depending on the types of loan
underwritten. It generally includes the use of credit applications, property
appraisals and verification of an applicant's credit history, employment and
banking relationships to the extent management deems appropriate in each case.
Additional information concerning the underwriting of specific types of loans is
set forth in sections that discuss those loans and in the discussion of
environmental factors that affect lending. See "-- Lending Activities," "--
Residential Real Estate Loans," "-- Indirect Auto and Other Consumer Loans," "--
Commercial Real Estate Loans," "-- Commercial Loans," "-- Construction Loans"
and "-- Environmental Issues."
Four senior loan officers oversee loan origination and underwriting.
Individual loan officers may originate loans within certain approved lending
limits. A credit committee, consisting of senior loan officers, must approve all
commercial loans that exceed $300,000 and Compass's Board of Directors or the
executive committee thereof must approve all loans over $750,000. Pursuant to
its loan policy, Compass generally will not make loans aggregating more than
$5.0 million to any one borrower. Exceptions to this "house" lending limit are
approved by the Board. At February 28, 1998, one borrower had aggregate loans
with Compass which exceeded this limit, with outstanding loans (all of which
were performing in accordance with their terms) amounting to $6.0 million at
that date. Compass's internal lending limit is significantly lower than the
Massachusetts legal lending limit, which is 20% of a bank's surplus and capital
stock accounts, or $19.5 million for Compass as of February 28, 1998.
59
<PAGE>
The following table sets forth certain information concerning
Compass's origination of loans:
<TABLE>
<CAPTION>
Four months
ended February 28, Year ended October 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans outstanding at beginning of period ............................... $820,197 $748,113 $748,113 $676,007 $509,868
Loans originated:
Mortgage loans:
Residential(1) ....................................................... 43,230 24,528 94,391 104,562 56,184
Commercial real estate(1) ............................................ 12,532 13,499 40,434 35,179 25,406
Construction ......................................................... 11,486 5,590 24,260 16,548 11,170
Home Equity .......................................................... 4,377 977 7,996 6,228 3,542
-------- -------- -------- -------- --------
Total mortgage loans ............................................... 71,625 44,594 167,081 162,517 96,302
Commercial loans ...................................................... 20,183 19,150 61,333 53,462 48,370
Indirect auto loans ................................................... 56,627 38,308 152,349 120,000 103,093
Other consumer loans .................................................. 4,891 3,669 12,877 13,518 10,486
-------- -------- -------- -------- --------
Total loans originated ............................................. 153,326 105,721 393,640 349,497 258,251
-------- -------- -------- -------- --------
Purchases of mortgage loans ............................................ 2,086 500 888 9,209 6,290
-------- -------- -------- -------- --------
Acquisition of Martha's Vineyard
National Bank ......................................................... -- -- -- -- 104,393
-------- -------- -------- -------- --------
Less:
Principal repayments .................................................. 107,145 94,001 283,993 246,962 177,046
Loans sold ............................................................ 21,299 6,873 33,184 36,137 18,734
Transfers to other real estate owned .................................. 565 1,109 3,333 2,430 5,783
Principal charged-off ................................................. 215 374 1,934 1,071 1,232
-------- -------- -------- -------- --------
Loans outstanding at end of period ..................................... $846,385 $751,977 $820,197 $748,113 $676,007
======== ======== ======== ======== ========
</TABLE>
(1) In September 1996, Compass reclassified as commercial real estate loans
approximately $28.0 million in multi-family loans that previously had been
classified as residential real estate. Corresponding reclassifications were
not made for prior periods.
Compass charges origination fees, or points, and collects fees to cover
the costs of appraisals and credit reports on most new residential mortgage
loans. Compass also collects late charges on real estate loans and prepayment
premiums on commercial mortgage loans. Compass generally charges availability
fees on lines of credit. For information regarding Compass's recognition of loan
fees and costs, see Note 1 of the notes to the Consolidated Financial Statements
of Seacoast Financial and Subsidiary presented elsewhere herein.
Loan Purchases. Compass occasionally purchases participation interests
in commercial and residential real estate loans originated by other banks in its
market area. Compass underwrites such loans as if it had originated them itself.
Compass's interest in participation loans as of February 28, 1998 totaled $16.9
million, of which $12.3 million was acquired from a bank located on the island
of Nantucket, Massachusetts.
Loan Maturity and Repricing. The following table shows the contractual
maturity and repricing dates of Compass's loan portfolio at February 28, 1998.
The table does not reflect prepayments or scheduled principal amortization.
60
<PAGE>
<TABLE>
<CAPTION>
At February 28, 1998
------------------------------------------------------------------------------------------
Real estate mortgage loans
----------------------------------------------
Other
Home Indirect consumer Total
Residential Commercial Construction equity Commercial auto loans loans loans
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due (1):
Within one year .................... $ 107,096 $ 43,197 $ 9,454 $14,059 $35,882 $ 27,812 $ 3,117 $240,617
--------- -------- ------- ------- ------- -------- ------- --------
After one year:
More than one year to three years .. 113,382 58,254 13,085 803 9,198 87,637 4,479 286,838
More than three years to five years. 55,175 15,549 6,819 145 3,962 103,763 5,760 191,173
More than five years to ten years .. 46,839 2,335 9,038 335 4,425 5,807 10,822 79,601
More than ten years ................ 41,681 1,405 2,833 448 507 -- 1,282 48,156
--------- -------- ------- ------- ------- -------- ------- --------
Total due after February 28, 1999 257,077 77,543 31,775 1,731 18,092 197,207 22,343 605,768
--------- -------- ------- ------- ------- -------- ------- --------
Total amount due ................ $ 364,173 $120,740 $41,229 $15,790 $53,974 $225,019 $25,460 $846,385
========= ======== ======= ======= ======= ======== =======
Less:
Allowance for loan losses .......... (10,747)
--------
Net loans ....................... $ 835,638
=========
</TABLE>
- ----------
(1) Amounts due are net of unadvanced funds on loans.
The following table sets forth, at February 28, 1998, the dollar
amount of gross loans, net of unadvanced funds on loans, contractually due or
scheduled to reprice after February 28, 1999 and whether such loans have fixed
interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
Due after February 28, 1999
-------------------------------------------------
Fixed Adjustable Total
----- ---------- -----
(In thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
Residential .............................................. $122,632 $134,445 $257,077
Commercial ............................................... 6,643 70,900 77,543
Construction ............................................. 15,730 16,045 31,775
Home equity .............................................. 1,064 667 1,731
Total real estate mortgage loans ...................... 146,069 222,057 368,126
Commercial loans ............................................ 12,674 5,418 18,092
Indirect auto loans ......................................... 197,207 -- 197,207
Other consumer loans ........................................ 22,343 -- 22,343
-------- -------- --------
Total loans ........................................... $378,293 $227,475 $605,768
======== ======== ========
</TABLE>
Residential Real Estate Loans. As of February 28, 1998, adjustable
rate mortgage loans represented approximately 65% and fixed-rate mortgage loans
represented approximately 35% of Compass's portfolio of residential mortgage
loans secured by one- to four-family owner-occupied properties. Compass
originated $104.6 million, $94.4 million and $43.2 million of such loans in
1996, 1997 and in the first four months of 1998, respectively. Compass's
portfolio of residential loans totaled $364.2 million, which represented 43.0%
of Compass's total loan portfolio, at February 28, 1998. Over 90% of this
portfolio is secured by single-family owner-occupied homes and the remainder is
secured primarily by two-, three- or four-family owner-occupied homes.
Compass currently sells most of the fixed-rate residential mortgage
loans it originates with terms of more than 15 years to the Federal Home Loan
Mortgage Corporation ("FHLMC"). Compass is also authorized to sell loans to the
Federal National Mortgage Association ("FNMA") and to service those loans but
has not done so to date. Compass continues to service loans that it sells to
FHLMC and receives a fee for servicing such loans equal to .25% of the amounts
outstanding on them. Compass serviced for others loans aggregating $212.7
million as of February 28, 1998
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<PAGE>
and it earned $571,000 and $179,000 in servicing fees, representing 9.61% and
8.04%, respectively, of its non-interest income, in 1997 and during the first
four months of 1998, respectively.
Compass generally retains for its own portfolio fixed-rate residential
mortgage loans with terms of more than 15 years or less and fixed-rate
residential mortgage loans that are amortized on a bi-weekly basis and have
terms between 10 and 30 years. Compass had $43.4 million of such loans in its
portfolio as of February 28, 1998. Compass also retains in its portfolio
fixed-rate mortgage loans that exceed the size limits of FHLMC's underwriting
criteria, and loans made under its program for low-to-moderate income borrowers,
as described below.
Compass originates adjustable-rate residential mortgage loans mostly
for its own portfolio. Compass originated $45.1 million and $15.0 million in
such loans during 1997 and during the first four months of 1998, respectively,
and had $246.5 million of such loans in its loan portfolio, representing
approximately 65% of such portfolio, as of February 28, 1998. Compass offers
adjustable-rate mortgage loans that reprice annually, every three years or after
five years and annually thereafter. The interest rate adjustments on these loans
are indexed to the applicable one-year or three-year U.S. Treasury CMT Index
with corresponding add-on margins of varying amounts. Such loans are subject to
certain requirements and limitations set forth in guidelines issued by the
Commissioner, including limitations on the amount and frequency of interest rate
changes. Rates adjust by no more than one or two percentage points in each
adjustment period and by no more than five or six points over the life of a
loan. Adjustable rate loans are generally originated at a discount, generally
ranging from 1.25% to 2.75%, from the fully margined index rate.
Compass's residential mortgage loans generally are written in amounts
up to 95% of the appraised value or selling price, whichever is less, of the
property securing the loan. Compass generally requires borrowers to obtain
private mortgage insurance with respect to loans with a greater than 80%
loan-to-value ratio.
In 1994, Compass initiated a program to originate residential mortgage
loans to low-to-moderate income borrowers. The loans have fixed and adjustable
interest rates that are typically lower than prevailing market rates, are closed
without points, have substantially lower closing costs than Compass's regular
residential loans and have terms of up to 30 years. The loans may have up to a
95% loan-to-value ratio, although borrowers must obtain private mortgage
insurance if the loan-to-value ratio exceeds 80%. Compass does not sell these
loans in the secondary market. Compass makes the loans with funds borrowed under
the Community Investment Program ("CIP") and the New England Fund ("NEF")
housing programs of the Federal Home Loan Bank of Boston (the "FHLB"). These
programs permit Compass to borrow from the FHLB at below market rates to finance
the loans. Compass had $22.8 million of CIP-funded loans and $19.7 million of
NEF-funded loans in its loan portfolio, representing 5.0% of such portfolio, as
of February 28, 1998.
Compass originates, sells and services residential mortgage loans to
low- and moderate-income first-time home buyers with funds provided by the
Massachusetts Housing Finance Agency. As of February 28, 1998, Compass serviced
$3.8 million of such loans.
Commercial Real Estate Loans. Compass makes commercial real estate
loans throughout its market area. Compass originated $40.4 million and $12.5
million in commercial real estate loans in 1997 and during the first four months
of 1998, respectively, and had $120.7 million in commercial real estate loans in
its loan portfolio, representing 14.3% of such portfolio, as of February 28,
1998.
Properties that are used for borrowers' businesses, such as small
office buildings, restaurants, inns, retail facilities or multi-family income
properties, normally collateralize Compass's commercial real estate loans. The
loans typically have terms of up to 20 years and interest rates which adjust
over periods of one to five years based on one of various rate indices.
Commercial real estate loans with fixed interest rates have terms ranging from
one to ten years, with the most frequent term lasting from three to five years.
Compass primarily considers the quality of the borrower's management
and the borrower's cash flows when it underwrites commercial real estate loans.
Compass generally makes commercial real estate loans in an amount equal to no
more than 80% of the appraised value of the property securing the loan. Compass
generally requires the owners of businesses seeking commercial real estate loans
to personally guarantee those loans.
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<PAGE>
At February 28, 1998, $24.6 million of the commercial real estate
loans in Compass's portfolio were secured by multi-family income properties. A
majority of these properties are located in Fall River and New Bedford and
contain between five and twelve units.
Commercial real estate lending entails greater credit risks than
residential mortgage lending to owner occupants. The repayment of commercial
real estate loans depends on the business and financial condition of the
borrower. Economic events and changes in government regulations, which Compass
and its borrowers cannot control, could have an adverse impact on the cash flows
generated by properties securing Compass's commercial real estate loans and on
the value of such properties. Commercial properties tend to decline in value
more rapidly than residential owner-occupied properties during economic
recessions. See "Risk Factors -- Construction, Commercial Real Estate,
Commercial and Indirect Auto Lending Risks."
Construction Loans. Compass makes both residential and commercial
construction loans, primarily in Plymouth County, in and around New Bedford and
on Martha's Vineyard. Compass typically makes the loans to owner-borrowers who
will occupy the properties (residential construction) and to licensed and
experienced developers for the construction of single-family home developments
(commercial construction). Developers build homes in Plymouth County to
accommodate a growing population that commutes to work in Boston. There are few
developments on Martha's Vineyard but individuals regularly build secondary
residences there.
Compass makes construction loans only to developers who have successful
track records. Compass generally increases the loan-to-value ratios on such
loans as construction progresses. Before any work has commenced, and while a
construction loan's only collateral is a plot of land, Compass will finance only
up to 70% of the value of that land. Once construction has begun, Compass will
generally make residential construction loans in amounts up to 90% (for primary
homes) and 80% (for secondary homes) of the lesser of the appraised value of the
property, as completed, or the property's cost of construction. Compass
generally makes commercial construction loans in amounts up to 75% of the lesser
of the property's appraised value, as completed, or construction cost and
generally requires developers seeking commercial construction loans to
personally guarantee them. Compass typically makes commercial construction loans
only to finance construction on developments that have no more than 20 housing
lots.
Compass disburses the proceeds of construction loans in stages and
requires developers to pre-sell a certain percentage of the properties they plan
to build before Compass will advance any construction financing. Compass
officials inspect each project's progress before Compass disburses additional
funds to verify that borrowers have completed project phases.
Residential construction loans to owner-borrowers generally convert to
a fully amortizing long-term mortgage loan upon completion of construction.
Commercial construction loans generally have terms of six months to a maximum of
two years. Some construction loans have fixed interest rates but Compass
originates mostly adjustable-rate construction loans.
Compass originated $24.3 million and $11.5 million in construction
loans during 1997 and during the first four months of 1998, respectively, and
had $41.2 million in construction loans in its loan portfolio, representing 4.9%
of such portfolio, as of February 28, 1998.
Construction lending, particularly commercial construction lending,
entails greater credit risk than residential mortgage lending to owner
occupants. The repayment of construction loans depends on the business and
financial condition of the borrower and on the economic viability of the project
financed. A number of Compass's borrowers have more than one construction loan
outstanding with the bank. Economic events and changes in government
regulations, which Compass and its borrowers cannot control, could have an
adverse impact on the value of properties securing construction loans and on the
borrowers' ability to complete projects financed and, if not the borrower's
residence, sell them for expected amounts at the time the projects were
commenced. See "Risk Factors -- Construction, Commercial Real Estate, Commercial
and Indirect Auto Lending Risks."
Home Equity Loans. Compass has a portfolio of home equity lines of
credit secured by one- to four-family owner-occupied properties. These loans are
revolving lines of credit and are typically secured by second mortgages.
Interest rates on home equity loans normally adjust based on Compass's prime
rate of interest. The lines of credit are available for up to ten years, at the
end of which they become term loans which are amortized for the same amount of
time as the original loan. Compass originates home equity line of credit loans
in amounts from $10,000 to $150,000
63
<PAGE>
but not, in any event, more than the difference between 80% (for primary homes)
or 70% (for secondary homes) of the appraised value of the property securing the
loan, or 70% (for primary homes) or 60% (for secondary homes) of the value of
such property as assessed for tax purposes, and the outstanding balance of the
first mortgage on such property. Compass had $15.8 million in home equity lines
of credit in its loan portfolio, representing 1.9% of the portfolio, as of
February 28, 1998. The undrawn portion of home equity lines of credit totaled
$16.8 million at February 28, 1998.
Commercial Loans. Compass primarily makes commercial loans to
businesses that operate in and around New Bedford and on Martha's Vineyard. In
recent months, Compass has increased its efforts to originate more such loans in
Plymouth and Fall River by adding a commercial loan officer dedicated to those
markets.
Compass reviews the financial resources, debt-to-equity ratios, cash
flows and Compass's own experience with businesses when underwriting commercial
loans. Compass generally requires business owners to personally guarantee
commercial loans.
Compass's commercial loans are generally collateralized by equipment,
leases, inventory and accounts receivable. Many of Compass's commercial loans
are also collateralized by real estate, but are not classified as commercial
real estate loans because such loans are not made for the purpose of acquiring,
refinancing or constructing the real estate securing the loan. Commercial loans
provide, among other things, working capital, equipment financing, financing for
leasehold improvements and financing for acquisitions. Compass offers both term
and revolving commercial loans. The former have either fixed or adjustable rates
of interest and, generally, terms of between four and seven years. Term loans
generally amortize during their life, although some loans require a lump sum
payment at maturity. Revolving commercial lines of credit typically have
one-year terms, renewable annually, and rates of interest which adjust on a
daily basis. Such rates are normally indexed to Compass's prime rate of
interest.
Compass's commercial borrowers are not concentrated in any one
particular industry. As of February 28, 1998, Compass's outstanding commercial
loans included floor plan loans to auto dealerships, loans to hotels, inns and
other tourism-related businesses on Martha's Vineyard, loans to building trade
companies and loans to liquor stores.
Compass originated $61.3 million and $20.2 million in commercial loans
during 1997 and during the first four months of 1998, respectively, and had
$54.0 million in commercial loans in its loan portfolio, representing 6.4% of
such loans, as of February 28, 1998.
Commercial lending entails greater credit risks than residential
mortgage lending to owner occupants. Repayment of both secured and unsecured
commercial loans depends substantially on the borrower's underlying business,
financial condition and cash flows. Unsecured loans generally involve a higher
degree of risk of loss than do secured loans because, without collateral,
repayment is wholly dependent upon the success of the borrower's business.
Secured commercial loans are generally collateralized by equipment, leases,
inventory and accounts receivable. Compared to real estate, such collateral is
more difficult to monitor, its value is harder to ascertain, it may depreciate
more rapidly and it may not be as readily saleable if repossessed. See "Risk
Factors -- Construction, Commercial Real Estate, Commercial and Indirect Auto
Lending Risks."
Indirect Auto and Other Consumer Loans. Compass emphasizes indirect
auto lending through a network of automobile dealers, and was actively doing
business with approximately 80 dealers at February 28, 1998. Compass has been in
the indirect auto lending business since 1985 and has increased its portfolio of
indirect auto loans from $79.6 million at October 31, 1993 to $225.0 million at
February 28, 1998, or 26.6% (net of unearned discount) of the loan portfolio on
the latter date. During this same time, the number of dealerships in the network
increased from 10 to 77. No one dealership originated more than $12.4 million of
the loan balances outstanding in Compass's loan portfolio at February 28, 1998.
In developing its network, Compass has continued to focus on dealers in its
primary market areas as well as on Cape Cod and in Rhode Island. Since November
1996, a consumer lending sales officer has been dedicated full time to serving
existing dealers in order to expand on those relationships and to develop
potential new dealer relationships. The growth of the dealer network has been
achieved through an emphasis on quality service and the development of long-term
relationships with the owners and managers of the dealerships. Since the program
began, no dealer has voluntarily ceased doing business with Compass. Compass
does not currently engage in auto lease financing.
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<PAGE>
Management believes that indirect auto lending has several advantages,
including the following: (i) the dealer network creates numerous "loan centers"
throughout Compass's market area; (ii) Compass can increase the network without
increasing its operating expenses significantly; and (iii) the network develops
a pool of customers to whom Compass can cross-sell other products and services.
Compass makes indirect auto loans to purchase both new and used cars.
The loans have terms of up to six years for those secured by new vehicles and
five and a half years for those secured by used vehicles. As of February 28,
1998, approximately half of Compass's indirect auto loans were secured by new
cars and the other half by used cars. Compass originated $152.3 million and
$56.6 million in indirect auto loans during 1997 and during the first four
months of 1998, respectively.
To underwrite its indirect auto loans, Compass reviews the credit
history of applicants and determines appropriate debt-to-equity and
loan-to-value ratios. Compass also believes that the quality of its indirect
auto portfolio is positively affected by its efforts to build and maintain
relationships with auto dealers who attract creditworthy customers. Compass
tries to identify such dealers based on Compass's knowledge of car dealers in
its market area.
In connection with the origination of indirect auto loans, the interest
rate charged to the borrower on the underlying loan is generally one to two
percentage points higher than the "buy rate" or rate earned by Compass. The
difference between the two rates is referred to as the "spread". At loan
inception, the dollar value of the spread over the contractual term of the loan
is prepaid by Compass to the auto dealer. Such prepaid amounts are generally
subject to rebate to Compass in the event the underlying loan is prepaid or
becomes delinquent. The risk of loss of amounts previously advanced to the
dealer is primarily dependent upon loan performance but is also dependent upon
the financial condition of the dealer. Consequently, the dealer's ability to
refund any portion of the prepaid interest which is unearned is subject to
economic conditions, generally, and the financial condition of the dealer. To
mitigate this risk, Compass withholds a portion of the spread at loan
origination as a dealer reserve. The amount withheld, in the aggregate,
generally approximates 1% of the outstanding balance of loans originated by each
dealer. At February 28, 1998, the balance of the dealer reserve was $2.9
million, or 1.1% of the balance of indirect auto loans. Since its inception of
indirect auto lending in 1985, Compass has written-off interest spread prepaid
to auto dealers on only one occasion and the loss was less than $50,000.
Indirect auto lending entails greater risks than residential mortgage
lending to owner occupants. Although Compass has not experienced significant
delinquencies in this portfolio to date, borrowers may be more likely to become
delinquent on an automobile loan than on a residential mortgage loan secured by
their primary residence. Moreover, automobiles depreciate rapidly and, in the
event of default, principal loss as a percent of the loan balance depends upon
the mileage and condition of the vehicle at the time of repossession, over which
Compass has no control See "Risk Factors -- Construction, Commercial Real
Estate, Commercial and Indirect Auto Lending Risks."
Compass makes a variety of other consumer loans, including personal
installment loans, education loans, fixed-rate home equity loans, auto loans
directly to customers and passbook loans. Compass does not have any credit card
loans. Other consumer loans represented 3.0% of Compass's gross loan portfolio
as of February 28, 1998. Compass's fixed-rate home equity loans are
collateralized generally by second mortgages on residential properties. The
loans have terms of up to 15 years and are available in amounts up to $50,000.
Compass generally makes fixed-rate home equity loans that, together with any
first mortgage loans on the properties collateralizing such loans, have a
loan-to-value ratio of 80% or less (if the first mortgage is with another bank)
or up to 90% (if the first mortgage is with Compass).
Environmental Issues
Compass encounters certain environmental risks in its lending. Under
federal and state environmental laws, lenders may become liable for the costs of
cleaning up hazardous materials found on properties securing their loans. In
addition, the presence of hazardous materials on such properties may make it
unattractive for Compass to foreclose on them. Also, the presence of
environmentally hazardous materials near but not on properties in which Compass
has a security interest may have a negative effect on the values of those
properties. Commercial real estate loans typically involve such risks but
multi-family and other residential real estate loans are also subject to them.
Compass has procedures for the assessment of environmental risks and it
believes that those procedures are adequate. Before originating mortgage loans
in excess of $250,000, Compass requires prospective borrowers to make
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<PAGE>
a preliminary assessment of whether environmentally hazardous materials are
located on the properties that would collateralize such loans. If a preliminary
assessment raises concerns, Compass requires borrowers to conduct further
environmental analyses of the properties. Before originating a commercial real
estate loan below $250,000, a loan officer must review the appraisal of the
property that will collateralize the loan to make sure that the borrower does
not need to undertake a preliminary assessment of its environmental condition.
As of February 28, 1998, Compass does not know of any environmental problems
that might expose it to any material liabilities. No assurance can be given,
however, that the values of properties securing loans in Compass's portfolio
will not be adversely affected by environmental risks.
Delinquent Loans, Other Real Estate Owned, Classification of Assets and Loan
Review
Delinquent Loans. Management performs a monthly review of all
delinquent loans with a principal balance in excess of $150,000. Compass's
Collection Department Manager discusses the status of each account with Lending
Department Managers, the Senior Lending Officer and Account Officers. In
addition, Compass's Board of Directors reviews delinquency statistics by loan
class on a monthly basis.
The actions taken with respect to delinquencies vary depending upon the
nature of the delinquent loans and the period of delinquency. Compass's
collection philosophy is predicated upon early detection and response to
delinquent and default situations. Compass seeks to make arrangements to cure
the entire default over the shortest time frame. Generally, Compass requires
that a delinquency notice be mailed no later than the 10th day of delinquency. A
second notice is mailed on the 15th day of delinquency. A late charge is usually
assessed on loans where the scheduled payment is unpaid after 15 days. After
mailing the delinquency notices, Compass's loan collection personnel call the
borrower to ascertain the reasons for delinquency and the prospects for payment.
On loans secured by one- to four-family owner occupied properties, Compass
attempts to work out a payment schedule with the borrower in order to avoid
foreclosure. If these efforts do not achieve a satisfactory arrangement, Compass
refers the loan to legal counsel and counsel initiates foreclosure proceedings.
At any time prior to a sale of the property at foreclosure, Compass will
terminate foreclosure proceedings if the borrower and Compass are able to work
out a satisfactory payment plan. On loans secured by commercial real estate
properties, Compass also seeks to reach a satisfactory payment plan so as to
avoid foreclosure. Prior to foreclosure, Compass will generally obtain an
updated appraisal of the property.
The following table sets forth delinquencies in Compass's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
At February 28, 1998 At October 31, 1997
----------------------------------------------- ----------------------------------------------
60-89 days 90 days or more 60-89 days 90 days or more
--------------------- ---------------------- ---------------------- --------------------
Principal Principal Principal Principal
Number balance Number balance Number balance Number balance
of loans of loans of loans of loans of loans of loans of loans of loans
--------- --------- --------- --------- --------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential .................. 11 $ 684 15 $ 1,043 6 $ 306 18 $ 1,463
Commercial real estate ....... 2 171 8 1,708 1 116 8 1,205
Construction ................. 1 100 -- -- -- -- 1 148
Home equity .................. -- -- 2 52 -- -- 2 34
Commercial loans ................ 4 30 5 263 1 75 2 344
Indirect auto loans ............. 35 230 58 467 33 223 40 435
Other consumer loans ............ 10 16 19 56 13 19 14 20
--------- -------- ------- ------- ------- -------- ------- --------
Total ..................... 63 $ 1,231 107 $ 3,589 54 $ 739 85 $ 3,649
========= ======== ======= ======= ======= ======== ======= ========
Delinquent loans to total loans 0.15% 0.42% 0.09% 0.44%
======== ======= ======== ========
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
At October 31, 1996 At October 31, 1995
----------------------------------------------- ----------------------------------------------
60-89 days 90 days or more 60-89 days 90 days or more
--------------------- ---------------------- ---------------------- --------------------
Principal Principal Principal Principal
Number balance Number balance Number balance Number balance
of loans of loans of loans of loans of loans of loans of loans of loans
--------- --------- --------- --------- --------- --------- --------- --------
(Dollars in thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential .................. 17 $ 885 31 $ 2,100 12 $ 769 23 $ 1,390
Commercial real estate ....... 3 613 11 1,453 -- -- 2 499
Construction ................. -- -- 1 147 1 156 3 343
Home equity .................. 2 72 1 16 -- -- 5 209
Commercial loans ................ 1 102 8 620 4 470 6 584
Indirect auto loans ............. 24 180 43 339 13 96 14 101
Other consumer loans ............ 10 14 5 9 3 5 3 5
--------- -------- ------- ------- ------- -------- ------- --------
Total ..................... 57. $ 1,866 100 $ 4,684 33 $ 1,496 56 $ 3,131
========= ======== ======= ======= ======= ======== ======= ========
Delinquent loans to total loans .. 0.25% 0.64% 0.22% 0.46%
======== ======= ======== ========
</TABLE>
Other Real Estate Owned. Compass classifies property acquired through
foreclosure or acceptance of a deed in lieu of foreclosure as OREO in its
financial statements. When a property is placed in OREO, the excess of the loan
balance over the estimated fair market value of the collateral is charged to the
allowance for loan losses. Estimated fair value usually represents the sales
price a buyer would be willing to pay on the basis of current market conditions,
including normal loan terms from other financial institutions, less estimated
costs to sell the property. Management inspects all OREO properties
periodically. Subsequent writedowns in the carrying value of OREO are charged to
expense if the carrying value exceeds the OREO's fair value less estimated
selling costs.
At February 28, 1998, OREO totaled $1.2 million, the majority of which
consisted of properties sold by Compass from its OREO portfolio to buyers,
financed by Compass, whose cash downpayments were insufficient under GAAP to
permit such transactions to be accounted for as a sale. There were eleven loans
in this category all of which were substantially current at February 28, 1998.
Classification of Assets and Loan Review. Compass uses an internal
rating system to monitor and evaluate the credit risk inherent in its loan
portfolio. At the time of loan approval, all commercial and commercial real
estate loans are assigned a rating based on all of the factors considered in
originating the loan. The initial loan rating is recommended by the loan officer
who originated the loan and approved by the individuals or committee responsible
for approving it.
Loan quality ratings are utilized as a major criteria in the
compilation of Compass's asset Watch List. All loan concentrations with loan
ratings of 4 (Special Mention), 5 (Substandard) or 6 (Doubtful) are included in
a monthly asset Watch List. Watch List ratings are an integral part of the
evaluation of the adequacy of Compass's loan loss reserve. Loan officers are
expected to submit appropriate rating changes to the Lending Administration
Officer when facts come to their attention that warrant an upgrade or downgrade
in a loan rating.
Loans that are rated Substandard or Doubtful coincide with the
classifications used by federal regulators in their examination of financial
institutions. Generally, an asset is considered Substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligers and/or the collateral pledged. Substandard assets include those
characterized by the distinct possibility that Compass will sustain some loss if
the deficiencies are not corrected. Assets classified as Doubtful have all the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and of
such little value that their continuance as assets without establishment of a
specific loss reserve and/or charge-off is not warranted. Assets which do not
currently expose Compass to sufficient risk to warrant classification in one of
the aforementioned categories but possess weaknesses are designated "Special
Mention."
Compass has established a policy that an independent third party
conduct a semi-annual analysis of its commercial and commercial real estate
loans. The level of Classified Assets as determined by Compass is reconciled
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<PAGE>
to the level of Classified Assets as determined by the independent loan review.
The independent loan review also analyzes trends in loan delinquency and
non-performing loans.
On a quarterly basis, a management group comprised of the Senior Vice
President and Treasurer, the Senior Lending Officer and other key officers
reviews the status and classification of each loan assigned a rating of
Substandard, Doubtful or Loss. Loans, or portions of loans, classified Loss are
charged off against the reserve for loan losses. This group also assesses the
overall adequacy of the allowance for loan losses, including the general
valuation allowance established to recognize the inherent risk associated with
each specific category of lending.
Compass's classification of its loans and the amount of the valuation
allowances it sets aside for estimated losses is subject to review by the FDIC
and the Commissioner. Based on their reviews, these agencies can order the
establishment of additional general or specific loss allowances. The FDIC, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on allowances for loan and lease losses. The policy statement
provides guidance for banks on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of a bank's valuation
methodology. Generally, the policy statement recommends that banks have
effective systems and controls to identify, monitor and address asset quality
problems; that management analyze all significant factors that affect the
collectibility of loans in a reasonable manner; and that management establish
acceptable valuation processes that meet the objectives set forth in the policy
statement. While Compass believes that it has established adequate specific and
general allowances for losses on loans, there can be no assurance that the
regulators, in reviewing Compass's loan portfolio, will not request Compass to
materially increase its allowances for losses, thereby negatively affecting
Compass's financial condition and earnings. Moreover, actual losses are
dependent upon future events and, as such, further additions to the allowance
for loan losses may become necessary. See "-- Allowance for Loan Losses."
At February 28, 1998, loans designated as Doubtful, Substandard and
Special Mention totaled $214,000, $11.2 million and $6.8 million, respectively.
No loans were designated Loss. The Substandard loans include 12 commercial loans
with individual borrower balances ranging from $4,600 to $600,000 and a total
outstanding principal balance of $1,218,000 and 28 commercial real estate loans
with individual borrower balances ranging from $34,300 to $2,087,000 and a total
outstanding principal balance of $10,015,000. Of the 13 commercial loans
classified as Substandard or Doubtful, all such loans were substantially current
except for loans to one borrower totaling $132,300 that were foreclosed upon in
March 1998. The delinquency status of the 28 commercial real estate loans
classified as Substandard was as follows: current -- $7,720,000; 30-60 days past
due -- $653,000; 60-90 days past due -- $63,000; and >90 days past due --
$1,579,000. The largest loan balance included in the more than ninety days past
due category at February 28, 1998 was for $677,000. Compass foreclosed on this
borrower in March 1998, at which time the related property was transferred to
OREO at an amount less than its estimated fair value.
Included in Special Mention loans at February 28, 1998 were 12
commercial loans with individual borrower balances ranging from $2,700 to $3.1
million and a total outstanding principal balance of $3,794,000. The largest
borrower was an auto dealership whose floor plan loans were current. There were
16 commercial real estate loans with individual borrower balances ranging from
$37,000 to $575,000 and a total outstanding principal balance of $3,022,000
classified as Special Mention at February 28, 1998. Of these, all but $656,000
were either current or less than 30 days past due.
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<PAGE>
Non-Accrual Loans, Non-Performing Assets and Restructured Loans
The following table sets forth information regarding non-accrual loans,
other real estate owned and restructured loans:
<TABLE>
<CAPTION>
At February 28, At October 31,
--------------------- -------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans (1):
Mortgage loans:
Residential .......................................... $ 1,192 $ 1,531 $ 2,330 $ 3,123 $ 6,827 $ 7,106
Commercial real estate ............................... 8,040 8,501 6,835 4,115 6,997 2,573
Construction ......................................... -- 148 147 107 269 --
Home equity .......................................... -- -- -- 63 -- --
Commercial loan ......................................... 653 745 1,014 1,098 1,078 227
Indirect auto loans ..................................... -- -- -- -- -- --
Other consumer loans .................................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total non-accrual loans .............................. 9,885 10,925 10,326 8,506 15,171 9,906
Other real estate owned .................................... 1,246 1,707 2,598 3,918 5,798 6,961
------- ------- ------- ------- ------- -------
Total non-performing assets .......................... $11,131 $12,632 $12,924 $12,424 $20,969 $16,867
------- ------- ------- ------- ------- -------
Restructured loans (2) ..................................... $ 559 $ 130 $ 4,267 $ 3,119 -- $10,953
------- ------- ------- ------- ------- -------
Allowance for loan losses as a percent of total loans ...... 1.27% 1.30% 1.38% 1.46% 1.37% 1.33%
Allowance for loan losses as a percent of total
non-performing loans (3) ................................ 108.72% 97.41% 100.08% 115.80 46.15% 60.57%
Non-performing loans as a percent of total loans ........... 1.17% 1.33% 1.38% 1.26% 2.98% 2.20%
Non-performing assets as a percent of total assets ......... .97% 1.14% 1.26% 1.26% 2.65% 2.39%
</TABLE>
- ----------
(1) Non-accrual loans include all loans 90 days or more past due and other loans
which have been identified by Compass as presenting uncertainty with respect to
the collectibility of interest or principal.
(2) Restructured loans represent performing loans for which concessions (such as
reductions of interest rates to below market terms and/or extension of repayment
terms) have been granted due to a borrower's financial condition.
(3) Non-performing loans are comprised of non-accrual loans.
Allowance for Loan Losses
The allowance for loan losses is established through
provisions for loan losses based on management's on-going evaluation of
the risks inherent in Compass's loan portfolio. Factors considered in
the evaluation process include growth of the loan portfolio, the risk
characteristics of the types of loans in the portfolio, geographic and
large borrower concentrations, current regional economic and real
estate market conditions that could affect the ability of borrowers to
pay, the value of underlying collateral and trends in loan
delinquencies and charge-offs. The allowance for loan losses is
maintained at an amount management considers adequate to cover
estimated losses in its loan portfolio which are deemed probable and
estimable based on information currently known to management. See "--
Delinquent Loans, Other Real Estate Owned, Classification of Assets and
Loan Review -- Classification of Assets and Loan Review."
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<PAGE>
The following table sets forth activity in Compass's allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
Four months
ended Year ended October 31,
February 28, ------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period ............................. $10,642 $10,334 $ 9,850 $ 7,002 $ 6,000 $ 5,395
Provision (credit) for loan losses ......................... 183 1,865 1,166 (351) 2,524 3,838
Acquired allowance ......................................... -- -- -- 3,541 -- --
Charge-offs:
Mortgage loans:
Residential .......................................... 44 137 130 721 1,033 725
Commercial ........................................... -- 761 250 150 661 1,988
Home equity lines of credit .......................... -- -- 121 -- -- --
Construction ......................................... -- -- -- -- -- --
Commercial loans ........................................ -- 442 134 51 33 317
Indirect auto loans ..................................... 150 546 373 227 191 279
Other consumer loans .................................... 21 48 63 83 93 134
------- ------- ------- ------- ------- -------
Total charge-offs ...................... 215 1,934 1,071 1,232 2,011 3,443
------- ------- ------- ------- ------- -------
Recoveries:
Mortgage loans:
Residential .......................................... 24 30 17 271 335 80
Commercial ........................................... 10 117 174 485 34 23
Home equity lines of credit .......................... -- -- -- -- -- --
Construction ......................................... -- -- -- -- -- --
Commercial loans ........................................ 38 57 96 2 28 30
Indirect auto loans ..................................... 36 144 70 93 69 57
Other consumer loans .................................... 29 29 32 39 23 20
------- ------- ------- ------- ------- -------
Total recoveries ....................... 137 377 389 890 489 210
------- ------- ------- ------- ------- -------
Net charge-offs ............................................ (78) (1,557) (682) (342) (1,522) (3,233)
------- ------- ------- ------- ------- -------
Balance at end of period ................................... $10,747 $10,642 $10,334 $ 9,850 $ 7,002 $ 6,000
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
The following tables set forth Compass's percent of allowance by loan
category and the percent of loans to total loans in each of the categories
listed at the dates indicated:
<TABLE>
<CAPTION>
At October 31,
-----------------------------------------------------------------
At February 28, 1998 1997 1996
------------------------------- ------------------------------ --------------------------------
Percent Percent Percent
of loans of loans of loans
Percent of in each Percent of in each Percent of in each
allowance category allowance category allowance category
to total to gross to total to gross to total to gross
Amount allowance loans Amount allowance loans Amount allowance loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential ............... $1,989 18.51% 43.03% $1,929 18.13% 44.26% $2,171 21.01% 45.88%
Commercial real estate .... 4,436 41.28 14.26 4,573 42.97 15.13 4,223 40.86 17.20
Construction .............. 69 .64 4.87 78 .74 4.13 64 .62 3.34
Home equity ............... 149 1.39 1.87 136 1.28 1.85 149 1.44 2.31
Commercial loans ............. 1,696 15.78 6.38 1,785 16.77 6.26 1,972 19.08 6.18
Indirect auto loans .......... 2,077 19.32 26.58 1,837 17.26 25.36 1,498 14.50 22.14
Other consumer loans ......... 331 3.08 3.01 304 2.85 3.01 257 2.49 2.95
------- ------- ------- ------- ------- ------- ------- ------- -------
Total allowance
for loan losses ..... $10,747 100.00% 100.00% $10,642 100.00% 100.00% $10,334 100.00% 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At October 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------ --------------------------------
Percent Percent Percent
of loans of loans of loans
Percent of in each Percent of in each Percent of in each
allowance category allowance category allowance category
to total to gross to total to gross to total to gross
Amount allowance loans Amount allowance loans Amount allowance loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential ................ $2,764 28.06% 49.78% $2,384 34.05% 52.56% $1,978 32.97% 55.78%
Commercial real estate ..... 2,906 29.50 15.25 1,898 27.11 13.30 1,747 29.12 13.73
Construction ............... 221 2.24 2.35 245 3.49 2.91 219 3.65 3.04
Home equity ................ 418 4.25 2.79 170 2.42 2.25 194 3.24 2.89
Other commercial loans ........ 1,883 19.11 6.42 975 13.92 4.07 749 12.49 3.78
Indirect auto loans ........... 1,403 14.25 20.63 1,122 16.04 21.88 894 14.89 17.65
Consumer loans ................ 255 2.59 2.78 208 2.97 3.03 219 3.64 3.13
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance
for loan losses ...... $9,850 100.00% 100.00% $7,002 100.00% 100.00% $6,000 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Investment Activities
The investment policy of Compass is reviewed and updated by senior
management and submitted to the Board of Directors for their approval on an
annual basis. The primary objective of the investment portfolio is to achieve a
competitive rate of return on the investments over a reasonable period of time
based on prudent management practices and sensible risk taking. In view of
Compass's lending capacity and generally higher rates of return on loans,
management prefers lending activities as its primary source of revenue with the
securities portfolio serving a secondary role. The investment portfolio,
however, is expected to continue to represent a significant portion of Compass's
assets, with such portfolio consisting of U.S. Government and Agency securities,
mortgage-backed securities, high quality corporate debt obligations and a
limited amount of corporate equities. The portfolio will continue to serve
Compass's liquidity needs as projected by management and as required by
regulatory authorities.
71
<PAGE>
Compass's current investment strategy has emphasized the purchase of
U.S. Government and Agency obligations and corporate debt obligations generally
maturing within two to three years. Compass's investment policy permits
investments in mortgage-backed securities which are traditionally long-term
assets. However, the policy limits Compass's investment in these types of
securities to 25% of total assets. A substantial portion of the mortgage-backed
securities held at February 28, 1998 were backed by loans originated by and
securitized by Compass and placed in the securities portfolio for the purpose of
providing liquidity.
The investment policy prohibits the use of hedging with such
instruments as financial futures, interest rate options and swaps without
specific approval from Compass's Board of Directors. The President and Chief
Executive Officer, the Executive Vice President and Chief Operating Officer and
the Senior Vice President and Treasurer are authorized to execute portfolio
transactions but are limited in the amount they can purchase without Board
approval. Portfolio sales require the approval of any two of these three
officers regardless of the amount. It is the responsibility of Compass's Board
of Directors to ensure compliance with the investment policy and report such
activity to Seacoast Financial's Board. The status of Compass's investment
portfolio is reviewed by Compass's Board of Directors on a monthly basis and by
Seacoast Financial's Board of Trustees on a quarterly basis.
At February 28, 1998, Compass had $222.5 million, or 19.46% of total
assets, in securities consisting primarily of U.S. Government and Agency
obligations ($110.8 million), corporate obligations ($46.5 million),
mortgage-backed securities ($44.6 million), other bonds and obligations ($6.0
million) and marketable common and preferred equity securities ($9.5 million).
Also included in investments is $5.2 million in restricted equity securities,
$4.7 million of which is in the stock of the FHLB. To avail itself of services
offered by that organization, in particular the ability to borrow funds, Compass
is required to invest in the stock of the FHLB in an amount determined on the
basis of Compass's residential mortgage loans and borrowings from the FHLB. The
stock is redeemable at par and earns dividends at the discretion of the FHLB.
SFAS No. 115 requires Compass to designate its securities as held to
maturity, available for sale or trading depending on Compass's intent regarding
its investments at the time of purchase. Compass does not currently maintain a
trading portfolio of securities. Concurrent with the adoption of an
implementation guide on SFAS No. 115 in November 1995, Compass transferred debt
securities having a carrying value of $138.7 million from its held to maturity
portfolio to its available for sale portfolio. As of February 28, 1998, $205.1
million, or 92.2% of the portfolio, was classified as available for sale, $12.3
million, or 5.5% of the portfolio, was classified as held for investment and
$5.1 million, or 2.3% of the portfolio, was invested in restricted equity
securities. The net unrealized gain on securities classified as available for
sale was $3.5 million, with $2.6 million of that amount attributable to
marketable equity securities as of February 28, 1998.
U.S. Government and Agency Obligations . At February 28, 1998,
Compass's U.S. Government and Agency securities portfolio totaled $110.8
million, $98.5 million of which was classified as available for sale and $12.3
million of which was classified as held to maturity. There were no structured
notes in the portfolio.
Corporate Obligations . At February 28, 1998, Compass's portfolio of
corporate obligations totaled $46.5 million, all of which was classified as
available for sale. Compass policy requires that investments in corporate
obligations be restricted only to those obligations rated "A" or better by a
nationally recognized rating agency at the time of purchase and are confined
only to those obligations that are readily marketable. As of February 28, 1998,
$34.3 million of Compass's investments in corporate obligations were invested in
finance bonds, $7.2 million in industrial bonds, $3.0 million in public utility
bonds and $2.0 million in bank and trust company bonds. As of February 28, 1998,
all corporate obligations were rated "A" or better.
Mortgage-Backed Securities . At February 28, 1998, Compass's portfolio
of mortgage-backed securities totaled $44.6 million. Such securities are
guaranteed by the Government National Mortgage Association, FNMA and FHLMC. All
mortgage-backed securities were classified as available for sale.
Mortgage-backed securities generally yield less than the loans that underlie
such securities because of the cost of payment guarantees or credit enhancements
that reduce credit risk. Mortgage-backed securities are more liquid than
individual mortgage loans and may be used to collateralize borrowings.
Other Bonds and Obligations . At February 28, 1998, Compass's portfolio
of other bonds and obligations totaled $6.0 million, $5.0 million of which was
invested in a liquidity fund managed by the Bank Investment Fund of
Massachusetts and $1.0 million of which was invested in a U.S. dollar
denominated bond of a Canadian issuer having
72
<PAGE>
a quality rating of "A." The liquidity fund is a no-load, diversified, open-end
money market fund whose objective is to achieve a high level of current income
but to do so in a manner that is consistent with preservation of capital and
liquidity by investing in short-term money market instruments.
Marketable Equity Securities . At February 28, 1998, Compass's
marketable equity securities portfolio totaled $9.5 million, $8.4 million of
which was in common stock and $1.0 million in preferred stock. Compass's policy
requires that investments in common stock be confined to quality issuers that
have a past record of profitability and growth with the prospect of continued
performance. The policy requires that Compass makes investments in common stocks
that are liquid and traded on major exchanges, and that a reasonable and prudent
industry distribution of common stocks be maintained in the portfolio and held
for the long-term. Compass does not view short-term trading, short sales, margin
transactions and option speculation as prudent investment policy objectives and
does not permit them. Investments in preferred stocks, including money market
preferred, auction preferred and adjustable-rate preferred, are subject to
similar quality ratings and activities as common stocks. As of February 28,
1998, Compass held 90,000 shares of Sandwich Bancorp Common Stock in its
portfolio having a market value of $5.2 million and representing 4.6% of the
issued and outstanding shares of such stock. The majority of these shares were
purchased in February 1998, after Seacoast Financial and Sandwich had announced
their original cash merger transaction but before the Merger was restructured as
a stock-for-stock exchange. See "The Conversion and the Merger -- Background of
the Merger."
73
<PAGE>
The following table sets forth certain information regarding the amortized
cost and market value of Seacoast Financial's investment portfolio at the dates
indicated:
<TABLE>
<CAPTION>
At October 31,
--------------------------------------------------------
At February 28, 1998 1997 1996
------------------------- ------------------------- -----------------------
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
--------- ------ --------- ------ --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and
Agency obligations ............ $ 98,203 $ 98,453 $113,231 $113,496 $111,861 $111,613
Corporate obligations ............ 46,327 46,550 44,773 44,966 22,632 22,520
Mortgage-backed
securities ................... 44,214 44,597 45,652 46,157 64,760 64,650
Other bonds and
obligations ................... 6,001 6,001 1,001 1,001 -- --
--------- --------- -------- -------- -------- --------
Total debt securities ... 194,745 195,601 204,657 205,620 199,253 198,783
--------- --------- -------- -------- -------- --------
Marketable equity securities:
Common stocks .................... 5,817 8,450 1,164 2,696 835 1,523
Preferred stocks ................. 1,000 1,000 1,000 1,000 -- --
--------- --------- -------- -------- -------- --------
Total marketable
equity securities .... 6,817 9,450 2,164 3,696 835 1,523
--------- --------- -------- -------- -------- --------
Total securities
available for sale ... $201,562 $205,051 $206,821 $209,316 $200,088 $200,306
========= ========= ======== ======== ======== ========
Securities held to maturity:
U.S. Government and
Agency obligations ............ $12,322 $12,387 $12,633 $12,694 $11,752 $11,744
Corporate obligations ............ -- -- -- -- -- --
Mortgage-backed
securities .................... -- -- -- -- -- --
Other bonds and
obligations ................... -- -- -- -- -- --
--------- --------- -------- -------- -------- --------
Total securities held
to maturity .......... $12,322 $12,387 $12,633 $12,694 $11,752 $11,744
========= ========= ======== ======== ======== ========
Restricted equity securities:
Federal Home Loan Bank
of Boston stock ............... $4,726 $4,726 $4,726 $4,726 $4,215 $4,215
Massachusetts Savings Bank
Life Insurance Company stock .. 251 251 251 251 251 251
Depositors Insurance Fund ........ 179 179 179 179 179 179
--------- --------- -------- -------- -------- --------
Total restricted equity
securities ........... $5,156 $5,156 $5,156 $5,156 $4,645 $4,645
========= ========= ======== ======== ======== ========
<CAPTION>
At October 31,
-----------------------
1995
-----------------------
Amortized Market
cost value
--------- ------
(In thousands)
<S> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and
Agency obligations ............ $65,336 $65,015
Corporate obligations ............ 6,085 6,051
Mortgage-backed
securities ................... 6,470 6,496
Other bonds and
obligations ................... -- --
------- -------
Total debt securities ... 77,891 77,562
------- -------
Marketable equity securities:
Common stocks .................... 474 788
Preferred stocks ................. 276 276
------- -------
Total marketable
equity securities .... 750 1,064
------- -------
Total securities
available for sale ... $78,641 $78,626
======= =======
Securities held to maturity:
U.S. Government and
Agency obligations ............ $ 85,936 $ 85,678
Corporate obligations ............ 36,540 36,284
Mortgage-backed
securities .................... 29,329 29,299
Other bonds and
obligations ................... 2,000 1,997
------- -------
Total securities held
to maturity .......... $153,805 $153,258
======= =======
Restricted equity securities:
Federal Home Loan Bank
of Boston stock ............... $3,829 $3,829
Massachusetts Savings Bank
Life Insurance Company stock .. 251 251
Depositors Insurance Fund ........ 179 179
------- -------
Total restricted equity
securities ........... $4,259 $4,259
======= =======
</TABLE>
74
<PAGE>
The following table sets forth the composition of Seacoast Financial's
investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
At October 31,
------------------------
At February 28, 1998 1997
-------------------------- ------------------------
Carrying Percent Carrying Percent
value of total value of total
----- -------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government and
agency obligations . . . . . $110,775 49.78% $126,129 55.54%
Corporate obligations . . . . . 46,550 20.92 44,966 19.80
Mortgage-backed
securities . . . . . . . . . 44,597 20.04 46,157 20.32
Other bonds and
obligations . . . . . . . . . 6,001 2.70 1,001 0.44
-------- ------ -------- ------
Total debt securities . 207,923 93.44 218,253 96.10
Marketable equity securities . . . 9,450 4.25 3,696 1.63
Restricted equity securities . . . 5,156 2.31 5,156 2.27
-------- ------ -------- ------
Total securities . . . $222,529 100.00% $227,105 100.00%
======== ====== ======== ======
Debt and equity securities
available for sale . . . . . . . $205,051 92.15% $209,316 92.17%
Debt securities held to
maturity . . . . . . . . . . . 12,322 5.54 12,633 5.56
Restricted equity securities . . . 5,156 2.34 5,156 2.27
-------- ------ -------- ------
Total securities . . . $222,529 100.00% $227,105 100.00%
======== ====== ======== ======
<CAPTION>
At October 31,
------------------------------------------------------
1996 1995
------------------------- ------------------------
Carrying Percent Carrying Percent
value of total value of total
----- -------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government and
agency obligations . . . . . $123,365 56.93% $150,951 63.78%
Corporate obligations . . . . . 22,520 10.39 42,591 17.99
Mortgage-backed
securities . . . . . . . . . 64,650 29.83 35,825 15.14
Other bonds and
obligations . . . . . . . . . -- -- 2,000 0.84
-------- ------ -------- ------
Total debt securities . 210,535 97.15 231,367 97.75
Marketable equity securities . . . 1,523 0.71 1,064 0.45
Restricted equity securities . . . 4,645 2.14 4,259 1.80
-------- ------ -------- ------
Total securities . . . $216,703 100.00% $236,690 100.00%
======== ====== ======== ======
Debt and equity securities
available for sale . . . . . . . $200,306 92.43% $ 78,626 33.22%
Debt securities held to
maturity . . . . . . . . . . . 11,752 5.43 153,805 64.98
Restricted equity securities . . . 4,645 2.14 4,259 1.80
-------- ------ -------- ------
Total securities . . . $216,703 100.00% $236,690 100.00%
======== ====== ======== ======
</TABLE>
75
<PAGE>
The following table sets forth certain information regarding the
carrying value, weighted average yield and contractual maturities of Seacoast
Financial's investment portfolio as of February 28, 1998:
<TABLE>
<CAPTION>
After one year After five years
One year or less through five years through ten years
---------------------- --------------------- --------------------
Weighted Weighted Weighted
Carrying average Carrying average Carrying average
value yield value yield value yield
----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and Agency obligations $16,001 5.66% $ 76,485 5.89% $5,967 6.47%
Corporate obligations . . . . . . . . . 5,508 5.88 39,027 6.00 2,015 6.11
Mortgage-backed securities . . . . . . . 2,160 6.28 11,382 6.62 996 7.28
Other bonds and obligations . . . . . . 5,000 5.42 1,001 6.40 -- --
------- -------- ------
Total debt securities . . . . . . . . 28,669 5.71 127,895 5.99 8,978 6.48
------- -------- ------
Marketable equity securities
Common stocks . . . . . . . . . . . . .
Preferred stocks . . . . . . . . . . . .
Total marketable equity securities .
Total securities available for sale .
Securities held to maturity:
U.S. Government and Agency obligations 3,998 5.70 8,324 6.03 -- --
------- -------- ------
Total securities held to maturity . . 3,998 5.70 8,324 6.03 -- --
------- -------- ------
Restricted equity securities:
Federal Home Loan Bank of Boston stock.
Massachusetts Savings Bank Life
Insurance
Company stock. . . . . . . . . . . .
Depositors Insurance Fund . . . . . . .
Total restricted equity securities .
------- -------- ------
Total securities . . . . . . . . . . $32,667 5.71% $136,219 6.00% $8,978 6.48%
======= ======== ======
<CAPTION>
After ten years Total
----------------------- --------------------
Weighted Weighted
Carrying average Carrying average
value yield value yield
----- ----- ----- -----
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and Agency obligations $ -- --% $ 98,453 5.89%
Corporate obligations . . . . . . . . . -- -- 46,550 5.99
Mortgage-backed securities . . . . . . . 30,059 6.21 44,597 6.34
Other bonds and obligations . . . . . . -- -- 6,001 5.59
------- --------
Total debt securities . . . . . . . . 30,059 6.21 195,601 6.01
------- --------
Marketable equity securities
Common stocks . . . . . . . . . . . . . 8,450 2.44
Preferred stocks . . . . . . . . . . . . 1,000 3.99
--------
Total marketable equity securities . 9,450 2.60
--------
Total securities available for sale 205,051 5.85
========
Securities held to maturity:
U.S. Government and Agency obligations -- -- 12,322 5.92
------- --------
Total securities held to maturity . . -- -- 12,322 5.92
------- --------
Restricted equity securities:
Federal Home Loan Bank of Boston stock. 4,726 6.50
Massachusetts Savings Bank Life
Insurance
Company stock. . . . . . . . . . . . 251 2.98
Depositors Insurance Fund . . . . . . . 179 5.80
Total restricted equity securities . 5,156 6.30
------- --------
Total securities . . . . . . . . . . $30,059 6.21% $222,529 5.86%
======= ========
</TABLE>
76
<PAGE>
Sources of Funds
General. Compass uses deposits, repayments and prepayments of loans,
proceeds from sales of loans and securities and proceeds from maturing
securities, borrowings and cash flows generated by operations to fund its
lending, investing and general operations. Deposits represent Compass's primary
source of funds.
Deposits. Compass offers a variety of deposit accounts with a range of
interest rates and other terms. The accounts include passbook savings accounts,
NOW accounts (checking), demand deposit accounts, money market deposit accounts,
club accounts and certificates of deposit. Compass also offers IRA's, Roth/IRA,
Education IRA and Simple IRA accounts and SEP accounts. Both individuals and
commercial enterprises maintain accounts with Compass. The FDIC insures deposits
up to certain limits (generally, $100,000 per depositor). The DIF fully insures
amounts in excess of such limits.
At February 28, 1998, Compass's deposits of $951.4 million were
comprised of $53.5 million of non-interest-bearing checking accounts and $897.9
million of interest-bearing deposit accounts, of which $505.4 million, or 56.3%,
were certificates of deposit. Of this total of certificates of deposit at
February 28, 1998, $428.3 million, or 84.7%, were scheduled to mature within one
year. However, based on Compass's monitoring of historical trends, its current
pricing strategy for deposits and its avoidance of brokered deposits, management
believes that Compass will retain a significant portion of its certificates of
deposit accounts upon maturity.
Deposit flows are influenced greatly by economic conditions, the
general level of interest rates and the relative attractiveness of competing
deposit and investment alternatives. During the past few years, the strength of
the stock market has affected deposit flows within the banking industry as some
customers have opted to place their funds in instruments -- such as mutual funds
- -- not directly offered by Compass (other than through its affiliation with
Invest Financial Corporation), rather than in deposit accounts which they
perceive to have less attractive returns. See "Risk Factors-- Competition."
Compass competes for deposits in four distinct market areas -- New
Bedford, Fall River, Plymouth and Martha's Vineyard. Compass has experienced
steady deposit inflows during the last three years, primarily influenced by
regional bank consolidations and its strong community bank image. Compass's
strategy has been to grow deposit levels through targeted promotions, branch
expansion and bank acquisition. Compass has expanded its presence in Plymouth
with one new branch opened in 1995 and another in May 1998.
Compass places emphasis on sales of its products and quality of its
service to attract and retain customers. Management measures the sales
performance of customer service personnel based on the cross-sales of additional
products and services above the initial product that the customer requests.
Branch managers in all four markets actively participate in a business
development call program to develop new banking relationships.
In the interest of customer convenience and product alternatives, in
1995 Compass introduced a "call center" with extended hours, staffed with
individuals who are trained to answer telephone inquiries about customer
accounts and about Compass's various products and services. Compass also
introduced in 1995 a 24-hour automated touch-tone telephone voice response
system, which allows customers to obtain information about their accounts, to
make account transfers and to receive information about Compass's products and
services. In 1996 and 1997, Compass introduced relationship-based checking
account products, entitled Flagship Checking and Preferred Checking,
respectively, which offer a package of select benefits. The increase in
certificates of deposit is partially attributable to attractive pricing and
bonus 74 programs offered to select customers participating in these and other
packaged checking account programs. Services to commercial customers have also
been enhanced through the introduction of a Sweep Account, Simple IRA accounts
and electronic tax filing service.
Compass uses direct mail and customer service personnel at each of its
branches and at its main office to solicit deposits and advertises its deposits
through the print media, on billboards and through radio and television. Compass
expects to offer its services over the Internet by the end of 1998.
Compass has a contract with INVEST Financial Corporation ("Invest")
pursuant to which Invest offers Compass's customers investments in mutual funds
and securities. Invest representatives work out of Compass's main office and
branches and Compass's customer service personnel refer to Invest customers who
are looking for such investments. Compass receives a portion of commissions
earned by Invest from Invest's operations on Compass's premises.
National, regional and local economic conditions, changes in money
market rates, prevailing interest rates and competing deposit and investment
alternatives all have a significant impact on the level of Compass's deposits.
See "Risk Factors -- Potential Impact of Changes in Interest Rates on Seacoast
Financial's Earnings," "-- Geographic Concentration of Loans in and Deposits
from Southeastern Massachusetts and Rhode Island" and "-- Competition."
77
<PAGE>
The following table sets forth certain information regarding the
distribution of Compass's average deposit accounts and the weighted average
interest rate on each category of deposits:
<TABLE>
<CAPTION>
Four months ended February 28, 1998 Year ended October 31, 1997
------------------------------------- --------------------------------
Percent Percent
of total Weighted of total Weighted
Average average average Average average average
balance deposits balance deposits rate rate
------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 78,896 8.36% 1.44% $ 72,837 8.02% 1.46%
Savings accounts 167,480 17.75 2.56 171,157 18.86 2.59
Money market savings accounts 144,731 15.34 2.73 140,413 15.47 2.82
Non-interest-bearing demand checking accounts 55,037 5.83 -- 56,284 6.20 --
-------- ------ ---- -------- ------ ----
Total transaction deposit accounts 446,144 47.29 2.10 440,691 48.55 2.15
-------- ------ ---- -------- ------ ----
Certificate of deposit accounts:
Six months or less 143,876 15.25 5.43 122,934 13.54 5.39
Over six months through 12 months 215,817 22.88 5.71 209,668 23.10 5.70
Over 12 months through 24 months 56,006 5.94 5.70 52,157 5.75 5.83
Over 24 months 81,570 8.65 6.13 82,183 9.05 6.12
-------- ------ ---- -------- ------ ----
Total certificates of deposit accounts 497,269 52.71 5.70 466,942 51.45 5.71
-------- ------ ---- -------- ------ ----
Total average deposits $943,413 100.00% 4.00% $907,633 100.00% 3.98%
======== ====== ==== ======== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Year ended October 31, 1996 Year ended October 31, 1995
---------------------------------------- --------------------------------
Percent Percent
of total Weighted of total Weighted
Average average average Average average average
balance deposits rate balance deposits rate
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 68,156 7.84% 1.48% $ 61,366 7.71% 1.76%
Savings accounts 176,311 20.28 2.64 173,700 21.83 2.94
Money market savings accounts 136,322 15.68 2.85 129,920 16.33 3.01
Non-interest-bearing demand checking accounts 53,684 6.17 -- 41,824 5.26 --
-------- ------ -------- ------
Total transaction deposit accounts 434,473 49.97 2.20 406,810 51.14 2.48
-------- ------ -------- ------
Certificate of deposit accounts:
Six months or less 113,341 13.04 5.24 92,578 11.64 5.36
Over six months through 12 months 167,178 19.23 5.81 151,403 19.03 5.63
Over 12 months through 24 months 63,617 7.32 6.21 55,963 7.03 5.50
Over 24 months 90,794 10.44 6.01 88,764 11.16 5.85
-------- ------ -------- ------
Total certificates of deposit accounts 434,930 50.03 5.76 388,708 48.86 5.60
-------- ------ -------- ------
Total average deposits $869,403 100.00% 3.98% $795,518 100.00% 4.00%
======== ====== ======== ======
</TABLE>
78
<PAGE>
Compass had $86.4 million in certificates of deposit of $100,000 or
more outstanding as of February 28, 1998, maturing as follows:
<TABLE>
<CAPTION>
Weighted
Amount average rate
------ ------------
(Dollars in thousands)
Maturity Period
- ---------------
<S> <C> <C>
Three months or less ............................... $31,115 5.65%
Over three months through six months ............... 20,459 5.74
Over six months through twelve months .............. 22,425 5.87
Over twelve months ................................. 12,438 6.14
-------
$86,437 5.80%
=======
</TABLE>
Borrowings. Compass borrows funds from the FHLB. FHLB loans finance
Compass's loans to low- and moderate-income borrowers and other funding needs.
FHLB loans are collateralized primarily by certain of Compass's mortgage loans
and mortgage-backed securities and by Compass's holdings of FHLB stock. See " --
Investments." The maximum amount that the FHLB will loan fluctuates from time to
time based on the FHLB's policies. See "Regulation -- Federal Home Loan Bank
System."
Compass had $66.9 million in outstanding loans from the FHLB as of
February 28, 1998. The FHLB charges a fixed rate of interest on its loans.
Compass may borrow up to $381.1 million from the FHLB, including under a
preapproved line of credit of $20,000,000.
The following table sets forth certain information regarding borrowed
funds during the periods indicated:
<TABLE>
<CAPTION>
Four months ended
February 28, Year ended October 31,
-------------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Short term borrowings:
Securities sold under agreements to repurchase:
Average balance outstanding $ 9,601 $ 1,910 $ 3,923 $ 120 -
Maximum amount outstanding at any month end
during the period 10,884 2,165 9,533 1,925 -
Balance outstanding at end of period 9,335 2,136 9,533 1,925 -
Weighted average interest rate during the period 4.68% 4.44% 4.70% 4.09% -
Weighted average interest rate at end of period 4.75% 4.75% 4.75% 4.75% -
Treasury Tax and Loan Notes:
Average balance outstanding $ 1,237 $ 1,247 $ 1,163 $ 1,078 $ 1,205
Maximum amount outstanding at any month end
during the period 2,071 2,104 2,117 2,175 2,190
Balance outstanding at end of period 2,047 82 164 2,000 1,501
Weighted average interest rate during the period 5.42% 5.12% 5.00% 4.90% 5.30%
Weighted average interest rate at end of period 5.30% 5.10% 5.41% 5.10% 5.56%
Total short term borrowings:
Average balance outstanding $10,838 $ 3,157 $ 5,086 $ 1,198 $ 1,205
Maximum amount outstanding at any month end
during the period 11,712 4,022 9,742 3,925 2,190
Balance outstanding at end of period 11,382 2,218 9,697 3,925 1,501
Weighted average interest rate during the period 4.76% 4.71% 4.77% 4.82% 5.30%
Weighted average interest rate at end of period 5.30% 5.10% 5.41% 5.10% 5.56%
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Four months ended
February 28, Year ended October 31,
--------------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank of Boston advances:
Average balance outstanding $60,417 $49,139 $51,490 $37,288 $39,552
Maximum amount outstanding at any month end
during the period 67,456 54,942 54,942 45,375 43,178
Balance outstanding at end of period 66,879 54,942 51,006 45,375 39,364
Weighted average interest rate during the period 6.52% 6.59% 6.68% 6.77% 6.58%
Weighted average interest rate at end of period 6.48% 6.51% 6.63% 6.50% 6.64%
</TABLE>
Subsidiary Activities
Compass Bank Securities Corporation. Compass Bank Securities
Corporation ("CBS Corporation") is a wholly-owned subsidiary of Compass
established in 1990 as a Massachusetts security corporation. CBS Corporation
engages exclusively in buying, selling and holding investment securities on its
own behalf and not as a broker. The income earned on CBS Corporation's
investment securities is subject to a significantly lower rate of state tax than
that assessed on income earned on investment securities maintained at Compass.
At February 28, 1998, CBS Corporation had total assets of $134.2 million,
consisting primarily of cash and investment securities.
Compass Credit Corporation. Compass Credit Corporation ("CC
Corporation") is a wholly-owned subsidiary of Compass established in 1997 as a
Massachusetts corporation. CC Corporation buys, sells, and originates auto loans
in Rhode Island. CC Corporation is a licensed lender in Rhode Island. At
February 28, 1998, CC Corporation had total assets of $15.7 million, consisting
primarily of cash and auto loans.
Buffinton Brook Realty Corporation. Buffinton Brook Realty Corporation
("BBR Corporation") is a wholly-owned subsidiary of Compass established in 1977
as a Massachusetts corporation. BBR Corporation purchases and holds real estate.
At February 28, 1998, BBR Corporation had total assets of $142,596, consisting
solely of cash.
Compass Preferred Capital Corporation. Compass Preferred Capital
Corporation ("Compass Preferred") is a wholly-owned subsidiary of Compass. It
was established in March, 1998 to engage in real estate business activities
(including the acquisition and holding of securities and real estate loans) that
enable it to be taxed as a "real estate investment trust" under federal and
Massachusetts tax laws. Compass Preferred had total assets of $157.1 million in
assets at March 31, 1998, $157.0 million of which were mortgage loans originated
by and acquired from Compass.
The 1855 Corporation. The 1855 Corporation ("1855 Corporation") is a
wholly-owned subsidiary of Compass established in 1971 as a Massachusetts
corporation. 1855 Corporation is principally engaged in the acquisition and
holding of real estate which is used for banking purposes. At February 28, 1998,
1855 Corporation had total assets of $7.3 million of which $2.5 million
consisted of real estate used for banking purposes and $4.0 million consisted of
investments in subsidiaries.
Purchase Corporation. Purchase Corporation is a wholly-owned subsidiary
of 1855 Corporation established in 1981 as a Massachusetts corporation. Purchase
Corporation acquires, manages and develops real estate, purchases equipment and
makes investments. At February 28, 1998, Purchase Corporation had total assets
of $2.4 million of which $2.3 million consisted of cash and $90,000 consisted of
real estate holdings.
North Front Street, Inc. North Front Street, Inc. ("NFS Inc.") is a
wholly-owned subsidiary of 1855 Corporation established in 1991 as a
Massachusetts corporation. NFS, Inc. acquires, manages, develops, rehabilitates,
leases, finances, holds and makes real estate investments. At February 28, 1998,
NFS Inc. had total assets of $1.1 million which consisted solely of cash.
Year 2000 Issue
The Year 2000 Issue (commonly referred to as "Y2K") is the result of
computer programs being written using two digits, rather than four digits, to
define the applicable year. The Y2K issue, which is common to most corporations
and especially banks, concerns the inability of information systems, primarily
(but not exclusively) computer software programs, to properly recognize and
process date-sensitive information as the Year 2000 approaches.
80
<PAGE>
Since Compass's information systems functions are either outsourced to
service bureaus or processed in-house using programs developed by third-party
vendors, the direct effort to correct Y2K issues will be undertaken largely by
third parties and will therefore not be within Compass's direct control. Compass
expects to bring its mission critical operating systems into compliance with Y2K
requirements through the installation of updated or replacement programs
developed by third parties.
Bank regulatory agencies have recently issued additional guidance under
which they are assessing Y2K readiness. The failure of a financial institution,
such as Compass, to take appropriate action to address deficiencies in the Y2K
project management process may result in enforcement actions which could have a
material adverse effect on such institution, result in the imposition of civil
money penalties or result in the delay (or receipt of an unfavorable or critical
evaluation of management of a financial institution in connection with
regulatory review) of applications seeking to acquire other entities or
otherwise expand the institution's activities.
Compass began addressing the Y2K issue in the Fall of 1996 when it
formed a Y2K Project Team comprised of financial, operations, information
systems, internal audit, compliance, lending, corporate services, loan servicing
and retail personnel. A formal Y2K Action Plan was developed by the Y2K Project
Team and approved by the Board of Directors in 1997. The Y2K Project Team meets
at least once every quarter and provides quarterly updates to the Board of
Directors. The Team has completed an assessment, identifying mission critical
systems, and has initiated formal communications with all third-party vendors to
determine the compliance status of all systems utilized by Compass. Based upon
the results of the assessment, Compass has determined that there will be a need
to replace portions of its existing hardware and upgrade a portion of its
software systems.
Compass's plan to resolve the Y2K issue was developed along the five
phase ((i)awareness; (ii) assessment; (iii) renovation; (iv) validation; and (v)
implementation) project management process outlined in the Federal Financial
Institutions Examination Council (FFIEC) Year 2000 statement of May 5, 1997. The
awareness phase has been completed, a Y2K assessment was completed and
monitoring of service bureau and vendor progress is ongoing. Renovation of third
party systems that were identified as non-compliant is being undertaken by those
third parties and is scheduled to be completed by December 31, 1998. The Y2K
Project Team is in the process of creating formal test plans and contingency
plans. Testing and implementation will occur during 1998 and 1999.
The chief components of Compass's expense related to the Y2K issue are
currently believed to be the replacement of personal computer equipment and the
purchase or upgrade of third-party software. External maintenance and internal
modification costs will be expensed as incurred. Costs of new hardware and
software will be capitalized and depreciated in accordance with Compass
policies. Although final costs have yet to be determined, management currently
expects to incur costs in the range of $500,000 to $1.0 million to assure Year
2000 readiness. Costs of the Y2K project are based on current estimates and
actual results could vary significantly from such estimates once detailed test
plans are developed. If the resolution plan were unsuccessful, it would have a
material adverse effect on Compass's future operating results and financial
condition.
Ultimately, the success of Compass's efforts to address the Y2K issue
depends to a large extent not only on the corrective measures that Compass
undertakes, but also on the efforts undertaken by businesses and other
independent entities who provide data to, or receive data from, Compass such as
borrowers, vendors or customers. In particular, Compass's credit risk associated
with its borrowers may increase as a result of problems such borrowers may have
resolving their own Y2K issues. Although it is not possible to evaluate the
magnitude of any potential increased credit risk at this time, the impact of the
Y2K issue on borrowers could result in increases in problem loans and credit
losses in future years. Over the course of the next fifteen months, Compass will
endeavor to monitor the Y2K efforts of its borrowers and will implement a course
of action and procedures designed to reduce any increased potential risk as a
result of Y2K issues.
Properties
Compass conducts its business through 23 full-service branches, two
seasonal high school offices, five remote ATMs and five non-branch properties,
including its corporate headquarters, an operations center, a mortgage office
and two other back-office facilities as of the date of this Prospectus,
In the Greater New Bedford market, Compass operates eight full service
branches, including six branches in the City of New Bedford (five of which are
owned by Compass or a subsidiary and one of which is operated under a land
lease), one owned branch in the town of Fairhaven and one leased branch in the
town of North Dartmouth.
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<PAGE>
Compass's corporate headquarters and operations center are also located in the
city of New Bedford, as are two other back-office facilities. All of these
buildings are owned by Compass or a subsidiary. Three of Compass's remote ATMs
are located in Greater New Bedford, including two in the city of New Bedford and
one in the town of North Dartmouth. One of Compass's limited service high school
branches is located in the City of New Bedford.
In the Greater Fall River market, Compass operates six full service
branches, including one owned and one leased branch in the city of Fall River,
one leased branch in Assonet, owned branches in each of Somerset and Swansea and
a leased branch in Westport. Compass is currently building a new branch office
in the town of Westport, which will be an owned facility and will replace the
existing leased branch in Westport. One of Compass's remote ATMs is also located
in city of Fall River, as is one of Compass's limited service high school
branches.
In the Greater Plymouth market, Compass operates four full service
branches, including one owned and one leased branch in the town of Plymouth and
leased branches in each of Carver and Manomet. Compass also leases a non-branch
mortgage office in the town of Lakeville, located in the Greater Plymouth
market.
In the Martha's Vineyard market, Compass operates five full service
branches, including one owned and one leased branch in the town of Edgartown,
and three owned branches in the towns of Chilmark, Vineyard Haven and Oak
Bluffs. One of Compass's remote ATMs is located in the Martha's Vineyard town of
West Tisbury.
Compass recognizes that its existing main office facilities are not
sufficient -- in either size or physical design -- to house the personnel
Compass needs to support its recent and planned growth. Compass intends to use a
portion of the Offering proceeds to fund the construction of a new corporate
headquarters.
Legal Proceedings
Compass is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business.
Management believes that those routine proceeds involve, in the aggregate,
amounts which are immaterial to the financial condition and results of
operations of Compass.
Personnel
As of February 28, 1998, Compass had 314 full-time and 49 part-time
employees. The employees are not represented by a collective bargaining unit and
Compass considers its relationship with its employees to be good. See
"Management of Seacoast Financial and Compass -- Compensation of Officers and
Directors through Benefit Plans" for a description of certain compensation and
benefit programs offered to Compass's employees.
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<PAGE>
CERTAIN EFFECTS OF THE MERGER ON SEACOAST FINANCIAL
Assuming that the Conversion and the Merger had been consummated as of
February 28, 1998, Seacoast Financial would have had, on a pro forma basis
assuming issuance of 33,350,000 Conversion Shares at the maximum of the
Estimated Valuation Range, total assets of $2.0 billion, total deposits of $1.4
billion, net loans of $1.2 billion and total stockholders equity of $438.6
million. For pro forma income statements and balance sheets, see "Pro Forma
Data." For historical financial information about Sandwich Bancorp, see
"Excerpts from Annual Report on Form 10-K for the Year Ended December 31, 1997 "
and "Excerpts from Quarterly Report on Form 10-Q for the Quarter Ended March 31,
1998" attached to this Prospectus as an exhibit.
Management of Seacoast Financial and Compass believe that the Merger
furthers Compass's expansion strategies regarding geographic market area,
customer base and asset size, while maintaining Compass's loan portfolio
diversification and its relatively low-cost sources of funds. In addition,
Compass's and Sandwich's product offerings and corporate cultures are relatively
similar, which management believes will facilitate a smooth integration of the
two companies.
Geographic Expansion and Marketing Opportunities
Geographic Expansion. Compass and Sandwich Bank currently operate in
markets that are, for the most part, contiguous and complementary to each other
in the "South Coast" and Cape Cod regions of southeastern Massachusetts along
the Atlantic shoreline. As of May 1998, Compass has eight full service branches
and one limited service branch in the Greater New Bedford market, six full
service branches and one limited service branch in the Greater Fall River
market, four full-service branches in Plymouth County and five full-service
branches on Martha's Vineyard. Sandwich has nine branches on Cape Cod and two in
Plymouth County. Compass believes that the combination of its market area with
that of Sandwich Bank will enable it to both better serve its existing customers
and attract new customers. Management believes that the acquisition of Sandwich
Bancorp is a more cost-effective, efficient means of expansion to Cape Cod than
establishing new branches would be.
Sandwich Bank operates primarily on Cape Cod. Although Compass
generates indirect auto loans through auto dealers on Cape Cod, to date it has
not concentrated its marketing efforts on other lending or deposit products
because Compass has no branches in that market area. After the Merger, Compass
will have nine branches on Cape Cod from which to market products and services.
In particular, Compass believes that there is opportunity to expand its
commercial loan portfolio by lending to businesses (primarily retail and
tourism-related) located on Cape Cod. Cape Cod's economy is substantially
dependent on the tourist industry, and is more cyclical than other regions in
Compass's market other than Martha's Vineyard. See "Risk Factors -- Geographic
Concentration of Loans in and Deposits from Southeastern Massachusetts and Rhode
Island." The population of Cape Cod is also generally more affluent than that of
Compass's New Bedford and Fall River market areas.
Compass and Sandwich Bank both operate in Plymouth County. The four
branches of Compass and the two branches of Sandwich Bank in Plymouth County are
all expected to remain open after the Merger, thereby providing greater
convenience for Compass's existing and future Plymouth County customers. In
addition, management believes that the expansion of Compass's Plymouth County
market presence, together with its entrance into the Cape Cod market, will help
to connect its Cape Cod, Plymouth and New Bedford market areas. Many people
commute from Cape Cod to New Bedford or Plymouth, and others commute between New
Bedford and Plymouth. The Merger may enable Compass to attract new customers who
prefer a bank with branches near both home and work.
Marketing Opportunities. Seacoast Financial's management expects that
the contiguous nature of Compass's and Sandwich Bank's markets will create
efficiencies in advertising and marketing and enable Compass to reach a broader
audience without proportional increases in marketing expense or changes in
marketing strategies. For example, Compass currently advertises in local
newspapers and on radio stations that cover Sandwich Bank's market area as well
as Compass's. In addition, since Compass and Sandwich Bank use the same data
processor and marketing software, management expects to be able to merge the two
banks' databases, which will facilitate cross-marketing opportunities through a
better understanding of customer relationships and product use.
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<PAGE>
Impact on Deposits
Compass and Sandwich Bank have relatively similar deposit mixes and
weighted average rates paid on deposits, as set forth in the following table.
<TABLE>
<CAPTION>
Seacoast Financial Historical Sandwich Bancorp Historical
Four months ended February 28, 1998 Three months ended March 31, 1998
----------------------------------- ---------------------------------
Percent Percent
of total Weighted of total Weighted
Average average average Average average average
balance deposits rate balance deposits rate
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 78,896 8.36% 1.44% $ 40,513 9.59% 1.08%
Savings accounts 167,480 17.75 2.56 27,087 6.42 1.83
Money market savings accounts 144,731 15.34 2.73 104,481 24.74 3.22
Non-interest-bearing demand checking accounts 55,037 5.83 - 38,506 9.12 ---
-------- ------ -------- ------
Total transaction deposit accounts 446,144 47.29 2.10 210,587 49.87 2.04
-------- ------ -------- ------
Certificate of deposit accounts:
6 months or less 143,876 15.25 5.43 95,744 22.68 5.38
Over 6 months through 12 months 215,817 22.88 5.71 38,658 9.16 5.45
Over 12 months through 24 months 56,006 5.94 5.70 35,762 8.47 5.70
Over 24 months 81,570 8.65 6.13 41,481 9.82 5.73
-------- ------ -------- ------
Total certificates of deposit accounts 497,269 52.71 5.70 211,645 50.13 5.52
-------- ------ -------- ------
Total average deposits $943,413 100.00% 4.00% $422,232 100.00% 3.78%
======== ====== ======== ======
</TABLE>
In addition to having a similar deposit mix, Compass and Sandwich Bank
offer similar -- although not identical -- deposit products. Seacoast Financial
believes that its more extensive branch network and wider range of products will
not only preserve relationships with Sandwich Bank's existing customers but will
enhance those relationships and provide opportunities to cross sell additional
services not currently provided by Sandwich Bank, such as Sweep Accounts and
electronic tax payment services. In addition, it is expected that certain
popular deposit products currently offered by Sandwich Bank will be retained and
promoted by Compass.
Customer retention is expected to be facilitated because all of
Sandwich Bank's 11 branches will remain open following the Merger. Because the
two companies have relatively similar deposit pricing strategies, management
does not expect significant Sandwich Bank deposit runoff following the Merger.
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<PAGE>
Impact on Loan Portfolio
Compass's and Sandwich Bank's loan products and lending operations
are relatively similar. The mix of the two banks' loan portfolios differs
primarily in that a larger proportion of Sandwich Bank's loan portfolio is
comprised of real estate loans (particularly residential mortgage loans, but
also including commercial real estate loans and construction and land loans)
while Compass has a significantly higher proportion of commercial and consumer
loans in its portfolio. Compass's ratio of non-performing assets to total assets
is also relatively similar to that of Sandwich Bank. The following table
presents the two companies' loan portfolios by category and asset quality ratios
at the dates indicated:
<TABLE>
<CAPTION>
Seacoast Financial Historical Sandwich Bancorp Historical At
At February 28, 1998 March 31, 1998
--------------------------------------------------------------------------
Percent Average Percent Average
Amount of total yield/cost Amount of total yield/cost
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential (one-to four-family) $364,173 43.03% $253,398 68.54%
Commercial ...................... 120,740 14.26 64,165 17.36
Home equity lines of credit ..... 15,790 1.87 11,583 3.13
Construction, net ............... 41,229 4.87 26,077 7.05
-------- ------ -------- ------
Total real estate loans .. 541,932 64.03 8.32% 355,223 96.08 7.79%
-------- ------ ---- -------- ------ -----
Commercial loans ................... 53,974 6.38 9.81 7,065 1.91 10.05
-------- ------ ---- -------- ------ -----
Consumer loans:
Indirect auto loans, net ........ 256,093 30.26 8.03 -- -- --
Other ........................... 25,460 3.01 8.94 7,417 2.01 10.05
-------- ------ ---- -------- ------ -----
Consumer loans ........... 281,553 7,417 --
Less: unearned discount ......... 31,074 -- --
-------- -------- ------
Total consumer loans ..... 250,479 29.59 8.11 7,417 2.01 10.05
-------- ------ ---- -------- ------ -----
Total loans .............. $846,385 100.00% 8.35% $369,705 100.00% 7.88%
======== ====== ==== ======== ====== =====
Non-performing loans as a percent
of total loans ............. 1.17% 0.77%
Non-performing assets as a percent
of total assets ............ 0.97% 0.60%
</TABLE>
Seacoast Financial's average yield on average interest bearing assets
for its last fiscal year (ended October 31, 1997) was 7.86%, compared to
Sandwich Bancorp's average yield of 7.57% for its last fiscal year (ended
December 31, 1997). Seacoast Financial expects that its average yield on
interest-bearing assets will initially decline upon consummation of the
Conversion and Merger, due both to Sandwich Bancorp's comparatively
lower-yielding loan portfolio and, more importantly, to the impact of the
initial investment of the Offering proceeds in investment securities (which
generally have lower yields than loans). This initial investment will result in
a substantial an increase in the investment portfolio as a percent of total
assets.
Seacoast Financial's management believes that, over time, the Merger
will provide additional lending opportunities. An integral part of Compass's
business strategy after the Merger will include expanding its indirect auto
lending program, adding quality auto dealers operating in Sandwich Bank's market
area and expanding commercial lending by combining Sandwich Bank's strong
customer base with Compass's greater lending capacity. Compass expects to
continue its current practice of having most loan underwriting decisions (other
than consumer ones) made locally in its various regions. Cape Cod will become a
separate market region for Compass, and local loan officers are expected to
retain the authority to make most credit decisions in that region.
85
<PAGE>
THE CONVERSION AND THE MERGER
THE BOARDS OF TRUSTEES AND CORPORATORS OF SEACOAST FINANCIAL AND THE
BOARD OF DIRECTORS OF COMPASS HAVE APPROVED THE CONVERSION PLAN AND THE MERGER
AGREEMENT. THE COMMISSIONER HAS ALSO APPROVED THE CONVERSION PLAN, SUBJECT TO
THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH COMMISSIONER
APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN. IN
ADDITION, THE BOARDS OF DIRECTORS OF SANDWICH BANCORP AND SANDWICH BANK HAVE
APPROVED THE MERGER AGREEMENT.
Overview
The Conversion Plan, which Seacoast Financial's Board of Trustees
adopted on April 23, 1998, provides for the amendment of Seacoast Financial's
charter to authorize the issuance of capital stock (among other amendments) so
that Seacoast Financial will become a stock holding company rather than a mutual
holding company. The Conversion Plan further provides that Seacoast Financial
will offer the Conversion Shares for sale in the Subscription Offering to
depositors, the ESOP and directors, trustees, officers and employees. Subject to
the prior rights of holders of subscription rights, Seacoast Financial may also
offer Conversion Shares in a Community Offering to certain members of the
general public, with a preference given to residents of Compass's Community. The
Community Offering may commence concurrently with, during or after the
Subscription Offering. If any Conversion Shares remain unsold after the
Subscription and Community Offerings, Seacoast Financial expects to offer such
shares for sale to the general public in the Syndicated Community Offering. The
Purchase Price per share of all Conversion Shares sold in the Offerings will be
$10.00, and the aggregate price (and the aggregate number) of Conversion Shares
sold in the Offerings will be determined based upon an Independent Appraisal of
the estimated pro forma market value of the Conversion Shares, currently
estimated to be between $246.5 million and $333.5 million.
Seacoast Financial determined to undertake the Conversion in
connection with its decision to enter into the Merger Agreement with Sandwich
Bancorp and Sandwich Bank. The Merger Agreement provides for a stock-for-stock
exchange. The Conversion will result in Seacoast Financial becoming a stock
company, thereby having shares available to effect the exchange.
The Boards of Trustees and Directors of Seacoast Financial and
Compass approved the Merger Agreement on March 22, 1998 and the Boards of
Directors of Sandwich Bancorp and Sandwich Bank approved it on March 23, 1998.
The Merger Agreement provides that, on the tenth trading day following
consummation of the Conversion, Sandwich Bancorp will merge with a corporate
subsidiary of Seacoast Financial. Upon consummation of the Merger, the
outstanding shares of Sandwich Bancorp Common Stock and outstanding Sandwich
Bancorp Options will automatically convert into and become exchangeable for the
Exchange Shares determined by application of the Exchange Ratio. Following the
Merger, Seacoast Financial expects to cause Sandwich Bancorp to merge into
Seacoast Financial and to cause Sandwich Bank to merge with Compass (the "Bank
Merger") and cease to be a separate bank.
The reason for the delay between the dates of consummation of the
Conversion and consummation of the Merger is that the calculation of the
Exchange Ratio for determining the number of Exchange Shares issuable to the
Sandwich Bancorp stockholders is based upon the average trading prices of the
Seacoast Financial Common Stock for a number of days following the consummation
of the Conversion. Notwithstanding this delay, the Conversion and the Merger are
interdependent transactions, and neither one will occur unless both of them do.
Although the Conversion and the Merger will not close simultaneously, it is a
condition to consummation of the Conversion that all conditions to consummation
of the Merger (other than the delivery of the Exchange Shares to the Sandwich
Bancorp stockholders and optionholders) shall have been satisfied or waived and
it is a condition to consummation of the Merger that the Conversion shall have
been consummated. Consummation of the Conversion and the Merger are subject to a
number of conditions, including final regulatory approval of the Commissioner,
the BBI, the FDIC and the FRB and the approval of the Sandwich Bancorp
stockholders. A special meeting of the Sandwich Bancorp stockholders for
purposes of voting on the Merger has been scheduled for _____________, 1998.
The following is a brief summary of pertinent aspects of the
Conversion and the Merger as well as the Merger Agreement. The summary is
qualified in its entirety by reference to the provisions of the Conversion Plan
and the Merger Agreement. Copies of the Conversion Plan and the Merger Agreement
are available for inspection at the offices of Seacoast Financial and Compass
and at the offices of the FRB and the Commissioner, and the Conversion Plan and
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<PAGE>
Merger Agreement are filed as exhibits to the Registration Statement of which
this Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
Seacoast Financial's Background of and Reasons for the Conversion and the Merger
Over the past several years, the Board of Trustees of Seacoast
Financial and the Board of Directors of Compass have reviewed the various
corporate forms available to Compass, including remaining in mutual holding
company form without stock issuance, issuing shares of stock through the
existing mutual holding company structure and undertaking a full conversion to
stock form of organization. The Boards have consistently determined that a full
mutual-to-stock conversion might be appropriate but only if undertaken for a
valid business purpose.
In addition to considering the appropriate corporate form for
Seacoast Financial and Compass, the Board of Directors of Compass has considered
various growth alternatives from time to time, including the possible
acquisition of smaller banks as a means of expanding Compass's geographic market
and asset base. Particularly since 1994, when Compass successfully acquired
Martha's Vineyard National Bank, the Compass Board has sought acquisition
opportunities on Cape Cod, a market that Compass views as an attractive natural
extension of its New Bedford, Plymouth, Fall River and Martha's Vineyard
markets.
In September 1997, Kevin G. Champagne, Compass's president, began
discussions with Frederic D. Legate, Sandwich Bank's president, regarding a
possible combination between the two banks and their respective parent
companies. The discussions focused on the benefits of such a combination to the
two banks' respective constituencies and on the type of consideration that
Compass could pay to acquire Sandwich Bancorp (in light of Seacoast Financial's
mutual form). On ____________, 1997, in response to a solicitation of bids to
acquire Sandwich Bancorp by Sandwich Bancorp's financial advisor, Compass
formally offered $53.00, in cash, per outstanding share of Sandwich Bancorp
Common Stock. After considering Compass's offer along with three other competing
offers, Sandwich Bancorp informed Compass that it was prepared to begin due
diligence and begin negotiating an agreement. During the week of January 26,
1998, the two companies performed due diligence reviews of each others'
businesses and, with the assistance of their respective counsel and financial
advisors, negotiated a definitive merger agreement.
At a meeting on February 1, 1998, the Board of Directors of Compass
and the Board of Trustees of Seacoast Financial voted to approve an Acquisition
and Merger Agreement with Sandwich Bancorp and Sandwich Bank, and that agreement
was executed by both parties on February 2, 1998 (the "February 2 Agreement").
Pursuant to the February 2 Agreement, Sandwich Bancorp was to have merged into a
corporate subsidiary of Compass, in exchange for cash consideration of $53.00
per share of Sandwich Bancorp Common Stock. In order to raise the capital needed
for such cash acquisition, Seacoast Financial and Compass planned to undertake a
so-called "minority stock issuance" through the existing mutual holding company
structure. In order to do so, Seacoast Financial planned to form a "mid-tier"
holding company that would own 100% of the common stock of Compass. The mid-tier
holding company would have issued at least 51% of its common stock to Seacoast
Financial, and would have issued the remaining minority interest to Compass's
depositors and others in a subscription and public offering.
After the February 2 Agreement was announced, Sandwich Bancorp
received unsolicited expressions of interest from three other financial
institutions who had originally submitted bids in January, 1998, in each case
proposing stock-for-stock merger transactions at nominal values higher than
Seacoast Financial's cash transaction. As permitted by the Original Merger
Agreement, Sandwich Bancorp's Board of Directors determined that its fiduciary
duties required it to consider the alternative proposals. The Sandwich Bancorp
Board provided the three interested parties with the opportunity to perform "due
diligence" in order to be in a position to make their best and final offers, and
also gave Seacoast Financial the opportunity to propose a revised transaction.
Based upon its knowledge of the terms of the competing proposals,
Seacoast Financial's management, with the advice of its legal and financial
advisors, concluded that the only way Seacoast Financial could make a
financially sound, competitive proposal would be by undertaking a
mutual-to-stock conversion followed by a stock-for-stock exchange with Sandwich
Bancorp's stockholders. Since Seacoast Financial is currently a mutual
corporation with no authority to issue capital stock, the only way that Seacoast
Financial could enter into a transaction providing for a stock-for-stock
exchange would be by undertaking a full conversion to stock form. (Banking
regulations would have precluded a stock-for-stock merger under Compass's
existing mutual holding company structure.) Seacoast Financial and Compass held
a series of meetings with their respective Boards to consider such a proposal,
and also met with banking regulators to discuss such a proposed transaction.
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At a joint meeting held on March 22, 1998, the Board of Directors of
Compass and the Board of Trustees of Seacoast Financial confirmed their earlier
judgment that the acquisition of Sandwich Bancorp, a well-established banking
institution in an attractive contiguous market, represented the kind of business
opportunity that Seacoast Financial and Compass had been seeking. The Boards
were advised by management and by their investment advisors that, given the
levels to which the price of the Sandwich Bancorp Common Stock had been bid, an
acquisition of Sandwich Bancorp would only make sense, from a financial point of
view, if the transaction were structured as a stock-for-stock exchange. The
Boards determined that the ability to effect such an acquisition was exactly the
kind of valid business purpose that warranted a decision to convert to stock
form. At that meeting, the Boards approved the Merger Agreement (which
superseded the February 2 Agreement) and directed the officers to prepare a plan
of conversion for subsequent Board approval. At a meeting held on April 23,
1998, the Board of Trustees of Seacoast Financial approved the Conversion Plan.
The Conversion Plan was subsequently approved by the Corporators of Seacoast
Financial and by the Commissioner, subject to certain conditions.
The Boards of Compass and Seacoast Financial believe that the
combination with Sandwich Bancorp will enhance the competitive position of the
combined entities and will enable the resulting institution to compete more
effectively than either institution could on its own. The combined entity will
have greater financial resources and, as a result of the Offerings, increased
capital levels. At February 28, 1998, assuming the prior sale of the Conversion
Shares at the maximum of the Estimated Valuation Range and consummation of the
Merger, Seacoast Financial's pro forma stockholders' equity would amount to
22.0% of pro forma total assets. The combination will result in increased funds
being available for lending purposes, greater resources for expansion of
services and better opportunities (through stock benefit plans) for attracting
and retaining qualified personnel.
The terms of the Merger Agreement were the result of arm's length
negotiations between representatives of Seacoast Financial and Sandwich Bancorp.
Among the factors considered by the Board of Trustees of Seacoast Financial in
considering the Merger were (i) the ability to expand Compass's presence onto
Cape Cod (upon consummation of the Merger, Compass will have nine branches on
Cape Cod); (ii) information concerning the financial condition, results of
operations, capital levels, asset quality and prospects of Compass and Sandwich
Bancorp; (iii) the short-term and long-term impact the Conversion and the Merger
will have on Seacoast Financial's consolidated results of operations; (iv) the
general structure of the transaction and the compatibility of the respective
managements and business philosophies; (v) the enhancement of the franchise
value of Seacoast Financial and Compass; (vi) the ability of the combined
enterprise to compete in relevant banking and non-banking markets; (vii)
industry and economic conditions; and (viii) the impact of the Conversion and
the Merger on the depositors, employees, customers and communities served by
Compass and Sandwich Bancorp through the contemplated expansion of Compass's
lending and retail banking services as a result of the Merger.
Compass and Sandwich Bancorp currently serve contiguous market areas.
Compass operates in the southeastern Massachusetts region just west of Cape Cod,
including New Bedford, Fall River and Plymouth, and also operates on the island
of Martha's Vineyard, off the coast of Cape Cod. Sandwich Bancorp, which has 11
full service offices, operates primarily on Cape Cod. As a result of the
Conversion and the Merger, Compass will operate 34 full-service banking offices,
and, based on pro forma total assets at February 28, 1998, would be the third
largest savings bank in Massachusetts and the largest financial institution
headquartered in southeastern Massachusetts.
In addition to enabling Seacoast Financial to effect the Merger, the
Conversion will structure Seacoast Financial in stock form, the organizational
structure used by most business entities, including commercial bank holding
companies. The Conversion will permit Compass's customers and members of the
local community and of the general public to become equity owners and to share
in the future of Seacoast Financial and Compass. The Conversion will also
provide additional funds for lending and investment activities, facilitate
future access to the capital markets, enhance the ability of Seacoast Financial
to diversify and expand into other markets and enable Compass to compete more
effectively with other financial institutions.
After completion of the Conversion, the unissued common and preferred
stock authorized by Seacoast Financial's Articles of Organization will permit
Seacoast Financial, subject to market conditions and applicable regulatory
approvals, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, Seacoast Financial has no plans with respect to additional
offerings of securities (other than the issuance of the Exchange Shares in
connection with the Merger), although Seacoast Financial may consider the
adoption of a stock option plan and/or a recognition and retention plan that
would provide for the granting of shares of stock or stock options to management
and the Board. The ability to use
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stock-related incentive programs to attract and retain executive and other
personnel for itself and its subsidiaries is another benefit of operating in
stock form. See "Management of Seacoast Financial and Compass -- Compensation of
Officers and Directors through Benefit Plans."
In light of the foregoing, the Board of Trustees of Seacoast Financial
and the Board of Directors of Compass believe that the Conversion and the Merger
are in the best interests of Seacoast Financial, Compass and their depositors
and other customers and employees.
Description of the Conversion
The Offering and Sale of Conversion Shares. Seacoast Financial is
offering between 24,650,000 and 33,350,000 Conversion Shares (subject to
adjustment to up to 38,352,500 shares in the event the estimated pro forma
market value of the Conversion Shares increases immediately prior to the
conclusion of the Offering) in connection with the Conversion. Pursuant to
applicable state and federal regulations, Seacoast Financial is offering the
Conversion Shares for sale in the Subscription Offering pursuant to subscription
rights in the following order of priority to: (i) holders of deposit accounts at
Compass with an aggregate balance of $50 or more on December 31, 1996 ("Eligible
Account Holders"); (ii) holders of deposit accounts at Compass with an aggregate
balance of $50 or more on June 30, 1997 ("Supplemental Eligible Account
Holders"); (iii) Compass's ESOP; and (iv) employees, officers, directors and
trustees of Compass and Seacoast Financial. Concurrently with, during or
promptly after the Subscription Offering, and subject to the prior rights of
holders of subscription rights, Seacoast Financial may offer Conversion Shares
in the Community Offering to certain members of the general public with a
preference given to residents of Compass's Community (as defined below in "The
Offerings -- Community Offering"). Seacoast Financial may offer Conversion
Shares not subscribed for in the Subscription and Community Offerings, if any,
for sale to the general public in the Syndicated Community Offering. For
detailed information about subscription priorities, purchase limitations and
procedures for placing an order for Conversion Shares, see "The Offerings."
Stock Pricing and Number of Conversion Shares to be Issued. Seacoast
Financial has established the Purchase Price per share of all Conversion Shares
sold in the Offerings at $10.00. The Conversion Plan requires that the aggregate
purchase price of the Conversion Shares must be based on the appraised pro forma
market value of the Conversion Shares as determined on the basis of an
independent appraisal. Seacoast Financial has retained RP Financial to make such
valuation. For its services in making such appraisal and for preparation of a
business plan, RP Financial will receive a fee of $45,000 for the initial
appraisal, $5,000 for any update and $12,500 for the business plan plus
out-of-pocket expenses not to exceed $10,000. Seacoast Financial has agreed to
indemnify RP Financial and any employees of RP Financial who act for or on
behalf of RP Financial in connection with the appraisal against any and all
loss, cost, damage, claim, liability or expense of any kind (including claims
under federal and state securities laws) arising out of any misstatement or
untrue statement of a material fact or an omission to state a material fact in
the information supplied by Compass to RP Financial, unless RP Financial is
determined to be negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon the
information contained herein, including the financial statements of Seacoast
Financial and Sandwich Bancorp. RP Financial also considered the following
factors, among others, in preparing its appraisal: the present and projected
operating results and financial condition of Seacoast Financial and Sandwich
Bancorp and the economic and demographic conditions in Compass's and Sandwich
Bank's existing marketing area; certain historical, financial and other
information relating to Seacoast Financial and Sandwich Bancorp; a comparative
evaluation of the operating and financial statistics of Seacoast Financial and
Sandwich Bancorp with those of other similarly situated publicly traded savings
and co-operative banks and other savings institutions located in Massachusetts
and other New England states; the aggregate size of the offering of the
Conversion Shares; the impact of the Conversion and the Merger on Seacoast
Financial's net worth and earnings potential; estimates of the number of
Exchange Shares to be issued in the Merger; and the trading market for
securities of comparable institutions and general conditions in the market for
such securities. In its review of the appraisal provided by RP Financial, the
Board of Trustees of Seacoast Financial reviewed the methodologies and the
appropriateness of the assumptions that RP Financial used, in addition to the
factors enumerated above, and the Board of Trustees believes that such
assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised Seacoast
Financial and Compass that in its opinion, dated May 8, 1998, the estimated pro
forma market value of the Conversion Shares ranged from a minimum of $246.5
million to a maximum of $333.5 million with a midpoint of $290.0 million (the
"Estimated Valuation Range"), giving
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effect to the Merger. The Board of Directors of Compass and the Board of
Trustees of Seacoast Financial determined that the Conversion Shares should be
sold at $10.00 per share, resulting in a range of 24,650,000 to 33,350,000
Conversion Shares being offered. Upon consummation of both the Conversion
(assuming consummation occurs at the maximum of the Estimated Valuation Range)
and the Merger (assuming an Exchange Ratio of 6.4), the Conversion Shares and
the Exchange Shares will represent approximately 72.7% and 27.3%, respectively,
of the total shares of Seacoast Financial Common Stock outstanding, assuming no
fractional Exchange Shares, no exercise of dissenters' rights and a Purchase
Price of $10.00 per share. Assuming an Exchange Ratio of 4.7407, the Conversion
Shares and Exchange Shares would represent 78.2% and 21.8%, respectively, of the
outstanding Conversion Shares. See "-- Description of the Merger and the
Exchange Ratio." The Estimated Valuation Range may be amended with the approval
of the Commissioner, if required, or if necessitated by subsequent developments
in the financial condition of Seacoast Financial and Compass or market
conditions generally.
RP Financial's valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing the
Conversion Shares or Exchange Shares. RP Financial did not independently verify
the consolidated financial statements and other information provided by Seacoast
Financial and Sandwich Bancorp, nor did RP Financial value independently the
assets or liabilities of the parties. The valuation considers Seacoast Financial
and Compass as a going concern and should not be considered as an indication of
the liquidation value of Seacoast Financial. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing Conversion Shares in the Conversion or receiving Exchange
Shares in the Merger will thereafter be able to sell such shares at prices at or
above the Purchase Price (or the Seacoast Financial Trading Price used to
determine the Exchange Ratio) or in the range of the foregoing valuation of the
pro forma market value thereof.
No sale of Conversion Shares may be consummated unless prior to such
consummation RP Financial confirms that nothing of a material nature has
occurred which, taking into account all relevant factors, would cause it to
conclude that the aggregate Purchase Price is materially incompatible with its
current estimate of the pro forma market value of the Conversion Shares upon
consummation of the Conversion. If such is not the case, a new Estimated
Valuation Range may be set and new Subscription, Community Offerings and a new
Syndicated Community Offering may be held or such other action may be taken as
Seacoast Financial and Compass shall determine and the Commissioner may permit
or require.
Depending upon market or financial conditions prior to conclusion of
the Offering, the total number of Conversion Shares to be sold will be
established. In the event market or financial conditions change so as to cause
the aggregate Purchase Price, supported by the updated appraisal, to be below
the minimum of the Estimated Valuation Range or more than 15% above the maximum
of such range, Seacoast Financial will resolicit subscribers (i.e., permit them
to modify or rescind their subscriptions, or permit them to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation period or their
subscription funds will be promptly refunded, with interest, at Compass's
passbook rate of interest, and their withdrawal authorizations will be
cancelled). Any change in the Estimated Valuation Range must be approved by the
Commissioner. If the number of Conversion Shares issued in the Conversion is
increased due to an increase of up to 15% in the Estimated Valuation Range to
reflect changes in market or financial conditions, no resolicitation of
subscribers will be made. See "The Offering -- Limitations on Purchases of
Conversion Shares" as to purchase priorities with respect to additional shares
that may be issued in the event of an increase in the Estimated Valuation Range.
The higher the number of Conversion Shares issued, the lower a
stockholder's ownership interest and per share pro forma net income and
stockholders' equity, and the higher Seacoast Financial's pro forma net income
and stockholders' equity on an aggregate basis. The lower the number of
Conversion Shares issued, the higher a stockholder's ownership interest and per
share pro forma net income and stockholders' equity and the lower Seacoast
Financial's pro forma net income and stockholders' equity on an aggregate basis.
See "Risk Factors -- Dilution Resulting from Possible Issuance of Additional
Shares" and "Pro Forma Condensed Consolidated Financial Information."
Copies of the appraisal report of RP Financial, including any
amendments thereto, and the detailed report of the appraiser setting forth the
method and assumptions for such appraisal are available for inspection at the
main office of Seacoast Financial and at the other locations specified under
"Additional Information."
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Description of the Merger and the Exchange Ratio
Pursuant to the Merger Agreement, Sandwich Bancorp will merge with a
corporate subsidiary of Seacoast Financial. It is anticipated that, following
the merger of Sandwich Bancorp with a subsidiary of Seacoast Financial, Sandwich
Bancorp, as the surviving corporation, will merge with Seacoast Financial and
that Sandwich Bank will be merged with Compass and cease to be a separate bank.
Each outstanding share of Sandwich Bancorp Common Stock (other than shares held
by any dissenting stockholders and shares held by Seacoast Financial or any
subsidiary) and each outstanding Sandwich Bancorp Option will automatically
convert into and become exchangeable for a number of shares of Seacoast
Financial Common Stock determined by the application of the Exchange Ratio (as
described below), and cash in lieu of any fractional share of Seacoast Financial
Common Stock which such stockholders or optionholders otherwise would be
entitled to receive. The Exchange Ratio depends upon a calculation of the
average trading price of Seacoast Financial Common Stock on certain specified
days between the consummation of the Conversion and consummation of the Merger,
determined in the manner described below.
At the Merger Effective Time (as such term is defined in " --
Description of the Merger Agreement"), each share of Sandwich Bancorp Common
Stock issued and outstanding immediately prior thereto (other than those held by
Seacoast Financial, by Compass and by Sandwich Bancorp stockholders exercising
dissenters' rights) will convert into a number of Exchange Shares equal to one
share multiplied by the appropriate Exchange Ratio and cash in lieu of any
fractional share. The Exchange Ratio will be based on the Seacoast Financial
Trading Price and will be calculated as set forth below. The parties have agreed
to a range of possible Exchange Ratios so that, as the Seacoast Financial
Trading Price increases, the Exchange Ratio may decrease, as follows:
<TABLE>
<CAPTION>
Seacoast Financial Per Sandwich Bancorp Share
Trading Price Exchange Ratio Value
---------------------- ------------------------------------ ----------------------------
<S> <C> <C>
More than $15.00 Less than 4.7407 $71.11
($71.11 / Seacoast Financial
Trading Price)
$13.51 - $15.00 4.7407 $64.05 - $71.11
(4.7407 x Seacoast Financial
Trading Price)
$10.01 - $13.50 6.3936 - 4.7407 $64.00
($64.00 / Seacoast Financial Trading
Price)
$10.00 or less 6.4000 $64.00 or less
(6.4000 x Seacoast Financial
Trading Price)
</TABLE>
The Seacoast Financial Trading Price (and therefore the Exchange Ratio) will be
determined in the period between the consummation of the Conversion and the
consummation of the Merger by averaging the closing bid and asked price of the
Seacoast Financial Common Stock for each of the second through the ninth trading
days (inclusive) following consummation of the Conversion (the average of the
closing bid and asked price for each such day is referred to as the "Daily
Closing Price"), discarding the two highest and two lowest Daily Closing Prices
and averaging the remaining Daily Closing Prices. The closing bid and asked
prices will be as quoted at the close of business on the Nasdaq National Market.
The market price of Seacoast Financial Common Stock at the Merger Effective Time
could be more or less than the Seacoast Financial Trading Price used to
determine the Exchange Ratio, and the actual value of the shares issued in the
Merger therefore could be more or less than the Per Sandwich Bancorp Share Value
indicated in the foregoing table.
In addition, each option to purchase a share of Sandwich Bancorp
Common Stock outstanding under the Sandwich Stock Option Plans will, as of the
Merger Effective Time, be automatically converted into and exchangeable for a
number of Exchange Shares calculated by subtracting the per share exercise price
of such option from the Per Sandwich Share Value and dividing the result by the
Seacoast Financial Trading Price.
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At any time prior to the Merger Effective Time, Seacoast Financial may
revise the structure of the Merger and the other transactions contemplated by
the Merger Agreement, provided that (i) there are no material adverse federal or
state income tax consequences to Sandwich Bancorp and its stockholders as a
result of a modification; (ii) the consideration to be paid to the holders of
the Sandwich Bancorp Common Stock under the Merger Agreement is not thereby
changed in kind or reduced in amount; (iii) there are no material adverse
changes to the benefits and other arrangements provided to or on behalf of
Sandwich Bancorp's directors, officers and other employees; and (iv) such
modification will not delay materially or jeopardize receipt of any required
regulatory approvals or other consents and approvals relating to the
consummation of the Merger. Seacoast Financial, Compass, Sandwich Bancorp and
Sandwich Bank have agreed to appropriately amend the Merger Agreement and any
related documents in order to reflect any such revised structure.
For additional information about the Merger Agreement and the terms of
the Merger, see "-- Description of the Merger Agreement."
Effects of the Conversion and the Merger
Continuity. While the Conversion and Merger are pending, the normal
business of Compass and Sandwich Bank of accepting deposits and making loans
will continue without interruption. Compass and Sandwich Bank will continue to
be subject to regulation by the Commissioner and the FDIC. After the Conversion
and Bank Merger, Compass will continue to provide services for both Compass's
and Sandwich Bank's depositors and borrowers under Compass's current policies by
its present management and staff, as supplemented by Sandwich Bank personnel.
The directors and officers of Compass at the time of the Conversion
will continue to serve as directors and officers of Compass after the
Conversion. The directors of Seacoast Financial following the Conversion will
consist of individuals currently serving as directors of Compass and the
officers of Seacoast Financial will consist of the persons currently serving as
officers of Seacoast Financial. Upon consummation of the Merger, certain of the
officers and directors of Sandwich Bancorp and Sandwich Bank will become
officers and directors of Seacoast Financial and/or Compass. See "Management of
Seacoast Financial and Compass -- Directors of Seacoast Financial."
Effect on Deposit Accounts. The Conversion will have no effect on
Compass's deposit accounts, except to the extent that funds in the account are
withdrawn to purchase Conversion Shares and except with respect to liquidation
rights. Moreover, each depositor in Sandwich Bank at the time of the Bank Merger
will automatically become a depositor of Compass after the Bank Merger, and each
such deposit account will remain the same with respect to deposit balance,
interest rate and other terms, subject to Compass's right to conform such
account terms to comparable accounts offered by Compass. Subject to certain
limitations, each such account will be insured by the FDIC to the same extent as
before the Conversion and the Merger, and each such account will continue to be
insured in full for amounts in excess of FDIC limits by the
Massachusetts-chartered insurer of savings bank deposits, the DIF (as a
co-operative bank, Sandwich Bank currently offers its depositors similar excess
deposit insurance through the Share Insurance Fund of the Co-operative Central
Bank). Depositors will continue to hold their existing certificates, passbooks
and other evidences of their accounts.
Effect on Loans. No loan outstanding from either Compass or Sandwich
Bank will be affected by the Conversion or the Merger, and the amount,
interest rate, maturity and security for each loan will remain as they were
contractually fixed prior to the Conversion and the Merger.
Tax Effects. Seacoast Financial has received a favorable opinion
regarding the federal income tax consequences of the Conversion. See "-- Tax
Aspects of the Conversion and Merger." Consummation of the Merger is conditioned
on prior receipt by Seacoast Financial and Sandwich Bancorp of an opinion with
regard to federal income taxation which indicates, among other things, that each
of the Merger and the merger of Sandwich Bank and Compass (the "Bank Merger")
will constitute or will be part of a tax-free reorganization and that Seacoast
Financial, Compass, Sandwich Bancorp, Sandwich Bank and the shareholders of
Sandwich Bancorp, by reason of the Merger or the Bank Merger, will recognize no
gain or loss for federal income tax purposes.
Liquidation Rights. At the completion of the Conversion, Seacoast
Financial will establish a liquidation account for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain deposit accounts with Compass following the Conversion. The amount of
the liquidation account will be equal to the net worth of Seacoast Financial as
set forth in the most recent consolidated statement of financial condition
contained herein. In the unlikely event of a complete liquidation of Seacoast
Financial, and only in such event, each
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such account holder will be entitled to receive a liquidating distribution from
the liquidation account in the amount of the then-adjusted account balances for
such person's deposit accounts then held following all liquidation payments to
creditors.
The initial account balance for each Eligible Account Holder and
Supplemental Eligible Account Holder will be determined by multiplying the
opening balance in the liquidation account by a fraction, the numerator of which
is the amount of Qualifying Deposits or Supplemental Qualifying Deposits held by
such Eligible Account Holder or Supplemental Eligible Account Holder on the
Eligibility Record Date or the Supplemental Eligibility Record Date,
respectively, and the denominator of which is the aggregate amount of all
Qualifying Deposits or Supplemental Qualifying Deposits on such dates. For
deposit accounts in existence on both dates, separate account balances shall be
determined on the basis of the Qualifying Deposits and Supplemental Qualifying
Deposits in such deposit accounts on such dates.
If, however, on the last day of any fiscal year of Seacoast Financial
commencing after the Eligibility Record Date or Supplemental Eligibility Record
Date, as the case may be, the deposit balance in any deposit account of an
Eligible Account Holder or Supplemental Eligible Account Holder is less than
either (i) the amount of Qualifying Deposits of such Eligible Account Holder or
Supplemental Eligible Account Holder on the Eligibility Record Date or
Supplemental Eligibility Record Date, as the case may be, or (ii) the deposit
balance in such deposit account at the close of business on the last day of any
previous fiscal year of Seacoast Financial commencing after the Eligibility
Record Date or the Supplemental Eligibility Record Date, then such Eligible
Account Holder's or Supplemental Eligible Account Holder's account balance would
be reduced in an amount equal to the reduction in such deposit balance, and such
account balance will cease to exist if such deposit account is closed. In
addition, no interest in the liquidation account would ever be increased despite
any subsequent increase in the deposit balances of any Eligible Account Holder
or Supplemental Eligible Account Holder. Any assets remaining after the above
liquidation rights of Eligible Account Holders and Subsequent Eligible Account
Holders are satisfied would be distributed to the stockholders of Seacoast
Financial.
Neither Compass nor Seacoast Financial will be required to set aside
funds for the purpose of establishing the liquidation account, and the creation
and maintenance of the account will not operate to restrict the use or
application of any of the net worth accounts of Compass or Seacoast Financial,
except that neither Compass nor Seacoast Financial, as the case may be, shall
declare or pay a cash dividend on, or repurchase any of, its capital stock if
the effect of such a transaction would be to cause its net worth to be reduced
below the amount required for the liquidation account.
Required Approvals
Various regulatory approvals are required in order to consummate the
Conversion and the Merger. [The Commissioner has approved the Conversion Plan,
subject to the satisfaction of certain conditions.] In addition, the Conversion
and the Merger cannot be consummated unless (i) the FDIC approves the Bank
Merger under the Bank Merger Act; (ii) the BBI and the Commissioner approve the
Merger and the Bank Merger; and (iii) the FRB approves the Conversion and the
Merger. There can be no assurances that the required approvals will be obtained.
Moreover, the Merger cannot be completed until 15 days following approval by the
FDIC and FRB of the Bank Merger and the Merger, respectively. Since the
Conversion cannot be completed until all conditions to the Merger (other than
the delivery of the Exchange Shares) have been satisfied or waived, the
Conversion will not be consummated until such 15-day waiting period has lapsed.
Accordingly, the Conversion is unlikely to be completed prior to __________,
1998, and the Merger will not be completed until the tenth trading day
thereafter. Approvals, nonobjections and authorizations by the FDIC, the FRB,
the Commissioner or the BBI do not constitute recommendations or endorsements of
the Conversion or the Merger by such entities. There can be no assurances that
the requisite regulatory approvals will be received in a timely manner. In the
event the Merger is not consummated on or before February 20, 1999, the Merger
Agreement may be terminated by either Seacoast Financial or Sandwich Bancorp
(subject to a possible one-month extension under certain circumstances).
Pursuant to Massachusetts law, the Conversion Plan must be approved by
at least two thirds of Seacoast Financial's Corporators. In addition, the Merger
must be approved by at least two thirds (2/3) of Seacoast Financial's
Corporators. Such approvals were obtained at a special meeting of Corporators
held on ________, 1998. In addition, consummation of the Merger requires the
approval of the Merger Agreement by the stockholders of Sandwich Bancorp.
Sandwich Bancorp has called a special meeting of stockholders for the purpose of
voting on the Merger in August ___, 1998. Under Massachusetts law, the Merger
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Agreement must be approved by a two-thirds vote of the outstanding Sandwich
Bancorp Common Stock entitled to vote at such special meeting.
Seacoast Financial is required to make certain filings with state
securities regulatory authorities in connection with the issuance of Seacoast
Financial Common Stock in the Conversion and the Merger.
Description of the Merger Agreement
Representations and Warranties. The Merger Agreement contains
representations and warranties by Sandwich Bancorp and Seacoast Financial
regarding various legal, regulatory, financial and business matters which
generally include, but are not limited to, the following: (i) capital structure,
(ii) securities documents and regulatory reports, (iii) financial statements,
(iv) material adverse change, (v) environmental matters, (vi) tax matters; (vii)
legal proceedings, (viii) employee benefit plans; (ix) properties, (x) loan
portfolio and (xi) material interests of certain persons. Except as otherwise
provided in the Merger Agreement, these representations and warranties will not
survive the Merger Effective Time.
Conduct of Business Prior to the Closing Date. Under the terms of the
Merger Agreement, each of Seacoast Financial and Sandwich Bancorp and their
respective subsidiaries generally is prohibited from: (i) taking any action that
materially adversely affects the ability of either party to obtain any necessary
regulatory approvals or materially increases the period of time necessary to
obtain such approvals; (ii) taking any action that materially adversely affects
its ability to perform its covenants and agreements under the Merger Agreement;
(iii) knowingly taking any action that would result in its representations and
warranties not being true and correct on the date of the Merger Agreement or at
any future date on or prior to the closing date; or (iv) taking or causing any
act which disqualifies the Merger as a pooling-of-interests for accounting
purposes or as a tax free reorganization under Section 368 of the Code.
Sandwich Bancorp, including its subsidiaries, is required to use
reasonable efforts to preserve intact its business organization and assets and
maintain its rights and franchises and operate its business in the usual,
regular and ordinary course. In addition, Sandwich Bancorp has agreed, except as
otherwise specifically permitted or required by the Merger Agreement or
consented to in writing, that Sandwich Bancorp may not: (i) declare or pay any
dividends or other distributions on capital stock (except for (a) a quarterly
cash dividend not in excess of $0.35 per share that is declared and paid in
accordance with applicable law, regulation, contractual and regulatory
commitments, and (b) dividends paid by any Sandwich Bancorp subsidiary to
Sandwich Bancorp); (ii) increase compensation or fringe benefits of, or pay
bonuses to, directors, officers or employees beyond certain stated limits; (iii)
change or waive any provision of its articles or by-laws; (iv) change the number
of shares authorized or issued capital stock (except for an issuance pursuant to
the Stock Option Agreement or upon exercise of outstanding Sandwich Options);
(v) issue or grant any option, warrant, call commitment, subscription, right to
purchase or agreement relating to the authorized and issued capital stock of
Sandwich Bancorp, or any subsidiary thereunder, or any convertible securities,
except for those shares issued to satisfy presently outstanding options under
and in accordance with the Stock Option Agreement and the Sandwich Bancorp stock
option plans; (vi) enter into or amend in any material respect or terminate any
contract, except in the ordinary course of business consistent with past
practice and as specified in the Merger Agreement; (vii) amend, terminate, waive
or provide consent under any standstill agreement; (viii) incur any material
liabilities or material obligations, whether directly or by way of guaranty, or
acquire any equity, debt or other investment securities, except in the ordinary
course of business consistent with past practices; (ix) make capital
expenditures beyond stated limits, excluding binding commitments already
existing as of the date of the Merger Agreement; (x) make equity investments in
real estate, other than in foreclosed properties, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary course of
business consistent with customary banking practices; (xi) make commercial or
commercial real estate loans or loans to one borrower above a certain stated
size; (xii) open or close any branch offices or automated banking facilities;
(xiii) engage in certain off-balance-sheet transactions; (xiv) change accounting
method or practices, except as required by GAAP or by regulatory policy; (xv)
merge or consolidate with, or be acquired by, another entity, except as the
fiduciary duties of the Board of Directors otherwise requires; or (xvi) agree to
do any of the foregoing.
Acquisition Proposals. Sandwich Bancorp has also agreed in the Merger
Agreement, subject to certain exceptions relating to the fiduciary duty of the
Sandwich Bancorp Board of Directors, that it will not (and will use all
commercially reasonable efforts to cause its representatives not to) directly or
indirectly encourage, solicit, initiate or participate in any discussions or
negotiations with, or provide any information to, any other person (other than
Seacoast Financial and its affiliates or representatives) concerning any merger,
tender offer, sale of substantial assets, sale of
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shares of capital stock or debt securities or similar acquisition transaction
involving Sandwich Bancorp or Sandwich Bank. Sandwich Bancorp has agreed to
notify Seacoast Financial immediately of any such inquiry or proposal (including
the terms thereof and the identity of the other person making the inquiry or
proposal) and has further agreed to consult with Seacoast Financial after
receipt of such proposal or commencement of such discussion or negotiation
relating to an acquisition transaction and not to take any action with respect
to such proposed acquisition transaction except after reasonable consultation
with Seacoast Financial.
Closing Date of the Merger. The Merger Agreement provides that the
closing of the Merger will occur on the tenth trading day following consummation
of the Conversion or such other time as Seacoast Financial and Sandwich Bancorp
may agree upon (the "Closing Date"). The reason for the delay between the dates
of consummation of the Conversion and consummation of the Merger is that the
calculation of the Exchange Ratio for determining the number of Exchange Shares
issuable to the Sandwich Bancorp stockholders is based upon the Seacoast
Financial Trading Price, which cannot be calculated until after the consummation
of the Conversion. Notwithstanding this delay, the Conversion and the Merger are
interdependent transactions, and neither one will occur unless both of them do.
As a result, the conditions to the Merger set forth in the Merger Agreement
(other than the delivery of the Exchange Shares), which would typically need to
have been met as of the closing date of the Merger, must instead be met as of
the date of consummation of the Conversion (the "Pre-Closing Date"), which will
be the date of the pre-closing (the "Pre-Closing") for the Merger. Following
completion of the Pre-Closing, which completion will be acknowledged in writing
by the parties at such time, neither party will have the right to terminate the
Merger Agreement. The Merger Agreement provides that if, after the Pre-Closing
Date, any party to the Merger Agreement attempts to terminate such agreement or
fails to take any action necessary to consummate the Merger, the other party may
seek injunctive relief to enforce the Merger Agreement and the breaching party
may not oppose or contest such effort. Assuming that all conditions to the
Merger have been satisfied or waived as of the Pre-Closing Date, the Merger
Effective Time shall be the time on the Closing Date that the Merger becomes
effective pursuant to applicable provisions of Massachusetts law.
Seacoast Financial and Sandwich Bancorp each anticipates that the
Merger will be consummated in the third or fourth quarter of 1998. However,
consummation could be delayed as a result of delays in obtaining the necessary
governmental and regulatory approvals of the Conversion or the Merger or if any
other condition to consummation of the Merger is not satisfied or waived. There
can be no assurances as to if or when such approvals will be obtained or that
the Merger will be consummated. See "-- Regulatory and Other Approvals."
Conditions to the Merger. The respective obligations of each party
under the Merger Agreement are subject to the fulfillment of the following
conditions at or prior to the Pre-Closing Date, none of which may be waived: (i)
the approval of the Merger Agreement by the Sandwich Bancorp stockholders; (ii)
the absence of orders, decrees or injunctions which enjoin or prohibit the
Merger; (iii) the receipt of all necessary regulatory approvals, authorizations
and consents and the expiration of all applicable waiting periods, without any
condition or requirement that materially and adversely affects the combined
enterprise or the value of Sandwich Bancorp or Sandwich Bank; (iv) the
effectiveness under the Securities Act of the Registration Statement registering
the Exchange Shares without having a stop order issued by either the SEC or
state securities regulators suspending the effectiveness or any proceeding
initiated or threatened by the SEC to suspend such effectiveness; (v) the
approval for listing on the Nasdaq National Market, subject to official notice
of issuance, of the Exchange Shares; (vi) the receipt of a tax opinion, dated as
of the Pre-Closing Date for federal income tax purposes, relating to the Merger
as described under "-- Tax Effects of the Conversion and the Merger"; and (vii)
the consummation by Seacoast Financial of the Conversion, resulting in net
proceeds sufficient to enable Compass to remain "well-capitalized" under
applicable federal banking law and otherwise to meet regulatory capital
requirements, in each case after giving effect to the Merger.
The obligations of Seacoast Financial and Sandwich Bancorp under the
Merger Agreement are further subject to the satisfaction (or waiver), at or
prior to the Pre-Closing Date, of the following conditions: (i) the
representations and warranties of the other party shall continue to be true and
correct in all material respects as of the Pre-Closing Date; (ii) the other
party shall have performed in all material respects all obligations and complied
in all material respects with all of its agreements or covenants under the
Merger Agreement, except to the extent that failure to perform does not have a
material adverse effect; (iii) the other party shall have obtained any and all
material permits, authorizations, consents, waivers, clearances or approvals
required for the lawful consummation of the Merger by it; (iv) each party shall
have received the agreed legal opinion from counsel to the other party; (v) each
party shall have received the agreed "comfort" letter from the independent
accountant to the other party; and (vi) each party shall have
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furnished the other party with such certificates of its officers or others and
such other documents to evidence fulfillment of the aforementioned conditions as
shall be reasonably requested.
The obligations of Seacoast Financial are further subject to the
condition that, as of the Pre-Closing Date, Seacoast Financial shall have
received a letter from its independent accountant to the effect that the Merger
will qualify for "pooling of interests" accounting treatment. Seacoast Financial
will be deemed to have waived this condition if it purchases any shares of
Sandwich Bancorp Common Stock between the date of the Merger Agreement and the
Pre-Closing Date. The obligations of Sandwich Bancorp are further subject to the
condition that Seacoast Financial shall have delivered to the exchange agent, on
or before the Closing Date of the Merger, certificates representing the Exchange
Shares and the cash in lieu of fractional shares to be delivered to the Sandwich
Bancorp stockholders and optionholders pursuant to the Merger Agreement.
Termination and Termination Fees. The Agreement may be terminated at
any time prior to the Pre-Closing Date, whether before or after approval of the
Merger by the stockholders of Sandwich Bancorp: (i) at any time by the mutual
written agreement of Seacoast Financial and Sandwich Bancorp; (ii) by either
Sandwich Bancorp or Seacoast Financial in the event of a material breach by the
other party of any covenant, agreement, representation or warranty in the Merger
Agreement which breach by its nature cannot be cured prior to the Pre-Closing
Date or shall not have been cured within 30 business days after written notice
by Seacoast Financial to Sandwich Bancorp (or by Sandwich Bancorp to Seacoast
Financial) of such breach (provided that the terminating party is not itself in
material breach); (iii) at the election of either Seacoast Financial or Sandwich
Bancorp in the event that the Closing Date does not occur on or before February
20, 1999, or such later date as Seacoast Financial and Sandwich Bancorp have
agreed to in writing, subject to a one-month extension in certain circumstances
specified in the Merger Agreement; (iv) by either Sandwich Bancorp or Seacoast
Financial if the stockholders of Sandwich Bancorp shall not have approved the
Merger Agreement; (v) by either Sandwich Bancorp or Seacoast Financial if (a)
either the Merger or the Conversion is disapproved by a regulatory authority and
such disapproval has become unappealable or (b) if any court of competent
jurisdiction or other governmental authority issues an order, decree, ruling or
takes any other action restraining, enjoining or otherwise prohibiting the
consummation of Merger, the Bank Merger or the Conversion and such order or
injunction has become final and nonappealable; (vi) by either party if an event
occurs that would result in Sandwich Bancorp's obligation to pay to Seacoast
Financial the $6.0 million termination fee as described below; or (vii) by the
Board of Directors of either party in the event that any of the conditions
precedent to the obligations of such party to consummate the Merger cannot be
satisfied or fulfilled, provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other agreement.
Termination due to mutual agreement shall be without liability, cost or
expense on the part of any party to the other, unless an event occurs requiring
the payment of a $6.0 million dollar termination fee to Sandwich Bancorp or
Seacoast Financial, as described below. In the event termination upon the
occurrence of either party's material failure to comply with representations,
warranties, covenants or other agreements contained in the Merger Agreement as a
result of willful misconduct or gross negligence of a party, such party shall be
obligated to reimburse the other party for up to $1,000,000 of out-of-pocket
costs and expenses, including reasonable legal, accounting and investment
banking fees and expenses, in addition to any other rights or remedies available
at law or equity, unless under the Merger Agreement either Sandwich Bancorp or
Seacoast Financial is entitled to a $6.0 million dollar termination fee, as
described below.
As a condition of Sandwich Bancorp's willingness to enter into the
Merger Agreement, and to reimburse Sandwich Bancorp for incurring the damages,
costs and expenses related to entering into the Merger Agreement and
consummating the transactions contemplated thereby, Seacoast Financial has
agreed to pay Sandwich Bancorp, as liquidated damages, and in lieu of any other
rights or remedies under the Merger Agreement, a payment in the amount of $6.0
million if the Merger does not occur because (i) either the Conversion does not
occur or it does occur but it does not result in net proceeds sufficient to
enable Compass to remain "well-capitalized" under applicable federal banking law
and otherwise to meet regulatory capital requirements, in each case after giving
effect to the Merger, or (ii) the Conversion has not been approved by
regulators, has been enjoined or is otherwise not completed by Seacoast
Financial by February 20, 1999 (subject to a one-month extension under certain
circumstances specified in the Merger Agreement), or if Sandwich Bancorp has
terminated the Merger Agreement as a result of Seacoast Financial's willful or
intentional breach of its representations and warranties, covenants or
agreements. Seacoast Financial will not be required to pay the termination fee
if the triggering event is primarily due to a breach by Sandwich Bancorp of its
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representations, warranties, covenants or agreements that directly or adversely
affects Seacoast Financial's ability to consummate the Merger or to satisfy the
conditions to its obligation to consummate the Merger.
As a condition of Seacoast Financial's willingness to enter into the
Merger Agreement, and to reimburse Seacoast Financial for incurring the damages,
costs and expenses related to entering into the Merger Agreement and
consummating the transactions contemplated thereby, Sandwich Bancorp has agreed
to pay to Seacoast Financial, as liquidated damages, and in lieu of any other
rights or remedies under the Merger Agreement, a payment in the amount of $6.0
million, but if and only if a "payment event" (as such term is defined below)
has occurred before the "expense fee termination date" (as such term is defined
below).
A "payment event" would be any of the following events: (i) without
Seacoast Financial's prior written consent, Sandwich Bancorp shall have
authorized, proposed or entered into, or publicly announced an intention to
authorize, propose or enter into, an agreement with any person (other than
Seacoast Financial or any subsidiary thereof) to effect (a) a merger,
consolidation or similar transaction involving Sandwich Bancorp or any
subsidiary thereof, (b) the disposition, by sale, lease, exchange or otherwise,
of assets of Sandwich Bancorp or any subsidiary thereof representing in either
case 15% or more of the consolidated assets of Sandwich Bancorp or any
subsidiary or (c) the issuance, sale or other disposition (including by way of
merger, consolidation, share exchange or any similar transaction) of securities
representing 15% or more of the voting power of Sandwich Bancorp or any
subsidiary thereof or (ii) a person (other than Seacoast Financial or any
subsidiary thereof) shall have acquired beneficial ownership of, or the right to
acquire beneficial ownership of, or a group shall have been formed which
beneficially owns, or has the right to acquire beneficial ownership of, 25% or
more of the then outstanding shares of Sandwich Bancorp Common Stock.
The "expense fee termination date" would be the earliest to occur of
(i) the Merger Effective Time, (ii) the date that is 12 months after termination
of the Merger Agreement following the occurrence of a "time extension event" (as
such term is defined below) or (iii) the date on which the Merger Agreement is
terminated in accordance with its terms, but only if such termination takes
place prior to the occurrence of a payment event or a "time extension event." A
"time extension event" would be any of the following events: (i) a person (other
than Seacoast Financial or any subsidiary thereof) shall have commenced, or
shall have filed a registration statement under the Securities Act with respect
to, a tender offer or exchange offer to purchase any shares of Sandwich Bancorp
Common Stock such that, upon consummation of such offer, such person would own
or control 10% or more of the then outstanding shares of such stock; (ii)
following the public announcement of an "acquisition proposal" (which is defined
in the Merger Agreement, and which the parties acknowledge has already taken
place), the holders of the Sandwich Bancorp Common Stock shall not have approved
the Merger Agreement; (iii) following the occurrence of an "acquisition
proposal" (a) a meeting of Sandwich Bancorp's stockholders held for the purpose
of voting on the Merger Agreement shall not have been held or shall have been
canceled prior to termination of the Merger Agreement; (b) Sandwich Bancorp's
Board of Directors shall have withdrawn or modified in a manner adverse to
Seacoast Financial the recommendation of the Board of Directors with respect to
the Merger Agreement and the Merger; (c) Sandwich Bancorp shall have willfully
or intentionally breached any representation, warranty, covenant or obligation
contained in the Merger Agreement and such breach would entitle Seacoast
Financial to terminate the Merger Agreement (without regard to the cure period
otherwise provided for unless such cure is promptly effected without
jeopardizing consummation of the Merger pursuant to the terms of the Merger
Agreement); or (d) the Merger shall not have been consummated by reason of
failure of the pooling-of-interests condition, and such failure is the result of
the actions of a party not affiliated with either Seacoast Financial or Sandwich
Bancorp.
Amendment and Waiver. Subject to applicable law, at any time prior to
the Merger Effective Time, the parties to the Merger Agreement may amend the
Merger Agreement, extend the time for the performance of any of the obligations
or other acts of any other party, waive any inaccuracies in the representations
and warranties or any document delivered pursuant to the Merger Agreement or
waive compliance with any of the Merger Agreement's agreements or conditions,
except that after the Sandwich Bancorp stockholder meeting at which the Merger
is to be considered there may not be, without further approval by Sandwich
Bancorp's stockholders, any amendment of the Merger Agreement which reduces the
amount or changes the form of consideration to be delivered to Sandwich
Bancorp's stockholders.
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The Stock Option Agreement
Under the Stock Option Agreement, Sandwich Bancorp has granted an
option (the "Option") to Seacoast Financial to purchase up to 387,107 authorized
but unissued shares of Sandwich Bancorp Common Stock (constituting up to 19.9%
of the outstanding Sandwich Bancorp Common Stock on the date of grant of the
Option and 16.7% of the shares of Sandwich Bancorp Common Stock that would be
outstanding following the exercise of the Option) at a price of $57 per share.
In the event of any change in Sandwich Bancorp Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations, exchanges of shares or
the like, the type and number of shares subject to the Option and the purchase
price therefor will be adjusted appropriately. If any additional shares of
Sandwich Bancorp Common Stock are issued or otherwise become outstanding after
the date of the Stock Option Agreement (other than as contemplated in the Stock
Option Agreement), the number of shares of Sandwich Bancorp Common Stock subject
to the Option shall be adjusted so that, after such issuance, it does not exceed
19.9% percent of the number of shares of Sandwich Bancorp Common Stock then
issued and outstanding without giving effect to any shares subject to or issued
pursuant to the Option. The $57 exercise price was based upon trading price
information for Sandwich Bancorp Common Stock on March 20, 1998, the trading day
immediately preceding the announcement of the Merger Agreement on March 23,
1998.
The Option is exercisable in whole or in part upon the occurrence of a
"Purchase Event" (as such term is defined below) and prior to an "Exercise
Termination Event" (as such term is defined below). A "Purchase Event" would be
any of the following events:
(i) without Seacoast Financial's prior written consent,
Sandwich Bancorp shall have authorized, recommend or publicly proposed
or publicly announced an intention to authorize, recommend or propose
or enter into, an agreement with any person (other than Seacoast
Financial or any subsidiary thereof) to effect (a) a merger,
consolidation or similar transaction involving Sandwich Bancorp or any
subsidiary thereof, (b) the disposition, by sale, lease, exchange or
otherwise, of assets of Sandwich Bancorp or any subsidiary thereof
representing in either case 15% or more of the consolidated assets of
Sandwich Bancorp or (c) the issuance, sale or other disposition
(including by way of merger, consolidation, share exchange or any
similar transaction) of securities representing 15% or more of the
voting power of Sandwich Bancorp or any subsidiary thereof (each, an
"Acquisition Transaction"), or
(ii) a person (other than Seacoast Financial or any
subsidiary thereof) shall have acquired beneficial ownership of, or
the right to acquire beneficial ownership of, or a group shall have
been formed which beneficially owns, or has the right to acquire
beneficial ownership of, 25% or more of the then outstanding shares of
Sandwich Bancorp Common Stock.
An "Exercise Termination Event" would be any of the following events:
(i) the Merger Effective Time, (ii) the date that is 12 months after termination
of the Merger Agreement following the occurrence of a "Purchase Event" or
"Preliminary Purchase Event" (as such terms are defined below), (iii) the date
on which the Merger Agreement is terminated in accordance with its terms, but
only if such termination takes place prior to the occurrence of a Purchase Event
or a Preliminary Purchase Event, or (iv) the passage of twelve months after the
Merger Agreement is terminated by Seacoast Financial as a result of a material
breach of any representation, covenant, warranty or agreement set forth in the
Merger Agreement, which breach by its nature cannot be cured prior to the
pre-closing date or shall not have been cured within 30 business days after
written notice by Sandwich Bancorp to Seacoast Financial of such breach.
A "Preliminary Purchase Event" would be any of the following events:
(i) a person (other than Seacoast Financial or any subsidiary
thereof) shall have commenced, or shall have filed a registration
statement under the Securities Act with respect to, a tender offer or
exchange offer to purchase any shares of Sandwich Bancorp Common Stock
such that, upon consummation of such offer, such person would own or
control 10% or more of the then outstanding shares of the Sandwich
Bancorp Common Stock;
(ii) following the public announcement or occurrence of an
"acquisition proposal" (which is defined in the Stock Option
Agreement, and which the parties acknowledge has already taken place):
(a) the holders of the Sandwich Bancorp Common Stock shall not have
approved the Merger Agreement; (b) a meeting of Sandwich Bancorp's
stockholders held for the purpose of voting on the Merger Agreement
shall not have been held or shall have been canceled prior to
termination of the Merger Agreement; (c) Sandwich Bancorp's
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Board of Directors shall have withdrawn or modified, or publicly
announced its intention to withdraw or modify, in a manner adverse to
Seacoast Financial the recommendation of the Board of Directors with
respect to the Merger Agreement and the Merger; (d) Sandwich Bancorp
shall have breached any representation, warranty, covenant or
obligation contained in the Merger Agreement and such breach would
entitle Seacoast Financial to terminate the Merger Agreement (without
regard to the cure period otherwise provided for unless such cure is
promptly effected without jeopardizing consummation of the Merger
pursuant to the terms of the Merger Agreement); (e) or the Merger
shall not have been consummated by reason of failure of the
pooling-of-interests condition, and such failure is the result of the
actions of a party not affiliated with either Seacoast Financial or
Sandwich Bancorp; or
(iii) any person, other than Seacoast Financial, or any
subsidiary thereunder, other than in connection with a transaction to
which Seacoast Financial has given prior written consent, shall have
(a) acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Sandwich Bancorp
Common Stock or (b) filed an application or notice with the FRB, or
other federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to acquire
beneficial ownership of 10% or more of the outstanding shares of
Sandwich Bancorp Common Stock or otherwise to engage in an Acquisition
Transaction.
The Stock Option Agreement also provides that Sandwich Bancorp is
required to repurchase the Option from Seacoast Financial, together with any
shares of Sandwich Bancorp Common Stock purchased by Seacoast Financial pursuant
thereto, at the election of Seacoast Financial during the twelve months
immediately following (i) the acquisition by one or more third parties of 50% or
more of the outstanding shares of Sandwich Bancorp Common Stock (or the right to
acquire 50% or more of such outstanding shares) or (ii) the execution by
Sandwich Bancorp of an agreement to merge into or consolidate with a third party
following which transaction Sandwich Bancorp will not be the continuing or
surviving corporation or to sell 50% or more of the voting power of Sandwich
Bancorp to a third party or to sell or otherwise transfer all or substantially
all of the Sandwich Bancorp assets to a third party. The price of such
repurchase is specified in the Stock Option Agreement. The obligation for
Sandwich Bancorp to repurchase the Option terminates upon an Exercise
Termination Event, unless a Purchase Event occurs prior to an Exercise
Termination Event.
Although the shares issuable upon exercise of the Option represent
approximately 16.7% of the Sandwich Bancorp Common Stock that would be
outstanding after such exercise, Seacoast Financial may not acquire more than
five percent of the Sandwich Bancorp Common Stock, pursuant to the exercise of
the Option or otherwise, without prior approval of the FRB. Seacoast Financial
has applied to the FRB for prior approval to exercise the Option following any
applicable event triggering the Option.
Interests of Certain Persons in the Conversion
General. In connection with the Conversion, the directors, trustees
and executive officers of Seacoast Financial and Compass, as a group (20
persons), have proposed to purchase 386,500 Conversion Shares, or 1.6% and 1.2%
of the Conversion Shares at the minimum and maximum of the Estimated Valuation
Range, respectively. See "Purchases by Management of Seacoast Financial and
Compass."
The ESOP. Compass has adopted the ESOP, a tax-qualified benefit plan
for officers and employees of Compass, which intends to purchase 8% of the
Conversion Shares, or 1,972,000 shares ($19.7 million) and 2,668,000 ($26.7
million) at the minimum and maximum of the Estimated Valuation Range,
respectively. See "Management of Seacoast Financial and Compass -- Compensation
of Officers and Directors through Benefit Plans -- Employee Stock Ownership Plan
and Trust."
Seacoast Financial Stock Compensation Plans. Following consummation of
the Conversion, the Board of Directors may consider the adoption of a stock
option plan for, and a stock plan for the recognition and retention of, officers
and directors of Compass and Seacoast Financial. Applicable banking regulations
would permit the Company to adopt such plans for presentation to Seacoast
Financial's stockholders at a meeting to be held no earlier than six months
after the completion of the Conversion. If such plans are adopted, no options or
stock awards would be granted under either plan until the date on which
stockholder approval of the respective plan is received. See "Management of
Seacoast Financial and Compass -- Compensation of Officers and Directors through
Benefit Plans -- Stock Option Plan" and "-- Stock Plan."
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Seacoast Financial Employment Agreements. In connection with the
Conversion, Seacoast Financial and Compass have entered into employment and
change of control agreements with the following officers of Seacoast Financial
and Compass: ____________. The employment agreements have three-year (in the
case of Mr. Champagne) and two-year (in the case of the other officers) terms
that are extended automatically unless one of the parties thereto gives a notice
of non-renewal. Such agreements also guarantee the officers payments and
benefits in the event the officers are terminated under certain circumstances or
in the event of their retirement, death or disability. The change in control
agreements guarantee the officers severance payments and continuing benefits in
case they are terminated for certain reasons following a "change in control" (as
such term is defined in such agreements) of Seacoast Financial or Compass. See
"Management of Seacoast Financial and Compass -- Employment and Change of
Control Agreements."
Interests of Certain Persons in the Merger
Boards of Directors. Upon consummation of the Merger, Seacoast
Financial will take all necessary action to appoint Frederic D. Legate,
currently the President and Chief Executive Officer of Sandwich Bancorp, and two
other members of Sandwich Bancorp's Board of Directors (to be designated by
Seacoast Financial after consultation with Sandwich Bancorp) to Seacoast
Financial's Board of Directors. Mr. Legate will also be appointed to Compass's
Board and the executive committee thereof.
Sandwich Bancorp Employees. At the Merger Effective Time, all
employees of Sandwich Bancorp and its subsidiaries shall be employed by Compass,
with employee benefits which in the aggregate are no less favorable than those
generally afforded to other employees of Compass holding similar positions,
subject to the terms and conditions under which those employee benefits are made
available to such employees and to certain other provisions of the Merger
Agreement. For purposes of determining eligibility for and vesting of such
employee benefits only (and not for pension benefit accrual purposes), service
with Sandwich Bancorp prior to the Merger Effective Time will be treated as
service with an "employer" as if such persons had been employees of Seacoast
Financial, to the extent permissible under the terms of Seacoast Financial's
employee benefit plans. Seacoast Financial has also agreed to continue to
provide post-retirement medical benefits to former employees of Sandwich Bancorp
who at the time of the Merger are receiving post-retirement medical benefits in
accordance with Sandwich Bancorp's retiree health care plans, and Seacoast
Financial will honor any and all vacation leave (but not sick leave) accrued by
employees of Sandwich Bancorp, except to the extent of any duplication of
benefits. No pre-existing condition exclusion that is currently inapplicable to
an employee of Sandwich Bancorp or a subsidiary thereof and/or the employee's
covered dependents shall affect their rights to health benefits or coverage
under Seacoast Financial's plans, to the extent permissible under such plans.
The parties are working to identify operational efficiencies that may
be obtained through the consolidation of the entities in the Merger. It is
anticipated that some positions will be eliminated following the Merger
Effective Time, and Seacoast Financial and Compass are not under any continuing
obligation with respect to the employment of any specific employee of Sandwich
Bancorp or Sandwich Bank other than the officers whose employment contracts are
being assumed. See "-- Sandwich Bancorp Employment Agreements." Seacoast
Financial and Compass have agreed that any employee of Sandwich Bancorp or
Sandwich Bank whose employment with Seacoast Financial or Compass is terminated
by Seacoast Financial within one year after the Merger Effective Time will
receive a lump-sum severance benefit in an amount equal to two weeks' pay for
each year of employment (with partial years of service included in the
calculation on a pro-rated basis), up to a maximum of 26 weeks' pay, and
continuation of health benefits, on the same terms and conditions applicable to
Seacoast Financial's active employees, for the same number of weeks factored
into the calculation of severance payments, and thereafter COBRA benefits for an
additional period of time.
Sandwich Bancorp Employment Agreements. Under the terms of the Merger
Agreement, Seacoast Financial and Compass have agreed to assume employment and
change of control agreements that Sandwich Bancorp and Sandwich Bank currently
have with Frederic D. Legate, President and Chief Executive Officer, and Dana S.
Briggs, George L. Larson and David A. Parsons, each a Senior Vice President, of
Sandwich Bancorp and Sandwich Bank, as well as comparable agreements with
certain other officers of Sandwich Bank. Pursuant to the employment and change
of control agreements, the officers are entitled to receive severance benefits
if, within a period of time following a "change in control" (as defined in the
agreements), such officers' employment is terminated involuntarily or
voluntarily following certain specified events such as a material change in
responsibilities. The Merger constitutes a change in control of Sandwich Bancorp
and Sandwich Bank and a material change of such officers' responsibilities and
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supervision under the agreements. The severance benefits payable to the officers
may be an amount equal to up to 2.99 times the officer's average annual
compensation received from Sandwich Bank during the five year period immediately
prior to the date of the change of control. Assuming that the Seacoast Financial
Trading Price is between $10.01 and $13.50, and the Exchange Ratio therefore
results in the exchange of approximately $64 worth of Seacoast Financial Common
Stock for each share of Sandwich Bancorp Common Stock, management of Sandwich
Bancorp estimates that such payments could amount to up to $1,021,942, $394,496,
$420,870 and $320,202 for Messrs. Legate, Briggs, Larson and Parsons,
respectively, if made during the year ended December 31, 1998. Seacoast
Financial has also agreed to assume certain deferred compensation plans, grantor
trust agreements, supplemental retirement plans and split dollar insurance
agreements currently in effect for certain officers and directors of Sandwich
Bancorp.
Indemnification and Insurance. Pursuant to the Merger Agreement,
Seacoast Financial has agreed to indemnify the directors and officers of
Sandwich Bancorp and its subsidiaries with respect to claims arising in whole or
in part out of the fact that such person is or was a director, officer or
employee of Sandwich Bancorp or any of its subsidiaries if such claim pertains
to any matter of fact arising, existing or occurring before the Merger Effective
Time.
In addition, Seacoast Financial has agreed for a period of not less
than six years following the Merger Effective Time to provide to those persons
who served as directors or officers of Sandwich Bancorp on or before the Merger
Effective Time Sandwich Bancorp's existing insurance against liabilities and
claims (and related expenses) made against them resulting from their service as
such prior to the Merger Effective Time, or comparable substitute coverage,
provided that Seacoast Financial is not required to expend more than $60,000 in
the aggregate for such insurance coverage.
Sandwich Bancorp Stock Option Plans. At the Merger Effective Time,
each outstanding option under the Sandwich Stock Option Plans will be
automatically converted into, and exchangeable for, a number of shares of
Seacoast Financial Common Stock determined by subtracting the per share exercise
price of such option from the value of the shares of Seacoast Financial Common
Stock receivable by Sandwich Bancorp stockholders in exchange for each
outstanding share of Sandwich Bancorp Common Stock and dividing the result by
the Seacoast Financial Trading Price. As of April 20, 1998, there were
outstanding under the Sandwich Stock Option Plans options to acquire an
aggregate of 141,583 shares of Sandwich Bancorp Common Stock at exercise prices
ranging from $7.00 per share to $30.6875 per share. Assuming that the Seacoast
Financial Trading Price is between $10.01 and $13.50, and the Exchange Ratio
therefore results in the exchange of approximately $64 worth of Seacoast
Financial Common Stock for each share of Sandwich Bancorp Common Stock,
management of Sandwich Bancorp estimates that the aggregate increase in the net
value of the Sandwich Stock Options held by each executive officer of Sandwich
Bancorp at the time the Merger Agreement was executed, including the full value
of all such options that will vest early as a result of the Merger, but
excluding the value that was already imbedded in all vested options as of the
date immediately before the announcement of the February 2 Agreement (based on
the last sale price of Sandwich Bancorp Common Stock on January 30, 1998 -
$43.50 per share), is approximately as follows: Frederic D. Legate, President
and Chief Executive Officer, $2,420,211; Dana S. Briggs, Senior Vice President
and Corporate Secretary, $1,053,166; George L. Larson, Senior Vice President,
Chief Financial Officer and Treasurer, $192,000; David A. Parsons, Senior Vice
President, Senior Loan Officer, $1,093,514.
Delivery of Certificates
Conversion Shares. Certificates representing the Conversion Shares
issued in the Conversion will be mailed by Seacoast Financial's transfer agent
to the subscribers at the addresses provided by such persons appearing on the
Order Form as soon as practicable following consummation of the Conversion. Any
certificates returned as undeliverable will be held by Seacoast Financial until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for the Conversion Shares are
available and delivered to subscribers, such subscribers may not be able to sell
the Conversion Shares for which they have subscribed, even though trading of the
Seacoast Financial Common Stock may have commenced.
Exchange Shares. After consummation of the Merger, each Sandwich
Bancorp stockholder, upon surrender of his or her stock certificate(s) to an
agent, duly appointed by Seacoast Financial (the "Exchange Agent"), will be
entitled to receive in exchange therefor a certificate or certificates
representing the number of full Exchange Shares for which the shares of Sandwich
Bancorp Common Stock surrendered shall have been converted based on the Exchange
Ratio, and cash in lieu of fractional shares. The Exchange Agent will promptly
mail to each Sandwich Bancorp stockholder a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
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and title to the stockholder's stock certificate(s) shall pass, only upon
delivery of such certificate(s) to the Exchange Agent) advising such holder of
the terms of the exchange effected by the Merger and of the procedure for
surrendering to the Exchange Agent such certificate(s) in exchange for a
certificate or certificates evidencing the Exchange Shares. The stockholders of
Sandwich Bancorp should not forward Sandwich Bancorp Common Stock certificates
to Seacoast Financial or the Exchange Agent until they have received the
transmittal letter.
No holder of a certificate representing shares of Sandwich Bancorp
Common Stock will be entitled to receive any dividends in respect of Seacoast
Financial Common Stock into which such shares shall have been converted by
virtue of the Merger until the certificate representing such shares of Sandwich
Bancorp Common Stock is surrendered in exchange for certificates representing
shares of Seacoast Financial Common Stock. In the event that dividends are
declared and paid by Seacoast Financial in respect of Seacoast Financial Common
Stock after the consummation of the Merger but prior to surrender of
certificates representing shares of Sandwich Bancorp Common Stock, dividends
payable in respect of shares of Seacoast Financial Common Stock not then issued
shall accrue (without interest). Any such dividends will be paid (without
interest) upon surrender of the certificates representing such shares of
Sandwich Bancorp Common Stock. Seacoast Financial will be entitled, after the
consummation of the Merger, to treat certificates representing shares of
Sandwich Bancorp Common Stock as evidencing ownership of the number of full
shares of Seacoast Financial Common Stock into which the shares of Sandwich
Bancorp Common Stock represented by such certificates shall have been converted,
notwithstanding the failure on the part of the holder thereof to surrender such
certificates.
Seacoast Financial will not be obligated to deliver a certificate or
certificates representing Exchange Shares to which a holder of Sandwich Bancorp
Common Stock would otherwise be entitled as a result of the Merger until such
holder surrenders the certificate or certificates representing the shares of
Sandwich Bancorp Common Stock for exchange as provided above, or, in default
thereof, an appropriate affidavit of loss and indemnity agreement and/or a bond
as may be required in each case by Seacoast Financial.
If any certificate evidencing Exchange Shares is to be issued in a name
other than that in which the certificate evidencing Sandwich Bancorp Common
Stock surrendered in exchange therefor is registered, it shall be a condition of
the issuance thereof that the certificate so surrendered is properly endorsed or
is accompanied by appropriate stock powers, in either case signed exactly as the
name of the record holder appears on such certificate, and is otherwise in
proper form for transfer, or is accompanied by appropriate evidence of the
authority of the person surrendering such certificate and signing the letter of
transmittal to do so on behalf of the record holder. The person requesting any
such exchange shall pay to the Exchange Agent in advance any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the certificate surrendered, or required for any other reason, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
Resale Restrictions
Resale of Exchange Shares. The Exchange Shares that will be issued in
the Merger will be registered under the Exchange Act and approved for listing on
the Nasdaq National Market and will be freely transferable, except for Exchange
Shares received in the Merger by persons, including directors and executive
officers of any of the parties to the Merger, who may be deemed to be
"affiliates" of any of the parties under Rule 144. The term "affiliate"
generally means any person who controls, is controlled by or is under common
control with, or is a member of a group that controls, is controlled by or is
under common control with, a party, and for purposes hereof could be deemed to
include all executive officers, directors and 10% or greater stockholders of a
party.
Rule 144 will restrict the sale of Exchange Shares received in the
Merger and beneficially owned by those stockholders who are deemed to be
affiliates of Sandwich Bancorp or Seacoast Financial and certain of their family
members and related interests. Such affiliates, provided they are not affiliates
of Seacoast Financial at or following the Merger Effective Time, may publicly
resell Exchange Shares received by them in the Merger subject to certain
limitations of Rule 144, which restrict, among other things, the number of
shares sold in any quarter and the manner of sale, during the two years
following the Merger Effective Time. After such two-year period, such affiliates
may resell their shares without restriction so long as there is adequate current
public information with respect to Seacoast Financial as required by Rule 144.
Persons who become affiliates of Seacoast Financial prior to, at or after the
Merger Effective Time may publicly resell the Exchange Shares received by them
in the Merger subject to similar limitations and subject to certain filing
requirements specified in Rule 144. Affiliates also would be permitted to resell
the Exchange Shares received in the Merger pursuant to an effective registration
statement under the Securities Act or
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another available exemption from the Securities Act's registration requirements.
This Prospectus does not cover any resales of Exchange Shares received in the
Merger by persons who may be deemed to be affiliates of Seacoast Financial or
Sandwich Bancorp.
Resale by Seacoast Financial and Sandwich Bancorp Affiliates During
"Pooling" Period. Affiliates of both Seacoast Financial and Sandwich Bancorp
will not be able to transfer shares of Seacoast Financial Common Stock
(including both Conversion Shares and Exchange Shares) or Sandwich Bancorp
Common Stock during the period beginning 30 days prior to the Merger Effective
Time and ending when financial results covering at least 30 days of post-Merger
combined operations of Seacoast Financial and Sandwich Bancorp have been
published, in order to satisfy certain requirements of the SEC in transactions
to be accounted for using pooling-of-interests accounting treatment under GAAP.
Under the Merger Agreement, Seacoast Financial has agreed to use its best
efforts to publish no later than 30 days after the end of the first month in
which there are at least 30 days of post-Merger combined operations (which may
be the month in which the Merger Effective Time occurs) combined sales and net
income figures as contemplated by and in accordance with the SEC's Accounting
Series Release No. 135. The Merger Agreement provides that Seacoast Financial
and Sandwich Bancorp shall use all reasonable efforts to cause those persons who
may be deemed to be affiliates of Sandwich Bancorp to deliver to Seacoast
Financial, as soon as practicable after the date of the Merger Agreement, and
prior to the Sandwich Bancorp Special Meeting, a written agreement providing
that such persons will not sell, pledge, transfer or otherwise dispose of any
shares of Seacoast Financial Common Stock or Sandwich Bancorp Common Stock for
the period beginning 30 days prior to the Merger and ending on the publication
of financial results covering at least 30 days of combined operations of
Seacoast Financial and Sandwich Bancorp and in compliance with the Securities
Act and the rules and regulations promulgated thereunder. Each director and
executive officer of Sandwich Bancorp and Seacoast Financial has executed such
an agreement. Certificates of Sandwich Bancorp Common Stock surrendered for
exchange pursuant to the Merger by any person deemed to be an affiliate shall
not be exchanged for certificates representing Exchange Shares until Seacoast
Financial has received from that person the written agreement described in this
paragraph.
One-Year Restriction on Sale of Conversion Shares by Seacoast Financial
Insiders. Pursuant to Massachusetts law, directors, trustees, officers and
Corporators of Seacoast Financial or Compass will not be able to sell any
Conversion Shares that they purchase in the Conversion for a period of one year
following the Conversion, except in the case of death or substantial disability,
as determined by the Commissioner, or upon the written approval of the
Commissioner. Each certificate for restricted shares will bear a legend giving
notice of this restriction on transfer, and instructions will be issued to the
effect that any transfer within such time period of any certificate or record
ownership of such shares other than as provided above is a violation of the
restriction. Any shares of Seacoast Financial Common Stock issued at a later
date within this one year period as a stock dividend, stock split or otherwise
with respect to such restricted Conversion Shares will be subject to the same
restrictions.
Certain Restrictions on Purchase of Shares After the Conversion
Three-Year Restriction on Certain Purchases of Seacoast Financial
Common Stock. Purchases of Seacoast Financial Common Stock by directors,
officers and their associates during the three-year period following completion
of the Conversion (i) may not be made directly from Seacoast Financial and (ii)
may be made only through a broker or dealer registered with the SEC, except with
the prior written approval of the Commissioner. The second restriction does not
apply, however, to negotiated transactions involving more than 1% of outstanding
Seacoast Financial Common Stock or to certain purchases of such stock pursuant
to an employee stock benefit plan.
Repurchases of Seacoast Financial Common Stock by Seacoast Financial .
In order to preserve pooling-of-interests accounting treatment for the Merger
under GAAP, Seacoast Financial's ability to repurchase shares of its common
stock may be limited during the two-year period following consummation of the
Merger.
Tax Aspects of the Conversion and Merger
General. As described below, Foley, Hoag & Eliot LLP ("FHE"), counsel
to Seacoast Financial, has opined on federal income tax consequences of the
Conversion and the Merger. These opinions are not complete descriptions of all
federal income tax consequences of the Conversion and the Merger. Seacoast
Financial, Compass, Sandwich Bancorp, and Sandwich Bank have provided FHE with
facts, representations and assumptions on which FHE has relied in rendering its
opinions. These opinions are also based on laws, regulations, rulings and
judicial decisions as they existed as of the date of the opinions. These
authorities are all subject to change, and such change may be made
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with retroactive effect. FHE cannot give any assurance that, after any such
change, its opinions would not be different, and FHE does not undertake any
responsibility to update or supplement its opinions. Unlike private rulings, the
opinions of FHE are not binding on the IRS, and the IRS could disagree with
conclusions reached therein. In the event of such disagreement, there can be no
assurance that the IRS would not prevail in a judicial or administrative
proceeding.
The Conversion. Subject to the foregoing, FHE has opined that, for
federal income tax purposes: the Conversion will constitute a reorganization
under Section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105, 1980-1 C.B. 78;
Rev. Rul. 96-29, 1996-24 I.R.B.); (ii) neither Compass nor Seacoast Financial
will recognize any gain or loss as a result of the Conversion; and (iii)
eligible subscribers will recognize no gain or loss upon the receipt of the
subscription rights.
The Merger. In addition, subject to the foregoing, FHE has opined that,
for federal income tax purposes, (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code or will be treated as part of a
reorganization within the meaning of Section 368(a) of the Code; no gain or loss
will be recognized by Seacoast Financial, Compass, Sandwich or Sandwich Bank as
a result of the Merger; no gain or loss will be recognized by a shareholder of
Sandwich Bancorp who exchanges all of such shareholders Sandwich Bancorp Common
Stock solely for Exchange Shares; the basis of Exchange Shares to be received
(including any fractional shares deemed received for tax purposes) by a
stockholder of Sandwich Bancorp will be the same as the basis of the Sandwich
Bancorp Common Stock surrendered in exchange therefor; and the holding period of
the Exchange Shares to be received by a shareholder of Sandwich Bancorp will
include the period during which the shareholder held the shares of Sandwich
Bancorp Common Stock surrendered in exchange therefor, provided that such
Sandwich Bancorp Common Stock is held as a capital asset by such stockholder at
the Merger Effective Time.
Accounting Treatment of the Conversion and Merger
Seacoast Financial and Sandwich Bancorp expect to account for the
Merger under the pooling-of-interests method of accounting under GAAP, and the
availability of this accounting method is a condition to Seacoast Financial's
obligation to consummate the Merger. Since the Conversion will not be
consummated until the conditions to consummation of the Merger have been met,
such accounting treatment is also effectively a condition to consummation of the
Conversion. Seacoast Financial will be deemed to have automatically waived this
condition if it acquires any shares of Sandwich Bancorp Common Stock between the
date of the Merger Agreement and the Pre-Closing Date of the Merger.
As a result of pooling-of-interests accounting treatment, the
historical basis of the assets and liabilities of Sandwich Bancorp and Seacoast
Financial will be combined at the Merger Effective Time and carried forward at
their previously recorded amounts, and the stockholders' equity accounts of
Sandwich Bancorp and Seacoast Financial will also be combined. The consolidated
income and other financial statements of Seacoast Financial issued after
consummation of the Merger will be restated retroactively to reflect the
consolidated operations of Seacoast Financial and Sandwich Bancorp as if the
Merger had taken place prior to the periods covered by such financial
statements. See "Pro Forma Unaudited Financial Information."
Expenses of the Conversion and the Merger
The Merger Agreement provides, in general, that Seacoast Financial and
Sandwich Bancorp shall each bear and pay all their respective costs and expenses
incurred by them in connection with the transactions contemplated by the Merger
Agreement, including fees and expenses of their respective financial
consultants, investment bankers, accountants and counsel.
FEDERAL AND STATE TAXATION OF SEACOAST FINANCIAL AND SUBSIDIARY
Federal Taxation
General. Seacoast Financial and Compass will be subject to federal
income taxation in the same general manner as other corporations, with some
exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to Compass.
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Method of Accounting. For federal income tax purposes, Compass
currently reports it income and expenses on the accrual method of accounting and
uses a fiscal year ending October 31 for filing its consolidated federal income
tax returns. The Small Business Protection Act of 1996 (the "1996 Act")
eliminated the use of the reserve method of accounting for bad debt reserves by
savings institutions, effective for taxable years beginning after 1995 (after
October 31, 1996 in the case of Compass).
Bad Debt Reserves. Prior to the 1996 Act, Compass was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in
connection with the calculation of Compass's taxable income. As a result of the
1996 Act, Compass must use the specific charge-off method in computing its bad
debt deduction beginning with its 1997 federal tax return. In addition, the
federal legislation requires the recapture (over a six year period) of the
excess of tax bad debt reserves accumulated after October 31, 1988. The amount
of such reserve subject to recapture by Compass as of November 1, 1996 was
$987,000.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to November 1, 1988 were subject to recapture into
taxable income should Compass fail to meet certain thrift asset and definitional
tests. New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
Compass make certain non-dividend distributions or cease to maintain a bank
charter. At October 31, 1997, Compass's total federal pre-1988 reserve was $9.1
million. This reserve reflects the cumulative effects of federal tax deductions
by Compass for which no federal income tax provision has been made.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. Compass has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after 1996. At February 28, 1998, Compass had no net
operating loss carryforwards for federal income tax purposes, other than net
operating losses attributable to its acquisition of Martha's Vineyard National
Bank in December 1994. Under Section 382 of the Code, the utilization of such
carryforwards is spread over seven tax years of Compass. At October 31, 1997,
the remaining balance of the foregoing carryforwards was $2,702,317, to be
utilized at an annual rate of approximately $675,000 over the succeeding
four tax years.
Corporate Dividends-Received Deduction. Seacoast Financial may exclude
from its income 100% of dividends received from Compass since they are both
members of the same affiliated group of corporations.
State Taxation
For Massachusetts income tax purposes, a consolidated tax return
cannot be filed. Instead, Seacoast Financial and each of its subsidiaries file
an annual income tax return. Compass is subject to an annual Massachusetts
excise tax at a rate of 11.72% of its net income as of the date of this
Prospectus and declining in increments to 10.50% for the fiscal year ending
October 31, 2000. In addition, five of Compass's wholly-owned subsidiaries are
subject to an excise tax at the rate of 9.50% of their net income plus a tax on
their net worth. CBS Corporation, a wholly-owned subsidiary of Compass, is a
securities corporation and, accordingly, is subject to an excise tax at the rate
of 1.32% of its gross income. For these purposes, Massachusetts net income is
currently defined as gross income from all sources without any exclusions, less
the following deductions: all deductions (but not credits) which are allowable
under the Code except for those deductions under the Code relating to (i)
dividends received, (ii) losses sustained in other taxable years and (iii) taxes
on or measured by income, franchise taxes for the privilege of doing business
and capital stock taxes imposed by any state of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the
United States or any foreign country or a political subdivision of any of the
foregoing. Compass is not permitted to carry its losses forward or back for
Massachusetts tax purposes. For Compass's tax years beginning November 1, 1999
and thereafter, financial institutions will be allowed a deduction equal to 95%
of dividends received, as is permitted under the corporate excise rules.
Seacoast Financial is also classified as a Massachusetts security corporation.
Bank holding companies that are so classified are subject to a state tax rate of
0.33% of their gross income.
Compass's wholly-owned subsidiary Compass Preferred is taxed as a real
estate investment trust ("REIT"). Shareholders of a REIT that are subject to the
Massachusetts corporate excise tax are entitled to a 95% dividends-
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received deduction. A REIT corporation shareholder (such as Compass) subject to
Massachusetts corporate taxation will, therefore, pay income tax on only 5% of
the dividends received from the REIT.
Finally, one of Compass's wholly-owned subsidiaries is subject to Rhode
Island taxation on a portion of its net income.
REGULATION OF SEACOAST FINANCIAL AND SUBSIDIARIES
General
Compass is a Massachusetts-chartered stock savings bank and a
wholly-owned subsidiary of Seacoast Financial. Compass's deposits are insured up
to applicable limits by the FDIC through the BIF, except that certain deposits
that Compass acquired from savings associations are insured through the SAIF.
Compass's deposits are also insured by the DIF for amounts in excess of FDIC
insurance limits. Compass is subject to extensive regulation by the
Massachusetts Division of Banks (the "Division"), as its chartering agency, and
by the FDIC, as its deposit insurer. Compass is required to file reports with,
and is periodically examined by, the FDIC and the Division concerning its
activities and financial condition and must obtain regulatory approvals prior to
entering into certain transactions, including, but not limited to, mergers with
or acquisitions of other savings institutions. Compass is a member of the FHLB
and is subject to certain limited regulation by the FRB. Seacoast Financial, as
a bank holding company, is subject to regulation by the FRB and is required to
file reports with the FRB. Any change in such regulations, whether by the
Division, the FDIC or the FRB, could have a material adverse impact on Compass
or Seacoast Financial. See "Risk Factors -- Regulatory Oversight and
Legislation." Certain of the regulatory requirements applicable to Compass and
Seacoast Financial are referred to below or elsewhere herein.
Massachusetts Bank Regulation
General. As a Massachusetts-chartered savings bank, Compass is subject
to supervision, regulation and examination by the Division and to various
Massachusetts statutes and regulations which govern, among other things,
investment powers, lending and deposit-taking activities, borrowings,
maintenance of surplus and reserve accounts, distribution of earnings and
payment of dividends. In addition, Compass is subject to Massachusetts consumer
protection and civil rights laws and regulations. The Commissioner's approval is
required for a Massachusetts bank to establish or close branches, merge with
other banks, organize a holding company, issue stock and undertake certain other
activities.
In response to a Massachusetts law enacted in 1996, the Commissioner
adopted rules that generally give Massachusetts banks powers equivalent to those
of national banks. The Commissioner also has adopted procedures reducing
regulatory burdens and expense and expediting branching by well-capitalized and
well-managed banks.
Investment Activities. As a Massachusetts-chartered savings bank,
Compass may invest in preferred and common stock of any corporation provided
such investments do not involve control of any corporation and do not, in the
aggregate, exceed 4% of Compass's deposits. Subject to certain limits, a
Massachusetts-chartered savings bank may invest up to 7% of its deposits in
investments not otherwise legally permitted, provided that any such amounts
which exceed 3% of deposits must be invested in companies organized for the
purpose of acquiring, constructing, rehabilitating, leasing, financing and
disposing of housing, and no investment in the equity or debt securities of any
one issuer made pursuant to such authority may exceed 2% of the bank's deposits.
Regulatory Enforcement Authority. Any Massachusetts bank that does not
operate in accordance with the regulations, policies and directives of the
Commissioner may be subject to sanctions for non-compliance, including seizure
of the property and business of the bank and suspension or revocation of its
charter. The Commissioner may under certain circumstances suspend or remove
officers or directors who have violated the law, conducted Compass's business in
a manner which is unsafe, unsound or contrary to the depositors' interests or
been negligent in the performance of their duties. In addition, upon finding
that a bank has engaged in an unfair or deceptive act or practice, the
Commissioner may issue an order to cease and desist and impose a fine on the
bank concerned. Finally, Massachusetts consumer protection and civil rights
statutes applicable to Compass permit private individual and class action law
suits and provide for the rescission of consumer transactions, including loans,
and the recovery of statutory and punitive damages and attorneys' fees in the
case of certain violations or those statutes.
DIF. All Massachusetts-chartered savings banks are required to be
members of the DIF, a corporation that insures savings bank deposits not covered
by federal deposit insurance. The DIF is authorized to charge savings banks an
annual assessment of up to 1/16th of 1% of a savings bank's deposits.
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Insurance of Accounts and Regulation by the FDIC
Compass and Sandwich Bank are members of the BIF, which is administered
by the FDIC. Certain of Compass's and Sandwich Bank's deposits, acquired from
federal savings institutions, are insured by the SAIF. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the U.S. Government. As an insurer, the FDIC charges deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity that the FDIC determines by regulation
or order to pose a risk to the insurance fund. The FDIC also has the authority
to initiate enforcement actions against savings banks, after giving the
Commissioner an opportunity to take such action, and may terminate deposit
insurance if it determines that the institution has engaged or is engaging in
unsafe or unsound practices or is in an unsafe or unsound condition.
In late 1995, the FDIC issued a final rule regarding deposit insurance
premiums which, effective with respect to the semi-annual premium assessment
beginning January 1, 1996, reduced deposit insurance premiums for BIF member
institutions to zero basis points (subject to an annual minimum of $2,000) for
institutions in the lowest risk category.
As a result of legislation passed in 1996 relating to the
recapitalization of the SAIF, FDIC-insured institutions will pay an insurance
premium of approximately 1.3 basis points of their BIF-assessable deposits and
6.4 basis points of their SAIF-assessable deposits from 1997 through 1999. Based
upon assessable deposits at December 31, 1997, Compass and Sandwich Bank are
paying $34,000 and $38,000, respectively, in FDIC insurance premiums per quarter
during 1998.
Regulatory Capital Requirements
FDIC-insured savings banks are subject to risk-based capital guidelines
that establish a framework for making regulatory capital requirements more
sensitive to the risk profiles of each institution. Compass is required to
maintain certain levels of regulatory capital in relation to risk-weighted
assets. The ratio of such regulatory capital to risk-weighted assets is referred
to as Compass's "risk-based capital ratio." Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The
first tier ("Tier 1") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier 2") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio equal to at least 8% of risk-weighted assets, and at least half of
such a bank's capital must be Tier 1 capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier 1 leverage capital ratio (Tier 1 capital to adjusted total assets as
specified in the regulations). These regulations provide for a minimum Tier 1
leverage ratio of 3% for banks that meet certain specified criteria, including
that they have the highest examination rating and are not experiencing or
anticipating significant growth. All other banks are required to maintain a Tier
1 leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis
points. The FDIC may, however, set higher leverage and risk-based capital
requirements on individual institutions when particular circumstances warrant.
Savings banks experiencing or anticipating significant growth are expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
The FDIC has also proposed that a bank's interest rate risk exposure
should be quantified using either the measurement system set forth in the
proposal or the institution's internal model for measuring such exposure.
Management of Compass has not determined what effect, if any, the proposed
interest rate risk component would have on Compass's capital if adopted as
proposed.
Standards for Safety and Soundness
The federal banking agencies have adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness (the
"Guidelines") to implement safety and soundness standards required under
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federal law. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The standards set forth
in the Guidelines address (i) internal controls and information systems; (ii)
internal audit program; (iii) credit underwriting; (iv) loan documentation; (v)
interest rate risk exposure; (vi) asset growth; and (vii) compensation, fees and
benefits. The agencies also adopted additions to the Guidelines which require
institutions to examine asset quality and earnings standards. If the appropriate
federal banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by federal law. The final regulations establish deadlines for the
submission and review of such safety and soundness compliance plans.
Limitations on Dividends and Other Capital Distributions
The FDIC has the authority to use its enforcement powers to prohibit a
savings bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice. Federal law also prohibits the
payment of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. Massachusetts law also
restricts Compass from declaring a dividend which would reduce its capital below
(i) the amount required to be maintained by state and federal law and
regulations or (ii) the amount of Compass's liquidation account established in
connection with the Conversion.
Prompt Corrective Action
The federal banking agencies have promulgated regulations to implement
a system of prompt corrective action required by federal law. Under the
regulations, a bank is deemed to be: (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio of
6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not
subject to any written capital order or directive; (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based
capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized"; (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Federal law
and regulations also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as if it were in the next lower capitalization category (except that the FDIC
may not reclassify a significantly undercapitalized institution as critically
undercapitalized).
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institution. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." "Significantly undercapitalized" banks
are subject to one or more of a number of additional restrictions, including an
order by the FDIC to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks or to dismiss directors or officers and restrictions on
interest rates paid on deposits, compensation of executive officers and capital
distributions by a parent holding company.
Based on the foregoing, both Compass and Sandwich Bank are currently
classified as "well capitalized" banks.
Activities and Investments of Insured State-Chartered Banks
Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. Under regulations dealing with equity
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things: (i) acquiring or retaining a majority interest in a
subsidiary; (ii) investing as a limited partner in a partnership, the sole
purpose of which is direct or indirect investment in the acquisition,
rehabilitation or new construction of a qualified housing project, provided that
such limited partnership investments may not exceed 2% of the bank's total
assets; (iii) acquiring up to 10% of the voting stock of a company that solely
provides or reinsures
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directors', trustees' and officers' liability insurance coverage or bankers'
blanket bond group insurance coverage for insured depository institutions; and
(iv) acquiring or retaining, through a subsidiary, up to 10% of the voting
shares of a depository institution if certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the
foregoing limitations. For example, certain state-chartered banks, such as
Compass and Sandwich Bank, may continue to invest, up to certain limits, in
common or preferred stock listed on a National Securities Exchange or the
National Market System of Nasdaq, and in the shares of an investment company
registered under the Investment Company Act of 1940, as amended. Such banks may
also continue to sell savings bank life insurance. As of February 28, 1998 and
March 31, 1998, respectively, Compass and Sandwich Bank, respectively, held
marketable equity securities with a carrying value of $5.6 million and $6,000,
respectively, pursuant to this exception.
Transactions with Affiliates
Under current federal law, transactions between depository institutions
and their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent
holding company are affiliates of the savings bank. Generally, Section 23A
limits the extent to which the savings bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings bank's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus. The term "covered transaction" includes (i) the making of
loans or other extensions of credit to an affiliate; (ii) the purchase of assets
from an affiliate; (iii) the purchase of, or an investment in, the securities of
an affiliate; (iv) the acceptance of securities of an affiliate as collateral
for a loan or extension of credit to any person; or (v) issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate. Section 23A also
establishes specific collateral requirements for loans or extensions of credit
to, or guarantees, acceptances or letters of credit issued on behalf of, an
affiliate. Section 23B requires that covered transactions and a broad list of
other specified transactions be on terms substantially the same, or no less
favorable, to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts the making
of loans by a savings bank to its directors, executive officers and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
Holding Company Regulation
General. Seacoast Financial, as a bank holding company, is subject to
comprehensive regulation and regular examinations by the FRB. The FRB also has
extensive enforcement authority over bank holding companies, including, among
other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices. Seacoast Financial would also be regulated as a bank holding company
under Massachusetts law if it were to control two or more banking institutions.
As a savings bank, Compass may elect to have Seacoast Financial regulated as a
savings and loan holding company by the Office of Thrift Supervision ("OTS").
Regulation as a savings and loan holding company would require application to,
and prior approval of, the OTS.
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Seacoast Financial is subject to capital adequacy guidelines for bank
holding companies (on a consolidated basis) which are substantially similar to
those of the FDIC for Compass. See " -- Regulatory Capital Requirements." On a
pro forma consolidated basis after the Offering, Seacoast Financial's pro forma
stockholders' equity will exceed these requirements.
Under FRB policy, a bank holding company must serve as a source of
strength for its subsidiary bank. Under this policy, the FRB may require, and
has required in the past, a holding company to contribute additional capital to
an undercapitalized subsidiary bank.
Seacoast Financial must obtain Massachusetts Board of Bank
Incorporation and FRB approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such
shares (unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank holding
company; or (iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the FRB includes,
among other things: (i) operating a savings institution, mortgage company,
finance company, credit card company or factoring company; (ii) performing
certain data processing operations; (iii) providing certain investment and
financial advice; (iv) underwriting and acting as an insurance agent for certain
types of credit-related insurance; (v) leasing property on a full-payout,
non-operating basis; (vi) selling money orders, travelers' checks and United
States Savings Bonds; (vii) real estate and personal property appraising; (viii)
providing tax planning and preparation services; and (ix) subject to certain
limitations, providing securities brokerage services for customers. Seacoast
Financial has no present plans to engage in any of these activities.
Interstate Banking and Branching. Federal law allows the FRB to
approve an application of an adequately capitalized and adequately managed bank
holding company to acquire control of, or acquire all or substantially all of
the assets of, a bank located in a state other than such holding company's home
state, without regard to whether the transaction is prohibited by the laws of
any state. The FRB may not approve the acquisition of a bank that has not been
in existence for the minimum time period (not exceeding five years) specified by
the statutory law of the host state. The FRB is prohibited from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. Individual states continue to
have authority to limit the percentage of total insured deposits in the state
which may be held or controlled by a bank or bank holding company to the extent
such limitation does not discriminate against out-of-state banks or bank holding
companies. Individual states may also waive the 30% state-wide concentration
limit referred to above.
Additionally, beginning on June 1, 1997, the federal banking agencies
were authorized to approve interstate merger transactions without regard to
whether such transactions are prohibited by the law of any state, unless the
home state of one of the banks "opted out" by adopting a law which applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks. Interstate acquisitions of branches are permitted
only if the law of the state in which the branch is located permits such
acquisitions.
In 1996, the Massachusetts legislature enacted a new interstate banking
statute pursuant to which an out-of-state bank may (subject to various
regulatory approvals and to reciprocity in its home state) establish and
maintain bank branches in Massachusetts by (i) merging with a Massachusetts bank
that has been in existence for at least three years, (ii) acquiring a branch or
branches of a Massachusetts bank without acquiring the entire bank or (iii)
opening such branches de novo. Massachusetts banks' ability to exercise similar
interstate banking powers in other states depend upon the laws of those other
states. For example, according to the law of the bordering state of New
Hampshire, out-of-state banks may acquire New Hampshire banks by merger but may
not acquire individual branches or establish de novo bank branches in New
Hampshire.
Federal law authorizes the FDIC to approve interstate branching de novo
by national and state banks, respectively, only in states which specifically
allow for such branching. The appropriate federal banking agencies are
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required to prescribe regulations which prohibit any out-of-state bank from
using the interstate branching authority primarily for the purpose of deposit
production. The FDIC and FRB have adopted such regulations. These regulations
include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve. Should the FDIC determine that a
bank's interstate branch is not reasonably helping to meet the credit needs of
the communities serviced by the interstate branch, the FDIC is authorized to
close the interstate branch or not permit the bank to open a new branch in the
state in which the bank previously opened an interstate branch.
Dividends. The FRB has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses the FRB's view that a
bank holding company should pay cash dividends only to the extent that the
holding company's net income for the past year is sufficient to cover both the
cash dividends and a rate of earnings retention that is consistent with the
holding company's capital needs, asset quality and overall financial condition.
The FRB also indicated that it would be inappropriate for a company experiencing
serious financial problems to borrow funds to pay dividends. Furthermore, under
the prompt corrective action regulations adopted by the FRB, the FRB may
prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized." See "--
Regulatory Capital Requirements."
Bank holding companies are required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the consolidated net worth of the bank
holding company. The FRB may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe or unsound practice or
would violate any law, regulation, FRB order or any condition imposed by, or
written agreement with, the FRB. This notification requirement does not apply to
any company that meets the well-capitalized standard for commercial banks, is
"well managed" within the meaning of the FRB regulations and is not subject to
any unresolved supervisory issues.
Federal Securities Law
The Conversion and Exchange Shares will be registered with the SEC
under the Securities Act. Seacoast Financial will be subject to the information,
proxy solicitation, insider trading restrictions and other requirements of SEC
regulations promulgated under the Exchange Act.
Seacoast Financial Common Stock held by persons who are affiliates
(generally officers, directors and 10% or more stockholders) of Seacoast
Financial may not be resold without registration, unless such stock is sold in
accordance with certain resale restrictions. If Seacoast Financial meets
specified current public information requirements, each affiliate of Seacoast
Financial is able to sell in the public market, without registration, a limited
number of shares in any three-month period.
In addition, "affiliates" of either Seacoast Financial or Sandwich
Bancorp may not sell their Exchange Shares, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 144 or another applicable exemption from the registration
requirements of the Securities Act. See "The Conversion and the Merger -- Resale
Restrictions -- Resale of Exchange Shares."
Federal Reserve System
The FRB requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At February
28, 1998, Compass was in compliance with these reserve requirements. Savings
banks are authorized to borrow from the Federal Reserve Bank's "discount
window," but FRB regulations require savings banks to exhaust other reasonable
alternative sources of funds, including FHLB borrowings, before borrowing from
the Federal Reserve Bank.
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Community Reinvestment Act
Under the Community Reinvestment Act, as amended (the "CRA"), as
implemented by FDIC regulations, a bank has a continuing and affirmative
obligation, consistent with its safe and sound operation, to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. 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 CRA. The CRA does
require the FDIC, in connection with its examination of a bank, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution, including applications to acquire branches and other financial
institutions. The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system.
Compass's latest FDIC CRA rating was "satisfactory" and Sandwich Bank's was
"outstanding."
Massachusetts has its own statutory counterpart to the CRA which is
also applicable to Compass and Sandwich Bancorp. The Massachusetts version is
generally similar to the CRA but utilizes a five-tiered descriptive rating
system. Massachusetts law requires the Commissioner to consider, but not be
limited to, a bank's record of performance under Massachusetts law in
considering any application by the bank to establish a branch or other
deposit-taking facility, to relocate an office or to merge or consolidate with
or acquire the assets and assume the liabilities of any other banking
institution. Both Compass's and Sandwich Bank's most recent rating under
Massachusetts law was "outstanding."
Consumer Protection and Fair Lending Regulations
Compass and Sandwich Bank are subject to a variety of federal and
Massachusetts statutes and regulations that are intended to protect consumers
and prohibit discrimination in the granting of credit. These statutes and
regulations provide for a range of sanctions for non-compliance with their
terms, including imposition of administrative fines and remedial orders, and
referral to the Attorney General for prosecution of a civil action for actual
and punitive damages and injunctive relief. Certain of these statutes authorize
private individual and class action lawsuits and the award of actual, statutory
and punitive damages and attorneys' fees for certain types of violations.
Federal Home Loan Bank System
Compass is a member of the FHLB, which is one of 12 regional Federal
Home Loan Banks, that administer the home financing credit function of savings
institutions. Each Federal Home Loan Bank serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the Federal Home Loan Bank
system. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of each Federal Home Loan
Bank. These policies and procedures are subject to the regulation and oversight
of the Federal Housing Finance Board. All advances to Compass from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
As a member, Compass is required to purchase and maintain stock in the
FHLB. At February 28, 1998, Compass owned $4.7 million of FHLB stock. In past
years, Compass has received dividends on its FHLB stock. The dividend yield from
FHLB stock was 6.50% for the year ended October 31, 1997. No assurance can be
given that such dividends will continue in the future at such levels.
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MANAGEMENT OF SEACOAST FINANCIAL AND COMPASS
Directors of Seacoast Financial
Upon consummation of the Conversion, the Board of Directors of Seacoast
Financial will consist of 12 members (all of whom are currently trustees of
Seacoast Financial and directors of Compass). The following table sets forth
certain information about each such person as of April 30, 1998. Directors of
Seacoast Financial serve three-year staggered terms so that approximately
one-third of the Directors will be elected at each annual meeting of
stockholders.
<TABLE>
<CAPTION>
Term Date
Name (1) Age Expires Elected (2)
--------------------------- ---------------- ----------- ---------------
<S> <C> <C> <C>
Manuel G. Camacho 72 1999 1979
David P. Cameron 72 2000 1976
Kevin G. Champagne 48 1999 1993
Howard C. Dyer, Jr. 69 2000 1963
Glen F. Johnson 73 2001 1972
Thornton P. Klaren, Jr. 62 2000 1968
J. Louis LeBlanc 58 2001 1982
Richard S. Marchisio 73 2001 1970
A. William Munro 65 2001 1986
Carl Ribeiro 51 1999 1991
Joseph H. Silverstein 71 2000 1980
Gerald H. Silvia 63 1999 1990
</TABLE>
- ---------------
(1) In addition to the Directors set forth in this table, three members of
Sandwich Bancorp's Board of Directors will be appointed to Seacoast
Financial's Board of Directors upon consummation of the Merger, one of
whom will be Frederic D. Legate, the President and Chief Executive
Officer of Sandwich Bancorp, and the other two of whom will be selected
by Seacoast Financial after consultation with Sandwich Bancorp.
(2) "Date Elected" indicates the date the Director first joined the Board
of Trustees of Compass. All of such dates are prior to Seacoast
Financial's formation in 1994.
The principal occupation and business experience during at least the
last five years for each person who will be a Director of Seacoast Financial
upon consummation of the Conversion is set forth below.
Manuel G. Camacho is a dentist in private practice in New Bedford,
Massachusetts. He is semi-retired.
David P. Cameron was President of Morse Cutting Tools in New Bedford,
Massachusetts until his retirement in 1982.
Kevin G. Champagne. See "Executive Officers," below.
Howard C. Dyer, Jr. was General Manager, New Bedford Storage Warehouse,
New Bedford, Massachusetts, until his retirement in 1996.
Glen F. Johnson was a General Manager, Goodyear Tire and Rubber, New
Bedford, Massachusetts, until his retirement in 1985.
Thornton P. Klaren, Jr. is retired.
J. Louis LeBlanc is an attorney in private practice in New Bedford,
Massachusetts.
Richard S. Marchisio is Chairman of the Boards of Seacoast Financial
and Compass, positions he has held since 1994. He was President of Compass from
1984 until his retirement in 1990. Mr. Marchisio first joined Compass in 1946.
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A. William Munro is President of Munro Distributing, Inc., Fall River,
Massachusetts.
Carl Ribeiro is President, Luzo Foodservice Corp., New Bedford,
Massachusetts.
Joseph H. Silverstein was the President of Silverstein's Family Store,
a retail clothing store located in New Bedford, Massachusetts, until his
retirement in 1992.
Gerald H. Silvia is the owner of Americana Travel, a travel agency
located in Fall River, Massachusetts.
Upon consummation of the Merger, Mr. Legate and two other directors of
Sandwich Bancorp to be selected by Seacoast Financial will be appointed as
directors of Seacoast Financial. Mr. Legate will also be appointed as a director
and a member of the Executive Committee of Compass. Set forth below is certain
biographical information with respect to Mr. Legate.
Frederic D. Legate has served Sandwich Bank in various capacities since
1977 and was appointed its President and Chief Executive Officer in 1981. Mr.
Legate became President and Chief Executive Officer of Sandwich Bancorp, Inc.
upon its formation in 1997. Mr. Legate plans to retire as an executive officer
following consummation of the Merger.
Executive Officers
The names and ages of each of the executive officers of Seacoast
Financial and Compass and the principal occupation and business experience
during at least the last five years for each is set forth below. Each of Messrs.
Kelleher, Lambert, Rigby, Taber, Mascianica and Camara and Ms. Belanger serve as
a Vice President of Seacoast Financial, a position each has held since the
formation of Seacoast Financial in 1994.
Kevin G. Champagne has served as President and Chief Executive Officer
of Seacoast Financial since its formation in 1994 and as President and Chief
Executive Officer of Compass since 1994. Prior to 1994, Mr. Champagne was
Executive Vice President/Retail Banking of Compass. He joined Compass's
Management Training Program in 1971. Mr. Champagne is 48 years old.
Arthur W. Short served as Treasurer of Seacoast Financial since its
formation in 1994 until 1997. He currently serves as Executive Vice President of
Compass, a position he has held since 1993, and as Chief Operating Officer of
Compass, a position he has held since 1997. Prior to 1993, Mr. Short served as
Senior Vice President/Treasurer and Chief Financial Officer of Compass. He
joined Compass in 1981. Mr. Short is 57 years old.
John D. Kelleher has served as Executive Vice President of Compass
since 1993 and has headed Compass's Lending Division since 1984. Mr. Kelleher
joined Compass's Management Training Program in 1971. Mr. Kelleher is 52 years
old.
James E. Lambert has served as Executive Vice President of Compass
since 1994. Prior to joining Compass in 1990, Mr. Lambert served as President of
Martha's Vineyard National Bank, which merged with Compass in 1994. Mr. Lambert
is 53 years old.
Francis S. Mascianica, Jr. has served as Senior Vice
President/Treasurer and Chief Financial Officer of Compass since 1997. Mr.
Mascianica has held various positions with Compass since he joined the bank in
1981. He is 50 years old.
Carolyn A. Belanger has served as Senior Vice President and head of the
Retail Banking Division of Compass since 1994. Ms. Belanger has held various
positions with Compass since she joined the bank in 1966. She is 49 years old.
William D. Rigby has served as Senior Vice President since 1994 and
Manager of the Consumer Lending Department of Compass since 1985, when he joined
Compass. He is 50 years old.
Carl W. Taber has served as Senior Vice President since 1993 and head
of Mortgage Lending of Compass since 1984. Mr. Taber joined Compass's Management
Training Program in 1975. He is 44 years old.
Robert J. Camara has served as Senior Vice President and Loan Servicing
Manager of Compass since 1997. He joined Compass in 1987 as Assistant Vice
President and Auditor and became Vice President and Loan Servicing Manager in
1990. Mr. Camara is 41 years old.
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Since the formation of Seacoast Financial in 1994, none of the
executive officers have received remuneration from Seacoast Financial. It is not
anticipated that the executive officers of Seacoast Financial will initially
receive any remuneration in their capacities as executive officers. For
information concerning compensation of executive officers of Compass, see
"Executive Compensation."
Indemnification and Limitation of Liability
The Articles of Organization of Seacoast Financial provide that each
Director of Seacoast Financial and each officer appointed or elected by the
Board of Directors of Seacoast Financial shall be indemnified by Seacoast
Financial to the extent permitted by law against any expenses incurred by such
person in connection with any proceeding in which he or she is involved as a
result of (i) his or her serving or having served as a Director, officer or
employee of Seacoast Financial, (ii) his or her serving or having served as a
Director, officer or employee of any of Seacoast Financial's wholly owned
subsidiaries or (iii) his or her serving or having served in any capacity with
respect to any other corporation, organization, partnership, joint venture,
trust, employee benefit plan or other entity at the request or direction of
Seacoast Financial. The Board of Directors may, in its discretion, indemnify
non-officer employees of Seacoast Financial.
In accordance with Massachusetts law, the Articles of Organization
provide that no indemnification shall be provided with respect to a matter as to
which the indemnitee shall have been determined by final judicial decision from
which there is no further right to appeal that the indemnitee is not entitled to
be indemnified for such expenses.
If Seacoast Financial does not assume the defense or unless and until
Seacoast Financial assumes the defense of any proceeding of which Seacoast
Financial receives notice, Seacoast Financial has agreed to pay, in the case of
a Director or officer at the level of Vice President or above, and may agree to
pay, in the case of any other indemnitee, the expenses incurred by an indemnitee
in defending a proceeding or any appeal therefrom in advance of the final
disposition of such proceeding.
The Articles of Organization also provide that no Director of Seacoast
Financial shall be personally liable to Seacoast Financial or its stockholders
for monetary damages for breach of fiduciary duty as a Director notwithstanding
any provision of law imposing such liability. However, a Director shall be
liable (i) for any breach of the Director's duty of loyalty to Seacoast
Financial or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Sections 61 or 62 of Chapter 156B of the MGL, or (iv) with respect to any
transaction from which the Director derived an improper personal benefit.
Compensation of Directors
Members of the Seacoast Financial and Compass Boards receive $500 for
each Board meeting that they attend. The Chairman of the Board of Seacoast
Financial (who also serves as Chairman of the Board of Compass) receives an
annual retainer of $50,000 for service as Chairman of both Boards. Members of
Compass's Executive Committee receive an annual retainer of $13,000 and members
of Compass's Audit Committee receive an annual retainer of $5,000. In addition,
members of the Audit Committee (other than the Chairman) are paid $500 for each
Seacoast Financial Audit Committee meeting that they attend and the Chairman of
the Audit Committee is paid $600 for each Seacoast Financial Audit Committee
meeting that he attends. The most senior member of the Board of Directors of
Compass receives an annual retainer of $7,000 for duties performed in connection
with his appointment as a non-operating Vice President of Compass. Mr. Champagne
does not receive any fees for service on the Board of Directors of Seacoast
Financial or Compass or for service on any committees of either Board.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash
compensation paid by Compass as well as certain other compensation paid or
accrued for services rendered in all capacities during the year ended December
31, 1997 to the Chief Executive Officer of Seacoast Financial and Compass and
the four other executive officers of Seacoast Financial or Compass who received
total annual compensation in excess of $100,000 (such other executive officers,
"Named Executive Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Annual Compensation All Other Compensation(4)
Position with Seacoast Financial ----------------------------------------------------- -------------------------
and Compass Year(1) Salary Bonus(2) Other(3)
- --------------------------------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Kevin G. Champagne 1997 $230,002 $59,801 $5,794
President and Chief Executive
Officer of Seacoast Financial
and Compass
A. William Short 1997 148,506 34,750 7,450
Treasurer of Seacoast
Financial; Executive Vice
President of Compass
John D. Kelleher 1997 134,905 31,568 6,478
Vice President of Seacoast
Financial; Executive Vice
President/Lending of Compass
James E. Lambert 1997 120,001 23,400 6,030
Vice President of Seacoast
Financial; Executive Vice
President/Commercial Lending
of Compass
Carolyn A. Belanger 1997 105,346 24,651 4,829
Vice President of Seacoast
Financial; Senior Vice
President/Retail Banking of
Compass
</TABLE>
- ---------------
(1) Because Seacoast Financial will not be a public company until the
Conversion, Summary Compensation information is not provided for 1996
and 1995 in accordance with the rules of the SEC.
(2) Represents bonuses paid in December 1997 for the fiscal year ended
October 31, 1997.
(3) Perquisites and other personal benefits paid to each officer included
in the Summary Compensation Table in each instance aggregated less than
10% of the total annual salary and bonus set forth in the columns
entitled "Salary" and "Bonus" for each officer, and accordingly, are
omitted from the table in accordance with the rules of the SEC.
(4) Includes Compass's matching contributions under its 401(k) plan of
$4,750 for each of Messrs. Champagne, Short and Kelleher and of $4,302
and $3,900 for Mr. Lambert and Ms. Belanger, respectively. Also
includes premiums paid by Compass for group term life insurance of
$1,044, $2,700, $1,728, $1,728 and $929 for Messrs. Champagne, Short,
Kelleher and Lambert and Ms. Belanger, respectively.
Employment and Change in Control Agreements
In connection with the Conversion, Seacoast Financial and Compass will
enter into certain employment agreements (each such agreement, an "Employment
Agreement" and, such agreements collectively, the "Employment Agreements") and
certain change in control agreements (the "Change in Control Agreements") with
Messrs. Champagne, _____, ______ and _______ and _________ (collectively, the
"Officers"). The Employment Agreements provide that the Officers will receive
certain benefits and a base salary equal to $________, $________, $________,
$________ and $________, respectively, subject to increases in accordance with
the usual practices of Seacoast Financial and Compass with respect to review of
compensation of their senior executives.
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<PAGE>
Mr. Champagne's Employment Agreement has a three-year term and the
Employment Agreements of the other Officers have two-year terms. The terms all
commenced on _______ __, 1998, and each term extends by one day for each day
that an Officer remains employed by Compass or (in the case of Mr. Champagne) by
Compass or Seacoast Financial until either of Mr. Champagne, __________,
___________, __________ and ___________, as the case may be, or Compass or (in
the case of Mr. Champagne) Compass or Seacoast Financial give a notice of
non-renewal. Under each of the Employment Agreements, Seacoast Financial (in the
case of Mr. Champagne) and Compass (in the case of the other Officers) may
terminate an Officer's employment at any time for "cause," as such term is
defined in such agreements, without incurring any continuing obligations to the
Officer. If Seacoast Financial or Compass terminates an Officer's employment for
any reason other than for cause or if the Officer terminates the Officer's
employment for "good reason," as such term is defined in the Employment
Agreements, Seacoast Financial and Compass will become obligated to provide the
Officer: (i) an amount equal to the sum of (a) the Officer's base salary or
other compensation earned through the date of termination, (b) the Officer's pro
rata share of the Officer's highest annual bonus paid during the three fiscal
years preceding such termination and (c) all accrued vacation and deferred
compensation; (ii) a lump sum severance benefit equal to three times (in the
case of Mr. Champagne) or two times (in the case of the other Officers) the sum
of (a) the Officer's annual base salary and (b) the highest annual bonus paid to
the Officer in the three fiscal years preceding the termination; (iii)
disability and medical benefits specified in the Officer's Employment Agreement
for the duration of what otherwise would have been the remaining term of the
Employment Agreement; and (iv) a pension adjustment as specified in the
Employment Agreement. The Employment Agreements also provide certain retirement,
death and disability benefits. Mr. Champagne's Employment Agreement includes a
provision reimbursing him, on an after-tax basis, for any "golden parachute"
excise taxes.
The Change in Control Agreements provide that an Officer may receive
certain benefits if the Officer is terminated within three years (in the case of
Mr. Champagne) or two years (in the case of the other Officers) of a "Change in
Control" (as such term is defined in the Change in Control Agreements) of either
Seacoast Financial or Compass. An Officer would receive such termination
benefits if Seacoast Financial or Compass terminated the Officer for any reason
other than death or "cause," as such term is defined in the Employment
Agreements, or if the Officer terminated the Officer's employment following: (i)
a significant change in the nature or scope of the Officer's responsibilities,
authorities, powers, functions or duties; (ii) a determination by the Officer
that, as a result of a Change in Control, the Officer is unable to exercise the
responsibilities, authorities, powers, functions or duties exercised by the
Officer immediately prior to such Change in Control; (iii) a reduction in the
Officer's annual base salary; (iv) a significant relocation of the offices of
Seacoast Financial or Compass; (v) a failure of either Seacoast Financial or
Compass to pay any portion of compensation due to the Officer; (vi) the
termination of or a material reduction in the Officer's benefits; or (vii) a
failure of Seacoast Financial or Compass to obtain a satisfactory agreement from
any successor to assume and agree to perform the Officer's Change in Control
Agreement. The benefits in the case of both Mr. Champagne and the other Officers
are: (i) a lump sum severance payment equal to three times the "base amount," as
such term is defined in Section 280G(b)(3) of the Code, applicable to the
Officer minus $1.00 and (ii) for a period of three years, the Officer's
disability and medical benefits existing on the date of the termination.
Alternatively, an Officer could elect to receive such termination benefits as
the Officer would be entitled to under the Officer's Employment Agreement, but
may not receive payments under both agreements.
Cash and benefits paid to each Officer under the Change in Control
Agreements together with payments under other benefit plans following a change
in control of Seacoast Financial or Compass may constitute an "excess parachute"
payment under Section 280G of the Code, resulting in the imposition of a 20%
excise tax on the recipient and the denial of the deduction for such excess
amounts to Seacoast Financial or Compass. The Change in Control Agreements place
limitations on the salary and benefits the Officers can receive so that such
payments do not exceed the Section 280G limits. However, such limitations would
not apply if an Officer elects to receive payments under his or her Employment
Agreement instead of his or her Change in Control Agreement.
Compensation of Officers and Directors Through Benefit Plans
Compass's current tax-qualified employee pension benefit plans consist
of a defined benefit pension plan and a 401(k) plan. As a result of the
Conversion, Seacoast Financial and Compass will be able to compensate employees
with stock-based compensation pursuant to the ESOP and pursuant to stock option
plans and other stock-based management recognition and retention plans described
below.
Defined Benefit Pension Plan. Compass maintains the Savings Banks
Employees Retirement Association Pension Plan, which is a qualified, tax-exempt
defined benefit plan (the "Retirement Plan"). All employees age 21
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<PAGE>
or older who have worked at Compass for a period of two years and have been
credited with 1,000 or more hours of service with Compass during the year are
eligible to accrue benefits under the Retirement Plan. Compass contributes
annually an amount to the Retirement Plan necessary to satisfy the actuarially
determined minimum funding requirements in accordance with ERISA.
The retirement benefit provided is an amount equal to 1.25% of a
participant's average compensation based on the average of the three consecutive
years providing the highest average compensation multiplied by the participant's
years of service (up to a maximum of 25 years) plus 0.6% of such average
compensation in excess of covered compensation multiplied by the participant's
total number of years of service (up to a maximum of 25 years). Normal
retirement age is 65. Retirement benefits are also payable upon disability or
death. A reduced benefit is payable upon early retirement at age 62, at age 55
and the completion of ten years of service with Compass or at age 50 and the
completion of 15 years of such service. Benefits under the Retirement Plan are
payable in various annuity forms as well as in the form of a single lump sum
payment. As of October 31, 1997, the most recent date for which information is
available, the market value of the Retirement Plan's assets was $8.4 million.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement by existing employees at
age 65 between November 1, 1997 and October 31, 1998, expressed in the form of a
single life annuity for the final average salary and benefit service
classifications specified below:
Projected Annual Pension Benefit
Based on Years of Service
<TABLE>
<CAPTION>
Average 10 15 20 25 Years
Compensation Years Years Years and After
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 20,000 $ 2,500 $ 3,750 $ 5,000 $ 6,250
40,000 5,642 8,463 11,284 14,104
60,000 9,342 14,013 18,684 23,354
80,000 13,042 19,563 26,084 32,604
100,000 16,742 25,113 33,484 41,854
120,000 20,442 30,663 40,884 51,104
125,000 21,367 32,050 42,734 53,417
140,000 24,142 36,213 48,284 60,354
150,000 25,992 38,988 51,984 64,979
160,000(1) 27,842 41,763 55,684 69,604
</TABLE>
- ---------------
(1) Beginning November 1, 1997, Federal law does not permit defined benefit
pension plans to recognize compensation in excess of $160,000 for plan
years (for SBERA plans).
At October 31, 1997, the approximate years of credited service for the
named executive officers were as follows:
<TABLE>
<CAPTION>
Name Years of Credited Service at Age 65
-------------- -----------------------------------
<S> <C>
Kevin G. Champagne 25
Arthur W. Short 25
John D. Kelleher 25
James E. Lambert 14
Carolyn A. Belanger 25
</TABLE>
Executive Salary Continuation Agreements. Compass has entered into a
salary continuation agreement with four of its executive officers: Messrs.
Champagne, Short, Kelleher and Mascianica. The agreements provide each officer
with a supplemental retirement benefit in an amount equal to 25% of the average
of the three highest years of compensation paid to the officer in the ten years
of employment immediately preceding the officer's retirement. The benefit is
payable monthly, for a period of 15 years, commencing on the first day of the
month next following the
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<PAGE>
officer's retirement. A reduced benefit is payable if the officer retires prior
to the age of 65, but after age 55. If the officer dies while employed by
Compass, a monthly benefit will be paid to the officer's beneficiary for a
period of 15 years in an amount equal to 25% of the officer's salary on the date
of his death. If the officer's employment with Compass is terminated prior to
the age of 55 other than for cause, the officer is entitled to a benefit equal
to 5% of the benefit he would have received upon retirement at age 65,
multiplied by the number of years of service between the age of 35 and
termination of employment. The agreements provide that Compass may not merge or
consolidate into another corporation or sell substantially all of its assets to
another corporation unless such corporation agrees to assume and discharge the
obligations of Compass under the agreements. The agreements are funded by life
insurance policies, of which Compass is the owner and beneficiary, held in a
"rabbi" trust.
Executive Deferred Compensation Plan. Compass has a deferred
compensation plan for the benefit of certain of its senior management employees,
as designated from time to time by the President of Compass. At the current
time, 17 employees are eligible to participate in the plan. Participants may
defer 1% to 15% of their base salary and 1% to 100% of any bonus to which they
are entitled. Deferred amounts are credited to each participant's account and
are held in a "rabbi" trust. The deferred compensation plan permits employees to
direct the investment of their own accounts into various investment options.
Compass has amended the plan to enable the participants to direct the investment
of their accounts into subscriptions for Conversion Shares in the Offering,
subject to participants' eligibility to so subscribe based on their qualifying
deposits with Compass. Distributions to a participant are made upon the earliest
of the participant's retirement, death or other termination of employment, in
the form requested by the participant in his or her salary reduction deferral
election. The plan permits, at the Committee's discretion, withdrawals in the
event of a financial hardship caused by an unforeseeable emergency.
401(k) Plan. Compass maintains a Savings Banks Employees Retirement
Association 401(k) Plan, which is a qualified, tax-exempt plan. All employees
who have attained age 21 and have completed one year of employment during which
they worked at least 1,000 hours are eligible to participate.
Under the 401(k) Plan, participants are permitted to make salary
reduction contributions equal to the lesser of 15% of compensation or $9,500 (as
indexed annually). All employee contributions and earnings thereon are fully and
immediately vested. A participant may withdraw salary reduction contributions in
the event the participant suffers a financial hardship. The 401(k) Plan permits
employees to direct the investment of their own accounts into various investment
options. Compass matches 50% of the first 6% of compensation that a participant
contributes to the 401(k) Plan. Compass has amended the plan to enable the
participants to direct the investment of their accounts into subscriptions for
Conversion Shares in the Offering, subject to such participants' eligibility to
so subscribe based on their qualifying deposits with Compass.
Plan benefits will be paid to each participant in the form of a life
annuity (or joint and survivor annuity if married) upon retirement or death
unless an alternate form of distribution (lump sum or equal payments over a
fixed period) is selected. If a participant terminates employment prior to
retirement, his vested benefit will be held by the 401(k) Plan until the
participant elects to receive his benefit from the plan. If a participant (and
the participant's spouse, if married) elects to receive benefits after
termination of employment prior to normal or early retirement age, benefits will
be paid in a lump sum. Normal retirement age under the plan is age 65. Early
retirement age is age 59 1/2.
ESOP. Compass intends to implement the ESOP in connection with the
Conversion. Employees with at least one year of employment with Compass and who
have attained age 21 are eligible to participate. As part of the Conversion, the
ESOP intends to borrow funds from a third-party lender and use those funds to
purchase a number of shares equal to 8% of the Conversion Shares. Collateral for
the loan will be the shares of Seacoast Financial Common Stock purchased by the
ESOP. The loan will be repaid principally from Compass's discretionary
contributions to the ESOP, over a period of not less than 20 years. Shares
purchased by the ESOP will be held in a suspense account for allocation among
participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan will be allocated
among ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for years of service prior to the
effective date of the ESOP. Benefits generally vest over a six-year period.
Benefits generally vest at the rate of 20% per year beginning in the second year
of service until a participant is 100% vested after six years or upon normal
retirement (as such term is defined in the ESOP), disability or death of the
participant or a change in control (as such term is defined in the
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<PAGE>
ESOP). A participant who terminates employment for reasons other than death,
retirement or disability prior to seven years of credited service will forfeit
the nonvested portion of his benefits under the ESOP. Benefits will be payable
in the form of Seacoast Financial Common Stock and cash upon death, retirement,
early retirement, disability or separation from service. Compass's contributions
to the ESOP are discretionary, subject to the loan terms and tax law limits,
and, therefore, benefits payable under the ESOP cannot be estimated. Compass is
required to record compensation expense in an amount equal to the fair market
value of the shares released from the suspense account.
Compass has established a committee of three officers of Compass to
administer the ESOP, and has appointed its President and Chief Executive Officer
to serve as trustee of the ESOP. The ESOP committee may instruct the trustee
regarding investment of funds contributed to the ESOP. The ESOP trustee, subject
to his fiduciary duty, must vote all allocated shares held in the ESOP in
accordance with the instructions of participating employees. Under the ESOP,
nondirected shares and shares held in the suspense account will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock so long as such vote is in
accordance with the provisions of ERISA.
Stock Option Plan. Following consummation of the Conversion, the Board
of Directors may consider the adoption of a stock option plan for directors and
officers of Compass and Seacoast Financial. Applicable banking regulations would
permit Seacoast Financial to adopt such a plan for presentation to Seacoast
Financial's stockholders at a meeting to be held no earlier than six months
after the completion of the Conversion. If such plan were adopted, it would
provide for the granting of options to purchase Seacoast Financial Common Stock
in an aggregate amount no greater than 10% of the Conversion Shares. Ten percent
of such shares would amount to 2,465,000 shares, 2,900,000 shares, 3,335,000
shares or 3,835,250 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. No options would be
granted under a stock option plan until the date on which stockholder approval
is received.
Stock Plan. Following consummation of the Conversion, the Board of
Directors may also consider the adoption of a stock plan for the recognition and
retention of officers and directors of Seacoast Financial and Compass.
Applicable banking regulations would permit Seacoast Financial to adopt such a
plan for presentation to Seacoast Financial's stockholders at a meeting to be
held no earlier than six months after the completion of the Conversion. If such
plan were adopted, it would provide for the award of shares of Seacoast
Financial Common Stock to executive officers and directors without their having
to pay cash for the shares, in a manner designed to encourage them to continue
their service with Compass. If the plan were adopted, Compass or Seacoast
Financial would contribute funds to the plan from time to time to enable it to
acquire shares of Seacoast Financial Common Stock for award under the plan
(either in open market purchases or directly from Seacoast Financial) in an
aggregate amount no greater than 4% of the Conversion Shares. Four percent of
the Conversion Shares would amount to 986,000 shares, 1,160,000 shares,
1,334,000 or 1,534,100 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range, respectively. In the event that
additional authorized but unissued shares were acquired by the plan, the
interests of existing stockholders would be diluted. No awards under the plan
would be made until the date of approval of the plan by Seacoast Financial's
stockholders.
Indebtedness of Management
Compass makes loans to non-officer directors of Compass and Trustees of
Seacoast Financial. Such loans are made on the same terms and conditions as
those of comparable transactions with the general public and do not present more
than the normal risk of collectibility.
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<PAGE>
PURCHASES BY MANAGEMENT OF SEACOAST FINANCIAL AND COMPASS
The following table sets forth information regarding intended
Conversion Share purchases by each person who will serve as a director of
Seacoast Financial upon consummation of the Conversion, by the non-director
executive officers of Seacoast Financial and Compass as a group and by all
directors and executive officers as a group, in each case including such
person's associates. This table excludes shares to be purchased by the ESOP. The
directors and executive officers of Compass and Seacoast Financial have
indicated their intention to purchase in the Conversion an aggregate of
$3,865,000 of Conversion Shares, equal to 1.6%, 1.3%, 1.2%, and 1.0% of the
number of shares to be issued in the Conversion at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively.
<TABLE>
<CAPTION>
Aggregate Number Percent
Purchase of at
Name Price Shares Midpoint
---- ----- ------ --------
<S> <C> <C> <C>
Manuel G. Camacho, D.D.S. $100,000 10,000 *
Robert J. Camara 10,000 1,000 *
David P. Cameron 20,000 2,000 *
Kevin G. Champagne 250,000 25,000 *
Howard C. Dyer, Jr. 30,000 3,000 *
Glen F. Johnson 150,000 15,000 *
Thornton P. Klaren, Jr. 55,000 5,500 *
J. Louis LeBlanc 500,000 50,000 *
Richard S. Marchisio 150,000 15,000 *
A. William Munro 1,000,000 100,000 *
Carl Ribeiro 300,000 30,000 *
Joseph Silverstein 500,000 50,000 *
Gerald H. Silvia 160,000 16,000 *
All other executive officers
(7 persons) as a group $640,000 64,000 *
-------- ------
Total shares to be purchased by
directors and executive officers $3,865,000 386,500 1.3%
</TABLE>
- ------------------------
* Less than 1%.
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<PAGE>
THE OFFERINGS
Pursuant to applicable state and federal regulation, the Conversion
Shares are being offered for sale in the Subscription Offering pursuant to
subscription rights in the following order of descending priority to: (i) the
Eligible Account Holders (holders of deposit accounts at Compass with an
aggregate balance of $50 or more on December 31, 1996) ("Qualifying Deposits");
(ii) the Supplemental Eligible Account Holders (holders of deposit accounts at
Compass with an aggregate balance of $50 or more on June 30, 1997)
("Supplemental Qualifying Deposits"); (iii) the ESOP; and (iv) employees,
officers, directors and trustees of Compass and Seacoast Financial. Subject to
the prior rights of holders of subscription rights, Seacoast Financial may offer
Conversion Shares in the Community Offering to certain members of the general
public with a preference given to residents of "Compass's Community" (as such
community is defined herein under "-- Community Offering"). The Community
Offering may commence concurrently with, during or promptly after the
Subscription Offering. It is anticipated that shares not subscribed for in the
Subscription and Community Offerings, if any, will be offered for sale by
Seacoast Financial to the general public in the Syndicated Community Offering.
Subscription Offering
In accordance with the Conversion Plan, the following persons have the
right to subscribe for the purchase of Conversion Shares in the Subscription
Offering in the order of priority set forth below. All subscriptions received
will be subject to the availability of Conversion Shares after satisfaction of
all subscriptions of all persons having prior rights in the Subscription
Offering, to the maximum and minimum purchase limitations set forth in the
Conversion Plan and as described below under "-- Limitations Upon Purchases of
Conversion Shares."
Priority 1: Eligible Each Eligible Account Holder will have an
Account Holders opportunity to purchase the greatest of (x) $750,000 of
Conversion Shares, (y) one-tenth of one percent (.10%) of the
Conversion Shares or (z) 15 times the product (rounded down
to the nearest whole number) obtained by multiplying (1) the
total number of Conversion Shares to be issued in the
Conversion by (2) a fraction, of which the numerator is the
Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders. If there are insufficient shares
available to satisfy all subscriptions of Eligible Account
Holders, shares will be allocated to Eligible Account Holders
so as to permit each such subscribing Eligible Account Holder
to purchase a number of shares sufficient to make his or her
total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated
shares will be allocated pro rata to remaining subscribing
Eligible Account Holders whose subscriptions remain unfilled
in the same proportion that each such subscriber's Qualifying
Deposits bears to the total amount of Qualifying Deposits of
all subscribing Eligible Account Holders whose subscriptions
remain unfilled. Subscription rights to purchase Conversion
Shares received by executive officers, trustees and directors
of Seacoast Financial and Compass, including associates of
executive officers, trustees and directors, based on their
increased deposits in Compass in the one-year period
preceding the Eligibility Record Date, shall be subordinated
to the subscription rights of other Eligible Account Holders.
To ensure proper allocation of stock, each Eligible Account
Holder must list on his Order Form all deposit accounts in
which he had an ownership interest as of the Eligibility
Record Date.
Priority 2: Each Supplemental Eligible Account Holder will have the
Supplemental opportunity to purchase, to the extent there are sufficient
Eligible Account shares remaining after satisfaction of subscriptions by
Holders Eligible Account Holders, the greatest of (x) $750,000 of
Conversion Shares, (y) one-tenth of one percent (.10%) of the
Conversion Shares, or (z) 15 times the product (rounded down
to the nearest whole number) obtained by multiplying (1) the
total number of Conversion Shares to be issued in the
Conversion by (2) a fraction, of which the numerator is the
Supplemental Qualifying Deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of
Supplemental Qualifying Deposits of all Supplemental Eligible
Account Holders. In the event Eligible Account Holders
subscribe for all available shares, subscriptions of
Supplemental Eligible Account Holders will not be filled. In
the event Supplemental
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<PAGE>
Eligible Account Holders subscribe for more than the
available number of shares, the Conversion Shares available
for purchase will be allocated among subscribing Supplemental
Eligible Account Holders so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that
such subscriber's Supplemental Qualifying Deposits bear to
the total amount of Supplemental Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled.
Priority 3: On a third priority basis, the ESOP intends to subscribe for
Employee Stock 8% of the Conversion Shares issued in the Offering, or
Ownership Plan 1,972,000 shares or 2,668,000 shares based on the minimum and
maximum of the Estimated Valuation Range, respectively.
Subscriptions by the ESOP will not be aggregated with
Conversion Shares purchased directly, pursuant to
subscription rights, by any person eligible to receive
allocations of shares under the ESOP. In the event that the
total number of shares offered in the Conversion is increased
to a number of shares exceeding the maximum of the Estimated
Valuation Range, the ESOP will have a first priority right to
purchase any such shares up to an aggregate of 8% of the
Conversion Shares issued.
Priority 4: To the extent there are sufficient shares remaining after
Employees, satisfaction of subscriptions by Eligible Account Holders,
Officers, Trustees Supplemental Eligible Account Holders and the ESOP, each
and Directors employee, officer, trustee and director of Seacoast Financial
and Compass will have the opportunity to purchase up to
$750,000 of Conversion Shares. Shares purchased under this
order of priority will be aggregated with shares, if any,
purchased under the preceding priority categories when
calculating the $750,000 individual purchase limit for such
person. In the event that employees, officers, trustees and
directors subscribe under this order of priority for more
Conversion Shares than are available for purchase by them,
the Conversion Shares available for purchase will be
allocated by Seacoast Financial among such subscribing
persons on a equitable basis, such as by giving weight to the
period of service, compensation and position of the
individual subscriber, provided that no fractional shares
will be allocated or issued.
Community Offering
Any Conversion Shares not subscribed for in the Subscription Offering
may be offered for sale in the Community Offering. This will involve an offering
of unsubscribed Conversion Shares directly to the general public. The Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by Seacoast Financial and Compass, and shall commence concurrently with, during
or promptly after the Subscription Offering. The Conversion Shares will be
offered and sold in the Community Offering, in accordance with the Division
regulations, so as to achieve the widest distribution of the Conversion Shares.
No person may subscribe for or purchase more than $750,000 of Conversion Shares
in the Community Offering.
In the event of an oversubscription for Conversion Shares in the
Community Offering, available shares will be allocated first to cover orders of
natural persons residing in Compass's Community so that each such person
receives 100 shares, and thereafter on a pro rata basis to such persons based on
their respective subscriptions or on such other reasonable basis as Seacoast
Financial may determine. If there are sufficient shares to fill orders of such
Community residents, but not to fill the orders of others subscribing in the
Community Offering, available shares will be allocated to such other persons in
the manner described for Community residents. Compass's Community consists of
the Massachusetts cities and towns of: Acushnet, Barnstable, Bourne, Brewster,
Buzzard's Bay, Carver, Cedarville, Chatham, Chilmark, Dartmouth, Dennis,
Eastham, Edgartown, Fairhaven, Fall River, Falmouth, Freetown (Assonet), Gay
Head, Gosnold, Harwich, Hyannis, Kingston, Lakeville, Marion, Mashpee,
Mattapoisett, New Bedford, Oak Bluffs, Orleans, Plymouth, Plympton, Pocasset,
Rochester, Sandwich, South Sandwich, Somerset, Swansea, Tisbury, W. Tisbury,
Westport, Yarmouth and South Yarmouth ("Compass's Community").
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The terms "residence," "reside" or "residing" as used herein with
respect to any person shall mean any person who occupies a dwelling within
Compass's Community, has an intent to remain in Compass's Community for a period
of time and manifests the genuineness of that intent by establishing an ongoing
physical presence within Compass's Community together with an indication that
such presence in Compass's Community is something other than merely transitory
in nature. To the extent the person is a corporation or other business entity,
the principal place of business or headquarters shall be in Compass's Community.
Seacoast Financial may utilize deposit or loan records or such other evidence
provided to it to make a determination as to whether a person is a resident. In
all cases, however, such a determination shall be in the sole discretion of
Seacoast Financial.
Seacoast Financial, in its sole discretion, may reject subscriptions,
in whole or in part, received from any person in the Community Offering.
Syndicated Community Offering
Any Conversion Shares not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers to be managed by Ryan Beck and McConnell Budd in
a Syndicated Community Offering, subject to terms, conditions and procedures as
may be determined by Seacoast Financial and Compass in a manner that is intended
to achieve the widest distribution of the Conversion Shares subject to the
rights of Seacoast Financial, in its sole discretion, to accept or reject in
whole or in part all orders in the Syndicated Community Offering. It is expected
that the Syndicated Community Offering, if any, would commence as soon as
practicable after termination of the Community Offering. The Syndicated
Community Offering shall be completed within 45 days after the termination of
the Subscription Offering, unless such period is extended as provided herein. No
person may purchase more than $750,000 of Conversion Shares in the Syndicated
Community Offering.
If for any reason the Syndicated Community Offering cannot be effected
or is not advisable and any shares remain unsold after the Subscription and
Community Offerings, if any, Seacoast Financial and Compass will seek to make
other arrangements for the sale of the remaining Conversion Shares. Such other
arrangements will be subject to the approval of the Division and the FDIC and to
compliance with applicable state and federal securities laws.
Restrictions on Agreements or Understandings Regarding Transfer of Conversion
Shares to Be Purchased in the Offering
Prior to the completion of the Offering, no depositor may transfer or
enter into an agreement or understanding to transfer the legal or beneficial
ownership of the Conversion Shares to be purchased by such person in the
Offering. Each depositor who submits an Order Form will be required to certify
that the purchase of Conversion Shares by such person is solely for the
purchaser's own account and that there is no agreement or understanding
regarding the sale or transfer of such shares. Seacoast Financial intends to
pursue any and all legal and equitable remedies in the event it becomes aware of
any such agreement or understanding, and will not honor orders that it
reasonably believes to involve such an agreement or understanding.
Purchasers' Consent to the Merger
The Conversion and the Merger are interdependent transactions, and
neither will be completed unless both of them are. By subscribing for or
purchasing Conversion Shares in the Offering, subscribers and other purchasers
will be approving and consenting to the consummation of the Merger, which is
expected to occur on the tenth trading day after completion of the Conversion.
The Order Form, which each subscriber will be required to sign, contains an
acknowledgment of such approval and consent.
Procedure for Purchasing Shares
To ensure that each purchaser receives this Prospectus at least 48
hours before the Expiration Date, Prospectuses may not be mailed any later than
five days prior to such date or be hand delivered any later than two days prior
to such date. Order Forms may be distributed only with the Prospectus.
Expiration Date. The Offering will terminate at 10:00 a.m. Boston Time
on _________, 1998, unless extended by Seacoast Financial for up to an
additional 45 days (i.e., until __________, 1998) or, if approved by the
Commissioner and the FRB, if necessary, for an additional period after such
extension. Seacoast Financial is not
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required to give purchasers notice of any extension unless the offering period
is extended beyond __________, 1998, in which event purchasers will be given the
right to increase, decrease, confirm or rescind their orders.
Use of Order Forms. In order to purchase Conversion Shares, each
purchaser must complete an Order Form except for certain persons purchasing in
the Syndicated Community Offering as more fully described below. Any person
receiving an Order Form who desires to purchase Conversion Shares may do so by
delivering by mail to Seacoast Financial or by hand to any Compass office a
properly executed and completed Order Form, together with full payment for the
Conversion Shares purchased. The Order Form must be received prior to 10:00 a.m.
Boston time on __________, 1998. Once tendered, a subscriber cannot modify or
revoke an Order Form without the consent of Seacoast Financial. Each person
ordering shares must represent that he is purchasing such shares for his own
account. Seacoast Financial's interpretation of the terms and conditions of the
Conversion Plan and of the acceptability of the Order Forms will be final.
Seacoast Financial is not required to accept copies or faxes of Order Forms.
Payment for Shares. Payment for all Conversion Shares must accompany
all completed Order Forms for the purchase to be valid. Subscribers may make
payment by (i) check or money order or (ii) authorization of withdrawal from
non-transaction deposit accounts maintained with Compass. Payments made by wire
transfer will not be allowed in the Subscription and Community Offerings.
Appropriate means by which withdrawals may be authorized are provided on the
Order Forms. Once such a withdrawal amount has been authorized, Compass will
place a hold on such funds, making them unavailable to the depositor. In the
case of payments authorized to be made through withdrawal from deposit accounts,
all funds authorized for withdrawal will continue to earn interest at the
contract rate until the Offering is completed or terminated. Interest penalties
for early withdrawal applicable to certificate accounts will not apply to
withdrawals authorized for the purchase of shares; however, if a withdrawal
results in a certificate account with a balance less than the applicable minimum
balance requirement, the certificate shall be canceled at the time of withdrawal
without penalty, and the remaining balance will earn interest at Compass's
passbook rate subsequent to the withdrawal. In the case of payments made by
check or money order, Seacoast Financial will place such funds in a segregated
savings account at Compass and such funds will earn interest at Compass's
passbook rate from the date payment is received until the Offering is completed
or terminated. Such interest will be paid by check promptly upon completion or
termination of the Offering. An executed Order Form, once received by Seacoast
Financial, may not be modified, amended or rescinded without the consent of
Seacoast Financial, unless the Offering is not completed by ____ __, 1998 and
Seacoast Financial elects not to extend the Offering, in which event the
Offering may be cancelled or Seacoast Financial may elect to continue the
Offering, in which case purchasers will be given the opportunity to increase,
decrease, confirm or rescind their orders for a specified period of time or the
Offering may be cancelled.
Depending on market conditions, the Seacoast Financial Common Stock may
be offered for sale to the general public on a best efforts basis in the
Syndicated Community Offering by a selling group (the "Selling Group") of
broker-dealers ("Selected Dealers") to be managed by Ryan Beck and McConnell
Budd. Ryan Beck and McConnell Budd, in their discretion, will instruct Selected
Dealers as to the number of shares to be allocated to each Selected Dealer. Only
upon allocation of shares to Selected Dealers may Selected Dealers take orders
from their customers. Investors who desire to purchase shares in the Syndicated
Community Offering directly through a Selected Dealer, which may include Ryan
Beck and McConnell Budd, are advised that the members of the Selling Group are
required either (i) upon receipt of an executed Order Form or direction to
execute an Order Form on behalf of an investor, to forward the appropriate
purchase price to Seacoast Financial for deposit in a segregated account on or
before twelve noon, Boston time, of the business day next following such receipt
or execution or (ii) upon receipt of confirmation by such member of the Selling
Group of an investor's interest in purchasing shares, and following a mailing of
an acknowledgment by such member to such investor on the business day next
following receipt of confirmation, to debit the account of such investor on the
third business day next following receipt of confirmation and to forward the
appropriate purchase price to Seacoast Financial for deposit in the segregated
account on or before 12:00 noon, Boston time, of the business day next following
such debiting. Payment for any shares purchased pursuant to alternative (i)
above must be made by check made out to Seacoast Financial in full payment
therefor. Payment for shares purchased pursuant to alternative (ii) above may be
made by wire transfer.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase Conversion Shares in the Offering. Individuals who are participants in
self-directed tax-qualified plans maintained by self-employed individuals
("Keogh Plans") may use the assets in their self-directed Keogh Plan accounts to
purchase Conversion Shares in the Offering. The provisions of ERISA and IRS
regulations require that executive officers, trustees and 10% stockholders who
use
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self-directed IRA funds and/or Keogh Plan accounts to purchase Conversion Shares
in the Offering make such purchase for the exclusive benefit of the IRA and/or
Keogh Plan participant.
The ESOP will not be required to pay for Conversion Shares that it
orders until consummation of the Offering, provided that there is in force, from
the time the order is received, a loan commitment from a third-party lender to
lend to the ESOP the amount of funds necessary to purchase the number of shares
ordered.
Delivery of Stock Certificates. Seacoast Financial will mail
certificates representing Conversion Shares issued in the Offering to the
persons entitled thereto at the registration address noted by them on the Order
Form as soon as practicable following consummation of the Offering. Seacoast
Financial will hold any certificates returned as undeliverable until claimed by
persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for the Conversion Shares are available and
delivered to purchasers, purchasers may not be able to sell the shares of such
stock which they ordered.
Plan of Distribution and Selling Commissions
Seacoast Financial has initially distributed Offering materials for the
Offering to certain persons by mail, with additional copies made available at
Compass's offices and by Ryan Beck and McConnell Budd. All prospective
purchasers must send payments directly to Seacoast Financial. Such funds will be
held in a segregated special escrow account at Compass and not released until
the Offering is completed or terminated.
To assist in the marketing of the Conversion Shares, Seacoast Financial
has retained Ryan Beck and McConnell Budd, broker-dealers registered with the
National Association of Securities Dealers (the "NASD"). Ryan Beck and McConnell
Budd will assist Seacoast Financial and Compass in the Offering as follows: (i)
in training and educating Compass's employees regarding the Conversion and their
roles; (ii) assisting in design and implementation of a marketing strategy; and
(iii) managing a Stock Information Center and coordinating selling efforts. Ryan
Beck and McConnell Budd have agreed to use their best efforts to assist Seacoast
Financial and Compass in the solicitation of subscriptions for Conversion Shares
in the Offering. For these services, Ryan Beck and McConnell Budd will receive
an advisory and management fee of $50,000 in the aggregate and an aggregate
marketing fee of 1.0% of the dollar amount of the Conversion Shares sold in the
Subscription and Community Offerings (other than shares purchased by officers,
directors, trustees, employees and the ESOP). In the event that a selected
dealers agreement is entered into in connection with a Syndicated Community
Offering, Seacoast Financial will pay a fee to such selected dealers of up to
5.5%, including a management fee to Ryan Beck and McConnell Budd of no more than
1.0% for shares sold by NASD member firms, other than Ryan Beck and McConnell
Budd. Seacoast Financial will also pay to McConnell Budd a $100,000 fee for its
investment advisory services in connection with the Merger. McConnell Budd has
previously performed financial advisory services for Compass and been
compensated for such services.
Seacoast Financial will also reimburse Ryan Beck and McConnell Budd for
their reasonable out-of-pocket expenses (including legal fees, up to a maximum
of $55,000 and up to $15,000 for other expenses) associated with their marketing
efforts. Seacoast Financial has made an advance payment to Ryan Beck and
McConnell Budd in the amount of $150,000 upon commencement of the Offering. If
the Conversion Plan is terminated by Seacoast Financial, the Offering is not
consummated by December 31, 1998, or if Ryan Beck and McConnell Budd terminates
the agreement with Seacoast Financial in accordance with the provisions of such
agreement, they will be entitled to receive a fee of $50,000 for their advisory
and administrative services, plus reimbursement of their reasonable
out-of-pocket expenses. Seacoast Financial will indemnify Ryan Beck and
McConnell Budd against liabilities and expenses (including legal fees) incurred
in connection with certain claims or litigation arising out of or based upon
untrue statements or omissions contained in the offering material for the
Conversion Shares, including liabilities under the Securities Act.
Trustees, directors and executive officers of Seacoast Financial and
Compass may participate in the solicitation of offers to purchase Conversion
Shares. Other trained employees of Compass may participate in the Offering in
ministerial capacities, providing clerical or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or Ryan Beck or McConnell Budd registered representatives.
Seacoast Financial will rely on Rule 3a4-1 of the Exchange Act so as to permit
officers, trustees, directors and employees to participate in the sale of the
Conversion Shares. No officer, trustee, director or employee of Seacoast
Financial or Compass will be compensated for his participation by the payment of
commissions or other remuneration based either directly or indirectly on
transactions in the Conversion Shares.
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A Stock Information Center will be established at Compass's main
office, in an area separated from Compass's banking operations. Employees will
inform prospective purchasers to direct their questions to the Stock Information
Center and will provide such persons with the telephone number of the Stock
Information Center.
Other Restrictions. Notwithstanding any other provision of the
Conversion Plan, no person is entitled to purchase any Conversion Shares to the
extent such purchase would be illegal under any federal or state law or
regulation (including state "blue-sky" laws and regulations) or would violate
regulations or policies of the NASD, particularly those regarding free riding
and withholding. Seacoast Financial and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such purchase and may
refuse to honor any such purchase order if such opinion is not timely furnished.
The Conversion Plan prohibits Compass from lending funds or extending credit to
any persons to purchase Conversion Shares in the Offering.
Stock Pricing and Number of Shares to be Issued
Seacoast Financial has established a fixed Purchase Price of $10.00 per
share for each Conversion Share sold in the Offering. Federal and state
regulations require that the aggregate Purchase Price of the Conversion Shares
offered in the Offering be based on the appraised pro forma market value of the
Conversion Shares, as determined by an independent appraiser. Seacoast Financial
has engaged RP Financial, an independent appraisal firm, to conduct such
valuation. The Independent Valuation is not a recommendation for the purchase of
Conversion Shares. RP Financial has estimated that the pro forma market value of
the Conversion Shares is between $246.5 million and $333.5 million. Based on
this estimate, Seacoast Financial will issue a total of between 24,650,000 and
33,350,000 Conversion Shares at the Purchase Price. RP Financial will update its
appraisal immediately prior to completion of the sale of the Conversion Shares.
As long as the estimated pro forma market value is not increased by more than
15% above the maximum, or decreased below the minimum, of the Estimated
Valuation Range, no resolicitation of subscribers will be made and subscribers
will not be permitted to modify or cancel their subscriptions. For more
information about RP Financial's appraisal, see "The Conversion and the Merger
- -- Description of the Conversion -- Stock Pricing and Number of Shares to be
Issued.."
Limitations upon Purchases of Conversion Shares.
Individual Purchase Limitation. No person (or persons through a single
subscription right) may purchase more than an aggregate of $750,000 of
Conversion Shares in all phases of the Offering combined, except that (i)
Seacoast Financial may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, (x) increase such
individual purchase limitation to up to 5% of the number of Conversion Shares
offered in the Offering or (z) decrease such individual purchase limitation to
no less than one-tenth of one percent (.10%) of the number of Conversion Shares
offered in the Offering; (ii) the ESOP may purchase up to 8% of Conversion
Shares issued in the Offering; and (iii) shares to be held by the ESOP and
attributable to an employee or officer of Compass shall not be aggregated with
other shares purchased directly by or otherwise attributable to such employee or
officer. Prior to completion of the Offering, if the maximum purchase limitation
is increased, subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of Seacoast Financial and Compass may
be, given the opportunity to increase their subscriptions up to the then
applicable limits.
Persons and Associates and Groups Acting in Concert. No person
together with his or her associates or group of persons acting in concert with
one another may purchase more than an aggregate of $1.5 million of Conversion
Shares in all phases of the Offering combined, except that: (i) Seacoast
Financial may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, (x) increase or
decrease such overall maximum purchase limitation to up to 5% of the number of
Conversion Shares offered in the Offering or (z) decrease such overall maximum
purchase limitation to no less than one-tenth of one percent (.10%) of the
number of Conversion Shares offered in the Offering; (ii) the ESOP may purchase
up to 8% of Conversion Shares issued in the Offering; and (iii) shares to be
held by the ESOP and attributable to an employee or officer of Compass shall not
be aggregated with other shares purchased directly by or otherwise attributable
to such employee or officer. For purposes of this paragraph, trustees and
directors of Seacoast Financial and Compass shall not be deemed to be associates
or a group acting in concert solely as a result of their membership on the
boards of those companies.
Increase in the Total Number of Shares Offered. In the event of an
increase in the total number of Conversion Shares offered due to an increase in
the Estimated Valuation Range of up to 15%, the ESOP shall have a first priority
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right to purchase any such additional shares necessary to fill its order for
Conversion Shares (up to 8% of the Conversion Shares issued in the Conversion).
Any remaining shares will be allocated to subscribers according to their
respective categories in the Offering.
Rejection of Orders. Seacoast Financial has the right in its sole
discretion to reject any order submitted by a person whose representations
Seacoast Financial believes to be false or who it otherwise believes, either
alone or acting in concert with others, is violating or circumventing, or
intends to violate, evade or circumvent, the terms and conditions of the
Conversion Plan.
Subscribers in Non-Qualified States or in Foreign Countries. Seacoast
Financial may make reasonable efforts to comply with the securities laws of any
state in the United States in which its depositors reside, and will only offer
and sell the Conversion Shares in states in which such offers and sales comply
with such states' securities laws. However, no person will be offered or allowed
to purchase any Conversion Shares if he or she resides in a foreign country or
in a state of the United States with respect to which any of the following
apply: (i) a small number of persons otherwise eligible to purchase shares under
the Conversion Plan reside in such state or foreign county; (ii) the offer or
sale of Conversion Shares to such persons would require Seacoast Financial or
its employees to register, under the securities laws of such state or foreign
country, as a broker or dealer or to register or otherwise qualify its
securities for sale in such state or foreign country; or (iii) such registration
or qualification would be impracticable for reasons of cost or otherwise.
Directors, Trustees, Officers and Corporators. The aggregate number of
Conversion Shares purchased by officers, trustees, corporators, and directors of
Seacoast Financial and Compass and their associates may not exceed 30% of the
Conversion Shares issued in the Offering.
Interpretation of the Conversion Plan
Seacoast Financial shall have the right, in its sole discretion, to
determine whether prospective purchasers are "residents," "associates" or
"acting in concert" as defined by the Conversion Plan and in interpreting any
and all other provisions of the Conversion Plan. All such determinations are in
the sole discretion of Seacoast Financial and may be based on whatever evidence
Seacoast Financial chooses to use in making any such determination.
Termination of the Offering
The Board of Trustees of Seacoast Financial may terminate the
Conversion Plan in its sole discretion, by reason of the termination of the
Merger Agreement or otherwise, at any time with the concurrence of the
Commissioner. If the minimum number of Conversion Shares offered in the Offering
(24,650,000 shares) is not sold by the Expiration Date, Seacoast Financial may
terminate the Offering and promptly refund all orders for Conversion Shares.
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DESCRIPTION OF CAPITAL STOCK OF SEACOAST FINANCIAL
General
Upon consummation of the Conversion, Seacoast Financial will be
authorized to issue up to 110 million shares of capital stock, consisting of 100
million shares of Seacoast Financial Common Stock and 10 million shares of
preferred stock, par value $.01 per share ("Seacoast Financial Preferred
Stock"). As of the date of this Prospectus, Seacoast Financial has not issued
any shares of Seacoast Financial Common Stock or Seacoast Financial Preferred
Stock. Seacoast Financial currently expects to issue between 24,650,000 and
33,350,000 Conversion Shares, with an adjusted maximum of 38,352,500 shares, in
the Offerings, and between 12,543,673 and 8,728,118 Exchange Shares in the
Merger (based on 1,945,756 shares of Sandwich Common Stock and 143,282 Sandwich
Options outstanding as of March 31, 1998 and assuming Exchange Ratios of 6.4 and
4.4444, respectively). See "The Conversion and the Merger--Description of the
Merger and the Exchange Ratio" and "Pro Forma Data--Pro Forma Outstanding
Seacoast Financial Common Stock." Seacoast Financial does not currently plan to
issue any shares of Seacoast Financial Preferred Stock, either pursuant to the
Conversion or the Merger or in the foreseeable future thereafter.
Seacoast Financial Common Stock
General. Each issued and outstanding share of Seacoast Financial
Common Stock will have the same rights as, and will be identical in all respects
with, each other share of such stock. Upon payment of the Purchase Price for the
Conversion Shares, in accordance with the Conversion Plan, and upon issuance of
the Exchange Shares, in accordance with the provisions of the Merger Agreement,
all such shares will be duly authorized, fully paid, validly issued and
non-assessable.
The Seacoast Financial Common Stock will represent nonwithdrawable
capital, will not be an account that is insurable and will not be insured by the
FDIC or by the DIF.
Voting Rights. Each holder of Seacoast Financial Common Stock will be
entitled to one vote for each share of such stock held by such holder.
Holders of Seacoast Financial Common Stock will not have cumulative
voting rights in connection with the election of directors. Such holders will be
able to elect directors by a plurality of votes cast.
Dividends. Holders of Seacoast Financial Common Stock will be entitled
to receive and share equally in such dividends as the Board of Directors of
Seacoast Financial may declare out of funds legally available therefor. If
Seacoast Financial issues Seacoast Financial Preferred Stock, holders of such
stock may have a priority over holders of Seacoast Financial Common Stock with
respect to the payment of dividends. See "-- Seacoast Financial Preferred
Stock." State and federal laws and regulations place limitations on the payment
of dividends. See "Seacoast Financial's Dividend Policy."
Liquidation or Dissolution. Holders of Seacoast Financial Common Stock
will receive pro rata all assets of Seacoast Financial available for
distribution after payment or provision for payment of all debts and liabilities
of Seacoast Financial (including all deposits in Compass and accrued interest
thereon) and after distribution of the liquidation account established upon the
completion of the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who continue their deposit accounts at
Compass. If Seacoast Financial issues Seacoast Financial Preferred Stock,
holders of such stock may have a senior interest over holders of Seacoast
Financial Common Stock in such a distribution. See "-- Seacoast Financial
Preferred Stock."
No Preemptive or Redemption Rights. Holders of Seacoast Financial
Common Stock will not have preemptive rights with respect to issuances of any
shares of the capital stock of Seacoast Financial and shares of Seacoast
Financial Common Stock shall not be redeemable.
Seacoast Financial Preferred Stock
Seacoast Financial's Board of Directors may, without stockholder
approval but subject to certain regulatory approvals, create and issue one or
more series of Seacoast Financial Preferred Stock. In connection with the
creation and issuance of such stock, the Board may establish or change the
number of shares in each such series, fix and state the voting powers,
designations, preferences and the relative or special rights or privileges of
the shares of any series so established and the qualifications thereon without
further vote or action by the stockholders.
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Any issuance of Seacoast Financial Preferred Stock may have an adverse
effect on the voting and other rights of holders of Seacoast Financial Common
Stock. Each series of Seacoast Financial Preferred Stock issued after the
Conversion may rank senior to shares of Seacoast Financial Common Stock as to
dividend rights, liquidation preferences or both, may have full, limited or no
voting rights and may be convertible into shares of Seacoast Financial Common
Stock.
RESTRICTIONS ON ACQUISITION OF SEACOAST FINANCIAL AND COMPASS
Certain provisions of Seacoast Financial's Articles of Organization and
By-Laws which will become effective upon the consummation of the Conversion, as
well as provisions of the ESOP and certain state and federal laws, may have
certain "anti-takeover" effects. The provisions and laws deal with matters of
corporate governance and certain rights of stockholders, including stock
ownership and transfer, Seacoast Financial's Board of Directors and business
combinations. The provisions and laws may impede efforts to acquire Seacoast
Financial, or stock purchases in furtherance of such an acquisition, which might
otherwise have a favorable effect on the price of shares of Seacoast Financial
Common Stock. Persons considering whether to purchase Seacoast Financial Common
Stock in connection with the Conversion should give careful attention to these
provisions and laws because they will affect the rights of Seacoast Financial's
stockholders.
Although the Board of Directors of Compass and Board of Trustees of
Seacoast Financial are not aware of any effort that might be made to obtain
control of Seacoast Financial following the Conversion, the Boards believe, as
discussed below, that it is appropriate to include certain provisions in the
Articles and By-Laws to protect the interests of Seacoast Financial and its
stockholders from takeovers which the Board might conclude are not in the best
interest of Compass, Seacoast Financial or Seacoast Financial's stockholders. In
addition, these provisions will increase protections available to Seacoast
Financial against transactions that, although not resulting in an acquisition of
a majority of Seacoast Financial's capital stock, nevertheless may harm Seacoast
Financial and its stockholders by disrupting Compass's operations and management
and by causing Seacoast Financial to incur substantial expenses.
The following discussion is a general summary of the material
provisions of the Articles and By-Laws that will become effective upon
consummation of the Conversion, and of certain provisions of the ESOP and
certain laws, which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Articles and By-Laws, reference
should be made in each case to the document in question, each of which is part
of Seacoast Financial's application to the Commissioner and Registration
Statement on Form S-1 filed with the SEC on May 15, 1998. See "Additional
Information."
Certain Provisions of the Articles and By-Laws
Definition of "Interested Stockholder" and "Disinterested Director." As
used herein, the terms "Interested Stockholder" and "Disinterested Directors"
have the same meanings ascribed to them by the Articles and By-Laws. An
"Interested Stockholder" is any person (other than Seacoast Financial, any
direct or indirect subsidiary of Seacoast Financial or any employee stock
ownership plan formed by Seacoast Financial) who or which: (i) is the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
outstanding "voting stock" (as such term is defined in the Articles) of Seacoast
Financial; (ii) is an "affiliate" (as such term is defined in the Articles) of
Seacoast Financial and at any time within the two-year period immediately prior
to the date in question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding voting stock of Seacoast
Financial; or (iii) is an assignee of or has otherwise succeeded to any shares
of voting stock of Seacoast Financial which were at any time within the two-year
period immediately prior to 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 and was not approved by
two-thirds (2/3) of the Disinterested Directors. A "Disinterested Director" is
any member of the Board of Directors of Seacoast Financial at any time when
there is no Interested Stockholder or, when there is an Interested Stockholder,
any Director who (i) is not, and was not at any time during the two-year period
immediately prior to the date in question, an Affiliate or Associate (as such
terms are defined in Rule 12b-2 promulgated under the Exchange Act) of an
Interested Stockholder and (ii) either (A) was a member of the Board prior to
the time that the Interested Stockholder became an Interested Stockholder or (B)
thereafter received favorable votes for his or her nomination or election as a
Director by a majority of the Disinterested Directors then serving on the Board.
Throughout Seacoast
130
<PAGE>
Financial's Articles and By-Laws, a vote of the Disinterested Directors may be
required (in addition to the vote of the full Board of Directors) when there is
an Interested Stockholder. The required percentage vote of Disinterested
Directors varies from section to section.
Directors. The Articles and By-Laws contain certain provisions which
may make it difficult to change majority control of Seacoast Financial's Board
of Directors. The Articles provide for three classes of Directors elected for
three-year staggered terms, so that ordinarily no more than approximately
one-third of Seacoast Financial's Directors will stand for election in any one
year. Thus, it would take two annual elections to replace a majority of Seacoast
Financial's Board. The Articles also provide that stockholders shall not have
cumulative voting rights in the election of Directors. The By-Laws provide that,
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 (unless there is an Interested Stockholder, in which case an
affirmative vote of Disinterested Directors shall also be required). The By-Laws
also provide that any vacancy occurring in the Board of Directors, including
vacancies resulting from an increase in the number of Directors, may be filled
only by a vote of a majority of the Directors (even if such Directors do not
constitute a quorum), unless at the time there is an Interested Stockholder, in
which case such vacancy may be filled only by vote of a majority of the
Disinterested Directors then in office. In addition, the By-Laws impose certain
advance notice and informational requirements on the nomination by stockholders
of candidates for election to the Board of Directors. Finally, the Articles
provide that Directors may be removed only for cause and only by an affirmative
vote of two-thirds (2/3) of the outstanding shares of Seacoast Financial
entitled to vote on such removal.
Meetings of Stockholders. The Articles and By-Laws provide that a
special meeting of stockholders may be called at any time only by a majority of
the Directors then in office (provided, however, that, if there is an Interested
Stockholder, any such call by the Board of Directors shall also require an
affirmative vote of Disinterested Directors) or upon application by one or more
stockholders who hold two-thirds (2/3) of the capital stock entitled to vote at
such meeting. Only those matters set forth in the call of the special meeting
may be considered or acted upon at such meeting, unless otherwise provided by
law. With respect to annual meetings of stockholders, the By-Laws impose certain
advance notice and informational requirements for any business which a
stockholder may wish to propose for consideration at such a meeting.
Authorized Stock. The Articles authorize the Board of Directors to
issue any of the 100,000,000 shares of Seacoast Financial Common Stock not
issued in the Conversion and the Merger and any of the 10,000,000 shares of
Seacoast Financial Preferred Stock which are authorized but unissued. See
"Description of Capital Stock of Seacoast Financial -- General." The Board of
Directors may, without approval of Seacoast Financial's stockholders, designate
and issue shares of one or more series of Seacoast Financial Preferred Stock,
establish or change from time to time the number of shares to be included in
each such series, fix and state the voting powers, designations, preferences and
the relative or special rights of the shares of any series so established and
the qualifications thereon. See "Description of Capital Stock of Seacoast
Financial -- General." In the event of a proposed merger, tender offer or other
attempt to gain control of Seacoast Financial that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of Seacoast Financial Preferred Stock with rights and
preferences that might impede the completion of such a transaction. Seacoast
Financial has no present plans or understandings for the issuance of any shares
of Seacoast Financial Preferred Stock.
Vote Required to Approve Business Combinations Involving Interested
Stockholders. The Articles contain a so-called "fair price" provision pursuant
to which certain acquisitions, stock issuances, liquidations or
recapitalizations (such transactions being referred to as "Business
Combinations" in the Articles) involving an Interested Stockholder and Seacoast
Financial or any subsidiary thereof would require stockholder approval by the
affirmative vote of holders of at least 80% of the outstanding shares of
Seacoast Financial entitled to vote in elections of directors. The provision
does not require an 80% stockholder vote for approval of a Business Combination
if at least one Disinterested Director is then in office and such transaction is
approved by two-thirds (2/3) of Disinterested Directors or if certain procedures
and price requirements are met. An affirmative vote of the holders of at least
80% of the outstanding voting stock shall be required to amend or repeal, or
adopt any provisions inconsistent with, the fair price provision.
Vote Required for Certain Transactions. The Articles further provide
that any (i) sale, lease or exchange of all or substantially all of Seacoast
Financial's property or assets, including goodwill or (ii) Seacoast Financial's
merger, share exchange or consolidation with or into any other entity, must be
approved by an affirmative vote of at least 75%
131
<PAGE>
of the total votes that may be cast by Seacoast Financial's stockholders on such
a transaction. However, only a majority vote of Seacoast Financial's
stockholders is necessary to approve a merger, share exchange or consolidation
if the voting stock of Seacoast Financial outstanding immediately before such
transaction will represent immediately after the transaction more than 70% of
the outstanding voting stock of the company that will survive the transaction.
Restrictions on Acquisitions of Securities. The Articles provide that,
for a period of five years following the date of completion of Seacoast
Financial's initial issuance of Seacoast Financial Common Stock to the public,
no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of the issued and outstanding voting stock
of Seacoast Financial. Shares acquired in excess of this limitation will not be
entitled to vote or to take other stockholder action or to be counted in
determining the total number of outstanding shares for purposes of any matter
involving stockholder action, and such shares may be required to be sold through
an independent trustee. The foregoing limitation does not apply to: (i) any
acquisition of shares of voting stock which has been approved in advance by an
affirmative vote of not less than two-thirds (2/3) of the Directors then in
office (plus an affirmative vote of Disinterested Directors if there is an
Interested Stockholder); (ii) any offer with a view toward public resale made
exclusively to Seacoast Financial or to any underwriter acting on behalf of
Seacoast Financial or to the selling group acting on the underwriter's behalf in
connection with a public offering of Seacoast Financial's capital stock; or
(iii) a corporate reorganization without a change in the respective beneficial
ownership interests of Seacoast Financial's stockholders other than pursuant to
the exercise of any dissenters' appraisal rights.
Provisions for Amendment of Articles and By-Laws. The Articles provide
that, in general, they may be amended only by a vote of at least 75% of the
votes eligible to be cast by Seacoast Financial's stockholders or by a majority
of such votes if the Board of Directors recommends an amendment by an
affirmative vote of two-thirds (2/3) of the Disinterested Directors. In
addition, any provision of the Articles which requires a greater than majority
vote of stockholders will not be able to be amended except by such greater vote.
The Articles also provide that the By-Laws may be amended by a vote of 75% of
the votes eligible to be cast by Seacoast Financial's stockholders or by a
majority of such votes if the Board of Directors recommends an amendment by an
affirmative vote of two-thirds (2/3) of the Directors (plus an affirmative vote
of Disinterested Directors if there is an Interested Stockholder). In addition,
the Directors may amend the By-Laws themselves by a majority vote (plus an
affirmative vote of Disinterested Directors if there is an Interested
Stockholder).
Matters to be Considered at Annual Meeting of Stockholders. The
By-Laws provide only two methods of placing proposals on the agenda of an annual
meeting of stockholders: (i) the Board of Directors, the Chairman of the Board
or the President of Seacoast Financial may present a proposal for consideration
or (ii) any stockholder may submit a proposal. However, stockholders can submit
a proposal only by delivering a notice thereof to the Clerk at least 60 days
(but not more than 150 days) in advance of such meeting. Such notice must state
the stockholder's name, the name of other stockholders who support the proposal
and the class and number of shares owned by them, must describe the matter
proposed and the reason for considering it at the annual meeting and must set
forth any financial interest that the proposing stockholder has in the proposal.
The Board of Directors may reject a stockholder's proposal if such stockholder
does not fully and timely comply with the foregoing notice requirement.
Purpose and Takeover Defensive Effects of Articles and By-Laws. The
Boards of Seacoast Financial and Compass believe that the provisions described
above are prudent and will reduce Seacoast Financial's vulnerability to takeover
attempts and to certain other transactions which have not been negotiated with
and approved by Seacoast Financial's Board of Directors. These provisions will
also assist Seacoast Financial and Compass in the orderly deployment of the
Offering proceeds into productive assets during the initial period after the
Offering. The Boards believe these provisions are in the best interests of
Compass, Seacoast Financial and its stockholders. Attempts to acquire control of
financial institutions and their holding companies have become increasingly
common. Takeover attempts which have not been negotiated with and approved by
boards of directors present to stockholders the risk of a takeover on terms
which may be less favorable than might otherwise be available. A transaction
which is negotiated and approved by the Board of Directors of Seacoast
Financial, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for Seacoast Financial and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of
Seacoast Financial's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above
132
<PAGE>
then-current market prices, such offers are sometimes made for less than all of
the outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous or retaining their investment in an enterprise
which is under different management and the objectives of which may not be
similar to those of the remaining stockholders.
Potential Anti-Takeover Effects. Despite the belief of Compass and
Seacoast Financial as to the benefits to stockholders of the provisions
described above, these provisions will have the effect of discouraging any
takeover attempt which would not be approved either by regulatory policy or by
Seacoast Financial's Board of Directors but pursuant to which stockholders may
receive a substantial premium for their shares over then-current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have any opportunity to do so. Such provisions will also make it more
difficult to remove the Board and Seacoast Financial's management. The Boards of
Compass and Seacoast Financial, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Offering, Seacoast Financial may amend the Seacoast
Financial Articles of Organization to add provisions regarding the acquisition
of its equity securities that would be permitted to a Massachusetts corporation.
Seacoast Financial and Compass do not presently intend to propose the adoption
of further restrictions on the acquisition of Seacoast Financial's equity
securities.
Employee Stock Ownership Plan
The ESOP, which expects to subscribe to purchase 8% of the Conversion
Shares sold in the Offering, contains certain provisions permitting
participating employees to direct the voting of shares held in the ESOP. Such
provisions may be considered to have anti-takeover effects. See "Management of
Seacoast Financial and Compass -- Compensation of Officers and Directors Through
Benefit Plans -- Employee Stock Ownership Plan and Trust."
FRB Regulations
The Change in Bank Control Act and the BHCA, together with FRB
regulations promulgated under those acts, require that the consent of the FRB be
obtained prior to any person or company acquiring "control" of a bank holding
company. Control is conclusively presumed to exist if an individual or company
acquires more than 25% of any class of voting stock of the bank holding company.
Control is rebuttably presumed to exist if the person acquires more than 10% of
any class of voting stock of a bank holding company and if either (i) the
company has registered securities under Section 12 of the Exchange Act or (ii)
no other person will own a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure to rebut
the foregoing presumption. Since Seacoast Financial Common Stock will be
registered under Section 12 of the Exchange Act, any acquisition of 10% or more
of the outstanding Seacoast Financial Common Stock will give rise to a
rebuttable presumption that the acquiror of such stock controls Seacoast
Financial, requiring the acquiror, prior to acquiring such stock, to rebut the
presumption of control to the satisfaction of the FRB or obtain FRB approval for
the acquisition of control.
Restrictions applicable to the operations of bank holding companies may
also deter companies from seeking to obtain control of Seacoast Financial. See
"Regulation of Seacoast Financial and Subsidiaries."
Massachusetts Banking Law
Massachusetts banking law also prohibits any "company," defined to
include banking institutions as well as corporations, from directly or
indirectly controlling the voting power of 25% or more of the voting stock of
two or more banking institutions without the prior approval of the Board of Bank
Incorporation (the "BBI"). Additionally, an out-of-state company which already
directly or indirectly controls voting power of 25% or more of the voting stock
of two or more banking institutions may not also acquire direct or indirect
ownership or control of more than 5% of the voting stock of a Massachusetts
banking institution without the prior approval of the BBI. Finally, for a period
of three years following completion of a conversion to stock form, no person may
directly or indirectly offer to acquire or acquire beneficial ownership of more
than 10% of any class of equity security of a converting mutual savings bank
without prior written approval of the BBI.
133
<PAGE>
Massachusetts Anti-Takeover Laws
The Massachusetts General Laws contain two anti-takeover statutes that
are applicable to certain public corporations in Massachusetts -- Chapter 110F,
the "business combinations" law and Chapter 110D, the "control share
acquisition" law. Seacoast Financial's Articles contain a provision opting out
of the applicability of Chapters 110F and 110D, in light of the provisions
contained in Seacoast Financial's Articles that provide similar anti-takeover
protections.
TRANSFER AGENT AND REGISTRAR FOR SEACOAST FINANCIAL COMMON STOCK
___________________ will act as the transfer agent and registrar for
issued and outstanding shares of Seacoast Financial Common Stock.
LEGAL OPINIONS
The legality of the Conversion Shares and the Exchange Shares, and
certain tax matters, will be passed upon for Seacoast Financial by Foley, Hoag &
Eliot LLP, Boston, Massachusetts. Foley, Hoag & Eliot LLP has consented to the
references herein to its opinions. Certain legal matters will be passed upon for
Ryan Beck and McConnell Budd by Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C.
EXPERTS
The consolidated financial statements of Seacoast Financial as of
October 31, 1997 and 1996 and for each of the years in the three-year period
ended October 31, 1997 appearing herein have been audited by Arthur Andersen
LLP, independent public accountants, as stated in its reports appearing
elsewhere herein, and have been so included in reliance upon the reports of such
firm given upon its authority as an expert in accounting and auditing.
The consolidated financial statements of Sandwich Bancorp and
subsidiaries as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 have been included herein and in the
Registration Statement on Form S-1 of which this Prospectus represents a part in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of
its report to Seacoast Financial setting forth its opinion as to the estimated
pro forma market value of the Conversion Shares upon their conversion and its
valuation with respect to subscription rights issued under the Conversion Plan.
134
<PAGE>
ADDITIONAL INFORMATION
Seacoast Financial has filed with the SEC a Registration Statement on
Form S-1 (the "Registration Statement") under the Securities Act with respect to
the Conversion Shares offered hereby. As permitted by the rules and regulations
of the SEC, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Also, since
the effective date of the Registration Statement, Seacoast Financial has been
subject to the annual and periodic reporting requirements of the Exchange Act
pursuant to Section 15(d) of such act. In addition, Sandwich Bancorp is subject
to the informational requirements of the Exchange Act, and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
The Registration Statement, and the reports and other information of
Seacoast Financial and Sandwich Bancorp, can be examined, without charge, and
copied, at prescribed rates, at the public reference facilities of the SEC
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Regional Offices of the SEC located at Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Thirteenth
Floor, New York, N.Y. 10048. In addition, the SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of this
web site is http://www.sec.gov. Sandwich Bancorp's materials are also available
for inspection at the office of the Nasdaq Stock Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
The statements contained herein as to the contents of any contract or
other document are, of necessity, brief descriptions thereof and are not
necessarily complete but do contain all material information regarding such
documents. In each instance of such a statement, if such contract or document is
filed as an exhibit to the Registration Statement or to reports, proxy
statements and other information filed by Seacoast Financial and Sandwich
Bancorp with the SEC, reference is made to the copy of the contract or document
filed as such exhibit, each of such statements being qualified in all respects
by such reference.
Seacoast Financial has filed the Conversion Application with the
Commissioner. Pursuant to the rules and regulations of the Commissioner, this
Prospectus omits certain information contained in the Conversion Application,
including the Conversion Plan and the Independent Valuation. The Conversion
Application may be examined at the office of the Commissioner, at 100 Cambridge
Street, Boston, Massachusetts, and at the main office of Seacoast Financial, at
791 Purchase Street, New Bedford, Massachusetts, without charge.
In connection with the Conversion, Seacoast Financial will register the
Seacoast Financial Common Stock with the SEC under Section 12(g) of the Exchange
Act. Upon such registration, Seacoast Financial and the holders of Seacoast
Financial Common Stock will become subject to the proxy solicitation rules,
reporting requirements and restrictions on stock purchases and sales by
directors, officers and greater than 10% stockholders and the annual and
periodic reporting and certain other requirements of the Exchange Act. Under the
Conversion Plan, Seacoast Financial has undertaken that it will not terminate
such registration for a period of at least three years following the Offering.
A copy of the Articles of Organization and By-Laws of Seacoast
Financial are available without charge from Seacoast Financial by contacting
Francis J. Mascianca, Treasurer, at 791 Purchase Street, New Bedford,
Massachusetts 02740 or at (508) 984-6000.
135
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF FEBRUARY 28, 1998
(UNAUDITED) AND OCTOBER 31, 1997 AND 1996 F-3
CONSOLIDATED STATEMENTS OF INCOME FOR THE FOUR MONTHS ENDED
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND THE YEARS ENDED
OCTOBER 31, 1997, 1996 AND 1995 F-4
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS FOR THE FOUR MONTHS ENDED
FEBRUARY 28, 1998 (UNAUDITED) AND THE YEARS ENDED OCTOBER 31, 1997, 1996
AND 1995 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FOUR MONTHS ENDED
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND THE YEARS ENDED
OCTOBER 31, 1997, 1996 AND 1995 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
All schedules are omitted because they are not required or applicable, or the
required information is shown in the financial statements or notes thereto.
F-1
<PAGE>
Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Audit Committee of
The 1855 Bancorp:
We have audited the accompanying consolidated balance sheets of The 1855 Bancorp
and subsidiary (the Bank) as of October 31, 1997 and 1996, and the related
consolidated statements of income, changes in surplus and cash flows for each of
the three years in the period ended October 31, 1997. 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 consolidated financial position of The
1855 Bancorp and subsidiary as of October 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 25, 1997 (except with respect to
the matters discussed in Note 16, as to
which the date is March 31, 1998)
F-2
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 27,282 $ 25,611 $ 34,511
Federal funds sold 15,973 7,150 53
--------------- ------------ ------------
Total cash and cash equivalents 43,255 32,761 34,564
Investment securities (Note 2)-
Available-for-sale, at fair value 205,051 209,316 200,306
Held-to-maturity, at amortized cost 12,322 12,633 11,752
Restricted equity securities 5,156 5,156 4,645
Loans held-for-sale (Note 1) 8,519 4,277 4,394
Loans, net (Notes 3 and 13) 835,638 809,555 737,779
Accrued interest receivable 6,585 5,805 5,422
Banking premises and equipment, net (Note 5) 12,963 12,254 12,588
Other real estate owned (Note 4) 1,246 1,707 2,598
Net deferred tax asset (Note 9) 6,187 6,988 8,276
Other assets (Notes 1 and 12) 6,637 6,138 5,440
--------------- ------------ ------------
Total assets $ 1,143,559 $ 1,106,590 $ 1,027,764
=============== ============ ============
LIABILITIES AND SURPLUS:
Deposits (Note 6) $ 951,449 $ 937,948 $ 882,608
Short-term borrowings (Notes 2 and 7) 11,382 9,697 3,925
Federal Home Loan Bank advances (Note 8) 66,879 51,006 45,375
Other borrowings (Note 12) 292 - 648
Mortgagors' escrow payments 1,346 1,002 890
Accrued expenses and other liabilities (Note 12) 9,093 8,796 9,401
--------------- ------------ ------------
Total liabilities 1,040,441 1,008,449 942,847
--------------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 9, 10 and 13)
SURPLUS (Note 11) 100,937 96,527 84,743
NET UNREALIZED GAIN ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE, NET OF INCOME TAXES 2,181 1,614 174
--------------- ------------ ------------
Total surplus 103,118 98,141 84,917
--------------- ------------ ------------
Total liabilities and surplus $ 1,143,559 $ 1,106,590 $ 1,027,764
=============== ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
F-3
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Four Months Ended
February 28, Years Ended October 31,
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest on loans (Note 3) $ 23,320 $ 20,949 $ 65,499 $ 60,423 $ 52,459
Interest and dividends on investment securities 4,512 4,219 13,298 12,756 12,756
Interest on federal funds sold and short-term
investments 491 441 1,235 947 1,257
---------- ---------- ---------- ---------- ----------
Total interest and dividend income 28,323 25,609 80,032 74,126 66,472
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 12,571 11,455 36,109 34,621 31,852
Interest on borrowed funds 1,493 1,158 3,722 2,624 2,687
---------- ---------- ---------- ---------- ----------
Total interest expense 14,064 12,613 39,831 37,245 34,539
---------- ---------- ---------- ---------- ----------
Net interest income 14,259 12,996 40,201 36,881 31,933
PROVISION (CREDIT) FOR POSSIBLE LOAN LOSSES (Note 3) 183 443 1,865 1,166 (351)
---------- ---------- ---------- ---------- ----------
Net interest income after provision 14,076 12,553 38,336 35,715 32,284
(credit) for possible loan losses ---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME:
Deposit and other banking fees 1,038 1,013 3,213 2,733 2,271
Loan servicing fees (Note 3) 179 197 571 607 584
Card fee income, net 100 58 398 354 402
Other loan fees 214 141 449 412 386
Gain (loss) on sales of investment securities, (7) (3) 37 60 (84)
net
Gain on sales of loans, net 371 186 542 181 94
Other income 330 264 733 799 750
---------- ---------- ---------- ---------- ----------
Total noninterest income 2,225 1,856 5,943 5,146 4,403
---------- ---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits (Note 12) 4,852 4,588 13,633 12,890 12,747
Occupancy and equipment expenses (Notes 5 and 1,144 1,048 3,344 3,276 2,970
10)
Data processing expenses 751 690 2,192 2,049 1,896
Marketing expenses 407 202 1,225 743 901
Professional services expenses 414 352 1,044 975 950
Deposit insurance premiums 52 19 121 392 1,198
Other real estate owned expenses, net (Note 1) 164 164 519 644 1,072
Other operating expenses 1,084 1,067 2,732 3,189 2,956
---------- ---------- ---------- ---------- ----------
Total noninterest expense 8,868 8,130 24,810 24,158 24,690
---------- ---------- ---------- ---------- ----------
Income before provision for income taxes 7,433 6,279 19,469 16,703 11,997
PROVISION FOR INCOME TAXES (Note 9) 3,023 2,559 7,685 6,548 4,511
---------- ---------- ---------- ---------- ----------
Net income $ 4,410 $ 3,720 $ 11,784 $ 10,155 $ 7,486
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS
FOR THE FOUR MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
AND FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Surplus Net Unrealized Gain Total Surplus
(Loss) on Securities
Classified as
Available-for-Sale,
Net of Income Taxes
<S> <C> <C>
BALANCE, OCTOBER 31, 1994 $ 67,102 $ (1,910) $ 65,192
Net income 7,486 - 7,486
Change in unrealized loss on securities
available-for-sale - 1,926 1,926
----------- ----------- ----------
BALANCE, OCTOBER 31, 1995 74,588 16 74,604
Net income 10,155 - 10,155
Change in unrealized gain on securities
available-for-sale - 158 158
----------- ----------- ----------
BALANCE, OCTOBER 31, 1996 84,743 174 84,917
Net income 11,784 - 11,784
Change in unrealized gain on securities
available-for-sale - 1,440 1,440
----------- ----------- ----------
BALANCE, OCTOBER 31, 1997 96,527 1,614 98,141
Net income (unaudited) 4,410 - 4,410
Change in unrealized gain on securities
available-for-sale (unaudited) - 567 567
----------- ----------- ----------
BALANCE, FEBRUARY 28, 1998 (UNAUDITED) $ 100,937 $ 2,181 $ 103,118
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Four Months Ended Years Ended October 31,
February 28,
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,410 $ 3,720 $ 11,784 $ 10,155 $ 7,486
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization of premises and 498 406 1,420 1,301 1,066
equipment
Amortization and accretion, net 234 338 906 337 349
Provision (credit) for possible loan losses 183 454 1,865 1,166 (351)
(Gain) loss on sale of investment securities (7) 3 (37) (60) 84
Write-down of other real estate owned 63 233 449 390 749
Provision for deferred (prepaid) taxes 375 236 453 (757) 648
Originations of loans held-for-sale (4,243) 3,338 (29,472) (18,825) (16,823)
Proceeds from sales of loans originated for 21,299 6,873 30,131 15,481 16,296
resale
Gain on sales of loans (371) (186) (542) (181) (94)
Loss on sale of premises and equipment - - - 5 -
Changes in assets and liabilities, net of
effects from acquisition of Martha's
Vineyard National Bank
Net increase in accrued interest receivable (780) (548) (383) - (283)
Net (increase) decrease in other assets (598) 396 (965) 3,765 170
Net (decrease) increase in accrued expenses 297 (1,636) (605) 1,932 1,154
and other liabilities ---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities 21,360 13,627 15,004 14,709 10,451
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Martha's Vineyard National Bank, - - - - (7,301)
net of cash acquired
Purchase of securities classified as (33,498) (30,619) (104,748) (77,055) (33,303)
available-for-sale
Purchase of securities classified as (2,982) (997) (5,971) (6,924) (39,364)
held-to-maturity
Proceeds from sales, calls and maturities of 33,517 21,790 87,831 105,166 46,969
securities classified as available-for-sale
Proceeds from maturities and calls of securities 3,300 2,000 5,069 9,600 40,661
classified as held-to-maturity
Purchase of premises and equipment (1,207) (190) (1,123) (1,670) (2,019)
Purchase of loans (500) (2,086) (888) (9,209) (6,290)
Net increase in loans (47,395) (9,780) (78,598) (86,597) (63,508)
Recoveries of loans previously charged off 137 151 377 389 890
Proceeds from sales of other real estate owned 963 527 2,315 2,722 4,033
Principal receipts from mortgage-backed 5,104 4,773 12,722 9,654 1,180
investments classified as available-for-sale
Principal receipts from mortgage-backed - - - 676 5,491
investments classified as held-to-maturity
Proceeds from sales of premises and equipment - - - 4 -
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (42,561) (14,431) (83,014) (53,244) (52,561)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in NOW accounts and demand (5,184) (2,744) (11,072) 15,441 19,949
deposits
Increase (decrease) in passbook and other (2,238) (6,112) 29,014 (7,743) (21,969)
savings accounts
Increase in term certificates 20,923 13,239 37,398 15,187 58,350
Advances from Federal Home Loan Bank 18,426 13,692 17,007 16,992 55,719
Repayments of Federal Home Loan Bank advances (2,553) (4,125) (11,376) (10,981) (47,821)
Increase (decrease) in short-term and other 1,977 (1,498) 5,124 2,759 (1,289)
borrowings
Increase (decrease) in mortgagors' escrow 344 200 112 (111) 119
payments ---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 31,695 12,652 66,207 31,544 63,058
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN 10,494 11,848 (1,803) (6,991) 20,948
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 32,761 34,564 34,564 41,555 20,607
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 43,255 $ 46,412 $ 32,761 $ 34,564 $ 41,555
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Four Months Ended Years Ended October 31,
February 28,
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds $ 14,024 $ 12,573 $ 39,734 $ 37,244 $ 34,492
Income taxes paid 1,642 1,942 8,434 6,264 3,342
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Transfers from loans to other real estate owned 565 1,298 3,333 2,430 5,783
Financed other real estate owned sales 715 357 1,460 638 2,881
Loans securitized into mortgage-backed - - 3,595 20,837 2,532
investments classified as available-for-sale
Transfer of investments from held-to-maturity to - - - 138,701 -
available-for-sale
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Compass Bank for Savings was reorganized into a mutual bank holding company
operating under the name of The 1855 Bancorp (the Bancorp) on October 1,
1994 under the provisions of Massachusetts general law. A new Massachusetts
savings bank in stock form, known as Compass Bank for Savings, was
chartered as a wholly owned subsidiary of the Bancorp. All deposits of the
Bank, as defined below, are insured by the Federal Deposit Insurance
Corporation (FDIC) and the Depositors Insurance Fund.
The accompanying consolidated financial statements include the accounts of
the Bancorp and its wholly owned subsidiary, Compass Bank for Savings,
(collectively referred to as the Bank). Compass Bank for Savings has four
wholly owned subsidiaries--Compass Credit Corporation which engages in
buying, selling and originating automobile loans and other extensions of
credit; the 1855 Corporation which engages in leasing of property primarily
for Bank use; CB Securities Corporation which engages in the investment of
securities; and Buffinton-Brook Realty Corporation which is currently
inactive. The 1855 Corporation has two wholly owned subsidiaries --
Purchase Corporation and North Front Street, Inc., which engage in the
management of real estate acquired from the Bank through foreclosure. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
balance sheets and income and expenses during the reporting periods. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to change relate to the determination of the
allowance for possible loan losses and the valuation of real estate acquired
in connection with foreclosures or in satisfaction of loans.
In the opinion of management, the unaudited consolidated financial
statements presented herein reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation. Interim
results are not necessarily indicative of the results to be expected for the
entire year.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash, amounts due from banks and federal funds sold. Federal funds are sold
with maturities of one day.
Investment Securities
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at cost, adjusted
for amortization of premiums and accretion of discounts, both computed by a
method that approximates the effective yield method; debt and equity
F-8
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading and reported at fair value,
with unrealized gains and losses included in earnings. The Bank has no
securities held for trading. Debt and equity securities not classified as
either held-to-maturity or trading are classified as available-for-sale and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of surplus, net of taxes. The
Bank classifies its securities based on the Bank's intention at the time of
purchase.
Restricted equity securities are reported at cost.
Unrealized losses deemed to be other than temporary declines in value are
charged to operations. When securities are sold, the adjusted cost of the
specific security sold is used to compute gains or losses on the sale.
Loans, Deferred Fees and Allowance for Possible Loan Losses
Loans are stated at the amount of unpaid principal, reduced by amounts due
to borrowers on unadvanced loans, net deferred loan fees, unearned discount
and the allowance for possible loan losses.
Unearned discount is recognized on the level-yield method for discounted
installment loans. All other interest on loans is recognized on a simple
interest basis.
Deferred loan origination fees and certain deferred loan origination costs
are amortized over the contractual life of the related loan using the
level-yield method. At February 28, 1998 and October 31, 1997 and 1996, the
Bank had net deferred loan fees of approximately $783,000, $805,000 and
$740,000, respectively.
It is the policy of the Bank to discontinue the accrual of interest on loans
delinquent in excess of 90 days or sooner if in the judgment of management
the ultimate collectibility of principal or interest becomes doubtful and to
reverse all interest previously accrued. Interest income is subsequently
recognized only to the extent cash payments are received.
Loans are considered impaired when it is probable that the Bank will not be
able to collect principal, interest and fees according to the contractual
terms of the loan agreement. Management considers the paying status, net
worth and earnings potential of a borrower, and the value and cash flow of
the collateral as factors to determine whether a loan will be paid in
accordance with its contractual terms. The amount judged to be impaired is
the difference between the present value of the expected cash flows using as
a discount rate the original contractual effective interest rate and the
recorded investment of the loan. If foreclosure on a collateralized loan is
probable, impairment is measured based on the fair value of the collateral
compared to the recorded investment. If appropriate, a valuation reserve is
established to recognize the difference between the recorded investment and
the present value. Impaired loans are charged off when management believes
that the collectibility of the loan is remote. The Bank generally considers
nonaccrual loans, except for smaller balance homogeneous residential and
consumer loans, and troubled debt restructures to be impaired. All impaired
loans are classified as nonaccrual.
F-9
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased by
provisions charged to operations, and realized losses, net of recoveries,
are charged directly to the allowance. The provision and the level of the
allowance are based on management's periodic review of the loan portfolio in
light of historical experience and prevailing economic conditions. The
allowance is an estimate, and ultimate losses may vary from current
estimates. As adjustments become necessary, they are reported in the results
of operations of the period in which they become known.
Loan Sales
Loans held for sale are valued at the lower of the recorded loan balance or
market value. The Bank enters into forward commitments to sell loans for the
purpose of reducing interest rate risk associated with the origination of
loans for sale. Unrealized losses on contracts used to hedge the Bank's
closed loans and pipeline of loans expected to close are considered in
adjusting the carrying value of loans held for sale. No adjustments for
unrealized losses were required at February 28, 1998 and October 31, 1997
and 1996.
Prior to November 1, 1996, gains and losses on sales of loans were
recognized based on the difference between the selling price and the
carrying value of the related loans sold. When the servicing of such loans
was retained by the Bank, gains and losses were adjusted by the present
value of the difference, if any, between the weighted average interest rate
on the loans sold, adjusted for a normal servicing fee, and the agreed yield
to the buyer. At October 31, 1996 and 1995, the deferred loan sale premium
resulting from such sales amounted to approximately $64,000 and $144,000,
respectively, and is included in other assets in the accompanying
consolidated balance sheets.
Effective November 1, 1996, the Bank adopted Statement of Financial
Accounting Standards (SFAS No.) 122, Accounting for Mortgage Servicing
Rights. SFAS No. 122, requires entities that engage in mortgage banking
activities to recognize, as separate assets, rights to service mortgage
loans for others acquired through either the purchase or origination of
mortgage loans and sale or securitization of those loans with servicing
retained. The amount capitalized is based on an allocation of the total cost
of the mortgage loans to the mortgage servicing rights and the loans without
the mortgage servicing rights based on their relative fair values. In
addition, capitalized mortgage servicing rights are required to be assessed
for impairment based on the fair value of those rights. Effective January 1,
1997, SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, superseded SFAS No. 122. For
servicing contracts in existence before January 1, 1997, previously
recognized servicing rights and excess servicing receivables that do not
exceed contractually specified servicing fees were combined. Each time the
Bank undertakes an obligation to service financial assets it shall recognize
either a servicing asset or a servicing liability for that contract, unless
it securitizes the assets, retains the resulting securities and classifies
them as debt securities held-to-maturity. For the year ended October 31,
1997, the Bank capitalized approximately $255,000 in mortgage servicing
rights. The mortgage servicing rights are amortized in proportion to, and
over the period of, estimated net servicing income on loans and are assessed
for impairment based on the fair values of the underlying servicing
contracts. For purposes of measuring impairment, the rights are stratified
based on the following predominant risk characteristics of the underlying
loans; interest rates, type of interest and loan maturity dates.
F-10
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
Amortization of the mortgage servicing rights for the year ended October 31,
1997 was approximately $33,000. No impairment loss was recognized in 1997.
Banking Premises and Equipment
Land is stated at cost. Buildings, leasehold improvements and equipment are
stated at cost, less accumulated depreciation and amortization, which are
computed on the straight-line method over the estimated useful lives of the
assets or the terms of the leases, if shorter. Maintenance and repairs are
expensed when incurred; major expenditures for betterments are capitalized
and depreciated.
Other Real Estate Owned
Other real estate owned (OREO) is composed of properties acquired through
foreclosure or deed in lieu of foreclosure. After foreclosure, foreclosed
assets are presumed to be held-for-sale and are recorded at the lower of the
carrying value of the related loan or the fair value of property, less
estimated costs to sell. The excess, if any, of the loan balance over the
fair value of the property at the time of transfer from loans to OREO is
charged to the allowance for loan losses. Subsequent write-downs of the
carrying value of the foreclosed assets are charged to expense. Costs
relating to the development and improvement of the property are capitalized.
Costs relating to holding the property are charged to expense. Included in
other real estate owned expenses are losses on sale and write-downs of
carrying value amounting to approximately $198,000, $385,000 and $749,000
and net operating expenses of approximately $321,000, $259,000 and $323,000
in 1997, 1996 and 1995, respectively. For the four months ended February 28,
1998 and 1997, OREO losses on sale and write-downs were $111,000 and
$102,000, respectively, and net operating expenses were $65,000 and $64,000,
respectively.
Income Taxes
The Bank utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Core Deposit Intangible Asset
The core deposit intangible asset, resulting from prior acquisitions, is
being amortized over periods ranging from six to ten years using the
straight-line method. Amortization expense was approximately $303,000,
$337,000 and $349,000 in fiscal 1997, 1996 and 1995, respectively, and
$93,400 for each of the four months ended February 28, 1998 and 1997. The
core deposit intangible asset is reported net of
F-11
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
accumulated amortization and amounted to approximately $1,591,000,
$1,726,000 and $2,029,000 at February 28, 1998 and October 31, 1997 and
1996, respectively.
Recent Accounting Pronouncements
Effective November 1, 1996, the Bank adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. SFAS No. 121 also requires that certain
long-lived assets and identifiable intangibles to be disposed of be reported
at the lower of the carrying amount or fair value less cost to sell. The
adoption of this standard did not have an impact on the results of
operations or financial condition for the year ended October 31, 1997.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards
for reporting and displaying comprehensive income and its components.
Comprehensive income is the total of net income and all other nonowner
changes in equity. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997 and requires restatement of prior period financial
statements presented for comparative purposes.
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform to the 1997 presentation. Such reclassifications have
no effect on previously reported net income.
F-12
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(2) INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available-for-sale
at February 28, 1998 and October 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
-------------------February 28, 1998-------------------
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations $ 98,203 $ 356 $ 106 $ 98,453
Other bonds and obligations 52,328 265 42 52,551
Mortgage-backed investments 44,214 429 46 44,597
------------ ----------- ----------- ------------
Total debt securities 194,745 1,050 194 195,601
Marketable equity securities 6,817 2,633 - 9,450
------------ ----------- ----------- ------------
Total securities available- $ 201,562 $ 3,683 $ 194 $ 205,051
for-sale ============ =========== =========== ============
--------------------October 31, 1997-------------------
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
Gains Losses Value
(In Thousands)
U.S. government and agency obligations $ 113,231 $ 392 $ 127 $ 113,496
Other bonds and obligations 45,774 239 46 45,967
Mortgage-backed investments 45,652 555 50 46,157
------------ ----------- ---------- ------------
Total debt securities 204,657 1,186 223 205,620
Marketable equity securities 2,164 1,532 - 3,696
------------ ----------- ---------- ------------
Total securities available- $ 206,821 $ 2,718 $ 223 $ 209,316
for-sale ============ ========= ======== ============
</TABLE>
F-13
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
<TABLE>
<CAPTION>
-------------------October 31, 1996--------------------
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations $ 111,861 $ 188 $ 436 $ 111,613
Other bonds and obligations 22,632 14 126 22,520
Mortgage-backed investments 64,760 324 434 64,650
------------ ----------- ---------- ------------
Total debt securities 199,253 526 996 198,783
Marketable equity securities 835 689 1 1,523
------------ ----------- ---------- ------------
Total securities available- $ 200,088 $ 1,215 $ 997 $ 200,306
for-sale ============ ========= ======== ============
A schedule of the maturity distribution of debt securities
available-for-sale at October 31, 1997 is as follows:
Amortized Percent of Estimated
Cost Total Fair Value
(Dollars in Thousands)
<S> <C> <C> <C>
One year or less $ 27,828 14% $ 27,836
Over 1 year to 5 years 140,220 68 140,757
Over 5 years to 10 years 5,722 3 5,719
Over 10 years 30,887 15 31,308
------------ ------- ------------
$ 204,657 100% $ 205,620
============ ======= ============
</TABLE>
Mortgage-backed investments are shown at their contractual maturity dates,
but actual maturities may differ as borrowers have the right to prepay
obligations without incurring prepayment penalties.
F-14
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The amortized cost and estimated fair value of securities held-to-maturity
at February 28, 1998 and October 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
-----------------------February 28, 1998--------------------
Gross Gross Estimated Fair
Amortized Cost Unrealized Unrealized Value
Gains Losses
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations $ 12,322 $ 66 $ 1 $ 12,387
----------- ------- ------- ----------
Total debt securities $ 12,322 $ 66 $ 1 $ 12,387
=========== ======= ======= ==========
----------------------October 31, 1997-----------------------
Gross Gross Estimated Fair
Amortized Cost Unrealized Unrealized Value
Gains Losses
(In Thousands)
U.S. government and agency obligations $ 12,633 $ 68 $ 7 $ 12,694
----------- ------- ------- ---------
Total debt securities $ 12,633 $ 68 $ 7 $ 12,694
=========== ======= ======= =========
----------------------October 31, 1996-----------------------
Gross Gross Estimated Fair
Amortized Cost Unrealized Unrealized Value
Gains Losses
(In Thousands)
U.S. government and agency obligations $ 11,752 $ 40 $ 48 $ 11,744
----------- ------- ------- ---------
Total debt securities $ 11,752 $ 40 $ 48 $ 11,744
=========== ======= ======= =========
</TABLE>
F-15
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
A schedule of the maturity distribution of debt securities held-to-maturity
at October 31, 1997 is as follows:
<TABLE>
<CAPTION>
Amortized Percent of Estimated
Cost Total Fair Value
(Dollars in Thousands)
<S> <C> <C> <C>
One year or less $ 5,298 42% $ 5,301
Over 1 year to 5 years 7,335 58 7,393
------------ --- ------------
$ 12,633 100% $ 12,694
============ === ============
</TABLE>
Included in restricted equity securities at February 28, 1998, and October
31, 1997 and 1996 are Federal Home Loan Bank (FHLB) stock, Savings Bank Life
Insurance Company of Massachusetts stock and the Depositors Insurance Fund.
Proceeds from the sales of investment securities and related gains and
losses during 1997, 1996 and 1995 (all classified as available-for-sale)
were as follows:
<TABLE>
<CAPTION>
Four Months Ended
February 28, Years Ended October 31,
1998 1997 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Proceeds from sales $ 33,517 $ 21,790 $ 22,017 $ 26,051 $ 46,884
Gross gains 10 4 58 101 330
Gross losses 17 7 21 41 414
</TABLE>
At October 31, 1997, investment securities carried at approximately
$3,000,000 were pledged to secure public deposits under the Treasury, Tax
and Loan program, as required by law, securities carried at $5,865,000 were
pledged to secure deposits held by various municipalities and securities
carried at $9,980,000 were pledged against various repurchase agreements.
In November 1995, concurrent with the adoption of its implementation guide
on SFAS No. 115, the FASB allowed a one-time reassessment of SFAS No. 115
classifications of all investment securities held. Any reclassifications are
accounted for at fair value in accordance with SFAS No. 115, and any
reclassifications from the held-to-maturity portfolio that resulted from
this one-time reassessment did not call into question the intent of the Bank
to hold other debt securities to maturity in the future. The Bank used the
opportunity under this one-time reassessment to reclassify securities with
an amortized cost of approximately $138,701,000 from held-to-maturity to the
available-for-sale portfolio. In connection with this reclassification, a
new unrealized gain of $117,000 was recorded in available-for-sale
securities and in surplus (on a net-of-tax basis).
F-16
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(3) LOANS
The Bank's loan portfolio consisted of the following:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Real estate loans:
Residential (one-to-four family) $ 364,173 $ 363,030 $ 343,204
Commercial 120,740 124,059 128,707
Home equity lines of credit 15,790 15,133 17,288
Construction 41,229 33,894 25,007
----------- ----------- -----------
Total real estate loans 541,932 536,116 514,206
----------- ----------- -----------
Commercial loans 53,974 51,371 46,211
Consumer loans:
Indirect auto loans 256,093 238,114 189,865
Other 25,460 24,662 22,063
----------- ----------- -----------
Total consumer loans 281,553 262,776 211,928
Less--Unearned discount 31,074 30,066 24,232
----------- ----------- -----------
Total consumer loans, net 250,479 232,710 187,696
----------- ----------- -----------
Total loans 846,385 820,197 748,113
Less--Allowance for possible loan losses 10,747 10,642 10,334
------------ ------------ -----------
Total loans, net $ 835,638 $ 809,555 $ 737,779
=========== =========== ===========
</TABLE>
F-17
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
Nonaccrual loans consisted of the following:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Real estate $ 9,232 $ 10,180 $ 9,312
Commercial 653 745 1,014
----------- ----------- -----------
$ 9,885 $ 10,925 $ 10,326
=========== =========== ===========
</TABLE>
As a result of nonaccrual loans, interest income was reduced by
approximately $203,000, $200,000 and $331,000 in 1997, 1996 and 1995,
respectively. At October 31, 1997 and 1996, restructured loans totaled
approximately $4,619,000 and $10,178,000, respectively, of which $4,489,000
and $5,911,000, respectively, were included in nonaccrual loans. If these
loans had been paying in accordance with their original contractual terms,
approximately $36,000, $37,000 and $28,000 of additional interest income
would have been recorded in 1997, 1996 and 1995, respectively. There are no
commitments to extend additional credit on these loans.
During fiscal 1997, the average recorded investment in impaired loans was
approximately $10,844,000 and the income recognized related to impaired
loans while impaired was $778,000. At October 31, 1997, the Bank classified
approximately $10,560,000 of its loans as impaired. A portion of these
impaired loans, approximately $7,912,000, had a related valuation reserve of
approximately $1,114,000 included in the allowance for possible loan losses.
In addition, approximately $2,648,000 of impaired loans did not, in the
opinion of the Bank's management, require a related valuation reserve.
During fiscal 1996, the average recorded investment in impaired loans was
approximately $9,174,000, and the income recognized related to impaired
loans while impaired was $671,000. At October 31, 1996, the Bank classified
approximately $11,203,000 of its loans as impaired. A portion of these
impaired loans, approximately $7,341,000, had a related valuation reserve of
approximately $752,000 included in the allowance for possible loan losses.
In addition, approximately $3,862,000 of impaired loans did not, in the
opinion of the Bank's management, require a related valuation reserve.
F-18
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
In the ordinary course of business, the Bank makes loans to its trustees,
executive officers, directors and related parties at substantially the same
terms as loans made to nonrelated borrowers. Generally, the Bank rarely
extends credit to officers of the Bank. An analysis of related party loans
for the years ended October 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
1997 1996
(In Thousands)
<S> <C> <C>
Balance, beginning of year $ 5,807 $ 1,961
New loans 442 5,123
Payments (1,133) (1,277)
Other - -
-------- -------
Balance, end of year $ 5,118 $ 5,807
========= =======
</TABLE>
Loans serviced for others at October 31, 1997 and 1996 amounted to
approximately $204,162,000 and $192,114,000, respectively. At October 31,
1997 and 1996, there were no loans outstanding subject to formal recourse
provisions.
F-19
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
An analysis of the allowance for possible loan losses follows:
<TABLE>
<CAPTION>
Four Months Ended
February 28, Years Ended October 31,
1998 1997 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 10,642 $ 10,334 $ 10,334 $ 9,850 $ 7,002
Acquired allowance for - - - - 3,541
possible loan losses
Provision for possible loan 183 443 1,865 1,166 (351)
losses
Charge-offs-
Real estate (44) (119) (898) (501) (871)
Commercial - (57) (442) (134) (51)
Consumer (171) (187) (594) (436) (310)
------------- ------------- ------------- -------- --------
(215) (363) (1,934) (1,071) (1,232)
------------- ------------- ------------- -------- --------
Recoveries-
Real estate 34 87 147 191 756
Commercial 38 18 57 96 2
Consumer 65 46 173 102 132
------------- ------------- ------------- -------- --------
137 151 377 389 890
------------- ------------- ------------- -------- --------
Net charge-offs (78) (223) (1,557) (682) (342)
------------- ------------- ------------- -------- --------
Balance, end of year $ 10,747 $ 10,565 $ 10,642 $ 10,334 $ 9,850
============= ============= ============= ======== ========
</TABLE>
On December 28, 1994, the Bank acquired all the outstanding voting stock of
Martha's Vineyard National Bank (MVNB). At the date of purchase, the Bank's
allowance for possible loan losses was increased by the MVNB allowance for
possible loan losses of $3,541,000.
F-20
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(4) OTHER REAL ESTATE OWNED
Other real estate owned acquired through foreclosure consisted of the
following:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Land and construction $ 151 $ - $ 43
Residential real estate 824 1,227 1,769
Commercial real estate 271 480 786
---------- ---------- ----------
$ 1,246 $ 1,707 $ 2,598
========== ========== ==========
</TABLE>
(5) BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation and amortization of
banking premises and equipment and their estimated useful lives is as
follows:
<TABLE>
<CAPTION>
February 28, October 31, Estimated
1998 1997 1996 Useful Lives
(In Thousands)
<S> <C> <C> <C> <C>
Land $ 2,503 $ 2,503 $ 2,503 -
Buildings 9,560 9,378 9,139 30 to 50 years
Leasehold improvements 2,034 2,143 1,774 8 to 10 years
Furniture and equipment 7,209 7,026 6,572 3 to 20 years
Construction-in-progress 1,107 156 194
----------- ----------- -----------
22,413 21,206 20,182
Less--Accumulated depreciation and 9,450 8,952 7,594
amortization ----------- ----------- -----------
$ 12,963 $ 12,254 $ 12,588
=========== =========== ===========
</TABLE>
Total depreciation and amortization expense of banking premises and
equipment for the four months ended February 28, 1998 and 1997 amounted to
$497,000 and $458,000, respectively, and for the years ended October 31,
1997, 1996 and 1995 amounted to approximately $1,420,000, $1,301,000 and
$1,066,000, respectively, and is included in occupancy and equipment
expenses.
F-21
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(6) DEPOSITS
A summary of deposit balances is as follows:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Demand deposit accounts $ 53,489 $ 58,840 $ 48,466
NOW and money market deposit accounts 223,747 223,580 211,215
Passbook and other savings accounts 168,834 171,072 175,869
------------ ------------ ------------
Total noncertificate accounts 446,070 453,492 435,550
Term certificates-
Term certificates of $100,000 and over 86,437 82,647 71,729
Term certificates less than $100,000 418,942 401,809 375,329
------------ ------------ ------------
Total term certificate accounts 505,379 484,456 447,058
------------ ------------ ------------
Total deposits $ 951,449 $ 937,948 $ 882,608
============ ============ ============
A schedule of the maturity distribution of term certificates with weighted
average interest rates is as follows:
February 28, ------------------ October 31, -------------------
1998 1997 1996
Amount Weighted Amount Weighted Amount Weighted
Average Average Average
Interest Interest Interest
Rate Rate Rate
(Dollars in Thousands)
Within 1 year $ 428,345 5.72% $ 408,291 5.69% $ 354,969 5.50%
Over 1 to 2 years 44,980 6.08 46,405 6.17 58,012 5.94
Over 2 to 3 years 23,528 5.95 18,129 5.90 22,994 6.45
Over 3 to 5 years 8,526 6.04 11,631 6.05 11,083 5.82
---------- ---------- ----------
$ 505,379 5.76% $ 484,456 5.75% $ 447,058 5.62%
========== ========== ==========
</TABLE>
F-22
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(7) SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Securities sold under agreements to repurchase $ 9,335 $ 9,533 $ 1,925
Treasury tax and loan note account 2,047 164 2,000
----------- --------- ---------
$ 11,382 $ 9,697 $ 3,925
=========== ========= =========
</TABLE>
The average daily outstanding short-term borrowings were approximately
$5,086,000 in 1997 and $1,198,000 in 1996. The maximum amount of short-term
borrowings outstanding at any month-end was approximately $9,742,000 in 1997
and $3,925,000 in 1996. The weighted average interest rates during 1997 and
1996 were 4.77% and 4.82%, respectively. For the four months ended February
28, 1998, the average daily outstanding short-term borrowings were
approximately $10,838,000 with the maximum amount outstanding at any month
end of approximately $11,712,000. The weighted average interest rate during
the four months ended February 28, 1998 was 4.76%.
(8) FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances are collateralized by a blanket-type
pledge agreement on the Bank's FHLB stock, certain qualified investment
securities, deposits at the FHLB, and first mortgages on residential
property. As a member of the FHLB, the Bank is required to invest in stock
of the FHLB at an amount equal to the greater of 1% of its outstanding first
mortgage residential loans, .3% of total assets, or 5% of its outstanding
advances from the FHLB divided by a leverage factor of 20. When such stock
is redeemed, the Bank will receive from the FHLB an amount equal to the par
value of the stock. The Bank also has access to a preapproved line of credit
of $20,000,000. No funds were advanced under this line of credit at February
28, 1998 and October 31, 1997 and 1996.
F-23
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
A schedule of the maturity distribution of FHLB advances with weighted
average interest rates is as follows:
<TABLE>
<CAPTION>
February 28, ------------------- October 31, -----------------
1998 1997 1996
(Dollars in Thousands)
Amount Weighted Amount Weighted Amount Weighted
Average Average Average
Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Within 1 year $ 6,121 6.41% $ 6,087 6.40% $ 4,291 5.46%
Over 1 to 5 years 32,934 6.03 16,528 6.02 15,030 5.84
Over 5 to 10 years 10,342 6.61 10,741 6.61 11,317 6.52
10 years and over 17,482 7.28 17,650 7.29 14,737 7.47
---------- ---------- ----------
$ 66,879 6.48% $ 51,006 6.63% $ 45,375 6.50%
========== ========== ==========
</TABLE>
The Bank may be subject to a substantial penalty upon prepayment of FHLB
advances.
(9) INCOME TAXES
The components of the provision for income taxes for the years ended October
31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
Current-
Federal $ 5,762 $ 5,448 $ 3,122
State 1,470 1,857 741
---------- ---------- ----------
Total current 7,232 7,305 3,863
Deferred (prepaid)-
Federal 231 (560) 532
State 222 (197) 116
---------- ----------- ----------
Total deferred (prepaid) 453 (757) 648
---------- ---------- ----------
Total $ 7,685 $ 6,548 $ 4,511
========== ========== ==========
</TABLE>
F-24
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The difference between the income tax rate computed by applying the
statutory federal income tax rate to income before income taxes and the
actual effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory rate 35.00% 34.00% 34.00%
State taxes, net of federal 5.68 6.56 4.72
benefit
Other, net (1.21) (1.36) (1.12)
------ ------- --------
Effective tax rate 39.47% 39.20% 37.60%
====== ======= =======
</TABLE>
The Bank does not separately determine its current and deferred tax
provision on an interim basis. The change in net deferred tax assets between
year ends is attributable to the change in unrealized gain on securities
available-for-sale and changes in estimated temporary differences from those
included in filed tax returns. The Bank's provision for income taxes for the
four months ended February 28, 1998 and 1997 and the related effective tax
were $3,023,000 (40.7%) and $2,559,000 (40.8%), respectively.
At October 31, the Bank's net deferred tax asset, as presented in the
accompanying consolidated balance sheets, consisted of the following
components:
<TABLE>
<CAPTION>
October 31,
1997 1996
(In Thousands)
<S> <C> <C>
Allowance for loan losses $ 4,114 $ 4,009
Deferred compensation 2,239 2,180
Net operating loss carryforward 946 1,179
Accrued liabilities 547 780
Unrealized gain on available-for-sale securities (898) (49)
Other 40 177
---------- ----------
$ 6,988 $ 8,276
========== ==========
</TABLE>
In August of 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of IRC Section 593, which allowed
thrift institutions special provisions in calculating bad debt deductions
for income tax purposes. Thrift institutions now will be viewed as
commercial banks for income tax purposes. The repeal is effective for tax
years beginning after December 31, 1995.
F-25
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
One effect of this legislative change is to suspend the Bank's bad debt
reserve for income tax purposes as of its base year (October 31, 1988). Any
bad debt reserve in excess of the base year amount is subject to recapture
over a six-year time period. The suspended (i.e. base year) amount is
subject to recapture upon the occurrence of certain events, such as
complete or partial redemption of the Bank's stock or if the Bank ceases to
qualify as a bank for income tax purposes.
At October 31, 1997, the Bank's surplus includes approximately $9,085,000
of bad debt reserves, representing the base year amount, for which income
taxes have not been provided. Since the Bank does not intend to use the
suspended bad debt reserve for purposes other than to absorb the losses for
which it was established, deferred taxes in the amount of $3,800,000 have
not been recorded with respect to such reserve.
(10) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies that are not reflected in the accompanying consolidated
financial statements. On March 21, 1996, the Bank entered into a Master
Commitment to deliver or sell $40,000,000 in residential mortgage loans to
a federal agency on or before March 31, 1998. At October 31, 1997, the
unfulfilled portion that remained to be delivered under this commitment was
approximately $17,076,000.
Pursuant to the terms of noncancelable lease and sublease agreements
pertaining to banking premises and equipment, future minimum lease payments
and sublease income commitments are as follows:
<TABLE>
<CAPTION>
Years Ending Future Minimum Lease Future Lease
October 31, Payments Income
(In Thousands)
<S> <C> <C> <C>
1998 $ 388 $ 165
1999 432 88
2000 431 59
2001 285 54
2002 285 -
Thereafter 840 -
</TABLE>
The leases contain renewal options for periods ranging from 8 to 85 years,
the cost of which is not included above. Rent expense for the years ended
October 31, 1997, 1996 and 1995 amounted to approximately $370,000,
$403,000 and $387,000 respectively, and is included in occupancy and
equipment expenses in the accompanying consolidated statements of income.
Aggregate reserves (in the form of deposits with the Federal Reserve Bank
and vault cash) of $6,754,000 and $12,537,000 were maintained to satisfy
regulatory requirements at October 31, 1997 and 1996, respectively.
F-26
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
In the ordinary course of business, the Bank is involved in litigation.
Based on its review of current litigation and discussion with legal
counsel, management does not expect any material adverse impact on the
consolidated financial position or results of operations resulting from the
resolution of pending litigation.
(11) REGULATORY CAPITAL 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 the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of October 31, 1997,
that the Bancorp and the Bank met all capital adequacy requirements to
which they are subject.
As of October 31, 1997, the most recent notification from the Federal
Reserve Bank of Boston relating to the Bancorp classified the Bancorp's
capital as satisfactory, and the most recent notification from the FDIC
relating to the Bank categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, an insured depository institution must maintain minimum
total risk-based, Tier I risk-based and Tier I leverage ratios as set forth
in the table. There are no conditions or events since that notification
that management believes have changed the Bancorp's and the Bank's
category.
F-27
<PAGE>
The Bancorp's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
-------------------------------------------1997----------------------------------------------------
Actual For Capital To Be Well Capitalized
Amount Ratio Adequacy Purposes Under Prompt Corrective
Amount Ratio Action Provisions
Amount Ratio
---------------------------(Dollars in Thousands)--------------------------------------------------
<S> <C> <C> <C> <C>
As of October 31, 1997:
Bancorp (consolidated)-
Total capital (to risk $104,158 13.92% greater than/equal to $59,867 greater than/equal to 8.0%
weighted assets)
Tier I capital (to risk $94,788 12.67% greater than/equal to $29,933 greater than/equal to 4.0%
weighted assets)
Tier I capital (to $94,788 8.60% greater than/equal to $44,092 greater than/equal to 4.0%
average assets)
Bank-
Total capital (to risk $100,637 13.47% greater than/equal to $59,766 greater than/equal to 8.0%
weighted assets)
Tier I capital (to risk $91,283 12.22% greater than/equal to $29,883 greater than/equal to 4.0%
weighted assets)
Tier I capital (to $91,283 8.29% greater than/equal to $44,045 greater than/equal to 4.0%
average assets)
-------------------------------------------1997----------------------------------------------------
Actual For Capital To Be Well Capitalized
Amount Ratio Adequacy Purposes Under Prompt Corrective
Amount Ratio Action Provisions
Amount Ratio
---------------------------(Dollars in Thousands)--------------------------------------------------
As of October 31, 1997:
Bancorp (consolidated)-
Total capital (to risk N/A N/A
weighted assets)
Tier I capital (to risk N/A N/A
weighted assets)
Tier I capital (to N/A N/A
average assets)
Bank-
Total capital (to risk greater than/equal to $74,796 10.0%
weighted assets)
Tier I capital (to risk greater than/equal to $44,877 6.0%
weighted assets)
Tier I capital (to greater than/equal to $55,056 5.0%
average assets)
-------------------------------------------1996-----------------------------------------------------
Actual For Capital To Be Well Capitalized
Amount Ratio Adequacy Purposes Under Prompt Corrective
Amount Ratio Action Provisions
Amount Ratio
---------------------------(Dollars in Thousands)--------------------------------------------------
1996
As of October 31, 1996:
Bancorp (consolidated)-
Total capital (to risk $91,005 13.73% greater than/equal to $52,948 greater than/equal to 8.0%
weighted assets)
Tier I capital (to risk $82,693 12.47% greater than/equal to $26,525 greater than/equal to 4.0%
weighted assets)
Tier I capital (to $82,693 8.13% greater than/equal to $40,685 greater than/equal to 4.0%
average assets)
Bank-
Total capital (to risk $87,252 13.19% greater than/equal to $52,920 greater than/equal to 8.0%
weighted assets)
Tier I capital (to risk $78,959 11.94% greater than/equal to $26,452 greater than/equal to 4.0%
weighted assets)
Tier I capital (to $78,959 7.79% greater than/equal to $40,544 greater than/equal to 4.0%
average assets)
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------1996-----------------------------------------------------
Actual For Capital To Be Well Capitalized
Amount Ratio Adequacy Purposes Under Prompt Corrective
Amount Ratio Action Provisions
Amount Ratio
---------------------------(Dollars in Thousands)--------------------------------------------------
<S> <C> <C>
As of October 31, 1996:
Bancorp (consolidated)-
Total capital (to risk N/A N/A
weighted assets)
Tier I capital (to risk N/A N/A
weighted assets)
Tier I capital (to N/A N/A
average assets)
Bank-
Total capital (to risk greater than/equal to $66,150 10.0%
weighted assets)
Tier I capital (to risk greater than/equal to $39,678 6.0%
weighted assets)
Tier I capital (to greater than/equal to $50,680 5.0%
average assets)
</TABLE>
F-29
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(12) EMPLOYEE BENEFITS
The Bank provides basic and supplemental pension benefits for eligible
employees through the Savings Bank's Employees Retirement Association
Pension Plan (the Plan). Each employee having reached the age of 21 and
having completed at least 1,000 hours of service in two consecutive
12-month periods beginning with such employee's date of employment
automatically becomes a participant in the Plan. Benefits are based on
employees' years of service and annual compensation, as defined in the
Plan. The Bank's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions
made under the Plan totaled approximately $609,000, $425,000 and $112,000
for 1997, 1996 and 1995, respectively.
Net pension cost under the Plan for the years ended October 31 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Service cost during year $ 517 $ 500 $ 603
Interest cost on projected benefit obligation 656 618 677
Return on plan assets (544) (439) (367)
Net amortization and deferral (57) (28) 59
--------- --------- ---------
Net pension cost $ 572 $ 651 $ 972
========= ========= =========
</TABLE>
According to the Plan's actuary, the funded status of the Plan was as
follows at October 31 (latest available data):
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Plan assets at fair value $ 8,369 $ 6,806
Actuarial present value of projected benefit obligation 9,884 8,748
(substantially all vested) ----------- -----------
Excess of projected benefit obligation over assets (1,515) (1,942)
Unrecognized net asset existing at transition (398) (425)
Unrecognized net gain (1,172) (763)
----------- -----------
Accrued pension liability included on balance sheet $ (3,085) $ (3,130)
=========== ===========
</TABLE>
The accumulated benefit obligation (all vested) at October 31, 1997 and
1996 amounted to $5,258,499 and $4,651,406, respectively. Plan assets
consist primarily of common stock, U.S. government and agency obligations
and a guaranteed investment contract.
F-30
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
Actuarial assumptions used in determining plan obligations and net pension
expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rate used to calculate projected benefit 7.5% 7.5% 7.5%
obligation
Expected long-term rate of return on plan assets 8.0 7.5 7.0
Annual salary increases 5.0 5.0 6.0
</TABLE>
In addition to the Bank's defined benefit pension plan, the Bank sponsors a
noncontributory defined benefit postretirement life insurance plan (the
Life Insurance Plan) that covers all pre-1996 retirees and active employees
designated by the Bank for coverage. The Life Insurance Plan generally
provides lifetime coverage to retired employees equal to retiring
employees' final rate of pay, but not more than $50,000, and to active
employees equal to three times the employees' annual salary, but not more
than $350,000. The Bank funds the Life Insurance Plan in combination with
its active employee coverage. The status of this Life Insurance Plan is as
follows:
<TABLE>
<CAPTION>
October 31,
1997 1996
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation-
Retirees $ (288) $ (269)
Eligible plan participants (26) (24)
------- ---------
Total $ (314) $ (293)
======= =========
Plan assets $ - $ -
Accumulated postretirement benefit obligation in (314) (293)
excess of plan assets
Unrecognized transition obligation 25 27
Unrecognized prior service cost 62 64
Unrecognized net gain (31) (30)
-------- --------
Accrued postretirement benefit cost $ (258) $ (232)
======== ========
</TABLE>
F-31
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Years Ended October 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Service cost--benefits attributed to service $ - $ - $ -
during the period
Interest cost on accumulated postretirement 22 21 16
benefit obligation
Amortization of transition obligation over 20 2 2 2
years
Amortization of unrecognized prior service
cost 2 2 -
-------- -------- --------
Net periodic postretirement benefit cost $ 26 $ 25 $ 18
======== ======== ========
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7%, and the assumed rate of compensation increase
was 4.5% in all years presented.
The Bank has entered into agreements with certain officers to provide
supplemental retirement benefits based on 25% of average compensation
computed over a three-year period. The present value of these future
payments is presently being accrued over the estimated remaining terms of
employment. The accrued supplemental retirement expense is approximately
$1,332,000 and $1,281,000 at October 31, 1997 and 1996, respectively. The
agreements are being funded through a life insurance program with policy
benefits accruing to the Bank. The cash surrender value of the policies is
approximately $1,567,000 and $1,245,000 at October 31, 1997 and 1996,
respectively, and is included in other assets in the accompanying
consolidated balance sheets. Borrowings made against the life insurance
policies are approximately $0 and $648,000 at October 31, 1997 and 1996,
respectively, and are included in other borrowings in the accompanying
consolidated balance sheets. Net expense for these supplemental retirement
benefits for the years ended October 31, 1997, 1996 and 1995 was
approximately $70,000, $222,000 and $157,000, respectively, and is included
in salaries and employee benefits in the accompanying consolidated
statements of income.
The Bank has an Employee Bonus and Management Incentive Compensation Plan
(the Bonus Plan) in which employees are eligible to participate. The Bonus
Plan provides for awards based on a combination of Bank and individual
performance objectives being met, subject to the approval of the Board of
Directors. Amounts charged to operations under the Bonus Plan amounted to
approximately $1,024,000, $696,000 and $581,000 for the years ended October
31, 1997, 1996 and 1995, respectively.
The Bank offers a 401(k) Retirement Savings Plan (the Savings Plan) for
employees. Participating employees are able to contribute up to 15% of
their salary, and the Bank matches 50% of a participant's deferral
contribution on the first 6% of the deferral amount subject to the maximum
allowable under federal regulations. The Bank's matching contribution
expense was approximately $218,000, $193,000 and $103,000 for the years
ended October 31, 1997, 1996 and 1995, respectively, and is included in
salaries and employee benefits in the accompanying consolidated statements
of income.
F-32
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(13) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISK
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
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in the
accompanying consolidated balance sheets.
The contract amounts of those instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Off-balance-sheet financial instruments whose contract amounts present
credit risk included the following:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
Unused portion of existing lines of credit $ 38,148 $ 37,744 $ 32,839
Standby letters of credit 1,090 1,110 1,265
Unadvanced construction loans 16,614 16,327 10,542
Firm commitments to extend credit:
Residential mortgage loans-
Fixed rate 24,704 12,245 3,980
Adjustable rate 3,808 5,447 5,099
Commercial loans 16,606 11,207 16,047
</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. Since some of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily require future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained upon extension of the credit is based on management's
credit evaluation of the customer. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and
income-producing commercial real estate.
F-33
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
Standby letters of credit are conditional commitments issued by the Bank to
guarantee performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. Most
guarantees extend for one year. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers.
The collateral supporting those commitments varies and may include real
property, accounts receivable or inventory. The Bank originates primarily
residential and commercial real estate loans and, to a lesser extent,
installment loans to customers primarily located in southeastern
Massachusetts. In order to diversify its geographic risk, the Bank buys and
sells loans to/from other financial institutions operating in other states.
The Bank estimates that 95% of its loan portfolio is based in the state of
Massachusetts, of which the majority is located in southeastern
Massachusetts.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety of
valuation techniques. In some cases, fair values represent quoted market
prices for identical or comparable instruments. In other cases, fair values
have been estimated based on assumptions concerning the amount and timing
of estimated future cash flows, assumed discount rates reflecting varying
degrees of risk and future expected loss assumptions. These estimates
involve a high degree of judgment. The estimates do not reflect any premium
or discount that could result from offering significant holdings of
financial instruments at bulk sale. Tax implications of unrealized gains
and losses can also have a significant effect on fair value of the
financial instruments that could have been realized as of October 31, 1997
and 1996 or that will be realized in the future. Changes in economic
conditions may dramatically affect the fair value of financial instruments.
The following methods and assumptions were used to estimate the fair value
of the Bank's instruments:
For cash and due from banks and federal funds sold, the carrying amount
approximates fair value due to the short maturity of those instruments.
The fair values of investment securities are based on published market
prices or quotations received from securities dealers.
F-34
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The fair values of loans are estimated for loan portfolios with similar
financial characteristics. Loans are segregated by type, fixed- and
adjustable-rate interest terms and by performing and nonperforming status.
The fair values of performing residential real estate loans are estimated
by discounting the anticipated future cash flows at rates currently
required by the secondary mortgage market for the purchase of similar
loans. For performing commercial real estate loans and performing business
loans, fair values are estimated by discounting the anticipated future cash
flows using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan as determined by the loan's terms
and credit rating. For home equity loans and certain consumer loans, the
recorded book values approximate fair value because the majority of these
loans reprice with changes in market rates.
For collateral dependent nonperforming loans, the fair values are estimated
based on the fair values of the underlying collateral as determined
generally by recent appraisals. For other nonperforming loans, the fair
values are estimated by discounting the expected future cash flows using a
discount rate commensurate with the higher credit risk associated with
these loans.
The fair value of noncertificate deposits does not include the value of the
Bank's long-term relationships with its depositors and does not reflect the
value associated with possessing this relatively inexpensive source of
funds that may be available for a considerable length of time. The fair
value of noncertificate deposits is equal to the amount payable on demand
at the reporting date. The fair values of fixed-maturity certificate
deposits are estimated by discounting the contractual future cash flows at
rates currently offered for certificate deposits with similar remaining
maturities.
The fair values of FHLB advances are determined by discounting the
anticipated future cash payments by using the rates currently available to
the Bank for advances with similar terms and remaining maturities. For
other borrowings, the carrying amount approximates fair value due to the
short maturity of those instruments.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of financial standby letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
While these commitment fees have value, the Bank has not estimated their
value due to the short-term nature of the underlying commitments and their
immateriality.
Certain assets are excluded from disclosure requirements, including banking
premises and equipment, the intangible value of the Bank's portfolio of
loans serviced for others and the intangible value inherent in the Bank's
deposit relationships (i.e., core deposits) among others. Accordingly, the
aggregate fair value amounts presented below do not represent the
underlying value of the Bank.
F-35
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The estimated fair values of the Bank's financial instruments at October 31
are as follows (the amounts in the book value column represent the amounts
at which such instruments are carried in the accompanying consolidated
balance sheets):
<TABLE>
<CAPTION>
1997 1996
Book Value Estimated Book Value Estimated
Fair Value Fair Value
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial instrument assets:
Cash and due from banks $ 25,611 $ 25,611 $ 34,511 $ 34,511
Federal funds sold 7,150 7,150 53 53
Investment securities 227,105 227,166 216,703 216,695
Loans held-for-sale 4,277 4,305 4,394 4,414
Loans-
Residential 377,362 383,772 355,517 353,316
Commercial real estate 143,621 143,503 141,401 139,524
Commercial 51,371 51,682 46,211 46,184
Home equity lines of credit 15,133 15,655 17,288 17,550
Consumer 232,710 233,629 187,696 189,513
Allowance for possible loan losses (10,642) - (10,334) -
------------ ------------ ------------ ------------
Total loans, net 809,555 828,241 737,779 746,087
------------ ------------ ------------ ------------
Financial liabilities:
Noncertificate deposits 453,492 453,492 435,550 435,550
Certificate deposits 484,456 485,202 447,058 447,726
Borrowings 9,697 9,697 4,573 4,573
FHLB advances 51,006 51,941 45,375 47,171
</TABLE>
F-36
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(15) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The balance sheet of the Bancorp is as follows:
<TABLE>
<CAPTION>
February 28, October 31,
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 185 $ 142 $ 111
Investment securities available-for-sale, at fair 5,395 4,856 3,904
value
Accrued interest receivable 25 62 62
Investment in Subsidiary 98,248 93,603 81,046
Other assets 36 41 61
---------- ---------- ----------
Total assets $ 103,889 $ 98,704 $ 85,184
========== ========== ==========
LIABILITIES AND SURPLUS:
Accrued expenses and other liabilities $ 771 $ 563 $ 267
Surplus 103,118 98,141 84,917
---------- ---------- ------------
Total liabilities and surplus $ 103,889 $ 98,704 $ 85,184
========== ========== ==========
</TABLE>
F-37
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The income statement of the Bancorp is as follows:
<TABLE>
<CAPTION>
Four Months Ended
February 28, Years Ended October 31,
1998 1997 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and dividends on investment $ 61 $ 68 $ 217 $ 195 $ 179
securities
NONINTEREST INCOME:
Gain on sales of investment securities - - - - 11
NONINTEREST EXPENSE:
Salaries and employee benefits 35 22 58 62 59
Amortization of organization costs 5 7 21 43 -
Other operating expenses 20 1 14 23 12
---------- ---------- ---------- ---------- ----------
Total noninterest expense 60 30 93 128 71
---------- ---------- ---------- ---------- ----------
Income before income taxes and equity 1 38 124 67 119
in undistributed net income of
subsidiary
PROVISION FOR INCOME TAXES 1 11 18 23 41
Income before equity in undistributed - 27 106 44 78
net income of subsidiary
EQUITY IN UNDISTRIBUTED NET INCOME OF
SUBSIDIARY 4,410 3,693 11,678 10,111 7,408
---------- ---------- ---------- ---------- ----------
Net income $ 4,410 $ 3,720 $ 11,784 $ 10,155 $ 7,486
========== ========== ========== ========== ==========
</TABLE>
F-38
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
The cash flows statement of the Bancorp is as follows:
<TABLE>
<CAPTION>
Four Months Ended
February 28, Years Ended October 31,
1998 1997 1997 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,410 $ 3,720 $11,784 $10,155 $ 7,486
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sales of assets - - - - (11)
Net (accretion) amortization of 3 (1) (2) (17) 17
investment securities
Equity in undistributed earnings of (4,410) (3,693) (11,678) (10,111) (7,408)
subsidiary
Net increase in other liabilities 208 99 296 110 73
Net decrease in other assets (163) (60) (273) (118) (90)
--------- --------- --------- --------- ---------
Net cash provided by operating 48 65 127 19 67
activities --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of 496 - - 2,017 551
held-to-maturity and
available-for-sale securities
Purchase of securities classified as - - (96) - (497)
held-to-maturity
Purchase of securities classified as
available-for-sale (501) - - (2,071) -
--------- --------- --------- --------- ---------
Net cash provided by (used in) (5) - (96) (54) 54
investing activities
Net increase (decrease) in cash and cash 43 65 31 (35) 121
equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF 142 111 111 146 25
YEAR --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 185 $ 176 $ 142 $ 111 $ 146
======= ======= ======= ======= =======
SUPPLEMENTAL CASH DISCLOSURE:
Income taxes paid $ 1 $ 5 $ 27 $ 43 $ 62
======= ======= ======= ======= =======
Transfer of investments from $ - $ - $ - $ 496 $ -
held-to-maturity to available-for-sale ======= ======= ======= ======= =======
</TABLE>
F-39
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
(16) EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
Stock Conversion
On April 23, 1998, the Board of Trustees of the Bancorp adopted a Plan of
Conversion (the Conversion) pursuant to which the Bancorp will convert to a
stock form of ownership and offer for sale 100% of its common stock in a
subscription offering initially to Bank depositors, employee benefit plans
of the Bank and certain other eligible subscribers. Any shares of stock not
sold in the subscription offering are expected to be sold to the public by
underwriters.
One of the primary purposes of the Conversion is to enable the Bancorp to
acquire Sandwich Bancorp, Inc. (Sandwich) as more fully described below.
The Bancorp will not proceed with the Conversion unless all preconditions
to the closing of the acquisition of Sandwich have been satisfied or
waived. As part of the Conversion, the Bank will establish a liquidation
account in an amount equal to the net worth of the Bank as of the date of
the latest consolidated balance sheet appearing in the final prospectus.
The liquidation account will be maintained for the benefit of eligible
account holders and supplemental eligible account holders who maintain
their accounts at the Bank after the Conversion. The liquidation account
will be reduced annually to the extent that such account holders have
reduced their qualifying deposits as of each anniversary date. Subsequent
increases will not restore an account holder's interest in the liquidation
account. In the event of a complete liquidation, each eligible account
holder will be entitled to receive balances for accounts then held.
Subsequent to the Conversion, the Bancorp may not declare or pay dividends
on and may not repurchase any of its common stock if the effect thereof
would cause its capital to be reduced below applicable regulatory capital
maintenance requirements or if such declaration, payment or repurchase
would otherwise violate regulatory requirements.
Pending Acquisition
On February 2, 1998, the Bancorp and the Bank entered into a definitive
agreement under which the Bank would acquire Sandwich, a one-bank holding
company with approximately $519,000,000 in total assets at December 31,
1997. On February 24, 1998, Sandwich announced that its Board of Directors
determined that it was appropriate to request additional information and a
clarification of the renewed expressions of interest that it had received
from the three other parties subsequent to February 2, 1998.
Following a review of the other expressions of interests for Sandwich, the
Bancorp and Sandwich jointly announced on March 23, 1998 that they had
signed an amendment to their previously announced agreement of February 2,
1998 (the Amended Agreement) by which the Bancorp would acquire Sandwich.
Under the terms of the Amended Agreement, the Bancorp will convert to a
100% publicly owned stock holding company and, thereafter, issue stock
having a value of $64.00 per share to Sandwich shareholders in a tax-free
exchange of common stock. The value to be received by Sandwich shareholders
is subject to adjustment pursuant to a formula based on the value of the
stock of the Bancorp near the transaction date. Based on the Bancorp's
assumed initial public offering price of $10.00 per share, each Sandwich
share will be exchanged for Bancorp stock having a value of $64.00
F-40
<PAGE>
THE 1855 BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(Continued)
per share so long as Bancorp stock trades at an average price of between
$10.00 and $13.50 per share during a designated trading period following
the initial public offering date. If this average price exceeds $13.50 per
share, the value to be received by Sandwich shareholders will increase
proportionately up to a maximum value of $71.11 until Bancorp's average
price reaches or exceeds $15.00 per share. If this average price is equal
to or less than $10.00 per share, Sandwich shares will be exchanged for 6.4
shares of Bancorp stock.
Sandwich and the Bancorp also entered into a Stock Option Agreement,
granting to Bancorp an option to acquire up to 19.9% of Sandwich common
stock under certain circumstances. The transaction is conditioned upon its
being eligible to be accounted for as a pooling of interests and is subject
to all necessary regulatory and shareholder approvals. It is expected to
close in the fourth quarter of 1998.
Formation of New Subsidiary
Compass Preferred Capital Corporation (CPCC) was established in March 1998
to engage in real estate business activities (including the acquisition and
holding of securities and mortgage loans) that enable it to be taxed as a
real estate investment trust (REIT) for federal and Massachusetts tax
purposes. At March 31, 1998, CPCC had total assets of $157.1 million of
which $157 million were residential mortgage loans originated by and
acquired from the Bank. CPCC is currently a 100% owned subsidiary of
Buffinton Brook Realty Corporation. It is anticipated that its ownership
interest will be reduced to 99.9% through the issuance of shares to certain
Bank employees, as required by tax regulation.
F-41
<PAGE>
SANDWICH BANCORP, INC. AND SUBSIDIARIES
Index to consolidated financial statements
and other data
I. Excerpts from Sandwich Bancorp's Annual Report on Form 10-K for the Year
Ended December 31, 1997
<TABLE>
<S> <C>
Part II, Item 8. Audited Consolidated Financial Statements of Sandwich
Bancorp, Inc. and Subsidiaries and Independent Auditors' Report Thereon:
Independent Auditors' Report.............................................................. G-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............................. G-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995..................................................... G-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995................................. G-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995............................................... G-6
Notes to Consolidated Financial Statements................................................ G-7
Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... G-22
Part I, Item 1. Business.................................................................................. G-30
II. Excerpts from Sandwich Bancorp's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1998
Part I, Item 1. Unaudited Consolidated Financial Statements of Sandwich
Bancorp, Inc. and Subsidiaries:
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.................... G-51
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997........................................................ G-52
Consolidated Statements of Changes in Stockholders' Equity for the three
months ended March 31, 1998 and 1997................................................. G-53
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997........................................................ G-54
Notes to Consolidated Financial Statements................................................ G-55
Part I, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................. G-57
</TABLE>
G-1
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
The Board of Directors and Stockholders
Sandwich Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Sandwich
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepting 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 Sandwich Bancorp,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
January 26, 1998, except as to note 17,
which is as of March 23, 1998
G-2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31,
1997 1996
------------ ------------
(In thousands, except per share data)
<S> <C> <C>
ASSETS
Cash and due from banks (note 14) $ 9,949 $ 11,543
Federal funds sold 6,018 175
------------ ------------
Total cash and cash equivalents 15,967 11,718
------------ ------------
Other short-term investments (note 2) 101 636
Investment securities (notes 3 and 9):
Available for sale (amortized cost of $10,863 and $13,262,
at December 31, 1997 and 1996, respectively) 10,995 13,312
Held to maturity (fair value of $99,775 and $99,128,
at December 31, 1997 and 1996, respectively) 99,577 99,648
------------ ------------
Total investment securities 110,572 112,960
------------ ------------
Loans, less allowance for loan losses of
$4,100 in 1997 and $3,741 in 1996 (notes 4, 5, 9 and 14) 366,642 317,103
Stock in Federal Home Loan Bank of Boston, at cost (notes 7 and 9) 3,749 2,670
Accrued interest receivable 2,836 2,680
The Co-operative Central Bank Reserve Fund 965 965
Real estate held for sale 457 -
Real estate held for investment - 571
Real estate acquired by foreclosure 596 465
Office properties and equipment (note 6) 4,641 6,015
Leased property under capital lease (note 6) 1,738 -
Core deposit intangible 1,459 1,966
Income taxes receivable, net (note 10) 103 -
Deferred income tax asset, net (note 10) 2,948 2,469
Prepaid expenses and other assets 5,923 4,337
------------ ------------
Total assets $ 518,697 $ 464,555
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (note 8) $ 423,014 $ 388,249
Borrowed funds (note 9) 45,601 32,073
Capital lease obligation (note 6) 1,738 -
Escrow deposits of borrowers 1,604 915
Income taxes payable, net (note 10) - 282
Accrued expenses and other liabilities 4,726 4,403
------------ ------------
Total liabilities 476,683 425,922
------------ ------------
Commitments and contingencies (note 14)
STOCKHOLDERS' EQUITY (NOTE 11)
Preferred stock, par value $1.00 per share; authorized 5,000,000
shares; none issued or outstanding - -
Common stock, par value $1.00 per share; authorized 15,000,000 shares;
1,942,159 and 1,901,565 issued and outstanding, respectively 1,942 1,902
Additional paid-in capital 20,139 19,323
Retained earnings 19,848 17,381
Net unrealized gain on investment securities available for sale 85 27
------------ ------------
Total stockholders' equity 42,014 38,633
------------ ------------
Total liabilities and stockholders' equity $ 518,697 $ 464,555
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
G-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- - -------------------------------------------------------------------------------------------------------------
Years ended
December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(In thousands, except share data)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest on loans $28,205 $24,680 $22,218
Interest and dividends on investment securities available for sale 772 1,562 1,719
Interest on investment securities held to maturity 6,575 5,833 6,027
Interest on short-term investments 304 166 640
The Co-operative Central Bank Reserve Fund 61 68 69
----------- ----------- -----------
Total interest and dividend income 35,917 32,309 30,673
----------- ----------- -----------
INTEREST EXPENSE
Deposits:
Savings accounts 3,588 3,660 4,338
Certificates of deposit 11,754 10,973 9,940
----------- ----------- -----------
Total deposits 15,342 14,633 14,278
Borrowed funds 2,980 1,159 555
----------- ----------- -----------
Total interest expense 18,322 15,792 14,833
----------- ----------- -----------
Net interest and dividend income 17,595 16,517 15,840
Provision for loan losses (note 5) 750 265 597
----------- ----------- -----------
Net interest and dividend income after provision for loan losses 16,845 16,252 15,243
----------- ----------- -----------
NON-INTEREST INCOME
Service charges 1,687 1,781 1,740
Mortgage loan servicing fees 250 252 248
Gain on sale of branch deposits - - 214
Gain on sale of loans 175 250 40
Gain on sales of investment securities, net 55 - -
Other 554 556 476
----------- ----------- -----------
Total non-interest income 2,721 2,839 2,718
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 6,243 5,999 5,757
Occupancy and equipment 1,503 1,587 1,325
FDIC deposit insurance 73 112 469
SAIF special assessment - 280 -
Advertising 385 357 358
Data processing service fees 633 702 665
Foreclosed property expense 1 46 152
Loss on writedown of real estate held for investment - - 305
Amortization of core deposit intangible 507 584 660
Other 2,881 2,666 2,665
----------- ----------- -----------
Total non-interest expense 12,226 12,333 12,356
----------- ----------- -----------
Income before income tax expense 7,340 6,758 5,605
Income tax expense (note 10) 2,480 2,621 2,169
----------- ----------- -----------
Net income $ 4,860 $ 4,137 $ 3,436
=========== =========== ===========
Basic earnings per share $ 2.54 $ 2.20 $ 1.87
=========== =========== ===========
Diluted earnings per share $ 2.45 $ 2.13 $ 1.82
=========== =========== ===========
Average basic shares outstanding 1,913 1,881 1,840
Dilutive effect of outstanding stock options 73 59 51
----------- ----------- -----------
Average diluted shares outstanding 1,986 1,940 1,891
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
G-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
unrealized
gain (loss) on
investment
Additional securities
Common paid-in Retained available
stock capital earnings for sale, net Total
--------- ---------- ------------ -------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,833 $18,448 $ 13,075 $ (537) $ 32,819
Net income - - 3,436 - 3,436
Dividends declared ($0.70 per share) - - (1,288) - (1,288)
Stock options exercised 17 184 - - 201
Decrease in net unrealized loss on
investment securities available for sale - - - 576 576
------ ------- -------- -------- --------
Balance at December 31, 1995 1,850 18,632 15,223 39 35,744
Net income - - 4,137 - 4,137
Dividends declared ($1.05 per share) - - (1,979) - (1,979)
Stock options exercised 52 691 - - 743
Decrease in net unrealized gain on
investment securities available for sale - - - (12) (12)
------ ------- -------- -------- --------
Balance at December 31, 1996 1,902 19,323 17,381 27 38,633
Net income - - 4,860 - 4,860
Dividends declared ($1.25 per share) - - (2,393) - (2,393)
Stock options exercised 40 816 - - 856
Increase in net unrealized gain on
investment securities available for sale - - - 58 58
------ ------- -------- -------- --------
Balance at December 31, 1997 $1,942 $20,139 $ 19,848 $ 85 $ 42,014
====== ======= ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
G-5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended
December 31,
-----------------------------------
1997 1996 1995
----------- ---------- --------
<S> <C> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,860 $ 4,137 $ 3,436
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 750 265 597
Provision for loss and writedowns of real estate acquired by foreclosure 31 48 96
Depreciation and amortization 684 1,422 1,592
(Increase) decrease in:
Accrued interest receivable (156) 61 (47)
Deferred income tax asset, net (503) 9 (528)
Other assets (1,586) 1,029 (3,626)
Income taxes receivable (103) - -
Core deposit intangible 507 - -
Increase(decrease)in:
Escrow deposits of borrowers 689 (664) 914
Income tax payable (282) 32 (455)
Accrued expenses and other liabilities 323 1,582 (398)
Gain on sales of loans, net (175) (250) (40)
Principal balance of loans originated for sale (18,197) (20,827) (14,752)
Principal balance of loans sold 18,238 20,999 14,363
Gain on sales of investment securities, net (55) - -
Gain on sales of real estate acquired by foreclosure (92) (65) (16)
--------- -------- --------
Total adjustments 73 3,641 (2,300)
--------- -------- --------
Net cash provided by operating activities 4,933 7,778 1,136
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale (4,086) (145) (8,718)
Purchases of investment securities held to maturity (38,915) (29,948) (6,054)
Proceeds from sales of investment securities available for sale 2,910 - -
Proceeds from maturities and paydowns of investment securities available for sale 3,584 12,495 6,457
Proceeds from maturities and paydowns of investment securities held to maturity 39,031 19,675 15,120
(Increase) decrease in:
Short-term investments 535 274 773
Loans (51,400) (48,276) (20,405)
Real estate acquired by foreclosure - - (52)
Real estate held for sale (457) - -
Stock in Federal Home Loan Bank of Boston (1,079) - -
Investments in real estate 571 14 229
Proceeds from sale of real estate acquired by foreclosure 1,195 1,326 983
Disposal of office properties and equipment, net 1,055 - -
Capitalized expenses on real estate acquired by foreclosure (20) - -
Purchase of office properties and equipment (364) (512) (1,009)
--------- -------- --------
Net cash used by investing activities (47,440) (45,097) (12,676)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 34,765 10,276 11,830
Advances from the Federal Home Loan Bank of Boston 200,054 69,884 11,047
Repayment of Federal Home Loan Bank advances (186,526) (45,959) (15,764)
Cash dividends paid (2,393) (1,979) (1,288)
Net cash paid for deposits sold - - 8,134
Stock options exercised 856 743 201
--------- -------- --------
Net cash provided by financing activities 46,756 32,965 14,160
--------- -------- --------
Net increase (decrease) in cash and federal funds sold 4,249 (4,354) 2,620
Cash and federal funds sold, beginning of year 11,718 16,072 13,452
--------- -------- --------
Cash and federal funds sold, end of year $ 15,967 $ 11,718 $ 16,072
========= ======== ========
CASH PAID FOR
Interest on deposits $ 15,329 $ 14,635 $ 14,606
========= ======== ========
Interest on borrowed funds $ 2,870 $ 615 $ 582
========= ======== ========
Income taxes, net $ 2,983 $ 2,481 $ 3,152
========= ======== ========
OTHER NON-CASH ACTIVITIES
Deferred taxes on change in unrealized (gain) loss on securities available for sale ($24) $ 15 ($296)
========= ======== ========
Additions to real estate acquired by foreclosure $ 1,245 $ 1,407 $ 409
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
G-6
<PAGE>
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
(1) Basis of Presentation and Summary of Significant Accounting Policies
General
Sandwich Bancorp, Inc. (the "Company") is a Massachusetts corporation and the
holding company of Sandwich Co-operative Bank (the "Bank"). The Sandwich Co-
operative Bank was organized as a Massachusetts chartered co-operative bank in
1885. The Bank merged with Wareham Co-operative Bank in May 1982. In July 1986,
the Bank converted from mutual to stock form through the sale and issuance of
1,820,833 shares of common stock, par value $1.00 per share (the "Common
Stock"). The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"), an agency of the federal government, up to $100,000 per
insured depositor, with additional insurance to the total amount of the deposit
provided by the Share Insurance Fund of The Co-operative Central Bank (the
"Central Bank"), a deposit insuring entity chartered by the Commonwealth of
Massachusetts. The Bank is subject to regulation by the Massachusetts
Commissioner of Banks ("Commissioner") and the FDIC.
On January 28, 1997, Sandwich Co-operative Bank announced that its Board of
Directors had approved a plan providing for the formation of a holding company
with the Bank as the principal subsidiary. Under the plan, each existing share
of the Bank's Common Stock was converted into one share of Common Stock in the
new holding company. As a result of this reorganization, the Bank's stockholders
became the owners of the newly formed holding company, which in turn owns all of
the outstanding stock of the Bank. The holding company formation resulted in no
change to the Bank's business, management, office locations or customer service,
and the holding company's corporate documents did not include any additional
anti-takeover provisions. The holding company reorganization was consummated on
September 30, 1997.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Sandwich Bancorp, Inc. (the "Company") and its wholly owned subsidiaries, The
Sandwich Co-operative Bank, The Sextant Corporation, Sandwich Securities
Corporation and Sextant Securities Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and general practices
within the banking industry. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and income and
expenses for the period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change relate to the
determination of the allowance for loan losses. This estimate is dependent on
future economic and overall business conditions.
Certain reclassifications have been made to previously reported balances to
conform with the current period's presentation.
Investment Securities
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost; debt
and equity securities that are bought and held principally for the purpose of
selling in the near term are classified as trading and reported at fair value,
with unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity or trading are classified
as available-for-sale and reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity, net of applicable taxes.
Securities held to maturity, including bonds, mortgage-backed securities &
CMOs are stated at cost, adjusted for amortization of premiums or accretion of
discounts, calculated using a method which approximates the interest method. The
basis for valuation reflects management's intention and ability to hold these
securities to maturity.
Securities available for sale consisting of government bonds, adjustable rate
mortgage-backed securities and marketable equity securities are stated at fair
value, with unrealized gains and losses, net of tax, excluded from earnings and
reported as a separate component of stockholders' equity until realized. Fair
value is based upon quoted market prices or dealer quotes as of the reporting
date.
Gains and losses on the sale of investment securities are recognized at the
time of sale on a specific identification basis. Unrealized losses deemed to be
other than temporary declines in value are charged to operations.
Premiums and discounts on investment and mortgage-backed securities are
amortized or accreted into income by a method that estimates the interest method
adjusted for prepayments. If a decline in fair value below the amortized cost
basis of an investment or mortgage-backed security is judged to be other than
temporary, the cost basis of the investment is written down to fair value as a
new cost basis and the amount of the write-down is included as a charge against
income.
G-7
<PAGE>
Notes to Consolidated Financial Statements
Loans
Loans are reported at their principal amount outstanding, net of any unearned
discount and deferred loan fees. Interest income on loans is credited to income
based on loan principal amounts outstanding at appropriate interest rates.
Unearned discount and premium on loans is credited or charged to income on a
basis which approximates the interest method.
Accrual of interest income on loans is discontinued and unpaid accrued
interest is reversed when management determines that borrowers will be unable to
meet contractual obligations and/or when loans are ninety days or more in
arrears, except in certain instances where management believes that collateral
held by the Bank is clearly sufficient for full satisfaction of both principal
and interest. Loans will be removed from non-accrual when the principal and
interest become current and the loan is considered fully collectable.
Loan origination fees and certain direct origination costs are offset and the
resulting net amount is deferred and amortized as an adjustment of the yield on
the related loans.
Loans held for sale are carried at the lower of cost or estimated fair value.
Fair value is determined based on outstanding investor commitments or, in the
absence of such commitments, current investor yield requirements.
Allowance for Loan Losses
The allowance for loan losses is available for probable credit losses inherent
in the loan portfolio. The allowance is increased by provisions charged to
operations on the basis of many factors including the risk characteristics of
the portfolio, current economic conditions and trends in loan delinquencies and
charge-offs. Realized losses, net of recoveries, are charged directly to the
allowance.
The Bank accounts for impaired loans, except loans accounted for at fair value
or at the lower of cost or fair value, at the present value of the expected
future cash flows discounted at the loan's effective interest rate or the fair
value of the collateral if the loan is collateral dependent. Impaired loans
include commercial, commercial real estate and individually significant mortgage
or consumer loans for which it is probable the Bank will not collect all amounts
due according to the terms of the loan agreement. Impairment on troubled debt
restructurings is measured using the premodification rate of interest.
While management uses the information available in establishing the allowance
for loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on judgments different from those of management.
Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real
estate acquired by foreclosure is initially recorded at the lower of the
carrying value of the loan or the fair value of the property minus costs to
sell. Fair value is based upon a market appraisal prepared by a State certified
appraiser not more than 30 days prior to the date of the foreclosure. Losses
arising from the acquisition of such properties are charged against the
allowance for loan losses.
Operating expenses and any subsequent provisions to reduce the carrying value
to fair value minus cost to sell are charged to current period earnings. Gains
upon disposition are reflected in earnings as realized. Realized losses are
charged to the valuation allowance.
Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed on the straight-
line method over the estimated useful lives of the related assets or terms of
leases.
Pension Costs and Employee Benefits
The Bank accounts for pension and postretirement benefits on the net periodic
cost method for financial reporting purposes. This method recognizes the
compensation cost of an employee's benefit over that employee's approximate
service period.
The Company continues to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" as permitted by Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). For companies
that elect to continue using APB 25, SFAS 123 requires disclosure of the pro
forma effect of using the fair value method of accounting for stock-based
compensation that is encouraged by SFAS 123. See note 12 of notes to
consolidated financial statements for the expanded disclosures required by SFAS
123 regarding pro forma net income and earnings per share.
Core Deposit Intangible
Core deposit and other intangibles are amortized to expense over a period of ten
years using an accelerated method. The unamortized balance of these intangibles
are evaluated periodically for their recoverability.
G-8
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes
The Bank recognizes income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Bank's assets and liabilities at enacted tax rates expected to be in effect when
the amounts related to such temporary differences are realized or settled. A
valuation allowance related to deferred tax assets is established when, in
management's judgment, it is more likely than not that all or a portion of such
deferred tax assets will not be realized. Changes in the valuation allowance are
reflected as deferred income tax expense or benefit. The deferred tax asset is
adjusted for changes in the federal and state tax rates.
Earnings Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaces the existing accounting rules for computing earnings per share and
makes the new rules comparable to international standards. Basic earnings per
share excludes common stock equivalents and is computed by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share gives effect to all potential dilutive common shares
using the average market price of the Company's common stock for the period plus
the weighted average number of common shares outstanding for the equivalent
period of time. All prior period earnings per share have been restated to comply
with SFAS 128.
The numerator in the earnings per share calculation is net income, as
reported, for both the basic and dilutive calculations.
(2) Other Short-term Investments
A comparative summary of other short-term investments follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Tax anticipation notes $ -- $ 570
Money market funds 101 66
----- -----
$ 101 $ 636
===== =====
</TABLE>
(3) Investment Securities
A comparative summary of investment securities follows (mortgage-backed
securities and CMOs are shown at their final maturity, but are expected to have
shorter average lives); the Bank does not own callable securities.
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------ -----------------------------
HELD TO MATURITY AVAILABLE FOR SALE Held to maturity Available for sale
------------------ ------------------ ------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR Amortized Fair Amortized Fair
COST VALUE COST VALUE cost value cost value
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government obligations:
Maturing within 1 year $ 9,992 $10,004 $ -- $ -- $12,015 $12,035 $ 2,000 $ 1,994
Maturing after 1 year
but within 5 years 5,488 5,506 -- -- 10,462 10,492 -- --
------- ------- --------- ------- ------- ------- ------- -------
15,480 15,510 -- -- 22,477 22,527 2,000 1,994
------- ------- --------- ------- ------- ------- ------- -------
Collateralized mortgage obligations (CMOs):
Maturing within 1 year 413 413 -- -- 1,436 1,436 -- --
Maturing after 1 year
but within 5 years 4,598 4,591 -- -- 6,384 6,312 -- --
Maturing after 5 years
but within 10 years 5,036 5,021 -- -- 740 753 -- --
Maturing after 10 years 40,162 40,230 -- -- 56,220 55,708 -- --
------- ------- --------- ------- ------- ------- ------- -------
50,209 50,255 -- -- 64,780 64,209 -- --
------- ------- --------- ------- ------- ------- ------- -------
Mortgage-backed securities:
Maturing within 1 year -- -- 98 98 -- -- -- --
Maturing after 1 year
but within 5 years -- -- -- -- -- -- 147 147
Maturing after 5 years
but within 10 years 217 228 -- -- -- -- -- --
Maturing after 10 years 33,671 33,782 10,763 10,891 12,391 12,392 8,271 8,343
------- ------- --------- ------- ------- ------- ------- -------
33,888 34,010 10,861 10,989 12,391 12,392 8,418 8,490
------- ------- --------- ------- ------- ------- ------- -------
Marketable equity securities:
Mortgage-backed mutual fund -- -- -- -- -- -- 2,520 2,510
Common and preferred stocks -- -- 2 6 -- -- 324 318
------- ------- --------- ------- ------- ------- ------- -------
-- -- 2 6 -- -- 2,844 2,828
------- ------- --------- ------- ------- ------- ------- -------
$99,577 $99,775 $10,863 $10,995 $99,648 $99,128 $13,262 $13,312
======= ======= ========= ======= ======= ======= ======= =======
</TABLE>
G-9
<PAGE>
Notes to Consolidated Financial Statements
A comparative summary of mortgage-backed securities and CMO's follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------ ------------------
AMORTIZED FAIR Amortized Fair
COST VALUE cost value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
FHLMC $18,086 $18,210 $18,820 $18,720
FNMA 41,643 41,687 24,586 24,408
GNMA 4,398 4,492 3,982 4,068
Non-agency 30,831 30,865 38,201 38,201
------- ------- ------- -------
$94,958 $95,254 $85,589 $85,091
======= ======= ======= =======
</TABLE>
A comparative summary of gross unrealized gains and losses pertaining to
investment securities are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31, 1997 December 31, 1996
----------------- -----------------------
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized unrealized unrealized Fair
COST GAINS losses value cost gains losses value
--------- ----------------- ----------- ------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity
- - ----------------
U.S. Government obligations $15,480 $ 36 $ (6) $15,510 $22,477 $ 50 $ -- $22,527
Collateralized mortgage
obligations 50,209 269 (223) 50,255 64,780 209 (780) 64,209
Mortgage-backed securities 33,888 331 (209) 34,010 12,391 88 (87) 12,392
------- ---- ----- ------- ------- ---- ----- -------
$99,577 $636 $(438) $99,775 $99,648 $347 $(867) $99,128
======= ==== ===== ======= ======= ==== ===== =======
<CAPTION>
DECEMBER 31, 1997 December 31, 1996
----------------- -----------------
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized unrealized unrealized Fair
COST GAINS LOSSES VALUE cost gains losses value
--------- ----------------- ----------- ------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
- ------------------
U.S. Government obligations $ -- $ -- $ -- $ -- $ 2,000 $ -- $ (6) $ 1,994
Mortgage-backed securities 10,861 137 (9) 10,989 8,418 112 (40) 8,490
Marketable equity securities 2 4 -- 6 2,844 20 (36) 2,828
------- ---- ----- ------- ------- ---- ----- -------
$10,863 $141 $ (9) $10,995 $13,262 $132 $ (82) $13,312
======= ==== ===== ======= ======= ==== ===== =======
</TABLE>
The Bank had approximately $2,910,000 in proceeds from sales of securities
available for sale for the year ended December 31, 1997. The Bank realized gross
gains on sales of $66,000 and gross losses of $11,000 during 1997. There were no
sales of securities for the year ended December 31, 1996.
(4) Loans
The Bank's lending activities are conducted principally in the Southeastern and
Cape Cod areas of Massachusetts. The Bank grants single-family and multi-family
residential loans, commercial real estate loans and a variety of consumer loans.
In addition, the Bank grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Most loans granted by the Bank are either collateralized by real
estate or guaranteed by Federal and local governmental authorities. The loans
are expected to be repaid from borrower's earnings and cash flow or proceeds
from the sale of the related assets.
State banking regulations generally limit the amount of loans that may be
outstanding to one borrower to 20% of stockholders' equity. At December 31,
1997, the Bank had no loans outstanding to one borrower in an aggregate amount
exceeding this limitation.
G-10
<PAGE>
Notes to Consolidated Financial Statements
A comparative summary of loans follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Residential mortgage:
Fixed rate $ 14,956 $ 16,020
Adjustable rate 232,925 186,012
Commercial real estate 62,579 61,088
Construction 32,472 34,332
Land 6,351 4,526
Other loans:
Home equity 12,438 12,278
Consumer 4,847 5,393
Secured by deposits 1,182 1,160
Commercial 8,060 7,933
Education 826 1,123
-------- --------
376,636 329,865
Less:
Allowance for loan losses (note 5) (4,100) (3,741)
Unadvanced portion of construction loans (7,188) (9,763)
Deferred loan origination costs 1,294 742
-------- --------
$366,642 $317,103
======== ========
</TABLE>
Non-accrual loans totaled approximately $3,581,000, $4,086,000, and $4,671,000
at December 31, 1997, 1996, and 1995, respectively. Restructured loans totaled
approximately $105,000, $258,000, and $1,062,000 at December 31, 1997, 1996, and
1995, respectively.
The reduction in interest income associated with non-accrual and restructured
loans at the end of the periods was as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income in accordance with original terms $ 321 $ 403 $ 551
Income recognized 144 203 312
----- ----- -----
Reduction in interest income $ 177 $ 200 $ 239
===== ===== =====
</TABLE>
Included in non-accrual loans are impaired loans totaling $630,000, $1,429,000
and $1,309,000 at December 31, 1997, 1996 and 1995, respectively. The reduction
in interest income associated with impaired loans at the end of the periods was
as follows:
<TABLE>
<CAPTION>
(In thousands) Year ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income in accordance with original terms $ 67 $ 148 $ 141
Income recognized 23 84 72
----- ----- -----
Reduction in interest income $ 44 $ 64 $ 69
===== ===== =====
</TABLE>
The Bank granted mortgage loans to executive officers and to Directors and their
related interests in the normal course of business. The outstanding amount of
such loans at December 31, 1997, 1996 and 1995 was approximately $700,000,
$714,000, and $820,000, respectively. No such loans were on non-accrual.
Currently, the Bank grants only loans secured by deposits to executive officers
and Directors.
Mortgage loans serviced by the Bank for others amounted to approximately
$115,478,000, $108,756,000, and $100,902,000, at December 31, 1997, 1996 and
1995, respectively. The Bank had no loans held for sale at December 31, 1997 and
$221,000, and $389,000 at December 31, 1996, 1995, respectively. At December 31,
1997, the Bank had commitments to sell loans totaling approximately $6,149,000.
G-11
<PAGE>
Notes to Consolidated Financial Statements
(5) Allowance for Loan Losses
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period $ 3,741 $ 3,674 $3,255
Provision charged to operations 750 265 597
Recoveries on accounts previously
charged off 89 67 183
Loans charged off (480) (265) (361)
------- ------- ------
Balance at end of period $ 4,100 $ 3,741 $3,674
======= ======= ======
</TABLE>
(6) Office Properties and Equipment
A summary of office properties and equipment follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land $ 712 $ 870
Buildings 2,627 4,395
Furniture, fixtures and equipment 4,282 3,923
Leasehold improvements 400 392
------- -------
8,021 9,580
Less accumulated depreciation and amortization (3,380) (3,565)
$ 4,641 $ 6,015
======= =======
</TABLE>
In 1997, the Bank entered into a sale/leaseback agreement for three of its
offices and deferred the gain on sale of $599,000. The initial lease term is
twenty years followed by four five-year renewal options. Furthermore, the Bank
will have the right to re-purchase the properties at the end of years eight,
fifteen and twenty. The commitment for minimum annual lease payments is as
follows:
<TABLE>
<CAPTION>
(In thousands) Years ending December 31,
1997 1998 1999 2000 2001 Thereafter Total
------ ---- ---- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Lease Payments $ 15 182 182 182 182 995 $1,738
</TABLE>
(7) Stock in Federal Home Loan Bank of Boston
As a member of the Federal Home Loan Bank of Boston ("FHLB of Boston"), the Bank
is required to invest in $100 par value stock of the FHLB of Boston in an amount
equal to 1% of its outstanding home loans or 5% of its outstanding advances from
the FHLB of Boston, or 1% of 30% of total assets, whichever is highest. If such
stock is redeemed, the Bank will receive from the FHLB of Boston an amount equal
to the par value of the stock. As of December 31, 1997, the Bank was required to
have an investment of at least $2,603,000.
(8) Deposits
A summary of deposits follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31,1996
----------------- ----------------
<S> <C> <C>
Non-interest bearing accounts:
Demand $ 39,127 $ 38,459
Official checks 865 1,336
-------- --------
Total non-interest bearing accounts 39,992 39,795
-------- --------
Savings accounts:
Regular 24,345 23,321
NOW, Super NOW and Special Notice 44,075 40,488
Money market 100,825 92,441
-------- --------
Total savings accounts 169,245 156,250
-------- --------
Certificates of deposit:
Term 168,523 147,265
IRA 45,254 44,939
-------- --------
Total certificates of deposit 213,777 192,204
-------- --------
$423,014 $388,249
======== ========
</TABLE>
G-12
<PAGE>
Notes to Consolidated Financial Statements
A summary of certificates of deposit, by periods of maturity follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Within one year $134,958 $122,255
From one to two years 55,552 42,250
From two to three years 16,678 15,798
From three to five years 6,572 11,844
Over five years 17 57
-------- --------
$213,777 $192,204
======== ========
</TABLE>
Individual certificates of deposit of $100,000 or more, by periods of maturity,
are summarized below:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Within three months $15,133 $ 8,945
From three to six months 6,976 3,675
From six to twelve months 7,897 4,823
Thereafter 15,146 18,391
------- --------
$45,152 $ 35,834
======= ========
</TABLE>
(9) Borrowed Funds
Advances from the Federal Home Loan Bank of Boston are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Maturing in DECEMBER 31, December 31,
Interest rate year ending 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
4.53 - 5.78% 1997 $ -- $26,026
5.60 - 6.47% 1998 34,000 5,000
5.71 - 6.83% 1999 11,000 1,000
8.32% 2015 47 47
6.67% 2017 54 --
5.66% 2018 500 --
-------- -------
$ 45,601 $32,073
======== =======
Weighted average rate 5.82% 5.70%
======== =======
</TABLE>
The advances are secured by the Bank's stock in the FHLB of Boston and certain
qualifying assets of the Bank, which include mortgage loans on residential
property and investments with a market value in excess of 125% of outstanding
advances. The Bank has a line of credit with the FHLB of Boston aggregating
$8,146,000 of which all is available at December 31, 1997.
(10) Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal $2,383 $2,070 $1,928
State 606 539 674
------ ------ ------
2,989 2,609 2,602
------ ------ ------
Deferred tax benefit:
Federal (426) (2) (423)
State (83) 14 (10)
------ ------ ------
(509) 12 (433)
------ ------ ------
Total income tax expense $2,480 $2,621 $2,169
====== ====== ======
</TABLE>
G-13
<PAGE>
Notes to Consolidated Financial Statements
The difference between income tax expense computed by applying the statutory
Federal income tax rate of 34% to income before income taxes and the reported
income tax expense (benefit) is explained as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Year ended December 31,
-------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Expected income tax expense
at statutory rate $2,496 $2,298 $1,906
Increase (decrease) resulting from:
Dividend received deduction and
municipal income (17) (7) (16)
State income taxes, net of
Federal benefit 345 365 436
Change in valuation allowance (576) (142) (100)
Expiration of capital loss carryforward 30 98 --
Other, net 202 9 (57)
------ ------ ------
Total income tax expense $2,480 $2,621 $2,169
====== ====== ======
Effective income tax rate 33.8% 38.8% 38.7%
====== ====== ======
</TABLE>
The Bank had gross deferred tax assets and gross deferred tax liabilities as
follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, At December 31,
1997 1996
------------ ---------------
<S> <C> <C>
Gross deferred tax assets:
Allowance for loan losses $1,470 $1,269
Capital loss carryforward 9 490
Deferred compensation 1,113 966
Non-accrual loan interest 21 21
Losses on foreclosed real estate 56 148
Subsidiary state net operating loss carryforward -- 34
Deferred gain on the sale of office properties 269 --
Purchase accounting 589 498
------ ------
Gross deferred tax assets 3,527 3,426
Valuation allowance (56) (632)
------ ------
Gross deferred tax assets, net 3,471 2,794
------ ------
Gross deferred tax liabilities:
Mortgage servicing rights (143) (80)
Unrealized gains on securities available for sale (47) (17)
Depreciation (178) (112)
Loan origination costs (100) (71)
Miscellaneous (55) (45)
------ ------
Gross deferred tax liabilities (523) (325)
------ ------
Net deferred tax asset $2,948 $2,469
====== ======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the gross deferred tax asset will not be realized. Management has
established a valuation allowance principally for the tax effect of the capital
loss carry forward and the state income tax benefit derived from the gross
deductible temporary differences. The primary sources of recovery of the
deferred tax asset are taxes paid that are available for carryback of $6.1
million in 1997, 1996 and 1995, and the expectation that the deductible
temporary differences will reverse during periods in which the Bank generates
taxable income. As of December 31, 1997, the capital loss carryforward
approximates $25,000 and expires in 1998.
The balance of the pre-1988 bad debt reserves continue to be subject to
provision of present law that require recapture in the case of certain excess
distributions to shareholders. The tax effect of pre-1988 bad debt reserves
subject to recapture in the case of certain excess distributions is
approximately $2,300,000.
G-14
<PAGE>
Notes to Consolidated Financial Statements
(11) Retained Earnings
The Bank is subject to various regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional, discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes that as of December 31, 1997, the Bank
meets all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the prompt corrective action
provisions. To be categorized as well capitalized, the Bank must maintain Total
capital risk-based, Tier 1 capital risk-based and Tier 1 capital leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes would cause a change in the Bank's
categorization.
The Company's and Bank's actual capital amounts and ratios in addition to the
minimum capital requirements and well capitalized capital requirements at
December 31 follow:
<TABLE>
<CAPTION>
To Be Well
Minimums Capitalized Under
For Capital Prompt Corrective
(In thousands) Actual Adequacy Action Provisions
--------------- ---------------- ------------------
(Dollars in thousands)
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
- ------------------------
Risk-based capital ratio:
Total capital
Sandwich Bancorp, Inc. $44,371 14.9% $23,868 8.0% $29,835 10.0%
Sandwich Co-operative Bank 44,050 14.8 23,851 8.0 29,814 10.0
Tier I capital
Sandwich Bancorp, Inc. 40,640 13.6 11,934 4.0 17,901 6.0
Sandwich Co-operative Bank 40,321 13.5 11,926 4.0 17,889 6.0
Leverage capital ratio:
Tier I capital
Sandwich Bancorp, Inc. 40,640 7.9 20,690 4.0 25,863 5.0
Sandwich Co-operative Bank 40,321 7.8 20,686 4.0 25,858 5.0
As of December 31, 1996:
- ------------------------
Risk-based capital ratio:
Total capital:
Sandwich Co-operative Bank 40,112 14.7 21,851 8.0 27,314 10.0
Tier 1 capital
Sandwich Co-operative Bank 36,694 13.4 10,925 4.0 15,147 6.0
Leverage capital ratio:
Tier 1 capital
Sandwich Co-operative Bank 36,694 8.4 17,572 4.0 20,927 5.0
</TABLE>
The Company may not declare or pay cash dividends on its common stock if the
effect thereof would cause its net worth to be reduced below regulatory net
worth requirements or if such declaration and payment would otherwise violate
regulatory requirements.
(12) Employee Benefits
Postretirement Benefits
The Bank provides postretirement medical benefits for employees that were hired
before July 1, 1993. The Bank accrued postretirement benefits other than
pensions (medical benefits) over the periods during which employees render
service. The Bank amortizes the transition obligation from January 31, 1993 into
operations over a 20 year period. Expense for the years ended December 31, 1997,
1996 and 1995 was approximately $54,000, $53,000 and $51,000, respectively.
Pension Plan
The Bank provides pension benefits for its employees through membership in the
Co-operative Banks Employee's Retirement Association. The Plan is a multi-
employer, noncontributory, defined benefit plan. Bank employees become eligible
after attaining age 21 and one year of service. The Plan is funded by the Bank
and benefits become fully vested after six years of eligible service.
Pension expense was approximately $317,000, $309,000 and $224,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
G-15
<PAGE>
Notes to Consolidated Financial Statements
Stock Option Plan
During 1986, the Board of Directors adopted a Stock Option Plan for the benefit
of officer and non-officer employees and reserved 182,083 shares of authorized
but unissued common stock. Similarly, in 1994, the Board of Directors instituted
the 1994 Stock Option and Incentive Plan and reserved 90,000 shares of common
stock. Under terms of the Plans, the exercise price of any option granted will
not be less than the fair market value of the common stock on the date of grant
of the option and options may not have a maximum term of more than ten years.
A summary of the activity under the Plan follows:
<TABLE>
<CAPTION>
Number of Average
shares exercise price
----------- ---------------
<S> <C> <C>
Balance outstanding at December 31, 1994 169,005 $10.67
Options granted ($16.75) 28,500 16.75
Options exercised ($7.00 - $12.00) (17,716) 11.37
------- ------
Balance outstanding at December 31, 1995 179,789 11.56
Options granted ($21.1875) 28,600 21.19
Options exercised ($7.00 - $16.75) (51,266) 12.49
Options canceled ($11.55 - $16.75) (450) 16.17
------- ------
Balance outstanding at December 31, 1996 156,673 13.00
Options granted ($30.6875) 31,850 30.69
Options exercised ($7.00 - $21.1875) (40,594) 10.47
Options canceled ($16.75 - $30.6875) (1,050) 24.41
------- ------
Balance outstanding at December 31, 1997 146,879 $17.46
======= ======
</TABLE>
Stock options outstanding and exercisable:
<TABLE>
<CAPTION>
At December 31, 1997
--------------------
Options outstanding Options exercisable
------------------- -------------------
Weighted Weighted Weighted
average average average
Number remaining exercise Number exercise
outstanding contractual life price outstanding price
----------- ---------------- -------------------- ------------------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$7.00 - $14.875 63,475 4.2 years $ 9.60 63,475 $ 9.60
$16.75 - $21.1875 52,004 7.8 years 19.07 24,064 18.29
$30.6875 31,400 9.2 years 30.69 -- --
</TABLE>
There are 3,828 options available for future grant at December 31, 1997.
At December 31, 1997, the per share weighted average fair value of stock
options granted during 1997, 1996 and 1995 was $18.05, $7.39 and $5.20 ,
respectively on the date of grant using the Black Scholes option-pricing model
with the following weighted average assumptions for 1997, 1996 and 1995:
expected dividend yield of 2.42% for 1997 and 3.69% for 1996 and 1995, risk-free
interest rate of 5.92% for 1997 and 6.56% for 1996 and 1995, volatility of the
Company's common stock of 35% for 1997 and 45% for 1996 and 1995 and an expected
life of ten years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(Dollars in thousands
except per share data) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C> <C>
Net income As reported $4,860 $4,137 $3,436
Pro forma 4,654 4,102 3,406
Earnings per share As reported $ 2.45 $ 2.13 $ 1.82
Pro forma 2.34 2.11 1.80
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of three years and compensation cost for options granted prior to January
1, 1995 is not considered.
G-16
<PAGE>
Notes to Consolidated Financial Statements
Employee Bonus Plan
The Bank has an employee bonus and management incentive compensation plan in
which employees are eligible to participate. The Plan provides for awards based
upon a combination of Bank and individual performance measured against
predetermined annual goals, based on specific performance objectives. The Plan
is administered by the Bank's president under the direction of the Board of
Directors.
Incentive compensation expense of $248,000, $188,000 and $235,000 was charged
to expense for the years ended December 31, 1997, 1996 and 1995, respectively.
Employee Stock Ownership Plan
Effective May 1, 1989, the Bank established an Employee Stock Ownership Plan
("ESOP") for the exclusive benefit of participating employees, defined as age 21
or older who have completed one year of service. Under the plan, the Bank
reviews its profitability and determines what contribution, if any, will be made
to the ESOP. ESOP expense of $197,000, $171,000 and $134,000 was charged to
expense for the years ended December 31, 1997, 1996 and 1995, respectively.
Executive Supplemental Retirement Agreements
The Bank entered into executive supplemental retirement agreements with certain
executive officers. These agreements provide retirement benefits designed to
supplement benefits available through the Bank's retirement plan for employees.
Total expense for benefits payable under the agreements amounted to $101,000,
$78,000 and $73,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997, the Bank's liability for these arrangements,
included in accrued expenses and other liabilities, was approximately $387,000.
Director Deferred Compensation Arrangements
Starting in 1983, the Bank entered into deferred compensation arrangements with
certain directors whereby in consideration for the deferral of directors' fees,
those directors will receive in the future a fixed amount of cash compensation.
Expensed under these arrangements for the years ended December 31, 1997, 1996
and 1995 was approximately $220,000, $238,000 and $148,000, respectively. At
December 31, 1997, the Bank's liability for these arrangements, included in
accrued expenses and other liabilities, was approximately $1,768,000.
(13) Estimated Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments
have been determined by using available quoted market information or other
appropriate valuation methodologies at year-end, and are not indicative of the
fair value of those instruments at the date this report is published. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no market exists for a portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include real estate acquired by foreclosure,
the deferred income tax asset, office properties and equipment, and core deposit
and other intangibles. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered.
The estimation methodologies used, book values and estimated fair values for
the Bank's financial instruments follows.
Financial instruments actively traded in a secondary market have been valued
using quoted available market prices as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
-------------------- --------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Loans held for sale $ -- $ -- $ 221 $ 216
Investment securities:
Available for sale 6 6 4,822 4,822
Held to maturity 15,480 15,510 22,477 22,527
Mortgage-backed securities and CMOs:
Available for Sale 10,989 10,989 8,490 8,490
Held to maturity 84,097 84,265 77,171 76,601
</TABLE>
G-17
<PAGE>
Notes to Consolidated Financial Statements
The fair value of financial instruments with stated maturities have been
estimated by discounting cash flows with a discount rate approximately equal to
the current market rate for similar instruments as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------------- --------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Loans, net 366,642 372,455 $317,103 $321,473
Certificates of deposit 213,777 214,369 192,204 193,236
Federal Home Loan Bank advances 45,601 45,613 32,073 32,169
</TABLE>
The fair value of financial instruments with no maturity or short-term
maturities approximates its carrying value as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
------------------------ ----------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE amount fair value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15,967 $ 15,967 $11,718 $11,718
Other short-term investments 101 101 636 636
Accrued interest receivable 2,836 2,836 2,680 2,680
Stock in FHLB of Boston 3,749 3,749 2,670 2,670
Co-operative Central Bank Reserve Fund 965 965 965 965
Demand deposit accounts 39,992 39,992 39,795 39,795
NOW, Super NOW and
Special Notice accounts 44,075 44,075 40,488 40,488
Regular savings accounts 24,345 24,345 23,321 23,321
Money market deposit accounts 100,825 100,825 92,441 92,441
Escrow deposits of borrowers accounts 1,604 1,604 915 915
</TABLE>
The fair value of commitments to extend credit have been estimated using fees
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
The fair value of commitments to sell loans are estimated as the cost to cancel
such agreements. The fair value of financial instruments with off-balance sheet
risk have been estimated as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1997 December 31, 1996
----------------------------- -----------------------------
CONTRACT OR ESTIMATED Contract or Estimated
NOTIONAL AMOUNT FAIR VALUE notional amount fair value
----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Commitments to extend credit $46,190 $490 $51,976 $539
Commitments to sell loans 6,149 20 1,232 0
</TABLE>
(14) Commitments and Contingencies
Legal Proceedings
The Bank has been named a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's or the Bank's consolidated financial
statements.
Off-balance Sheet Risk
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to originate or purchase loans, unadvanced
portions of construction loans, unused lines of credit, standby letters of
credit and forward commitments to sell loans. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
G-18
<PAGE>
Notes to Consolidated Financial Statement
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters of
credit is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. For forward commitments, the
contract or notional amounts do not represent exposure to credit loss. The Bank
controls the credit risk of forward commitments through credit approvals, limits
and monitoring procedures.
Financial instruments with off-balance sheet risk are as follows:
<TABLE>
<CAPTION>
Contract or
notional amount
-----------------------------
(In thousands) DECEMBER 31, December 31,
1997 1996
--------------- ------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Unused lines of credit and commitments to originate loans $38,784 $41,926
Unadvanced portions of construction loans 7,188 9,764
Standby letters of credit 218 286
Financial instruments whose notional or contract amounts
exceed the amount of credit risk:
Commitments to sell loans 6,149 1,232
</TABLE>
Unused lines of credit, commitments to originate or purchase loans and
unadvanced portions of construction loans are agreements to lend to a customer
provided there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. For all lines of credit and loans, the Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the borrower.
Commitments to sell loans are contracts which the Bank enters into for the
purpose of reducing the market risk associated with originating and selling
residential mortgage loans. In order to fulfill the commitment, the Bank must
deliver loans under contract or must pay a cash penalty as determined by the
investor. The Bank does not sell loans with recourse.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Bank is required to maintain certain reserves of vault cash and/or
deposits with the Federal Reserve Bank of Boston. The amount of this reserve
requirement included in cash and due from banks was $1,927,000 at December 31,
1997.
(15) Condensed Parent Company Financial Statements
Sandwich Bancorp, Inc. was formed on September 30, 1997, therefore the Statement
of Operations and Statement of Cash Flows is for the three months ended December
31, 1997 only. The following are the condensed financial statements for Sandwich
Bancorp, Inc., referred to as the "Parent Company" for purposes of this note
only, as of December 31:
<TABLE>
<CAPTION>
BALANCE SHEET
1997
--------------
(IN THOUSANDS)
--------------
<S> <C>
Assets
Cash and interest-bearing deposits in subsidiaries $ 258
Investments in subsidiaries, at equity 41,695
Other assets 73
-------
Total assets $42,026
=======
Liabilities and Stockholders' Equity
Total liabilities $ 12
Total stockholders' equity 42,014
-------
Total liabilities and stockholders' equity $42,026
=======
</TABLE>
G-19
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
THREE MONTHS
ENDED
DECEMBER 31, 1997
-----------------
(in thousands)
<S> <C>
Dividends from Company subsidiaries $ 768
Interest income from deposits in Company subsidiaries --
Total operating income --
Non-interest expenses 27
------
Income before income tax expense (benefit) and
equity in net income of subsidiaries 741
Income tax expense (benefit) --
------
Income before equity in net income of subsidiaries 741
Equity in net income of subsidiaries 687
------
Net income $1,428
======
</TABLE>
The Parent Company's statements of changes in stockholders' equity are
identical to the consolidated statements of changes in stockholders' equity and
therefore are not presented here.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
THREE MONTHS
ENDED
DECEMBER 31, 1997
-------------------------
(in thousands)
<S> <C>
Cash flows from operating activities:
Net income $ 1,428
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries (687)
Increase in other assets (73)
Increase in other liabilities 12
-------
Net cash provided by operating activities 680
-------
Cash flows from financing activities:
Stock options exercised 250
Dividends paid to stockholders (672)
-------
Net cash used by financing activities (422)
-------
Net cash received by subsidiary 258
-------
Net increase in cash and interest-bearing deposit
in subsidiaries 258
Cash and interest-bearing deposit in subsidiaries at
beginning of year --
-------
Cash and interest-bearing deposit in subsidiaries at
end of year $ 258
=======
</TABLE>
(16) Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1997 QUARTERS 1996 Quarters
THREE MONTHS ENDED Three months ended
------------------------------------------ ------------------------------------------
Periods ended DEC. 31, SEPT. 30, JUNE 30, MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income $ 9,400 $ 9,234 $ 8,958 $ 8,325 $ 8,616 $ 8,233 $ 7,754 $ 7,706
Interest expense 4,896 4,720 4,584 4,122 4,155 4,042 3,805 3,790
------- ------- ------- ------- ------- ------- ------- -------
Net interest and
dividend income 4,504 4,514 4,374 4,203 4,461 4,191 3,949 3,916
Provision for loan losses (328) (181) (132) (109) (180) (50) (35) --
Non-interest income 823 662 620 616 712 719 702 706
Non-interest expense (3,186) (2,989) (3,046) (3,005) (2,915) (3,158) (3,116) (3,144)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,813 2,006 1,816 1,705 2,078 1,702 1,500 1,478
Income tax expense 385 768 669 658 831 658 563 569
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,428 $ 1,238 $ 1,147 $ 1,047 $ 1,247 $ 1,044 $ 937 $ 909
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share $0.74 $ 0.65 $ 0.60 $ 0.55 $ 0.66 $ 0.55 $ 0.50 $ 0.49
======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings per share $0.71 $ 0.62 $ 0.58 $ 0.53 $ 0.63 $ 0.54 $ 0.48 $ 0.47
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
G-20
<PAGE>
Notes to Consolidated Financial Statements
(17) Subsequent Events
On February 2, 1998, the Company and the Bank entered into a definitive
agreement under which Compass Bank of New Bedford, Massachusetts will acquire
Sandwich Bancorp, Inc. Prior to the Company's consideration and approval of its
definitive agreement with Compass Bank, the Company had contacted and received
expressions of interest from three other parties who had expressed an interest
in an acquisition of the Company.
On February 24, 1998, the Company announced that its Board of Directors,
consistent with the exercise of its fiduciary duties, determined that it was
appropriate to request additional information and clarification of the renewed
expressions of interest that it had received from three other parties subsequent
to February 2.
Following a comprehensive review of the other expressions of interests for
the Company, the Company and Compass Bank jointly announced on March 23, 1998,
that they have signed an amendment to their previously announced agreement of
February 2, 1998 (the "Amended Agreement") by which Compass Bank would acquire
Sandwich Bancorp, Inc. Under the terms of the Amended Agreement, Compass Bank's
parent company, The 1855 Bancorp will convert to a 100% publicly owned stock
holding company and thereafter issue stock having a value of $64.00 per share to
Sandwich Bancorp shareholders in a tax-free exchange of common stock. The value
to be received by Sandwich Bancorp shareholders is subject to adjustment
pursuant to a formula based on the value of the stock of The 1855 Bancorp near
the transaction date. Based on 1855 Bancorp's assumed initial public offering
price of $10.00 per share, each Sandwich Bancorp share will be exchanged for
1855 Bancorp stock having a value of $64.00 per share so long as 1855 Bancorp
stock trades at an average price of between $10.00 and $13.50 per share during a
designated trading period following the initial public offering date. If this
average price exceeds $13.50 per share, the value to be received by Sandwich
Bancorp shareholders will increase proportionately up to a maximum value of
$71.11 until 1855 Bancorp's average price reaches or exceeds $15.00 per share.
If this average price is equal to or less than $10.00 per share, Sandwich
Bancorp shares will be exchanged for 6.4 shares of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock Option
Agreement, granting to The 1855 Bancorp an option to acquire up to 19.9% of
Sandwich common stock under certain circumstances. The transaction, which is
subject to all necessary regulatory and shareholder approvals, is expected to
close in the fourth quarter of 1998.
G-21
<PAGE>
Part II, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
At December 31, 1996, the Bank's total assets were $464,555,000 as compared to
$426,515,000 at December 31, 1995. The increase was largely attributable to an
increase in loan production throughout 1996 offset by a decrease in the Bank's
investment portfoliPamela J. ButtrickFinancial Printing GroupAt December 31,
1997, the Company's total assets were $518,697,000 as compared to $464,555,000
at December 31, 1996, an increase of $54,142,000 or 11.7%. The increase is
largely attributable to an increase in loan production throughout 1997 offset by
a decrease in the Company's investment portfolio, including investment
securities held to maturity and available for sale. Total cash and cash
equivalents at December 31, 1997 totaled $15,967,000 compared to $11,718,000 at
December 31, 1996, an increase of $4,249,000. The Company's investment
portfolio, including other short-term investments, investment securities
available for sale and investment securities held to maturity, decreased
approximately $2,923,000 to $110,673,000. Maturities on investment securities
and cash flow from collateralized mortgage obligations (CMOs) were reinvested
into loans. The continuing improvement in the New England and local real estate
markets has had a positive impact on the Company's loan portfolio. As evidence
of this, the Company's loan portfolio, net of allowance for loan losses,
increased approximately $49,539,000 or 15.6% to $366,642,000, through loan
originations and purchases offset by principal amortization and early payoffs.
Deposits totaled $423,014,000 at December 31, 1997 compared to $388,249,000 at
December 31, 1996, an increase of $34,765,000 or 9.0%. Borrowings totaled
$45,601,000 at December 31, 1997 compared to $32,073,000 at December 31, 1996,
an increase of $13,528,000 due to an increase in advances from the Federal Home
Loan Bank of Boston used to finance loan originations, loan purchases and the
purchase of investment securities.
Non-performing assets, which include non-accrual loans and real estate
acquired by foreclosure (OREO) decreased $374,000, from $4,551,000 at December
31, 1996, to $4,177,000 at December 31, 1997. At December 31, 1995, non-
performing assets totaled $5,038,000. Non-accrual loans decreased by $505,000,
from $4,086,000 at December 31, 1996, to $3,581,000 at December 31, 1997. Other
real estate owned, however, increased by $131,000, from $465,000 at December 31,
1996, to $596,000 at December 31, 1997.
The Company's results of operations are affected by interest rate levels, the
amount of non-performing assets, the health of the real estate sector of the
economy, investment securities transactions and seasonal trends. At December 31,
1997, non-performing assets totaled $4,177,000 or 0.81% of total assets, of
which $3,319,000 are residential properties, $560,000 are investment properties,
and the balance reflects other land loans and properties.
Management anticipates continued stability in the economy in 1998. However,
the local real estate market continues to represent a risk to the Company's loan
portfolio and could result in an increase in, and reduced values of, properties
acquired by foreclosure. Accordingly, higher provisions for loan losses and
foreclosed property expense may be required should economic conditions worsen or
the levels of the Company's non-performing assets increase. Management continues
to engage experienced outside consultants to assist in loan reviews in an effort
to minimize risk and control exposure.
Results of Operations
Comparison of years ended December 31, 1997 and December 31, 1996
General
Net income for the year ended December 31, 1997 amounted to $4,860,000 compared
with net income of $4,137,000 for the year ended December 31, 1996. The
principal reason for the increase was improvement in net interest and dividend
income, resulting from growth in the residential loan portfolio. Additionally,
non-interest expense decreased as no provision for the special, one-time deposit
insurance assessment from the Savings Association Insurance Fund ("SAIF") was
incurred in the 1997 period. Decreases in net gains realized on the sale of
loans in the secondary market and decreases in service charges also occurred for
the year ended December 31, 1997. The Company's operating results depend largely
upon its net interest margin which is the difference between the income earned
on loans and investments, and the interest expense paid on deposits and
borrowings, divided by total interest earning average assets. The net interest
margin is affected by the economic and market factors which influence interest
rates, loan demand and deposit flows. The interest rate margin decreased to
3.71% for the year ended December 31, 1997, from 3.94% for the year ended
December 31, 1996.
Trends in the real estate market locally and in New England impact the Company
because of its real estate loan portfolio. If the local and New England real
estate markets show signs of weakness, additional provisions for loan losses may
be necessary in the future. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on information available at the time of their
review.
G-22
<PAGE>
Average Balance Sheets and Net Interest and Dividend Income
The following table sets forth certain information relating to the Company's
average balance sheets, including interest-earning assets, interest-bearing
liabilities and net interest income:
<TABLE>
<CAPTION>
(Dollars in thousands) Years ended December 31,
1997 1996 1995
-------- -------- --------
Interest Interest Interest
Average earned/ Yield/ Average earned/ Yield/ Average earned/ Yield/
balance paid Rate balance paid Rate balance paid Rate
--------- -------- ------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earnings assets:
Short-term investments $ 6,467 $ 304 4.70% $ 5,160 $ 234 4.53% $ 12,933 $ 709 5.48%
Investment securities
available for sale 12,995 758 5.83 24,236 1,512 6.24 29,246 1,719 5.88
Investment securities
held to maturity 104,211 6,575 6.31 93,398 5,833 6.25 92,676 6,027 6.50
-------- ------- -------- ------- -------- -------
Total investment
securities (1) 117,206 7,333 6.26 117,634 7,345 6.24 121,922 7,746 6.35
Total loans (2) 349,028 28,205 8.08 295,228 24,680 8.36 262,952 22,218 8.45
Other earning assets 1,988 75 3.77 1,657 50 3.02 0 0 0.00
-------- ------- -------- ------- -------- -------
Total interest-earnings assets 474,689 35,917 7.57 419,679 32,309 7.70 397,807 30,673 7.71
------- ------- -------
Allowance for loan losses (3,839) (3,635) (3,412)
-------- -------- --------
Total interest-earning assets less
allowance for loan losses 470,850 416,044 394,395
Other assets 25,683 25,214 27,369
-------- -------- --------
Total assets $496,533 $441,258 $421,764
======== ======== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings accounts $154,856 3,588 2.32 $158,071 3,660 2.32 $171,197 4,338 2.53
Certificates of deposit 205,710 11,754 5.71 186,776 10,973 5.87 171,431 9,940 5.80
-------- ------- -------- ------- -------- -------
Total interest-bearing
deposits 360,566 15,342 4.25 344,847 14,633 4.24 342,628 14,278 4.17
Borrowed funds 51,241 2,980 5.82 20,999 1,159 5.52 10,423 555 5.32
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 411,807 18,322 4.45 365,846 15,792 4.32 353,051 14,833 4.20
------- ------- -------
Non-interest bearing deposits 40,852 36,415 32,450
Other liabilities 4,971 2,929 2,622
-------- -------- --------
Total liabilities 457,630 405,190 388,123
-------- -------- --------
Stockholders' equity 38,923 36,068 33,641
-------- -------- --------
Total liabilities and
stockholders' equity $496,553 $441,258 $421,764
======== ======== ========
Net interest income $17,595 $16,517 $15,840
======= ======= =======
Interest rate spread 3.12% 3.38% 3.51%
==== ==== ====
Net interest margin (3) 3.71% 3.94% 3.98%
==== ==== ====
</TABLE>
(1) Investment securities are shown at average amortized cost.
(2) Loans on non-accrual status are included in the average balance.
(3) Net interest income before provision for loan losses divided by total
interest-earning average assets.
G-23
<PAGE>
Interest and Dividend Income
Interest and dividend income increased by $3,608,000 or 11.2% to $35,917,000 for
the year ended December 31, 1997 when compared to the year ended December 31,
1996. Interest on loans increased $3,525,000 or 14.3% as a result of an increase
in the average balance outstanding of $53,800,000, and a decrease in non-accrual
loans, partially offset by a decrease in the average rate earned on the
portfolio from 8.36% in 1996 to 8.08% in 1997. Interest and dividends on
investment securities and other short-term investments increased by $58,000 or
0.8%.
Non-accrual loans decreased $505,000 to $3,581,000 when compared to the year
ended December 31, 1996 balance of $4,086,000. Restructured loans at December
31, 1997 amounted to approximately $105,000 compared to the December 31, 1996
balance of $258,000. Typically, restructured loans are restructured to provide
either a reduction of the interest on the loan principal or an extension of the
loan maturity.
The following table presents changes in interest and dividend income, interest
expense and net interest and dividend income which are attributable to changes
in the average amounts of interest-earning assets and interest-bearing
liabilities outstanding and/or to changes in the rates earned or paid thereon.
<TABLE>
<CAPTION>
(Dollars in thousands) YEARS ENDED DECEMBER 31, Years ended December 31,
-------------------------------- ------------------------------
1997 vs. 1996 1996 vs. 1995
-------------------------------- ------------------------------
CHANGES DUE TO Changes due to
INCREASE/(DECREASE) increase/(decrease)
------------------- -------------------
RATE/ Rate/
TOTAL VOLUME RATE VOLUME Total Volume Rate Volume
------ ------- ------ ------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Total loans $3,525 $4,498 $(827) $(146) $2,462 $2,727 $(237) $ (28)
Investments 58 54 12 (8) (876) (756) (135) 15
Other earning assets 25 10 13 2 50 0 0 50
------ ------ ----- ----- ------ ------ ----- -----
Total interest and
dividend income 3,608 4,562 (802) (152) 1,636 1,971 (372) 37
------ ------ ----- ----- ------ ------ ----- -----
Interest expense:
Deposits 709 666 34 9 355 93 240 22
Borrowed funds 1,821 1,669 63 89 604 555 21 28
------ ------ ----- ----- ------ ------ ----- -----
Total interest expense 2,530 2,335 97 98 959 648 261 50
------ ------ ----- ----- ------ ------ ----- -----
Net interest and
dividend income $1,078 $2,227 $(899) $(250) $ 677 $1,323 $(633) $ (13)
====== ====== ===== ===== ====== ====== ===== =====
</TABLE>
Interest Expense
Total interest expense increased $2,530,000 to $18,322,000 for the year ended
December 31, 1997, from $15,792,000 for the year ended December 31, 1996.
Interest expense from deposits increased by $709,000 or 4.8%. The rise reflects
the increase in average interest-bearing deposits balance outstanding of
$15,719,000. Interest expense from borrowed funds increased $1,821,000 primarily
due to an increase in the average balance outstanding of $30,242,000. Interest
rates on interest-bearing deposits and borrowed funds for the year ended
December 31, 1997 increased to 4.45% from 4.32% when compared to 1996.
G-24
<PAGE>
Provision for Loan Losses
The provision for loan losses charged to earnings amounted to $750,000 and
$265,000 for the years ended December 31, 1997 and 1996, respectively. The
Company increased its provision for loan losses for the year ended December 31,
1997 as compared to the year ended December 31, 1996 as a result of the overall
increase in the loan portfolio and an increase in specific loan charge-offs.
Non-accrual loans as a percentage of total loans outstanding were 0.97% at
December 31, 1997 and 1.27% at December 31, 1996. As of December 31, 1997 and
1996, the Company had identified $200,000 and $584,000, respectively, of
potential problem loans. Management's analysis of the loan portfolio considers
risk elements by loan category, and also the prevailing economic climate and
anticipated future uncertainties. Future adjustments to the allowance for loan
losses may be necessary if economic conditions differ substantially from
assumptions used in performing the analysis, or the levels of the Company's non-
performing assets increase significantly.
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31, December 31, December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Non-accrual loans:
Mortgage loans $3,283 $3,521 $4,238
Other loans 298 565 433
------ ------ ------
Total non-accrual loans 3,581 4,086 4,671
OREO 596 465 367
------ ------ ------
Total non-performing assets $4,177 $4,551 $5,038
====== ====== ======
Non-accrual loans as a percentage of:
Total loans receivable 0.97% 1.27% 1.70%
====== ====== ======
Total assets 0.69% 0.88% 1.10%
====== ====== ======
Non-performing assets as a percentage of:
Total assets 0.81% 0.98% 1.18%
====== ====== ======
</TABLE>
For further information on non-accrual loans and the provision for loan
losses, see notes 4 and 5 of notes to consolidated financial statements.
Non-Interest Income
Non-interest income decreased $118,000 for the year ended December 31, 1997
compared to the 1996 period. The decrease was mainly the result of a decline of
$94,000 in service charges along with a decrease in gain on sale of loans of
$75,000, partially offset by a $55,000 increase in gains on sales of investment
securities, net. The decrease in gain on sale of fixed rate loans in the
secondary market was due to less favorable market interest rates during the year
1997. The decrease in service charges resulted from an overall decrease in fees
received for checking account services the Company provides to its customers.
Non-Interest Expense
Total non-interest expense consists of salaries and employee benefits, occupancy
and equipment, FDIC deposit insurance, advertising, data processing service
fees, foreclosed property expense, amortization of core deposit and other
intangibles, and other expenses. Also included are the costs of carrying and
administering non-performing loans.
Non-interest expense decreased as no provision for the special, one-time
deposit insurance assessment from SAIF was incurred in 1997, while a $280,000
provision was incurred in 1996.
Income Taxes
The Company recognized income tax expense of $2,480,000 for the year ended
December 31, 1997 and $2,621,000 in the comparable period of 1996. Both these
amounts differ from the expected tax expense of 34% of income before income
taxes. The major reasons for these variances relate to state income tax expense
(net of the federal tax benefit), tax exempt income, dividend received deduction
and changes in the valuation allowance for deferred income taxes. Factors such
as the Company's earnings and equity securities gains or losses will affect
income taxes recorded in the financial statements. At December 31, 1997, the
Company had a net deferred income tax asset of $2,948,000, which is net of the
valuation allowance of $56,000. Management establishes a valuation allowance
when it is more likely than not that some portion of the gross deferred income
tax assets will not be realized. The valuation allowance at year end applies
principally to the tax effect of the state income tax benefit attributable to
the gross deductible temporary differences. The primary sources of recovery of
the deferred tax assets are taxes paid that are available for carry back of
$6,100,000 in 1997, 1996 and 1995, and the expectation that the deductible
temporary differences will reverse during periods in which the Company generates
taxable income.
During the fourth quarter of 1997, the Company implemented two tax strategies
in order to recognize the benefit of net, unused capital loss carryforwards that
were due to expire on December 31, 1997. The Company entered into a
sale/leaseback agreement with a third party for three of its offices. In
addition, the Company sold equity securities that were maintained in a Grantors
Trust in order to generate capital gains. The combination of these two
transactions allowed the Company to recognize a $576,000 benefit through a
reduction in the deferred tax asset valuation allowance.
G-25
<PAGE>
Comparison of years ended December 31, 1996 and December 31, 1995
General
Net income for the year ended December 31, 1996 amounted to $4,137,000 compared
with net income of $3,436,000 for the year ended December 31, 1995. The
principal reasons for the increase were increased net interest and dividend
income, increased gains realized on the sale of loans and a decrease in
provisions for loan losses and FDIC deposit insurance expense, partially offset
by increases in other non-interest expenses and a special one-time deposit
insurance assessment from the Savings Association Insurance Fund ("SAIF"). The
Bank's operating results depend largely upon its net interest margin which is
the difference between the income earned on loans and investments, and the
interest expense paid on deposits and borrowings, divided by total interest
earning average assets. The net interest margin is affected by the economic and
market factors which influence interest rates, loan demand and deposit flows.
The interest rate margin decreased to 3.94% for the year ended December 31,
1996, from 3.98% for the year ended December 31, 1995.
Interest and Dividend Income
Interest and dividend income increased by $1,636,000 or 5.3% to $32,309,000 for
the year ended December 31, 1996 when compared to the year ended December 31,
1995. Interest on loans increased $2,462,000 or 11.1% as a result of an increase
in the average balance outstanding of $32,276,000, and a decrease in non-accrual
loans, partially offset by a decrease in the average rate earned on the
portfolio from 8.45% in 1995 to 8.36% in 1996. Interest and dividends on
investment securities and other short-term investments decreased by $826,000 or
9.8% as a result of the decrease in the average balance outstanding to
$122,794,000 and a decrease in the yield on investment securities to 6.17% for
the year ended December 31, 1996, as compared to 6.27% for the year ended
December 31, 1995.
Interest Expense
Total interest expense increased $959,000 to $15,792,000 for the year ended
December 31, 1996, from $14,833,000 for the year ended December 31, 1995.
Interest expense from deposits increased by $355,000 or 2.5%. The rise reflects
the increase in average deposits balance outstanding of $2,219,000, along with
an increase in market interest rates over the period. Interest expense from
borrowed funds increased $604,000 primarily due to an increase in the average
balance outstanding of $10,576,000, and an increase in the interest rates over
the period. Interest rates on deposits and borrowed funds for the year ended
December 31, 1996 increased to 4.32% from 4.20% when compared to 1995.
Provision for Loan Losses
The provision for loan losses charged to earnings amounted to $265,000 and
$597,000 for the years ended December 31, 1996 and 1995, respectively. The Bank
decreased its provision for loan losses for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 due to a decline in specific loan
charge-offs. Non-accrual loans as a percentage of total loans outstanding were
1.27% at December 31, 1996 and 1.70% at December 31, 1995. As of December 31,
1996 and 1995, the Bank had identified $584,000 and $349,000, respectively, of
potential problem loans. Management's analysis of the loan portfolio considers
risk elements by loan category, and also the prevailing economic climate and
anticipated future uncertainties. Future adjustments to the allowance for loan
losses may be necessary if economic conditions differ substantially from
assumptions used in performing the analysis, or the levels of the Bank's non-
performing assets increase significantly.
Non-Interest Income
Non-interest income increased $121,000 for the year ended December 31, 1996
compared to the 1995 period. The increase was mainly the result of the increase
in gain on sale of loans of $210,000, along with an increase of $41,000 in
service charges, partially offset by a decrease of $214,000 in gain on sale of
branch deposits. The increase in gain on sale of loans was due to favorable
market interest rates during the year 1996 and the recording of the value of the
mortgage loan servicing rights. The increase in service charges resulted from
the overall increases in fees for services the Bank provides to its customers.
Non-Interest Expense
Total non-interest expense consists of salaries and employee benefits, occupancy
and equipment, FDIC deposit insurance, advertising, data processing service
fees, foreclosed property expense, amortization of core deposit and other
intangibles and other expenses. Also included are the costs of carrying and
administering non-performing assets.
The slight decrease in non-interest expense for the year when compared to the
prior period is attributed primarily to decreases in FDIC deposit insurance,
foreclosed property expense and amortization of core deposit intangible, offset
partially by increases in salaries and employee benefits and occupancy and
equipment, and the one-time special assessment of $280,000 on SAIF-assessable
deposits.
Income Taxes
The Bank recognized income tax expense of $2,621,000 for the year ended December
31, 1996 and $2,169,000 in the comparable period of 1995. Both these amounts
differ from the expected tax expense of 34% of income before income taxes. The
major reasons for these variances relate to state income tax expense (net of the
federal tax benefit), tax exempt income, dividend received deduction and changes
in the valuation allowance for deferred income taxes. Factors such as the Bank's
earnings and equity securities gains or losses will affect income taxes recorded
in the financial statements. At December 31, 1996, the Bank had a net deferred
income tax asset of $2,469,000, which is net of the valuation reserve of
$632,000. Management establishes a valuation reserve when it is more likely than
not that some portion of the gross deferred income tax asset will not be
realized. The valuation reserve at year end applies principally to the tax
effect of the capital loss carryforward and the state income tax benefit
attributable to the gross deductible temporary differences.
G-26
<PAGE>
The primary sources of recovery of the deferred tax asset are taxes paid that
are available for carry back of $5,400,000 in 1996, 1995 and 1994, and the
expectation that the deductible temporary differences will reverse during
periods in which the Bank generates taxable income.
Asset and Liability Management and Market Risk
The Company's pre-tax earnings depend primarily on its net interest income, the
difference between the income it receives on its loan portfolio and other
investments and its cost of money, consisting primarily of interest paid on
savings deposits, FHLB advances and other borrowings. Net interest income is
affected by (i) the difference ("interest rate spread") between rates of
interest earned on its interest-earning assets and rates paid on its interest-
bearing liabilities and (ii) the relative amounts of its interest-earning assets
and interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rates spread will
generate net interest income. Thrift institutions have traditionally used
interest rate spreads as a measure of net interest income. Another indicator of
an institution's net interest income is its "net yield on interest-earning
assets" which is net interest income divided by average interest-earning assets.
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, security investments, and deposit taking activities. To
that end, management actively monitors and manages its interest rate risk
exposure.
The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes on the Company's net interest income and capital,
while adjusting the Company's rate-sensitive asset and liability structure to
obtain the maximum net yield on that structure. The Company relies primarily on
this structure to control interest rate risk. However, a sudden and substantial
shift in interest rates may adversely impact the Company's earnings to the
extent that the interest rate earned on interest-earning assets and interest
paid on interest-bearing liabilities do not change at the same frequency, to the
same extent or on the same basis.
A method used by the Company to measure the interest rate risk exposure is the
interest rate sensitivity "GAP", which is the difference between assets and
liabilities subject to rate change over specific time periods. There are
limitations to GAP analysis. However, as rates on different assets and
liabilities may not move to the same extent in any given time period,
competition may affect the ability of the Company to change rates on particular
loan or deposit products. The following table discloses the Company's interest-
sensitive financial instruments, categorized by expected maturity and their fair
values at December 31, 1997. Market risk sensitive instruments are generally
defined as on- and off-balance sheet and other financial instruments.
The following table presents the Company's interest sensitivity gap between
interest-earning assets and interest-bearing liabilities at December 31, 1997.
In addition the table indicates the Company's sensitivity gap at various periods
and the ratio of the Company's interest-earning assets to interest-bearing
liabilities at various periods. Term certificates are based upon contractual
maturities.
<TABLE>
<CAPTION>
Over One Over Three Over Five Over
One Year Through Through Through Ten
or less Three Years Five Years Ten Years Years Total
---------- ------------ ----------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Short-term investments, investment
securities held to maturity and
investment securities available for sale $ 71,379 $ 34,973 $ 32 $ 10,307 $ -- $116,691
Residential 101,623 66,312 68,511 7,193 5,272 248,911
Commercial real estate 44,975 17,286 153 111 54 62,579
Construction and land loans 13,384 6,378 11,850 23 -- 31,635
Other loans 20,230 3,029 2,602 709 1,047 27,617
-------- -------- -------- -------- -------- --------
Total $251,591 $127,978 $ 83,148 $ 18,343 $ 6,373 $487,433
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Money market accounts $100,825 $ -- $ -- $ -- $ -- $100,285
NOW and Super NOW (1) -- -- -- -- 44,075 44,075
Regular savings accounts (1) -- -- -- -- 24,345 24,345
Certificates of deposit 134,958 77,230 6,572 17 -- 213,777
Borrowed funds 34,000 11,000 -- -- 601 45,601
-------- -------- -------- -------- -------- --------
Total $269,783 $ 83,230 $ 6,572 $ 17 $ 69,021 $428,623
======== ======== ======== ======== ======== ========
Interest sensitivity gap $(18,192) $ 44,748 $ 76,576 $ 18,326 $(62,648) $ 58,810
======== ======== ======== ======== ========
Cumulative interst sensitivity gap $(18,192) $ 26,556 $103,132 $121,458 $ 58,810 $ 58,810
======== ======== ======== ======== ======== ========
Interest sensitivity gap/total assets (3.51)% 8.63% 14.76% 3.53% (12.08)% 11.34%
======== ======== ======== ======== ======== ========
Cumulative interest sensitivity
gap/total assets (3.51)% 5.12% 19.88% 23.42% 11.34%
======== ======== ======== ======== ========
</TABLE>
(1) Interest rates on these accounts have remained constant or decreased from
March of 1994 through December 31, 1997, although market interest rates have
increased over the same period. It is the current intention of the Company's
management not to increase rates on these accounts in a rising rate
environment.
G-27
<PAGE>
The following table shows the company's financial instruments that are sensitive
in interest rates, categorized by expected maturity, and the instruments' fair
values as of December 31, 1997.
Expected Maturity Date at December 31, 1997 (1)
<TABLE>
<CAPTION>
There-
(Dollars in millions) 1998 1999 2000 2001 2002 after Total Fair Value
------ ------ ----- ----- ----- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Loans:
Fixed interest rate
Residential mortgages $ 3 $ 2 $ 2 $ 2 $ 2 $ 4 $ 15 $ 15
Average interest rate 6.99% 7.05% 7.03% 6.96% 6.96% 7.33% 7.10%
Variable interest rate
Residential mortgages 49 37 30 23 23 96 258 260
Average interest rate 7.47% 7.49% 7.49% 7.49% 7.49% 7.51% 7.50%
Fixed interest rate
Consumer loans 4 1 1 -- -- -- 6 6
Average interest rate 10.34% 10.30% 9.89% 0.00% 0.00% 0.00% 10.17%
Variable interest rate
Consumer loans 8 4 2 -- -- -- 14 14
Average interest rate 9.80% 9.84% 9.87% 0.00% 0.00% 0.00% 9.85%
Fixed interest rate
Commercial loans 1 1 -- -- -- -- 2 2
Average interest rate 9.73% 9.71% 0.00% 0.00% 0.00% 0.00% 9.72%
Variable interest rate
Commercial loans 22 10 8 6 5 25 76 75
Average interest rate 9.87% 9.64% 9.63% 9.63% 9.63% 9.68% 9.72%
Fixed interest rate
Investment securities 21 12 5 4 4 13 59 59
Average interest rate 6.18% 6.22% 6.41% 6.40% 6.40% 6.42% 6.29%
Variable interest rate
Investment securities 10 8 6 5 5 18 52 52
Average interest rate 6.36% 6.36% 6.37% 6.38% 6.38% 6.42% 6.39%
------ ------ ----- ----- ----- ----- ------ ----
Total interest
sensitive assets $ 118 $ 75 $ 54 $ 40 $ 39 $ 156 $ 482 $483
====== ====== ===== ===== ===== ===== ====== ====
INTEREST SENSITIVE LIABILITIES:
Deposits:
Checking $ 2 $ 2 $ 2 $ 2 $ 2 $ 74 $ 84 $ 84
Average interest rate 0.58% 0.58% 0.58% 0.58% 0.58% 0.51% 0.52%
Savings 4 3 2 2 2 11 24 24
Average interest rate 1.98% 1.98% 1.98% 1.98% 1.98% 1.98% 1.98%
Money market 10 10 7 6 5 63 101 101
Average interest rate 2.88% 2.99% 2.68% 2.68% 2.68% 3.47% 3.22%
Time deposits 144 51 14 2 2 1 214 214
Average interest rate 5.41% 5.71% 5.92% 5.77% 5.77% 2.90% 5.51%
Borrowings:
FHLB 34 11 -- -- -- 1 46 46
Average interest rate 5.82% 5.71% 0.00% 0.00% 0.00% 5.96% 5.82%
Other -- -- -- -- -- -- -- --
----
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------ ------ ----- ----- ----- ----- ------
Total interest
sensitive liabilities: $ 194 $ 77 $ 25 $ 12 $ 11 $ 150 $ 469 $469
====== ====== ===== ===== ===== ===== ====== ====
</TABLE>
(1) Expected maturities are contractual maturities adjusted for projected
prepayments of principal. The Company uses certain assumptions to estimate fair
values and expected maturities. For assets, expected maturities are based upon
contractual maturities, projected repayments and prepayments of principal. The
prepayment experience reflected herein is based on the Company's historical
experience. The Company's average Constant Prepayment Rate ("CPR") is 13.9% and
18.9% per year of its fixed-rate and adjustable-rate portfolios, respectively,
for interest-earning assets. For deposits, "decay rates" have been applied to
estimate deposit runoff of 14.3% per year based on the Company's own historical
experience. The actual maturities of these instruments could vary substantially
if future prepayments differ from the Company's historical experience. Off-
balance sheet risk includes commitments to extend credit and sell loans. At
December 31, 1997, the contract or notional amount of these commitments is
$46,200,000 and $6,100,000, respectively. Their fair values have been
estimated as $500,000.
G-28
<PAGE>
Liquidity and Capital Resources
The Company's primary source of liquidity is dividends from its bank
subsidiary. Dividends from the Bank to the Company totaled $768,000 in 1997.The
Company made payments of dividends to stockholders in the amount of $672,000
during the fourth quarter ended December 31, 1997.
The Bank's primary sources of liquidity are deposits, loan payments and
payoffs, investment income and maturities and principal payments on investments,
mortgage-backed securities and CMOs, advances from the Federal Home Loan Bank of
Boston, and other borrowings. Management believes it is prudent to maintain an
investment portfolio that not only provides a source of income, but additionally
provides a source of liquidity, through its principal paydowns and maturities,
to meet lending demands and fluctuations in deposit flows. These various sources
of funds are utilized to fund withdrawals, new loans and other investments, as
well as to pay on-going expenses of operation. At December 31, 1997, the Bank
had total unused lines of credit and commitments to originate loans of
$38,784,000, unadvanced portions of construction loans of $7,188,000 and
commercial standby letters of credit of $218,000. In addition, the Bank had
commitments to sell loans totaling $6,149,000. Management believes that the
Bank's various sources of funds are sufficient to meet its commitments in the
ordinary course of business. For further information, see notes to consolidated
financial statements.
The Bank is required to maintain certain levels of capital (stockholders'
equity) pursuant to FDIC regulations. At December 31, 1997, the Bank's capital
level was significantly in excess of required minimums. For additional
information on capital ratios of the Company and the Bank, see note 11 of notes
to consolidated financial statements.
Impact of the Year 2000 Issue
The Year 2000 (Y2K) Issue is the result of computer programs being written using
two digits, rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company began addressing the Year 2000 Issue in the Fall of 1996. The
Company formed a Y2K Review Team which is composed of the Company's internal
Management Information Systems Steering Committee and all members of our Senior
Management Group. A Plan was developed by the Y2K Review Team and approved by
the Board of Directors. The Team has completed an assessment, identifying
mission critical systems and has initiated formal communications with all third
party vendors to determine the compliance status of any systems utilized by the
Company. Based upon the results of the assessment, the Company has determined
that there will be a need to replace portions of its existing hardware and
require upgrades to a portion of its software systems. The Company does not
utilize internally written and supported proprietary code. All software is
purchased or licensed through widely recognized providers.
The Company Plan calls for replacement and upgrading to take place with
allowances for extensive testing within time frames established by the Federal
Financial Institutions Examination Council (FFIEC). The Y2K Review Team meets no
less than quarterly and provides quarterly reports to the Board of Directors.
The Company has notified its customers of the Year 2000 Issue in the Fall 1997
issue of the Company newsletter, "Currents". The newsletter outlines the issue
and the Company's Plan to address it. Also, letters have been sent to all
commercial loan customers informing them of the Year 2000 Issue and how it can
impact businesses.
The Company had included approximately $150,000 for the replacement and
upgrade of specific hardware in its 1998 capital budget. An additional IS
Technician position has been planned and included in the budget for the IS
Department in the second quarter of 1998. The new employee will assist in the
deployment of Y2K compliant hardware, upgrade software and facilitate the Y2K
testing of all systems.
The Company will utilize internal and, if necessary, external resources to
upgrade, replace, and test the software and systems for Year 2000 Issue
modifications. The Company plans to complete the Year 2000 Issue project no
later than March 31, 1999.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 129, "Disclosure of Information about Capital Structure", which is effective
for 1997 financial statements. The Company's disclosures currently comply with
the provisions of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income, which is defined as all changes to equity except investments by and
distributions to shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate as other
comprehensive income. This statement is effective for 1998 financial statements
and is not expected to have a material effect on the financial statements.
Also in June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes standards for
reporting information about operating segments. An operating segment is defined
as a component of a business for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and evaluate performance. This statement
requires a company to disclose certain income statement and balance sheet
information by operating segment, as well as provide a reconciliation of
operating segment information to the company's consolidated balances. This
statement is also effective for 1998 financial statements and is not expected to
have a material effect on the financial statements.
G-29
<PAGE>
[PLEASE VERIFY ?????????????????????????????]
PART I
Item 1. Business
- -----------------
GENERAL
The Company. Sandwich Bancorp, Inc. (the "Company"), a Massachusetts
corporation, was organized by The Sandwich Co-operative Bank (the "Bank") to be
a bank holding company. The Company was organized at the direction of the Bank
in June 1997 to acquire all of the capital stock of the Bank upon the
consummation of the reorganization of the Bank into the holding company form of
ownership (the "Reorganization"), which was completed on September 30, 1997. The
Company's common stock, par value $1.00 per share (the "Common Stock") became
registered under the Securities Exchange Act of 1934 on September 30, 1997. The
Company has no significant assets other than the corporate stock of the Bank.
For that reason, substantially all of the discussion in this Form 10-K relates
to the operations of the Bank and its subsidiaries.
The executive offices of the Company are located at 100 Old Kings Highway,
Sandwich, Massachusetts 02563. The telephone number is (508) 888-0026.
The Bank. The Sandwich Co-operative Bank was organized as a Massachusetts
chartered co-operative bank in 1885. The Bank merged with Wareham Co-operative
Bank in May 1982. In July 1986, the Bank converted from mutual to stock form
through the sale and issuance of 1,820,833 shares of common stock, par value
$1.00 per share (the "Common Stock"). Since 1986, the Bank's deposits have been
insured by the Federal Deposit Insurance Corporation ("FDIC"), an agency of the
federal government, up to $100,000 per insured depositor, with additional
insurance to the total amount of the deposit provided by the Share Insurance
Fund of The Co-operative Central Bank (the "Central Bank"), a deposit insuring
entity chartered by the Commonwealth of Massachusetts. The Bank is subject to
regulation by the Massachusetts Commissioner of Banks ("Commissioner") and the
FDIC.
The business of the Bank consists primarily of attracting deposits from the
general public and originating both construction and permanent loans on one-to-
four family homes. The Bank also makes consumer loans, home equity loans and
commercial loans and mortgages. The Bank invests a portion of its funds in money
market instruments, federal government and agency obligations, and various types
of corporate securities and other authorized investments.
The principal sources of funds for the Bank's lending and investment
activities are deposits, loan payments and payoffs, investment income and
maturities, and principal payments on investments, mortgage-backed securities
and collateralized mortgage obligations. As additional sources of funds, the
Bank has access to advances from the Federal Home Loan Bank of Boston and other
borrowings. The Bank's principal sources of income are interest on loans and
loan origination fees, interest and dividends on investment securities,
mortgage-backed securities and collateralized mortgage obligations and short-
term investments, customer service charges and gains on the sale of loans in the
secondary market, as well as income from servicing loans sold. Its principal
expenses are interest paid on deposits and general and administrative expenses.
The Bank's deposit and lending operations are conducted through eleven full
service office facilities located in Sandwich, South Sandwich, Buzzards Bay,
Pocasset, Wareham, Cedarville, Falmouth, Hyannis, Chatham, Orleans and South
Yarmouth, Massachusetts. In addition, the Bank maintains a loan production
office in Plymouth, Massachusetts. Significant events contributing to the
structure of the current branch network are described below.
In February 1996 and May 1996 the Bank opened free standing ATMs in
Cedarville and South Sandwich, Massachusetts, respectively, in order to provide
greater convenience and access to accounts for its customers. In addition to its
existing ATM network offerings of X-Press 24, NYCE, CIRRUS/MasterCard, the Bank
recently added the Plus/VISA networks for users of Bank ATMs.
G-30
<PAGE>
In June 1996, the Bank entered into an agreement with FISCO, a national
financial services group that provides a variety of investment services through
community banks to offer expanded retirement investments and financial planning.
FISCO will provide Bank customers with access to alternative investments,
including mutual funds and annuities from a number of highly rated companies.
The Bank also established a referral arrangement with State Street Global
Advisors which enables customers to avail themselves of the estate planning and
trust services of a nationally respected trust institution.
The Bank's main office is located at 100 Old Kings Highway, Sandwich,
Massachusetts 02563 and its telephone number is (508) 888-0026.
RECENT EVENTS
On February 2, 1998, the Company and the Bank entered into a definitive
agreement under which Compass Bank of New Bedford, Massachusetts will acquire
Sandwich Bancorp, Inc. Prior to the Company's consideration and approval of its
definitive agreement with Compass Bank, the Company had contacted and received
expressions of interest from three other parties who had expressed an interest
in an acquisition of the Company.
On February 24, 1998, the Company announced that its Board of Directors,
consistent with the exercise of its fiduciary duties, determined that it was
appropriate to request additional information and clarification of the renewed
expressions of interest that it had received from three other parties subsequent
to February 2.
Following a comprehensive review of the other expressions of interests for
the Company, the Company and Compass Bank jointly announced on March 23, 1998,
that they have signed an amendment to their previously announced agreement of
February 2, 1998 (the "Amended Agreement") by which Compass Bank would acquire
Sandwich Bancorp, Inc. Under the terms of the Amended Agreement, Compass Bank's
parent company, The 1855 Bancorp will convert to a 100% publicly owned stock
holding company and thereafter issue stock having a value of $64.00 per share to
Sandwich Bancorp shareholders in a tax-free exchange of common stock. The value
to be received by Sandwich Bancorp shareholders is subject to adjustment
pursuant to a formula based on the value of the stock of The 1855 Bancorp near
the transaction date. Based on 1855 Bancorp's assumed initial public offering
price of $10.00 per share, each Sandwich Bancorp share will be exchanged for
1855 Bancorp stock having a value of $64.00 per share so long as 1855 Bancorp
stock trades at an average price of between $10.00 and $13.50 per share during a
designated trading period following the initial public offering date. If this
average price exceeds $13.50 per share, the value to be received by Sandwich
Bancorp shareholders will increase proportionately up to a maximum value of
$71.11 until 1855 Bancorp's average price reaches or exceeds $15.00 per share.
If this average price is equal to or less than $10.00 per share, Sandwich
Bancorp shares will be exchanged for 6.4 shares of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock Option
Agreement, granting to The 1855 Bancorp an option to acquire up to 19.9% of
Sandwich common stock under certain circumstances. The transaction, which is
subject to all necessary regulatory and shareholder approvals, is expected to
close in the fourth quarter of 1998.
For additional information, reference is made to the Amended and Restated
Affiliation and Merger Agreement, dated as of March 23, 1998, attached hereto as
Exhibit 2.1, and the Stock Option Agreement dated as of March 23, 1998, attached
hereto as Exhibit 2.2.
G-31
<PAGE>
LENDING ACTIVITIES
GENERAL. The Bank's net loan portfolio totaled $366.6 million as of
December 31, 1997, which represented 70.7% of total assets. The Bank offers
residential and home equity mortgage loans, commercial real estate loans,
commercial business loans, construction loans, and personal, automobile, boat,
education and other types of consumer loans. During the year ended December 31,
1997, the Bank originated mortgage loans totaling $123.2 million and purchased
loans totaling $18.3 million for total mortgage loan originations and purchases
of $141.5 million, compared to $117.4 million in mortgage loans originated, and
$23.7 million in mortgage loans purchased for total mortgage loan originations
and purchases of $141.1 million during the year ended December 31, 1996.
Included in the Bank's mortgage loan originations for the year ended December
31, 1997 were $20.8 million of fixed rate residential loans of which $17.4
million were sold in the secondary mortgage market and the difference of $3.4
million was placed into the loan portfolio under the direction of senior
management, as "fixed construction" and "fixed upon completion" mortgage loans.
The increase in mortgage loan originations during fiscal 1997 as compared to
fiscal 1996 was a direct result of a strong residential real estate market.
Residential construction mortgages decreased from 175 loans totaling $27.9
million in 1996 to 156 loans totaling $19.8 million in 1997. In addition, the
purchase of new homes and re-sales of existing homes increased over 1997. In
early 1996, the Bank began a correspondent relationship with Anchor Mortgage
Co., Conway Financial Services and National City Mortgage (formerly known as
Commonwealth United Mortgage), which generated an additional $25.2 million (164
loans) in loan volume during 1997.
G-32
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
type of loan and the percentage each type represents of the total loan portfolio
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------- ------------------- ------------------
Amount % Amount % Amount % Amount % Amount %
--------- -------- --------- -------- --------- -------- --------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential............... $247,881 67.6% $202,032 63.7% $162,974 60.3% $150,788 60.1% $124,420 59.9%
Commercial real estate.... 62,579 17.0 61,088 19.3 59,597 22.0 49,919 19.9 40,501 19.5
Construction and land..... 38,823 10.6 38,858 12.2 26,486 9.8 26,920 10.8 23,367 11.3
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
349,283 95.2 301,978 95.2 249,057 92.1 227,627 90.8 188,288 90.7
Unadvanced portion of
loans in process.......... (7,188) (2.0) (9,763) (3.1) (6,573) (2.4) (5,810) (2.3) (5,520) (2.7)
Deferred loan origination
(fees) costs.............. 1,030 0.3 542 0.2 56 -- (42) -- (159) (0.1)
Unearned discount.......... -- -- -- -- (171) (0.1) (239) (0.1) -- --
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Total mortgage loans, net 343,125 93.5 292,757 92.3 242,369 89.6 221,536 88.4 182,609 87.9
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Other loans:
Home equity............... 12,438 3.4 12,278 3.9 13,188 4.9 14,961 6.0 15,746 7.6
Consumer.................. 4,847 1.3 5,393 1.7 6,032 2.2 4,903 1.9 2,306 1.1
Commercial................ 8,060 2.2 7,933 2.5 9,671 3.6 8,114 3.2 6,385 3.1
Secured by deposits....... 1,182 0.3 1,160 0.4 992 0.3 972 0.4 760 0.4
Education................. 826 0.2 1,123 0.3 1,660 0.6 3,193 1.3 2,397 1.1
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
27,353 7.6 27,887 8.8 31,543 11.6 32,143 12.8 27,594 13.3
Deferred loan origination
costs..................... 264 0.1 200 0.1 183 0.1 169 0.1 128 0.1
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Total other loans, net... 27,617 7.6 28,087 8.9 31,726 11.7 32,312 12.9 27,722 13.4
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Premium paid on loans, net
of
accumulated amortization.. -- -- -- -- -- -- 137 -- 287 0.1
Allowance for loan losses.. (4,100) (1.1) (3,741) (1.2) (3,674) (1.3) (3,255) (1.3) (2,983) (1.4)
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------
Loans, net................. $366,642 100.00% $317,103 100.00% $270,421 100.0% $250,730 100.00% $207,635 100.00%
======== ======= ======== ======= ======== ======= ======== ======= ======== ======
</TABLE>
G-33
<PAGE>
LOAN MATURITY OR REPRICING ANALYSIS. The following table sets forth
certain information at December 31, 1997 regarding the dollar amount of loans
maturing or repricing in the Bank's portfolio. Demand loans, loans having no
schedule of repayments or no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
Due after 3 Due after 5
through 5 through 10 Due after 10
Due in Year Ended December 31, years after years after years after
-----------------------------------
1998 1999 2000 12/31/97 12/31/97 12/31/97 Total
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential.................... $101,623 $40,255 $ 26,057 $ 68,511 $ 7,193 $ 5,272 $248,911
Commercial real estate......... 44,975 8,589 8,697 153 111 54 62,579
Construction and land.......... 13,384 3,497 2,881 11,850 23 -- 31,635
-------- ------- --------- --------- ------- ------- --------
Total......................... 159,982 52,341 37,635 80,514 7,327 5,326 343,125
-------- ------- --------- --------- ------- ------- --------
Other:
Home equity.................... 12,358 57 287 -- -- -- 12,702
Consumer....................... 626 846 1,167 1,278 709 221 4,847
Commercial..................... 6,074 246 416 1,324 -- -- 8,060
Secured by deposits............ 1,172 10 -- -- -- -- 1,182
Education...................... -- -- -- -- -- 826 826
-------- ------- --------- --------- ------- ------- --------
Total......................... 20,230 1,159 1,870 2,602 709 1,047 27,617
-------- ------- --------- --------- ------- ------- --------
Total loans.................. $180,212 $53,500 $ 39,505 $ 83,116 $ 8,036 $ 6,373 $370,742
======== ======= ========= ========= ======= ======= ========
</TABLE>
P
RESIDENTIAL LENDING. The Bank's residential mortgage loan program
currently includes the origination of a variety of adjustable rate loans which
are retained in the Bank's loan portfolio. At December 31, 1997, the Bank's
adjustable rate residential mortgages totaled $232.9 million, or 63.5%, of the
residential mortgage loan portfolio. Fixed-rate loans accounted for $15.0
million, or 4.1%, of the residential mortgage loan portfolio at that date. The
Bank stresses the origination of adjustable rate mortgages for retention in its
portfolio. The Bank continued to actively originate fixed rate loans for sale in
the secondary mortgage market. By retaining the servicing on loans sold, the
Bank generates loan servicing fee income.
The Bank's adjustable rate residential mortgage loans have a maximum term
of 35 years, and allow for periodic interest rate adjustments. The initial
offering rates on these loans may be discounted to remain competitive prior to
their first interest rate adjustment. The payment amount and the interest rate
on the one year adjustable rate loan adjusts annually to 2.75% above the weekly
average yield of the one year U.S. Treasury Securities (at time of adjustment)
with a maximum interest rate adjustment of 2% per year and 6% over the term of
the loan. Interest rates on the three year adjustable rate loans are fixed for
the first three years by reference to various market indices and competitive
rates, and rates are adjusted every three years thereafter to 2.875% above the
weekly average yield of three year U.S. Treasury Securities (at time of
adjustment) with a maximum interest rate adjustment of 2% every three years, and
6% over the term of the loan. In 1997, the Bank began offering a 4/3 adjustable
rate mortgage loan. The interest rate is fixed for the first four years and
then becomes a three year adjustable rate mortgage which adjusts every three
years at 2.875% above the weekly average yield of the three year U.S. Treasury
Securities, with a maximum interest rate adjustment of 2% per year and 3% over
the remaining term of the loan. The Bank also offers a 5/1 year adjustable rate
mortgage. The interest rate is fixed for the first five years and then becomes
a one year adjustable rate mortgage which adjusts annually at 2.75% above the
weekly average yield of the one year U.S. Treasury Securities, with a maximum
interest rate adjustment of 2% per year and 5% over the remaining term of the
loan.
Residential loans may be made as construction loans or as permanent loans
on one-to-four family residential properties and are typically written in
amounts up to 95% of appraised value. The Bank makes fixed and adjustable rate
mortgage loans of up to 95% of appraised value, if the property is owner
occupied. All loans in excess of 80% of appraised value require private
mortgage insurance, with the exception of the Bank's adjustable rate First-Time
Home Buyer products, which does not require private mortgage insurance.
As noted above, adjustable rate residential mortgage loans originated for
retention in the Bank's loan portfolio provide for periodic interest rate
adjustments. Despite the benefits of adjustable rate mortgages to the Bank's
asset and liability management program, such mortgages pose risks, because as
interest rates rise, the underlying payments by the borrowers rise, increasing
the potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates. One of
the ways the Bank seeks to protect itself on these loans is by generally
requiring private mortgage insurance as stated above.
CONSTRUCTION LENDING. The Bank's construction loans totaled $32.5 million,
or 8.9%, of the Bank's total loan portfolio at December 31, 1997. Construction
loans originated during the years ended December 31, 1997 and 1996 totaled $34.4
million and $36.0 million, respectively.
The Bank lends to individuals for the construction of residential
properties which they intend to occupy as a primary or secondary residence.
Borrowers are required to have a firm contract with a qualified builder. Such a
construction loan is generally made with the first twelve months designated as
the construction period (six months for fixed construction) after which time the
loan converts to a 30-35 year permanent residential real estate loan. A maximum
loan to value ratio of 95% of the value of the completed property, or 95% of the
total cost to construct, whichever is less, is permitted as determined by
appraisers. The majority of the Bank's construction loans are made for the
construction of pre-sold, pre-approved residential homes. Inspections of the
construction sites are primarily performed by independent inspectors.
G-34
<PAGE>
Due to the active real estate market in 1997, the Bank provided financing
to established, credit worthy builders for the purpose of funding construction
of residential homes which had either been pre-sold or constructed on
speculation. Sound underwriting standards were adhered to, minimizing the
inherent risks associated with construction lending. The total loan exposure to
any one builder was well within the prudent levels established by management.
All builder construction loans are performing as anticipated.
COMMERCIAL REAL ESTATE LENDING. The Bank also originates loans secured by
real estate other than one-to-four family residential properties. These
commercial real estate loans generally bear interest at variable rates based
upon a margin of one to two percent above the prime interest rate as quoted in
The Wall Street Journal, and such rates adjust when The Wall Street Journal
prime rate changes. In June 1996, the Bank started offering three year
adjustable rate commercial real estate loans where the interest rate is fixed
for the first three years, generally at 9 1/4%. After the initial three year
period, the interest rate adjusts every three years thereafter to a margin of
one and one half percent above the prime interest rate as quoted in The Wall
Street Journal. This product has enabled the Bank to be more competitive with
its product offerings. There were $62.6 million in commercial real estate loans
outstanding, which comprised 17.1% of the Bank's total loan portfolio at
December 31, 1997. In some cases, commercial real estate loans are made through
participations with other banks. Commercial real estate loans are generally
written in amounts of up to 75% of the appraised value of the property and all
commercial real estate loans over $100,000 are appraised by independent
appraisers. In addition, the Bank's underwriting procedures require verification
of the borrower's credit history and income, banking relationships, references
and income projections for the property. In certain cases, borrowers may be
required to provide additional collateral for loans made. All property securing
commercial loans is revalued or inspected periodically as required under
Massachusetts law. It is the Bank's policy to use the same underwriting
procedures for loan participations as for loans originated by the Bank. The Bank
grants loans guaranteed by the Small Business Administration as well as by the
Massachusetts Business Development Corporation's Capital Access Program.
Although the Bank is permitted to grant commercial real estate loans in
substantially greater amounts, the Bank's current policy generally limits new
commercial real estate loan originations to $2,000,000 to any individual or
entity.
CONSUMER AND OTHER LOANS. The Bank's consumer and other loans totaled
$27.4 million on December 31, 1997, representing 7.5% of the total loan
portfolio on that date. In addition to consumer loans, including personal and
automobile loans, the Bank makes education loans under the American Student
Assistance Corporation ("A.S.A.") program, which are serviced by Sallie Mae,
Inc. The interest on education loans is partially subsidized by the Federal
Government and the principal is fully guaranteed by A.S.A. The Bank sells its
student loans to Sallie Mae once the loan has begun repayment.
The Bank offers a home equity line of credit whereby the Bank makes monthly
adjustable rate loans, secured by the borrower's equity in their residence,
whether or not the loans are to be used for home improvements. As of December
31, 1997, the Bank had $12.4 million in home equity loans outstanding or 3.4% of
the Bank's total loan portfolio, as compared with $12.3 million in such loans
outstanding at December 31, 1996 or 3.9% of the Bank's total loan portfolio at
that date. Home equity loans are currently written in amounts up to 80% of the
appraised value of the property less the outstanding balance of the existing
first mortgage.
The Bank offers a three year adjustable home equity loan. The interest
rate for each three year period is based upon a margin of 3.0% above the prime
interest rate as quoted in The Wall Street Journal. The home equity loan has a
maximum interest rate adjustment of 3.0% per adjustment, and a ceiling interest
rate of 18.0%. The home equity loan amount is fully drawn down at closing.
The Bank offers a commercial line of credit program for its established
business customers with seasonal cash flow needs. The Bank's home equity line
of credit loans and commercial lines of credit accounts generally bear interest
at variable rates based upon a margin 1 - 3% above the prime interest rate as
quoted in The Wall Street Journal, while other loans are generally priced based
on market conditions.
G-35
<PAGE>
The Bank believes its consumer lending programs create diversity and
interest rate sensitivity within its asset mix and offer attractive yields. The
Bank is currently promoting its construction, consumer and home equity lending
programs through the activities of its loan officers, branch managers and
customer service personnel, and is utilizing careful underwriting and monitoring
procedures in these programs.
RISKS OF COMMERCIAL, CONSTRUCTION AND CONSUMER LENDING. Commercial real
estate, construction and consumer lending may entail additional risks compared
to residential mortgage lending. Commercial real estate and construction loans
may involve large loan balances to single borrowers or groups of related
borrowers. In addition, the payment experience on loans secured by income
producing properties is typically dependent on the successful operation of the
properties and thus may be subject to a greater extent to adverse conditions in
the local real estate market or in the economy generally. Construction loans
may involve additional risks, because the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages, and
other unpredictable contingencies, which make it relatively difficult to
evaluate accurately the total loan funds required to complete a project, and
related loan-to-value ratios. Because of these factors, the analysis of
prospective construction loan projects requires an expertise that is different
in significant respects from the expertise required for residential mortgage
lending. Consumer loans and particularly unsecured personal loans may involve
additional risks, and it may be expensive and time consuming to recover the
money lent in the event of a default. While the Bank has attempted to limit the
risk of loss on its commercial real estate, construction and consumer loans, and
has established provisions for loan losses, a reversal in the current positive
trend in the New England real estate market could negatively affect the Bank's
commercial real estate, construction and consumer loan portfolios, which would
further negatively affect the Bank's results of operations. In addition, the
status of the Bank's problem assets could be impacted by a reversal in the
continuing improvement in the New England real estate market and the Bank's
market area.
The following table indicates the amounts of construction and commercial
loans which are due after one year from December 31, 1997 that earn interest at
fixed rates and adjustable rates.
<TABLE>
<CAPTION>
Total Due After One Year
---------------------------------
Fixed Adjustable
Rate Rate Total
------- ------ -------
(in thousands)
<S> <C> <C> <C>
Construction........ $ -- $ 18,251 $ 18,251
Commercial.......... 1,986 -- 1,986
------- -------- --------
Total............. $ 1,986 $ 18,251 $ 20,237
======= ======== ========
</TABLE>
G-36
<PAGE>
LOANS BY INTEREST RATE AND MATURITY. The following table shows as of
December 31, 1997 information concerning the Bank's fixed and adjustable rate
permanent mortgage loans by interest rate range and by maturity date for fixed
rate mortgages and interest rate adjustment date for variable rate mortgages.
<TABLE>
<CAPTION>
Fixed Rate Mortgages Mortgages Subject to Interest Rate Adjustment
---------------------------------------------- -----------------------------------------------------
4.01- 8.01- 10.01- 12.01% 4.01- 8.01- 10.01- 12.01%
Years 8.00% 10.00% 12.00% and over Total 8.00% 10.00% 12.00% and over Total
- ----- ------- ------- ------ -------- ------- -------- -------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-1..................... $ 205 $ 147 $ -- $ -- $ 352 $ 54,773 $ 82,206 $22,575 $ 76 $159,630
1-2..................... 37 80 20 5 142 36,410 15,190 534 65 52,199
2-5..................... 1,712 442 66 11 2,231 100,363 14,811 744 -- 115,918
5-10.................... 6,732 315 182 75 7,304 -- 23 -- -- 23
10 or more.............. 4,336 990 -- -- 5,326 -- -- -- -- --
------- ------- ------ ------- ------- -------- -------- ------- -------- --------
Total.................. $13,022 $ 1,974 $ 268 $ 91 $15,355 $191,546 $112,230 $23,853 $ 141 $327,770
======= ======= ====== ======= ======= ======== ======== ======= ======== ========
</TABLE>
G-37
<PAGE>
ORIGINATION FEES AND OTHER FEES. The Bank offers real estate loans with
and without origination fees. During 1997, customer preference tended towards
the "no point," higher rate loans, both adjustable and fixed. The Bank does
charge the customer for expenses incurred during the loan application process to
cover such items as real estate appraisal, credit report, etc. The Bank retains
late charges on all real estate loans that are more than fifteen days late. For
information regarding the manner in which fees are taken into income, see Note 1
of Notes to Consolidated Financial Statements contained in the Company's 1997
Annual Report to Stockholders (the "Annual Report"), which is Exhibit 13 to this
report.
LOAN SOLICITATION AND APPROVAL PROCEDURES. Loan originations are developed
by the Bank's officers, managers, assistant branch managers, customer service
representatives, and loan originators from a number of sources, including
referrals from realtors, builders, attorneys and customers. Consumer loans are
solicited from existing depositors and loan customers. Various advertising
forums are also used to promote the Bank's lending programs.
Applications for all types of loans are taken at all of the Bank's offices
and mortgage loan applications are forwarded to the Bank's loan department for
processing. The Bank's loan underwriting procedures include the use of detailed
credit applications, property appraisals and verifications of an applicant's
credit history, employment situations and banking relationships. Loans up to
and including $500,000 may be approved by the Bank's senior loan officer, while
those over $500,000 must be approved by the Bank's Security Committee before
they close. All mortgage loans are approved or ratified by the Security
Committee and/or the full Board of Directors. All residential loans and
commercial mortgages over $100,000 are appraised by independent state certified
appraisers selected by the Bank. Title insurance and fire and casualty
insurance are required on all security properties.
Mortgage applicants are promptly notified of the decision concerning their
application by a commitment letter setting forth the terms and conditions of the
decision. If approved, these commitments include the amount of the loan,
interest rate, amortization term, brief description of the real estate mortgaged
to the Bank, the required amount of fire and casualty insurance to be maintained
to protect the Bank's interest and other special conditions as warranted.
LOAN ORIGINATIONS, PURCHASES AND SALES. The Bank uses the underwriting
standards and standard documents of the Federal Home Loan Mortgage Corporation
and Federal National Mortgage Association. The Bank continues to sell fixed
rate residential loans in the secondary market. The Bank has also become more
active in the Massachusetts Housing Finance Agency ("MHFA") program, and
generated five loans totaling $326,175 under their below market fixed rate
residential loan programs. Also, in 1997, the Bank began offering the low
interest rate MHFA Septic loans and closed two loans totaling $10,000 as of
December 31, 1997.
G-38
<PAGE>
Set forth below is a table showing the Bank's mortgage loan origination,
purchase and sales activity for the periods indicated, together with information
on repayment of principal on mortgage loans in the Bank's portfolio. Mortgage
loans purchased were whole loans originated by other New England-based financial
institutions.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance (a)......................... $292,757 $242,369 $221,536 $182,609 $151,892
Loan originations and purchases:
Fixed rate................................... 20,845 19,127 12,682 21,244 60,921
Adjustable rate.............................. 67,895 62,258 36,416 35,026 36,087
Construction................................. 34,431 35,982 27,028 23,491 11,683
-------- -------- -------- -------- --------
Total mortgage loan originations............ 123,171 117,367 76,126 79,761 108,691
Loans purchased.............................. 18,342 23,758 8,612 14,590 12,674
-------- -------- -------- -------- --------
Total loan originations and purchases....... 141,513 141,125 84,738 94,351 121,365
-------- -------- -------- -------- --------
Loan principal reduction...................... (74,023) (70,396) (49,708) (35,160) (46,739)
Loans sold.................................... (17,610) (20,999) (14,363) (20,142) (43,913)
Change in deferred net loan origination fees.. 488 487 98 117 4
Change in unearned discount................... -- 171 68 (239) --
-------- -------- -------- -------- --------
Ending balance (a)............................ $343,125 $292,757 $242,369 $221,536 $182,609
======== ======== ======== ======== ========
</TABLE>
_______________
(a) Beginning balance and ending balance are net of undisbursed proceeds of
loans in process, deferred net loan origination fees and unearned
discounts.
The following table sets forth at December 31, 1997 all mortgage loans by
categories of weighted average annual yield.
<TABLE>
<CAPTION>
Percent Weighted Average
Amount of Total Annual Yield
------ -------- ------------
(In thousands)
<S> <C> <C> <C>
12.01% and over................... $ 232 0.07% 12.71%
11.01% to 12%..................... 917 0.27 11.51
10.01% to 11%..................... 23,352 6.81 10.50
9.01% to 10%..................... 46,267 13.48 9.59
8.01% to 9%..................... 67,957 19.81 8.54
4.01% to 8%..................... 204,400 59.56 7.02
-------- ------
Total mortgage loans........... $343,125 100.00% 7.92%
======== ====== =====
</TABLE>
NON-PERFORMING ASSETS AND ASSET CLASSIFICATION. Once a loan payment is 15
days past due, the Bank notifies the borrower of the delinquency. Repeated
contacts are made if the loan remains in a delinquent status for 30 days or
more. While generally the Bank is able to work out satisfactory repayment with
a delinquent borrower, the Bank will undertake foreclosure proceedings if the
delinquency is not otherwise resolved when payments are 90 days past due.
Property acquired by the Bank as a result of foreclosure or by deed in lieu of
foreclosure is classified as "other real estate owned" until such time as it is
sold or otherwise disposed. When such property is acquired it is recorded at
the lower of unpaid principal balance of the related loan or its fair value,
less costs to dispose. Beginning for the year ended December 31, 1993, the Bank
has classified its non-performing assets in accordance with FDIC classification
regulations, so that all loans secured by residential real estate are considered
residential loans, regardless of whether they are owner-occupied or are
investment properties. During the year ended December 31, 1997, the Bank
foreclosed on
G-39
<PAGE>
eleven loans totaling $1,245,000 of which nine were residential mortgage loans
totaling $728,000 and two were commercial real estate loans totaling $517,000.
The Bank charged off $397,000 on various other loans during fiscal 1997.
The following table sets forth information with respect to the Bank's non-
performing assets at the dates indicated. At December 31, 1997, the Bank had one
restructured loan within the meaning of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 15 which are
described below.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis which
are contractually past due 90 days or more:
Mortgage loans:
Residential................................... $2,755 $2,320 $2,948 $ 966 $1,614
Commercial real estate........................ 456 1,118 1,225 401 228
Construction and land......................... 72 83 65 227 264
------ ------ ------ ------ ------
Total........................................ 3,283 3,521 4,238 1,594 2,106
------ ------ ------ ------ ------
Other:
Home equity................................... 82 195 133 250 219
Consumer...................................... 42 90 138 20 6
Commercial.................................... 174 280 162 199 --
------ ------ ------ ------ ------
Total........................................ 298 565 433 469 225
------ ------ ------ ------ ------
Total non-accrual loans....................... $3,581 $4,086 $4,671 $2,063 $2,331
====== ====== ====== ====== ======
Restructured loans:
Mortgage loans:
Residential................................... $ -- $ 151 $ 504 $1,078 $ 551
Commercial real estate........................ 105 107 558 423 1,174
Construction and land......................... -- -- -- 30 --
------ ------ ------ ------ ------
Total........................................ 105 258 1,062 1,531 1,725
------ ------ ------ ------ ------
Other:
Home equity................................... -- -- -- -- 37
Commercial.................................... -- -- -- -- 303
------ ------ ------ ------ ------
Total........................................ -- -- -- -- 340
------ ------ ------ ------ ------
Total restructured loans...................... $ 105 $ 258 $1,062 $1,531 $2,065
====== ====== ====== ====== ======
Total of non-accrual loans and
restructured loans.............................. $3,686 $4,344 $5,733 $3,594 $4,396
====== ====== ====== ====== ======
Percentage of total loans......................... 1.01% 1.37% 2.12% 1.43% 2.12%
====== ====== ====== ====== ======
Real estate acquired by foreclosure
or substantively repossessed.................... $ 596 $ 465 $ 367 $ 969 $2,867
====== ====== ====== ====== ======
</TABLE>
G-40
<PAGE>
At December 31, 1997, the Bank had 46 loans, totaling $3.6 million which
were non-accruing. Non-accruing loans at December 31, 1997 included in the
above total were: (i) 27 loans on residential properties, including two land
loans, totaling $2.8 million with balances outstanding ranging from $2,000 to
$712,000; (ii) eight loans on commercial real estate properties, totaling
$600,000, with balances outstanding ranging from $30,000 to $111,000; (iii)
three home equity loans with combined balances outstanding of $82,000 and (iv)
$121,000 in various other loans. Reserves of $4.1 million have been established
by the Bank at December 31, 1997 to cover any losses that may be incurred on
loans.
Restructured loans at December 31, 1997 amounted to $105,000. Additional
interest income of approximately $2,000 would have been recorded on these
restructured loans during the year ended December 31, 1997 if they had been
performing in accordance with their original terms. Interest income actually
recorded on these loans for the year amounted to approximately $9,000.
Typically, restructured loans are restructured to provide either a reduction of
the interest on the loan principal or an extension of the loan maturity.
Real estate acquired by foreclosure at December 31, 1997 totaled $596,000,
representing the lower of the carrying value of the loan or the fair value less
costs to dispose of properties. These properties had secured six loans which
were foreclosed upon by the Bank. The largest of these foreclosed properties,
carried at $167,000 at December 31, 1997, is comprised of one residential loan.
For further information regarding the Bank's non-performing assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of Notes to Consolidated Financial Statements contained
in the Annual Report.
ALLOWANCE FOR LOAN LOSSES
The Bank maintains an allowance for losses on loans. The annual provision
for loan losses is determined by management on the basis of many factors
including the risk characteristics of the portfolio, current economic conditions
and trends in loan delinquencies and charge-offs. The provision for loan losses
charged to earnings totaled $750,000 and $265,000 for the years ended December
31, 1997 and 1996, respectively. The Bank increased its provision for loan
losses for the year ended December 31, 1997, as compared to the year ended
December 31, 1996 as a result of the overall increase in the loan portfolio and
an increase in specific loan charge-offs. The allowance for loan losses was
$4.1 million at December 31, 1997. The allowance for loan losses is reviewed by
management on a continual basis and although management currently believes this
allowance to be adequate, there can be no assurance that this allowance will be
sufficient to cover future losses.
G-41
<PAGE>
The following table presents activity in the allowance for loan losses
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at the beginning of year............. $3,741 $3,674 $3,255 $2,983 $2,979
------ ------ ------ ------ ------
Provision for loan losses.................... 750 265 597 340 478
------ ------ ------ ------ ------
Loans charged-off:
Mortgage loans:
Residential................................. (59) (50) (223) (2) (250)
Commercial real estate...................... (24) (92) (36) (89) (121)
Construction and land....................... -- -- -- (51) (100)
Other loans:
Home equity................................. -- -- (21) (23) --
Consumer.................................... (151) (101) (73) (19) (16)
Commercial.................................. (246) (22) (8) -- (60)
------ ------ ------ ------ ------
Total charge-offs.......................... (480) (265) (361) (184) (547)
------ ------ ------ ------ ------
Recoveries on previously charged-off loans:
Mortgage loans.............................. 60 46 152 106 49
Other loans................................. 29 21 31 10 24
------ ------ ------ ------ ------
Total recoveries........................... 89 67 183 116 73
------ ------ ------ ------ ------
Net charge-offs.............................. (391) (198) (178) (68) (474)
------ ------ ------ ------ ------
Balance at the end of year................... $4,100 $3,741 $3,674 $3,255 $2,983
====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding........................... 0.11% 0.07% 0.07% 0.03% 0.25%
====== ====== ====== ====== ======
</TABLE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowances to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Residential......................... $1,613 $1,313 $1,396 $1,279 $1,302
Commercial real estate.............. 1,655 1,683 1,513 1,148 985
Construction and land............... 378 284 267 320 311
Other:
Home equity....................... 81 90 90 130 188
Consumer.......................... 137 146 178 273 128
Commercial........................ 236 225 230 105 69
------ ------ ------ ------ ------
Total allowance for loan losses.. $4,100 $3,741 $3,674 $3,255 $2,983
====== ====== ====== ====== ======
</TABLE>
G-42
<PAGE>
INVESTMENT ACTIVITIES
The Bank's management believes it prudent to maintain an investment
portfolio that provides not only a source of income but also a source of
liquidity to meet lending demands and fluctuations in deposit flows. The
relative mix of investment securities and loans in the Bank's portfolio is
dependent upon the comparative attractiveness of yields available to the Bank on
adjustable rate loans that it makes as compared to yields on short-term
investment securities. At December 31, 1997, the Bank's portfolio of short-term
investments, equity securities, mortgage-backed securities and collateralized
mortgage obligations totaled $110.7 million, which represented 21.3% of total
assets. Sales of equity securities during the year ended December 31, 1997
resulted in a net gain of $55,000. There were no sales of equity securities for
the year ended December 31, 1996. The fair value of the Bank's equity securities
portfolio as of December 31, 1997 totaled $6,000. For more information, see Note
3 of Notes to Consolidated Financial Statements in the Annual Report.
The Bank's portfolio of investment securities consists of securities
offering reasonably short maturities or adjustable interest rates, primarily
United States Treasury notes and Government agency obligations, mortgage-backed
securities, collateralized mortgage obligations, investment grade corporate
bonds, money market instruments and municipal tax anticipation notes. The
average life of the Bank's fixed-income investment portfolio was less than three
years at December 31, 1997, with final maturities greater than ten years. The
Bank's investment portfolio is presently managed by the Bank's Chief Financial
Officer.
G-43
<PAGE>
The following table sets forth a summary of the held to maturity and
available for sale, amortized cost and fair value of the Bank's investment
securities at the dates specified.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------------- --------------------------------------
Held to Maturity Available for Sale Held to Maturity Available for Sale
-------------------- ------------------ ------------------ -------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
--------- --------- --------- ------- --------- ------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government obligations:
Maturing within 1 year............ $ 9,992 $10,004 $ -- $ -- $12,015 $12,035 $ 2,000 $ 1,994
Maturing after 1 year but
within 5 years................... 5,488 5,506 -- -- 10,462 10,492 -- --
------- ------- --------- ------- ------- ------- ------- -------
15,480 15,510 -- -- 22,477 22,527 2,000 1,994
------- ------- --------- ------- ------- ------- ------- -------
Collaterized mortgage
obligations (CMOs):
Maturing within 1 year............ 413 413 -- -- 1,436 1,436 -- --
Maturing after 1 year
but within 5 years............... 4,598 4,591 -- -- 6,384 6,312 -- --
Maturing after 5 years
but within 10 years.............. 5,036 5,021 -- -- 740 753 -- --
Maturing after 10 years........... 40,162 40,230 -- -- 56,220 55,708 -- --
------- ------- --------- ------- ------- ------- ------- -------
50,209 50,255 -- -- 64,780 64,209 -- --
------- ------- --------- ------- ------- ------- ------- -------
Mortgage-backed securities:
Maturing within one year........... -- -- 98 98 -- -- -- --
Maturing after 1 year
but within 5 years................ -- -- -- -- -- -- 147 147
Maturing after 5 years
but within 10 years............... 217 228 -- -- -- -- -- --
Maturing after 10 years............ 33,671 33,782 10,763 10,891 12,391 12,392 8,271 8,343
------- ------- --------- ------- ------- ------- ------- -------
33,888 34,010 10,861 10,989 12,391 12,392 8,418 8,490
------- ------- --------- ------- ------- ------- ------- -------
Other bonds and obligations:
Maturing within one year........... -- -- -- -- -- -- -- --
Maturing after 1 year
but within 5 years................ -- -- -- -- -- -- -- --
------- ------- --------- ------- ------- ------- ------- -------
-- -- -- -- -- -- -- --
------- ------- --------- ------- ------- ------- ------- -------
Marketable equity securities
Mortgage-backed mutual
funds............................. -- -- -- -- -- -- 2,520 2,510
Common and preferred
stocks............................ -- -- 2 6 -- -- 324 318
------- ------- --------- ------- ------- ------- ------- -------
Totals........................ $99,577 $99,775 $10,863 $10,995 $99,648 $99,128 $13,262 $13,312
======= ======= ========= ======= ======= ======= ======= =======
<CAPTION>
December 31, 1995
--------------------------------------
Held to Maturity Available for Sale
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
U.S. Government obligations:
Maturing within 1 year...... $ 2,522 $ 2,534 $ 8,758 $ 8,828
Maturing after 1 year but
within 5 years............ 12,072 12,172 4,007 4,005
------- ------- ------- -------
14,594 14,706 12,765 12,833
------- ------- ------- -------
Collaterized mortgage
obligations (CMOs):
Maturing within 1 year...... -- -- -- --
Maturing after 1 year
but within 5 years......... 7,547 7,609 -- --
Maturing after 5 years
but within 10 years........ 6,022 6,001 -- --
Maturing after 10 years..... 57,385 57,077 -- --
------- ------- ------- -------
70,954 70,687 -- --
------- ------- ------- -------
Mortgage-backed securities:
Maturing within one year..... -- -- -- --
Maturing after 1 year
but within 5 years.......... -- -- 152 152
Maturing after 5 years
but within 10 years......... -- -- -- --
Maturing after 10 years...... 1,358 1,390 10,031 10,062
------- ------- ------- -------
1,358 1,390 10,183 10,214
------- ------- ------- -------
Other bonds and obligations:
Maturing within one year..... 709 707 -- --
Maturing after 1 year
but within 5 years.......... 1,853 1,898 -- --
------- ------- ------- -------
2,562 2,605 -- --
------- ------- ------- -------
Marketable equity securities:
Mortgage-backed mutual
funds....................... -- -- 2,375 2,369
Common and preferred
stocks...................... -- -- 370 354
------- ------- ------- -------
Totals..................... $89,468 $89,388 $25,693 $25,770
======= ======= ======= =======
</TABLE>
G-44
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Checking, savings and investment deposits have traditionally been
an important source of the Bank's funds for use in lending and for other general
business purposes. In addition to deposits, the Bank derives funds from loan
repayments, selling loans, and from other operations. The availability of funds
is influenced by general interest rates and other market conditions. Scheduled
loan repayments are a relatively stable source of funds while deposit inflows
and outflows vary widely and are influenced by prevailing interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in deposits or deposit inflows at less than projected
levels and may be used on a longer term basis to support expanded lending
activities, or to take advantage of favorable investment opportunities.
DEPOSITS. Consumer deposits are attracted principally from within the
Bank's market area through the offering of a broad selection of deposit
instruments including demand deposit accounts, NOW accounts, money market
deposit accounts, regular savings accounts, term deposit accounts and retirement
savings plans. The Bank does not actively solicit or advertise for deposits
outside of its market area. The Bank accepts deposits primarily through its
branch office network and through the "X-Press 24" automated teller machine
network, of which it is a member. The Bank also actively solicits deposits from
area businesses as part of its Business Services offerings and seeks to attract
deposits from local municipalities.
The Bank has adopted a policy of controlled deposit growth, by pricing its
savings products based on the Bank's need for additional funds and rates being
paid by other area financial institutions.
The Bank offers its customers a variety of pricing options which enable
them to select the combination of banking services which best meets their needs,
in the most cost effective manner.
In August 1994, the Bank introduced a new relationship banking product
called "Advantage CD." With this deposit offering, customers have the
opportunity to earn bonus interest each month, based upon their total deposit
and loan account balances with the Bank. As of December 31, 1997, over $78.1
million had been deposited into the 18 and 30 month Advantage CD's. In January
1996, the Bank reintroduced its club program, as the Presidents Club, producing
a package of benefits for customers with combined balances of $10,000 or more.
During 1997, Presidents Club household deposits with the Bank grew by $31.3
million to $179.3 million at December 31, 1997. In August 1997, a high rate,
high minimum balance money market account was introduced, resulting in deposits
of $19.8 million by year end 1997.
For further information regarding the Bank's deposits see Note 8 of Notes
to Consolidated Financial Statements in the Annual Report.
BORROWINGS. Savings deposits and loan repayments, as well as principal
payments and maturing investments, are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes.
Advances from the Federal Home Loan Bank ("FHLB") of Boston and other borrowings
in the form of securities sold under agreements to repurchase, are alternative
sources of funds. The Bank increased its advances from the FHLB of Boston to
finance loan originations, loan purchases and purchases of investment
securities. Advances from the FHLB of Boston were $45.6 million at December
31, 1997 compared to $32.1 million at December 31, 1996. Additional sources
of available funds include the Co-operative Central Bank Reserve Fund and the
Federal Reserve System.
G-45
<PAGE>
Advances from the Federal Home Loan Bank of Boston are summarized as
follows:
<TABLE>
<CAPTION>
Maturing in At December 31,
-------------------------------
Interest Rate Year Ending 1997 1996 1995
- - ------------- ----------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
4.19% - 5.61% 1996 $ -- $ -- $ 6,407
4.53% - 5.78% 1997 -- 26,026 694
5.60% - 6.47% 1998 34,000 5,000 --
5.71% - 6.83% 1999 11,000 1,000 1,000
8.32% 2015 47 47 47
6.67% 2017 54 -- --
5.66% 2018 500 -- --
------- ------- -------
$45,601 $32,073 $ 8,148
======= ======= =======
Weighted average rate
(cost of borrowings) 5.82% 5.70% 5.21%
======= ======= =======
Maximum amount outstanding
at any month end $71,515 $32,073 $15,354
======= ======= =======
</TABLE>
For further information regarding the Bank's borrowings see Note 9 of Notes
to Consolidated Financial Statements included in the Company's Annual Report to
Stockholders.
SUBSIDIARY ACTIVITIES
The Sextant Corporation (the "Corporation") is a wholly-owned subsidiary of
the Bank, originally formed to purchase equipment and lease the equipment to the
Bank to take advantage of favorable tax treatment previously but no longer
allowed to such transactions. In fiscal 1989, the Corporation constructed four
office condominium buildings which contain a total of sixteen thousand square
feet of office space (16 units). At December 31, 1997, eight units had been
sold, and two units have been leased. The Bank occupies the remaining units.
The Corporation also owns seven condominium units in Cedarville, Massachusetts.
These units have been written down to their appraised value and are actively
being marketed. The sales price for the units has been reduced as of March 1,
1997 to help facilitate a sale. No further losses are anticipated; the current
book value as of December 31, 1997 is $233,000.
The Company in its application to the Federal Reserve Bank of Boston
("FRB") to become a bank holding company committed to divest or convert to bank
premises the properties that are currently held by the Sextant Corporation
including the properties discussed above, pursuant to (S)225.22(f) of Regulation
Y. Section 225.22(f) of Regulation Y, which stipulates that a company that
becomes a bank holding company may, for a period of two years, engage in
nonbanking activities and control voting securities or assets of a nonbank
subsidiary, if the bank holding company engaged in such activities or controlled
such voting securities or assets on the date it became a bank holding company.
The FRB may grant requests for up to three one-year extensions of the two-year
period.
The Corporation is also a 49% partner in the Glasstown Group Partnership.
In July 1996, the Partnership sold approximately 12 acres of land on Old Kings
Highway adjacent to a major retail complex in Sandwich, Massachusetts. The
Corporation received $113,000 in cash and a note receivable for $174,000.
Principal and interest is payable in quarterly payments over a five year period.
The Corporation sustained no loss as a result of the transaction. At December
31, 1997, the Corporation's portion of the note receivable was $135,000.
G-46
<PAGE>
In March 1992, the Bank established Redeil Corporation ("Redeil"), a
Massachusetts Corporation which was established in order to allow the Bank to
transfer certain real estate owned by foreclosure to Redeil. The Bank
transferred $903,000 in real estate owned by foreclosure to Redeil in March
1992, and made an additional investment in Redeil of $20,000 in June 1992. At
July 31, 1995, the Bank dissolved Redeil and transferred its investment of
$791,000, including a real estate owned by foreclosure balance of $135,000, back
to the Bank.
In February 1993, the Bank established Sandwich Securities Corporation
("SSC"), a Massachusetts corporation for the purpose of engaging exclusively in
buying, selling and holding, on its own behalf, securities that may be held
directly by the Bank. SSC qualifies under Massachusetts General Laws, Chapter
63 Section 38B, as a Massachusetts security corporation. At December 31, 1997,
SSC held $39.6 million in U.S. Treasury notes and Government agency obligations
and mortgage-backed securities. In March 1995, the Bank established Sextant
Securities Corporation ("SEXT"), a second Massachusetts security corporation,
for the purpose of engaging exclusively in buying, selling and holding, on its
own behalf, securities that may be held directly by the Bank. At December 31,
1997, SEXT held $30.3 million in securities.
In February 1997, the Bank filed for and received permission from the
Massachusetts Commissioner of Banks to increase the amount of securities to be
held by SSC from the original amount of $15 million to an amount not to exceed
$45 million.
YIELDS EARNED AND RATES PAID
The Bank's pre-tax earnings depend primarily on its net interest income,
the difference between the income it receives on its loan portfolio and other
investments and its cost of money, consisting primarily of interest paid on
savings deposits, FHLB advances and other borrowings. Net interest income is
affected by (i) the difference ("interest rate spread") between rates of
interest earned on its interest-earning assets and rates paid on its interest-
bearing liabilities and (ii) the relative amounts of its interest-earning assets
and interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. Thrift institutions have traditionally used
interest rate spreads as a measure of net interest income. Another indicator of
an institution's net interest income is its "net yield on interest earning
assets" which is net interest income divided by average interest earning assets.
At December 31, 1997, approximately 6.4% of the Bank's total loans
outstanding consisted of fixed-rate loans with maturities of up to 30 years.
Although actions taken by management have largely reduced the Bank's reliance
on long-term fixed-rate assets in favor of short-term repricable assets, when
interest rates rise, the Bank's yield on its loan portfolio still increases at
a slower pace as the Bank's deposit base has a shorter term than its loan
portfolio and is more sensitive to rapidly increasing or decreasing rates.
G-47
<PAGE>
COMPETITION
The Bank's competition for deposits has historically come from other co-
operative banks, savings banks, savings and loan associations, trust companies,
commercial banks and credit unions located in Massachusetts generally, and on
Cape Cod specifically, some of which have greater financial resources than the
Bank. Based upon FDIC data for branch deposits as of June 30, 1997, the Bank
ranked fourth in total deposits in its principle market of Barnstable County
(Cape Cod), when compared to other deposit gathering institutions. The Bank has
also experienced significant additional competition for investors' funds from
short term money market funds, mutual funds, annuities and other corporate and
government securities yielding interest rates which have been higher than those
being paid by the Bank on savings deposits or containing other favorable
features. The Bank anticipates that it will face continuing competition from
other financial intermediaries for deposits.
The Bank competes for deposits principally by offering depositors a wide
variety of checking, savings and investment programs, convenient branch
locations, 24-hour automated teller machine access, preauthorized payment and
withdrawal systems, tax-deferred retirement programs, and other miscellaneous
services. The Bank does not rely upon any individual, group or entity for a
material portion of its deposits.
The Bank's competition for real estate loans comes principally from
mortgage banking companies, co-operative banks and savings banks, savings and
loan associations, commercial banks, insurance companies and other institutional
lenders. The Bank competes for loan originations primarily through the interest
rates and loan fees it charges and the efficiency and quality of services it
provides borrowers, real estate brokers and builders. For 1997, Banker and
----------
Tradesman listed the Bank as being the third largest originator of residential
- - ---------
mortgages on Cape Cod (Barnstable County), Massachusetts, by dollar amount. The
competition for loans encountered by the Bank, as well as the types of
institutions with which the Bank competes, varies from time to time depending
upon certain factors including the general availability of lendable funds and
credit, general and local economic conditions, current interest rate levels,
volatility in the mortgage markets and other factors which are not readily
predictable.
In addition to competing with other banks and financial services
organizations based in Massachusetts, the Bank has and is expected to face
competition from major commercial banks headquartered outside of Massachusetts
as a result of regional interstate banking laws which currently permit banks
located in New England to enter the Bank's market area and compete with it for
deposits and loan originations. The Bank also faces increased competition as a
result of the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 which, as of September 29, 1995, allowed the Federal Reserve Board to
approve a bank holding company's application to acquire control of, or
substantially all of the assets of, a Massachusetts bank without regard to
Massachusetts law.
Bank regulation is undergoing significant change with an increased number
of bank mergers and acquisitions, changes in the products and services banks can
offer, and involvement in non-banking activities by bank holding companies.
There are a number of pending legislative and regulatory proposals that may
further alter the structure, regulation, and competitive relationships of
financial institutions.
The Bank is headquartered in Sandwich, Massachusetts and operates a network
of eleven full service offices and one loan production office. The Bank's eleven
full service office facilities are located in Sandwich, South Sandwich, Buzzards
Bay (Bourne), Pocasset (Bourne), Wareham, Cedarville (Plymouth), Falmouth,
Hyannis, Chatham, Orleans
G-48
<PAGE>
and South Yarmouth, Massachusetts. The Bank's main office is located at 100 Old
Kings Highway, Sandwich, Massachusetts. In addition, the Bank maintains a loan
production office located in Plymouth, Massachusetts. Nine of the offices are
located on Cape Cod in Barnstable County, while the Wareham and Cedarville
offices are located in Plymouth County. The Bank's primary market area within
which the majority of the properties securing loans originated by the Bank are
located, encompasses the southern portion of Plymouth County and all of Cape Cod
(Barnstable County), Massachusetts.
EMPLOYEES
As of December 31, 1997, the Company and subsidiaries had 128 full-time and
39 part-time employees. The employees are not represented by any collective
bargaining agreement. Management considers its relations with its employees to
be good.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The executive officers of the Bank are as follows:
<TABLE>
<CAPTION>
Age at
December 31,
Name 1997 Principal Position
---- ------------ ------------------
<S> <C> <C>
Dana S. Briggs 46 Senior Vice President
George L. Larson 54 Senior Vice President, Chief Financial Officer and Treasurer
David A. Parsons 54 Senior Vice President
</TABLE>
The following is a description of the principal occupation and employment
of the executive officers of the Company during at least the past five years:
DANA S. BRIGGS joined the Bank in 1983 as Assistant Vice President and Main
Office Manager and in 1984 became the Bank's Vice President of Administration.
Presently as Senior Vice President and Senior Retail/Operations Officer, he is
in charge of the Bank's branches, operations and marketing. From 1973 to 1983,
Mr. Briggs was employed by Bass River Savings Bank and Barnstable County
National Bank.
GEORGE L. LARSON started with the Bank in November 1986 as Senior Vice
President and Chief Financial Officer and is responsible for the Financial
Division of the Bank. Mr. Larson came to the Bank with 15 years of bank
accounting and finance experience. From 1978 to 1986, Mr. Larson was employed by
Jefferson Federal Savings and Loan Association in Meriden, CT, as Senior Vice
President and Treasurer, in which capacities he was in charge of the Jefferson
Federal's accounting and data processing operations and managed the
Association's investment portfolio.
DAVID A. PARSONS joined the Bank in December, 1990 as Senior Vice
President, Senior Loan Officer and is responsible for the Bank's Lending
Division. He was employed from 1969-1989 by Shawmut Bank. His career has covered
consumer lending and collection, commercial loan collection and workouts and
equipment financing & leasing. In 1989, Mr. Parsons was employed as an Executive
Vice President/Senior Credit Officer at Home National Bank in Milford,
Massachusetts. Upon Home National's closing, Mr. Parsons was employed by the
FDIC until August 1990. From August 1990 until being hired full-time by the Bank
in December 1990, Mr. Parsons was employed as a consultant to the Bank.
G-49
<PAGE>
SANDWICH BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
1998 December 31,
(Unaudited) 1997
----------- -------------
(In thousands)
ASSETS
Cash and due from banks $12,742 $ 9,949
Federal funds sold 16,814 6,018
------- -------
Total cash and cash equivalents 29,556 15,967
------- -------
Other short-term investments 2,120 101
Investment securities:
Available for sale 20,629 10,995
Held to maturity 84,157 99,577
------- -------
Total investment securities 104,786 110,572
------- -------
Loans:
Mortgage loans 346,064 346,062
Other loans 23,641 24,680
-------- --------
Total loans 369,705 370,742
Less allowance for loan losses 4,134 4,100
-------- --------
Net loans 365,571 366,642
-------- --------
Stock in Federal Home Loan Bank of Boston,
at cost 3,749 3,749
Accrued interest receivable 2,602 2,836
The Co-operative Central Bank Reserve Fund 965 965
Real estate held for sale 457 457
Real estate acquired by foreclosure 280 596
Office properties and equipment 4,562 4,641
Leased property under capital lease 1,730 1,738
Core deposit and other intangibles 1,347 1,459
Income taxes receivable, net - 103
Deferred income tax asset, net 2,951 2,948
Prepaid expenses and other assets 5,853 5,923
------- -------
Total assets $526,529 $518,697
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $426,729 $423,014
Borrowed funds 47,601 45,601
Capital lease obligation 1,730 1,738
Escrow deposits of borrowers 1,857 1,604
Income taxes payable, net 583 -
Accrued expenses and other liabilities 5,467 4,726
-------- --------
Total liabilities 483,967 476,683
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share;
authorized 5,000,000 shares; none issued
or outstanding -- --
Common stock, par value $1.00 per share;
authorized 15,000,000 shares; 1,945,756
and 1,942,159 issued and outstanding,
respectively 1,946 1,942
Additional paid-in capital 20,167 20,139
Retained earnings 23,347 19,848
Accumulated other comprehensive income 102 85
-------- --------
Total stockholders' equity 42,562 42,014
-------- --------
Total liabilities and stockholders'
equity $526,529 $518,697
======== ========
See accompanying notes to unaudited consolidated financial statements.
G-50
<PAGE>
SANDWICH BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-------------------
1998 1997
------ ------
(In thousands, except
per share amounts)
INTEREST AND DIVIDEND INCOME
Interest on loans $ 7,344 $ 6,507
Interest and dividends on investment
securities available for sale 209 167
Interest on investment securities held
to maturity 1,514 1,618
Interest on short-term investments 117 33
------ ------
Total interest and dividend income 9,184 8,325
------ ------
INTEREST EXPENSE
Deposits 4,030 3,581
Borrowed funds 732 541
------ ------
Total interest expense 4,762 4,122
------ ------
Net interest and dividend income 4,422 4,203
Provision for loan losses 57 109
------ ------
Net interest and dividend income after
provision for loan losses 4,365 4,094
------ ------
NON-INTEREST INCOME
Service charges 402 406
Mortgage loan servicing fees 67 63
Gain on sale of loans, net 158 40
Other (21) 107
------ ------
Total non-interest income 606 616
------ ------
Income before non-interest expense and
income taxes 4,971 4,710
------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,598 1,528
Occupancy and equipment 362 372
FDIC deposit insurance 19 18
Advertising 118 101
Data processing service fees 162 156
Foreclosed property expense 16 16
Amortization of core deposit intangible 112 131
Other 646 683
------ ------
Total non-interest expense 3,033 3,005
------ ------
Income before income tax expense 1,938 1,705
Income tax expense 758 658
------ ------
Net income $1,180 $1,047
====== ======
Basic earnings per share $ 0.61 $ 0.55
====== ======
Diluted earnings per share $ 0.58 $ 0.53
====== ======
Average basic shares outstanding 1,945 1,904
Dilutive effect of outstanding stock options 95 84
------ ------
Average diluted shares outstanding 2,040 1,988
====== ======
See accompanying notes to unaudited financial statements.
G-51
<PAGE>
SANDWICH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Retained comprehensive
Stock capital earnings income Total
------ ---------- -------- ---------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $1,902 $19,323 $17,381 $ 27 $38,633
Net income for three months -- -- 1,047 -- 1,047
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment 16 16
-------
Comprehensive income 1,063
Dividends declared ($0.30 per share) -- -- (572) -- (572)
Stock options exercised 4 43 -- -- 47
------ ------- ------- ----- -------
Balance at March 31, 1997 $1,906 $19,366 $17,856 $ 43 $39,171
====== ======= ======= ===== =======
Balance at December 31, 1997 $1,942 $20,139 $19,848 $ 85 $42,014
Comprehensive income:
Net income for three months -- -- 1,180 -- 1,180
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment 17 17
-------
Comprehensive income 1,197
Dividends declared ($0.35 per share) -- -- (681) -- (681)
Stock options exercised 4 28 -- -- 32
------ ------- ------- ----- -------
Balance at March 31, 1998 $1,946 $20,167 $20,347 $ 102 $42,562
====== ======= ======= ===== =======
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Unrealized holding gains arising during
period $ 17
Less: reclassification adjustment for
gains included in net income --
-----
Net unrealized gains on securities $ 17
=====
</TABLE>
See accompanying notes to consolidated financial statements.
G-52
<PAGE>
SANDWICH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------
1998 1997
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,180 $ 1,047
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 57 109
Provision for loss and writedowns of real
estate acquired by foreclosure 13 11
Depreciation and amortization 272 161
(Increase) decrease in:
Accrued interest receivable 234 89
Deferred income tax asset, net (12) (30)
Other assets 70 1,216
Income taxes receivable 103 --
Core deposit intangible 112 131
Increase(decrease)in:
Escrow deposits of borrowers 253 600
Income tax payable 583 170
Accrued expenses and other liabilities 741 (1,678)
Gain on sales of loans, net (158) (40)
Principal balance of loans originated
for sale (17,660) (2,312)
Principal balance of loans sold 17,786 2,307
Loss on sales of investment securities, net -- 6
Gain on sales of real estate acquired by
foreclosure (25) --
------- -------
Total adjustments 2,369 740
------- -------
Net cash provided by operating activities 3,549 1,787
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available
for sale (10,362) (13)
Purchases of investment securities held to
maturity -- (1,016)
Proceeds from sales of investment securities
available for sale -- 2,527
Proceeds from maturities and paydowns of
investment securities available for sale 739 2,460
Proceeds from maturities and paydowns of
investment securities held to maturity 15,325 9,195
(Increase) decrease in:
Short-term investments (2,019) (3,004)
Loans 916 (15,679)
Investments in real estate -- 3
Proceeds from sale of real estate acquired by
foreclosure 458 217
Purchase of office properties and equipment (83) (71)
------- -------
Net cash provided (used) by investing
activities 4,974 (5,381)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 3,715 (3,414)
Advances from the Federal Home Loan Bank
of Boston 16,000 53,000
Repayment of Federal Home Loan Bank advances (14,000) (38,526)
Cash dividends paid (681) (572)
Stock options exercised 32 47
------- -------
Net cash provided by financing activities 5,066 10,535
------- -------
Net increase in cash and federal funds sold 13,589 6,941
Cash and federal funds sold, beginning of
period 15,967 11,718
------- -------
Cash and federal funds sold, end of period $29,556 $18,659
======= =======
CASH PAID FOR
Interest on deposits $ 4,035 $ 3,581
======= =======
Interest on borrowed funds $ 730 $ 508
======= =======
Income taxes, net $ 94 $ 516
======= =======
OTHER NON-CASH ACTIVITIES
Deferred taxes on change in unrealized (gain)
loss on securities available for sale $ (9) $ (1)
======= =======
Additions to real estate acquired by
foreclosure $ 130 $ 524
======= =======
See accompanying notes to unaudited consolidated financial statements.
G-53
<PAGE>
SANDWICH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
March 31, 1998 and 1997
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited consolidated financial statements of Sandwich Bancorp, Inc.(the
"Company") and its wholly owned subsidiary, the Sandwich Co-operative Bank (the
"Bank") presented herein should be read in conjunction with the consolidated
financial statements of the Company as of and for the year ended December 31,
1997. In the opinion of management, the interim financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the three months ended March 31, 1998 and 1997. Interim results
are not necessarily indicative of results to be expected for the entire year.
Certain reclassifications have been made to the December 31, 1997 and the March
31, 1997 balances to conform with March 31, 1998 presentation. Management is
required to make estimates and assumptions that effect amounts reported in the
financial statements. Actual results could differ significantly from those
estimates.
GENERAL
On September 30, 1997, the Registrant completed the acquisition of the Sandwich
Co-operative Bank (the "Bank") pursuant to a Plan of Reorganization and
Acquisition, dated January 27, 1997, pursuant to which the Bank became a wholly
owned subsidiary of the Registrant, a newly formed holding bank incorporated by
the Bank for that purpose. Under the terms of the Plan of Reorganization and
Acquisition, each outstanding share of the common stock, $1.00 par value per
share, of the Bank (the "Bank's Common Stock") was converted into one share of
the common stock, $1.00 par value per share, of the Registrant (the "Common
Stock") and the former holders of the Bank's Common Stock became the holders of
all the outstanding Common Stock. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income, which is defined as all changes to equity except investments by and
distributions to shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate as other
comprehensive income. This statement is effective for 1998 financial statements
and is not expected to have a material effect on the financial statements. This
statement was adopted in the first quarter of 1998 and did not have a material
effect on the financial statements.
RECENT EVENTS
On February 2, 1998, the Company and the Bank entered into a definitive
agreement under which Compass Bank of New Bedford, Massachusetts will acquire
Sandwich Bancorp, Inc. Prior to the Company's consideration and approval of its
definitive agreement with Compass Bank, the Company had contacted and received
expressions of interest from three other parties who had an interest in an
acquisition of the Company.
On February 24, 1998, the Company announced that its Board of Directors,
consistent with the exercise of its fiduciary duties, determined that it was
appropriate to request additional information and a clarification of the renewed
expressions of interest that it had recently received subsequent to February 2
from the three other parties.
G-54
<PAGE>
Following a comprehensive review of the other expressions of interests for the
Company, the Company and Compass Bank jointly announced on March 23, 1998, that
they had signed an amendment to their previously announced agreement of February
2, 1998 by which Compass Bank would acquire Sandwich Bancorp, Inc. Under the
terms of the amended agreement, Compass Bank's parent company, The 1855 Bancorp
will convert to a 100% publicly owned stock holding company and thereafter issue
stock having a value of $64.00 per share to Sandwich Bancorp shareholders in a
tax- free exchange of common stock. The value to be received by Sandwich Bancorp
shareholders is subject to adjustment pursuant to a formula based on the value
of the stock of The 1855 Bancorp near the transaction date. Based on 1855
Bancorp's assumed initial public offering price of $10.00 per share, each
Sandwich Bancorp share will be exchanged for 1855 Bancorp stock having a value
of $64.00 per share so long as 1855 Bancorp stock trades at an average price of
between $10.00 and $13.50 per share during a designated trading period following
the initial public offering date. If this average price exceeds $13.50 per
share, the value to be received by Sandwich Bancorp shareholders will increase
proportionately up to a maximum value of $71.11 until 1855 Bancorp's average
price reaches or exceeds $15.00 per share. If this average price is equal to or
less than $10.00 per share, Sandwich Bancorp shares will be exchanged for 6.4
shares of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock Option
Agreement, granting to The 1855 Bancorp an option to acquire up to 19.9% of
Sandwich's common stock under certain circumstances. The transaction, which is
subject to all necessary regulatory and shareholder approvals, is expected to
close in the fourth quarter of 1998.
G-55
<PAGE>
SANDWICH BANCORP, INC.
---------------------
Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
FINANCIAL CONDITION
The following is a discussion of the major changes and trends in financial
condition as of March 31, 1998 as compared to December 31, 1997.
At March 31, 1998, the Company's total assets were $526,529,000 as compared to
$518,697,000 at December 31, 1997, an increase of $7,832,000 or 1.5%. The
increase is largely attributable to increases in cash and cash equivalents and
other short-term investments, partially offset by a decrease in investment
securities. Total cash and cash equivalents at March 31, 1998 totaled
$29,556,000 compared to $15,967,000 at December 31, 1997, an increase of
$13,589,000. The increase was the result of cash flow from loan repayments
reinvested into federal funds sold. The Company's investment portfolio,
including other short-term investments, investment securities available for sale
and investment securities held to maturity decreased $3,767,000 or 3.4% to
$106,906,000 at March 31, 1998 compared to $110,673,000 at December 31, 1997.
Maturities on investment securities and cash flow from mortgage-backed
securities were reinvested into investment securities available for sale.
The major components of investment securities at March 31, 1998 and December 31,
1997 are as follows:
March 31, December 31,
1998 1997
------------- -----------
(In thousands)
Available-for-sale:
US Government obligations $ 1,000 $ --
Mortgage-backed securities 19,469 10,861
Common and preferred stocks 2 2
Unrealized gain on investment
securities available for sale 158 132
-------- --------
20,629 10,995
-------- --------
Held-to-maturity:
US Government obligations 12,985 15,480
Collateralized mortgage obligations 44,619 50,209
Mortgage-backed securities 26,553 33,888
-------- --------
84,157 99,577
-------- --------
Total $104,786 $110,572
======== ========
The New England and local real estate markets have been positively impacted by a
decline in market interest rates, occurring late in the fourth quarter of 1997
and continuing through the first quarter of 1998. The decline has created a
significant increase in fixed rate loan originations and loan refinances. As
evidence of this, the Company's loan portfolio, net of allowance for loan
losses, realized a slight decrease to $365,571,000 at March 31, 1998 compared to
$366,642,000 at December 31, 1997, through early payoffs and principal
amortization. In addition, property acquired by the Company as the result of
foreclosure or repossession decreased to $280,000 at March 31, 1998 from
$596,000 at December 31, 1997. Foreclosed properties are classified as "real
estate acquired by foreclosure," representing the lower of the carrying value of
the loan or the fair value of the property less costs to sell until such time as
they are sold or otherwise disposed. During the three months ended March 31,
1998, the Company acquired two properties through foreclosure or repossession,
of which one was a land loan totaling $30,000 and one, a commercial mortgage
loan totaling $100,000. During the same period, the Company sold four foreclosed
residential properties totaling $458,000.
G-56
<PAGE>
Management anticipates continued stability in the economy in 1998. However, the
local real estate market continues to represent a risk to the Company's loan
portfolio and could result in an increase in, and reduced values of, properties
acquired by foreclosure. Accordingly, higher provisions for loan losses and
foreclosed property expense may be required should economic conditions worsen or
the levels of the Company's non- performing assets increase.
Deposits increased by $3,715,000 or 0.9% to $426,729,000 at March 31, 1998
compared to $423,014,000 at December 31, 1997. Substantially all of the increase
was realized in money market deposit accounts, passbook savings and checking
accounts. Borrowed funds increased by $2,000,000 to $47,601,000 at March 31,
1998 compared to $45,601,000 at December 31, 1997. Advances from the Federal
Home Loan Bank of Boston were utilized to fund the purchase of investment
securities.
Total stockholders' equity increased $548,000 or 1.3% since December 31, 1997.
Increases in stockholders' equity resulted from net income of $1,180,000, stock
options exercised of $32,000 and an increase in net unrealized gains on
investment securities available for sale of $17,000, partially offset by cash
dividends paid of $0.35 per share or $681,000. The Company is required to
maintain certain levels of capital (stockholders' equity) pursuant to FDIC
regulations. At March 31, 1998, the Company had a qualifying total capital to
risk-weighted assets ratio of 15.27%, of which 7.98% constituted Tier 1 leverage
capital, substantially exceeding the FDIC qualifying total capital to
risk-weighted assets requirement of at least 8.00%, of which at least 4.00% must
be Tier 1 leverage capital.
As a result of the amendment to the Merger Agreement of February 2, 1998, which
was signed on March 23, 1998, the new terms, being a stock-for-stock
transaction, will allow the Company to record the transaction under the
pooling-of-interest method. Under the pooling-of-interest method, the Company is
allowed to defer all merger-related expenses (versus expensing as incurred).
During the first quarter of 1998, the Company incurred approximately $627,000 of
merger-related expenses, which have been deferred and will be recognized during
the quarter when the merger is complete.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL
Operations for the three months ended March 31, 1998 resulted in net income of
$1,180,000 compared with $1,047,000 for the three months ended March 31, 1997.
The principal reason for the increase was improvement in net interest and
dividend income resulting from growth in the residential mortgage loan portfolio
from $214,708,000 at March 31, 1997 to $253,398,000 at March 31, 1998.
Additionally, increases in net gains on the sale of loans in the secondary
market were realized for the three months ended March 31, 1998. Market interest
rates have remained low over the three month period, a continuance from the
initial decline experienced late in the fourth quarter of 1997. The Company's
results of operations largely depend upon its net interest margin which is the
difference between the income earned on loans and investments, and the interest
expense paid on deposits and borrowings divided by total interest earning
average assets. The net interest margin is affected by economic and market
factors which influence interest rate levels, loan demand and deposit flows. The
net interest margin decreased to 3.56% for the three months ended March 31, 1998
from 3.78% for the three months ended March 31, 1997.
Trends in the real estate market locally and in New England impact the Company
because of its real estate loan portfolio. If the local and New England real
estate markets should show signs of weakness, additional provisions for loan
losses and further write downs of properties acquired by foreclosure or
repossession may be necessary in the future. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on information available at the
time of their review.
G-57
<PAGE>
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased by $859,000 or 10.3% to $9,184,000 for
the three months ended March 31, 1998 when compared to three months ended March
31, 1997. Interest on loans increased $837,000 or 12.9% as a result of an
increase in the average balance outstanding of $45,142,000, partially offset by
a decrease in the average rate earned on the portfolio from 7.97% in the first
quarter of 1997 to 7.90% for the same period in 1998. Interest and dividends on
total investments increased by $27,000 as a result of the increase in the
average balance outstanding of $5,980,000. The yield on the Company's investment
portfolio decreased to 5.99% for the March 31, 1998 period, as compared to 6.20%
for March 31, 1997.
INTEREST EXPENSE
Total interest expense increased $640,000 to $4,762,000 for the three months
ended March 31, 1998, from $4,122,000 for the three months ended March 31, 1997.
Interest expense on interest bearing deposits increased by $449,000 or 12.5%.
The increase reflects an increase in the average balance outstanding of
$34,371,000 and an increase in interest rates over the three month period, from
4.07% in 1997 to 4.17% in 1998. Interest expense on borrowed funds increased
$191,000 primarily due to an increase in the average balance outstanding of
$12,865,000, along with a slight increase in interest rates over the three month
period from 5.74% in 1997 to 5.79% in 1998. Advances from the Federal Home Loan
Bank of Boston were used to fund the purchase of investment securities. Interest
rates on interest bearing deposits and borrowed funds for the three months ended
March 31, 1998 increased to 4.39% from 4.26% when compared to the same period in
1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to earnings for the three months ended
March 31, 1998 was $57,000, compared to $109,000 charged to earnings for the
1997 period. The decrease was the result of a decline in non-performing assets
for the three months ended March 31, 1998. At March 31, 1998, total
non-performing assets were $3,141,000 representing 0.60% of total assets,
compared to $5,132,000 or 1.08% of total assets at March 31, 1997. Management's
analysis of the loan portfolio considers risk elements by loan category, and
also the prevailing economic climate and anticipated future uncertainties.
Future adjustments to the allowance for loan losses may be necessary if economic
conditions differ substantially from assumptions used in performing the
analysis, or the levels of the Company's non- performing assets increase
significantly.
Non-accrual loans as of March 31, 1998 decreased $1,510,000 to $2,861,000 when
compared to the March 31, 1997 balance of $4,371,000. Substantially all of the
decrease was attributed to non-accrual residential mortgage loans. Restructured
loans at March 31, 1998 were $105,000 compared to $107,000 at March 31, 1997.
Typically, restructured loans are modified to provide either a reduction of the
interest on the loan principal or an extension of the loan maturity.
Non-performing assets and the percentage of such assets to total loans and total
assets are as follows:
(Dollars in thousands) March 31, December 31, March 31,
1998 1997 1997
------------ ----------- -------------
Non-performing assets:
Non-accrual loans:
Mortgage loans $2,631 $3,283 $3,786
Other loans 230 298 585
------ ------ ------
Total non-accrual loans 2,861 3,581 4,371
Real estate acquired by
foreclosure 280 596 761
------ ------ ------
Total non-performing assets $3,141 $4,177 $5,132
====== ====== ======
G-58
<PAGE>
March 31, December 31, March 31,
1998 1997 1997
------------ ----------- -----------
Non-accrual loans as a
percentage of:
Total loans receivable 0.77% 0.97% 1.30%
==== ==== ====
Total assets 0.54% 0.69% 0.92%
==== ==== ====
Non-performing assets as a
percentage of:
Total assets 0.60% 0.81% 1.08%
==== ==== ====
NON-INTEREST INCOME
Non-interest income decreased $10,000 for the three months ended March 31, 1998
when compared to the same period in 1997. Substantially all of the decrease was
due to a decline of $128,000 in other non-interest income resulting from the
write- off of premium paid on ARM loan purchases and mortgage-backed securities
as a result of accelerated principal pre-payments. The decline was partially
offset by an increase of $118,000 in net gains realized on the sale of fixed
rate loans in the secondary market resulting from increased fixed rate loan
originations due to a decline in market interest rates late in the fourth
quarter of 1997 and continuing through the first quarter of 1998.
NON-INTEREST EXPENSE
Non-interest expense increased by $28,000 or 0.9% for the three months ended
March 31, 1998 compared to the three months ended March 31, 1997. Increases in
salaries and employee benefits were incurred, partially offset by increases in
deferred loan origination costs and a reduction in non-accrual loan expenses.
INCOME TAX EXPENSE
The Company incurred income tax expense of $758,000 for the three months ended
March 31, 1998 compared with $658,000 in the 1997 period. Substantially all of
the increase is due to the increase in pre-tax earnings. Factors such as the
Company's earnings and equity securities gains or losses will affect income
taxes recorded in the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Substantially all of the Company's funds are generated through its Company's
subsidiary, the Sandwich Co-operative Bank. The Bank's primary sources of
liquidity are deposits, loan payments and payoffs, investment income and
maturities and principal payments of investments, mortgage-backed securities and
CMOs, advances from the Federal Home Loan Bank of Boston, and other borrowings.
As a member of the Co-operative Central Bank's Share Insurance Fund, the Company
also has a right to borrow from the Share Insurance Fund for short-term cash
needs by pledging certain assets, although it has never exercised this right.
The Company's liquidity management program is designed to assure that sufficient
funds are available to meet its daily needs. The Company believes its capital
resources, including deposits, scheduled loan repayments, revenue generated from
the sales of loans and investment securities, unused borrowing capacity at the
Federal Home Loan Bank of Boston, and revenue from other sources will be
adequate to meet its funding commitments. At March 31, 1998 and December 31,
1997 the Company's and the Bank's capital ratios were in excess of regulatory
requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response is incorporated herein by reference from the discussion under the
subcaption "Asset and Liability Management and Market Risk" of the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in the Annual Report, included as Part II, Item 7 of the Form 10-K,
which is incorporated herein by reference.
G-59
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the Offering made hereby and, if given or made,
such other information or representation must not be relied upon as having been
authorized by The 1855 Bancorp, Compass Bank for Savings, Ryan Beck & Co., Inc.,
McConnell, Budd & Downes, Sandwich Bancorp, Inc. or The Sandwich Co-operative
Bank. This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby to any person in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of The 1855 Bancorp, Compass Bank for Savings, Sandwich
Bancorp, Inc. or The Sandwich Co-operative Bank since any of the dates as of
which information is furnished herein or since the date hereof.
-----------
TABLE OF CONTENTS
Summary of Prospectus ................................................... 1
Selected Consolidated Financial And Other Data of Seacoast Financial .... 9
Selected Consolidated Financial And Other Data of Sandwich Bancorp ...... 11
Selected Unaudited Pro Forma Consolidated Financial Data of
Seacoast Financial .................................................... 13
Forward-looking Statements .............................................. 15
Risk Factors ............................................................ 15
Pro Forma Data .......................................................... 21
Use of Proceeds of Conversion ........................................... 39
Seacoast Financial's Dividend Policy .................................... 40
Market for Seacoast Financial Common Stock .............................. 40
Seacoast Financial and Subsidiary Consolidated Statements of Income ..... 41
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Seacoast Financial ........................... 42
Business of Seacoast Financial .......................................... 57
Business of Compass ..................................................... 57
Certain Effects of the Merger on Seacoast Financial ..................... 85
The Conversion and the Merger ........................................... 88
Federal and State Taxation of Seacoast Financial and Subsidiary ......... 106
Regulation of Seacoast Financial and Subsidiaries ....................... 108
Management of Seacoast Financial and Compass ............................ 115
Summary Compensation Table .............................................. 118
Purchases by Management of Seacoast Financial and Compass ............... 123
The Offerings ........................................................... 124
Description of Capital Stock of Seacoast Financial ...................... 131
Restrictions on Acquisition of Seacoast Financial and Compass ........... 132
Transfer Agent and Registrar for Seacoast Financial Common Stock ........ 136
Legal Opinions .......................................................... 136
Experts ................................................................. 136
Additional Information .................................................. 137
Index to Consolidated Financial Statements .............................. F-1
-----------
Until the later of _______________, 1998 and 25 days after commencement of a
broker assisted public offering, if any, all dealers effecting transactions in
the registered securities, whether or not participating in this distribution,
may be required to deliver this Prospectus when acting as underwriters and with
respect to their unsold allotments of subscriptions.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be paid by Seacoast
Financial in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions. All amounts
shown are estimates except for amounts of filing and listing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee .................... $ 117,041
National Association of Securities Dealers, Inc. filing fee ...... 30,500
Nasdaq National Market System listing fee ........................ 70,000
Secretary of State of The Commonwealth of Massachusetts .......... 100,000
Accounting fees and expenses ..................................... 218,000
Legal fees and expenses .......................................... 537,000
Blue Sky fees and expenses (including related legal fees)......... 12,500
Printing, engraving, postage and EDGAR expenses................... 350,000
Consulting fees and expenses ..................................... 75,000
Appraisal and Business Plan fees and expenses .................... 80,000
Data processing fees and expenses ................................ 65,000
Miscellaneous .................................................... 112,959
Total .......................................................... $1,768,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 67 of Chapter 156B of the Massachusetts General Laws (the "MGL")
authorizes a corporation to indemnify its directors, officers, employees and
other agents unless such person shall have been adjudicated in any proceeding
not to have acted in good faith in the reasonable belief that such action was in
the best interests of the corporation or, to the extent such matter related to
service with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan. The Articles of
Organization of Seacoast Financial provide that each Director of Seacoast
Financial and each officer appointed or elected by the Board of Directors of
Seacoast Financial shall be indemnified by Seacoast Financial to the extent
permitted by law against any expenses incurred by such person in connection with
any proceeding in which he or she is involved as a result of (i) his or her
serving or having served as a Director, officer or employee of Seacoast
Financial, (ii) his or her serving or having served as a Director, officer or
employee of any of Seacoast Financial's wholly owned subsidiaries or (iii) his
or her serving or having served in any capacity with respect to any other
corporation, organization, partnership, joint venture, trust, employee benefit
plan or other entity at the request or direction of Seacoast Financial. The
Board of Directors may, in its discretion, indemnify non-officer employees of
Seacoast Financial. In accordance with Massachusetts law, the Articles also
provide that no indemnification shall be provided with respect to a matter as to
which the indemnitee shall have been determined by final judicial decision from
which there is no further right to appeal that the indemnitee is not entitled to
be indemnified for such expenses.
The Articles of Organization also provide that no Director of Seacoast
Financial shall be personally liable to Seacoast Financial or its stockholders
for monetary damages for breach of fiduciary duty as a Director notwithstanding
any provision of law imposing such liability. However, in conformity with
Section 13(b) (11/2) of Chapter 156B of the MGL, a Director shall be liable (i)
for any breach of the Director's duty of loyalty to Seacoast Financial or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Sections 61 or
62 of Chapter 156B of the MGL or (iv) with respect to any transaction from which
the Director derived an improper personal benefit.
The effect of these provisions would be to permit indemnification by
Seacoast Financial for liabilities arising out of the Securities Act.
II-1
<PAGE>
Section 67 of Chapter 156B of the MGL also affords a Massachusetts
corporation the power to obtain insurance on behalf of its directors and
officers against liabilities incurred by them in those capacities. Seacoast
Financial has procured a directors and officers liability and company
reimbursement liability insurance policy that (i) insures directors and officers
of Seacoast Financial against losses (above a deductible amount) arising from
certain claims made against them by reason of certain acts or omissions of such
directors or officers in their capacity as directors or officers and (ii)
insures Seacoast Financial against losses (above a deductible amount) arising
from any such claims, but only if Seacoast Financial is required or permitted to
indemnify such directors or officers for such losses under statutory or common
law or under provisions of Seacoast Financial's Articles of Organization or
By-Laws.
Reference is also made to Section of the Agency Agreement between Ryan
Beck and Compass, filed as Exhibit 1.2 to this Registration Statement, for a
description of indemnification arrangements between Ryan Beck and Compass.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<S> <C>
1.1 Engagement Letter between Seacoast Financial Services Corporation, Compass Bank for
Savings and Ryan, Beck & Co., Inc.
1.2 Form of Agency Agreement between Compass Bank for Savings and Ryan, Beck & Co., Inc.*
2 Seacoast Financial Services Corporation Plan of Conversion (the two documents that are
attached as Exhibit A to such plan are attached to this Registration Statement as Exhibits 3.1
and 3.2, respectively)
3.1 Articles of Organization of Seacoast Financial Services Corporation
3.2 By-Laws of Seacoast Financial Services Corporation
4 Specimen certificate for the common stock of Seacoast Financial Services Corporation*
5 Form of Opinion of Foley, Hoag & Eliot LLP regarding legality of securities being registered*
8.1 Form of Opinion of Foley, Hoag & Eliot LLP regarding certain tax matters*
8.2 Letter from RP Financial, LC. with respect to value of subscription rights issued under the
Seacoast Financial Services Corporation Plan of Conversion*
10.1 Employment Agreement by and among Seacoast Financial Services Corporation, Compass Bank
for Savings and Kevin G. Champagne
10.2 Form of Employment Agreement by and among Compass Bank for Savings, Seacoast Financial
Services Corporation and certain Officers of Compass Bank for Savings
10.3 Form of Change in Control Agreements by and among Seacoast Financial Services Corporation,
Compass Bank for Savings, Kevin G. Champagne and certain other Officers of Compass
Bank for Savings
10.4 Form of Change in Control Agreement by and among Seacoast Financial Services Corporation,
Compass Bank for Savings and certain Officers of Compass Bank for Savings.
10.5 Form of Executive Salary Continuation Agreements made and entered into by and between
Compass Bank for Savings and Kevin G. Champagne, Arthur W. Short, John D. Kelleher and
Francis S. Mascianica and forms of amendments thereto
10.6 Trust Agreement, made as of December 18, 1992, by and between Compass Bank for Savings
and Shawmut Bank, N.A.
10.7 Compass Bank for Savings October 1995 Incentive Plan*
10.8 Amended and Restated Affiliation and Merger Agreement dated as of March 23, 1998 by and
among Seacoast Financial Services Corporation, Compass Bank for Savings, Sandwich
Bancorp, Inc. and the Sandwich Co-operative Bank
10.9 Stock Option Agreement dated as of March 23, 1998 by and between Sandwich Bancorp, Inc.
and Seacoast Financial Services Corporation
10.10 Form of Voting Agreements between Seacoast Financial Services Corporation and the Directors
of Sandwich Bancorp, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.11 Form of Affiliates Agreements between Seacoast Financial Services Corporation and certain
affiliates of Sandwich Bancorp, Inc.
10.12 Compass Bank for Savings Executive Deferred Compensation Plan
10.13 Rabbi Trust for Compass Bank for Savings Executive Deferred Compensation Plan
10.14 Employment Agreements dated July 18, 1994 by and between Sandwich Co-operative Bank and
Frederic D. Legate, Dana S. Briggs and George L. Larson*
10.15 Employment Agreement dated December 17, 1991 by and between Sandwich Co-operative
Bank and David A. Parsons*
10.16 Sandwich Co-operative Bank 1983 Directors Deferred Income Agreement*
10.17 Sandwich Co-operative Bank 1992 Directors Deferred Compensation Plan*
10.18 Supplemental Executive Retirement Agreements dated May 5, 1995 by and between Sandwich
Co-operative Bank and Frederic D. Legate, Dana S. Briggs, George L. Larson and David A.
Parsons and amendments thereto*
21 Subsidiaries of Seacoast Financial Services Corporation
23.1 Consent of Arthur Andersen LLP
23.2 Consent of RP Financial, LC.
23.3 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5 to this Registration Statement)*
23.4 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (contained on the signature page of this Registration Statement)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Compass Bank for Savings and RP Financial, LC.
99.2 Appraisal Report of RP Financial, LC.*
99.3 Marketing Materials*
99.4 Stock Order Form
</TABLE>
- ------------
* To be completed or filed by amendment.
(b) Financial Statement Schedules
Financial statement schedules have been omitted because they are inapplicable
or the required information is shown in the Financial Statements and the Notes
thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, The 1855 Bancorp has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New Bedford, The
Commonwealth of Massachusetts, on May , 1998.
THE 1855 BANCORP
By: /s/ Kevin G. Champagne
------------------------------
Kevin G. Champagne
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers and trustees of The 1855 Bancorp, hereby
severally constitute and appoint Kevin G. Champagne, Arthur W. Short and Peter
W. Coogan, and each of them singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) under the Securities Act and
generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable the Registrant to comply with
the provisions of the Securities Act and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto or to any subsequent Registration Statement
for the same offering which may be filed under said Rule 462(b).
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated as of May , 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Kevin G. Champagne President, Chief Executive Officer and Trustee
- ------------------------------ (Principal Executive Officer)
Kevin G. Champagne
/s/ Francis S. Mascianica, Jr. Vice President and Treasurer (Principal Financial
- ------------------------------ and Accounting Officer)
Francis S. Mascianica, Jr.
/s/ Manuel G. Camacho
- ------------------------------
Manuel G. Camacho Trustee
/s/ David P. Cameron
- ------------------------------
David P. Cameron Trustee
/s/ Howard C. Dyer, Jr.
- ------------------------------
Howard C. Dyer, Jr. Trustee
/s/ Glen F. Johnson
- ------------------------------ Trustee
Glen F. Johnson
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ John D. Kelleher Trustee
- ----------------------------
John D. Kelleher
/s/ Thornton P. Klaren, Jr. Trustee
- ----------------------------
Thornton P. Klaren, Jr.
/s/ J. Louis LeBlanc Trustee
- ----------------------------
J. Louis LeBlanc
/s/ Terence G. Lewis Trustee
- ----------------------------
Terence G. Lewis
/s/ Richard S. Marchisio Trustee
- ----------------------------
Richard S. Marchisio
Trustee
- ----------------------------
A. William Munro
Trustee
- ----------------------------
Carl Ribeiro
/s/ Arthur W. Short Trustee
- ----------------------------
Arthur W. Short
/s/ Joseph H. Silverstein Trustee
- ----------------------------
Joseph H. Silverstein
Trustee
- ----------------------------
Gerald H. Silvia
Trustee
- ----------------------------
William N. Whalen
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
1.1 Engagement Letter between Seacoast Financial Services Corporation, Compass Bank for Savings
and Ryan, Beck & Co., Inc.
1.2 Form of Agency Agreement between Compass Bank for Savings and Ryan, Beck & Co., Inc.*
2 Seacoast Financial Services Corporation Plan of Conversion (the two documents that are attached
as Exhibit A to such plan are attached to this Registration Statement as Exhibits 3.1 and 3.2,
respectively)
3.1 Articles of Organization of Seacoast Financial Services Corporation
3.2 By-Laws of Seacoast Financial Services Corporation
4 Specimen certificate for the common stock of Seacoast Financial Services Corporation*
5 Form of Opinion of Foley, Hoag & Eliot LLP regarding legality of securities being registered*
8.1 Form of Opinion of Foley, Hoag & Eliot LLP regarding certain tax matters*
8.2 Letter from RP Financial, LC. with respect to value of subscription rights issued under the
Seacoast Financial Services Corporation Plan of Conversion*
10.1 Employment Agreement by and among Seacoast Financial Services Corporation, Compass Bank
for Savings and Kevin G. Champagne
10.2 Form of Employment Agreement by and among Compass Bank for Savings, Seacoast Financial
Services Corporation and certain Officers of Compass Bank for Savings
10.3 Form of Change in Control Agreements by and among Seacoast Financial Services Corporation,
Compass Bank for Savings, Kevin G. Champagne and certain other Officers of Compass Bank
for Savings
10.4 Form of Change in Control Agreement by and among Seacoast Financial Services Corporation,
Compass Bank for Savings and certain Officers of Compass Bank for Savings
10.5 Form of Executive Salary Continuation Agreements made and entered into by and between
Compass Bank for Savings and Kevin G. Champagne, Arthur W. Short, John D. Kelleher and
Francis S. Mascianica and forms of amendments thereto
10.6 Trust Agreement, made as of December 18, 1992, by and between Compass Bank for Savings and
Shawmut Bank, N.A.
10.7 Compass Bank for Savings October 1995 Incentive Plan*
10.8 Amended and Restated Affiliation and Merger Agreement dated as of March 23, 1998 by and
among Seacoast Financial Services Corporation, Compass Bank for Savings, Sandwich Bancorp,
Inc. and the Sandwich Co-operative Bank
10.9 Stock Option Agreement dated as of March 23, 1998 by and between Sandwich Bancorp, Inc. and
Seacoast Financial Services Corporation
10.10 Form of Voting Agreements between Seacoast Financial Services Corporation and the Directors of
Sandwich Bancorp, Inc.
10.11 Form of Affiliates Agreements between Seacoast Financial Services Corporation and certain
affiliates of Sandwich Bancorp, Inc.
10.12 Compass Bank for Savings Executive Deferred Compensation Plan
10.13 Rabbi Trust for Compass Bank for Savings Executive Deferred Compensation Plan
10.14 Employment Agreements dated July 18, 1994 by and between Sandwich Co-operative Bank and
Frederic D. Legate, Dana S. Briggs and George L. Larson*
10.15 Employment Agreement dated December 17, 1991 by and between Sandwich Co-operative Bank
and David A. Parsons*
10.16 Sandwich Co-operative Bank 1983 Directors Deferred Income Agreement*
10.17 Sandwich Co-operative Bank 1992 Directors Deferred Compensation Plan*
10.18 Supplemental Executive Retirement Agreements dated May 5, 1995 by and between Sandwich
Co-operative Bank and Frederic D. Legate, Dana S. Briggs, George L. Larson and David A.
Parsons and amendments thereto*
21 Subsidiaries of Seacoast Financial Services Corporation
23.1 Consent of Arthur Andersen LLP
23.2 Consent of RP Financial, LC.
23.3 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5 to this Registration Statement)*
23.4 Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
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<S> <C>
24 Power of Attorney (contained on the signature page of this Registration Statement)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Compass Bank for Savings and RP Financial, LC.
99.2 Appraisal Report of RP Financial, LC.*
99.3 Marketing Materials*
99.4 Stock Order Form
</TABLE>
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* To be completed or filed by amendment
Exhibit 1.1
[LETTERHEAD OF RYAN, BECK & CO., INC.]
CONFIDENTIAL
------------
February 9, 1998
Mr. Kevin Champagne
President and Chief Executive Officer
Compass Bank for Savings
791 Purchase Street
New Bedford, MA 02740
Re: Mutual Holding Company Stock Issuance - Subscription Enhancement &
Administrative Services
--------------------------------------------------------------------
Dear Mr. Champagne:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and
Compass Bank for Savings (the "Institution") and The 1855 Bancorp (the "Holding
Company") in connection with the proposal sale of shares of common stock by the
Institution.
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc., was organized in 1946 and is one of the nation's reacting
investment bankers for financial institutions. The firm has been publicly held
since 1986 and is a registered broker-dealer with the Securities and Exchange
Commission, a member of the National Association of Securities Dealers, Inc.,
Securities Industry Association and a member of the Securities Investor
Protection Corporation. Ryan, Beck's corporate finance department is one of the
largest such groups devoted solely to financial institution matters in the
country. Moreover, Ryan, Beck is one of the largest market makers in bank and
thrift stocks.
2. MUTUAL HOLDING COMPANY STOCK ISSUANCE AND
SIMULTANEOUS ACQUISITION
The Institution (or a middle-tier holding company formed by it) proposes to
issue shares of common stock pursuant to a Stock Issuance Plan (the "Plan"). In
connection with this stock issuance, Ryan, Beck proposes to act as financial
advisor to the Institution, and selling agent/lead manager with respect to the
offering of the shares of common stock (the "Common Stock") pursuant to the
Plan. The Plan has been adopted in connection with the potential simultaneous
acquisition by the Institution (or middle tier holding company) of another
depository institution (the "Acquisition"). Ryan, Beck is aware that the firm of
McConnell, Budd and Downes ("MB&D") serves as advisor to the Institution in
connection with the Acquisition and that such Firm will be designated a
Co-manager of the offering. Specific terms of services shall be set forth in a
definitive agency agreement (the "Definitive Agreement") between Ryan, Beck and
the Institution to be executed on the date the offering document is declared
effective by the appropriate regulatory authorities.
<PAGE>
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning is essential to a successful initial
public offering. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials-saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offerings. Our specific responsibilities
include:
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the offering including direct mail,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting a conversion agent,
printer and other professionals;
- Calculate the number of new phone lines required;
- Provide a list of equipment and supplies needed for the Conversion
Center;
- Draft marketing materials including letters, brochures, slide show
script advertisements; and
- Assist in arranging market-makers for post-conversion trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators, Securities and
Exchange Commission and NASD is essential. Ryan, Beck's experience in
managing many thrift conversions and initial public offerings of mutual
holding companies will minimize the burden on your management and
disruption to normal banking business. At the same time, our legal,
accounting and regulatory background ensures that details are attended to
in a professional fashion. A conversion requires accurate and timely record
keeping and reporting. Furthermore, customer inquiries must be handled
professionally and accurately. The Conversion Center centralizes all data
and work effort relating to the conversion.
Ryan, Beck will supervise and administer the Conversion Center. We will
train Conversion Center staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include the following:
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business;
- Identify and organize space for the on-site Conversion Center, the
focal point of conversion activity;
- Administer the Conversion Center;
- Prepare procedures for processing stock orders and cash, and for
handling requests for information;
- Provide scripts, training and guidance for the telephone team in the
stock sales telemarketing effort;
<PAGE>
- Educate the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Conversion Center staff assisting with order
processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
- Design and implement procedures for handling IRA and Keogh orders; and
- Provide post-offering subscriber assistance and management of the
pro-ration process.
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution.
Our specific actions include:
- Assign licensed registered representatives from our staff to work at
the Conversion Center to solicit orders on behalf of the Institution
from eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects;
- Respond to inquiries concerning the conversion and investment
opportunity;
- Organize, coordinate and participate in community informational
meetings. These meetings are intended to both relieve customer anxiety
and attract potential investors. The meetings generate widespread
publicity for the conversion while providing local exposure of the
Institution and promoting favorable stockholder relations;
- Supervise and conduct a telemarketing campaign to identify prospects
from among the Institution's customer base;
- Continually advise management on market conditions and the community's
responsiveness to the offering; and
- If appropriate, assemble a selling group of selected local
broker-dealers to assist in selling stock during the offering. In so
doing, prepare broker "fact sheets" and arrange "road shows" for the
purpose of stimulating local interest in the stock and informing the
brokerage community of the particulars of the offering.
4. COMPENSATION
a. For its services hereunder, the Institution will pay to Ryan, Beck and to
McDonnell, Budd & Downes the following aggregate compensation in connection
with the Conversion:
(1) An advisory and management fee of $50,000 in connection with the
advisory and administrative services set forth in section 3(a) and (b)
hereof ("Management Fee");
<PAGE>
(2) A fee of one percent (1.0%) of the dollar amount of the Common Stock
sold in the Subscription Offering and Community Offerings ("Marketing
Fee"). No fee shall be payable pursuant to this subsection in
connection with the sale of stock to officers, directors, employees
(and immediate family thereof), and employee benefit plans of the
Institution; and
(3) For stock sold by a selling group of NASD member firms (including
Ryan, Beck and MB&D) under a selected dealer agreements (the "Selling
Group"), a fee equal to five percent (5.0%) in the aggregate. No more
than 1.0% of such fee shall be attributable to selling group
management services. Ryan, Beck will not commerce sales of the stock
through members of the Selling Group without prior approval of the
Institution.
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. The Institution will pay Ryan, Beck
$50,000 upon execution of this letter which will be applied to any fees due
hereunder, including fees payable pursuant to subparagraph (b) below. If,
pursuant to a resolicitation undertaken by the Institution, Ryan, Beck is
required to provide significant additional services, the parties shall
mutually agree to the dollar amount of the additional compensation due (if
any).
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offerings are not consummated by December 31, 1998; (iii) Ryan, Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since
September 30, 1997; or (iv) immediately prior to commencement of the
Offerings, Ryan, Beck terminates this relationship for failure to
satisfactorily disclose all relevant information in the disclosure
documents or the existence of market conditions which might render the sale
of the shares by the Institution hereby contemplated inadvisable; Ryan,
Beck shall not be entitled to the fees set forth above under subparagraph
(a), but in addition to reimbursement of its reasonable out-of-pocket
expenses as set forth in paragraph 7 below, shall be entitled to receive
for its advisory and administrative services a fee of $50,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Conversion.
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare an Offering Circular and any other necessary disclosure documents
relating to the offering of the Common Stock in conformance with applicable
rules and regulations. As the Institution's financial advisor, Ryan, Beck will
in conjunction with counsel, conduct an examination of the relevant documents
and records of the Institution and will make such other reasonable investigation
as deemed necessary and appropriate under the circumstances. The Institution
agrees to make all such documents, records and other information deemed
necessary by Ryan, Beck, or its counsel, available to them upon reasonable
request. Ryan, Beck's
<PAGE>
counsel will prepare, subject to the approval of the Institution's counsel, the
Definitive Agreement. Ryan, Beck's counsel shall be selected by Ryan, Beck,
subject to the approval of the Institution which will not unreasonably be
withheld.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue sky" legal fees, expenses
for appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary personnel expenses and the preparation of stock
certificates. In the event Ryan, Beck incurs such expenses on behalf of the
Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $1,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck for more than $55,000 in legal
fees, and $15,000 in other out-of-pocket expenses. The parties acknowledge,
however, that such caps may be exceeded in the event of any material delay in
the Offerings which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than that set forth
in the original Prospectus filing. Not later than three days before closing, we
will provide you with a detailed accounting of all reimbursable expenses to be
paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
9. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnity and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to reasonable attorneys' fees, arising
solely out of the engagement described herein, except that such indemnification
shall not apply to Ryan, Beck's own bad faith, willful misconduct or gross
negligence.
<PAGE>
10. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in Boston, MA before one or three
arbitrators, each of whom shall be knowledgeable in the field of securities law
and investment banking. Such arbitration shall otherwise be conducted in
accordance with the rules then obtaining of the American Arbitration
Association. The parties hereto agree to share equally the responsibility for
all fees of the arbitrators, abide by any decision rendered as final and
binding, and waive the right to appeal the decision or otherwise submit the
dispute to a court of law for a jury or non-jury trial. The parties hereto
specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
11. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
with all NASD requirements applicable to it in connection with its participation
as contemplated herein in the Conversion. Ryan, Beck is and will remain through
completion of the Conversion a member in a good standing of the NASD and will
comply with all applicable NASD requirements.
12. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 9 regarding indemnification; and (iv) as
set forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors: (i) no material adverse change in the condition or
operation of the Institution; (ii) satisfactory disclosure of all relevant
information in the disclosure documents and a determination that the sale
of stock is reasonable given such disclosures; (iii) no market conditions
which might render the sale of the shares by the Institution hereby
contemplated inadvisable; and (iv) agreement that the price established by
the independent appraiser is reasonable in the then prevailing market
conditions.
<PAGE>
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $50,000. We look forward to working with
you.
RYAN, BECK & CO., INC. MCCONNELL, BUDD & DOWNES
BY: /s/ Ben A. Plotkin BY:
----------------------------------- -----------------------------------
Ben A. Plotkin
President and Chief Executive Officer
Accepted and Agreed to this 17 Day of February, 1998
COMPASS BANK FOR SAVINGS THE 1855 BANCORP
BY: /s/ Kevin G. Champagne BY: /s/ Kevin G. Champagne
----------------------------------- -------------------------------
Kevin G. Champagne Kevin G. Champagne
President and Chief Executive Officer President and Chief Executive
Officer
FHE Draft
May 8, 1998
THE 1855 BANCORP
PLAN OF CONVERSION
Adopted by the Board of Trustees
on April 23, 1998
<PAGE>
THE 1855 BANCORP
PLAN OF CONVERSION
Table of Contents
Article 1. Introduction - Business Purpose 1
Article 2. Definitions 3
Article 3. General Procedure for Conversion 7
3.1 Preconditions to Conversion 7
3.2 Special Meeting of Corporators to Approve the Plan 7
3.3 Stock Holding Company Charter And Bylaws 7
3.4 Bank Charter And Bylaws 7
Article 4. Shares to be Offered 8
4.1 Holding Company Common Stock 9
4.2 Independent Valuation, Purchase Price and Number of Shares 9
Article 5. Subscription Rights and Orders for Common Stock 10
5.1 Distribution of Prospectus 10
5.2 Order Forms. 10
5.3 Undelivered, Defective or Late Order Form; Insufficient Payment 11
5.4 Payment for Stock 11
5.5 Completion of the Conversion 12
Article 6. Stock Purchase Priorities. 12
6.1 Priorities for Offering. 12
6.2 Certain Determinations 13
6.3 Minimum Purchase; No Fractional Shares 13
6.5 Priorities For Subscription Offering 13
6.6 Priorities for Direct Community Offering 15
6.7 Priorities for Syndicated Community Offering 16
Article 7. Additional Limitations on Purchases 16
<PAGE>
7.1 General 16
7.2 Individual Maximum Purchase Limit 16
7.3 Group Acting in Concert 16
7.4 Purchases by Management Persons. 17
7.5 Special Rule for Tax-Qualified Employee Plans 17
7.6 Increase in the Total Number of Shares Offered 17
7.7 Illegal Purchases. 17
7.8 Rejection of Orders. 17
7.9 Subscribers in Non-Qualified States or in Foreign Countries 18
7.10 No Offer to Transfer Shares 18
7.11 Confirmation by Purchasers. 18
Article 8. Post Offering Matters 18
8.1 Stock Purchases After the Conversion 18
8.2 Resales of Stock by Management Persons 19
8.3 Stock Certificates 19
8.4 Restriction on Financing Stock Purchases 19
8.5 Stock Benefit Plans 19
8.6 Market for Holding Company Common Stock 20
8.7 Liquidation Account 20
8.8 Payment of Dividends 21
8.9 Repurchase of Stock 21
8.10 Conversion Expenses 22
8.11 Public Inspection of Conversion Application 22
8.12 Enforcement of Terms and Conditions. 22
Article 9. Miscellaneous 22
9.1 Interpretation of Plan. 22
9.2 Amendment or Termination of the Plan 23
EXHIBIT A Charter and Bylaws of the Stock Holding Company
EXHIBIT B Amended and Restated Charter and Bylaws of the Bank
EXHIBIT C Initial Directors of the Stock Holding Company
<PAGE>
THE 1855 BANCORP
PLAN OF CONVERSION
Article 1. Introduction - Business Purpose
The Board of Trustees of The 1855 Bancorp, a Massachusetts-chartered mutual
holding company (the "MHC"), has determined that it is in the best interests of
the MHC, of Compass Bank for Savings, a Massachusetts-chartered stock savings
bank and wholly owned subsidiary of the MHC (the "Bank"), of the depositors and
customers of the Bank, and of the communities served by the Bank and the MHC for
the MHC to convert from a mutual institution to a stock-form institution (the
"Conversion"). Capitalized terms used but not defined in this Article 1 shall
have the meaning set forth in Article 2 hereof.
In order to carry out the Conversion, the Board of Trustees of the MHC has
adopted this Plan of Conversion (the "Plan") to be carried out under the laws of
The Commonwealth of Massachusetts and the regulations of the Massachusetts
Division of Banks and the FDIC, and other applicable laws and regulations.
Pursuant to the Plan, the MHC will convert to a stock form corporation (the
"Stock Holding Company") and offer Holding Company Conversion Stock in the
Conversion on a priority basis to qualifying depositors, Tax-Qualified Employee
Plans, and Employees, Officers, directors and trustees of the Bank and the MHC,
with any remaining shares to be offered to the public in a Direct Community
Offering and possibly in a Syndicated Community Offering.
One of the primary purposes of the Conversion is to enable the MHC to
acquire Sandwich Bancorp, Inc., a Massachusetts-chartered holding company
("Sandwich Bancorp") and parent of Sandwich Co-operative Bank, a
Massachusetts-chartered stock co-operative bank ("Sandwich Bank"). Pursuant to
an Amended and Restated Affiliation and Merger Agreement dated March 23, 1998
("Affiliation Agreement") by and among the MHC and the Bank, on the one hand,
and Sandwich Bancorp and Sandwich Bank, on the other hand, all issued and
outstanding shares of Sandwich Bancorp common stock and all issued and
outstanding Sandwich stock options will be exchanged for Holding Company Common
Stock, and, in a multi-step transaction, Sandwich will be merged with 1855
Bancorp and Sandwich Bank will be merged with the Bank (the "Sandwich Bancorp
Acquisition") at a closing to take place shortly after the consummation of the
Conversion. The Conversion will generate capital to support the Sandwich Bancorp
Acquisition and make it possible for the Stock Holding Company to issue the
Holding Company Common Stock to be issued to holders of Sandwich Bancorp common
stock.
The combination of the Conversion and the Sandwich Bancorp Acquisition is
intended to enable the Bank to compete and expand more effectively in the
financial services marketplace. The Conversion is intended to provide an
additional source of capital not now available to the MHC or the Bank. Under the
Plan, the Stock Holding Company will be able to issue capital stock to
depositors and other members of the public and to use such capital, directly or
after investing such capital into the Bank, to further the expansion of the
activities of the Stock Holding Company and the Bank. In addition, after the
Conversion, the Stock Holding Company would
<PAGE>
have the ability to issue additional shares of Holding Company Common Stock to
raise additional capital or in connection with additional mergers or
acquisitions, although no additional capital issuance and no merger or
acquisition (other than the Sandwich Bancorp Acquisition) are planned or
contemplated at the present time. Finally, stock ownership by Officers and other
Employees of the Stock Holding Company and the Bank has proven to be an
effective performance incentive and as a means of attracting and retaining key
personnel.
The MHC will not proceed with the Conversion unless, at the time the
Conversion is scheduled to be consummated, all preconditions to the closing of
the Sandwich Bancorp Acquisition (other than the issuance of Holding Company
Common Stock to the Sandwich shareholders) have been satisfied or waived.
Although the Board of Trustees recognizes and appreciates the benefits of a
conversion of the MHC from mutual to stock form, the Board has concluded that,
without the Sandwich Bancorp Acquisition, it would not complete the Conversion
at this time and would, instead, consider other alternatives, including
retaining its existing mutual holding company structure or establishing a
mid-tier holding company and issuing up to 49% of the capital stock of such
corporation in a so-called "minority issuance" of stock.
The Sandwich Bancorp Acquisition is subject to the approval of various
regulatory agencies, and must also be approved by the affirmative vote of at
least (i) a two-thirds of the MHC's Corporators and (ii) the holders of two
thirds of issued and outstanding capital stock of Sandwich Bancorp. In addition,
individuals purchasing Holding Company Conversion Stock will, by executing their
order to purchase such Holding Company Conversion Stock, consent to and approve
of the Sandwich Bancorp Acquisition, it being understood that there will be no
Conversion, and that no Holding Company Conversion Stock will be issued, unless
the Sandwich Bancorp Acquisition is approved and the Acquisition Precondition
has been satisfied or waived.
The Plan is subject to the approval of various regulatory agencies, and
must also be approved by the affirmative vote of at least two-thirds of the
MHC's Corporators (and, if required by regulatory authorities, a majority of the
MHC's Independent Corporators (who must constitute not less than 60% of all
Corporators)) at an annual meeting or a special meeting called for such purpose.
By approving the Plan, the Corporators will also be approving the charter and
bylaws of each of the Stock Holding Company and the Bank and all other steps
necessary or incidental to the conversion of the MHC to the Stock Holding
Company or to the Conversion.
The Bank became a stock-form subsidiary of the MHC when Compass Bank
reorganized into mutual holding company form in 1994. Accordingly, the
Conversion will not affect the corporate existence of the Bank. Although the
Plan does provide that certain amendments will be made to the Bank's corporate
charter and bylaws, the Bank's business and operations will not be affected or
interrupted by the Conversion, and the Bank will continue as the same legal
entity after the Conversion. The deposit accounts and loan accounts of the
Bank's depositors will not be affected by the Conversion. Upon Conversion, each
deposit account holder of the Bank will continue to hold exactly the same
deposit account as the holder held immediately before the Conversion. All
deposit accounts in the Bank following the Conversion will continue to be
insured up to the legal maximum by the Federal Deposit Insurance Corporation and
the Depositors Insurance Fund of the Mutual Savings Central Fund, Inc. in the
same manner as such
<PAGE>
deposit accounts were insured immediately before the Conversion. There will be
no change in the Bank's loans. The Conversion will not result in any reduction
of the Bank's reserves or net worth.
Article 2. Definitions
As used in the Plan, the terms set forth below have the following meanings:
2.1 Acquisition Precondition: The precondition to the consummation of the
Conversion that, at the time the Conversion is scheduled to be consummated, all
preconditions to the closing of the Sandwich Bancorp Acquisition (other than the
issuance of Holding Company Common Stock to the Sandwich shareholders) shall
have been satisfied or waived.
2.2 Acting in Concert: The term "Acting in Concert" means (a) knowing
participation in a joint activity or conscious parallel action towards a common
goal, whether or not pursuant to an express agreement; or (b) Persons seeking to
combine or pool their voting or other interests (such as subscription rights) in
the securities of an issuer for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. When Persons act together for such purpose, their group is deemed to
have acquired their stock. The determination of whether a group is Acting in
Concert shall be made solely by the Board of Trustees of the MHC or Officers
delegated by such Board and may be based on any evidence upon which the Board or
such delegatee chooses to rely, including, without limitation, joint account
relationships or the fact that such Persons have filed joint Schedules 13D with
the SEC with respect to other companies. Trustees of the MHC and directors of
the Stock Holding Company and the Bank shall not be deemed to be Acting in
Concert solely as a result of their membership on any such board or boards.
2.3 Affiliate: An "Affiliate" of, or a Person "Affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the
Person specified.
2.4 Application: The application, including a copy of the Plan, submitted
by the MHC to the Commissioner for approval of the Conversion.
2.5 Associate: The term "Associate," when used to indicate a relationship
with any Person, means: (i) any corporation or organization (other than the
Bank, the Stock Holding Company, the MHC or a majority-owned subsidiary of any
thereof) of which such Person is a director, Officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity; (iii) any relative or spouse of such Person or
any relative of such spouse, who has the same home as such Person; and (iv) any
Person Acting in Concert with any of the Persons or entities specified in
clauses (i) through (iii) above; provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an Associate of any
director, trustee or Officer of the MHC, the Stock Holding Company or the Bank,
to the extent provided in the Plan. When used to refer to a Person other than an
Officer or director of the Bank, the MHC or the Stock Holding
<PAGE>
Company, the MHC in its sole discretion may determine the Persons that are
Associates of other Persons. Trustees of the MHC and directors of the Stock
Holding Company and the Bank shall not be deemed to be Associates solely as a
result of their membership on such Board.
2.6 Bank: Compass Bank for Savings.
2.7 BHCA: The Bank Holding Company Act of 1956, as amended.
2.8 Commissioner: The Office of the Commissioner of Banks of The
Commonwealth of Massachusetts.
2.9 Community: Those cities and towns designated by the MHC with the
approval of the Commissioner before the commencement of the Offering:
2.10 Community Offering: A Direct Community Offering and/or a Syndicated
Community Offering.
2.11 Conversion: (1) the conversion of the MHC into the Stock Holding
Company by amendment of the MHC's charter and bylaws to authorize the issuance
of capital stock or by such other means as the Commissioner shall approve under
applicable Massachusetts law and regulations, (2) the offering of Holding
Company Conversion Stock in a Subscription Offering and, to the extent shares
remain available, in a Direct Community Offering and possibly in a Syndicated
Community Offering; (3) the issuance of the Holding Company Conversion Stock,
(4) the amendment of the Bank's charter and bylaws as contemplated in the Plan;
and (5) the consummation of the related transactions provided for in the Plan.
2.12 Conversion Committee: The committee of the Board of Trustees that has
been authorized to act on behalf of the MHC for certain matters relating to the
Conversion.
2.13 Corporator: A member of the MHC's Board of Corporators.
2.14 Deposit Account: Any withdrawable deposit account offered by the
Bank, including, without limitation, savings accounts, NOW account deposits,
certificates of deposit, demand deposits, Keogh Plan, SEPs and IRA accounts for
which the Bank acts as custodian or trustee, and such other types of deposit
accounts as may then have been authorized by Massachusetts or federal law and
regulations, but not including repurchase agreements, savings bank life
insurance policies or certain escrow accounts.
2.15 Direct Community Offering: The offering to certain members of the
general public of any unsubscribed shares in the Subscription Offering which may
be effected pursuant to the Plan. The Direct Community Offering may be conducted
simultaneously with the Subscription Offering.
2.16 Division: The Division of Banks of The Commonwealth of Massachusetts.
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2.17 Eligible Account Holder: Any Person holding a Qualifying Deposit on
the Eligibility Record Date.
2.18 Eligibility Record Date: December 31, 1996, the date for determining
who qualifies as an Eligible Account Holder.
2.19 Employee: The term "Employee" does not include a trustee, director or
Officer.
2.20 Employee Plan: Any Tax-Qualified Employee Plan or Non-Tax-Qualified
Employee Benefit Plan.
2.21 ESOP: The employee stock ownership plan to be established by the Bank.
2.22 Estimated Valuation Range: The dollar range of the proposed Offering,
as determined by the Independent Appraiser before the Offering and as it may be
amended from time to time thereafter. The Estimated Valuation Range may vary
within 15% above or 15% below the midpoint of such range, with a possible
adjustment by up to 15% above the maximum ("Range Maximum") of such range.
2.23 Exchange Act: The Securities Exchange Act of 1934, as amended.
2.24 FDIC: The Federal Deposit Insurance Corporation.
2.25 FRB: The Board of Governors of the Federal Reserve System.
2.26 Group Maximum Purchase Limit: The limitation on the purchase of shares
of Holding Company Conversion Stock established by Section 7.3, as such limit
may be increased pursuant to said Section 7.3.
2.27 Holding Company Common Stock: The common stock authorized to be issued
from time to time by the Stock Holding Company.
2.28 Holding Company Conversion Stock: The Holding Company Common Stock to
be issued by the Stock Holding Company in the Conversion. Holding Company Common
Stock shall not include Holding Company Common Stock issued in connection with
the Sandwich Bancorp Acquisition.
2.29 Independent Appraiser: The appraiser retained by the MHC to prepare an
appraisal of the pro forma market value of the Holding Company Conversion Stock.
2.30 Independent Corporator: A Corporator who is not an Employee, Officer,
or trustee of the MHC or an Employee, Officer, director, or "significant
borrower" of the Bank.
2.31 Independent Valuation: The estimated pro forma market value of the
Holding Company Conversion Stock as determined by the Independent Appraiser.
<PAGE>
2.32 Individual Maximum Purchase Limit: The limitation on the purchase of
shares of Holding Company Conversion Stock established by Section 7.2, as such
limit may be increased pursuant to said Section 7.2
2.33 Information Statement. The information statement required to be sent
to the Corporators in connection with the Special Meeting.
2.34 Liquidation Account: The liquidation account established pursuant to
Section 8.7 of the Plan.
2.35 Management Person: Any Officer or director of the Bank or the Stock
Holding Company and any Officer, trustee or Corporator of the MHC.
2.36 Marketing Agent: The broker-dealer responsible for organizing and
managing the Conversion and sale of the Holding Company Conversion Stock.
2.37 Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide
competitive bid and offer quotations on request, and (ii) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
2.38 MHC: The 1855 Bancorp, the Massachusetts-chartered holding company for
the Bank as it exists in mutual form prior to the Conversion.
2.39 Non-Tax-Qualified Employee Benefit Plan: Any defined benefit plan or
defined contribution plan which is not qualified under Section 401 of the
Internal Revenue Code.
2.40 Offering: The Subscription Offering, the Direct Community Offering and
the Syndicated Community Offering.
2.41 Officer: The Chairman of the Board, the President, any Officer of the
level of vice president or above, the Clerk and the Treasurer of the Bank, the
MHC or the Stock Holding Company, as the case may be.
2.42 Person: An individual, corporation, partnership, association,
joint-stock company, trust (including Individual Retirement Accounts, SEP's and
Keogh Accounts), unincorporated organization, government entity or political
subdivision thereof or any other entity.
2.43 Plan: This Plan of Conversion.
2.44 Qualifying Deposit: The aggregate balances of all Deposit Accounts of
an Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on
the Supplemental Eligibility Record Date,
<PAGE>
as the case may be, provided that such aggregate balance is not less than $50.
2.45 Range Maximum: The valuation which is 15% above the midpoint of the
Estimated Valuation Range, as defined in Section 2.22.
2.46 Regulations: The regulations of the Division and the FDIC regarding
mutual to stock conversions.
2.47 SEC: The Securities and Exchange Commission.
2.48 Special Meeting: The Special Meeting of Corporators called for the
purpose of voting on the Plan and the Sandwich Bancorp Acquisition.
2.49 Stock Holding Company: The stock-form holding company that will be
formed by conversion of the MHC as provided in the Plan, issue Holding Company
Conversion Stock in the Conversion, and continue to own 100% of the common stock
of the Bank.
2.50 Stock Holding Company Application: The holding company application to
be submitted by the MHC to the FRB to have the MHC convert to stock form and
issue Holding Company Conversion Stock.
2.51 Subscription Offering: The offering of Holding Company Conversion
Stock for subscription by Persons holding subscription rights pursuant to the
Plan.
2.52 Subscription Price: The price per share, determined as provided in
Section 4.2.1 of the Plan, at which the Holding Company Conversion Stock will be
sold in the Offering.
2.53 Subsidiary: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
2.54 Supplemental Eligible Account Holder: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date.
2.55 Supplemental Eligibility Record Date: The supplemental record date for
determining who qualifies as a Supplemental Eligible Account Holder. The
Supplemental Eligibility Record Date shall be June 30, 1997.
2.56 Syndicated Community Offering: At the discretion of the MHC, the
offering of Holding Company Conversion Stock following or contemporaneously with
the Direct Community Offering through a syndicate of broker-dealers.
2.57 Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan (including the ESOP, any stock bonus plan, profit-sharing
plan, or other plan) of the Bank, the Stock Holding Company, the MHC or any of
their Affiliates, which, with its related trusts, meets the requirements to be
qualified under Section 401 of the Internal Revenue Code.
<PAGE>
Article 3. General Procedure for Conversion
3.1 Preconditions to Conversion. The Conversion is expressly conditioned
upon prior occurrence of the following:
3.1.1 Approval of the Plan by the affirmative vote of two thirds of
the Corporators at a regular or special meeting of such Corporators (and, if
required by regulatory authorities, by the affirmative vote of a majority of
Independent Corporators (who shall constitute not less than 60% of all
Corporators)).
3.1.2 Approval by the Commissioner of the Application, including the
Plan and the Charter and Bylaws of the Stock Holding Company and of the Bank.
3.1.3 Approval by the FRB for the MHC to convert to stock form and
issue Holding Company Conversion Stock.
3.2 Special Meeting of Corporators to Approve the Plan. Upon approval by at
least two-thirds of all Trustees of the MHC, the Plan will be submitted to the
Commissioner as part of the Application, together with a copy of the proposed
Information Statement and all other material required by the Regulations, for
approval by the Commissioner. Upon a determination by the Commissioner that the
Application is complete, the MHC will publish and post public announcements and
notices of the Application as required by the Commissioner and the Regulations.
Following approval of the Plan by the Commissioner, the Special Meeting shall be
scheduled in accordance with the MHC's Bylaws, and the Plan (as revised in
response to comments received from the Commissioner), proposed revisions and
amendments to the charters and bylaws of the Bank and the Stock Holding Company,
and any information required pursuant to the Regulations, will be submitted to
the Corporators for their consideration and approval at the Special Meeting. The
MHC will mail to each Corporator a copy of the Information Statement not less
than seven (7) days before the Special Meeting. Following approval of the Plan
by the Corporators, the MHC intends to take such steps as may be appropriate
pursuant to applicable laws and regulations to convert the MHC to a
Massachusetts-chartered stock form holding company (subject, however, to the
Acquisition Precondition).
3.3 Stock Holding Company Charter And Bylaws. Copies of the proposed
Charter and Bylaws of the Stock Holding Company are attached hereto as Exhibit
A, and are made a part of the Plan. By their approval of the Plan, the
Corporators shall have approved and adopted the Charter and Bylaws of the Stock
Holding Company.
3.4 Bank Charter And Bylaws. Copies of the proposed amended and restated
Charter and Bylaws of the Bank are attached hereto as Exhibit B, and are made a
part of the Plan. By their approval of the Plan, the Trustees, as the governing
body of the sole stockholder of the Bank, have approved and adopted the amended
and restated Charter and Bylaws of the Bank.
3.5 Offer and Sale of Holding Company Conversion Stock.
3.5.1 Upon receipt of all required regulatory approvals, the Holding
Company
<PAGE>
Conversion Stock will be offered for sale in a Subscription Offering
simultaneously to Eligible Account Holders, Supplemental Eligible Account
Holders, any Tax-Qualified Employee Benefit Plan, and directors, trustees,
Officers and Employees in the manner set forth in Article 6 hereof, and in a
Direct Community Offering to be held either subsequent to or concurrently with
the Subscription Offering. The Subscription Offering period will run for no less
than twenty (20) but no more than forty-five (45) days from the date of
distribution of the Subscription Offering materials, unless extended by the MHC
with the approval of the Commissioner.
3.5.2 If feasible, any shares of Holding Company Conversion Stock
remaining unsold after completion of the Subscription Offering and a Direct
Community Offering will be sold in a Syndicated Community Offering (which may
commence following or contemporaneously with the Direct Community Offering). If
for any reason a Syndicated Community Offering of all unsubscribed Holding
Company Conversion Stock cannot be effected, the MHC will use its best efforts
to obtain other purchasers, subject to the approval of the Commissioner.
Completion of the sale of all Holding Company Conversion Stock not sold in the
Subscription Offering is required within forty-five (45) days after termination
of the Subscription Offering, subject to the extension of such forty-five (45)
day period by the MHC with the approval of the Commissioner. The MHC may seek
one or more extensions of such forty-five (45) day period if necessary to
complete the sale of all shares of Holding Company Conversion Stock. If all
available shares of Holding Company Conversion Stock are sold in the
Subscription Offering and any Direct Community Offering, there will be no
Syndicated Community Offering and the Conversion will be consummated (subject to
the Acquisition Precondition) upon completion of the Subscription Offering or
the Direct Community Offering, as the case may be.
3.6 Conversion of MHC to Stock Holding Company. Upon the consummation of
the Conversion the MHC will be converted into the Stock Holding Company. The
Stock Holding Company will be chartered as a Massachusetts corporation and will
be authorized to exercise any and all powers, rights and privileges, and will be
subject to all limitations applicable to bank holding companies under applicable
laws and regulations. The initial members of the Board of Directors of the Stock
Holding Company will be those Persons whose names are set forth on Exhibit C to
the Plan, each to hold office until the Annual Meeting (or Special Meeting in
lieu thereof) in the year set forth opposite their respective names on such
Exhibit C, and until their successors are elected and have been qualified, and
otherwise in accordance with the Charter and By-Laws of the Stock Holding
Company. The Officers of the MHC immediately prior to the Conversion shall be
the initial Officers of the Stock Holding Company, in each case until their
respective successors are duly elected or appointed and qualified. The Stock
Holding Company, as successor in interest to the MHC, will continue to own 100%
of the common stock of the Bank. The Stock Holding Company expects to contribute
at least half of the net proceeds of the Conversion to the Bank as additional
capital.
Article 4. Shares to be Offered
4.1 Holding Company Common Stock. The Holding Company Common Stock shall be
fully paid and nonassessable. The total number of shares of Holding Company
Common Stock authorized under the Stock Holding Company's Charter will exceed
the number of shares of
<PAGE>
Holding Company Conversion Stock to be issued to the Stock Holding Company
stockholders in the Conversion. Holding Company Common Stock will not be covered
by deposit insurance.
4.2 Independent Valuation, Purchase Price and Number of Shares.
4.2.1 Subscription Price. Before the commencement of the Subscription
Offering, an Estimated Valuation Range will be established by the Independent
Appraiser, which range will vary within 15% above to 15% below the midpoint of
such range. All shares sold in the Conversion will be sold at a uniform price
per share (the "Subscription Price"), which is expected to be determined before
the commencement of the Offering. If there is a Syndicated Community Offering,
the price per share at which the Holding Company Conversion Stock is sold in
such Syndicated Community Offering shall be equal to the per share purchase
price of the shares sold in the Subscription Offering and the Direct Community
Offering. The aggregate purchase price for all shares of Holding Company
Conversion Stock will not be inconsistent with the estimated consolidated pro
forma market value of the Holding Company Conversion Stock, as determined for
such purpose by the Independent Appraiser.
4.2.2 Number of Shares. The total number of shares (and a range
thereof) of Holding Company Conversion Stock to be issued and offered for sale
will be determined by the MHC immediately before the commencement of the
Subscription Offering based on the Estimated Valuation Range and the
Subscription Price. Such number of shares shall be subject to adjustment
thereafter if necessitated by market or financial conditions, with the approval
of the FDIC and the Commissioner, if necessary. In particular, the total number
of shares may be increased by up to 15% above the maximum of the number of
shares offered in the Subscription Offering if the Estimated Valuation Range is
increased subsequent to the commencement of the Subscription Offering to reflect
changes in market and financial conditions and the resulting aggregate purchase
price is not more than 15% above the Range Maximum.
4.2.3 Increase or Decrease in Number of Shares. The number of shares
of Holding Company Conversion Stock may be increased or decreased by the MHC. In
the event that the aggregate purchase price of the shares of Holding Company
Conversion Stock ordered is below the minimum of the Estimated Valuation Range,
or materially above the Range Maximum, resolicitation of purchasers may be
required, provided, however, that up to a 15% increase above the Range Maximum
will not be deemed to be material so as to require a resolicitation. Any such
resolicitation shall be effected in such manner and within such time as the MHC
shall establish, with the approval of the FDIC and the Commissioner, if
required.
4.2.4 Confirmation of Valuation. Notwithstanding the foregoing, no
sale of Holding Company Conversion Stock may be consummated unless, before such
consummation, the Independent Appraiser confirms to the MHC and to the FDIC and
the Commissioner that, to the best knowledge of the Independent Appraiser,
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause the Independent Appraiser to conclude that the
aggregate value of the Holding Company Conversion Stock at the aggregate
Subscription Price for all shares of Holding Company Conversion Stock is
incompatible with its estimate of the aggregate consolidated pro forma market
value of the Holding Company
<PAGE>
Conversion Stock. An increase in the aggregate value of the Holding Company
Conversion Stock by up to 15% above the Range Maximum would not be deemed to be
material. If such confirmation is not received, the MHC may cancel the
Conversion, extend the Conversion and establish a new Subscription Price and/or
Estimated Valuation Range, extend, reopen or hold a new Conversion or take such
other action as the FDIC and the Commissioner may permit. The estimated pro
forma market value of the Holding Company Conversion Stock shall be determined
for such purpose by an Independent Appraiser on the basis of such appropriate
factors as are not inconsistent with the Regulations and will be confirmed upon
completion of the Conversion. In any case, the total number of shares of Holding
Company Conversion Stock to be issued and sold will be determined by the MHC as
follows: (a) the estimated aggregate pro forma market value of the Holding
Company Conversion Stock, immediately after Conversion as determined by the
Independent Appraiser, expressed in terms of a specific aggregate dollar amount
rather than as a range, shall be divided by (b) the Subscription Price.
Article 5. Subscription Rights and Orders for Common Stock
5.1 Distribution of Prospectus. The Conversion shall be conducted in
compliance with the Regulations and applicable SEC regulations. As soon as
practicable after the prospectus prepared by the MHC has been declared effective
by the Commissioner and the SEC, copies of the prospectus and order forms will
be distributed to all Eligible Account Holders, Supplemental Eligible Account
Holders, any Tax-Qualified Employee Plan and Employees, Officers, directors and
trustees at their last known addresses appearing on the records of the Bank for
the purpose of subscribing for shares of Holding Company Conversion Stock in the
Subscription Offering and will be made available (if and when a Community
Offering is held) for use by those Persons entitled to purchase in the Community
Offering. Instead of distributing the prospectus and order forms, the MHC may
distribute a notice of availability of the prospectus and the order form,
together with a request card and a postage-prepaid return envelope for use in
requesting such prospectus and order form. If the latter method is employed by
the MHC, such notices shall be mailed to those eligible to subscribe in the
Subscription Offering not less than thirty (30) calendar days before the
expiration of the Subscription Offering.
5.2 Order Forms. Each order form will be preceded or accompanied by the
prospectus describing the Stock Holding Company, the Bank, the Sandwich Bancorp
Acquisition, the Holding Company Conversion Stock and the Subscription and
Community Offerings. Each order form will contain, among other things, the
following:
5.2.1 A specified date by which all order forms must be received by
the MHC, which date shall be not less than 20 nor more than 45 days following
the date on which the order forms are mailed by the MHC, and which date will
constitute the termination of the Subscription Offering, unless extended;
5.2.2 The Subscription Price per share for shares of Holding Company
Conversion Stock to be sold in the Offering;
5.2.3 A description of the minimum and maximum number of shares of
Holding
<PAGE>
Company Conversion Stock that may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Offering;
5.2.4 Instructions as to how the recipient of the order form is to
indicate thereon the number of shares of Holding Company Conversion Stock for
which such Person elects to subscribe and the available alternative methods of
payment therefor;
5.2.5 An acknowledgment that the recipient of the order form has
received a copy of the prospectus before execution of the order form;
5.2.6 A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the effect that all
subscription rights are nontransferable, will be void at the end of the
Subscription Offering, and can only be exercised by delivering to the MHC within
the Subscription Offering period such properly completed and executed order
form, together with a check or money order in the full amount of the purchase
price as specified in the order form for the shares of Holding Company
Conversion Stock for which the recipient elects to subscribe in the Subscription
Offering (or by authorizing, but only if the MHC elects to permit such
withdrawals from the type of Deposit Account maintained by such Person) on the
order form that the Bank withdraw said amount from the Deposit Account at the
Bank;
5.2.7 A statement to the effect that the executed order form, once
received by the MHC, may not be modified or amended by the subscriber without
the consent of the MHC; and
5.2.8 An acknowledgment by the Person submitting the order form (x)
that the Conversion will not be consummated, and that no Holding Company
Conversion Stock will be issued, unless at the time the Conversion is scheduled
to be consummated, all preconditions to the closing of the Sandwich Bancorp
Acquisition (other than the issuance of Holding Company Common Stock to the
Sandwich shareholders) have been satisfied or waived, and (y) that such Person
accordingly understands and agrees that by submitting such order form such
Person is approving the Sandwich Bancorp Acquisition and is voting by written
consent (pursuant to M.G.L. ch. 156B, ss. 43) all Holding Company Conversion
Stock to be purchased by such Person in favor of the Sandwich Bancorp
Acquisition.
Notwithstanding the above, the MHC reserves the right in its sole
discretion to accept or reject orders received on photocopied or facsimilied
order forms.
5.3 Undelivered, Defective or Late Order Form; Insufficient Payment. In the
event order forms (a) are not delivered for any reason or are returned
undelivered to the MHC by the United States Postal Service, (b) are not received
back by the MHC or are received by the MHC after the expiration date specified
thereon, (c) are defectively filled out or executed, (d) are not accompanied by
the full required payment for the shares of Holding Company Conversion Stock
subscribed for (including cases in which Deposit Accounts from which withdrawals
are authorized are insufficient to cover the amount of the required payment), or
(e) are not mailed pursuant to a "no mail" order placed in effect by the account
holder, the subscription rights of the Person to
<PAGE>
whom such rights have been granted will lapse as though such Person failed to
return the contemplated order form within the time period specified thereon;
provided, however, that the MHC may, but will not be required to, waive any
immaterial irregularity on any order form or require the submission of corrected
order forms or the remittance of full payment for subscribed shares by such date
as the MHC may specify.
5.4 Payment for Stock
5.4.1 All payments for Holding Company Conversion Stock subscribed for
or ordered in the Conversion must be delivered in full to the MHC, together with
a properly completed and executed order form, except in the case of the
Syndicated Community Offering, on or before the expiration date specified on the
order form, unless such date is extended by the MHC; provided, however, that if
any Employee Plan subscribes for shares during the Subscription Offering, such
plans will not be required to pay for the shares at the time they subscribe but
rather may pay for such shares of Holding Company Conversion Stock subscribed
for by such plans at the Subscription Price upon consummation of the Conversion,
provided, however, that, in the case of the ESOP there is in force from the time
of its subscription until the consummation of the Conversion, a loan commitment
to lend to the ESOP, at such time, the aggregated Subscription Price of the
shares for which it subscribed. The Stock Holding Company or the Bank may make
scheduled discretionary contributions to an Employee Plan provided such
contributions from the Bank, if any, do not cause the Bank to fail to meet its
regulatory capital requirement. Payment for Holding Company Conversion Stock may
also be made by a participant in an Employee Plan (including the Bank's deferred
compensation plan for Bank Employees) causing funds held for such participant's
benefit by an Employee Plan to be paid over for such purchase to the extent that
such plan allows participants or any related trust established for the benefit
of such participants to direct that some or all of their individual accounts or
sub-accounts be invested in Holding Company Conversion Stock.
5.4.2 Payment for Holding Company Conversion Stock shall be made
either by check or money order, or if a purchaser has a Deposit Account in the
Bank (and if the MHC has elected to permit such withdrawals from the type of
Deposit Account maintained by such Person), such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's Deposit Account at the Bank in an amount equal to the aggregate
purchase price of such shares. No wire transfers will be accepted. Any
authorized withdrawal, whether from a savings, passbook or certificate account,
shall be without penalty as to premature withdrawal. If the authorized
withdrawal is from a certificate account, and the remaining balance does not
meet the applicable minimum balance requirements, the certificate shall be
canceled at the time of withdrawal, without penalty, and the remaining balance
will earn interest at the passbook rate. Funds for which a withdrawal is
authorized will remain in the purchaser's Deposit Account but may not be used by
the purchaser until the Conversion is consummated or the 45-day period (or such
longer period as may be approved by the Commissioner) following the Conversion
has expired, whichever occurs first. After consummation of the Conversion, the
withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the Subscription Price.
Interest submitted will continue to be earned on any amounts authorized for
withdrawal until such
<PAGE>
withdrawal is given effect. Interest on checks and money orders will be paid by
the Bank at a rate to be established by the Bank. Such interest will be paid
from the date payment is received by the Bank until consummation or termination
of the Conversion. If for any reason the Conversion is not consummated, all
payments made by subscribers in the Conversion will be refunded to them with
interest. In case of amounts authorized for withdrawal from Deposit Accounts,
refunds will be made by canceling the authorization for withdrawal.
5.5 Completion of the Conversion. The Conversion will be terminated if not
completed within 180 days from the date of approval by the Commissioner.
Article 6. Stock Purchase Priorities.
6.1 Priorities for Offering. All purchase priorities established by this
Article 6 shall be subject to the purchase limitations set forth in, and shall
be subject to adjustment as provided in, Article 7 of this Plan. In addition to
the priorities set forth in this Article 6, the MHC may establish other
priorities for the purchase of Holding Company Conversion Stock, subject to the
approval of the Commissioner and the FDIC. The priorities for the purchase of
shares in the Conversion are set forth in the following Sections.
6.2 Certain Determinations. All interpretations or determinations of
whether prospective purchasers are "residents," "Associates," or "Acting in
Concert", and any other interpretations of any and all other provisions of the
Plan shall be made by and at the sole discretion of the MHC, and may be based on
whatever evidence the MHC may choose to use in making any such determination.
6.3 Minimum Purchase; No Fractional Shares. The minimum purchase by any
Person shall be 25 shares (to the extent that shares of Holding Company
Conversion Stock are available for purchase), provided, however, that the
aggregate purchase price for any minimum share purchase shall not exceed $500.
No fractional shares will be allocated or issued.
6.4 Overview of Priorities. In descending order of priority, the
opportunity to purchase Holding Company Conversion Stock shall be given in the
Subscription Offering to: (1) Eligible Account Holders; (2) Supplemental
Eligible Account Holders; (3) Tax-Qualified Employee Plans; and (4) Employees,
Officers, directors and trustees of the MHC and the Bank. Any shares of Holding
Company Conversion Stock that are not subscribed for in the Subscription
Offering at the discretion of the MHC may be offered for sale in a Direct
Community Offering and/or a Syndicated Community Offering on terms and
conditions and procedures satisfactory to the MHC.
6.5 Priorities For Subscription Offering.
6.5.1 First Priority: Eligible Account Holders. Upon approval of the
Plan by the Corporators and the receipt of permission from the Commissioner to
offer the Holding Company Conversion Stock for sale, each Eligible Account
Holder shall receive, without payment therefor, nontransferable subscription
rights on a first priority basis to subscribe for a number of shares of
<PAGE>
Holding Company Conversion Stock equal to the greatest of (x) a number
determined by dividing the Individual Maximum Purchase Limit (as such term is
defined in Section 7.2) by the per share Subscription Price, (y) one-tenth of
one percent (.10%) of the shares offered in the Conversion, or (z) 15 times the
product (rounded down to the nearest whole number) obtained by multiplying (1)
the total number of shares of Holding Company Conversion Stock to be issued in
the Conversion by (2) a fraction, of which the numerator is the Qualifying
Deposit of the Eligible Account Holder and the denominator is the total amount
of Qualifying Deposits of all Eligible Account Holders. If there are
insufficient shares available to satisfy all subscriptions of Eligible Account
Holders, shares will be allocated to Eligible Account Holders so as to permit
each such subscribing Eligible Account Holder to purchase a number of shares of
Holding Company Conversion Stock sufficient to make his or her total allocation
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares of Holding Company Conversion Stock will be
allocated pro rata to remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the same proportion that each such subscriber's
Qualifying Deposit bears to the total amount of Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription rights to purchase Holding Company Conversion Stock received by
corporators, Trustees, Officers, and directors of the MHC and the Bank (and
their Associates) based on their increased deposits in the Bank in the one year
preceding the Eligibility Record Date shall be subordinated to the subscription
rights of other Eligible Account Holders. To ensure proper allocation of stock,
each Eligible Account Holder must list on his or her subscription order form all
Deposit Accounts in which he had an ownership interest as of the Eligibility
Record Date.
6.5.2 Second Priority: Supplemental Eligible Account Holders. To the
extent there are shares remaining after satisfaction of subscriptions by
Eligible Account Holders, each Supplemental Eligible Account Holder shall
receive non-transferable subscription rights to subscribe for a number of shares
of Holding Company Conversion Stock equal to the greatest of (x) a number
determined by dividing the Individual Maximum Purchase Limit by the per share
Subscription Price, (y) one-tenth of one percent (.10%) of the shares offered in
the Conversion, or (z) 15 times the product (rounded down to the nearest whole
number) obtained by multiplying (1) the total number of shares of Holding
Company Conversion Stock to be issued in the Conversion by (2) a fraction, of
which the numerator is the Qualifying Deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of Qualifying Deposits of
all Supplemental Eligible Account Holders. In the event Supplemental Eligible
Account Holders subscribe for a number of shares of Holding Company Conversion
Stock which, when added to the shares subscribed for by Eligible Account
Holders, exceed available shares, the available shares of Holding Company
Conversion Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible Account
Holder to purchase a number of shares of Holding Company Conversion Stock
sufficient to make his or her total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated to each subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that such subscriber's
Qualifying Deposit on the Supplemental Eligibility Record Date bears to the
total amount of Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled. Any Subscription Rights to
purchase shares of Holding Company Conversion Stock received by an Eligible
Account Holder pursuant to Section 6.5.1 above shall
<PAGE>
be applied in partial satisfaction of the Subscription Rights of Supplemental
Eligible Account Holders described in this Section 6.5.2.
6.5.3 Third Priority: Tax-Qualified Employee Plans. To the extent
there are shares remaining after satisfaction of subscriptions by Eligible
Account Holders and Supplemental Eligible Account Holders, the Tax-Qualified
Employee Plans shall be given the opportunity to purchase in the aggregate up to
8% of the Holding Company Conversion Stock issued in the Conversion. In the
event that the total number of shares of Holding Company Conversion Stock
offered in the Conversion is increased to an amount greater than the Range
Maximum, the ESOP shall have a priority right to purchase any such shares
exceeding the Range Maximum (up to the aggregate of 8% of Holding Company
Conversion Stock allocated to it pursuant to this Section 6.5.3).
6.5.4 Fourth Priority: Employees, Officers, Directors and Trustees. To
the extent there are shares remaining after satisfaction of subscriptions by
Eligible Account Holders, Supplemental Eligible Account Holders, and any
Tax-Qualified Employee Plan, each Employee, Officer, director and trustee of the
MHC or the Bank shall receive non-transferable subscription rights to subscribe
for shares of Holding Company Conversion Stock offered in the Conversion in an
amount equal to the Individual Maximum Purchase Limit; provided, however, that
the aggregate number of shares of Holding Company Conversion Stock that may be
purchased by Employees, Officers, directors and trustees pursuant to this
Section 6.5.4 shall be limited to 30% of the total number of shares of Holding
Company Conversion Stock sold in the Conversion. Shares purchased under this
Section 6.5.4 shall be aggregated with shares purchased under the preceding
priority categories when calculating the 30% purchase limitation applicable to
purchases by such Persons. In the event that Employees, Officers, directors, and
trustees subscribe under this Section 6.5.4 for more shares of Holding Company
Conversion Stock than are available for purchase by them, the shares of Holding
Company Conversion Stock available for purchase will be allocated by the MHC
among such subscribing Persons on an equitable basis, such as by giving weight
to the period of service, compensation and position of the individual
subscriber.
6.6 Priorities for Direct Community Offering
6.6.1 Any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering may be offered for sale in a Direct Community
Offering. This will involve an offering of all unsubscribed shares of Holding
Company Conversion Stock directly to the general public. The Direct Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by the MHC, and shall commence concurrently with, during or promptly after the
Subscription Offering. The MHC may use an investment banking firm or firms on a
best efforts basis to sell the unsubscribed shares in the Subscription and
Direct Community Offering. The MHC may pay a commission or other fee to such
investment banking firm or firms as to the shares sold by such firm or firms in
the Subscription and Direct Community Offering and may also reimburse such firm
or firms for expenses incurred in connection with the sale. The Direct Community
Offering may be supplemented by a Syndicated Community Offering managed by such
investment banking firm or firms, for which a fee will also apply, as well as
expense
<PAGE>
reimbursement. The Holding Company Conversion Stock will be offered and sold in
the Direct Community Offering, in accordance with the Regulations, so as to
achieve the widest distribution of the Holding Company Conversion Stock. No
Person may subscribe for or purchase more than the Individual Maximum Purchase
Limit of Holding Company Conversion Stock in the Direct Community Offering.
6.6.2 In the event of an oversubscription for shares in the Direct
Community Offering, available shares will be allocated (to the extent shares
remain available) first to cover orders of natural Persons residing in the
Bank's Community, so that each such Person may receive 100 shares, and
thereafter, on a pro rata basis to such Persons based on the amount of their
respective subscriptions or on such other reasonable basis as may be determined
by the MHC. After such allocation has been completed, available shares will be
allocated (to the extent shares remain available) to cover orders of any other
Person subscribing for shares in the Direct Community Offering, so that each
such other Person may receive 100 shares, and thereafter, on a pro rata basis to
such other Persons based on the amount of their respective subscriptions or on
such other reasonable basis as may be determined by the MHC.
6.6.3 The terms "residence," "reside," or "residing" as used herein
with respect to any Person shall mean any Person who occupies a dwelling within
the Bank's Community, has an intent to remain with the Community for a period of
time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is not merely transitory in nature. To the extent
the Person is a corporation or other business entity, the principal place of
business or headquarters must be in the Community. The Bank may use deposit or
loan records or such other evidence provided to it to determine whether a Person
is a resident. In all cases, however, such a determination shall be in the sole
discretion of the MHC.
6.6.4 The MHC, in its sole discretion, may reject subscriptions, in
whole or in part, received from any Person under this Section 6.6.
6.7 Priorities for Syndicated Community Offering
6.7.1 Any shares of Holding Company Conversion Stock not sold in the
Subscription Offering or in the Direct Community Offering, if any, may be
offered for sale to the general public by a selling group of broker-dealers in a
Syndicated Community Offering, subject to terms, conditions and procedures as
may be determined by the MHC in a manner that is intended to achieve the widest
distribution of the Holding Company Conversion Stock subject to the rights of
the MHC to accept or reject in whole or in part all orders in the Syndicated
Community Offering. No Person may purchase in the Syndicated Community Offering
more than the Individual Maximum Purchase Limit of Holding Company Conversion
Stock. Orders for Holding Company Conversion Stock in the Syndicated Community
Offering may be filled up to a maximum percentage (to be determined by the MHC
and not to exceed two percent (2%) or the purchase limitations contained in the
Plan) of the total number of shares of Holding Company Conversion Stock until
all orders have been filled. It is expected that the Syndicated Community
Offering will commence as soon as practicable after termination of the Direct
Community
<PAGE>
Offering, if any. The Syndicated Community Offering shall be completed within 45
days after the termination of the Subscription Offering, unless such period is
extended as provided herein. The commission in the Syndicated Community Offering
shall be determined by a marketing agreement between the MHC and the Marketing
Agent. Such agreement shall be filed with the FDIC, the Division and the SEC.
6.7.2 If for any reason a Syndicated Community Offering of
unsubscribed shares of Holding Company Conversion Stock cannot be effected or is
not deemed to be advisable, and any shares remain unsold after the Subscription
Offering and the Community Offering, if any, the MHC will seek to make other
arrangements for the sale of the remaining shares, including an underwritten
public offering. Such other arrangements will be subject to the approval of the
Commissioner and the FDIC and to compliance with applicable state and federal
securities laws.
Article 7. Additional Limitations on Purchases
7.1 General. Purchases of Holding Company Conversion Stock in the
Conversion will be subject to the purchase limitations set forth in this Article
7:
7.2 Individual Maximum Purchase Limit. This Section 7.2 sets forth the
"Individual Maximum Purchase Limit." No Person may purchase in the Offering
(including the Subscription Offering, the Direct Community Offering and the
Syndicated Community Offering) more than $750,000 of Holding Company Conversion
Stock, except that: (i) the MHC may, in its sole discretion and without further
notice to or solicitation of subscribers or other prospective purchasers, (x)
increase such Individual Maximum Purchase Limit to up to 5% of the number of
shares of Holding Company Conversion Stock offered in the Conversion or (y)
decrease such Individual Maximum Purchase Limit to no less than one-tenth of one
percent (.10%) of the number of shares of Holding Company Conversion Stock
offered in the Conversion; and (ii) Tax-Qualified Employee Plans may purchase up
to 8% of the shares issued in the Conversion. If the MHC increases the
Individual Maximum Purchase Limit (as permitted by this Section 7.2),
subscribers for the previously-effective maximum amount will be, and certain
other large subscribers in the sole discretion of the MHC may be, given the
opportunity to increase their subscriptions up to the then applicable limit.
Requests to purchase additional shares of Holding Company Conversion Stock under
this provision will be determined by the MHC, in its sole discretion.
7.3 Group Acting in Concert. This Section 7.3 sets forth the "Group Maximum
Purchase Limit." No Person and his or her Associates or group of Persons Acting
in Concert, may purchase in the Offering (including the Subscription Offering,
the Direct Community Offering and the Syndicated Community Offering) more than
$1,500,000 of Holding Company Conversion Stock, except that: (i) the MHC may, in
its sole discretion and without further notice to or solicitation of subscribers
or other prospective purchasers, (x) increase such Group Maximum Purchase Limit
to up to 5% of the number of shares of Holding Company Conversion Stock offered
in the Conversion or (y) decrease such Group Maximum Purchase Limit to no less
than one-tenth of one percent (.10%) of the number of shares of Holding Company
Conversion Stock offered in the Conversion; and (ii) Tax-Qualified Employee
Plans may purchase up to 8% of the shares issued in the Conversion.
Notwithstanding the foregoing, in the event that the MHC increases the
Individual Maximum Purchase Limit (as permitted by Section 7.2) to a number that
<PAGE>
is in excess of the Group Maximum Purchase Limit established by this Section
7.3, the Group Maximum Purchase Limit shall automatically be increased so as to
be equal to the Individual Maximum Purchase Limit, as adjusted.
7.4 Purchases by Management Persons. The aggregate number of shares of
Holding Company Conversion Stock to be purchased in the Offering by Management
Persons and their Associates shall not exceed 30% of the total number of shares
of Holding Company Conversion Stock sold in the Conversion.
7.5 Special Rule for Tax-Qualified Employee Plans. Shares of Holding
Company Conversion Stock purchased by any individual participant ("Plan
Participant") in a Tax-Qualified Employee Plan using funds therein pursuant to
the exercise of subscription rights granted to such Participant in his
individual capacity as an Eligible Account Holder or Supplemental Eligible
Account Holder and purchases by such Plan Participant in a Community Offering
shall not be deemed to be purchases by a Tax-Qualified Employee Plan for
purposes of calculating the maximum amount of Holding Company Conversion Stock
that Tax-Qualified Employee Plans may purchase pursuant to this Plan if the
individual Plan Participant controls or directs the investment authority with
respect to such account or subaccount.
7.6 Increase in the Total Number of Shares Offered. In the event that (i)
the total number of shares of Holding Company Conversion Stock offered in the
Conversion is increased to an amount greater than the Range Maximum, and (ii)
there shall be additional shares of Holding Company Conversion Stock available
after the ESOP shall have exercised its priority right (established pursuant to
Section 6.5.3) to purchase shares exceeding the Range Maximum, any additional
shares not purchased by the ESOP will be issued to fill unfulfilled
subscriptions of other subscribers according to their respective priorities set
forth in the Plan.
7.7 Illegal Purchases. Notwithstanding any other provision of the Plan, no
Person shall be entitled to purchase any Holding Company Conversion Stock to the
extent such purchase would be illegal under any federal law or state law or
regulation or would violate regulations or policies of the National Association
of Securities Dealers, Inc., particularly those regarding free riding and
withholding. The MHC and/or its agents may ask for an acceptable legal opinion
from any purchaser as to the legality of such purchase and may refuse to honor
any purchase order if such opinion is not timely furnished.
7.8 Rejection of Orders. The MHC has the right in its sole discretion to
reject any order submitted by a Person whose representations the MHC believes to
be false or who it otherwise believes, either alone or Acting in Concert with
others, is violating, circumventing, or intends to violate, evade or circumvent
the terms and conditions of the Plan.
7.9 Subscribers in Non-Qualified States or in Foreign Countries. The MHC,
in its sole discretion, may make reasonable efforts to comply with the
securities laws of any state in the United States in which its depositors
reside, and will only offer and sell the Holding Company Conversion Stock in
states in which the offers and sales comply with such states' securities laws.
However, no Person will be offered or allowed to purchase any Holding Company
Conversion
<PAGE>
Stock under the Plan if he or she resides in a foreign country or in a state of
the United States with respect to which any of the following apply: (i) a small
number of Persons otherwise eligible to purchase shares under the Plan reside in
such state or foreign county; (ii) the offer or sale of shares of Holding
Company Conversion Stock to such Persons would require the Stock Holding Company
or its Employees to register, under the securities laws of such state or foreign
country, as a broker or dealer or to register or otherwise qualify its
securities for sale in such state or foreign country; or (iii) such registration
or qualification would be impracticable for reasons of cost or otherwise.
7.10 No Offer to Transfer Shares. Before the consummation of the
Conversion, no Person shall offer to transfer, or enter into any agreement or
understanding to transfer the legal or beneficial ownership of any subscription
rights or shares of Holding Company Conversion Stock, except pursuant to the
Plan. The following shall not constitute impermissible transfers under this
Plan. Any Person having subscription rights in his individual capacity as an
Eligible Account Holder or Supplemental Eligible Account Holder may exercise
such subscription rights by causing a tax-qualified plan to make such purchase
using funds allocated to such Person in such tax-qualified plan if such
individual plan participant controls or directs the investment authority with
respect to such account or subaccount. A tax-qualified plan that maintains an
Eligible Deposit Account in the Bank as trustee for or for the benefit of a
Person who controls or directs the investment authority with respect to such
account or subaccount ("Beneficiary") may, in exercising its subscription
rights, direct that the Holding Company Conversion Stock be issued in the name
of such individual Beneficiary in his individual capacity.
7.11 Confirmation by Purchasers. Each Person ordering Holding Company
Conversion Stock in the Conversion will be deemed to confirm that such purchase
does not conflict with the purchase limitations in the Plan. All questions
concerning whether any Persons are Associates or a Group Acting in Concert or
whether any purchase conflicts with the purchase limitations in the Plan or
otherwise violates any provision of the Plan shall be determined by the MHC in
its sole discretion. Such determination shall be conclusive, final and binding
on all Persons and the MHC may take any remedial action, including without
limitation rejecting the purchase or referring the matter to the Commissioner
for action, as in its sole discretion the MHC may deem appropriate.
Article 8. Post Offering Matters
8.1 Stock Purchases After the Conversion For a period of three years after
the proposed Conversion, no Officer or director of the Stock Holding Company or
the Bank, or his or her Associates, may purchase, without the prior written
approval of the Commissioner, any Holding Company Common Stock:
(i) from the Stock Holding Company, or
(ii) except from a broker-dealer registered with the SEC, provided that the
foregoing shall not apply to (x) negotiated transactions involving more than 1%
of the outstanding Holding Company Common Stock, or (y) purchases of stock made
by and held by any Tax-Qualified or Non-Tax-Qualified Employee Plan of the Bank
or the Stock Holding Company even if such stock
<PAGE>
is attributable to Officers, directors or their Associates.
8.2 Resales of Stock by Management Persons. Holding Company Conversion
Stock purchased by Management Persons in the Conversion may not be resold for a
period of at least one year following the date of purchase, except in the case
of death or substantial disability, as determined by the Commissioner, of the
Management Person, or upon the written approval of the Commissioner.
8.3 Stock Certificates. Each stock certificate shall bear a legend giving
appropriate notice of the restrictions set forth in Section 8.2. Appropriate
instructions shall be issued to the Stock Holding Company's transfer agent with
respect to applicable restrictions on transfers of such stock. Any shares of
stock issued as a stock dividend, stock split or otherwise with respect to such
restricted stock, shall be subject to the same restrictions as apply to the
restricted stock.
8.4 Restriction on Financing Stock Purchases. The Stock Holding Company
will not offer or sell any of the Holding Company Common Stock proposed to be
issued to any Person whose purchase would be financed by funds loaned to the
Person by the Stock Holding Company, Bank or any of their Affiliates.
8.5 Stock Benefit Plans. The Board of Directors of the Bank and/or the
Stock Holding Company are permitted under the Regulations, and may decide, to
adopt one or more stock benefit plans for the benefit of the Employees, Officers
and directors of the Bank and Stock Holding Company, including an ESOP, stock
award plans and stock option plans, which will be authorized to purchase Holding
Company Common Stock and grant options for Holding Company Common Stock.
However, only the Tax-Qualified Employee Plans will be permitted to purchase
Holding Company Conversion Stock in the Conversion subject to the purchase
priorities set forth in the Plan. Pursuant to the Regulations, the Stock Holding
Company may authorize the ESOP and any other Tax-Qualified Employee Plans to
purchase in the aggregate up to 8% of the Holding Company Conversion Stock to be
issued. The Bank or the Stock Holding Company may make scheduled discretionary
contributions to one or more Tax-Qualified Employee Plans to purchase Holding
Company Common Stock or to purchase issued and outstanding shares of Holding
Company Common Stock or authorized but unissued shares of Holding Company Common
Stock subsequent to the completion of the Conversion, provided, however, that
such contributions do not cause the Bank to fail to meet any of its regulatory
capital requirements. The Plan specifically authorizes the grant and issuance by
the Stock Holding Company of (i) awards of Holding Company Common Stock after
the Conversion pursuant to one or more stock recognition and award plans (the
"Recognition Plans") in an amount equal to up to 4% of the number of shares of
Holding Company Conversion Stock issued in the Conversion, (ii) options to
purchase a number of shares of the Stock Holding Company's Holding Company
Conversion Stock in an amount equal to up to 10% of the number of shares of
Holding Company Conversion Stock issued in the Conversion and shares of Holding
Company Conversion Stock issuable upon exercise of such options, and (iii)
Holding Company Common Stock to one or more Tax Qualified Employee Plans,
including the ESOP, at the closing of the Conversion or at any time thereafter,
in an amount equal to up to 8% of the number of shares of Holding Company
Conversion Stock issued in the Conversion (including shares of Holding Company
Conversion
<PAGE>
Stock to be issued to the ESOP). Shares awarded to the Tax Qualified Employee
Plans or pursuant to the Recognition Plans, and shares issued upon exercise of
options may be authorized but unissued shares of the Stock Holding Company's
Holding Company Common Stock, or shares of Holding Company Common Stock
purchased by the Stock Holding Company or such plans in the open market. The
Recognition Plans and the stock option plans will be subject to stockholder
approval.
8.6 Market for Holding Company Common Stock. If at the close of the
Conversion the Stock Holding Company has more than 300 shareholders of any class
of stock, the Stock Holding Company shall use its best efforts to:
8.6.1 Encourage and assist a Market Maker to establish and maintain a
market for that class of stock; and
8.6.2 List that class of stock on a national or regional securities
exchange, or on the NASDAQ system.
8.6.3 Register the Holding Company Common Stock with the SEC pursuant
to the Exchange Act, and undertake not to deregister such Holding Company Common
Stock for a period of three years thereafter.
8.7 Liquidation Account.
8.7.1 The MHC shall, at the time of the Conversion, establish a
Liquidation Account in an amount equal to the net worth of the MHC as set forth
in the latest consolidated statement of financial condition contained in the
final Prospectus distributed in connection with the Conversion. The function of
the Liquidation Account is to establish a priority on liquidation and, except as
otherwise provided in this Section 8.7, the existence of the Liquidation Account
shall not operate to restrict the use or application of any of the net worth
accounts of the Stock Holding Company. The Liquidation Account will be
maintained by the Stock Holding Company for the benefit of the Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
Deposit Accounts with the Bank following the Conversion. Each Eligible Account
Holder and Supplemental Eligible Account Holder shall, with respect to each
Deposit Account, hold a related inchoate interest in a portion of the
Liquidation Account balance, in relation to each Deposit Account balance at the
Eligibility Record Date or Supplemental Eligibility Record Date, as the case may
be, or to such balance as it may be subsequently reduced, as hereinafter
provided. The initial Liquidation Account balance shall not be increased, and
shall be subject to downward adjustment to the extent of any downward adjustment
of any subaccount balance of any Eligible Account Holder or Supplemental
Eligible Account Holder in accordance with 209 CMR 33.05(12).
8.7.2 In the unlikely event of a complete liquidation of the Stock
Holding Company (and only in such event), following all liquidation payments to
creditors (including those to depositors to the extent of their Deposit
Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidating distribution from the Liquidation
Account, in the
<PAGE>
amount of the then-adjusted subaccount balances for his or her deposit accounts
then held, before any liquidating distribution may be made to any holders of the
Stock Holding Company's capital stock. No merger, consolidation, reorganization,
or purchase of bulk assets with assumption of deposit accounts and other
liabilities, or similar transactions with an FDIC-insured institution, in which
the Stock Holding Company is not the surviving institution, shall be deemed to
be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
8.7.3 The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
or Supplemental Eligible Account Holder's Qualifying Deposit and the denominator
of which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Bank. For Deposit
Accounts in existence on both dates, separate subaccounts shall be determined on
the basis of the Qualifying Deposits in such Deposit Accounts on such record
dates. Such initial subaccount balance shall not be increased by additional
Deposits, but shall be subject to downward adjustment as described below.
8.7.4 If, at the close of business on the last day of any period for
which the Stock Holding Company has prepared audited financial statements
subsequent to the effective date of the Conversion, the deposit balance in the
Deposit Account of an Eligible Account Holder or Supplemental Eligible Account
Holder is less than the lesser of: (i) the balance in the Deposit Account at the
close of business on the last day of any period for which the Stock Holding
Company has prepared audited financial statements subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, or (ii) the amount in such
Deposit Account as of the Eligibility Record Date or Supplemental Eligibility
Record Date, then the subaccount balance for such Deposit Account shall be
adjusted by reducing such subaccount balance in an amount proportionate to the
reduction in the balance of such Deposit Account. In the event of such downward
adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
Deposit Account. If any such Deposit Account is closed, the related subaccount
shall be reduced to zero. For purposes of this Section 8.7, a time account shall
be deemed to be closed upon its maturity date regardless of any renewal thereof.
A distribution of each subaccount balance may be made only in the event of a
complete liquidation of the Stock Holding Company subsequent to the Conversion
and only out of funds available for such purpose after payment of all creditors.
8.7.5 The Stock Holding Company shall not be required to set aside
funds for the purpose of establishing the Liquidation Account, and the creation
and maintenance of the Liquidation Account shall not operate to restrict the use
or application of any of the net worth accounts of the Stock Holding Company,
except that the Stock Holding Company shall not declare or pay a cash dividend
on, or repurchase any of, its capital stock if the effect thereof would cause
its net worth to be reduced below the amount required for the Liquidation
Account.
<PAGE>
8.8 Payment of Dividends. The Stock Holding Company may not declare or pay
a cash dividend on the Holding Company Common Stock if the effect thereof would
cause its regulatory capital to be reduced below the amount required to maintain
the Liquidation Account and under FDIC rules and regulations. Otherwise, the
Stock Holding Company may declare dividends in accordance with applicable laws
and regulations.
8.9 Repurchase of Stock. The Stock Holding Company has no present intention
of repurchasing any of the Holding Company Common Stock. However, based upon
facts and circumstances following the Conversion and subject to applicable
regulatory and accounting requirements, the Board of Directors of the Stock
Holding Company may determine to repurchase stock in the future. Such facts and
circumstances may include but not be limited to: (i) market and economic factors
such as the price at which the Holding Company Common Stock is trading in the
market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the opportunity to improve the Stock Holding
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
the purchase of shares by the ESOP in the event the ESOP is unable to acquire
shares in the Subscription Offering, or to fund the Stock Plans; (iii) the
preservation of pooling-of-interests treatment of the Sandwich Bancorp
Acquisition under GAAP and (iv) any other circumstances in which repurchases
would be in the best interests of the Stock Holding Company and its
shareholders. In order to preserve pooling-of-interests accounting treatment of
the Sandwich Bancorp Acquisition under GAAP, the Stock Holding Company's ability
to repurchase shares of Holding Company Common Stock will be limited during the
two-year period following consummation of the Sandwich Bancorp Acquisition.
8.10 Conversion Expenses. The Regulations require that the expenses of the
Conversion must be reasonable. The MHC will use its best efforts to assure that
the expenses incurred by the MHC in effecting the Conversion will be reasonable.
8.11 Public Inspection of Conversion Application. The MHC will maintain a
copy of the Application in the main banking office of the Bank and such copy
will be available for public inspection.
8.12 Enforcement of Terms and Conditions. The MHC shall have the right to
take all such action as it, in its sole discretion, may deem necessary,
appropriate or advisable in order to monitor and enforce the terms, conditions,
limitations and restrictions contained in the Plan and the terms, conditions and
representations contained in the Order Forms, including, but not limited to, the
right to require any subscriber or purchaser to provide evidence, in a form
satisfactory to the MHC, of such Person's eligibility to subscribe for or
purchase shares of the Holding Company Conversion Stock under the terms of the
Plan and the absolute right (subject only to any necessary regulatory approvals
or concurrence) to reject, limit or revoke acceptance of any subscription or
order and to delay, terminate or refuse to consummate any sale of Holding
Company Conversion Stock that it believes might violate, or is designed to, or
is any part of a plan to, evade or circumvent such terms, conditions,
limitations, restrictions and representations.
<PAGE>
Any such action shall be final, conclusive and binding on all Persons, and the
MHC, the Bank and their Board of Trustees, Board of Directors, Officers,
Employees and agents shall be free from any liability to any Person on account
of any such action.
Article 9. Miscellaneous
9.1 Interpretation of Plan. All interpretations of the Plan and application
of its provisions to particular circumstances by the MHC shall be final, subject
to the authority of the Commissioner. When a reference is made in this Agreement
to Sections or Exhibits, such reference shall be to a Section of or Exhibit to
the Plan unless otherwise indicated. The recitals hereto constitute an integral
part of the Plan. References to Sections include subsections, which are part of
the related Section (e.g., a section numbered "Section 5.5.1" would be part of
"Section 5.5" and references to "Section 5.5" would also refer to material
contained in the subsection described as "Section 5.5.1"). The table of contents
and headings contained in the Plan are for reference purposes only and shall not
affect in any way the meaning or interpretation of the Plan. Whenever the words
"include", "includes" or "including" are used in the Plan, they shall be deemed
to be followed by the words "without limitation".
9.2 Amendment or Termination of the Plan. If deemed necessary or desirable,
the terms of the Plan may be substantively amended by a majority vote of the
members of the Board of Trustees as a result of comments from regulatory
authorities at any time prior to approval of the Plan by the Commissioner and at
any time thereafter with the concurrence of the Commissioner. Other amendments
which do not result from the comments from regulatory authorities may be
approved by a vote of a majority of the Conversion Committee. If amendments to
the Plan are made after the Special Meeting, no further approval of the
Corporators will be necessary unless otherwise required by the Commissioner. The
Plan may be terminated by the Board of Trustees in its sole discretion, by
reason of the termination of the Acquisition Agreement or otherwise, at any time
prior to the Special Meeting and at any time thereafter with the concurrence of
the Commissioner. The Plan will terminate if the sale of all shares of Holding
Company Conversion Stock is not completed within twenty four months from the
date of approval of the Plan by the Board of Trustees.
Dated:
FHE Draft
May 8, 1998
ARTICLES OF ORGANIZATION
OF
[SEACOAST FINANCIAL SERVICES CORPORATION]
Article I. Name
The exact name of the corporation is: [Seacoast Financial Services
Corporation]
Article II. Purpose
The purpose of the corporation is to engage in the following business
activities: To buy, sell, deal in, or hold securities of every kind and
description; and in general to carry on any business permitted to corporations
organized under Chapter 156B of the Massachusetts General Laws as now in force
or hereafter amended.
Article III. Authorized Capital Stock
The total number of shares and par value of each class of stock that
the Corporation is authorized to issue is as follows:
Common: 100,000,000 shares, $.01 par value
Preferred: 10,000,000 shares, $.01 par value
Article IV. Capital Stock
Section 4.1 Capital Stock. A description of the different classes and
series of the Corporation'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:
4.1.1 Common Stock. Each holder of Common Stock shall at every
meeting of stockholders be entitled to one vote in person or by proxy for each
share of Common Stock held by him or her. The holders of the Common Stock shall
be entitled to such dividends as may from time to time be declared by the Board
of Directors out of any funds legally available for the declaration of
dividends, subject to any provisions of these Articles of Organization, as
amended from time to time (these "Articles"), and subject to the relative rights
and preferences of any shares of Preferred Stock authorized and issued
hereunder. Subject to the relative rights and preferences of any shares of
Preferred Stock authorized and issued hereunder, upon the dissolution or
liquidation of the Corporation, whether voluntary or involuntary, the holders of
shares of Common Stock shall be entitled to receive pro rata all assets of the
Corporation available for distribution to its stockholders.
<PAGE>
There shall be no cumulative voting rights in the election of
Directors. Each share of Common Stock shall have the same relative rights as,
and be identical in all respects with, all the other shares of Common Stock.
4.1.2 Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of this Article IV,
to provide for the issuance of shares of Preferred Stock with or without series,
and, by filing a certificate pursuant to the applicable law of The Commonwealth
of Massachusetts (the "Certificate of Designation"), to establish from time to
time the number of shares to be included in each such series and to fix the
designation, preferences, voting powers, qualifications and special or relative
rights or privileges of the shares of each such series. In the event that at any
time the Board of Directors shall have established and designated one or more
series of Preferred Stock consisting of a number of shares less than the total
number of authorized shares of Preferred Stock, the remaining authorized shares
of Preferred Stock shall be deemed to be shares of an undesignated series of
Preferred Stock until designated by the Board of Directors as being a part of a
series previously established or a new series then being established by the
Board of Directors. Notwithstanding the fixing of the number of shares
constituting a particular series, the Board of Directors may at any time
thereafter authorize the issuance of additional shares of the same series except
as set forth in the Certificate of Designation. The authority of the Board of
Directors with respect to each series shall include, but not be limited to,
determination of one or more of the following:
(a) The number of shares constituting that
series, which number may be increased or decreased (but not below the number of
shares of such series then outstanding) from time to time by the Board of
Directors, and the distinctive designation of that series;
(b) Whether any dividend shall be paid on shares
of that series, and, if so, the dividend rate on the shares of that series;
whether dividends shall be cumulative and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
that series;
(c) Whether shares of that series shall have voting
rights in addition to the voting rights provided by law and, if so, the terms of
such voting rights;
(d) Whether shares of that series shall be
convertible into shares of Common Stock or another security and, if so, the
terms and conditions of such conversion, including provisions for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) Whether shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether that series shall have
a sinking fund for the redemption or purchase of shares of that series and, if
so, the terms and amount of such sinking fund;
<PAGE>
(f) Whether, in the event of purchase or
redemption of the shares of that series, any shares of that series shall be
restored to the status of authorized but unissued shares or shall have such
other status as shall be set forth in the Certificate of Designation;
(g) The rights of the shares of that series in
the event of the sale, conveyance, exchange or transfer of all or substantially
all of the property and assets of the Corporation, or the merger or
consolidation of the Corporation into or with any other corporation or entity,
or the merger of any other corporation or entity into it, or the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of shares of that series to payment in any
such event;
(h) The price or other consideration for which
the shares of such series shall be issued;
(i) Whether shares of that series shall carry
any preemptive right in or preemptive right to subscribe to any additional
shares of Preferred Stock or any shares of any other class of stock which may at
any time be authorized or issued, or any bonds, debentures or other securities
convertible into shares of stock of any class of the Corporation, or options or
warrants carrying rights to purchase such shares or securities; and
(j) Any other designations, preferences, voting
powers, qualifications, and special or relative rights or privileges of the
shares of that series.
Except as specifically provided in these Articles, the holders
of Preferred Stock or Common Stock shall not be entitled to any vote and shall
not have any voting rights concerning the designation or issuance of any shares
of Preferred Stock authorized by and complying with the conditions of these
Articles, and subject to the authority of the Board of Directors or any
authorized committee thereof as set forth above, the right to any such vote is
expressly waived by all present and future holders of the capital stock of the
Corporation.
Article V. Restrictions on Transfer
None
Article VI. Other Lawful Provisions.
Section 6.1 Certain Business Combinations
6.1.1 Vote Required for Certain Business Combinations. In
addition to any affirmative vote required by the Massachusetts General Laws or
by these Articles, and except as otherwise expressly provided in Section 6.1.3,
any Business Combination (as hereinafter defined) shall require the affirmative
vote of the holders of at least eighty percent (80%) of the voting power of all
of the then-outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock"), voting
together as a single class (it being understood that for purposes of this
Section 6.1, each share of the Voting Stock shall have
<PAGE>
the number of votes granted to it pursuant to Article IV of these Articles).
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or by any
other provisions of these Articles or any Certificate of Designation (as defined
in Section 4.1.2) or in any agreement with any national securities exchange or
otherwise.
6.1.2 Business Combination Defined. The term "Business
Combination" as used in this Article VI shall mean:
(a) any merger or consolidation of the Corporation
or any Subsidiary (as defined in Section 6.1.4(e)) with (a) any Interested
Stockholder (as defined in Section 6.1.4(b)) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or after such merger
or consolidation would be, an Affiliate (as defined in Section 6.1.4(d)) of an
Interested Stockholder; or
(b) 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 Corporation or any Subsidiary having an
aggregate Fair Market Value (as defined in Section 6.1.4(g)) equal to or greater
than ten percent (10%) of the combined assets of the Corporation and its
Subsidiaries; or
(c) the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested Stockholder or
any Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market Value
equal to or greater than ten percent (10%) of the combined assets of the
Corporation and its Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any Subsidiary thereof
(established with the approval of a majority of the Disinterested Directors (as
defined in Section 6.1.4(f))); or
(d) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(e) any reclassification of securities (including any
reverse stock split) or recapitalization of the Corporation or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder.
6.1.3. When Higher Vote is Not Required. The provisions of
Section 6.1.1 shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote, if any,
as may be required by law or by any other provision of
<PAGE>
these Articles, if either (x) the condition specified in Section 6.1.3(a) is met
or (y) all of the conditions specified in Section 6.1.3(b) are met:
(a) Approval by Disinterested Directors. The
Business Combination shall have been approved by two-thirds (2/3) of the
Disinterested Directors, it being understood that this condition shall not be
capable of satisfaction unless there is at least one Disinterested Director.
(b) Price and Procedure Requirements. All of the
following conditions shall have been met:
(1) The aggregate amount of the cash and the
Fair Market Value of consideration other than cash, determined as of the date of
the consummation of the Business Combination, to be received per share by
holders of Common Stock in such Business Combination shall be at least equal to
the higher of the following:
(A) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder or any of its Affiliates for
any shares of Common Stock acquired by it (1) within the two-year period
immediately prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (2) in the transaction in
which it became an Interested Stockholder, whichever is higher;
(B) the Fair Market Value per share of
Common Stock of the Corporation on the Announcement Date or on the date on which
the Interested Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher.
(2) The aggregate amount of the cash and the
Fair Market Value of consideration other than cash, determined as of the date of
the consummation of the Business Combination, to be received per share by
holders of shares of any class of outstanding Voting Stock other than the Common
Stock shall be at least equal to the highest of the following (it being intended
that the requirements of this Section 6.1.3(b)(2) shall be required to be met
with respect to each such 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 or any of its Affiliates for
any shares of such class of Voting Stock acquired by it (1) within the two-year
period immediately prior to the Announcement Date or (2) in the transaction in
which it became an Interested Stockholder, whichever is higher; or
(B) (if applicable) the highest
preferential amount per share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
<PAGE>
(C) the Fair Market Value per share
of such class of Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(3) The holders of all outstanding shares of
Voting Stock not beneficially owned by the Interested Stockholder immediately
prior to the consummation of any Business Combination shall be entitled to
receive in such Business Combination cash or other consideration for their
shares meeting all of the terms and conditions of this Section 6.1.3(b);
provided, however, that the failure of any stockholders who are exercising their
statutory rights to dissent from such Business Combination and receive payment
of the fair value of their shares to exchange their shares in such Business
Combination shall not be deemed to have prevented the condition set forth in
this Section 6.1.3(b)(3) from being satisfied.
(4) The consideration to be received by
holders of any particular class or, if outstanding, any particular series of
outstanding Voting Stock (including Common Stock) shall be in cash or in the
same form as the Interested Stockholder or any of its Affiliates has previously
paid for shares of such class or such series of Voting Stock. If the Interested
Stockholder or any of its Affiliates has paid for shares of any class or any
series of Voting Stock with varying forms of consideration, the form of
consideration to be received per share by holders of such class or such series
of Voting Stock shall be either cash or the form used to acquire the largest
number of shares of such class or such series of Voting Stock previously
acquired by the Interested Stockholder or any of its Affiliates.
(5) The prices determined in accordance with
Section 6.1.3(b) shall be subject to appropriate adjustment in the event of any
stock dividend, stock split, combination of shares or similar event.
(6) After such Interested Stockholder has
become an Interested Stockholder and prior to the consummation of any such
Business Combination: (a) except as shall have been approved by two-thirds (2/3)
of the Disinterested Directors, there shall have been no failure to declare and
pay at the regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over the Common Stock as
to dividends or liquidation; (b) there shall have been (1) 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 two-thirds
(2/3) of the Disinterested Directors, and (2) 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 so to increase such annual rate is approved by two-thirds
(2/3) of the Disinterested Directors; and (c) neither such Interested
Stockholder nor any of its Affiliates shall have become the beneficial owner (as
such term is defined in Section 6.1.4(c)) of any additional shares of Voting
Stock except as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
(7) 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
<PAGE>
financial assistance or any tax credits or other tax advantages provided,
directly or indirectly, by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(8) A proxy or information statement
describing the proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to stockholders of the Corporation at
least 30 days prior to the consummation of such Business Combination (whether or
not such proxy or information statement is required to be mailed pursuant to
such Act or subsequent provisions). Such proxy or information statement shall
contain, if a majority of the Disinterested Directors so requests, an opinion of
a reputable investment banking firm which shall be selected by a majority of the
Disinterested Directors, furnished with all information such investment banking
firm reasonably requests and paid a reasonable fee for its services by the
Corporation upon the Corporation's receipt of such opinion, as to the fairness
(or lack of fairness) of the terms of the proposed Business Combination from the
point of view of the holders of shares of Voting Stock (other than the
Interested Stockholder).
6.1.4 Certain Definitions. For the purpose of these
Articles:
(a) A "person" shall include any individual, group
acting in concert, corporation, partnership, limited liability company,
association, joint venture, pool, joint stock company, trust, unincorporated
organization or similar company, syndicate, or any group formed for the purpose
of acquiring, holding or disposing of securities.
(b) "Interested Stockholder" shall mean any person
(other than the Corporation, any Subsidiary or any employee stock ownership plan
formed by the Corporation) who or which:
(1) is the beneficial owner, directly or
indirectly, of ten percent (10%) or more of the voting power of the outstanding
Voting Stock; or
(2) is an Affiliate of the Corporation and at
any time within the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of ten percent (10%) or more
of the voting power of the then outstanding Voting Stock; or
(3) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were at any time within the
two-year period immediately prior to 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, as amended, and such
assignment or succession was not approved by two-thirds (2/3) of the
Disinterested Directors.
(c) "Beneficial ownership" shall be determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange
Act (or any successor rule or statutory
<PAGE>
provision), or, if said Rule 13d-3 shall be rescinded and there shall be no
successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in
effect on the date of filing of these Articles; provided, however, that a person
shall, in any event, also be deemed to be a "beneficial owner" of any shares of
Voting Stock:
(1) which such person or any of its Affiliates
or Associates (as hereinafter defined) beneficially owns, directly or
indirectly, within the meaning of Rule 13d-3 of the Exchange Act, as in effect
on the date of filing of these Articles; or
(2) which such person or any of its
Affiliates or Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an agreement,
contract, or other arrangement with this Corporation to effect any transaction
which is described in Section 6.1.2) or upon the exercise of conversion rights,
exchange rights, warrants, or options, or otherwise, (b) sole or shared voting
or investment power with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such Affiliate is otherwise deemed the beneficial
owner), or (c) the right to dispose of or transfer; or
(3) which are beneficially owned, directly
or indirectly, by any other person with which such first-mentioned person or any
of its Affiliates or Associates has any agreements, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of the Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (and no Affiliate of any such Director or Officer) shall, solely by
reason of any or all of such Directors' or Officers' acting in their capacities
as such, be deemed, for any purposes hereof, to beneficially own any Voting
Stock beneficially owned by another such Director or Officer (or any Affiliate
thereof), and (2) neither any employee stock ownership plan or similar plan of
the Corporation or any Subsidiary, nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of its capacity as such trustee),
shall be deemed, for any purposes hereof, to beneficially own any Voting Stock
held under any such plan.
For purposes of computing the percentage beneficial ownership
of Voting Stock of a person, the outstanding Voting Stock shall include shares
deemed owned by such person through application of Section 6.1.4(c), but shall
not include any other shares of Voting Stock which may be issuable by this
Corporation pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(d) "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act as in effect on the date of filing of
these Articles.
<PAGE>
(e) "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or indirectly, by
the Corporation; provided, however, that for the purposes of the exclusion from
the definition of Interested Stockholder set forth in Section 6.1.4(b), 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 Corporation.
(f) "Disinterested Director" means
(1) at any time when there is no Interested
Stockholder, any member of the Board of Directors, and
(2) at any time when there is an Interested
Stockholder, any Director of the Corporation who (i) is not, and was not at any
time during the two-year period immediately prior to the date in question, an
Affiliate or Associate of the Interested Stockholder, and (ii) either (A) was a
member of the Board prior to the time that the Interested Stockholder became an
Interested Stockholder or (B) thereafter received favorable votes for his or her
nomination or election as a Director by a majority of the Disinterested
Directors then serving on the Board.
(g) "Fair Market Value" means:
(1) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding and including the date
in question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Exchange Act 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 and including the date in
question on any automated quotation system maintained by the Nasdaq Stock
Market, Inc. or any similar 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 in good faith by a majority of the Disinterested Directors;
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 in good faith by a majority of the Disinterested Directors.
(h) All references to prices and values, including
references to "Fair Market Value" and "highest per share price" shall in each
case be adjusted to the extent necessary to reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification of outstanding
shares of such stock into a smaller number of shares of such stock.
<PAGE>
(i) "Group acting in concert" shall mean persons
seeking to combine or pool their voting or other interests in the securities of
the Corporation for a common purpose, pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written, oral or
otherwise, or persons acting with conscious parallel behavior, or any "group of
persons" as defined under Section 13(d) of the Exchange Act. When persons act
together for such purpose, their group is deemed to have acquired their stock.
(j) In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other than cash" as used in
Section 6.1.3(b)(1) and Section 6.1.3(b)(2) hereof 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.
(k) For the purposes of determining the "Announcement
Date," in the event that the first public announcement of the proposal of the
Business Combination is made after the close on such date of any securities
exchange registered under the Exchange Act on which any shares of the Voting
Stock of the Corporation are traded, or of any automated quotation system
maintained by the Nasdaq Stock Market, Inc. or any other system on which any
shares of the Voting Stock of the Corporation are listed, then the Announcement
Date shall be deemed to be the next day on which such exchange or quotation
system is open.
6.1.5. Powers of the Board of Directors. A majority of the
Disinterested Directors of the Corporation then in office shall have the power
and duty to determine for the purposes of this Section 6.1, 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 shares of Voting Stock
beneficially owned by any person, (C) whether a person is an Affiliate or
Associate of another, (D) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value equal to or greater than ten
percent (10%) of the combined assets of the Corporation and its Subsidiaries,
(E) whether the requirements of Section 6.1.3 have been met with respect to any
Business Combination, and (F) any other matters of interpretation arising under
this Section 6.1. The good faith determination of a majority of the
Disinterested Directors on such matters shall be conclusive and binding for all
purposes of this Section 6.1.
6.1.6 No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Section 6.1 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
6.1.7 Amendment, Repeal, etc. Notwithstanding any other
provisions of these Articles or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage or no vote may be specified by
law, these Articles or the By-Laws of the Corporation), and in addition to any
affirmative vote of the holders of Preferred Stock or any other class of capital
stock of the Corporation or any series of the foregoing then outstanding which
is required by law or by or pursuant to these Articles, the affirmative vote of
the holders of eighty percent (80%) or
<PAGE>
more of the outstanding Voting Stock, voting together as a single class, shall
be required to amend or repeal, or adopt any provisions inconsistent with, this
Section 6.1.
Section 6.2. Standards for Board of Directors' Evaluation of
Offers. The Board of Directors of the Corporation, in determining whether the
interests of the Corporation and its stockholders will be served by any offer of
another person to (i) make a tender or exchange offer for any equity security of
the Corporation, (ii) merge or consolidate the Corporation with or into another
institution, or (iii) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, may consider the interests of the
Corporation's employees, suppliers, creditors and customers, the economy of the
state, region and nation, community and societal considerations, and the
long-term and short-term interests of the Corporation and its stockholders,
including the possibility that these interests may be best served by the
continued independence of the Corporation.
Section 6.3 Stockholder Vote Required for Certain
Transactions. Any (i) sale, lease or exchange of all or substantially all of the
property or assets, including goodwill, of the Corporation, or (ii) merger,
share exchange or consolidation of the Corporation with or into any another
entity, shall require the affirmative vote of at least seventy-five percent
(75%) of the total number of votes eligible to be cast by stockholders on such
sale, lease or exchange, or merger, share exchange or consolidation, voting
together as a single class, at a duly constituted meeting of stockholders called
expressly for such purpose. The seventy-five percent (75%) vote requirement set
forth in the previous sentence shall not apply, and only the affirmative vote of
a majority of the total number of votes eligible to be cast by stockholders on
such matter, voting together as a single class, shall be required for approval
of a merger, share exchange, or consolidation which would result in the Voting
Stock (as such term is defined in Section 6.1.1) of the Corporation outstanding
immediately prior to the transaction continuing to represent (either by
remaining outstanding or by being converted into or exchanged for voting
securities of the surviving entity) more than seventy percent (70%) of the
Voting Stock of the Corporation or such surviving entity outstanding immediately
after such merger, share exchange, or consolidation. The term "surviving entity"
shall mean (i) the entity that continues to exist following a merger or a
consolidation or (ii), with respect to a share exchange, the entity that issues
its securities in exchange for the outstanding securities of another entity. The
provisions of this Section 6.3 shall not apply to the extent that a higher
percentage vote shall be required by law or the provisions of Section 6.1 of
these Articles.
Section 6.4 Preemptive Rights. Holders of the capital stock of
the Corporation shall not be entitled to preemptive rights with respect to any
shares of the capital stock of the Corporation which may be issued.
Section 6.5 Directors
6.5.1. Classification of Directors. The Directors, other than
those who may be elected by the holders of any series of Preferred Stock of the
Corporation, shall be classified, with respect to the term for which they
severally hold office, into three classes, as nearly equal in number as
possible, with one class to be elected annually. The initial Directors of the
Corporation shall hold office as follows: the first class of Directors shall
hold office initially for a term expiring
<PAGE>
at the annual meeting of stockholders to be held in 1999, the second class of
Directors shall hold office initially for a term expiring at the annual meeting
of stockholders to be held in 2000, and the third class of Directors shall hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 2001. At each succeeding annual meeting of stockholders, the successors
of the class of Directors whose term expires at that meeting shall be elected by
a plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. Members of each class shall hold office until their
successors are duly elected and qualified or until their earlier resignation or
removal.
6.5.2. Removal of Directors. Subject to the rights of the
holders of any Preferred Stock then outstanding, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office, only for cause and only by an affirmative vote of not less than
two-thirds (2/3) of the total votes eligible to be cast by stockholders, voting
together as a single class, at a duly constituted meeting of stockholders called
expressly for such purpose. At least 30 days prior to such meeting of
stockholders, written notice shall be sent to the Director whose removal will be
considered at the meeting and the Director will be provided an opportunity to be
heard before the stockholders.
6.5.3. Limitation of Liability of Directors. No Director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director
notwithstanding any provision of law imposing such liability; provided, however,
that this Section 6.5.3 shall not eliminate or limit any liability of a Director
(i) for any breach of the Director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Sections 61 or
62 of Chapter 156B of the General Laws of The Commonwealth of Massachusetts, or
(iv) with respect to any transaction from which the Director derived an improper
personal benefit. No amendment or repeal of this Section 6.5.3 shall adversely
affect the rights and protection afforded to a Director of this Corporation
under this Section 6.5.3 for acts or omissions occurring prior to such amendment
or repeal. If the Massachusetts Business Corporation Law is hereafter amended to
further eliminate or limit the personal liability of Directors or to authorize
corporate action to further eliminate or limit such liability, then the
liability of the Directors of this Corporation shall be eliminated or limited to
the fullest extent permitted by the Massachusetts Business Corporation Law as so
amended.
Section 6.6. Transactions with Interested Persons. For the
purposes of this Section 6.6, "Interested Person" means any person or
organization in any way interested in the Corporation, whether as a director,
officer, stockholder, employee or otherwise, and any other entity in which any
director, officer, stockholder or employee of the Corporation is a director,
officer, stockholder or employee or is otherwise interested in any way. The
Corporation may enter into contracts or transact business with one or more
Interested Persons and may enter into other contracts or transactions in which
one or more Interested Persons are in any way interested. In the absence of
fraud, no such contract or transaction shall be invalidated or in any way
affected by the fact that any such Interested Person has or may have any
interest which is or might be adverse to the interest of the Corporation even
though the vote or action of an Interested Person having
<PAGE>
such an adverse interest may have been necessary to obligate the Corporation
upon such contract or transaction.
At any meeting of the Board of Directors (or of any duly
authorized committee thereof) at which any such contract or transaction shall be
authorized or ratified, any Director having such adverse interest may vote or
act thereat with like force and effect as if he or she had no such interest,
provided in such case that the nature of such interest (though not necessarily
the extent or details thereof) shall be disclosed or shall have been known to
the Directors. A general notice that a Director or officer is interested in any
corporation, organization or other concern of any kind referred to above shall
be a sufficient disclosure as to the interest of such Director or officer with
respect to all contracts and transactions with such corporation, organization or
other concern. No Director shall be disqualified from holding office as a
Director or an officer of the Corporation by reason of any such adverse
interest, unless the Board of Directors shall determine that such adverse
interest is detrimental to the Corporation. In the absence of fraud, no
Director, officer or stockholder having such adverse interest shall be liable on
account of such adverse interest to the Corporation or to any stockholder or
creditor thereof or to any other person for any loss incurred by it under or by
reason of such contract or transaction, nor shall any such Director, officer or
stockholder be accountable on such ground for any gains or profits realized
thereon.
Section 6.7 Indemnification
6.7.1 Officers. To the extent permitted by law and except as
provided in Sections 6.7.3 and 6.7.4, each Officer of the Corporation (and his
or her heirs and personal representatives) shall be indemnified by the
Corporation against all Expenses incurred by him or her in connection with any
Proceeding in which he or she is involved as a result of (a) his or her serving
or having served as an Officer or employee of the Corporation, (b) his or her
serving or having served as a Director, officer or employee of any of its
wholly-owned Subsidiaries, or (c) his or her serving or having served in any
capacity with respect to any other corporation, organization, partnership, joint
venture, trust, employee benefit plan or other entity at the request or
direction of the Corporation. Capitalized terms used but not defined in this
Section 6.7 shall have the meanings defined in Section 6.7.9.
6.7.2 Non-Officer Employees. To the extent permitted by law
and except as provided in Sections 6.7.3 and 6.7.4, each non-Officer Employee of
the Corporation (and his or her heirs and personal representatives) may, in the
discretion of the Board of Directors, be indemnified against any or all Expenses
incurred by him or her in connection with any Proceeding in which he or she is
involved as a result of (a) his or her serving or having served as a non-Officer
Employee of the Corporation, (b) his or her serving or having served as a
Director, officer, or employee of any of its wholly-owned subsidiaries, or (c)
his or her serving or having served in any capacity with respect to any other
corporation, organization, partnership, joint venture, trust employee benefit
plan or other entity at the request or direction of the Corporation.
6.7.3 Service at Direction of Board of Directors. No
indemnification shall be provided to an Officer or non-Officer Employee with
respect to his or her serving or having
<PAGE>
served in any capacity "at the request or direction of the Corporation" unless
such service was required or directed by vote of the Board of Directors prior to
the occurrence of the event to which the indemnification relates; provided that
the Board of Directors may provide an Officer or non-Officer Employee with
indemnification, as to a specific Proceeding, even though such Board of
Directors vote was not obtained, if in its discretion, the Board of Directors
determines it to be appropriate for the Corporation to do so.
6.7.4 Certain Limitations. No indemnification shall be
provided to an Officer or to a non-Officer Employee with respect to a matter as
to which he or she shall have been determined by final judicial decision from
which there is no further right to appeal (hereinafter a "Final Adjudication")
that such Indemnitee is not entitled to be indemnified for such expenses under
this Section 6.7 or otherwise. If in a Proceeding brought by or in the right of
the Corporation, a Director of the Corporation is held not liable for monetary
damages, whether because that Director is relieved of personal liability under
the provisions of Section 6.5.3 of these Articles or otherwise, that Director
shall be deemed to have met the standard of conduct set forth above and to be
entitled to indemnification for Expenses reasonably incurred in the defense of
such Proceeding.
6.7.5 Advancement of Expenses. In the event that the
Corporation does not assume the defense, or unless and until the Corporation
assumes the defense pursuant to Section 6.7.7 of any Proceeding of which the
Corporation receives notice under this Section 6.7, the Corporation shall pay,
in the case of a Director or officer at the level of Vice President or above,
and may pay, in the case of any other Indemnitee, any Expenses incurred by such
Indemnitee in defending a Proceeding or any appeal therefrom in advance of the
final disposition of such Proceeding ("Advancement of Expenses"); provided,
however, that if the Proceeding is initiated by the Indemnitee or the
Disinterested Directors, then the Corporation may, but need not, pay such
Expenses in advance of the final disposition of such Proceeding. The Board of
Directors shall have the authority, in its discretion, to pay Expenses incurred
by any other Officer or any Non-Officer Employee in defending a Proceeding or
any appeal therefrom in advance of the final disposition of such Proceeding.
Notwithstanding the foregoing, to the extent required by the
Massachusetts Business Corporation Law Expenses incurred by an Indemnitee in
advance of the final disposition of a Proceeding may be paid only upon the
Corporation's receipt of an undertaking ("Undertaking") by the Indemnitee to
repay such payment if there shall have been a Final Adjudication that such
Indemnitee is not entitled to be indemnified for such expenses under this
Section 6.7 or otherwise. The Corporation may accept such Undertaking without
reference to the financial ability of the Indemnitee to make such repayment.
6.7.6 Right of Indemnitee to Bring Suit. If a claim under this
Section 6.7 is not paid in full by the Corporation within sixty (60) days after
a written claim has been received by the Corporation, except in the case of a
claim for an Advancement of Expenses, in which case the applicable period shall
be twenty (20) days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If the
Indemnitee is successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an
<PAGE>
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall also be entitled to be paid the expense of prosecuting or defending such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that the
Indemnitee has not met the applicable standard of conduct set forth in the
Massachusetts Business Corporation Law. In addition, in any suit by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the Corporation shall be entitled to recover such expenses upon a
Final Adjudication that the Indemnitee has not met the applicable standard of
conduct set forth in the Massachusetts Business Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the Indemnitee is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct
set forth in the Massachusetts Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or stockholders) that the Indemnitee has not met such applicable
standard of conduct, shall create a presumption that the Indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Section 6.7 or otherwise shall be on the Corporation.
6.7.7 Notification and Defense of Claim. Each Indemnitee must
notify the Corporation in writing as soon as practicable of any Proceeding
involving him or her or with respect to which indemnity will or could be sought.
With respect to any Proceeding of which the Corporation is so notified, the
Corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee. After the Corporation notifies the Indemnitee of
its election so to assume such defense, the Corporation shall not be liable to
the Indemnitee for any legal or other expenses subsequently incurred by the
Indemnitee in connection with such claim, other than as provided below in this
Section 6.7.7. The Indemnitee shall have the right to employ his or her own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action, or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action. In each such case, the fees and expenses of Indemnitee's counsel
reasonably acceptable to the Corporation shall be at the expense of the
Corporation, except as otherwise expressly provided by this Section 6.7. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
<PAGE>
6.7.8 Insurance. The Corporation may purchase and maintain
insurance to protect itself and any Indemnitee against any liability of any
character asserted against and incurred by the Corporation or any such
Indemnitee, or arising out of any such status, whether or not the Corporation
would have the power to indemnify such person against such liability by law or
under the provisions of this Section 6.7 or under the Massachusetts Business
Corporation Law. The Corporation's obligation to provide indemnification under
this Section 6.7 shall be offset to the extent indemnification is available from
any other source, including any otherwise applicable insurance coverage under a
policy maintained by the Corporation or any other person.
6.7.9 Definitions. For the purposes of this Section 6.7:
(a) "Officer" means (i) any person who serves or has served as
a Director of the Corporation (ii) any person who serves or has served in any
other office filled by election or appointment by the Board of Directors,
whether or not such person is an officer of the Corporation within the
definition of that term as contained in the By-Laws of the Corporation, and
(iii) any other person who serves or has served, at the request or direction of
the Corporation, as a Director or officer of any of the Corporation's
wholly-owned subsidiaries;
(b) "non-Officer Employee" means any person who serves or has
served as an employee or agent of the Corporation but who is not an Officer;
(c) "Indemnitee" means each Officer, and each non-Officer
Employee whom the Board of Directors has determined to indemnify pursuant to
Section 6.7.2;
(d) "Proceeding" means any action, suit, proceeding or
investigation, civil or criminal, brought or threatened in or before any court,
tribunal, administrative or legislative body or agency; and
(e) "Expenses" means any liability fixed by a judgment, order,
decree or award (including, but not limited to, judgments, fines, ERISA excise
taxes or penalties) in a Proceeding, any amount actually and reasonably paid in
settlement of a Proceeding and any professional fees and other disbursements
reasonably incurred in a Proceeding.
6.7.10 Other Indemnification Rights. The provisions of this
Section 6.7 shall not be construed to be exclusive. The Corporation shall have
the power to indemnify (and to provide for the Advancement of Expenses to) its
Officers and any of its agents or employees who are not Officers and to enter
into specific agreements, commitments or arrangements for indemnification on any
terms not prohibited by law which it deems to be appropriate. Nothing in this
Section 6.7 shall limit any lawful rights to indemnification existing
independently of this Section 6.7.
6.7.11 Survival of Benefits. The provisions of this Section
6.7 shall be applicable to persons who shall have ceased to be Directors or
officers of the Corporation, and shall inure to the benefit of the heirs,
executors and administrators of persons entitled to be indemnified hereunder.
Nothing hereunder shall be deemed to limit the Corporation's authority to
indemnify any person pursuant to any contract or otherwise.
<PAGE>
6.7.12 Subsequent Amendment. The right to indemnification
conferred in this Section 6.7 shall be a contract right and no amendment,
termination or repeal of this Section 6.7 or of the relevant provisions of the
Massachusetts Business Corporation Law or any other applicable laws shall affect
or diminish in any way the rights of any Indemnitee to indemnification under the
provisions hereof with respect to any Proceeding arising out of or relating to
any actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
6.7.13 Merger or Consolidation. If the Corporation is merged
into or consolidated with another corporation and the Corporation is not the
surviving corporation, the surviving corporation shall assume the obligations of
the Corporation under this Section 6.7 with respect to any action, suit,
proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring at or prior to the date of such merger or
consolidation.
6.7.14 Subsequent Legislation. If the Massachusetts General
Laws are amended after adoption of this Section 6.7 to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the Massachusetts General Laws,
as so amended.
6.7.15 Savings Clause. If this Section 6.7 or any portion
hereof shall be found invalid on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee
as to any Expenses with respect to any Proceeding to the fullest extent
permitted by any applicable portion of this Section 6.7 that shall not have been
found invalid and to the fullest extent permitted by applicable law.
Section 6.8. Acting as a Partner. The Corporation may be a
partner in any business enterprise which it would have power to conduct by
itself.
Section 6.9. Stockholders' Meetings. Meetings of stockholders
may be held anywhere in the United States.
Section 6.10. Call of Special Meetings. Special meetings of
stockholders may be called by a majority of the Directors then in office
(provided, however, that if there is an Interested Stockholder, any such call by
the Board of Directors shall also require the affirmative vote of a majority of
the Disinterested Directors then in office). Special meetings shall be called by
the Clerk or in the case of the death, absence, incapacity or refusal of the
Clerk, by any other officer, upon written application of one or more
stockholders who hold at least two-thirds (2/3) in interest of the capital stock
entitled to vote at such meeting. Application to a court pursuant to Section
34(b) of Chapter 156B of the General Laws of The Commonwealth of Massachusetts
requesting the call of a special meeting of stockholders because none of the
officers is able and willing to call such a meeting may be made only by
stockholders who hold at least two-thirds (2/3) in interest of the capital stock
entitled to vote at such meeting. The hour, date and place of any special
meeting and the record date for determining the stockholders having the right to
notice of and to vote at such meeting shall be determined by the Board of
Directors or the President. At a special meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted
<PAGE>
upon, as shall have been properly brought before the meeting in accordance with
the procedures set forth in the By-Laws of the Corporation.
Section 6.11. Amendment of By-Laws.
6.11.1 Amendment by Directors. Except as otherwise required by
law, the By-laws of the Corporation may be amended by the affirmative vote of a
majority 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 also require the
affirmative vote of two-thirds (2/3) of the Disinterested Directors then in
office at such meeting). Not later than the time of giving notice of the annual
meeting of stockholders next following the amending by the Directors of any
By-law, notice thereof stating the substance of such change shall be given to
all stockholders entitled to vote on amending the By-laws.
6.11.2 Amendment by Stockholders. The By-laws of the
Corporation may be amended at a duly constituted meeting of stockholders called
expressly for such purpose, by the affirmative vote of at least seventy-five
percent (75%) of the total voted eligible to be cast by stockholders on such
amendment, voting together as a single class; provided, however, that if the
Board of Directors recommends, by the affirmative vote of two-thirds (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 also require the affirmative vote
of two-thirds (2/3) of the Disinterested Directors then in office at such
meeting), that stockholders approve such amendment at such meeting of
stockholders, such amendment shall only require the affirmative vote of a
majority of the total votes eligible to be cast by stockholders on such
amendment, voting together as a single class.
Section 6.12. Amendment of Articles of Organization. These
Articles may be amended at a duly constituted meeting of stockholders called
expressly for such purpose, by the affirmative vote of at least seventy-five
percent (75%) of the total votes eligible to be cast by stockholders on such
amendment, voting together as a single class; provided, however, that if the
Board of Directors recommends, by the affirmative vote of at least two-thirds
(2/3) of the Disinterested Directors then in office at a duly constituted
meeting of the Board of Directors, that stockholders approve such amendment at
such meeting of stockholders, such amendment shall only require the affirmative
vote of a majority of the total votes eligible to be cast by stockholders on
such amendment, voting together as a single class. Notwithstanding the
foregoing, to the extent that any provision of these Articles provides for
stockholder approval by a vote of more than a majority of the total votes
eligible to be cast, such provision may only be amended, altered, changed or
repealed after approval by the same percentage vote as is provided for in such
provision.
Section 6.13. Beneficial Ownership Limitation.
6.13.1 For a period of five (5) years from the date of
consummation of the initial issuance by the Corporation of Common Stock to the
public (the "Stock Issuance Date"), no person shall directly or indirectly offer
to acquire or acquire the beneficial ownership of more than
<PAGE>
ten percent (10%) of the outstanding shares of Voting Stock of the Corporation.
This limitation shall not apply (i) to any acquisition of shares of capital
stock of the Corporation which has been expressly approved in advance by an
affirmative vote of not less than two-thirds (2/3) of the Directors then in
office (unless at the time of such action there shall be an Interested
Stockholder, in which case such action shall also require the affirmative vote
of two-thirds (2/3) of the Disinterested Directors then in office at such
meeting), or (ii) to any offer with a view toward public resale made exclusively
to the Corporation or to any underwriters acting on behalf of the Corporation or
to the selling group acting on the underwriter's behalf in connection with a
public offering of the Corporation's capital stock, or (iii) to a corporate
reorganization which does not result in any change in the respective beneficial
ownership interests of the Corporation's stockholders other than pursuant to the
exercise of any dissenters' appraisal rights.
6.13.2 In the event Voting Stock is acquired in violation of
this Section 6.13, the excess shares shall no longer be entitled to vote on any
matter or take other stockholder action or be counted in determining the total
number of outstanding shares for purposes of any matter involving stockholder
action, and the Board of Directors may cause such excess shares to be
transferred to an independent trustee for sale on the open market or otherwise,
with the expenses of such trustee to be paid out of the proceeds from such sale.
The term "offer" as used in this Section 6.13 includes every offer to buy or
acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tender of, a security or interest in a security for value.
Section 6.14 Interpretation. When a reference is made in these
Articles to a Section, such reference shall include subsections, which are part
of the related Section (e.g., a section numbered "Section 5.5.1" would be part
of "Section 5.5" and references to "Section 5.5" would also refer to material
contained in the subsection described as "Section 5.5.1"). The headings
contained in these Articles are for reference purposes only and shall not affect
in any way the meaning or interpretation of these Articles.
Section 6.15 Certain Statutes. The provisions of Chapters 110D
and 110F of the Massachusetts General Laws shall not apply to the Corporation.
Exhibit 3.2
FHE Draft
May 8, 1998
BY-LAWS
OF
[SEACOAST FINANCIAL SERVICES CORPORATION]
July , 1998
<PAGE>
BY-LAWS
OF
[SEACOAST FINANCIAL SERVICES CORPORATION]
<TABLE>
<CAPTION>
Article I Organization
<S> <C> <C>
1.1 Name and Powers 1
1.2 Interested Stockholder and Disinterested Directors. 1
Article II Stockholders
2.1 Annual Meeting 1
2.2 Special Meetings 1
2.3 Matters to be Considered at Annual Meetings 2
2.4 Notice of Meetings 3
2.5 Quorum 3
2.6 Voting and Proxies 3
2.7 Action at Meeting 4
2.8 Action without Meeting 4
2.9 Presiding Officer. 4
2.10 Voting Procedures and Inspectors of Elections. 4
2.11 Rescheduling of Meetings; Adjournments. 5
Article III Directors
3.1 Powers 5
3.2 Composition and Term 5
3.3 Director Nominations 6
3.4 Qualifications. 7
3.5 Resignation 7
3.6 Removal 7
3.7 Vacancies 7
3.8 Compensation 8
3.9 Regular Meetings 8
3.10 Special Meetings 8
3.11 Notice of Special Meetings 8
3.12 Quorum 8
3.13 Action at Meeting 9
3.14 Action by Consent 9
3.15 Presumption of Assent 9
3.16 Committees 9
3.17 Powers of Executive Committee 9
3.18 Manner of Participation 9
<PAGE>
Article IV Officers
4.1 Enumeration 10
4.2 Election 10
4.3 Qualification 10
4.4 Tenure 10
4.5 Removal 10
4.6 Vacancies 11
4.7 Chairman of the Board 11
4.8 Chief Executive Officer 11
4.9 President and Vice Presidents 11
4.10 Treasurer and Assistant Treasurers 11
4.11 Clerk and Assistant Clerks 11
4.12 Secretary and Assistant Secretaries 11
4.13 Other Powers and Duties 11
Article V Capital Stock
5.1 Certificates of Stock 12
5.2 Transfers 12
5.3 Record Holders 12
5.4 Record Date 12
5.5 Replacement of Certificates 13
5.6 Issuance of Capital Stock 13
5.7 Dividends 13
Article VI Miscellaneous Provisions
6.1 Fiscal Year 13
6.2 Seal 13
6.3 Execution of Instruments 13
6.4 Voting of Securities 13
6.5 Resident Agent 13
6.6 Corporation Records 14
6.7 Articles of Organization 14
6.8 By-Law Amendments 14
</TABLE>
<PAGE>
Exhibit A
BY-LAWS
OF
[SEACOAST FINANCIAL SERVICES CORPORATION]
Article I Organization
1.1 Name and Powers. The name of this Corporation shall be "[Seacoast
Financial Services Corporation]." The Corporation shall have and may exercise
all the powers, privileges and authority, express, implied and incidental, now
or hereafter conferred by applicable law and the Corporation's Articles of
Organization.
1.2 Interested Stockholder and Disinterested Directors. As used in these
By-Laws, the terms "Interested Stockholder" and "Disinterested Director" shall
have the same respective meanings assigned to them in the Corporation's Articles
of Organization. Any determination of beneficial ownership of securities under
these By-Laws shall be made in the manner specified in the Articles of
Organization.
Article II Stockholders
2.1 Annual Meeting. The annual meeting of the stockholders for elections
and other purposes shall be held on the third Thursday in March at 10 a.m. (or
if that be a legal holiday in the place where the meeting is to be held, on the
next succeeding full business day), at the main office of the Corporation in
Massachusetts, unless a different hour, date or place within or without the
United States is fixed by the Board of Directors, the Chairman of the Board or
the President. If no annual meeting has been held on the date fixed above, a
special meeting in lieu thereof may be held, and such special meeting shall have
for the purposes of these By-Laws or otherwise all the force and effect of an
annual meeting.
2.2 Special Meetings. Special meetings of stockholders may be called by a
majority of the Directors then in office (provided, however, that if there is an
Interested Stockholder, any such call by the Board of Directors shall also
require the affirmative vote of a majority of the Disinterested Directors then
in office). Special meetings shall be called by the Clerk or in the case of the
death, absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of one or more stockholders who hold at least 66-2/3% in
interest of the capital stock entitled to vote at such meeting. Application to a
court pursuant to Section 34(b) of Chapter 156B of the General Laws of The
Commonwealth of Massachusetts requesting the call of a special meeting of
stockholders because none of the officers is able and willing to call such a
meeting may be made only by stockholders who hold at least 66-2/3% in interest
of the capital stock entitled to vote at such meeting.
Any written application for a special meeting by one or more stockholders
shall set forth
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as to each matter proposed to be brought before the special meeting (a) a brief
description of the proposal desired to be brought before the special meeting and
the reasons for conducting such business at the special meeting, (b) the name
and address, as they appear on the Corporation's books, of the stockholder(s)
proposing such business and any other stockholders known by such stockholder(s)
to be supporting such proposal, (c) the class and number of shares of the
Corporation's capital stock which are beneficially owned by the stockholder(s)
on the date of such stockholder application and by any other stockholders known
by such stockholder(s) to be supporting such proposal on the date of such
stockholder application, and (d) any financial interest of the supporting
stockholder(s) in such proposal. The Board of Directors or a designated
committee thereof may reject any stockholder proposal not made in accordance
with the terms of this Section 2.2.
The hour, date and place of any special meeting and the record date for
determining the stockholders having the right to notice of and to vote at such
meeting shall be determined by the Board of Directors or the President. At a
special meeting of stockholders, only such business shall be conducted, and only
such proposals shall be acted upon, as shall have been stated in the written
notice of the special meeting, unless otherwise provided by law.
2.3 Matters to be Considered at Annual Meetings. At an annual meeting of
stockholders, only such new business shall be conducted, and only such proposals
shall be acted upon as shall be proper subjects for stockholder action pursuant
to the Articles of Organization, these By-Laws, or applicable law and shall have
been brought before the annual meeting (a) by, or at the direction of, the Board
of Directors, the Chairman of the Board, or the President or (b) by any holder
of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.3.
For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Clerk of the Corporation. To be timely, a stockholder's notice must be
received at the principal executive offices of the Corporation not less than 60
days nor more than 150 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 delivered or received not later than the
close of business on the tenth day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day on
which public disclosure was made. A stockholder's notice to the Clerk shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal, (c) the class and number of shares
of the Corporation's capital stock which are beneficially owned by the
stockholder on the date of such stockholder notice and by any other stockholders
known by such stockholder to be supporting
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such proposal on the date of such stockholder notice, and (d) any financial
interest of the stockholder in such proposal.
The Board of Directors, a designated committee thereof or the presiding
officer at the Annual Meeting may reject any stockholder proposal not made in
accordance with the terms of this Section 2.3. If there is an Interested
Stockholder, any determinations to be made by the Board of Directors or a
designated committee thereof pursuant to the provisions of this Section 2.3
shall also require the concurrence of a majority of the Disinterested Directors
then in office.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, Directors, and
committees, but in connection with such reports, no matter shall be acted upon
at such annual meeting unless stated and filed as herein provided.
Notwithstanding the provisions of this Section 2.3, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations thereunder
with respect to the matters set forth in this Section 2.3.
Nothing contained in this Section 2.3 shall require proxy materials
distributed by the management of the Corporation to include any information with
respect to stockholder proposals.
2.4 Notice of Meetings. A written notice of all annual and special meetings
of stockholders shall state the place, date, hour, and purposes of such
meetings, and shall be given by the Clerk or an Assistant Clerk (or other person
authorized by these By-Laws or by law) at least seven (7) days (or such longer
period as may be required by law) before the meeting to each stockholder
entitled to vote at such meeting or to each stockholder who, under the Articles
of Organization, or under these By-laws, is entitled to such notice, by leaving
such notice with him or her or at his or her residence or usual place of
business, or by mailing it, postage prepaid, and addressed to such stockholder
at his or her address as it appears on the stock transfer books of the
Corporation. When any stockholders' meeting, either annual or special, is
adjourned for thirty (30) days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting. It shall not be necessary to give
any notice of the time and place of any meeting adjourned for less than thirty
(30) days or of the business to be transacted thereat, other than an
announcement at the meeting at which such adjournment is taken. A written waiver
of notice, executed before or after a meeting by such stockholder or his or her
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to notice of the meeting.
2.5 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 2.4.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The
<PAGE>
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.
2.6 Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
Corporation, unless otherwise provided by law or by the Articles of
Organization. Stockholders of record may vote either in person or by written
proxy dated not more than six (6) months before the meeting named therein,
unless the proxy is coupled with an interest and provides otherwise. Proxies
shall be filed with the Clerk at the meeting, or any adjournment thereof, before
being voted. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or, in the absence of such direction, as determined
by a majority of the Board of Directors. Except as otherwise limited therein,
proxies shall entitle the persons authorized thereby to vote at any adjournment
of such meeting, but they shall not be valid after final adjournment of such
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by one of them unless at or prior to exercise of the
proxy the Clerk of the Corporation receives a specific written notice to the
contrary from any one of them. Whenever stock is held in the name of two or more
persons, in the absence of specific written notice to the Corporation to the
contrary, at any meeting of the stockholders of the Corporation any one or more
of such stockholders may cast, in person or by proxy, all votes to which such
ownership is entitled. In the event an attempt is made to cast conflicting
votes, in person or by proxy, by the several persons in whose names shares of
stock stand, the vote or votes to which those persons are entitled shall be cast
as directed by a majority of those holding such stock and present in person or
by proxy at such meeting, but no votes shall be cast for such stock if a
majority does not agree. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless successfully challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
2.7 Action at Meeting. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter, except where a larger vote is required by law, by
the Articles of Organization, 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 of Organization, or by these By-Laws. No
ballot shall be required for any election unless requested by a stockholder
entitled to vote in the election. The Corporation shall not directly or
indirectly vote any share of its own stock; provided however, that no provision
of these By-Laws shall be construed to limit the voting rights and powers
relating to shares of stock held pursuant to a plan which is intended to be an
"employee stock ownership plan" as defined in the Internal Revenue Code, as now
or hereafter in effect.
2.8 Action without Meeting. Any action to be taken at any annual or special
meeting of stockholders may be taken without a meeting if all stockholders
entitled to vote on the matter consent to the action in writing and the written
consents are filed with the records of the meetings of stockholders. Such
consents shall be treated for all purposes as a vote at a meeting.
2.9 Presiding Officer. The Chairman of the Board, if one is elected, or if
not elected or in his or her absence, the President, shall preside at all annual
or special meetings of stockholders and shall have the power, among other
things, to adjourn such meeting at any time and from time
<PAGE>
to time, subject to Sections 2.4 and 2.5. The order of business and all other
matters of procedure at every meeting of the stockholders shall be determined by
the presiding officer.
2.10 Voting Procedures and Inspectors of Elections. In advance of any
meeting of stockholders, the presiding officer may appoint one or more
inspectors to act at an annual or special meeting of stockholders and make a
written report thereon. Any inspector may, but need not, be an officer, employee
or agent of the Corporation. The inspector(s) shall (i) ascertain the number of
shares outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspector(s) may appoint or retain other persons or entities to assist the
inspector(s) in the performance of the duties of the inspector(s). The presiding
officer may review all determinations made by the inspector(s), and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and such officer shall not be bound by any determinations made by the
inspector(s). All determinations by the inspector(s) and, if applicable,
presiding officer shall be subject to further review by any court of competent
jurisdiction.
2.11 Rescheduling of Meetings; Adjournments. The Board of Directors or a
designated committee thereof may postpone and reschedule any previously
scheduled annual or special meeting of stockholders, and a record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting or record date has been sent or made (unless there
is an Interested Stockholder, in which case the affirmative vote of a majority
of the Disinterested Directors shall also be required). In no event shall the
public announcement of an adjournment, postponement or rescheduling of any
previously scheduled Annual Meeting of stockholders commence a new time period
for the giving of a stockholder's notice under Section 2.3 and Section 3.3 of
these By-Laws.
Article III Directors
3.1 Powers. The business and affairs of the Corporation shall be managed by
a Board of Directors who may exercise all the powers of the Corporation except
as otherwise provided by law, by the Articles of Organization or by these
By-Laws. In the event of a vacancy in the Board of Directors, the remaining
Directors, except as otherwise provided by law, may exercise the powers of the
full Board until the vacancy is filled.
3.2 Composition and Term. The initial members of the Board of Directors
shall be those persons who were serving as Directors of Compass Bank for Savings
on the date the reorganization of The 1855 Bancorp into this Corporation becomes
effective in accordance with the provisions of Chapter 167H. Subject to the
rights of the holders of any series of Preferred Stock, the number of Directors
and their respective classifications shall be fixed from time to time
exclusively by the Board of Directors; 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 Disinterested Directors then in office.
<PAGE>
The Directors, other than those who may be elected by the holders of any
series of Preferred Stock of the Corporation, shall be classified, with respect
to the term for which they severally hold office, into three classes, as nearly
equal in number as possible, with one class to be elected annually. The initial
Directors of the Corporation shall hold office as follows: the first class of
Directors shall hold office initially for a term expiring at the annual meeting
of stockholders to be held in 1999, the second class of Directors shall hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 2000, and the third class of Directors shall hold office initially for a
term expiring at the annual meeting of stockholders to be held in 2001. At each
succeeding annual meeting of stockholders, the successors of the class of
Directors whose term expires at that meeting shall be elected by a plurality
vote of all votes cast at such meeting to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. Members of each class shall hold office until their successors
are duly elected and qualified or until their earlier resignation or removal.
3.3 Director Nominations. Nominations of candidates for election as
Directors at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or a designated committee
thereof (unless there is an Interested Stockholder, in which case the
affirmative vote of a majority of the Disinterested Directors shall also be
required) or (b) by any holder of record (both as of the time notice of such
nomination is given by the stockholder as set forth below and as of the record
date for the Annual Meeting in question) of any shares of capital stock of the
Corporation entitled to vote at such Annual Meeting who complies with the
requirements set forth in this Section 3.3. Only persons nominated in accordance
with the procedures set forth in this Section 3.3 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 Disinterested Directors, if required), shall be made
pursuant to timely notice in writing to the Clerk of the Corporation as set
forth in this Section 3.3. To be timely, a stockholder's notice shall be
delivered to, or mailed and received, at the principal executive offices of the
Corporation not less than 60 days nor more than 150 days prior to the date of
the scheduled annual meeting, regardless of 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 delivered or received not later than the close of business on the tenth day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a Director
and as to the stockholder giving the notice (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
Corporation's capital stock which are beneficially owned by such person on the
date of such stockholder notice and (iv) 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 the Exchange Act and the
Rules and regulations thereunder, including, but not limited to, the written
consent of such person to serve as a Director if elected; and (b) as to the
stockholder giving the notice (x) the name and address as they appear on the
Corporation's books,
<PAGE>
of such stockholder and any other stockholders known by such stockholder to be
supporting such nominees and (y) the class and number of shares of the
Corporation's capital stock which are beneficially owned by such stockholder on
the date of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such nominees on the date of such stockholder
notice. At the request of the Board of Directors, any person nominated by, or at
the direction of, the Board for election as a Director at an annual or special
meeting shall furnish to the Clerk of the Corporation that information required
to be set forth in the stockholder's notice of nomination which pertains to the
nominee.
Nothing contained in this Section 3.3 shall require proxy materials
distributed by the management of the Corporation to include any information with
respect to nominations by stockholders.
No person shall be elected as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 3.3.
Ballots bearing the names of all the persons who have been nominated for
election as Directors at an annual or special meeting in accordance with the
procedures set forth in this Section 3.3 shall be provided for use at such
annual or special meeting.
The Board of Directors, a designated committee thereof, or the presiding
officer may reject any nomination by a stockholder that is not timely made in
accordance with this Section 3.3 or does not satisfy the requirements of this
Section 3.3 in any material respect. If there is an Interested Stockholder, any
determinations to be made by the Board of Directors or a designated committee
thereof pursuant to the provisions of this paragraph shall also require the
concurrence of a majority of the Disinterested Directors then in office.
3.4 Qualifications. Each Director shall have such qualifications as are
required by applicable law. No Director shall serve as a corporator, trustee,
director or officer of any holding company or bank or thrift institution which
is not a direct or indirect subsidiary of the Corporation. No person shall be
qualified to be elected to serve as a Director if he or she has reached the age
of seventy-two years, provided, however, no person who served prior to May 1,
1988 as a Trustee of Compass Bank for Savings shall be disqualified by reason of
age to be elected to serve as a Director until such person has reached the age
of eighty years.
3.5 Resignation. Any Director may resign at any time by delivering his or
her written resignation to the main office of the Corporation addressed to the
Chairman of the Board or the President. Such resignation shall be effective upon
receipt thereof by the Chairman of the Board or the President, unless it is
specified to be effective at some other time or upon the happening of some other
event.
3.6 Removal. Subject to the rights of the holders of any Preferred Stock
then outstanding, any Director (including persons elected by Directors to fill
vacancies in the Board of Directors) may be removed from office, only for cause
and only by an affirmative vote of not less than two-thirds (2/3) of the total
votes eligible to be cast by stockholders, voting together as a single class, at
a duly constituted meeting of stockholders called expressly for such purpose. At
<PAGE>
least 30 days prior to such meeting of stockholders, written notice shall be
sent to the Director whose removal will be considered at the meeting and the
Director will be provided an opportunity to be heard before the stockholders.
3.7 Vacancies. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in the
Articles of Organization, any vacancy occurring on the Board of Directors as a
result of resignation, removal, death or other cause, and newly created
directorships resulting from any increase in the authorized number of Directors,
may be filled only by the affirmative vote of the majority of the remaining
Directors then in office, though less than a quorum of the number constituting
the full board as fixed by the Board of Directors; provided, however, that if at
the time of such vacancy there is an Interested Stockholder, such vacancy may
only be filled by vote of a majority of the Disinterested Directors then in
office. A Director elected to fill such a vacancy shall be elected to serve for
the full term of the Class of Directors in which the vacancy occurred or the new
directorship was created and until such Director's successor has been elected
and qualified, or until such Director's earlier resignation or removal.
3.8 Compensation. The members of the Board of Directors and the members of
either standing or special committees may be allowed such compensation for
attendance at meetings as the Board of Directors or the Executive Committee may
determine.
3.9 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 of stockholders, or the special meeting held in lieu
thereof, following such meeting of stockholders. The Board of Directors may
provide by resolution, the time, date and place for the holding of regular
meetings without other notice than such resolution.
3.10 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the President, or a
majority of the Directors. The persons authorized to call special meetings of
the Board of Directors may fix the time, date and place for holding any special
meeting of the Board of Directors called by such persons.
3.11 Notice of Special Meetings. Notice of the time, date and place of all
special meetings of the Board of Directors shall be given to each Director by
the Secretary, or if there be no Secretary, 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 by telecommunication
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. If mailed, such notice shall be deemed to be delivered
when deposited in the mail so addressed, with postage thereon prepaid. 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 time
and 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. Any Director may waive
<PAGE>
notice of any meeting by a writing executed by him or her either before or after
the meeting and filed with the records of the meeting. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except where the Director protests the lack of notice to him or her prior to the
meeting or at its commencement. 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.
3.12 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
3.11. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed.
3.13 Action at 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 a greater number is prescribed by governing law, by the
Articles of Organization or by these By-Laws.
3.14 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 then in office. 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.
3.15 Presumption of Assent. A Director of the Corporation who is present at
a meeting of the Board of Directors at which action on any Corporation matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention has been entered in the minutes of the meeting or unless
he or she has filed a written dissent to such action with the person acting as
the Clerk of the meeting before the adjournment thereof or has forwarded such
dissent by registered mail to the Clerk of the Corporation within five (5) days
after the date such dissenting Director receives a copy of the minutes of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
3.16 Committees. The Board of Directors, by vote of a majority of all of
the Directors then in office, shall elect from its number an Audit Committee and
an Executive Committee, and may elect such other committees as it deems
appropriate, and may delegate to such committees some or all of its powers
except those which by law, by the Articles of Organization or by these By-Laws
may not be delegated. The Chief Executive Officer may appoint such other
committees as such officer deems appropriate. Any committees shall consist of
not less than three (3) members of the Board of Directors. Except as the Board
of Directors may otherwise determine, any 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 committees shall hold such offices at the pleasure of the Board of Directors.
The Board of
<PAGE>
Directors may abolish any committee (other than the Executive 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.
3.17 Powers of Executive Committee. In addition to the powers and duties
provided by law, the Executive Committee, when the Board of Directors is not in
session, shall exercise general supervision and control in all matters
pertaining to the interests of the Corporation not otherwise provided by law or
in these By-Laws, subject at all times to the direction and control of the Board
of Directors.
3.18 Manner of Participation. Members of the Board of Directors 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.
Article IV Officers
4.1 Enumeration. The officers of the Corporation shall consist of a
President, a Treasurer, a Clerk, and such other officers, including without
limitation a Chairman of the Board, a Secretary, and one or more Vice
Presidents, Assistant Vice Presidents, Assistant Treasurers, Assistant Clerks or
Assistant Secretaries, as the Board of Directors may determine.
4.2 Election. The Chairman of the Board, the Chief Executive Officer, the
President, the Treasurer, the Clerk, and all officers at the level of Vice
President or above shall be elected by the Board of Directors annually at their
first meeting following the annual meeting of stockholders. All other officers
may be elected by the Board of Directors or appointed by the Chief Executive
Officer.
4.3 Qualification. Any two or more offices may be held by any person. The
President shall be a Director. The Clerk shall be a resident of Massachusetts
unless the Corporation has a resident agent appointed for the purpose of service
of process. Any officer may be required by the Board of Directors to give bond
for the faithful performance of his or her duties in such amount and with such
sureties as the Board of Directors may determine. Other than as required by
applicable law or regulation, no officer or Director need be a stockholder. No
officer shall serve as a corporator, trustee, director or officer of any holding
company or bank or thrift institution which is not a direct or indirect
subsidiary of the Corporation.
4.4 Tenure. Except as otherwise provided by law, by the Articles of
Organization or by these By-Laws, the President, Treasurer and Clerk shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of stockholders and until their respective successors are chosen
and qualified. All other officers shall hold office until the first meeting of
the Board of Directors following the next annual meeting of stockholders and
until their successors are chosen and qualified, or for such shorter term as may
have been fixed at the time
<PAGE>
such officers are chosen. Any officer may resign by delivering his or her
written resignation to the Corporation at its main office addressed to the
President, Clerk or Secretary. Such resignation shall be effective upon receipt
thereof by the President, Clerk or Secretary, unless it is specified to be
effective at some other time or upon the happening of some other event. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights to continued employment or otherwise. The Board of Directors may
authorize the Corporation to enter into an employment contract with any officer
in accordance with governing law or regulation, but no such contract right shall
preclude the Board of Directors from exercising right to remove any officer at
any time in accordance with Section 4.5.
4.5 Removal. Any officer elected by the Board of Directors may be removed
at any time with or without cause by vote of a majority of the full Board of
Directors; provided, however, that if at the time of such removal there is an
Interested Stockholder, the affirmative vote of a majority of the Disinterested
Directors then in office shall instead be required. Any officer appointed by the
Chief Executive Officer, and any employee or agent of the Corporation, may be
removed at any time with or without cause by the Chief Executive Officer, or by
the Board of Directors.
4.6 Vacancies. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
4.7 Chairman of the Board. The Board of Directors may annually elect a
Chairman of the Board. If the Board of Directors so provides, the Chairman of
the Board shall be the Chief Executive Officer of the Corporation and shall
preside, when present, at all meetings of the Board of Directors.
4.8 Chief Executive Officer. The Chief Executive Officer shall, subject to
the direction of the Board of Directors, have general supervision and control of
the Corporation's business.
4.9 President and Vice Presidents. The President shall have such powers and
shall perform such duties as the Board of Directors may from time to time
designate and shall serve as the Chief Executive Officer of the Corporation
unless the Board of Directors otherwise provides. Unless otherwise provided by
the Board of Directors, the President shall preside, when present, at all
meetings of stockholders and of the Board of Directors if there is no Chairman
of the Board or if the Chairman of the Board does not attend such meetings.
Any Vice President or Assistant Vice President shall have such powers and
shall perform such duties as the Board of Directors or the Chief Executive
Officer may from time to time designate.
4.10 Treasurer and Assistant Treasurers. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the Corporation and shall cause to be kept accurate books of account.
The Treasurer shall have custody of all funds, securities, and valuable
documents of the Corporation, except as the Board of Directors may otherwise
provide. The Treasurer shall also perform such other duties as the Board of
Directors
<PAGE>
may from time to time designate.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
4.11 Clerk and Assistant Clerks. The Clerk shall keep a record of the
meetings of stockholders. In case a Secretary is not elected or is absent, the
Clerk or an Assistant Clerk shall keep a record of the meetings of the Board of
Directors. In the absence of the Clerk from any meeting of the stockholders, an
Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the
person presiding at the meeting, shall perform the duties of the Clerk.
4.12 Secretary and Assistant Secretaries. The Secretary, if one be elected,
shall keep a record of the meetings of the Board of Directors. In the absence of
the Secretary, any Assistant Secretary, the Clerk and any Assistant Clerk, a
Temporary Secretary shall be designated by the person presiding at such meeting
to perform the duties of the Secretary.
4.13 Other Powers and Duties. Subject to these By-Laws, each officer of the
Corporation shall have in addition to the duties and powers specifically set
forth in these By-Laws, such duties and powers as are customarily incident to
his or her office, and such duties and powers as may be designated from time to
time by the Board of Directors.
Article V Capital Stock
5.1 Certificates of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer, and sealed with the corporate seal or a facsimile thereof. 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 Corporation.
In case any officer who has signed or whose 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 Corporation with the same effect as if the
person so signing were such officer at the time of its issue. Each certificate
for shares of capital stock shall be consecutively numbered or otherwise
identified. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
5.2 Transfers. Subject to any restrictions on transfer, shares of stock may
be transferred on the books of the Corporation by the surrender to the
Corporation 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 Corporation or its transfer agent may
reasonably require.
5.3 Record Holders. Except as may be otherwise required by law, by the
Articles of Organization or by these By-Laws, the Corporation shall be entitled
to treat the record holder of
<PAGE>
stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect thereto,
regardless of any transfer, pledge or other disposition of such stock, until the
shares have been transferred on the books of the Corporation in accordance with
the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her current post office address.
5.4 Record Date. The Board of Directors may fix in advance a time of not
more than sixty (60) days preceding the date of any meeting of stockholders, or
the date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
5.5 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.
5.6 Issuance of Capital Stock. 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 Corporation 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 or a
designated committee thereof may determine, including without limitation the
granting of options, warrants, or conversion or other rights to subscribe to
said capital stock.
5.7 Dividends. Subject to applicable law, the Articles of Organization and
these By-Laws, the Board of Directors may from time to time declare, and the
Corporation may pay, dividends on outstanding shares of its capital stock.
Article VI Miscellaneous Provisions
6.1 Fiscal Year. Except as otherwise determined by the Board of Directors,
the fiscal year of the Corporation shall be the twelve months ending October
31st.
<PAGE>
6.2 Seal. The Board of Directors shall have power to adopt and alter the
seal of the Corporation.
6.3 Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other instruments and obligations to be entered into by the
Corporation in the ordinary course of its business without Board of Directors
action may be executed on behalf of the Corporation by the Chairman of the
Board, President, any Vice President, Treasurer or any other officer, employee
or agent of the Corporation as the Board of Directors may authorize.
6.4 Voting of Securities. Unless otherwise provided by the Board of
Directors, the Chairman of the Board, the President or Treasurer may waive
notice of and act on behalf of the Corporation, or appoint another person or
persons to act as proxy or attorney in fact for the Corporation 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 Corporation.
6.5 Resident Agent. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
Corporation. Said resident agent shall be either an individual who is a resident
of and has a business address in Massachusetts, a corporation organized under
the laws of The Commonwealth of Massachusetts, or a corporation organized under
the laws of any other state of the United States, which has qualified to do
business in, and has an office in, Massachusetts.
6.6 Corporation Records. The original, or attested copies, of the Articles
of Organization, By-Laws and record of all meetings of the Directors or
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the main office of the Corporation, or at an
office of its transfer agent, Clerk or resident agent.
6.7 Articles of Organization. All references in these By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the Corporation, as amended and in effect from time to time.
6.8 By-Law Amendments. These By-Laws may be amended in the manner provided
in the Articles of Organization.
Exhibit 5
[LETTERHEAD OF FOLEY, HOAG & ELIOT LLP]
_______, 1998
The 1855 Bancorp
791 Purchase Street
P.O. Box 2101
New Bedford, Massachusetts 02740-2101
Ladies and Gentlemen:
We are familiar with the Registration Statement on Form S-1, Registration
No. _________ (the "Registration Statement"), filed by The 1855 Bancorp, a
Massachusetts bank holding company (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to the proposed subscription offering and
possible community and syndicated community offerings by the Company of up to
38,352,500 shares (the "Company Shares") of its common stock, par value $.01 per
share (the "Common Stock"), in connection with the Company's proposed conversion
from mutual to stock form (the "Conversion") pursuant to the terms of its Plan
of Conversion adopted on April 23, 1998 (the "Plan").
We are familiar with the Plan, the Company's proposed Amended and Restated
Articles of Organization, its proposed Amended and Restated By-Laws and the
records of meetings and consents of its Boards of Trustees and Corporators
provided to us by the Company. In addition, we have examined and relied on the
originals or copies certified or otherwise identified to our satisfaction of all
such corporate records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, it is our opinion that, once it has obtained
all necessary regulatory approvals and consummated the Conversion pursuant to
the terms of the Plan as described in the Registration Statement, the Company
will have corporate power adequate for the issuance of the Company Shares in
accordance with the Registration Statement. The Company has taken all necessary
corporate action required to authorize the issuance and sale of the Company
Shares. When certificates for the Company Shares have been duly executed and
countersigned, and delivered against due receipt of consideration therefor as
described in the Registration Statement, the Company Shares will be legally
issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
prospectus forming part of the Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By:______________________________
A Partner
Exhibit 8.1
May ____, 1998
THE 1855 BANCORP
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Ladies and Gentlemen:
Reference is made to the information set forth under the heading "The
Conversion and the Merger -- Tax Aspects of the Conversion and the Merger -- The
Conversion" contained in the Prospectus, which is included in the Registration
Statement on Form S-1 (the "Registration Statement"), filed by The 1855 Bancorp
("1855 Bancorp") with the Securities and Exchange Commission (the "SEC") in
connection with the conversion of 1855 Bancorp from mutual to stock ownership
pursuant to The 1855 Bancorp's Plan of Conversion. Subject to the
representations, assumptions and other conditions described or referenced
therein, the description of anticipated material federal income tax consequences
of the Conversion contained under that heading accurately sets forth our
opinion.
Our opinion is based upon the provisions of the Internal Revenue Code
of 1986, as amended, Treasury Department proposed temporary and final
regulations, judicial decisions, and rulings and administrative interpretations
of the Internal Revenue Service ("IRS"), as each of the foregoing exists on the
date hereof. Our opinion is not binding on the IRS or a court of law, and no
assurance can be given that legislative or administrative action or judicial
decisions that differ from our opinion will not be forthcoming. Any such
differences could be retroactive to transactions or business operations prior to
such action or decisions. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion following the effective date of the Registration
Statement.
We hereby consent to the filing with the SEC of this opinion as an
exhibit to the Registration Statement and to the reference to our firm under the
heading "The Conversion and the Merger -- Tax Aspects of the Conversion and the
Merger -- The Conversion" contained therein. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By:____________________________
A Partner
FHE Draft
May 3, 1998
[Champagne]
EMPLOYMENT AGREEMENT
AGREEMENT made as of the ___ day of ______, 1998, by and among [SEACOAST
FINANCIAL SERVICES CORPORATION], a Massachusetts corporation (the "Holding
Company") and the parent company for COMPASS BANK FOR SAVINGS, a Massachusetts
chartered savings bank, with its executive offices in New Bedford, Massachusetts
(the "Bank") (the Bank and the Holding Company shall be hereinafter collectively
referred to as the "Employers"), and Kevin G. Champagne of New Bedford,
Massachusetts (the "Executive").
WITNESSETH
WHEREAS, the Holding Company desires to continue to provide for the
Executive's employment by the Holding Company and the Bank;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Holding Company and the Executive agree as follows:
1. Employment. The Executive shall serve the Bank and the Holding Company
as President and Chief Executive Officer. In such positions, the Executive shall
have the duties, responsibilities and authorities determined and designated from
time to time by the respective Boards of Directors, including without limitation
complete management authority with respect to, and responsibility for, the
overall operations and day-to-day business and affairs of the Bank and the
Holding Company. The Executive shall serve under the direction and supervision
of and report only to the Boards. Notwithstanding the above, the Executive shall
not be required to perform any duties and responsibilities (a) which would
result in a noncompliance with or violation of any applicable law or regulation
or (b) on a regular basis in any locations outside the counties in which the
Bank now has branch offices, unless agreed upon by the Executive.
2. Effective Date and Term. The commencement date (the "Commencement Date")
of this Agreement shall be the date first above written. The initial term of the
Executive's employment hereunder shall be for three years from the Commencement
Date. The parties intend that, at any point in time during the Executive's
employment hereunder, the then-remaining term of his employment under this
Agreement shall be three years. Accordingly, the term of employment shall be
automatically extended by one day for each day that the Executive remains
employed by the Bank or the Holding Company, unless the Executive elects not to
continue to extend the term of this Agreement by giving written notice in
accordance with Section 7.2 of this Agreement, or either Board elects not to
continue to extend the term of this Agreement (in which event the provisions of
Section 7.1 shall apply). The last day of such term as so extended from time to
time, is herein sometimes referred to as the "Expiration Date" and the time
period from the Commencement Date through the Expiration Date shall be the "Term
of Employment". At least once in each calendar year the Holding Company Board
will review the Agreement and
<PAGE>
Executive's performance annually for purposes of determining whether to continue
to extend the Agreement and the rationale and results thereof shall be included
in the minutes of such Board's meeting. The Board shall give notice to the
Executive reasonably promptly after such review if it has determined not to
continue to extend this Agreement.
3. Compensation and Benefits. The compensation and benefits payable to the
Executive under this Agreement shall be as follows:
3.1 Salary. For all services rendered by the Executive to the Holding
Company and its Subsidiaries, the Executive shall be entitled to receive a base
salary at the rate of $__________ per year, subject to increase from time to
time in accordance with the usual practices of the Holding Company with respect
to review of compensation of its senior executives. In addition, if the Board
increases the Executive's annual base salary at any time before the Expiration
Date, such increased annual base salary shall become a floor below which such
annual base salary shall not fall at any future time during the Term of
Employment without the Executive's written consent, provided, however, that such
increased salary may be reduced (but not below the level originally in effect on
the Commencement Date) on a basis consistent with and concurrently with
across-the-board salary reductions based on the Employers' financial
performance similarly affecting all senior management personnel of the Holding
Company and its Subsidiaries. The Executive's salary shall be payable in
periodic installments in accordance with the Holding Company's usual practice
for its senior executives.
3.2 Regular Benefits. The Executive shall also be entitled to participate
in any and all employee benefit plans, medical insurance plans, disability
income plans, retirement plans, bonus incentive plans, and other benefit plans
from time to time in effect for senior executives of the Holding Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Holding Company and (iii)
the discretion of the Board of Directors of the Holding Company or any
administrative or other committee provided for in or contemplated by such plan.
3.3 Other Benefits.
(a) Automobile. The Executive shall be also be provided with the use of
an automobile at the Employers' expense. The Executive shall comply with such
reasonable reporting and expense limitations on the use of the automobile as may
be established from time to time by the Holding Company. The Holding Company
shall include annually on the Executive's Form W-2 any amount attributable to
his personal use of such automobile.
(b) Business Memberships. The Executive shall also be reimbursed for
the reasonable annual membership fees for the country club of the Executive's
choice.
(c) SERP. The Executive shall be entitled to continue to receive the
SERP now being maintained on his behalf by the Employers.
3.4 Business Expenses. The Holding Company shall reimburse the Executive
for
<PAGE>
all reasonable travel and other business expenses incurred by him in the
performance of his duties and responsibilities, subject to such reasonable
requirements with respect to substantiation and documentation as may be
specified by the Holding Company.
3.5 Vacation. The Executive shall be entitled to not less than five (5)
weeks of vacation per year, to be taken at such times and intervals as shall be
determined by the Executive with the approval of the Holding Company, which
approval shall not be unreasonably withheld.
3.6 General. Nothing paid to the Executive under any plan, policy or
arrangement currently in effect or made available in the future shall be deemed
to be in lieu of other compensation to the Executive as described in this
Agreement.
4. Extent of Service. During the Term of Employment, the Executive shall,
subject to the direction and supervision of the Board of Directors of the
Holding Company, devote his full time, best efforts and business judgment, skill
and knowledge to the advancement of the Employers' interests and to the
discharge of his duties and responsibilities hereunder. He shall not engage in
any other business activity, except as may be approved by the Board of
Directors; provided, however, that nothing herein shall be construed as
preventing the Executive from:
(a) investing his assets in such form or manner as shall not require
any material services on his part in the operations or affairs of the companies
or the other entities in which such investments are made; or
(b) serving on the board of directors of any company not in competition
with either Employer, provided that the Executive shall not render any material
services with respect to the operations or affairs of any such company; or
(c) engaging in religious, charitable or other community or non-profit
activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement.
5. Termination Upon Death. In the event of the Executive's death during the
Term of Employment, the Executive's employment shall terminate on the date of
his death. The Holding Company shall pay to the Executive's beneficiary
designated in writing to the Holding Company prior to his death (or to his
estate, if he fails to make such designation), (i) any base salary or other
compensation earned (together with a pro rata portion of the bonus payable with
respect to the year in which death occurred) but not paid to Executive prior to
the date of death, plus (ii) the base salary that Executive would have earned
for a period of six months following his death, plus (iii) any death benefits
that Executive is entitled to under the Holding Company's policies in effect on
Executive's date of death. The foregoing bonus payments shall be payable at the
time of payment of similar bonus payments made to other executives of the
Holding Company and shall be computed on the assumption that all the Executive's
individual goals (if any) under any applicable bonus plans were achieved. In
addition, the Holding Company shall continue in effect the medical benefits of
the Executive and Executive's dependents, or any of the same, at the level in
effect on, and at the same out-of-pocket cost to the Executive as of, the date
of death for a six month period commencing on the date of death (or, if such
continuation is not permitted by
<PAGE>
applicable law or if the Board so determines in its sole discretion, the Holding
Company shall provide the economic equivalent in lieu thereof).
6. Termination by the Holding Company for Cause.
6.1 Termination by Holding Company. The Executive's employment hereunder
may be terminated by the Holding Company without further liability on the part
of the Holding Company, effective immediately, by a two-thirds vote of all of
the members of the Board of Directors of the Holding Company for Cause (as such
term is defined in Section 6.2) by written notice to the Executive setting forth
in reasonable detail the nature of such Cause, provided that the Board has
complied with the provisions of Section 6.3.
6.2 Cause. Termination for "Cause" shall mean
(a) deliberate dishonesty with respect to the Holding Company or any
subsidiary or affiliate thereof;
(b) committing fraud, misappropriation or embezzlement in the
performance of duties as an employee of the Holding Company or any subsidiary or
affiliate thereof; or
(c) conviction of a crime involving moral turpitude.
6.3 Board Termination Procedure. In each case, in determining Cause the
alleged acts or omissions of the Executive shall be measured against standards
prevailing in the banking industry generally and the ultimate existence of Cause
must be confirmed by not less than two-thirds of the Board at a meeting prior to
any termination therefor; provided, however, that it shall be the Holding
Company's burden to prove the alleged facts and omissions and the prevailing
nature of the standards the Holding Company shall have alleged are violated by
such acts or omissions of the Executive. In the event of such a confirmation by
two-thirds or more of the Board, the Holding Company shall notify the Executive
that the Holding Company intends to terminate the Executive's employment for
Cause under this Section 6 (the "Confirmation Notice"). The Confirmation Notice
shall specify the acts or omissions upon the basis of which the Board has
confirmed the existence of Cause and must be delivered to the Executive within
ninety (90) days after a majority of the Board (excluding, if applicable, the
Executive) has actual knowledge of the events giving rise to such purported
termination. If the Executive notifies the Holding Company in writing (the
"Opportunity Notice") within thirty (30) days after the Executive has received
the Confirmation Notice, the Executive (together with counsel) shall be provided
one opportunity to meet with the Board (or a sufficient quorum thereof) to
discuss such act or acts. Such opportunity to meet with the Board shall be fixed
and shall occur on a date selected by the Board (such date being not less than
ten (10) nor more than forty-five (45) days after the Holding Company receives
the Opportunity Notice from the Executive). Such meeting shall take place at the
principal offices of the Holding Company or such other location as agreed to by
the Executive and the Holding Company. During the period commencing on the date
the Holding Company receives the Opportunity Notice and ending on the date next
succeeding the date on which such meeting between the Board (or a sufficient
quorum thereof) and the Executive is scheduled to occur and
<PAGE>
not withstanding anything to the contrary in this Agreement, the Executive shall
be suspended from employment with the Holding Company (with pay to the extent
not prohibited by applicable law). If the Board properly sets the date of such
meeting and if the Board (or a sufficient quorum thereof) attends such meeting
and in good faith does not rescind its confirmation of Cause at such meeting or
if the Executive fails to attend such meeting for any reason, the Executive's
employment by the Holding Company shall, immediately upon the closing for such
meeting and the delivery to the Executive of the Notice of Termination, be
terminated for Cause. If the Executive does not respond in writing to the
Confirmation Notice in the manner and within the time period specified in this
Section 6, the Executive's employment with the Holding Company shall, on the
thirty-first day after the receipt by the Executive of the Confirmation Notice,
be terminated for Cause under this Section 6.
6.4 Termination of Obligations. In the event of termination pursuant to
Section 6, all obligations of the Holding Company under this Agreement shall
terminate as of the date indicated, but vested rights of the parties hereunder
shall not be affected.
7. Termination by the Executive
7.1 Termination by the Executive for Good Reason. The Executive shall be
entitled to terminate his employment hereunder for Good Reason (as defined in
Section 7.4) effective immediately by giving written notice to the Board of
Directors. Upon any such termination, the Executive shall be entitled to receive
the benefits set forth in Section 9.
7.2 Other Voluntary Termination by the Executive. During the Term of
Employment, the Executive may effect, upon sixty (60) days prior written notice
to the Holding Company, a Voluntary Termination of his employment hereunder and
thereupon the Term of Employment (if not already expired) shall end. A
"Voluntary Termination" shall mean a termination of employment by the Executive
on his own initiative other than (a) a termination due to death or becoming
Disabled (as defined in Section 11), (b) a termination for Good Reason, (c) a
termination due to Retirement (as defined in Section 7.3), or (d) a termination
as a result of the normal expiration of the full Term of Employment. If, during
the Term of Employment, the Executive's employment is so terminated due to
Voluntary Termination, the Term of Employment shall thereupon end and the
Employers shall pay to the Executive the payments and benefits which the
Executive would be entitled to in the event of a termination of his employment
by the Employers for Cause.
7.3 Termination Due to Retirement. "Retirement" means the termination of
the Executive's employment with the Holding Company for any reason by the
Executive at any time after the Executive attains "Retirement Age" (as
hereinafter defined). "Retirement Age" shall mean the earliest to occur of (x)
age 65, (y) (if applicable) any lesser age at which the Executive is entitled to
retire from the Employers and receive retirement benefits under the Employers'
qualified pension plan, and (z) an age of 62 or greater at which the Employers
permit the Executive to retire. The Executive may terminate the Executive's
employment hereunder due to Retirement upon thirty (30) days prior written
notice to the Holding Company. If, during the Term of Employment, the
Executive's employment is so terminated due to Retirement, the Term
<PAGE>
of Employment shall thereupon end and the Executive shall be entitled to (i)
continuation of the Executive's medical benefits at the level in effect on, and
at the same out-of-pocket cost to the Executive as of, the date of termination
for the one-year period following the termination of the Executive's employment
due to Retirement (or, if such continuation is not permitted by applicable law
or if the Board so determines in its sole discretion, the Holding Company shall
provide the economic equivalent in lieu thereof), and (ii) any other
compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs, if any, of the Holding Company.
7.4 Good Reason. For purposes of this Agreement, the term "Good Reason"
shall mean any of the following:
(a) the failure of the Board of Directors of either of the Holding
Company or the Bank to elect the Executive to the office of President and Chief
Executive Officer, or to continue the Executive in such offices;
(b) the failure by the Holding Company to comply with the provisions of
Section 3.1;
(c) any action by the Holding Company or the Bank which results in a
significant diminution in the Executive's responsibilities, authorities, powers,
functions or duties;
(d) a material breach by the Holding Company of any of the provisions
of this Agreement which failure or breach shall have continued for thirty (30)
days after written notice from the Executive to the Holding Company specifying
the nature of such failure or breach; and
(e) a determination by the Board not to continue to extend the term of
this Agreement as provided in Section 2.
In addition,"Good Reason" shall include the following events but only if they
shall occur within two years following a "Change in Control" (which term shall
have the meaning defined in the Change in Control Agreement between the
Executive and the Holding Company):
(f) the failure by the Holding Company to continue to provide the
Executive with benefits substantially similar to those available to the
Executive under any of the life insurance, medical, health and accident, or
disability plans or any other material benefit plans in which the Executive was
participating at the time of the Change in Control, or the taking of any action
by the Holding Company which would directly or indirectly materially reduce any
of such benefits, or the failure by the Bank to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the basis of
years of service with the Holding Company in accordance with the Holding
Company's normal vacation policy in effect at the time of the Change in Control;
(g) A reasonable determination by the Executive that, as a result of a
Change in Control, he is unable to exercise the responsibilities, authorities,
powers, functions or duties exercised by the Executive immediately prior to such
Change in Control;
<PAGE>
(h) A reasonable determination by the Executive that, as a result of a
Change in Control, his working conditions have significantly worsened; or
(i) the failure of the Holding Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement.
8. Termination by the Holding Company Without Cause. The Executive's
employment with the Holding Company may be terminated without Cause by a
two-thirds vote of all of the members of the Board of Directors of the Holding
Company on written notice to the Executive, provided, however, that the Holding
Company shall have the obligation upon any such termination to make the payments
to the Executive provided for under Section 9 of this Agreement.
9. Certain Termination Benefits. In the event of termination pursuant to
Section 7.1 or 8, the Executive shall be entitled to each of the following
benefits:
9.1 Earnings to Date of Termination. An amount equal to the sum of (a) base
salary or other compensation earned through the date of termination, plus (b)
the Executive's pro rata share (based on the portion of the fiscal year during
which the Executive was employed) of the highest annual bonus paid during the
three fiscal years preceding the termination of employment, plus (c) all accrued
vacation and deferred compensation.
9.2 Lump Sum Payment of Remaining Salary Obligation. A lump sum severance
benefit equal to three times the sum of (a) the Executive's annual base salary
and (b) the highest annual bonus paid to the Executive during the three fiscal
years preceding the termination of employment.
9.3 Benefit Continuation. For the period subsequent to the date of
termination until the Expiration Date, the Executive shall continue to receive
the disability and medical benefits described in Section 3.2 existing on the
date of termination at the level in effect on, and at the same out-of-pocket
cost to the Executive as of, the date of termination.
9.4 Pension Adjustment. An amount equal to the excess of (a) the actuarial
value of the benefits which the Executive would have accrued under the
Employers' qualified defined benefit pension plan and non-qualified supplemental
retirement plan if the Executive's employment had continued for a period of
three years following his date of termination, over (b) the actuarial equivalent
of the Executive's actual benefit under the defined benefit pension plan and the
non-qualified supplemental retirement plan.
10. Adjustment for Unavailability of Benefits. If, in spite of the
provisions of Section 9, benefits or service credits under any benefit plan
provided by a third party shall not be payable or provided under any such plan
to the Executive, or to the Executive's dependents, beneficiaries or estate,
because the Executive is no longer deemed to be an employee of the Holding
Company, the Holding Company shall pay or provide for payment of such benefits
and service credits for such benefits to the Executive, or to the Executive's
dependents, beneficiaries or estate.
<PAGE>
11. Disability. If, due to physical or mental illness, the Executive shall
be disabled so as to be unable to perform substantially all of his duties and
responsibilities hereunder, the Holding Company, acting through its Board of
Directors, may designate another executive to act in his place during the period
of his disability. Notwithstanding any such designation, the Executive shall
continue to receive his full salary and benefits under Section 3 of this
Agreement until the earlier of (x) the Expiration Date or (y) the date on which
he becomes eligible for disability income under the Employer's disability income
plan (at which time the Executive shall be considered to be "Disabled"). While
receiving disability payments under such plan, the Executive shall receive a
salary from the Holding Company which when combined with the Executive's
disability income payments will equal 60% of the Executive's prior salary from
the Holding Company, and shall continue to participate in the Employers' benefit
plans and to receive other benefits as specified in Section 3.2 until the
Expiration Date, with all such benefits to be at the level in effect on, and at
the same out-of-pocket cost to the Executive as of, the date of disability. In
the absence of a disability income plan at the time of such disability, the
Holding Company shall pay the Executive benefits equal to those the Executive
would have received if the Holding Company's current disability plan were in
effect at such time. Upon the Executive being able to return to full-time
employment after being Disabled but before the expiration of the Term of
Employment, the Executive shall be offered an equivalent available position and
otherwise be subject to the provisions of this Agreement. Nothing contained in
this Section 11 shall preclude the Holding Company from terminating the
Executive's employment without Cause, subject to its payment of benefits as
provided in Section 9.
12. Excise Taxes. In the event that the Executive shall have imposed upon
him the tax which is imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") or by any successor provision, by reason of any
payment or benefit which the Executive has received from the Holding Company or
any Subsidiaries, the Holding Company shall pay as additional compensation to
the Executive that amount which, after taking into account all taxes (including
any tax which shall be imposed by Code Section 4999) imposed upon such amount by
any federal, state or local government, shall be equal to the amount of said tax
imposed by Code Section 4999.
13. Confidential Information. The Executive will not disclose to any other
Person (except as required by applicable law or in connection with the
performance of his duties and responsibilities hereunder), or use for his own
benefit or gain, any confidential information of either Employer obtained by him
incident to his employment with the Holding Company. The term "confidential
information" includes, without limitation, financial information, business
plans, prospects and opportunities (such as lending relationships, financial
product developments, or possible acquisitions or dispositions of business or
facilities) which have been discussed or considered by the management of either
Employer but does not include any information which has become part of the
public domain by means other than the Executive's nonobservance of his
obligations hereunder.
14. No Mitigation; No Offset. In the event of any termination of employment
under this Agreement, the Executive shall be under no obligation to seek other
employment or to mitigate damages, and there shall be no offset against any
amounts due to him under this Agreement for
<PAGE>
any reason, including, without limitation, on account of any remuneration
attributable to any subsequent employment that the Executive may obtain. Any
amounts due under this Agreement are in the nature of severance payments or
liquidated damages, or both, and are not in the nature of a penalty.
15. Miscellaneous.
15.1 Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
15.2 Definition of "Person". For purposes of this Agreement, the term
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization.
15.3 Withholding. All payments made by the Holding Company under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Holding Company under applicable law.
15.4 Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in accordance with the laws of the Commonwealth of Massachusetts by three
arbitrators, one of whom shall be appointed by the Holding Company, one by the
Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Boston. Such arbitration shall be conducted in the City of Boston in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section 15.4. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. In the event that it shall be
necessary or desirable for the Executive to retain legal counsel or incur other
costs and expenses in connection with the enforcement of any or all of the
Executive's rights under this Agreement, the Holding Company shall pay (or the
Executive shall be entitled to recover from the Holding Company, as the case may
be) the Executive's reasonable attorneys' fees and other reasonable costs and
expenses in connection with the enforcement of said rights (including the
enforcement of any arbitration award in court) regardless of the final outcome,
unless and to the extent the arbitrators shall determine that under the
circumstances recovery by the Executive of all or a part of any such fees and
costs and expenses would be unjust.
15.5 Interpretation. The recitals hereto constitute an integral part of
this Agreement. References to Sections include subsections, which are part of
the related Section (e.g., a section numbered "Section 5.5" would be part of
"Section 5" and references to "Section 5" would also refer to material contained
in the subsection described as "Section 5.5").
<PAGE>
15.6 Assignment; Successors and Assigns, etc. Neither the Holding Company
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party and without such consent any attempted transfer or assignment
shall be null and of no effect; provided, however, that the Holding Company may
assign its rights and obligations under this Agreement without the consent of
the Executive in the event either Employer shall hereafter effect a
reorganization, consolidate with or merge into any other Person, or transfer all
or substantially all of its properties or assets to any other Person. This
Agreement shall inure to the benefit of and be binding upon the Holding Company
and the Executive, and their respective successors, executors, administrators,
heirs and permitted assigns. In the event of the Executive's death prior to the
completion by the Holding Company of all payments due him under this Agreement,
the Holding Company shall continue such payments to the Executive's beneficiary
designated in writing to the Holding Company prior to his death (or to his
estate, if he fails to make such designation).
15.7 Enforceability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15.8 Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
15.9 Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at 269 Wilbur Street, New Bedford, Massachusetts 02740 or at such
other address as the Executive has filed in writing with the Holding Company or,
in the case of the Holding Company, at its main office, attention of the Board
of Directors.
15.10 Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by duly authorized
representatives of the Holding Company.
15.11 Governing Law. This is a Massachusetts contract and shall be
construed under and be governed in all respects by the laws of The Commonwealth
of Massachusetts.
* * * * *
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Holding Company, by its duly authorized officer, and by the Executive, as
of the date first above written.
<PAGE>
ATTEST: [SEACOAST FINANCIAL SERVICES CORPORATION]
________________________ By:
Title:
[Seal]
WITNESS EXECUTIVE
________________________
Kevin G. Champagne
The undersigned hereby unconditionally
guarantees the obligations of the Holding
Company under the foregoing Agreement.
COMPASS BANK FOR SAVINGS
By:
Title:
FHE Draft
May 3, 1998
[Other Officers]
EMPLOYMENT AGREEMENT
AGREEMENT made as of the ___ day of ______, 1998, by and among COMPASS BANK
FOR SAVINGS, a Massachusetts chartered savings bank, with its executive offices
in New Bedford, Massachusetts (the "Bank"), [SEACOAST FINANCIAL SERVICES
CORPORATION], a Massachusetts corporation (the "Holding Company") and the parent
company for the Bank (the Bank and the Holding Company shall be hereinafter
collectively referred to as the "Employers"), and _______ of ____________,
Massachusetts (the "Executive").
WITNESSETH
WHEREAS, the Bank desires to continue to provide for the Executive's
employment by the Bank;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Bank and the Executive agree as follows:
1. Employment. The Executive shall serve the Bank as a Senior Executive
Officer. In such positions, the Executive shall have such duties,
responsibilities and authorities as may be determined and designated from time
to time by the Board of Directors. The Executive shall serve under the direction
and supervision of and report to the Chief Executive Officer. The Executive
shall not be required to perform any duties and responsibilities which would
result in a noncompliance with or violation of any applicable law or regulation.
In addition to serving as a Senior Executive Officer of the Bank, you also agree
to serve during the Term of Employment as a Senior Executive Officer of the
Holding Company if requested to do so. Unless otherwise determined by the Board
of Directors of the Holding Company, you shall not be entitled to compensation
in addition to the compensation set forth in Section 3 of this Agreement as a
result of your serving as an officer of the Holding Company.
2. Effective Date and Term. The commencement date (the "Commencement Date")
of this Agreement shall be the date first above written. The initial term of the
Executive's employment hereunder shall be for two years from the Commencement
Date. The parties intend that, at any point in time during the Executive's
employment hereunder, the then- remaining term of his employment under this
Agreement shall be two years. Accordingly, the term of employment shall be
automatically extended by one day for each day that the Executive remains
employed by the Bank, unless the Executive elects not to continue to extend the
term of this Agreement by giving written notice in accordance with Section 7.2
of this Agreement, or the Board elects not to continue to extend the term of
this Agreement (in which event the provisions of Section 7.1 shall apply). The
last day of such term as so extended from time to time, is herein sometimes
referred to as the "Expiration Date" and the time period from the Commencement
<PAGE>
Date through the Expiration Date shall be the "Term of Employment". At least
once in each calendar year the Board will review the Agreement and Executive's
performance annually for purposes of determining whether to continue to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive
reasonably promptly after such review if it has determined not to continue to
extend this Agreement.
3. Compensation and Benefits. The compensation and benefits payable to the
Executive under this Agreement shall be as follows:
3.1 Salary. For all services rendered by the Executive to the Bank and its
affiliates, the Executive shall be entitled to receive a base salary at the rate
of $__________ per year, subject to increase from time to time in accordance
with the usual practices of the Bank with respect to review of compensation of
its senior executives. In addition, if the Board increases the Executive's
annual base salary at any time before the Expiration Date, such increased
annual base salary shall become a floor below which such annual base salary
shall not fall at any future time during the Term of Employment without the
Executive's written consent, provided, however, that such increased salary may
be reduced (but not below the level originally in effect on the Commencement
Date) on a basis consistent with and concurrently with across-the-board salary
reductions based on the Employers' financial performance similarly affecting all
senior management personnel of the Bank and its affiliates. The Executive's
salary shall be payable in periodic installments in accordance with the Bank's
usual practice for its senior executives.
3.2 Regular Benefits. The Executive shall also be entitled to participate
in any and all employee benefit plans, medical insurance plans, disability
income plans, retirement plans, bonus incentive plans, and other benefit plans
from time to time in effect for senior executives of the Bank. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Bank and (iii) the
discretion of the Board of Directors of the Bank or any administrative or other
committee provided for in or contemplated by such plan.
3.3 Other Benefits.
(a) [To be specified; as presently in effect for particular Officer].
3.4 Business Expenses. The Bank shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the performance
of his duties and responsibilities, subject to such reasonable requirements with
respect to substantiation and documentation as may be specified by the Bank.
3.5 Vacation. The Executive shall be entitled to not less than [four (4)]
[five (5)] weeks of vacation per year, to be taken at such times and intervals
as shall be determined by the Executive with the approval of the Bank, which
approval shall not be unreasonably withheld.
3.6 General. Nothing paid to the Executive under any plan, policy or
arrangement currently in effect or made available in the future shall be deemed
to be in lieu of other
<PAGE>
compensation to the Executive as described in this Agreement.
4. Extent of Service. During the Term of Employment, the Executive shall,
subject to the direction and supervision of the Board of Directors of the Bank,
devote his full time, best efforts and business judgment, skill and knowledge to
the advancement of the Employers' interests and to the discharge of his duties
and responsibilities hereunder. He shall not engage in any other business
activity, except as may be approved by the Board of Directors; provided,
however, that nothing herein shall be construed as preventing the Executive
from:
(a) investing his assets in such form or manner as shall not require
any material services on his part in the operations or affairs of the companies
or the other entities in which such investments are made; or
(b) serving on the board of directors of any company not in competition
with either Employer, provided that the Executive shall not render any material
services with respect to the operations or affairs of any such company; or
(c) engaging in religious, charitable or other community or non-profit
activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement.
5. Termination Upon Death. In the event of the Executive's death during the
Term of Employment, the Executive's employment shall terminate on the date of
his death. The Bank shall pay to the Executive's beneficiary designated in
writing to the Bank prior to his death (or to his estate, if he fails to make
such designation), (i) any base salary or other compensation earned (together
with a pro rata portion of the bonus payable with respect to the year in which
death occurred) but not paid to Executive prior to the date of death, plus (ii)
the base salary that Executive would have earned for a period of six months
following his death, plus (iii) any death benefits that Executive is entitled to
under the Bank's policies in effect on Executive's date of death. The foregoing
bonus payments shall be payable at the time of payment of similar bonus payments
made to other executives of the Bank and shall be computed on the assumption
that all the Executive's individual goals (if any) under any applicable bonus
plans were achieved. In addition, the Bank shall continue in effect the medical
benefits of the Executive and Executive's dependents, or any of the same, at the
level in effect on, and at the same out-of-pocket cost to the Executive as of,
the date of death for a six month period commencing on the date of death (or, if
such continuation is not permitted by applicable law or if the Board so
determines in its sole discretion, the Bank shall provide the economic
equivalent in lieu thereof).
6. Termination by the Bank for Cause.
6.1 Termination by Bank. The Executive's employment hereunder may be
terminated by the Bank without further liability on the part of the Bank,
effective immediately, by a two-thirds vote of all of the members of the Board
of Directors of the Bank for Cause (as such term is defined in Section 6.2) by
written notice to the Executive setting forth in reasonable detail the nature of
such Cause.
<PAGE>
6.2 Cause. Termination for "Cause" shall mean
(a) deliberate dishonesty with respect to the Bank or any subsidiary or
affiliate thereof;
(b) committing fraud, misappropriation or embezzlement in the
performance of duties as an employee of the Bank or any subsidiary or affiliate
thereof; or
(c) conviction of a crime involving moral turpitude.
6.3 Termination of Obligations. In the event of termination pursuant to
Section 6, all obligations of the Bank under this Agreement shall terminate as
of the date indicated, but vested rights of the parties hereunder shall not be
affected.
7. Termination by the Executive
7.1 Termination by the Executive for Good Reason. The Executive shall be
entitled to terminate his employment hereunder for Good Reason (as defined in
Section 7.4) effective immediately by giving written notice to the Board of
Directors. Upon any such termination, the Executive shall be entitled to receive
the benefits set forth in Section 9.
7.2 Other Voluntary Termination by the Executive. During the Term of
Employment, the Executive may effect, upon sixty (60) days prior written notice
to the Bank, a Voluntary Termination of his employment hereunder and thereupon
the Term of Employment (if not already expired) shall end. A "Voluntary
Termination" shall mean a termination of employment by the Executive on his own
initiative other than (a) a termination due to death or becoming Disabled (as
defined in Section 11), (b) a termination for Good Reason, (c) a termination due
to Retirement (as defined in Section 7.3), or (d) a termination as a result of
the normal expiration of the full Term of Employment. If, during the Term of
Employment, the Executive's employment is so terminated due to Voluntary
Termination, the Term of Employment shall thereupon end and the Employers shall
pay to the Executive the payments and benefits which the Executive would be
entitled to in the event of a termination of his employment by the Employers for
Cause.
7.3 Termination Due to Retirement. "Retirement" means the termination of
the Executive's employment with the Bank for any reason by the Executive at any
time after the Executive attains "Retirement Age" (as hereinafter defined).
"Retirement Age" shall mean the earliest to occur of (x) age 65, (y) (if
applicable) any lesser age at which the Executive is entitled to retire from the
Employers and receive retirement benefits under the Employers' qualified pension
plan, and (z) an age of 62 or greater at which the Employers permit the
Executive to retire. The Executive may terminate the Executive's employment
hereunder due to Retirement upon thirty (30) days prior written notice to the
Bank. If, during the Term of Employment, the Executive's employment is so
terminated due to Retirement, the Term of Employment shall thereupon end and the
Executive shall be entitled to (i) continuation of the Executive's medical
benefits at the level in effect on, and at the same out-of-pocket cost to the
Executive as of, the
<PAGE>
date of termination for the one-year period following the termination of the
Executive's employment due to Retirement (or, if such continuation is not
permitted by applicable law or if the Board so determines in its sole
discretion, the Bank shall provide the economic equivalent in lieu thereof), and
(ii) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans and programs, if any, of the
Bank.
7.4 Good Reason. For purposes of this Agreement, the term "Good Reason"
shall mean any of the following:
(a) the failure of the Board of Directors of the Bank to elect the
Executive as a Senior Executive Officer, or to continue the Executive as a
Senior Executive Officer;
(b) a material breach by the Bank of the provisions of Section 3.1,
which breach shall have continued for thirty (30) days after written notice from
the Executive to the Bank specifying the nature of such failure or breach; and
(c) a determination by the Board not to continue to extend the term of
this Agreement as provided in Section 2.
In addition,"Good Reason" shall include the following events but only if they
shall occur within two years following a "Change in Control" (which term shall
have the meaning defined in the Change in Control Agreement between the
Executive and the Bank):
(d) the failure by the Bank to continue to provide the Executive with
benefits substantially similar to those available to the Executive under any of
the life insurance, medical, health and accident, or disability plans or any
other material benefit plans in which the Executive was participating at the
time of the Change in Control, or the taking of any action by the Bank which
would directly or indirectly materially reduce any of such benefits, or the
failure by the Bank to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Bank in accordance with the Bank's normal vacation policy in effect at the
time of the Change in Control;
(e) A reasonable determination by the Executive that, as a result of a
Change in Control, he is unable to exercise the responsibilities, authorities,
powers, functions or duties exercised by the Executive immediately prior to such
Change in Control;
(f) A reasonable determination by the Executive that, as a result of a
Change in Control, his working conditions have significantly worsened; or
(g) the failure of the Bank to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement.
8. Termination by the Bank Without Cause. The Executive's employment with
the Bank may be terminated without Cause by a two-thirds vote of all of the
members of the Board of Directors of the Bank on written notice to the
Executive, provided, however, that the Bank shall
<PAGE>
have the obligation upon any such termination to make the payments to the
Executive provided for under Section 9 of this Agreement.
9. Certain Termination Benefits. In the event of termination pursuant to
Section 7.1 or 8, the Executive shall be entitled to each of the following
benefits:
9.1 Earnings to Date of Termination. An amount equal to the sum of (a) base
salary or other compensation earned through the date of termination, plus (b)
the Executive's pro rata share (based on the portion of the fiscal year during
which the Executive was employed) of the highest annual bonus paid during the
three fiscal years preceding the termination of employment, plus (c) all accrued
vacation and deferred compensation.
9.2 Lump Sum Payment of Remaining Salary Obligation. A lump sum severance
benefit equal to two times the sum of (a) the Executive's annual base salary and
(b) the highest annual bonus paid to the Executive during the three fiscal years
preceding the termination of employment.
9.3 Benefit Continuation. For the period subsequent to the date of
termination until the Expiration Date, the Executive shall continue to receive
the disability and medical benefits described in Section 3.2 existing on the
date of termination at the level in effect on, and at the same out-of-pocket
cost to the Executive as of, the date of termination.
9.4 Pension Adjustment. An amount equal to the excess of (a) the actuarial
value of the benefits which the Executive would have accrued under the
Employers' qualified defined benefit pension plan and non-qualified supplemental
retirement plan if the Executive's employment had continued for a period of two
years following his date of termination, over (b) the actuarial equivalent of
the Executive's actual benefit under the defined benefit pension plan and the
non-qualified supplemental retirement plan.
10. Adjustment for Unavailability of Benefits. If, in spite of the
provisions of Section 9, benefits or service credits under any benefit plan
provided by a third party shall not be payable or provided under any such plan
to the Executive, or to the Executive's dependents, beneficiaries or estate,
because the Executive is no longer deemed to be an employee of the Bank, the
Bank shall pay or provide for payment of such benefits and service credits for
such benefits to the Executive, or to the Executive's dependents, beneficiaries
or estate.
11. Disability. If, due to physical or mental illness, the Executive shall
be disabled so as to be unable to perform substantially all of his duties and
responsibilities hereunder, the Bank, acting through its Board of Directors, may
designate another executive to act in his place during the period of his
disability. Notwithstanding any such designation, the Executive shall continue
to receive his full salary and benefits under Section 3 of this Agreement until
the earlier of (x) the Expiration Date or (y) the date on which he becomes
eligible for disability income under the Employer's disability income plan (at
which time the Executive shall be considered to be "Disabled"). While receiving
disability payments under such plan, the Executive shall receive a salary from
the Bank which when combined with the Executive's disability income payments
will
<PAGE>
equal 60% of the Executive's prior salary from the Bank, and shall continue to
participate in the Employers' benefit plans and to receive other benefits as
specified in Section 3.2 until the Expiration Date, with all such benefits to be
at the level in effect on, and at the same out-of-pocket cost to the Executive
as of, the date of disability. In the absence of a disability income plan at the
time of such disability, the Bank shall pay the Executive benefits equal to
those the Executive would have received if the Bank's current disability plan
were in effect at such time. Upon the Executive being able to return to
full-time employment after being Disabled but before the expiration of the Term
of Employment, the Executive shall be offered an equivalent available position
and otherwise be subject to the provisions of this Agreement. Nothing contained
in this Section 11 shall preclude the Bank from terminating the Executive's
employment without Cause, subject to its payment of benefits as provided in
Section 9.
12. Confidential Information. The Executive will not disclose to any other
Person (except as required by applicable law or in connection with the
performance of his duties and responsibilities hereunder), or use for his own
benefit or gain, any confidential information of either Employer obtained by him
incident to his employment with the Bank. The term "confidential information"
includes, without limitation, financial information, business plans, prospects
and opportunities (such as lending relationships, financial product
developments, or possible acquisitions or dispositions of business or
facilities) which have been discussed or considered by the management of either
Employer but does not include any information which has become part of the
public domain by means other than the Executive's nonobservance of his
obligations hereunder.
13. No Mitigation; No Offset. In the event of any termination of employment
under this Agreement, the Executive shall be under no obligation to seek other
employment or to mitigate damages, and there shall be no offset against any
amounts due to him under this Agreement for any reason, including, without
limitation, on account of any remuneration attributable to any subsequent
employment that the Executive may obtain. Any amounts due under this Agreement
are in the nature of severance payments or liquidated damages, or both, and are
not in the nature of a penalty.
14. Miscellaneous.
14.1 Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
14.2 Definition of "Person". For purposes of this Agreement, the term
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization.
14.3 Withholding. All payments made by the Bank under this Agreement shall
be net of any tax or other amounts required to be withheld by the Bank under
applicable law.
<PAGE>
14.4 Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in accordance with the laws of the Commonwealth of Massachusetts by three
arbitrators, one of whom shall be appointed by the Bank, one by the Executive
and the third by the first two arbitrators. If the first two arbitrators cannot
agree on the appointment of a third arbitrator, then the third arbitrator shall
be appointed by the American Arbitration Association in the City of Boston. Such
arbitration shall be conducted in the City of Boston in accordance with the
rules of the American Arbitration Association, except with respect to the
selection of arbitrators which shall be as provided in this Section 14.4.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. In the event that it shall be necessary or
desirable for the Executive to retain legal counsel or incur other costs and
expenses in connection with the enforcement of any or all of the Executive's
rights under this Agreement, the Bank shall pay (or the Executive shall be
entitled to recover from the Bank, as the case may be) the Executive's
reasonable attorneys' fees and other reasonable costs and expenses in connection
with the enforcement of said rights (including the enforcement of any
arbitration award in court) regardless of the final outcome, unless and to the
extent the arbitrators shall determine that under the circumstances recovery by
the Executive of all or a part of any such fees and costs and expenses would be
unjust.
14.5 Interpretation. The recitals hereto constitute an integral part of
this Agreement. References to Sections include subsections, which are part of
the related Section (e.g., a section numbered "Section 5.5" would be part of
"Section 5" and references to "Section 5" would also refer to material contained
in the subsection described as "Section 5.5").
14.6 Assignment; Successors and Assigns, etc. Neither the Bank nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party and without such consent any attempted transfer or assignment shall be
null and of no effect; provided, however, that the Bank may assign its rights
and obligations under this Agreement without the consent of the Executive in the
event either Employer shall hereafter effect a reorganization, consolidate with
or merge into any other Person, or transfer all or substantially all of its
properties or assets to any other Person. This Agreement shall inure to the
benefit of and be binding upon the Bank and the Executive, and their respective
successors, executors, administrators, heirs and permitted assigns. In the event
of the Executive's death prior to the completion by the Bank of all payments due
him under this Agreement, the Bank shall continue such payments to the
Executive's beneficiary designated in writing to the Bank prior to his death (or
to his estate, if he fails to make such designation).
14.7 Enforceability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14.8 Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of
<PAGE>
any term or obligation of this Agreement, or the waiver by any party of any
breach of this Agreement, shall not prevent any subsequent enforcement of such
term or obligation or be deemed a waiver of any subsequent breach.
14.9 Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at such address as the Executive has filed in writing with the Bank
or, in the case of the Bank, at its main office, attention of the Board of
Directors.
14.10 Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by duly authorized
representatives of the Holding Company.
14.11 Governing Law. This is a Massachusetts contract and shall be
construed under and be governed in all respects by the laws of The Commonwealth
of Massachusetts.
* * * * *
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Holding Company, by its duly authorized officer, and by the Executive, as
of the date first above written.
ATTEST: COMPASS BANK FOR
SAVINGS
--------------------------------
By:-----------------------------
Title:--------------------------
[Seal]
WITNESS EXECUTIVE
- ------------------------------
The undersigned hereby unconditionally
guarantees the obligations of the Holding
Company under the foregoing Agreement.
[SEACOAST FINANCIAL SERVICES CORPORATION]
By:---------------------------
Title:------------------------
FHE Draft for Review
May 3, 1998
Officers with Employment Agreements
CHANGE IN CONTROL AGREEMENT
AGREEMENT made as of the ___ day of ______, 1998, by and among [SEACOAST
FINANCIAL SERVICES CORPORATION], a Massachusetts corporation (the "Holding
Company") and the parent company for COMPASS BANK FOR SAVINGS, a Massachusetts
chartered savings bank, with its executive offices in New Bedford, Massachusetts
(the "Bank") (the Bank and the Holding Company shall be hereinafter collectively
referred to as the "Employers"), and ______________ of _____________,
Massachusetts (the "Executive").
1. Purpose. In order to allow the Executive to consider the prospect of a
Change in Control (as defined in Section 2) in an objective manner and in
consideration of the execution of that certain Employment Agreement between the
Executive and the Holding Company dated as of the date hereof (the "Employment
Agreement"), the services to be rendered by the Executive to the Employers and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the Holding Company, the Holding Company is willing to
provide, subject to the terms of this Agreement, certain severance benefits to
protect the Executive from the consequences of a Terminating Event (as defined
in Section 3) occurring subsequent to a Change in Control.
2. Change in Control. A "Change in Control" shall be deemed to have
occurred in either of the following events:
2.1 If there has occurred a change in control which the Holding Company
would be required to report in response to Item 1 of Form 8-K promulgated under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such
regulation is no longer in effect, any regulations promulgated by the Securities
and Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes;
2.2 When any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the 1934 Act) becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the 1934 Act), directly or indirectly, of securities of
the Holding Company or the Bank representing twenty-five percent (25%) or more
of the total number of votes that may be cast for the election of directors of
the Holding Company or the Bank, as the case may be;
2.3 During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Holding
Company, and any new director (other than a director designated by a person who
has entered into an agreement with the Holding Company to effect a transaction
described in Section 2.2, 2.4, or 2.5 of this Agreement) whose election by the
Board or nomination for election by the Holding Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was
<PAGE>
previously so approved, cease for any reason to constitute at least a majority
of the Board of Directors of the Holding Company;
2.4 The stockholders of the Holding Company approve a merger, share
exchange or consolidation ("merger or consolidation") of the Holding Company
with any other corporation, other than (a) a merger or consolidation which would
result in the voting securities of the Holding Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 70% of
the combined voting power of the voting securities of the Holding Company or
such surviving entity outstanding immediately after such merger or consolidation
or (b) a merger or consolidation effected to implement a recapitalization of the
Holding Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 30% of the combined voting power of the Holding
Company's then outstanding securities; or
2.5 The stockholders of the Holding Company or the Bank approve a plan of
complete liquidation of the Holding Company or the Bank or an agreement for the
sale or disposition by the Holding Company or the Bank of all or substantially
all of the Holding Company's or the Bank's assets.
3. Terminating Event. A "Terminating Event" shall mean
3.1 Termination by either of the Employers of the employment of the
Executive with either of the Employers for any reason other than (i) death or
(ii) for Cause (as such term is defined in the Employment Agreements), or
3.2 Resignation of the Executive from the employ of either of the
Employers, while the Executive is not receiving payments or benefits from either
of the Employers by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(a) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties from the
responsibilities, authorities, powers, functions or duties exercised by the
Executive immediately prior to the Change in Control; or
(b) a determination by the Executive that, as a result of a Change in
Control, he is unable to exercise the responsibilities, authorities, powers,
functions or duties exercised by the Executive immediately prior to such Change
in Control; or
(c) a reduction in the Executive's annual base salary as in effect on
the date hereof or as the same may be increased from time to time; or
(d) the relocation of the Employers' offices at which the Executive is
principally employed immediately prior to the date of the Change in Control to a
location more than 25 miles from New Bedford, Massachusetts, or either
Employer's requiring the Executive to be based anywhere other than the
Employers' offices at such location; or
<PAGE>
(e) the failure by either Employer to pay to the Executive any portion
of his current compensation or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
either Employer within seven (7) days of the date such compensation is due; or
(f) the failure by either Employer to continue in effect any material
compensation, incentive, bonus or benefit plan in which the Executive
participates immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by either Employer to continue
the Executive's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control; or
(g) the failure by either Employer to continue to provide the Executive
with benefits substantially similar to those available to the Executive under
any of either Employer's life insurance, medical, health and accident, or
disability plans or any other material benefit plans in which the Executive as
participating at the time of the Change in Control, the taking of any action by
either Employer which would directly or indirectly materially reduce any such
benefits, or the failure by either Employer to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the basis of
years of service with the Employers in accordance with the Employers' normal
vacation policy in effect at the time of the Change in Control; or
(h) the failure of either Employer to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement.
4. Severance Payment. In the event a Terminating Event occurs within three
(3) years after a Change in Control, Holding Company shall pay to the Executive
an amount equal to (x) three times the "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"))
applicable to the Executive, less (y) One Dollar ($1.00), payable in one
lump-sum payment on the date of termination.
5. Benefit Continuation. In the event a Terminating Event occurs within
three (3) years after a Change in Control, the Holding Company shall continue to
pay to the Executive the disability and medical benefits existing on the date of
the Terminating Event at the level in effect on, and at the same out-of-pocket
cost to the Executive as of, the date of such Terminating Event, for a period of
three (3) years.
6. Limitation on Benefits.
6.1 It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute
<PAGE>
payments. Accordingly, and notwithstanding any other provision of this Agreement
or any such agreement or plan, if by reason of the operation of said Section
280G, any such payments exceed the amount which can be deducted by the
Employers, such payments shall be reduced to the maximum amount which can be
deducted by the Employers. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive, such
excess payments shall be refunded to the Employers with interest thereon at the
applicable Federal Rate determined under Section 1274(d) of the Code, compounded
annually, or at such other rate as may be required in order that no such
payments shall be non-deductible to the Employers by reason of the operation of
said Section 280G. To the extent that there is more than one method of reducing
the payments to bring them within the limitations of said Section 280G, the
Executive shall determine which method shall be followed, provided that if the
Executive fails to make such determination within forty-five days after the
Employers have sent him written notice of the need for such reduction, the
Employers may determine the method of such reduction in their sole discretion.
6.2 If any dispute between the Employers and the Executive as to any of the
amounts to be determined under this Section 6 or the method of calculating such
amounts cannot be resolved by the Employers and the Executive, either party
after giving three days written notice to the other, may refer the dispute to a
partner in a Massachusetts office of a firm of independent certified public
accountants selected jointly by the Employers and the Executive. The
determination of such partner as to the amounts to be determined under Section
6.1 and the method of calculating such amounts shall be final and binding on
both the Employers and the Executive. The Employers shall bear the costs of any
such determination.
6.3 The Executive confirms that he is aware of the fact that the Federal
Deposit Insurance Corporation has the power to preclude the Bank from making
payments to the Executive under this Agreement under certain circumstances. The
Executive agrees that the Bank shall not be deemed to be in breach of this
Agreement if it is precluded from making a payment otherwise payable hereunder
by reason of regulatory requirements binding on the Bank.
7. Employment Status. This Agreement is not an agreement for the employment
of the Executive and shall confer no rights on the Executive except as herein
expressly provided.
8. Term. This Agreement shall take effect as of the date hereof and shall
terminate upon the earlier of (a) the resignation or termination of the
Executive for any reason prior to a Change in Control, or (b) the resignation of
the Executive after a Change in Control for any reason other than the occurrence
of any of the events enumerated in Section 3.2 of this Agreement.
9. Withholding. All payments made by the Holding Company under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Holding Company under applicable law.
10. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in accordance with the laws of The
<PAGE>
Commonwealth of Massachusetts by three arbitrators, one of whom shall be
appointed by the Holding Company, one by the Executive and the third by the
first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this Section 10. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of the Executive's rights under
this Agreement, the Holding Company shall pay (or the Executive shall be
entitled to recover from the Holding Company, as the case may be) the
Executive's reasonable attorneys' fees and other reasonable costs and expenses
in connection with the enforcement of said rights (including the enforcement of
any arbitration award in court) regardless of the final outcome, unless and to
the extent the arbitrators shall determine that under the circumstances recovery
by the Executive of all or a part of any such fees and costs and expenses would
be unjust.
11. Assignment; Successors and Assigns, etc. Neither the Holding Company
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party and without such consent any attempted transfer or assignment
shall be null and of no effect; provided, however, that the Holding Company may
assign its rights and obligations under this Agreement without the consent of
the Executive in the event either Employer shall hereafter effect a
reorganization, consolidate with or merge into any other Person, or transfer all
or substantially all of its properties or assets to any other Person. This
Agreement shall inure to the benefit of and be binding upon the Holding Company
and the Executive, and their respective successors, executors, administrators,
heirs and permitted assigns. In the event of the Executive's death prior to the
completion by the Holding Company of all payments due him under this Agreement,
the Holding Company shall continue such payments to the Executive's beneficiary
designated in writing to the Holding Company prior to his death (or to his
estate, if he fails to make such designation).
12. Enforceability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or
<PAGE>
certified mail, postage prepaid, to the Executive at the last address the
Executive has filed in writing with the Holding Company or, in the case of the
Holding Company, at its main office, attention of the Board of Directors.
15. Election of Remedies. An election by the Executive to resign after a
Change in Control under the provisions of this Agreement shall not constitute a
breach by the Executive of any employment agreement the Executive may have with
either Employer and shall not be deemed a voluntary termination of employment by
the Executive for the purpose of interpreting the provisions of any of the
Employers' benefit plans, programs or policies. Nothing in this Agreement shall
be construed to limit the rights of the Executive under any employment agreement
he may then have with either Employer, provided, however, that if there is a
Terminating Event under Section 3 hereof, the Executive may elect either to
receive the severance and other payments provided under Section 4 and Section 5
or such termination benefits as he may have under any such employment agreement,
but may not elect to receive both. If the Executive elects not to receive the
severance and other payments provided under Section 4 and Section 5, the
provisions of Section 6 shall not be binding upon the Executive.
16. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Holding Company.
17. Governing Law. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of The Commonwealth of
Massachusetts.
18. Interpretation. References to Sections include subsections, which are
part of the related Section (e.g., a section numbered "Section 5.5" would be
part of "Section 5" and references to "Section 5" would also refer to material
contained in the subsection described as "Section 5.5").
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Holding Company, by its duly authorized officer, and by the Executive, as
of the date first above written.
WITNESS: EXECUTIVE
ATTEST: [SEACOAST FINANCIAL SERVICES CORPORATION]
By: -------------------------------------------------
Title:-----------------------------------------------
<PAGE>
[Seal]
The undersigned hereby unconditionally
guarantees the obligations of the Holding
Company under the foregoing Agreement.
COMPASS BANK FOR SAVINGS
By:-----------------------------------------
Title:--------------------------------------
FHE Draft for Review
May 3, 1998
Officers Without Employment Contracts
CHANGE IN CONTROL AGREEMENT
AGREEMENT made as of the ___ day of ______, 1998, by and among [SEACOAST
FINANCIAL SERVICES CORPORATION], a Massachusetts corporation (the "Holding
Company") and the parent company for COMPASS BANK FOR SAVINGS, a Massachusetts
chartered savings bank, with its executive offices in New Bedford, Massachusetts
(the "Bank") (the Bank and the Holding Company shall be hereinafter collectively
referred to as the "Employers"), and ____________ of ________, Massachusetts
(the "Executive").
1. Purpose. In order to allow the Executive to consider the prospect of a
Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services to be rendered by the Executive to the Employers
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by the Holding Company, the Holding Company is willing to
provide, subject to the terms of this Agreement, certain severance benefits to
protect the Executive from the consequences of a Terminating Event (as defined
in Section 3) occurring subsequent to a Change in Control.
2. Change in Control. A "Change in Control" shall be deemed to have
occurred in either of the following events:
2.1 If there has occurred a change in control which the Holding Company
would be required to report in response to Item 1 of Form 8-K promulgated under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such
regulation is no longer in effect, any regulations promulgated by the Securities
and Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes;
2.2 When any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of
securities of the Holding Company or the Bank representing twenty-five percent
(25%) or more of the total number of votes that may be cast for the election of
directors of the Holding Company or the Bank, as the case may be;
2.3 During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Holding
Company, and any new director (other than a director designated by a person who
has entered into an agreement with the Holding Company to effect a transaction
described in Section 2.2, 2.4, or 2.5 of this Agreement) whose election by the
Board or nomination for election by the Holding Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board of Directors of the
Holding Company;
<PAGE>
2.4 The stockholders of the Holding Company approve a merger, share
exchange or consolidation ("merger or consolidation") of the Holding Company
with any other corporation, other than (a) a merger or consolidation which would
result in the voting securities of the Holding Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 70% of
the combined voting power of the voting securities of the Holding Company or
such surviving entity outstanding immediately after such merger or consolidation
or (b) a merger or consolidation effected to implement a recapitalization of the
Holding Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 30% of the combined voting power of the Holding
Company's then outstanding securities; or
2.5 The stockholders of the Holding Company or the Bank approve a plan
of complete liquidation of the Holding Company or the Bank or an agreement for
the sale or disposition by the Holding Company or the Bank of all or
substantially all of the Holding Company's or the Bank's assets.
3. Terminating Event. A "Terminating Event" shall mean
3.1 Termination by either of the Employers of the employment of the
Executive with either of the Employers for any reason other than (i) death or
(ii) for Cause (as such term is defined in Section 7), or
3.2 Resignation of the Executive from the employ of either of the
Employers, while the Executive is not receiving payments or benefits from either
of the Employers by reason of the Executive's disability, subsequent to the
occurrence of any of the following events:
(a) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties from the
responsibilities, authorities, powers, functions or duties exercised by the
Executive immediately prior to the Change in Control; or
(b) a determination by the Executive that, as a result of a Change
in Control, he is unable to exercise the responsibilities, authorities, powers,
functions or duties exercised by the Executive immediately prior to such Change
in Control; or
(c) a reduction in the Executive's annual base salary as in effect
on the date hereof or as the same may be increased from time to time; or
(d) the relocation of the Employers' offices at which the Executive
is principally employed immediately prior to the date of the Change in Control
to a location more than 25 miles from New Bedford, Massachusetts, or either
Employer's requiring the Executive to be based anywhere other than the
Employers' offices at such location; or
(e) the failure by either Employer to pay to the Executive any
portion of his current compensation or to pay to the Executive any portion of an
installment of deferred
<PAGE>
compensation under any deferred compensation program of either Employer within
seven (7) days of the date such compensation is due; or
(f) the failure by either Employer to continue in effect any
material compensation, incentive, bonus or benefit plan in which the Executive
participates immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by either Employer to continue
the Executive's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control; or
(g) the failure by either Employer to continue to provide the
Executive with benefits substantially similar to those available to the
Executive under any of either Employer's life insurance, medical, health and
accident, or disability plans or any other material benefit plans in which the
Executive as participating at the time of the Change in Control, the taking of
any action by either Employer which would directly or indirectly materially
reduce any such benefits, or the failure by either Employer to provide the
Executive with the number of paid vacation days to which the Executive is
entitled on the basis of years of service with the Employers in accordance with
the Employers' normal vacation policy in effect at the time of the Change in
Control; or
(h) the failure of either Employer to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement.
4. Severance Payment. In the event a Terminating Event occurs within one
(1) year after a Change in Control, the Holding Company shall pay to the
Executive an amount equal to (x) [two] times the "base amount" (as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) applicable to the Executive, less (y) One Dollar ($1.00), payable in
one lump-sum payment on the date of termination.
5. Benefit Continuation. In the event a Terminating Event occurs within one
(1) year after a Change in Control, the Holding Company shall continue to pay to
the Executive the disability and medical benefits existing on the date of the
Terminating Event at the level in effect on, and at the same out-of-pocket cost
to the Executive as of, the date of such Terminating Event, for a period of two
(2) years.
6. Limitation on Benefits.
6.1 It is the intention of the Executive and of the Employers that no
payments by the Employers to or for the benefit of the Executive under this
Agreement or any other agreement or plan pursuant to which he is entitled to
receive payments or benefits shall be non-deductible to the Employers by reason
of the operation of Section 280G of the Code relating to parachute payments.
Accordingly, and notwithstanding any other provision of this Agreement or any
such agreement or plan, if by reason of the operation of said Section 280G, any
such payments exceed
<PAGE>
the amount which can be deducted by the Employers, such payments shall be
reduced to the maximum amount which can be deducted by the Employers. To the
extent that payments exceeding such maximum deductible amount have been made to
or for the benefit of the Executive, such excess payments shall be refunded to
the Employers with interest thereon at the applicable Federal Rate determined
under Section 1274(d) of the Code, compounded annually, or at such other rate as
may be required in order that no such payments shall be non-deductible to the
Employers by reason of the operation of said Section 280G. To the extent that
there is more than one method of reducing the payments to bring them within the
limitations of said Section 280G, the Executive shall determine which method
shall be followed, provided that if the Executive fails to make such
determination within forty-five days after the Employers have sent him written
notice of the need for such reduction, the Employers may determine the method of
such reduction in their sole discretion.
6.2 If any dispute between the Employers and the Executive as to any of
the amounts to be determined under this Section 6 or the method of calculating
such amounts cannot be resolved by the Employers and the Executive, either party
after giving three days written notice to the other, may refer the dispute to a
partner in a Massachusetts office of a firm of independent certified public
accountants selected jointly by the Employers and the Executive. The
determination of such partner as to the amounts to be determined under Section
6.1 and the method of calculating such amounts shall be final and binding on
both the Employers and the Executive. The Employers shall bear the costs of any
such determination.
6.3 The Executive confirms that he is aware of the fact that the Federal
Deposit Insurance Corporation has the power to preclude the Bank from making
payments to the Executive under this Agreement under certain circumstances. The
Executive agrees that the Bank shall not be deemed to be in breach of this
Agreement if it is precluded from making a payment otherwise payable hereunder
by reason of regulatory requirements binding on the Bank.
7. Cause. Termination for "Cause" shall mean
7.1 deliberate dishonesty with respect to the Holding Company or any
subsidiary or affiliate thereof;
7.2 committing fraud, misappropriation or embezzlement in the
performance of duties as an employee of the Holding Company or any subsidiary or
affiliate thereof; or
7.3 conviction of a crime involving moral turpitude.
8. Employment Status. This Agreement is not an agreement for the employment
of the Executive and shall confer no rights on the Executive except as herein
expressly provided.
9. Term. This Agreement shall take effect as of the date hereof and shall
terminate upon the earlier of (a) the resignation or termination of the
Executive for any reason prior to a Change in Control, or (b) the resignation of
the Executive after a Change in Control for any reason other than the occurrence
of any of the events enumerated in Section 3.2 of this Agreement.
<PAGE>
10. Withholding. All payments made by the Holding Company under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Holding Company under applicable law.
11. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in accordance with the laws of The Commonwealth of Massachusetts by three
arbitrators, one of whom shall be appointed by the Holding Company, one by the
Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Boston. Such arbitration shall be conducted in the City of Boston in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section 11. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. In the event that it shall be
necessary or desirable for the Executive to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
Executive's rights under this Agreement, the Holding Company shall pay (or the
Executive shall be entitled to recover from the Holding Company, as the case may
be) the Executive's reasonable attorneys' fees and other reasonable costs and
expenses in connection with the enforcement of said rights (including the
enforcement of any arbitration award in court) regardless of the final outcome,
unless and to the extent the arbitrators shall determine that under the
circumstances recovery by the Executive of all or a part of any such fees and
costs and expenses would be unjust.
12. Assignment; Successors and Assigns, etc. Neither the Holding Company
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party and without such consent any attempted transfer or assignment
shall be null and of no effect; provided, however, that the Holding Company may
assign its rights and obligations under this Agreement without the consent of
the Executive in the event either Employer shall hereafter effect a
reorganization, consolidate with or merge into any other Person, or transfer all
or substantially all of its properties or assets to any other Person. This
Agreement shall inure to the benefit of and be binding upon the Holding Company
and the Executive, and their respective successors, executors, administrators,
heirs and permitted assigns. In the event of the Executive's death prior to the
completion by the Holding Company of all payments due him under this Agreement,
the Holding Company shall continue such payments to the Executive's beneficiary
designated in writing to the Holding Company prior to his death (or to his
estate, if he fails to make such designation).
13. Enforceability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
<PAGE>
14. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
15. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Holding Company or, in the case of the Holding Company, at its main office,
attention of the Board of Directors.
16. Election of Remedies. An election by the Executive to resign after a
Change in Control under the provisions of this Agreement shall not constitute a
breach by the Executive of any employment agreement the Executive may have with
either Employer and shall not be deemed a voluntary termination of employment by
the Executive for the purpose of interpreting the provisions of any of the
Employers' benefit plans, programs or policies. Nothing in this Agreement shall
be construed to limit the rights of the Executive under any employment agreement
he may then have with either Employer, provided, however, that if there is a
Terminating Event under Section 3 hereof, the Executive may elect either to
receive the severance and other payments provided under Section 4 and Section 5
or such termination benefits as he may have under any such employment agreement,
but may not elect to receive both. If the Executive elects not to receive the
severance and other payments provided under Section 4 and Section 5, the
provisions of Section 6 shall not be binding upon the Executive.
17. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Holding Company.
18. Governing Law. This is a Massachusetts contract and shall be construed
under and be governed in all respects by the laws of The Commonwealth of
Massachusetts.
19. Interpretation. References to Sections include subsections, which are
part of the related Section (e.g., a section numbered "Section 5.5" would be
part of "Section 5" and references to "Section 5" would also refer to material
contained in the subsection described as "Section 5.5").
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Holding Company, by its duly authorized officer, and by the Executive, as
of the date first above written.
WITNESS: EXECUTIVE
<PAGE>
ATTEST: [SEACOAST FINANCIAL SERVICES CORPORATION]
By:---------------------------------------------
Title:------------------------------------------
[Seal]
The undersigned hereby unconditionally
guarantees the obligations of the Holding
Company under the foregoing Agreement.
COMPASS BANK FOR SAVINGS
By:
Title:
NEW BEDFORD FIVE CENTS SAVINGS BANK
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this __ day of ________, 19__ by and
between New Bedford Five Cent Savings Bank, of New Bedford, Massachusetts
(hereinafter called "Corporation) and _______________ of ____________,
_____________ (hereinafter called the "Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Corporation, and is
now serving the Corporation as its _________________________ and,
WHEREAS, because of Executive's experience, knowledge of affairs of the
Corporation, and reputation and contacts in the industry, the Corporation deems
the Executive's continued employment with the Corporation important for its
future growth; and,
WHEREAS, it is the desire of the Corporation and in its best interest that
the Executive's service be retained; and,
WHEREAS, in order to induce the Executive to continue in the employ of the
Corporation and in recognition of his past service, the Corporation has entered
into this Agreement to provide him or his beneficiaries certain benefits in
accordance with terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained, it is agreed as follows:
ARTICLE ONE
1.01 Employment. The Corporation may employ the Executive in such capacity
as the Corporation may from time to time determine. Notwithstanding anything
herein contained, this Agreement is not an agreement of employment. Nothing
herein shall restrict the right of the Executive to enter into an agreement with
the Corporation concerning other terms and conditions of his employment.
<PAGE>
The benefits provided by this Agreement are not part of any salary
reduction plan or an arrangement deferring a bonus or a salary increase. The
Executive has no option to take any current payment or bonus in lieu of these
salary continuation benefits.
ARTICLE TWO
2.01 Normal Retirement Benefits. If the Executive shall continue in the
employment of the Corporation until he attains the age of sixty-five (65), he
shall be entitled to a Benefit commencing on the first day of the month next
following his actual retirement and continuing for fifteen (15) years, payable
monthly, in an annual amount equal to twenty percent (20%) supplemental
compensation above the compensation which would be paid to such executive under
the life annuity benefit of the Savings Bank Employees Retirement Association
Plan.
2.02 Early Retirement Benefits. If the Executive shall continue in the
employment of the Corporation until he attains the age of fifty-five (55), he
shall be entitled to a benefit commencing on the first day of the month next
following his actual retirement and continuing for fifteen (15) years in an
amount equal to twenty percent (20%) above the compensation payable to such
executive under the life annuity benefit of the Savings Bank Employees
Retirement Association Plan.
2.03 Optional Forms of Payment. In lieu of the payments provided in
Sections 2.01 and 2.02, the Executive may elect an optional form of payment
which shall be the actuarial equivalent of the said payments and which shall be
any optional form which is provided the Executive under the terms of the Savings
Banks Employee Retirement Plan, or its successor.
ARTICLE THREE
3.01 Death of Executive. Upon the death of the Executive while in the
employ of the Bank, the Corporation will pay to the Executive's beneficiary or
beneficiaries an annual amount equal to twenty percent (20%) of the Executive's
salary at the date of death for a period of fifteen (15) years. The Executive
shall provide a written designation of beneficiary, including contingent
beneficiaries, if any, to the Corporation. If no beneficiary is designated or if
no beneficiary is alive when any payment is due, then
<PAGE>
such payment shall be made to the Executive's estate. Upon request, the
Corporation in its sole discretion may pay the benefits pursuant to this
paragraph in any equivalent form.
ARTICLE FOUR
4.01 Termination of Employment. If the Executive's employment with the
Corporation terminates for other than as provided in Section 4.02 prior to age
fifty-five (55) for any reason other than death or disability, he shall forfeit
all rights to a benefit under this Agreement; provided, however, the Executive
shall be entitled to receive a benefit, commencing upon the attainment of age
sixty-five (65) equal to five percent (5%) of the benefit he would have received
under Paragraph 2.01 had he continued in employment for each year of service
after attaining the age of thirty-five (35).
4.02 Termination for Cause. All benefits not yet paid under this Agreement
shall be forfeited by the Executive if his employment is terminated for any
reason that is deemed to be cause under the rules, regulations or decisions of
the National Labor Relations Board.
ARTICLE FIVE
5.01 Other Employment. As consideration for the benefits provided to
the Executive in the Agreement, the Executive agrees that he shall not at any
time during which he or any beneficiary of his is entitled to or receiving any
payment under this Agreement enter into the employ, as an employee or
independent contractor, of any other banking corporation or competing
organization in a capacity in which he competes with the Corporation within
twenty-five (25) miles of any office of the Corporation in Massachusetts. If he
enters into such employment, benefits hereunder of any kind shall be suspended
until such employment is terminated.
ARTICLE SIX
6.01 Alienability. Neither the Executive nor his widow, shall have any
power or right to transfer, assign, anticipate, hypothecate, mortgage, commute,
modify, or otherwise encumber in advance any of the benefits payable hereunder,
nor shall any of said benefits be subject to seizure for the payment of
<PAGE>
any debts, judgments, alimony or separate maintenance, owed by the Executive or
his beneficiary or any of them, or be transferable by operation of law in the
event of bankruptcy, or otherwise.
ARTICLE SEVEN
7.01 Participation in Other Plans. Nothing contained in this Agreement
shall be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit-sharing, group insurance, bonus or similar employee plans which the
Corporation may now or hereafter have.
ARTICLE EIGHT
8.01 Funding. The Corporation reserves the absolute right at its sole
and exclusive discretion to insure or otherwise provide for the obligations of
the Corporation undertaken by this Agreement or to refrain from same, and to
determine the extent, nature, and method thereof. Should the Corporation elect
to insure this Agreement, in whole or in part, through the medium of life
insurance or annuities, or both, the Corporation shall be the owner and
beneficiary of the policy. At no time shall the Executive be deemed to have any
right, title, or interest in or to any specified asset or assets of the
Corporation, including, but not by way of restriction, any insurance or annuity
contract or contracts or the proceeds therefrom.
Any such policy, contract or asset shall not in any way be considered to be
security for the performance of the obligations of this Agreement.
If the Corporation purchases a life insurance or annuity policy on the life
of the Executive, he agrees to sign any papers that may be required for that
purpose and to undergo any medical examination or tests which may be necessary,
and generally cooperate with the Corporation in securing such policy.
ARTICLE NINE
9.01 Reorganization. The Corporation shall not merge or consolidate
into or with another corporation, or reorganize, or sell substantially all of
its assets to another corporation, firm, or person unless and until such
succeeding or continuing corporation, firm, or person agrees to assume and
discharge the obligations of the Corporation under this Agreement. Upon the
occurrence of such event, the term
<PAGE>
"Corporation" as used in this Agreement shall be deemed to refer to such
successor or survivor corporation.
ARTICLE TEN
10.01 Corporation. As used in this Agreement, Corporation shall mean New
Bedford Five Cents Savings Bank and any affiliated entity, successor
organization, parent, subsidiary or holding company.
ARTICLE ELEVEN
11.01 Communications. Any notice or communication required of either party
with respect to this Agreement shall be made in writing and may either be
delivered personally or sent by first class mail, as the case may be;
To the Corporation:
New Bedford Five Cents Savings Bank
791 Purchase Street
New Bedford, MA 02741
To the Executive:
Each party shall have the right by written notice to change the place to
which any notice may be addressed.
ARTICLE TWELVE
12.01 Claims Procedure. In the event that benefits under this Agreement
are not paid to the Executive (or his beneficiary in the case of the Executive's
death), and such person feels entitled to receive them, a claim shall be made in
writing to the Corporation within sixty (60) days after written notice from the
Corporation to the Executive or his beneficiary or personal representative that
payments are not being made or are not to be made under this Agreement. Such
claim shall be reviewed by the Corporation. If the claim is approved or denied,
in full or in part, the Corporation shall provide a written notice of approval
or denial within sixty (60) days setting forth the specific reason for denial,
specific reference to the provisions of this Agreement upon which the denial is
based, and any additional material or information necessary to
<PAGE>
perfect the claim, if any. Also, such written notice shall indicate the steps to
be taken if a review of the denial is desired.
If a claim is denied and a review is desired, the Executive (or beneficiary
in the case of the Executive's death), shall notify the Corporation in writing
within twenty (20) days (and a claim shall be deemed denied if the Corporation
does not take any action within the aforesaid sixty (60) day period). In
requesting a review, the Executive or his beneficiary may review this Agreement
or any documents relating to it and submit any written issues and comments he or
she may feel appropriate. In its sole discretion the Corporation shall then
review the claim and provide a written decision within sixty (60) days. This
decision likewise shall state the specific reasons for the decision and shall
include reference to specific provisions of this Agreement on which the decision
is based.
Any decision of the Corporation shall not be binding on the Executive, his
personal representative, or any beneficiary without consent, nor shall it
preclude further action by the Executive, his personal representative or any
beneficiary.
ARTICLE THIRTEEN
13.01 Entire Agreement. This instrument may be altered or amended only by a
written agreement signed by the parties hereto.
13.02 Jurisdiction. The terms and conditions of this Agreement are subject
to the laws of The Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed by its duly authorized officer and its Corporate seal affixed, duly
attested by its Secretary, and the Executive has hereunto set his hand and seal
at New Bedford, Massachusetts the day and year first above written.
New Bedford Five Cents Savings Bank
_______________________ By________________________________
Witness
_______________________ ________________________________
Witness
<PAGE>
FIRST AMENDMENT TO NEW BEDFORD FIVE CENTS SAVINGS BANK
EXECUTIVE SALARY CONTINUATION AGREEMENT
WHEREAS, New Bedford Five Cents Savings Bank, a Massachusetts Mutual
Savings Bank (hereinafter called "Corporation") has entered into an Executive
Salary Continuation Agreement on the ____ day of ________, 19__, with
_______________, ___________________ of __________________, ____________,
_____________ _____ (hereinafter called the "Executive).
WHEREAS, BANK has now determined that it wishes to Amend said Agreement by
changing the formula providing for payments thereunder, which change the
Executive also desires to put into effect.
NOW, THEREFORE, pursuant to ARTICLE THIRTEEN, Section 13.01 of said
Agreement in consideration of mutual covenants and agreements herein contained
and the continued employment of Executive by Corporation, it is agreed as
follows:
1. ARTICLE TWO is hereby amended by deleting ARTICLE TWO, Sections 2.01,
2.02 and 2.03 as the same now appear in said Agreement and substituting
therefore the following new and effective ARTICLE TWO, Sections 2.01, 2.02 and
2.03:
ARTICLE TWO
2.01 Normal Retirement Benefits. If the Executive shall continue in the
employment of the Corporation until he attains the age of sixty-five (65), he
shall be entitled to a supplemental retirement benefit (hereinafter "Benefit")
commencing on the first day of the month next following his actual retirement
and continuing for fifteen (15) years, payable monthly, in an amount equal to
Twenty Percent (20%) of the average of the three (3) highest years of
compensation (average compensation) paid to such Executives in the ten (10)
years of employment with the Corporation immediately preceding such Executive's
retirement.
2.02 Early Retirement Benefits. If the Executive shall continue in the
employment of the Corporation until he attains the age fifty-five (55), and
thereupon elects early retirement, he shall be entitled to receive a reduced
benefit commencing on the first day of the month next following his actual
retirement
<PAGE>
and continuing for fifteen (15) years, said benefit shall be equal to the
percentage of average compensation as defined in Section 2.01 adjusted as
provided below:
<TABLE>
<CAPTION>
RETIREMENT AGE PERCENTAGE OF AGE SIXTY-FIVE
-------------- ----------------------------
BENEFIT
-------
<S> <C> <C>
64 .9346
63 .8734
62 .8163
61 .7629
60 .7130
59 .6663
58 .6227
57 .5820
56 .5439
55 .5083
</TABLE>
2.03 Optional Forms of Payment. In lieu of the payments provided in
Sections 2.01 and 2.02, the Executive may elect an optional form of payment
which shall be the actuarial equivalent of the said payments, but not to exceed
payment for more than fifteen (15) years, which may be agreed to by Corporation
and Executive at the time of such election.
2. ARTICLE TWO is further hereby amended by adding the following new and
effective paragraphs:
2.04 Postponement or Late Retirement. If the Executive elects to postpone
retirement beyond age sixty-five (65), he shall be entitled to a monthly
retirement benefit commencing on the first day of the month next following his
actual retirement and continuing for fifteen (15) years in an amount equal to
average compensation as defined in Section 2.01.
2.05 Compensation. As used herein the term compensation shall mean salary,
bonuses, commissions or any other form of incentive payments paid by Corporation
to the Executive during the calendar year. Said term shall not include any
deferred compensation, deferred accruals or non-cash compensation paid to or on
such Executive's behalf.
<PAGE>
3. ARTICLE THREE is hereby amended by deleting ARTICLE THREE, Section 3.01
as the same now appears in said Agreement and substituting therefore the
following new and effective ARTICLE THREE, Sections 3.01 and 3.02.
3.01 Death of Executive. Upon the death of the Executive while in the
employ of the Bank, the Corporation will pay to the Executive's beneficiary or
beneficiaries an annual amount equal to twenty percent (20%) of said Executive's
salary on date of death for a period of fifteen (15) years. The Executive shall
provide a written designation of beneficiary, including contingent
beneficiaries, if any, to the Corporation. If no beneficiary is designated or if
no beneficiary is alive when any payment is due, then such payment shall be made
to the Executive's estate. Upon request, the Corporation in its sole discretion
may pay the benefits pursuant to this paragraph in any equivalent form. The
Executive shall have the right to change such beneficiary designation while
employed by the Corporation or while receiving benefits hereunder by executing
and delivering to the Corporation an authorization duly executed effecting such
change.
3.02 Payments After Retirement. In the event of the death of the Executive
after payments hereunder have commenced but prior to payment for the fifteen
(15) years herein provided, the remaining benefits shall be paid to the
beneficiary or beneficiaries designated by such deceased Executive pursuant to
this Agreement.
All other provisions of said Agreement shall remain in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, Corporation has caused this Agreement to be signed by
its Chairman of the Board thereunto duly authorized by its Board of Trustees and
has caused its corporate seal to be affixed, and the Executive has hereunto set
his hand and seal at New Bedford, Massachusetts on this ___ day of _________,
19__.
NEW BEDFORD FIVE CENTS SAVINGS BANK
_________________________________________
Witness By:________________________________
_________________________________________ ___________________________________
Witness
<PAGE>
SECOND AMENDMENT TO COMPASS BANK FOR SAVINGS
(formerly New Bedford Five Cents Savings Bank)
EXECUTIVE SALARY CONTINUATION AGREEMENT
WHEREAS, Compass Bank for Savings, a Massachusetts Mutual Savings Bank,
(hereinafter called "Corporation") has entered into an Executive Salary
Continuation Agreement on the ____ day of ___, 19__, further amended
____________, 19__ with _____________ of ________________, ________________
_______________ (hereinafter called the "Executive").
WHEREAS, the Bank has now determined that it wishes to amend said agreement
by changing the formula providing for payments thereunder, which change the
Executive also desires to put in effect.
Now, therefor, pursuant to Article Thirteen, Section 13.01 of said
agreement in consideration of mutual covenants and agreements herein contained
and the continued employment of Executive by the Corporation, it is agreed as
follows:
12. Article Two is hereby amended by deleting Article Two,
Sections 2.01, 2.02, 2.03, 2.04 and 2.05 as the same now
appear in said agreement and substituting therefore the
following new and effective Article Two, Sections 2.01, 2.02,
2.03, 2.04 and 2.05.
2.01 Normal Retirement Benefits. If the Executive shall
continue in the employment of the Corporation until
he attains at least the age of sixty-five (65), he
shall be entitled to an annual supplemental
retirement benefit (hereinafter called the "Benefit")
commencing on the first day of the month next
following his actual retirement and continuing for
fifteen (15) years, in an amount equal to twenty-five
(25%) of the average of three (3) highest years of
Compensation (average compensation) paid to such
Executive in the ten (10) years of employment with
the Corporation immediately preceding such
Executive's retirement from the Corporation.
<PAGE>
2.02 Early Retirement Benefits. If the Executive shall
continue in the employment of the Corporation until
at least age fifty-five (55), but not age sixty-five
(65), he shall be entitled to receive a Benefit
commencing on the first day of the month next
following his attainment of age 65 and continuing for
fifteen (15) years equal to twenty-five percent (25%)
of the average of the three (3) highest years of
Compensation paid to such Executive during the ten
(10) years of employment with the Corporation
immediately preceding such Executive's retirement
from the Corporation. If the Benefit commences prior
to age sixty-five said Benefit shall be equal to a
reduced amount determined as provided below (with
appropriate interpolation between ages):
<TABLE>
<CAPTION>
Percentage of Age
Retirement Age Sixty-five Benefit
-------------- ------------------
<S> <C> <C>
64 .9346
63 .8734
62 .8163
61 .7629
60 .7130
59 .6663
58 .6227
57 .5820
56 .5439
55 .5083
</TABLE>
<PAGE>
2.03 Alternative Forms of Payment. In lieu of the payment
provided in Sections 2.01, and 2.02, Executive shall
also be entitled to elect an actuarial equivalent
single lump sum. Any election by an Executive under
this section to receive a single lump sum shall be
effective only if it is made in writing and submitted
to the Corporation no later than one year preceding
the Executive's retirement from the Corporation. The
interest rate and other factors used to determine the
single lump sum shall be determined at the sole
discretion of the Corporation.
2.04 Compensation. As used herein, the term "Compensation"
shall mean salary, bonuses, commissions or any other
form of incentive payments paid by the Corporation to
the Executive during the calendar year. Said term
shall not include any deferred compensation, deferred
accruals or non-cash compensation paid to or on such
Executive's behalf.
2.05 Installment Payments. The amount of benefits
determined under Sections 2.01 and 2.02 shall be
payable to the Executive annually or as equal
quarterly or monthly installments, as elected by the
Executive thirty (30) days prior to his retirement
date.
13. Article Three is hereby amended by deleting Article Three,
Section 3.01 and 3.02 as the same now appears in said
agreement and substituting therefor the following new and
effective Article Three, Sections 3.01 and 3.02.
3.01 Death of Executive. Upon the death of the Executive
while in the employ of the Corporation, the
Corporation will pay to the Executive's beneficiary
or beneficiaries an annual amount equal to
twenty-five percent (25%) of the annual salary being
paid to such Executive immediately preceding such
Executive's death for a period of fifteen (15) years.
The Executive shall provide a written
<PAGE>
designation of beneficiary, including contingent
beneficiaries, if any, to the Corporation. If no
beneficiary is designated or if no beneficiary is
alive when any payment is due, then such payment
shall be made to the Executive's estate. The
Corporation, in its sole discretion, may pay the
Benefits pursuant to this Section in any equivalent
form. The Executive shall have the right to change
such beneficiary designation while employed by the
Corporation or while receiving Benefits hereunder by
executing and delivering to the Corporation an
authorization duly executed effecting such change.
3.02 Payments after retirement. In the event of the death
of the Executive after payments have commenced but
prior to payment in full hereunder, the remaining
benefits, if any, shall be paid to the beneficiary or
beneficiaries designated by such deceased Executive
pursuant to this agreement.
14. Article Five is hereby amended by deleting Article Five,
Section 5.01 as the same now appears in said agreement and
substituting therefor the following new and effective Article
Five, Section 5.01.
5.01 Other Employment. As consideration for the Benefits
provided to the Executive in the Agreement, the
Executive agrees that he shall not at any time during
which he is entitled to or receiving any payment
under this Agreement enter into the employ, as an
employee or independent contractor, of any other
banking corporation or competing organization in a
capacity in which he competes with the Corporation
within twenty-five (25) miles of any office of the
Corporation in Massachusetts. If he enters into such
employment, Benefits hereunder of any kind shall be
permanently forfeited. In the event that such
employee has received a lump sum payment hereunder,
Corporation has the right to obtain a permanent
<PAGE>
injunction against Executive employed by a competing
organization and shall also be entitled to receive
money damages equivalent to the amount which would be
forfeited under this agreement had a fifteen (1 5)
year payout of benefits been in effect.
15. Article Eight is hereby amended by deleting Article Eight,
Section 8.01 as the same now appears in said agreement and
substituting therefor the following new and effective Article
Eight, Section 8.01.
8.01 Funding. The Corporation reserves the absolute right
at its sole and exclusive discretion to insure or
otherwise provide for the obligations of the
Corporation undertaken by this Agreement or to
refrain from same, and to determine the extent,
nature, and method thereof. Should the Corporation
elect to insure this Agreement, in whole or in part,
through the medium of life insurance or annuities, or
both, the Corporation shall be the owner and
beneficiary of the policy. Notwithstanding the
foregoing, in order to pay Benefits under this
Agreement as they become payable, the Corporation may
establish a Grantor Trust (within the meaning of
Section 671 of the Internal Revenue Code of 1986) and
periodically transfer assets to such trust. At no
time shall the Executive be deemed to have any right,
title, or interest in or to any specified asset or
assets of the Corporation, including but not by way
of restriction, any insurance or annuity contract or
contracts or the proceeds therefrom or any trust
established hereunder.
Any such policy, contract or asset shall not in any
way be considered to be security for the performance
of the obligations of this Agreement. If the
Corporation purchases a life insurance or annuity
policy on the life of the
<PAGE>
Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical
examinations or tests which may be necessary, and
generally cooperate with the Corporation in securing
such policy.
All other provisions of said agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its Vice Chairman of the Board of Investment thereunto duly
authorized by its Board of Investment and has caused its Corporate seal to be
affixed and the Executive has hereunto set his hand and seal at New Bedford,
Massachusetts on this _____ day of ____________________, 19__.
COMPASS BANK FOR SAVINGS
By:_____________________
_____________________________
Witness
Title:__________________
Executive
By:_____________________
_____________________________
Witness
Title:__________________
(CORPORATE SEAL)
Exhibit 10.6
COMPASS BANK FOR SAVINGS
EXECUTIVE SALARY CONTINUATION AGREEMENT
TRUST AGREEMENT
TRUST AGREEMENT, made as of this 18th day of December, 1992, by and
COMPASS BANK FOR SAVINGS (the "Grantor") and Shawmut Bank (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Grantor has established the Compass Bank for Sayings Executive
Salary Continuation Agreement with certain key employees (the "Executives")
(hereinafter collectively referred to as the "Plan"), a copy of which is
attached hereto, and the Grantor desires to provide a vehicle through which
benefits accruing under such Plan may be paid to Executives and their
Beneficiaries under the Plan; and
WHEREAS the Trustee agrees to receive such amounts and property as may from
time to time be delivered to or deposited with it pursuant to this trust
agreement (the "Trust Agreement");
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the Grantor and the Trustee hereby agree as follows:
1. DEFINITIONS.
Terms not otherwise defined herein shall have the respective meanings
ascribed to them in the Plan.
2. FUNDING OF TRUST.
Except as noted below, the Grantor hereby establishes an irrevocable trust
(the "Trust") with the Trustee, consisting of such money or property acceptable
to the Trustee as shall from time to time be delivered to, or deposited with,
the Trustee by or at the request of the Grantor. Neither the Grantor, nor any
other person shall be bound by this Trust or by the Plan to make any
contribution hereunder. The
<PAGE>
establishment of the Trust hereunder as an irrevocable trust is contingent upon
the issuance of a favorable tax ruling by the Internal Revenue Service, provided
the application for such ruling is submitted within one year from the date the
Trust is first established.
3. ACCOUNTS.
The Trustee shall establish an account under the Trust with respect to each
Executive (the "Executive's Account") and shall allocate to each Executive's
Account such portion of Trust assets as the Grantor shall direct, as of such
date that the Grantor shall direct. In addition, the Grantor may direct that the
Trustee establish an account (the "Suspense Account") to which the Trustee shall
allocate that portion of Trust assets not allocated to the Executive's Accounts.
After the date an amount is allocated to an Executive's Account or the Suspense
Account, such account shall be maintained by the Trustee and all earnings (or
losses) on it shall inure to the benefit (or detriment) of such account. Any and
all payments to be made hereunder to an Executive by the Trustee shall be made
by the Trustee from the Executive's Account maintained in respect of such
Executive and the Executive shall have no rights against the assets of the Trust
except to the extent that such Employee has a more unsecured contractual right
against the Grantor. The Trustee shall at all times maintain separate books and
records for each of the Executive's Accounts and the Suspense Account.
4. INVESTMENTS.
(a) All assets of the Trust shall be invested and reinvested, without
distinction between principal and income, by the Trustee.
(b) All investment and reinvestment of Trust assets hereunder by the
Trustee, and the exercise by the Trustee of its powers under Section 8, shall be
made pursuant to directions by the Grantor.
(c) Grantor may appoint an Investment Manager to exercise its power to
direct the investment and reinvestment of all or any part of the Trust fund. Any
Investment Manager appointed by the Grantor shall be either (i) a
registered-investment adviser under the Investment Adviser Act of 1940, (ii) a
bank, as
2
<PAGE>
defined in that Act, or (iii) an insurance company qualified to perform
investment management services under the laws of more than one state. If
investment of the Trust fund is to be directed in whole or in part by an
Investment Manager, the Grantor shall deliver to the Trustee copies of the
instruments appointing the Investment Manager and evidencing the Investment
Manager's acceptance of such appointment and, if appropriate, a certificate
evidencing the Investment Manager's current registration under the Investment
Advisers Act of 1940, and the Grantor shall, by written notice, direct the
segregation of such portion of the Trust Fund as is to be invested at the
direction of such Investment Manager. Each Investment Manager may issue orders
for the purchase or sale of securities directly to a broker or dealer. Written
notification of the issuance of each such order shall be given promptly to the
Trustee by the Investment Manager, and the execution of each such order shall be
confirmed by written advice to the Trustee by the broker or dealer. Such
notification shall constitute a direction by the Investment Manager to, and be
authority for, the Trustee to pay for securities purchased against receipt
thereof or to deliver securities sold against payment therefore, as the case may
be.
(d) The foregoing notwithstanding, in the event that cash is required by
the Trustee to effect an action or distribution under this Trust, or to pay any
expenses of this Trust, or for any other reason deemed sufficient by the Trustee
consistent with any outstanding obligations of the Trust, the Trustee shall take
such action as to the sale or other disposition of assets forming a part of the
Trust as will provide the amount of cash necessary for such payments.
(e) The Trustee shall be fully protected in acting pursuant to the
directions under this section of the Grantor or Investment Manager and shall
have no duty to inquire into the directions or to review investments made
pursuant to such directions. The Grantor shall indemnity the Trustee with
respect to any liability, attorney's fees, costs, and expenses which the Trustee
may incur on account of following such directions. The Trustee shall have no
duty to act in the absence of such directions.
3
<PAGE>
5. DISTRIBUTIONS FROM TRUST.
(a) Subject to Section 14 hereof and as directed by the Grantor, the
Trustee shall make distributions of Trust assets to the Executives (and/or their
respective Beneficiaries) to pay benefits under the Plan at the time and in the
amount payment of benefits is provided for under the Plan, as determined by the
Grantor or a qualified independent actuary selected by the Grantor. The Trustee
shall not be entitled to withhold or offset against such payments by reason of
any defense or claim that the Grantor may otherwise have with respect thereto.
(b) The Grantor agrees to notify promptly the Trustee of the death of any
such Executive or his Beneficiary.
(c) If an Executive (or his Beneficiary) makes a claim for payment of
amounts allegedly due under the Plan, upon notification by the Grantor of the
amount of the benefit, the Trustee is authorized to commence making such
payments after the expiration of 30 days from the day the Trustee notifies the
Grantor of its intention to do so, and for this purpose may rely on information
furnished pursuant to Section 5(b) and any more recent information furnished by
the Grantor. In responding to any such notice, the Grantor's only defenses to
such claim shall be that (i) such amounts are not due under the terms of the
Plan or (ii) such amounts have been previously paid by the Grantor (whether out
of the Trust fund or otherwise).
(d) In connection with any payment to be made under the Trust, the Trustee
shall withhold and remit to the Internal Revenue Service or the appropriate
state or local authority, for the Grantor's account, all federal, state and
local income taxes required to be withheld therefrom.
(e) The amount payable hereunder with respect to an Executive shall not
exceed the lesser of (i) the benefit currently payable with respect to the
Executive under the Plan, reduced by any amount of such benefit paid directly by
the Grantor or (ii) the amount in the Executive's Account maintained with
respect to the Executive, as determined by the Grantor.
4
<PAGE>
(f) The Trustee shall be fully protected in making distributions as
directed by the Grantor and shall have no duty to inquire into the
appropriateness or application of such distributions.
6. REALLOCATION OF TRUST ASSETS.
If as of any date the Grantor determines that the amount in the
Executive's Account maintained with respect to an Executive exceeds the amount
credited to the accounts under the Plan with respect to that Executive, the
excess may be reallocated to other Executive's Accounts or to the Suspense
Account, as directed by the Plan Administrator.
7. NO SECURITY INTEREST.
Except as provided in Section 14(c), neither the Grantor nor the Trustee
shall have any power to create a security interest in the assets of the Trust in
favor of any Executive or his Beneficiary or any creditor of the Grantor.
Nothing contained herein or in the Plan shall operate to create a security
interest in any part of the assets of the Trust on behalf of any Executive or
his Beneficiary.
8. POWERS OF THE TRUSTEE; ACTION BY THE TRUSTEE.
(a) Powers with Respect to Investments. In addition to and not by way of
limitation of any other powers conferred upon trustees by law or conferred upon
the Trustee by the terms of this Trust Agreement, the Trustee is authorized and
empowered subject to the directions of the Grantor or Investment Manager as
provided in Section 4 herein above.
(i) to retain any property as an investment without regard to
the proportion which such property of a similar character so held may
bear to the entire amount of the Trust estate, and whether or not such
property is of the class in which trustees are authorized by law or any
rule of court to invest trust funds.
(ii) to sell, exchange, convey, transfer or dispose of any
property, whether real or personal, at any time held by it, at either
public or private sale, for cash or on credit, and also to grant
options with respect to any such property.
5
<PAGE>
(iii) to invest and reinvest in property of any character,
real or personal, foreign or domestic, including, without limitation,
bonds, notes debenture, mortgages, common and preferred stocks, shares
or interests in investment trusts participation in any common trust
fund maintained by the Trustee and lie insurance policies on the life
or lives of one or more Executives, without regard to the proportion
which such property or property of a similar character so held may bear
to the entire amount of the Trust estate, and whether or note such
property is of the class in which trustees are authorized by law or any
rule of court to invest trust funds.
(iv) to consent to and participate in, and to oppose, any
foreclosure, liquidation or plan of reorganization, consolidation,
merger, combination or other similar plan and to consent to any
contract, lease, mortgage, purchase, sale or other action by any
corporation pursuant to such plan.
(v) to deposit any such property with any protective,
reorganization or similar committee, to delegate discretionary power
thereto and to pay part of any such committee's expenses and
compensation and any assessments levied with respect to such property.
(vi) to exercise all conversion, subscription, voting and
other rights of any nature pertaining to any such property and to grant
proxies, discretionary or otherwise, with respect.
(b) Administrative Powers. In addition to and not by way of limitation of
any other powers conferred upon trustees by law or conferred upon the Trustee by
the terms of this Trust Agreement, the Trustee is authorized and empowered:
(i) to cause any investments from time to time held by ft to
be registered in, or transferred into, its name as Trustee or the name
of a nominee or nominees, or to retain them unregistered or in form
permitting transferability by delivery, but the books and records of
the Trustee shall at all times show that all such investments are part
of the Trust and the liability of the Trustee shall be neither
increased nor decreased thereby;
6
<PAGE>
(ii) to apply any property vesting in an infant, including
income, to the maintenance and education of such infant or to pay or
deliver the same to such infant or to a guardian or parent of such
infant or to a person with whom such infant resides and the receipt
thereof by any such infant, guardian, parent or person shall be a full
discharge for all property so applied;
(iii) to make, execute, acknowledge, and deliver any and all
instruments required in connection with any transaction it enters into
pursuant to the provisions hereof;
(iv) to do all acts, whether or not expressly authorized
hereby, which it may deem necessary or proper for the protection of the
property held hereunder;
(v) to employ agents, accountants and counsel, and rely upon
information and advice furnished by them;
(vi) to file any and all tax returns with respect to the
Trust, to pay any and all tax liabilities, and to satisfy any and all
tax reporting and withholding requirements with respect to the Trust as
may be prescribed from time to time by law; and
(vii) the Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law unless expressly provided
otherwise herein, provided, however, that if an insurance policy on the
life of an Executive is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Trustee shall be paid such compensation for its services as from time
to time shall be agreed to by the Grantor and the Trustee. The Trustee shall be
paid by advancement or reimbursement for all expenses reasonably incurred by the
Trustee including, without limitation, the fees of legal counsel employed by the
Trustee. All compensation and expenses of the Trust shall be paid by the
Grantor. If the
7
<PAGE>
Grantor does not pay such compensation and expenses the Trustee may pay them
from the Trust assets; provided, that Grantor shall, in such event, be required
to reimburse the Trust for the amount of such payment.
10. LIABILITY OF TRUSTEE: INDEMNIFICATION.
(a) The Trustee shall act With the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant to a
direction, request or approval given by the Grantor or any Executive
contemplated by and complying with the terms of this Trust Agreement, and to
that extent shall be relieved of the prudent man rule for investments.
(b) The Trustee shall not be required to undertake or to defend any
litigation arising in connection with this Trust Agreement, unless it be first
indemnified by the Grantor against its prospective costs, expenses and
liability, and the Grantor hereby agrees to indemnity Trustee for such costs,
expenses, and liability.
11. REMOVAL OR RESIGNATION OF TRUSTEE.
The Grantor may remove the Trustee by giving the Trustee no less than 30
days' notice in writing to that effect. The Trustee may resign at any time by
giving the Grantor not less than 30 days' notice in writing unless the Grantor
accepts a lesser period of notice. In the event of the removal or resignation of
the Trustee, the Grantor shall appoint a successor Trustee.
12. IRREVOCABILITY; AMENDMENT OF TRUST.
This Trust Agreement and the Trust created hereunder shall be
irrevocable. The Grantor may amend this Trust in any respect; provided, that R
may not amend the Trust without the consent of each Executive and each
Beneficiary of a deceased Executive if the effect of such amendment would be to
permit (i) the revocation of the Trust with respect to such Executive or
Beneficiary, (ii) the use of Trust assets for
8
<PAGE>
any purpose other than the exclusive benefit of such Executive or Beneficiary,
or (iii) the reduction of the amount allocated to an Executive's Account
maintained with respect to such Executive or such Beneficiary; and provided, the
Grantor may not amend the Trust in a way that affects the Trustee's duties
hereunder without its consent.
13. WAIVER OF BOND.
No bond or other security for the faithful performance of duty shall be
required of any Trustee at any time acting hereunder.
14. NON-ASSIGNABILITY.
(a) Subject to the further provisions of this Section 14, no rights or
payments under this Trust Agreement shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, whether voluntary or involuntary, and no attempt so to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
valid, nor shall any such benefit or payment be in any way liable for or subject
to the debts, contracts, liabilities, engagements or torts of any person
entitled to such benefit or payment or subject to levy, garnishment, attachment,
execution or other legal or equitable process.
(b) The chief executive officer or the board of directors of the Grantor
shall promptly notify or cause to be notified the Trustee if at any time the
Grantor becomes: (1) insolvent; (2) is named as debtor in a pending proceeding
under the United States Bankruptcy Code; or (3) is subject to enforcement
proceedings by the Federal Deposit Insurance Corporation, Office of Thrift
Supervision, or applicable state regulatory agency which would result in the
assumption of legal authority over the operations of the Grantor due to its
current or anticipated financial insolvency. For purposes of this Section 14,
the Grantor will be deemed "insolvent" if at any it is unable to pay its debts
and meet its expected obligations as they mature or become due.
9
<PAGE>
(c) The Trust shall be subject to the claims of the general creditors of
the Grantor in accordance with the provisions of this Section 14(c). If at any
time the Trustee shall receive notice pursuant to Section 14(b) hereof, or if at
any time the Trustee shall by any other means become aware, that the Grantor is
subject to the proceedings described in Section 14(b), the Trustee shall refrain
from making any distributions pursuant to Section 5 hereof and shall hold the
Trust assets for the benefit of the Grantor's general creditors (including
without limitation, the Executive or his Beneficiary) and shall deliver Trust
assets to satisfy such claims in the manner and to the extent that a court of
competent jurisdiction may direct. The Trustee may employ legal counsel,
accountants and/or other specialists to determine whether the Grantor is
insolvent and shall be fully protected in relying upon its determination as to
insolvency. Unless the Trustee has actual knowledge, the Trustee shall have no
duty to inquire whether the Grantor is subject to the proceedings described in
Section 14(b). If the Grantor, or a person claiming to be a creditor of the
Grantor, alleges in writing to the Trustee that the Grantor has become
insolvent, or is subject to the proceedings described in Section 14(b), the
Trustee shall independently determine, within 30 days after receipt of such
notice, whether such condition exists, and pending such determination the
Trustee shall refrain from making any distributions pursuant to Section 5
hereof. The Trustee shall resume making distributions pursuant to Section 5
hereof only after the Trustee has determined that the conditions described in
Section 14(b) does not exist or no longer exists. If the Trustee discontinues
distributions and subsequently resumes such distributions, the first
distribution following such discontinuance shall include the aggregate amount of
all distributions which would have been made to the Executive during the period
of such discontinuances (plus 7% simple interest on suspended distributions)
less the aggregate amount of distributions, if any, made by the Grantor during
such period of discontinuance. If the Trustee determines that the Grantor is
actually insolvent following the 30 day independent determination, the Trustee
shall use the assets in the Trust as directed by a court of proper jurisdiction
to satisfy the claims of the Grantor's general creditors.
10
<PAGE>
15. NO DIVERSION OF TRUST FUND: TERMINATION OF TRUST.
(a) Subject to Sections 5(d) and 14(c) hereof, and the provisions of
Section 15(c) providing for certain distributions to the Grantor, no part of the
trust fund shall be used for or diverted to purposes other than for the
exclusive benefit of the Executives and their Beneficiaries.
(b) This Trust shall terminate upon the earlier of (i) one month after the
latest of the date of payment of all assets allocated to Executives' Accounts
hereunder, or (ii) the expiration of 21 years following the death of the last to
die of the Executives now living.
(c) The Trustee may pay to the Grantor from the Trust assets (i) as of the
termination of the Trust, any amount remaining in the Trust after satisfaction
of all liabilities of the Trust hereunder or (ii) as of any date, the amount by
which the total amount of Trust assets in all Accounts of Executives exceeds the
present value (based on the actuarial equivalent factors in the Grantor's
pension plan) of the total amount which would be credited to such Accounts
established under the Plan with respect to all Executives hereunder as of such
date, as determined by the actuary for the Grantor's pension plan.
16. FAILURE OF TRUST, ETC.
If the Trust Agreement or the Trust created hereunder shall fail for any
reason, either at its inception or at any time thereafter, to qualify as a valid
and effective trust under the laws of the State of Massachusetts or the
applicable laws of any other jurisdiction, or it a payment to or in respect to
the Executive otherwise required under this Trust Agreement cannot be made by
the Trustee for any reason, the Grantor shall pay to the Executive or his
Beneficiary such amounts as would have been due to the Executive or his
Beneficiary under this Trust Agreement if this Trust Agreement or Trust had not
failed or such payment could have been made.
17. RELIANCE ON TRUSTEE AS OWNER.
No person dealing with the Trustee shall be required to take any notice of
this Trust, but all persons so dealing shall be protected in treating the
Trustee as the absolute owner with full power of
11
<PAGE>
disposition of all the monies and other property of the Trust, and all persons
dealing with the Trustee are released from inquiry into the decision of
authority of the Trustee and from seeing to the application of monies or other
property paid or delivered to the Trustee.
18. RECORDS AND ACCOUNTING.
The Trustee shall keep accurate and detailed records of its transactions
hereunder and all its accounts, books and records relating thereto shall be open
at all reasonable times to the inspection of the Grantor or its authorized
representatives. The Trustee shall render in writing, at least once in each 12
month period, accounts of its transaction under this Trust to the Grantor and
the Grantor may approve such accounts of the Trustee by an instrument in writing
delivered to the Trustee. In the absence of the filing in writing with the
Trustee by the Grantor of exceptions or objections to any such account within 60
days after the receipt by the Grantor of any such account, the Grantor shall be
deemed to have approved the information contained in such account; and in such
case, or upon the written approval of the Grantor of any such account, the
Trustee shall be released, relieved and discharged with respect to all matters
and things set forth in such account to the extent permitted by applicable law.
Except as may otherwise be required by applicable Federal law, no person
interested in the Trust or otherwise, other than the Grantor may require an
accounting or bring any action against the Trustee for an accounting of Trust
transactions. The Trustee, from time to time, shall make such other reports and
furnish in writing such other information concerning the Trust as the Grantor or
the Grantor reasonably may request or as may be required by applicable Federal
law.
19. GRANTOR TRUST.
The Trust hereby created has been established to pay the obligations of
the Grantor and is subject to the rights of the general creditors of the Grantor
in accordance with the provisions of Section 14(c). It is intended that this
Trust be a grantor trust within the meaning of sections 671 through 677 of the
Internal Revenue Code. The Grantor agrees to (i) report all items of income,
deduction and credit of the
12
<PAGE>
Trust on its own income tax returns and (ii) pay all tax liabilities (other than
income tax withholding pursuant to Section 5(d) associated with the Trust from
assets other than those represented by the Executive's Accounts (and in the
event that the Trustee pays any such liability, the Grantor shall promptly
reimburse the Trustee therefore).
20. NOTICES.
Any notice required or permitted to be given hereunder shall be in writing
and shall be personally delivered or sent by certified mail, return receipt
requested, to the party entitled to receive the same at the address of record
(or at such other address as such party may hereafter designate to the other
party to this Trust Agreement by notice as provided herein). Notices hereunder
shall be deemed to have been duly given when personally delivered to the party
entitled to receive the same or, in case of notice by certified mail, as of the
date of such certification.
21. GOVERNING LAW.
The Trust created herein shall be a Massachusetts trust and shall be
administered in accordance with the laws of The Commonwealth of Massachusetts,
and this Trust Agreement shall be construed, and the validity and effect of its
provisions shall be determined, in accordance with such law.
22. MISCELLANEOUS.
(a) This Trust Agreement shall inure to the benefit of the Grantor and
shall constitute a binding obligation of the Grantor and the Trustee.
(b) Notwithstanding the creation of this Trust and any provision contained
in this Trust Agreement, the benefits under the Plan shall be a general
obligation of the Grantor. Payment of benefits from the Trust shall, only to
that extent, discharge the Grantor's obligations under the Plan. All payments
provided for under the Plan not so discharged shall be paid in cash from the
general assets of the Grantor.
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<PAGE>
(c) If any provision of this Trust Agreement is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provisions hereof, and this Trust Agreement shall be construed and enforced as
if such provision had not been included herein.
(d) The captions contained herein are inserted only as a matter of
convenience and for reference and in no way define, limit, enlarge or describe
the scope or intent of this Trust Agreement nor shall they in any way affect the
Trust Agreement or the construction of any provision thereof.
(e) Nothing contained in the Trust shall be construed as a contract of
employment between the Grantor and any Executive, or as a right of any
Executive's employment to be continued with the Grantor, or a limitation on the
right of the Grantor, to deal with any Executive, as to his hiring, discharge,
layoff, compensation and all other conditions of employment in all respects as
though this Trust did not exist.
(f) The term "Grantor" shall include any successor Employer of the
Executives whose benefits under the Plan are provided through the Trust. Such
successor Employer shall be considered the Grantor as of the date the Executives
are employed with the successor Grantor, provided that the Trustee is notified
of the successor Grantor by delivery of a certified Board of Directors'
resolution of the Grantor, or the successor Grantor, evidencing the status of
the successor Grantor hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement
as of the date first above written.
/s/ Shawmut Bank NA COMPASS BANK FOR SAVINGS,
_________________________ The Grantor
The Trustee Arthur W. Short
By: /s/ Arthur W. Short
________________________________
By: /s/ [signed] (Authorized Officer of Grantor)
____________
Title: Vice President Title: Senior Vice President/Treasurer
__________________ _______________________________
Witness: /s/ [signed] Witness: /s/ Marilyn H. Parkinson
________________ _____________________________
COMMONWEALTH OF MASSACHUSETTS
(CORPORATE SEAL) Bristol, ss Dec. 16, 1992
Personally appeared before
me Arthur W. Short and made
oath that the above, by him
subscribed, is true.
Before me,
/s/ Marilyn H. Parkinson
Marilyn H. Parkinson
Notary Public
My commission expires 8/16/96
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<PAGE>
[LETTERHEAD OF SHAWMUT BANK, N.A.]
APPENDIX B
Shawmut Bank, N.A.
Institutional Services Department
One Federal Street, OF-0414
Boston, MA 02211
RE: A/C 07 920 0048210/20/30/40/50/60/70
To Whom It May Concern:
You presently have available several cash management vehicles for the automatic
investment and divestment of cash in the above account(s).
Until otherwise directed, I, (we) hereby authorize you to use Fidelity
Institutional Tax Exempt Fund as the Cash Management vehicle for the above
accounts(s).
/s/ [signed] December 18, 1992
________________________________ ______________________________
Authorized Signature Date
Exhibit 10.7
[LOGO
OF COMPASS BANK
COMPASS]
INCENTIVE PLAN
October, 1995
<PAGE>
I. INTENT
This plan is intended to improve the operating performance of
CompassBank by making available incentive pay for all
employees based on bankwide and team results.
II. EFFECTIVE DATE
This plan is an annual plan commencing on November 1, 1995 and
supersedes all previous programs; it will continue
indefinitely at the sole discretion of CompassBank. The
program represents a bank policy and is not an employment
contract; CompassBank retains the right to modify, amend or
terminate this program at any time at its discretion.
III. PARTICIPANTS AND INCENTIVE TARGETS
All employees of the Bank, both full and part-time, and who
have been employed on or before November 1, 1995 are eligible
to participate in this plan. Each position has a Target
Incentive Award which represents the amount to be paid if all
incentive goals are met. The actual percentage for each
position is determined by the level of the position within the
organization, as outlined below.
<TABLE>
<CAPTION>
Category Positions in Category Target Incentive
<S> <C> <C>
A. CEO 20%
B. Division Heads 18%
C. EVP's, SVP's 15%
D. VP'S 13%
E. Other VP's & Regional Branch Mgrs. 10%
F. Other Officers and Branch Mgrs. 8%
G. Exempt Non Officer 6%
F. All Other Staff 4%
</TABLE>
All participants are assigned to a Team, depending on the Division/Dept in
which they work. The Teams Are:
Executive
Retail
Lending
Finance
Marketing & Corporate Services
More team units may be established based on similarity of work and ability
of team members to influence targeted results.
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<PAGE>
Each year as part of the strategic planning process, Teams are formed and
Team objectives or Deliverables are established, based on the operating
plan for the coming year. Each deliverable is weighted based on its
priority so that all deliverables equal 100%.
Team Deliverables are recommended by the Team and presented at a meeting of
Department Heads for discussion. The Team Leader then submits the Team
Plans to the three Division Heads. The Division Heads will review and make
recommendations to the President, who will make the final decisions. The
Deliverables for Categories A and B will also be reviewed and approved by
the Board of Directors.
V. MEASURING TEAM PERFORMANCE
Each deliverable is assigned a weight so that the sum of the deliverables
equals 100%.
At the end of the year, actual performance for each Deliverable is
calculated as a percentage of the Deliverable Target.
The Percent Achieved is multiplied times the Weight to produce the
Deliverable Contribution.
The Deliverable Contributions are summed to produce the Team Performance
Score.
This team Performance Score is then used to calculate individual awards.
Form I (on the following page) is a sample Team Plan used for documenting
the Deliverables, the Targets and the actual Team Performance Score.
2
<PAGE>
TEAM DELIVERABLES AND PERFORMANCE MEASUREMENT
________________________________________________________________________________
THIS IS: ____________ ______________ ___________________________
NAME OF TEAM
________________________ ______________ _________________ ____________
APPROVED DATE APPROVED DATE
________________________________________________________________________________
DELIVERABLES____________________DESCRIPTION_________________TARGET______ACHIEVED
I
________________________________________________________________________________
II
________________________________________________________________________________
III
________________________________________________________________________________
IV
________________________________________________________________________________
V
________________________________________________________________________________
PERFORMANCE CALCULATION
PERCENT ACHIEVED X WEIGHT = CONTRIBUTION
DELIVERABLE I ____________________ ____________ __________________
DELIVERABLE II ____________________ ____________ __________________
DELIVERABLE III ____________________ ____________ __________________
DELIVERABLE IV ____________________ ____________ __________________
DELIVERABLE V ____________________ ____________ __________________
DELIVERABLE VI ____________________ ____________ __________________
TEAM PERFORMANCE SCORE __________________
3
<PAGE>
VI. CALCULATING TEAM INCENTIVE FACTORS
Team target Incentive amounts will be decreased or increased
according to the level of achievement in the Team Performance
Score based on the schedule below.
<TABLE>
<CAPTION>
Percent of Percent
Deliverables of Target
Achieved Earned
-------- ------
<S> <C>
less than & 70% 0%
70 - 79% 50%
80 - 89% 70%
90 - 99% 85%
100 - 109% 100%
110 - 119% 105%
120 - 129% 110%
130% + 120%
</TABLE>
All calculations will be rounded to the nearest one percent.
Individual Team members must have a performance score on
record of Competent or better to be eligible to receive an
award.
VII. CALCULATING BANK PERFORMANCE FACTOR
This Plan is funded through earnings of the Bank. For 1995,
earnings are measured by Net Profit Return on Equity which is
defined as the Bank's net profit stated as a percentage of
average surplus outstanding exclusive of FAS 115 adjustments
to capital and current year bonus accruals. Funds will accrue
to the Bonus Pool based on the schedule below. At the end of
the year, the total of the Target Incentives for all
participants will be calculated and this figure will be
compared to the total of the Bonus Pool. If the Bonus Pool is
larger than the Target Incentives, all Target Incentives will
be increased proportionately; if it is smaller, all will be
reduced proportionately.
4
<PAGE>
INDIVIDUAL INCENTIVE CALCULATION
NAME____________________________________________DATE____________________________
APPROVED___________________________________________APPROVED_____________________
________________________________________________________________________________
SUMMARY OF PERFORMANCE RESULTS
________________________________________________________________________________
ADJUSTMENT
PERCENTAGE
TEAM PERFORMANCE SCORE _________________ = ___________________
BANKWIDE ADJUSTMENT FACTOR BASED = ___________________
ON PROFITABILITY
________________________________________________________________________________
CALCULATION OF INCENTIVE AWARD
________________________________________________________________________________
SALARY AT:
_________________________________________________________ __________________
BEGINNING TARGET INCENTIVE AS % A OF SALARY ____________ ________________
+/- BANK PERFORMANCE FACTOR _______________ _________________
TOTAL _____________ ____________
+/- ADJUSTMENT FOR TEAM INCENTIVE PERFORMANCE _______________ _____________
TOTAL _____________ ____________
FINAL AWARD __________________
5
<PAGE>
<TABLE>
<CAPTION>
Return on Equity Bank Performance Factor
---------------- -----------------------
<S> <C>
less than 7% 0%
7 - 8% 40%
8 - 9% 70%
9 - 10% 85%
10 - 11% 100%
11 - 12% 110%
12 - 13% 120%
13 - 14% 130%
14% + 140%
</TABLE>
Each year, the definition of earnings will be reviewed, and if
appropriate, revised. Form II on the following page is a
sample of calculation of an individual award.
VIII. COMMUNICATION
At the beginning of each fiscal year following the annual
planning sessions, the five teams will present proposed annual
goals for review. Once approved, they become the basis for
incentive earnings, and at regular intervals, to-date results
will be posted and distributed by Team Leaders.
At the end of the performance year, Form I and Form II will be
completed for each employee and distributed along with the
incentive award.
IX. OTHER TERMS AND CONDITIONS
A. All percentages of base salary referred to in this plan are
defined as percent of base salary in effect as of the last
day of the plan year.
B. All calculations will be prepared in November/December,
1996 and appropriate disbursements if applicable will be
made by December 31, 1996.
C. Award calculations will be based on each employee's
position assignment as of 10/31/96 regardless of other
assignments held during the year.
D. Partial year awards will be calculated on a pro-rata basis
for new hires.
E. Awards to part-time employees will be prorated based on the
average number of actual hours worked from 11/1 through
10/31.
F. Individuals must be employees in good standing and in
eligible positions at the time awards are paid in order to
be eligible to receive an award; however, pro-rata shares
will be awarded to employees who have been or are on
inactive status during the year provided the inactive time
does not exceed 12 weeks.
6
<PAGE>
H. Once established and approved by the Board of Directors,
deliverables and targets will not be changed for the Plan
year. However, if extraordinary, unforeseeable, and
unplanned circumstances occur that will substantially alter
achievements under this plan (positive or negative), the
Board of Directors, as its discretion, may change
deliverables, targets, or any other provisions of this
Plan.
X. IMPACT ON BENEFIT PLANS
All earnings received under the provisions of this plan
will be excluded from the calculation of any benefits that
are a function of cash compensation expect for the
calculation of gross earnings for pension purposes.
7
EXHIBIT 10.8
AMENDED AND RESTATED
AFFILIATION AND MERGER AGREEMENT
AMONG
THE 1855 BANCORP
COMPASS BANK FOR SAVINGS
AND
SANDWICH BANCORP, INC.
THE SANDWICH CO-OPERATIVE BANK
MARCH 23, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
CERTAIN DEFINITIONS
<S> <C>
1.1 CERTAIN DEFINITIONS.......................................... 1
ARTICLE II
THE MERGER
2.1 THE MERGER................................................... 5
2.2 EFFECTIVE TIME............................................... 5
2.3 CHARTER AND BY-LAWS.......................................... 5
2.4 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.............. 6
2.5 DIRECTORS OF 1855 BANCORP AND COMPASS BANK................... 6
2.6 ADDITIONAL ACTIONS........................................... 6
2.7 EFFECTS OF THE MERGER........................................ 6
2.9 POSSIBLE ALTERNATIVE STRUCTURES.............................. 6
ARTICLE III
CONVERSION OF SHARES
3.1 MERGER CONSIDERATION......................................... 7
3.2 EMPLOYEE STOCK OPTIONS....................................... 8
3.3 DISSENTING SHARES............................................ 8
3.4 PROCEDURES FOR EXCHANGE OF SANDWICH COMMON STOCK............. 9
3.5 RESERVATION OF SHARES........................................ 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
4.1 CAPITAL STRUCTURE............................................ 11
4.2 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH............. 12
4.3 OWNERSHIP OF SANDWICH SUBSIDIARIES........................... 12
4.4 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH SUBSIDIAR... 12
4.5 AUTHORIZED AND EFFECTIVE AGREEMENT........................... 12
4.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS.................. 14
4.7 FINANCIAL STATEMENTS......................................... 14
4.8 MATERIAL ADVERSE CHANGE...................................... 15
4.9 ENVIRONMENTAL MATTERS........................................ 15
4.10 TAX MATTERS.................................................. 15
4.11 LEGAL PROCEEDINGS............................................ 16
4.12 COMPLIANCE WITH LAWS......................................... 16
4.13 CERTAIN INFORMATION.......................................... 17
4.14 EMPLOYEE BENEFIT PLANS....................................... 17
4.15 CERTAIN CONTRACTS............................................ 18
4.16 BROKERS AND FINDERS.......................................... 19
4.17 INSURANCE.................................................... 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.18 LOAN PORTFOLIO............................................... 20
4.19 PROPERTIES................................................... 20
4.20 LABOR........................................................ 20
4.21 REQUIRED VOTE; INAPPLICABILITY OF ANTITAKOVER STATUTES....... 20
4.22 MATERIAL INTERESTS OF CERTAIN PERSONS........................ 21
4.23 CERTAIN TRANSACTIONS......................................... 21
4.24 DISCLOSURES.................................................. 21
4.27 POOLING OF INTERESTS......................................... 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
5.1 CAPITAL STRUCTURE............................................ 22
5.2 ORGANIZATION, STANDING AND AUTHORITY OF 1855 BANCORP......... 22
5.3 OWNERSHIP OF THE 1855 BANCORP SUBSIDIARIES................... 22
5.4 ORGANIZATION, STANDING AND AUTHORITY OF THE 1855 BANCORP
SUBSIDIARIES................................................. 23
5.5 AUTHORIZED AND EFFECTIVE AGREEMENT........................... 23
5.6 REGULATORY REPORTS........................................... 24
5.7 FINANCIAL STATEMENTS......................................... 24
5.8 MATERIAL ADVERSE CGE......................................... 25
5.9 ENVIRONMENTAL MATTERS........................................ 25
5.10 TAX MATTERS.................................................. 26
5.11 LEGAL PROCEEDINGS............................................ 26
5.12 COMPLIANCE WITH LAWS......................................... 26
5.13 CERTAIN INFORMATION.......................................... 27
5.14 EMPLOYEE BENEFIT PLANS....................................... 27
5.15 CERTAIN CONTRACTS............................................ 28
5.16 BROKERS AND FINDERS.......................................... 28
5.17 INSURANCE.................................................... 28
5.18 PROPERTIES................................................... 29
5.19 LABOR........................................................ 29
5.20 OWNERSHIP OF SANDWICH COMMON STOCK........................... 29
5.21 CERTAIN TRANSACTIONS......................................... 29
5.22 DISCLOSURES.................................................. 29
5.23 DISCLOSURE SCHEDULE.......................................... 30
5.24 POOLING OF INTERESTS......................................... 30
5.25 MERGER SUB................................................... 30
ARTICLE VI
COVENANTS OF SANDWICH
6.1 CONDUCT OF BUSINESS.......................................... 30
6.2 CURRENT INFORMATION.......................................... 33
6.3 ACCESS TO PROPERTIES AND RECORDS............................. 33
6.4 FINANCIAL AND OTHER STATEMENTS............................... 33
6.5 DISCLOSURE SUPPLEMENTS....................................... 34
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES...................... 34
6.7 ALL REASONABLE EFFORTS....................................... 34
</TABLE>
<PAGE>
<TABLE> <CAPTION>
<S> <C>
6.8 FAILURE TO FULFILL CONDITIONS................................ 34
6.9 NO SOLICITATION.............................................. 34
6.10 CEASE NEGOTIATIONS........................................... 35
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 CONDUCT OF BUSINESS.......................................... 35
7.2 CURRENT INFORMATION.......................................... 36
7.3 ACCESS TO PROPERTIES AND RECORDS............................. 36
7.4 FINANCIAL AND OTHER STATEMENTS............................... 36
7.5 DISCLOSURE SUPPLEMENTS....................................... 37
7.6 CONSENTS AND APPROVALS OF THIRD PARTIES...................... 37
7.7 ALL REASONABLE EFFORTS....................................... 37
7.8 FAILURE TO FULFILL CONDITIONS................................ 37
7.9 EMPLOYEE BENEFITS............................................ 37
7.10 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE......... 38
7.11 MERGER SUB................................................... 40
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 SANDWICH SPECIAL MEETING...................................... 40
8.2 PROXY STATEMENT-PROSPECTUS.................................... 40
8.3 1855 BANCORP CONVERSION FROM MUTUAL TO STOCK FORM............. 41
8.4 REGULATORY APPROVALS.......................................... 43
8.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS......... 43
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT... 43
9.2 CONDITIONS TO THE OBLIGATIONS OF 1855 BANCORP UNDER THIS
AGREEMENT..................................................... 45
9.3 CONDITIONS TO THE OBLIGATIONS OF SANDWICH UNDER THIS AGREEMENT. 46
ARTICLE X
THE CLOSING
10.1 TIME AND PLACE................................................ 47
10.2 DELIVERIES AT THE PRE-CLOSING AND THE CLOSING................. 47
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION.................................................. 47
11.2 EFFECT OF TERMINATION........................................ 49
11.4 SANDWICH CHANGE IN CONTROL EXPENSE FEE....................... 50
11.5 AMENDMENT, EXTENSION AND WAIVER.............................. 52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XII
MISCELLANEOUS
<S> <C>
12.1 CONFIDENTIALITY............................................. 53
12.2 PUBLIC ANNOUNCEMENTS........................................ 53
12.3 SURVIVAL.................................................... 53
12.4 NOTICES..................................................... 53
12.5 PARTIES IN INTEREST......................................... 54
12.6 COMPLETE AGREEMENT.......................................... 54
12.7 COUNTERPARTS................................................ 54
12.8 SEVERABILITY................................................ 55
12.9 GOVERNING LAW............................................... 55
12.10 INTERPRETATION.............................................. 55
</TABLE>
<PAGE>
AMENDED AND RESTATED AFFILIATION AND MERGER AGREEMENT
This AMENDED AND RESTATED AFFILIATION AND MERGER AGREEMENT ("Agreement"),
is dated as of March 23, 1998 by and among THE 1855 BANCORP, a Massachusetts
mutual holding company ("1855 Bancorp"), its wholly-owned subsidiary, COMPASS
BANK FOR SAVINGS, a Massachusetts savings bank ("Compass Bank"), SANDWICH
BANCORP, INC., a Massachusetts corporation and bank holding company
("Sandwich"), and its wholly-owned subsidiary, THE SANDWICH CO-OPERATIVE BANK, a
Massachusetts co-operative bank ("Sandwich Bank").
WHEREAS, the Board of Trustees of 1855 Bancorp, the Board of Directors of
Compass Bank and the Boards of Directors of Sandwich and Sandwich Bank have
determined that it is in the best interests of their respective organizations
and, with respect to Sandwich, its stockholders to consummate a business
combination transaction among the parties, and on February 2, 1998, the parties
entered into an Affiliation and Merger Agreement (the "Original Agreement")
providing for the merger (the "Merger") of Sandwich with a newly-formed special-
purpose subsidiary ("Merger Sub") of 1855 Bancorp, with Sandwich as the
surviving corporation of the Merger;
WHEREAS, following the date of the Original Agreement, the parties
determined that it was necessary to make certain amendments to the Original
Agreement in order to consummate the Merger, including changes in the amount and
nature of the consideration to be paid to the stockholders of Sandwich;
WHEREAS, as a condition and inducement to the 1855 Bancorp's willingness to
enter into this Agreement, (i) Sandwich is concurrently entering into a Stock
Option Agreement with 1855 Bancorp (the "Sandwich Option Agreement"), in the
form attached hereto as Exhibit A, pursuant to which Sandwich is granting to
1855 Bancorp the option to purchase shares of Sandwich Common Stock (as defined
herein) under certain circumstances and (ii) 1855 Bancorp and certain of the
directors of Sandwich and Sandwich Bank are entering into voting agreements in
the form attached hereto as Exhibit B;
WHEREAS, after consummation of the Merger, it is anticipated that Sandwich
Bank will be merged with and into Compass Bank (the "Bank Merger");
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, and of other good and valuable
consideration, the receipt and suffi ciency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following meanings (unless the context otherwise requires, both here
and throughout this Agreement, refer ences to Articles and Sections refer to
Articles and Sections of this Agreement).
"Bank Commissioner" shall mean the Commissioner of Banks of the
Commonwealth of Massachusetts.
<PAGE>
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"BIF" means the Bank Insurance Fund administered by the FDIC or any
successor thereto.
"Certificate" shall have the meaning set forth in Section 34 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Compass Bank for Savings" shall mean Compass Bank, a Massachusetts-
chartered savings bank and a wholly-owned subsidiary of 1855 Bancorp.
"Conversion" shall mean the conversion from mutual to stock form of the
1855 Bancorp.
"Conversion Prospectus" shall have the meaning set forth in Section 8.3.3.
"Depositors Insurance Fund" shall mean the Depositors Insurance Fund of the
Mutual Savings Central Fund, Inc.
"Disclosure Schedule" shall mean a written, signed disclosure schedule
delivered from the disclosing party to the other party specifically referring to
the appropriate section of this Agreement and describing in reasonable detail
the matters contained therein.
"Dissenting Shares" shall have the meaning set forth in Section 3.3 hereof.
"DOJ" shall mean the United States Department of Justice.
"Effective Date" shall mean the date on which the Effective Time occurs.
"Effective Time" shall mean the date and time specified pursuant to Section
2.2 hereof as the effective time of the Merger.
"Environmental Claim" means any written notice from any Governmental Entity
or third party alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on, or resulting from the presence, or
release into the environment, of any Materials of Environmental Concern.
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
(S)9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. (S)6901, et seq; the Clean Air Act, as amended, 42 U.S.C. (S)7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S)1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. (S)9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (S)1101, et
seq; the Safe Drinking Water Act, 42 U.S.C. (S)300f, et seq; and all comparable
state and local laws, and (2) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened
2
<PAGE>
as a result of, the presence of or exposure to any Materials of Environmental
Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 3.4.1.
"Exchange Ratio" shall have the meaning set forth in Section 3.1.1.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FHLB" shall mean Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"Governmental Entity" shall mean any federal or state court, administrative
agency or commission or other governmental authority or instrumentality.
"MBCL" shall mean the Massachusetts Business Corporation Law, as amended.
"MHPF" shall mean the Massachusetts Housing Partnership Fund.
"Massachusetts Board" shall mean the Massachusetts Board of Bank
Incorporation.
"Material Adverse Effect" shall mean, with respect to the 1855 Bancorp or
Sandwich, respectively, any effect that (i) is material and adverse to the
financial condition, results of operations or business of 1855 Bancorp and its
Subsidiaries taken as a whole or Sandwich and its Subsidiaries taken as a whole,
respectively, or (ii) materially impairs the ability of either Sandwich, on the
one hand, or 1855 Bancorp, on the other hand, to consummate the transactions
contemplated by this Agreement; provided that "Material Adverse Effect" shall
not be deemed to include the impact of (a) changes in laws and regulations
particularly affecting banks, (b) changes in GAAP or regulatory accounting
principles generally applicable to financial institutions and their holding
companies, (c) actions and omissions of a party (or any of its Subsidiaries)
taken with the prior written consent of the other party, (d) changes in interest
rates, and (e) the direct effects of compliance with this Agreement on the
operating performance of the parties including expenses incurred by the parties
hereto in consummating the transactions contemplated by this Agreement,
including without limitation the expenses associated with the termination of any
of the Sandwich Employee Plans as and to the extent contemplated herein.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products, and any other
materials regulated under Environmental Laws.
"Merger" shall mean the merger of Merger Sub with and into Sandwich
pursuant to the terms hereof.
"Merger Consideration" shall have the meaning set forth in Section 3.1
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
3
<PAGE>
"Previously Disclosed" shall mean disclosed in a Disclosure Schedule dated
on or prior to the date hereof.
"Pre-Closing" shall have the meaning set forth in Section 101 hereof.
"Pre-Closing Date" shall be the date on which the Pre-Closing occurs.
"Proxy Statement-Prospectus" shall mean the proxy statement/prospectus, as
amended or supplemented, to be delivered to shareholders of Sandwich in
connection with the solicitation of their approval of this Agreement and the
transactions contemplated hereby and the offering of the 1855 Common Stock to
them as Merger Consideration.
"Rights" shall mean warrants, options, rights, convertible securities,
stock appreciation rights and other arrangements or commitments which obligate
an entity to issue or dispose of any of its capital stock or other ownership
interests or which provide for compensation based on the equity appreciation of
its capital stock.
"SAIF" means the Savings Association Insurance Fund administered by the
FDIC or any successor thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Sandwich Bank" shall mean Sandwich Co-operative Bank, a Massachusetts-
chartered co-operative bank and a wholly-owned subsidiary of Sandwich.
"Sandwich Common Stock" shall mean the common stock, par value $1.00 per
share, of Sandwich.
"Sandwich Employee Plans" shall have the meaning set forth in Section
4.14.1 hereof.
"Sandwich Financial Statements" shall mean the audited consolidated balance
sheets (including related notes and schedules, if any) of Sandwich or Sandwich
Bank, as the case may be, as of December 31, 1997, 1996 and 1995 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows (including related notes and schedules, if any) of Sandwich or Sandwich
Bank, as the case may be, for each of the three years ended December 31, 1997,
1996 and 1995 as filed by Sandwich or Sandwich Bank, as the case may be, in its
Securities Documents.
"Sandwich Options" shall mean options to purchase shares of Sandwich Common
Stock granted pursuant to the Sandwich Option Plans or as otherwise Previously
Disclosed.
"Sandwich Option Plans" shall mean the following stock option plans of
Sandwich, as amended and as in effect as of the date hereof: The Sandwich Bank
1986 Stock Option Plan and The Sandwich Bank 1994 Stock Option and Incentive
Plan.
"Sandwich Preferred Stock" shall mean the shares of preferred stock, par
value $1.00 per share, of Sandwich.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars, proxy
statements, registration statements and all similar documents filed, or required
to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
4
<PAGE>
"Share Insurance Fund" shall mean the share insurance fund of the Co-
operative Central Bank.
"Stock Exchange" shall mean the Nasdaq National Market.
"Subsidiary" shall have the meanings set forth in Rule 1-02 of Regulation
S-X of the SEC.
"Surviving Corporation" shall have the meaning set forth in Section 2.1
hereof.
"1855 Bancorp Employee Plans" shall have the meaning set forth in Section
5.14.1 hereof.
"1855 Bancorp Financial Statements" shall mean the audited consolidated
statements of financial condition (including related notes and schedules) of
1855 Bancorp as of October 31, 1997, 1996 and 1995 and the consolidated
statements of operations, shareholders' equity and cash flows (including related
notes and schedules, if any) of 1855 Bancorp for each of the three years ended
October 31, 1997, 1996 and 1995 as set forth in 1855 Bancorp's annual report for
the year ended October 31, 1997, a copy of which has been provided to Sandwich.
"1855 Common Stock" shall mean the common stock, par value to be
determined, of 1855 Bancorp.
"1855 Trading Price" shall have the meaning set forth in Section 3.1.2
hereof.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, and
subject to the terms and conditions of this Agreement, at the Effective Time:
(a) unless theretofore done, 1855 Bancorp shall cause Merger Sub to be organized
as a wholly-owned subsidiary of 1855 Bancorp in accordance with Massa chusetts
law; (b) Merger Sub shall be merged with and into Sandwich, with Sandwich as the
surviving corporation (the "Surviving Corporation"); and (c) the separate
existence of Merger Sub shall cease and all of the rights, privileges, powers,
franchises, properties, assets, liabilities and obligations of Merger Sub shall
be vested in and assumed by Sandwich.
2.2 EFFECTIVE TIME. The Merger shall be effected by the filing of Articles
of Merger with the Secretary of State of The Commonwealth of Massachusetts in
accordance with Massachusetts law to become effective on the day of the closing
("Closing Date") provided for in Article X hereof (the "Closing"). The term
"Effective Time" shall mean the time on the Closing Date (or a subsequent date
not later than the opening of business on the next business day) when the Merger
becomes effective as set forth in the Articles of Merger.
2.3 CHARTER AND BY-LAWS. The Articles of Organization and By-laws of the
Surviving Corporation shall be the Articles of Organization, as amended, and By-
laws of Sandwich as in effect immediately prior to the Effective Time, until
thereafter amended as provided therein and by applicable law.
5
<PAGE>
2.4 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The Directors of
Merger Sub immediately prior to the Effective Time shall be the initial
Directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Organization and By-Laws of Surviving Corporation. The
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
2.5 DIRECTORS OF 1855 BANCORP AND COMPASS BANK.
2.5.1 Prior to or at the Effective Time, three directors of Sandwich (one
of whom shall be the President of Sandwich and the other two of whom shall be
designated by 1855 Bancorp after consultation with Sandwich) shall be elected to
the Board of Directors of 1855 Bancorp.
2.5.2 The President of Sandwich shall be appointed to the Executive
Committee of Compass Bank.
2.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in Surviving Corporation, title to
and possession of any property or right of Merger Sub acquired or to be acquired
by reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, Merger Sub and its proper officers and directors
shall be deemed to have granted to Surviving Corporation an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of Surviving Corporation are fully authorized in
the name of Merger Sub or otherwise to take any and all such action.
2.7 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Chapter 156B, Section 80 of the General Laws
of The Commonwealth of Massachusetts, as amended.
2.8 THE SANDWICH OPTION AGREEMENT. The parties acknowledge that Sandwich
and 1855 Bancorp have entered into that certain Sandwich Option Agreement dated
as of even date herewith pursuant to which Sandwich has granted to 1855 Bancorp
the right to purchase certain shares of Sandwich Common Stock upon terms and
conditions specified in the Sandwich Option Agreement.
2.9 POSSIBLE ALTERNATIVE STRUCTURES. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, 1855 Bancorp
shall be entitled to revise the structure of the Merger, the Bank Merger and the
other transactions contemplated hereby and thereby, provided, that (i) there are
no material adverse federal or state income tax consequences to Sandwich and its
stockholders as a result of the modification; (ii) the consideration to be paid
to the holders of Sandwich Common Stock under this Agreement is not thereby
changed in kind or reduced in amount; (iii) there are no material adverse
changes to the benefits and other arrangements provided to or on behalf of
Sandwich's directors, officers and other employees; and (iv) such modification
will not delay materially or jeopardize receipt of any required regulatory
approvals or other consents and approvals relating to the consummation of the
Merger. 1855 Bancorp, Compass Bank, Sandwich and Sandwich Bank agree to
appropriately amend this Agreement and any related documents in order to reflect
any such revised structure.
6
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ARTICLE III
CONVERSION OF SHARES
3.1 MERGER CONSIDERATION. At the Effective Time, by virtue of the Merger
and without any action on the part of 1855 Bancorp, Merger Sub, Sandwich or the
holders of any of the shares of Sandwich Common Stock (shares of Sandwich Common
Stock being hereinafter collectively referred to as "Shares"):
3.1.1 Each Share issued and outstanding immediately prior to the Effective
Time (other than any Shares to be cancelled pursuant to Section 3.1.5 and any
Dissenting Shares (as hereinafter defined)) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for a number of shares of common stock, par value $.01 per share,
of 1855 Bancorp ("1855 Common Stock") equal to one share multiplied by the
Exchange Ratio (rounded to the nearest four decimal places), determined as
follows:
(a) If the 1855 Trading Price is between $10.01 and $13.50 (inclusive),
the Exchange Ratio shall be determined by dividing $64.00 by the 1855 Trading
Price.
(b) If the 1855 Trading Price is between $13.51 and $15.00 (inclusive),
the Exchange Ratio shall be 4.7407.
(c) If the 1855 Trading Price is greater than $15.00, the Exchange Ratio
shall be determined by dividing $71.11 by the 1855 Trading Price.
(d) If the 1855 Trading Price is $10.00 or less, the Exchange Ratio will
be 6.4.
3.1.2 For purposes of this Agreement, the "1855 Trading Price" shall be
determined by averaging the closing bid and asked price of the 1855 Common Stock
for each of the second through the ninth trading days (inclusive) following
consummation of the Conversion (the average of the closing bid and asked price
for each such day is referred to as the "Daily Closing Price"), discarding the
two highest and two lowest Daily Closing Prices, and averaging the remaining
Daily Closing Prices. The closing bid and asked prices shall be as quoted at
the close of business on the Stock Exchange.
3.1.3 The foregoing determination of the Exchange Ratio assumes that the
initial public offering ("IPO") price of the 1855 Bancorp Common Stock in the
Conversion will be $10.00 per share. If the IPO price is an amount other than
$10.00, the Exchange Ratios and dollar amounts in Section 3.1.1 shall be
proportionately adjusted to reflect the actual IPO price.
3.1.4 Shares of Sandwich Common Stock converted into 1855 Common Stock
pursuant to this Section 3.1 shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each certificate
(each a "Certificate") previously representing any such Share shall thereafter
represent the right to receive (i) the number of whole shares of 1855 Common
Stock and (ii) cash in lieu of fractional shares into which the Shares
represented by such Certificate have been converted pursuant to this Section 3.1
and Section 3.4 hereof (the "Merger Consideration"). Certificates previously
representing Shares of Sandwich Common Stock shall be exchanged for
certificates representing whole shares of 1855 Common Stock and cash in lieu
of fractional shares issued in consideration therefor upon the surrender of
such Certificates in accordance with Section 3.4 hereof, without any interest
thereon.
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3.1.5 Each Share held in the treasury of Sandwich and each Share owned by
Merger Sub, 1855 Bancorp or any direct or indirect wholly owned subsidiary of
1855 Bancorp or of Sandwich immediately prior to the Effective Time (other than
shares held in a fiduciary capacity or in connection with debts previously
contracted) shall, at the Effective Time, cease to exist, and the certificates
for such shares shall, as promptly as practicable thereafter, be cancelled and
no payment or distribution shall be made in consideration therefor.
3.1.6 Each share of the common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of the common stock
of the Surviving Corporation.
3.2 EMPLOYEE STOCK OPTIONS. Prior to the Effective Time, Sandwich shall,
in accordance with the terms of the Sandwich Option Plans, provide written
notice to each holder of a then outstanding Sandwich Option (whether or not such
stock option is then vested or exercisable), that such Sandwich Option shall be,
as at the date of such notice, exercisable in full and that, if such Sandwich
Option is not exercised or otherwise terminated in accordance with its terms
before the Effective Time, such Sandwich Option shall, at the Effective Time, be
automatically converted into a number of shares of 1855 Common Stock determined
by application of the following formula, subject to any required withholding of
taxes:
[(MCV - EP) (divide) TP] x OS
where:
MCV = Merger Consideration Value per share, determined by multiplying the
Exchange Ratio by the 1855 Trading Price
EP = Exercise Price per share as stated in such Sandwich Option
TP = 1855 Trading Price, as determined in accordance with Section 3.1.2
OS = Number of Option Shares covered by such Sandwich Option
Subject to the foregoing, the Sandwich Option Plans and all options issued
thereunder shall terminate at the Effective Time. Sandwich hereby represents
and warrants to 1855 Bancorp that the maximum number of Shares subject to
issuance pursuant to the exercise of stock options issued and outstanding under
the Sandwich Option Plans is not and shall not be at or prior to the Effective
Time more than 143,778.
3.3 DISSENTING SHARES.
3.3.1 Notwithstanding anything in this Agreement to the contrary and unless
otherwise provided by applicable law, Shares that are issued and outstanding
immediately prior to the Effective Time and that are owned by stockholders who
have properly perfected their rights of appraisal within the meaning of Section
85 of Chapter 156B of the Massachusetts General Laws (the "Dissenting Shares"),
shall not be converted into the right to receive the Merger Consideration,
unless and until such stockholders shall have failed to perfect or shall have
effectively withdrawn or lost their right of payment under applicable law, but,
instead, the holders thereof shall be entitled to payment of the appraised value
of such Dissenting Shares in accordance with the provisions of the Massachusetts
General Laws, Chapter 156B (S) 85 et seq. If any such holder shall have failed
to perfect or shall have effectively withdrawn or lost such right of appraisal,
each Share held by such stockholder shall thereupon be deemed to have been
converted into the right to receive and become
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exchangeable for, at the Effective Time, the Merger Consideration in the manner
provided in Section 3.1 hereof.
3.3.2 Sandwich shall give 1855 Bancorp (i) prompt notice of any objections
filed pursuant to Massachusetts General Laws, Chapter 156B, (S) 85 et seq.,
received by Sandwich, withdrawals of such objections, and any other instruments
served in connection with such objections pursuant to the Massachusetts General
Laws and received by Sandwich and (ii) the opportunity to direct all
negotiations and proceedings with respect to objections under the Massachusetts
General Laws consistent with the obligations of Sandwich thereunder. Sandwich
shall not, except with the prior written consent of 1855 Bancorp, (x) make any
payment with respect to any such objection, (y) offer to settle or settle any
such objections or (z) waive any failure to timely deliver a written objection
in accordance with the Massachusetts General Laws.
3.4 PROCEDURES FOR EXCHANGE OF SANDWICH COMMON STOCK.
3.4.1 1855 BANCORP TO MAKE SHARES AVAILABLE. Prior to the Effective Time,
1855 Bancorp or Compass Bank shall designate a bank or trust company, reasonably
acceptable to Sandwich, to act as agent (the "Exchange Agent") for the holders
of Shares in connection with the Merger to receive the Merger Consideration to
which holders of Shares shall become entitled pursuant to Section 3.1. 1855
Bancorp shall take all steps necessary on and as of the Effective Time to
deliver to the Exchange Agent, for the benefit of the holders of certificates
evidencing Shares ("Certificates"), for exchange in accordance with this Section
3.4, certificates representing shares of 1855 Common Stock and the cash in lieu
of fractional shares to be paid pursuant to this Section 3.4 (such cash and
certificates for shares of 1855 Common Stock, together with any dividends or
distributions with respect thereto being hereinafter referred to as the
"Exchange Fund") to be issued and paid in exchange for outstanding Sandwich
Common Stock in accordance with this Agreement. The Exchange Agent shall act as
agent on behalf of record holders (individually, a "Record Holder") of Sandwich
Common Stock at the Effective Time, other than Sandwich, any Sandwich
Subsidiary, 1855 Bancorp, or any 1855 Bancorp Subsidiary (in each case other
than in a fiduciary capacity or in connection with debts previously contracted),
or any Person holding Dissenting Shares.
3.4.2 EXCHANGE OF CERTIFICATES. Within three business days after the
Effective Time, 1855 Bancorp shall take all steps necessary to cause the
Exchange Agent to mail to each Record Holder of a Certificate or Certificates,
a form letter of transmittal for return to the Exchange Agent and instructions
for use in effecting the surrender of the Certificates for certificates
representing the 1855 Common Stock and the cash in lieu of fractional shares
into which the Sandwich Common Stock represented by such Certificates shall have
been converted as a result of the Merger. The form letter (which shall be
subject to the reasonable approval of Sandwich) shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent. Upon surrender of
a Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate for the number of
whole shares of 1855 Common Stock to which such holder of Sandwich Common Stock
shall have become entitled pursuant to the provisions of this Section 3.4 and
(y) a check representing the amount of cash in lieu of the fractional shares, if
any, which such holder has the right to receive in respect of Certifi cates
surrendered pursuant to the provisions of this Section 3.4, and the Certificates
so surrendered shall forthwith be cancelled. Certificates surrendered for
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exchange by any person who is an "affiliate" of Sandwich for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "Securities Act"),
shall not exchanged for certificates representing shares of 1855
Common Stock until Buyer has received the written agreement of such person
contemplated by Section 8.5 hereof.
3.4.3 RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder
of a Certificate that prior to the Merger represented issued and outstanding
Sandwich Common Stock shall have no rights, after the Effective Time, with
respect to such Sandwich Common Stock except to surrender the Certificate in
exchange for the Merger Consideration as provided in this Agreement or to
perfect the rights of appraisal as a holder of Dissenting Shares that such
holder may have pursuant to the applicable provisions of Massachusetts law. No
dividends or other distributions declared after the Effective Time with respect
to 1855 Common Stock shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Section 3.4. After the surrender of a Certificate in
accordance with this Section 3.4, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of 1855 Common
Stock represented by such Certificate.
3.4.4 FRACTIONAL SHARES. Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
1855 Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to 1855 Common Stock
shall be payable on or with respect to any fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder of 1855 Bancorp. In lieu of the issuance of any such
fractional share, 1855 Bancorp shall pay to each former holder of Sandwich
Common Stock who otherwise would be entitled to receive a fractional share of
1855 Common Stock, an amount in cash determined by multiplying the closing sale
price of 1855 Common Stock on the Stock Exchange as reported by The Wall Street
Journal for the trading day immediately preceding the date of the Effective Time
(the "Last Closing Price") by the fraction of a share of 1855 Common Stock
which such holder would otherwise be entitled to receive pursuant to
Section 3.4.2 hereof. No interest will be paid on the cash which the holders of
such fractional shares shall be entitled to receive upon such delivery. For
purposes of determining any fractional share interest, all shares of Sandwich
Common Stock owned by a Sandwich shareholder shall be combined so as to
calculate the maximum number of whole shares of 1855 Bancorp Common Stock
issuable to such Sandwich shareholder.
3.4.5 SURRENDER BY PERSONS OTHER THAN RECORD HOLDERS. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal is
not the Record Holder thereof, then it shall be a condition of the payment of
the Merger Consideration that such Certificate is properly endorsed to such
Person or is accompanied by appropriate stock powers, in either case signed
exactly as the name of the Record Holder appears on such Certificate, and is
otherwise in proper form for transfer, or is accompanied by appropriate evidence
of the authority of the Person surrendering such Certificate and signing the
letter of transmittal to do so on behalf of the Record Holder and that the
person requesting such exchange shall pay to the Exchange Agent in advance any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
3.4.6 CLOSING OF TRANSFER BOOKS. From and after the Effective Time, there
shall be
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no transfers on the stock transfer books of Sandwich of the Sandwich Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be exchanged for the Merger
Consideration and cancelled as provided in this Section 3.4.
3.4.7 RETURN OF EXCHANGE FUND. At any time following the 12-month period
after the Effective Time, 1855 Bancorp shall be entitled to require the Exchange
Agent to deliver to it any portions of the Exchange Fund which had been made
available to the Exchange Agent and not disbursed to holders of Certificates
(including, without limitation, all interest and other income received by the
Exchange Agent in respect of all funds made available to it), and thereafter
such holders shall be entitled to look to 1855 Bancorp (subject to abandoned
property, escheat and other similar laws) with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither 1855 Bancorp nor the Exchange Agent
shall be liable to any holder of a Certificate for any Merger Consideration
delivered in respect of such Certificate to a public official pursuant to any
abandoned property, escheat or other similar law.
3.4.8 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by 1855 Bancorp or Compass Bank, the posting by such
person of a bond in such amount as 1855 Bancorp may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof.
3.5 RESERVATION OF SHARES. 1855 Bancorp shall reserve for issuance a
sufficient number of shares of 1855 Bancorp Common Stock for the purpose of
issuing shares of 1855 Bancorp Common Stock to the Sandwich shareholders and
optionholders in accordance with this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
Sandwich hereby represents and warrants to 1855 Bancorp as follows:
4.1 CAPITAL STRUCTURE.
4.1.1 The authorized capital stock of Sandwich consists of 15,000,000
shares of Sandwich Common Stock and 5,000,000 shares of Sandwich Preferred
Stock. As of the date of this Agreement, 1,945,260 shares of Sandwich Common
Stock are issued and outstanding, no shares of Sandwich Common Stock are
directly or indirectly held by Sandwich as treasury stock and no shares of
Sandwich Preferred Stock are issued and outstanding. All outstanding shares of
Sandwich Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable, and none of the outstanding shares of Sandwich Common
Stock has been issued in violation of the preemptive rights of any person, firm
or entity. Except for the Sandwich Option Agreement and for Sandwich Options to
acquire not more than 143,778 shares of Sandwich Common Stock, a schedule of
which has been Previously Disclosed, there are no Rights authorized, issued or
outstanding with respect to or relating to the capital stock of Sandwich.
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4.2 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH. Sandwich is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts with full corporate power and authority to
own or lease all of its properties and assets and to carry on its business as
now conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect on Sandwich. Sandwich is duly registered as a
bank holding company under the BHCA. Sandwich has heretofore delivered to 1855
Bancorp true and complete copies of the Articles of Organization and Bylaws of
Sandwich as in effect as of the date hereof.
4.3 OWNERSHIP OF SANDWICH SUBSIDIARIES. Sandwich has Previously Disclosed
the name, jurisdiction of incorporation and percentage ownership of each direct
or indirect Sandwich Subsidiary. Except for (x) capital stock of the Sandwich
Subsidiaries, (y) securities and other interests held in a fiduciary capacity
and beneficially owned by third parties or taken in consideration of debts
previously contracted, and (z) securities and other interests which are
Previously Disclosed, Sandwich does not own or have the right or obligation to
acquire, directly or indirectly, any outstanding capital stock or other voting
securities or ownership interests of any corporation, bank, savings association,
partnership, joint venture or other organization, other than investment
securities representing not more than 1% of any entity. The outstanding shares
of capital stock or other ownership interests of each Sandwich Subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable, and
are directly or indirectly owned by Sandwich free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of the Sandwich
Subsidiaries and there are no agreements, understandings or commitments relating
to the right of Sandwich to vote or to dispose of such capital stock or other
ownership interests.
4.4 ORGANIZATION, STANDING AND AUTHORITY OF SANDWICH SUBSIDIARIES. Each
of the Sandwich Subsidiaries is a bank, corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized. Each of the Sandwich Subsidiaries (i) has
full power and authority to own or lease all of its properties and assets and to
carry on its business as now conducted, and (ii) is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect on Sandwich. The deposit
accounts of Sandwich Bank are insured by the BIF or, in the case of certain
deposits, the SAIF, to the maximum extent permitted by the FDIA, and by the
Share Insurance Fund for amounts in excess of FDIC limits. Sandwich Bank has
paid all deposit insurance premiums and assessments required by the FDIC and the
Share Insurance Fund. Sandwich has heretofore delivered or made available to
1855 Bancorp true and complete copies of the Charter and Bylaws of Sandwich Bank
as in effect as of the date hereof.
4.5 AUTHORIZED AND EFFECTIVE AGREEMENT.
4.5.1 Sandwich has all requisite corporate power and authority to enter
into this Agreement and the Sandwich Option Agreement and (subject to receipt of
all necessary governmental approvals and the approval of Sandwich's shareholders
of this Agreement) to
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perform all of its obligations hereunder. The execution and delivery of this
Agreement and the Sandwich Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
Sandwich, except for the approval of this Agreement by Sandwich's shareholders.
This Agreement and the Sandwich Option Agreement have been duly and validly
executed and delivered by Sandwich and constitute the legal, valid and binding
obligations of Sandwich, enforceable against Sandwich in accordance with their
respective terms, subject, as to enforceability, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
4.5.2 Except as Previously Disclosed, neither the execution and delivery
of this Agreement or the Sandwich Option Agreement, nor consummation of the
transactions contemplated hereby or thereby, nor compliance by Sandwich with any
of the provisions hereof or thereof (i) does or will conflict with or result in
a breach of any provisions of the Articles of Organization or Bylaws of Sandwich
or the equivalent documents of any Sandwich Subsidiary, (ii) violate, conflict
with or result in a breach of any term, condition or provision of, or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of Sandwich or any
Sandwich Subsidiary pursuant to, any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Sandwich or any Sandwich Subsidiary is a party, or by which any of their
respective properties or assets may be bound or affected, or (iii) subject to
receipt of all required governmental and shareholder approvals, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Sandwich or any Sandwich Subsidiary.
4.5.3 Except for (i) the filing of applications and notices with, and the
consents and approvals of, as applicable, the FRB, the FDIC, the Massachusetts
Board, the MHPF, the Co-operative Central Bank and the Bank Commissioner, (ii)
the filing of the Proxy Statement-Prospectus with the SEC, (iii) the approval of
this Agreement by the requisite vote of the shareholders of Sandwich, (iv) the
filing of Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts pursuant to the MBCL in connection with the Merger, and (v) review
of the Merger by the DOJ under federal antitrust laws, and except for such
filings, registrations, consents or approvals which are Previously Disclosed, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on the part of Sandwich or Sandwich
Bank in connection with the execution and delivery by Sandwich of this Agreement
or the Sandwich Option Agreement and the consummation by Sandwich of the
transactions contemplated hereby or thereby.
4.5.4 As of the date hereof, neither Sandwich nor Sandwich Bank is aware
of any reasons relating to Sandwich or Sandwich Bank (including without
limitation Community Reinvestment Act compliance) why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by 1855 Bancorp after the Effective Time of the business of each of
1855 Bancorp and Sandwich as such business is carried on immediately prior to
the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of Sandwich, could have a Material Adverse Effect on 1855
Bancorp or Sandwich or materially impair the value of Sandwich and Sandwich Bank
to 1855 Bancorp.
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4.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS
4.6.1 Since January 1, 1993, Sandwich has timely filed with the SEC or
the FDIC (as applicable) and the NASD all Securities Documents required by the
Securities Laws and such Securities Documents complied in all material respects
with the Securities Laws and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.6.2 Since January 1, 1993, each of Sandwich and Sandwich Bank has duly
filed with the FRB, the Bank Commissioner, the FDIC and any other applicable
federal or state banking authority, as the case may be, in correct form the
reports required to be filed under applicable laws and regulations and such
reports were in all material respects complete and accurate and in compliance
with the requirements of applicable laws and regulations. Except as Previously
Disclosed, in connection with the most recent examinations of Sandwich and
Sandwich Bank by the FRB, the Bank Commissioner and the FDIC, neither Sandwich
nor Sandwich Bank was required to correct or change any action, procedure or
proceeding which Sandwich or Sandwich Bank believes has not been corrected or
changed as required as of the date hereof in all material respects.
4.7 FINANCIAL STATEMENTS
4.7.1 Sandwich has previously delivered or made available to 1855 Bancorp
accurate and complete copies of the Sandwich Financial Statements, which are
accompanied by the audit reports of KPMG Peat Marwick LLP, independent public
accountants with respect to Sandwich. The Sandwich Financial Statements referred
to herein, as well as the Sandwich Financial Statements to be delivered pursuant
to Section 6.2 hereof, fairly present or will fairly present, as the case may
be, the consolidated financial condition of Sandwich or Sandwich Bank, as the
case may be, as of the respective dates set forth therein, and the consolidated
results of operations, shareholders' equity and cash flows of Sandwich for the
respective periods or as of the respective dates set forth therein.
4.7.2 Each of the Sandwich Financial Statements referred to in Section
4.7.1 has been or will be, as the case may be, prepared in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as stated therein. The audits of Sandwich and the Sandwich
Subsidiaries have been conducted in all material respects in accordance with
generally accepted auditing standards. The books and records of Sandwich and the
Sandwich Subsidiaries are being maintained in material compliance with
applicable legal and accounting requirements, and such books and records
accurately reflect in all material respects all dealings and transactions in
respect of the business, assets, liabilities and affairs of Sandwich and its
Subsidiaries. The minute books of Sandwich and each of its Subsidiaries contain
complete and accurate records of all meetings and other corporate actions
authorized at such meetings held or taken since January 1, 1993 to date of its
stockholders and Board of Directors.
4.7.3 Except and to the extent (i) reflected, disclosed or provided for
in the consolidated statement of financial condition of Sandwich as of December
31, 1997 (including related notes) and (ii) of liabilities incurred since
December 31, 1997 in the ordinary course of business, neither Sandwich nor any
Sandwich Subsidiary has any liabilities, whether absolute, accrued, contingent
or otherwise, material to the financial condition, results of operations or
business of Sandwich on a consolidated basis.
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4.8 MATERIAL ADVERSE CHANGE. Since December 31, 1997 (i) Sandwich and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement, and excluding the transactions contemplated hereby) and (ii) no event
has occurred or circumstance arisen that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on Sandwich.
4.9 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
4.9.1 To the best of Sandwich's knowledge, Sandwich and its Subsidiaries
are in material compliance with all Environmental Laws. Neither Sandwich nor any
Sandwich Subsidiary has received any communication alleging that Sandwich or any
Sandwich Subsidiary is not in such compliance and, to the best knowledge of
Sandwich, there are no present circumstances that would prevent or interfere
with the continuation of such compliance.
4.9.2 To the best of Sandwich's knowledge, none of the properties
presently or formerly owned, leased or operated by Sandwich or a Sandwich
Subsidiary, or in which Sandwich or any Sandwich Subsidiary has a lien or other
security interest, has been or is in material violation of or materially liable
under any Environmental Law.
4.9.3 To the best of Sandwich's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any material Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
material liability arising under any Environmental Law against Sandwich or a
Sandwich Subsidiary or against any person or entity whose liability for any
Environmental Claim Sandwich or a Sandwich Subsidiary has or may have retained
or assumed either contractually or by operation of law.
4.9.4 Sandwich has not conducted any environmental studies during the past
five years with respect to any properties owned by it or a Sandwich Subsidiary
as of the date hereof.
4.10 TAX MATTERS
4.10.1 Sandwich and its Subsidiaries have timely filed all federal, state
and local (and, if applicable, foreign) income, franchise, bank, excise, real
property, personal property and other tax returns required by applicable law to
be filed by them (including, without limitation, estimated tax returns, income
tax returns, information returns and withholding and employment tax returns) and
have paid, or where payment is not required to have been made, have set up an
adequate reserve or accrual for the payment of, all material taxes required to
be paid in respect of the periods covered by such returns and, as of the
Effective Time, will have paid, or where payment is not required to have been
made, will have set up an adequate reserve or accrual for the payment of, all
material taxes for any subsequent periods ending on or prior to the Effective
Time. Neither Sandwich nor a Sandwich Subsidiary will have any material
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established.
4.10.2 All federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by Sandwich and its Subsidiaries are complete and accurate in all material
respects. Neither Sandwich nor a Sandwich Subsidiary is delinquent in the
payment of any tax, assessment or governmental charge or, except as Previously
Disclosed, has requested any extension of time within which to file any tax
returns in respect of any fiscal year or portion thereof which have not since
been filed. Except as Previously
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Disclosed, the federal, state and local income tax returns of Sandwich and its
Subsidiaries have been examined by the applicable tax authorities (or are closed
to examination due to the expiration of the applicable statute of limitations)
and no deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed (tentatively or otherwise) against Sandwich or a
Sandwich Subsidiary as a result of such examinations or otherwise which have not
been settled and paid. There are currently no agreements in effect with respect
to Sandwich or a Sandwich Subsidiary to extend the period of limitations for the
assessment or collection of any tax. As of the date hereof, no audit,
examination or deficiency or refund litigation with respect to such return is
pending or, to the best of Sandwich's knowledge, threatened.
4.10.3 Except as Previously Disclosed, neither Sandwich nor any Sandwich
Subsidiary (i) is a party to any agreement providing for the allocation or
sharing of taxes, (ii) is required to include in income any adjustment pursuant
to Section 481(a) of the Code by reason of a voluntary change in accounting
method initiated by Sandwich or a Sandwich Subsidiary (nor does Sandwich have
any knowledge that the Internal Revenue Service has proposed any such adjustment
or change of accounting method) or (iii) has filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.
4.11 LEGAL PROCEEDINGS. Except as Previously Disclosed, there are no
actions, suits, claims, governmental investigations or proceedings instituted,
pending or, to the best knowledge of the senior officers and directors of
Sandwich or any Sandwich Subsidiary, threatened against Sandwich or a Sandwich
Subsidiary or against any asset, interest or right of Sandwich or a Sandwich
Subsidiary, or against any officer, director or employee of any of them, and
neither Sandwich nor a Sandwich Subsidiary is a party to any order, judgment or
decree.
4.12 COMPLIANCE WITH LAWS
4.12.1 Each of Sandwich and the Sandwich Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could reasonably be expected to have a Material Adverse Effect on
Sandwich; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect; and to the best knowledge of Sandwich,
no suspension or cancellation of any of the same is threatened.
4.12.2 Neither Sandwich nor a Sandwich Subsidiary is in violation of its
respective Articles of Organization, Charter or Bylaws, or of any applicable
federal, state or local law or ordinance or any order, rule or regulation of any
federal, state, local or other governmental agency or body (including, without
limitation, all banking (including without limitation all regulatory capital
requirements), securities, municipal securities, safety, health, environmental,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any governmental agency, any of which violations or
defaults could reasonably be expected to have a Material Adverse Effect on
Sandwich; and neither Sandwich nor a Sandwich Subsidiary has received any notice
or communication from any federal, state or local governmental authority
asserting that Sandwich or a Sandwich Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on Sandwich. Neither Sandwich nor a Sandwich Subsidiary is currently subject to
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any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than those
of general applicability to all banks and holding companies thereof), and
neither of them has received any written communication requesting that it enter
into any of the foregoing. No regulatory agency has initiated any proceeding
or, to the best knowledge of Sandwich, investigation into the business or
operations of Sandwich or any of the Sandwich Subsidiaries since prior to
December 31, 1992. Sandwich has not received any objection from any regulatory
agency to Sandwich's response to any violation, criticism or exception with
respect to any report or statement relating to any examinations of Sandwich or
any of the Sandwich Subsidiaries.
4.13 CERTAIN INFORMATION. None of the information relating to Sandwich
and its Subsidiaries supplied or to be supplied for inclusion or incorporation
by reference in (i) the Conversion Prospectus will, at the time such
prospectus is mailed to subscribers (and at the time the related Form S-1 and
any amendments thereto become effective under the Securities Act), contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and (ii) the Proxy Statement-Prospectus, as of the
date(s) such Proxy Statement-Prospectus is mailed to shareholders of Sandwich
(and at the time the related Form S-4 and any amendments thereto become
effective under the Securities Act), and up to and including the date of the
meeting of shareholders to which such Proxy Statement-Prospectus relates, will
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided that information as of a later
date shall be deemed to modify information as of an earlier date. The Proxy
Statement-Prospectus mailed by Sandwich to its shareholders in connection with
the meeting of shareholders at which this Agreement will be considered by such
shareholders will comply as to form in all material respects with the Exchange
Act and the rules and regulations promulgated thereunder.
4.14 EMPLOYEE BENEFIT PLANS
4.14.1 Sandwich has Previously Disclosed all stock option, employee stock
purchase and stock bonus plans, qualified pension or profit-sharing plans, any
deferred compensation, consultant, bonus or group insurance contract or any
other incentive, health and welfare or employee benefit plan or agreement
maintained for the benefit of employees or former employees of Sandwich or any
Sandwich Subsidiary (the "Sandwich Employee Plans"), whether written or oral,
and Sandwich has previously furnished or made available to 1855 Bancorp accurate
and complete copies of the same together with (i) the most recent actuarial and
financial reports prepared with respect to any qualified plans, (ii) the most
recent annual reports filed with any governmental agency, and (iii) all rulings
and determination letters and any open requests for rulings or letters that
pertain to any qualified plan.
4.14.2 None of Sandwich, any Sandwich Subsidiary, any pension plan
maintained by either of them and qualified under Section 401 of the Code or, to
the best of Sandwich's knowledge, any fiduciary of such plan has incurred any
material liability to the PBGC or the Internal Revenue Service with respect to
any employees of Sandwich or a Sandwich Subsidiary. To the best of Sandwich's
knowledge, no reportable event under Section 4043(b) of ERISA has occurred with
respect to any such pension plan.
4.14.3 Neither Sandwich nor any Sandwich Subsidiary participates in or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multi-employer plan (as such term is defined in ERISA).
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4.14.4 A favorable determination letter has been issued by the Internal
Revenue Service with respect to each Sandwich Employee Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (a
"Sandwich Pension Plan") which is intended to qualify under Section 401 of the
Code to the effect that such plan is qualified under Section 401 of the Code and
the trust associated with such employee pension plan is tax exempt under Section
501 of the Code. No such letter has been revoked or, to the best of Sandwich's
knowledge, is threatened to be revoked and Sandwich does not know of any ground
on which such revocation may be based. Neither Sandwich nor any Sandwich
Subsidiary has any liability under any such plan that is not reflected on the
consolidated statement of financial condition of Sandwich at December 31, 1997
included in the Sandwich Financial Statements, other than liabilities incurred
in the ordinary course of business in connection therewith subsequent to the
date thereof.
4.14.5 To the best of Sandwich's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any Sandwich Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on Sandwich.
4.14.6 Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each Sandwich
Employee Plan or ERISA; to the best of Sandwich's knowledge, no accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived, exists with respect to any Sandwich Pension Plan,
and there is no "unfunded current liability" (as defined in Section 412 of the
Code) with respect to any Sandwich Pension Plan.
4.14.7 To the best of Sandwich's knowledge, the Sandwich Employee Plans
have been operated in compliance in all material respects with the applicable
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder and all other applicable governmental laws and
regulations.
4.14.8 There are no pending or, to the best knowledge of Sandwich,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Sandwich Employee Plans or any trust related thereto or any
fiduciary thereof.
4.14.9 Neither Sandwich nor 1855 Bancorp will be required to make a Pension
Payment as a result of the Merger. The term "Pension Payment" shall mean the
amount, if any, for which Sandwich or its successor is or would be liable to the
Co-operative Banks Employees Retirement Association in connection with the
cessation of Sandwich's participation in said Association's pension plan and its
complete withdrawal from said pension plan.
4.15 CERTAIN CONTRACTS
4.15.1 Except as Previously Disclosed, neither Sandwich nor a Sandwich
Subsidiary is a party to, is bound or affected by, receives, or is obligated to
pay, benefits under
(a) any agreement, arrangement or commitment, including without
limitation any agreement, indenture or other instrument, relating to the
borrowing of money by Sandwich
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or a Sandwich Subsidiary (other than in the case of Sandwich Bank deposits,
FHLB advances, federal funds purchased and securities sold under agreements
to repurchase in the ordinary course of business) or the guarantee by
Sandwich or a Sandwich Subsidiary of any obligation, other than by Sandwich
Bank in the ordinary course of its banking business,
(b) any agreement or commitment relating to the employment of a
consultant or the employment, election or retention in office of any present
or former director, officer or employee of Sandwich or a Sandwich Subsidiary,
(c) any agreement, arrangement or understanding pursuant to which any
payment (whether of severance pay or otherwise) became or may become due to
any director, officer or employee of Sandwich or a Sandwich Subsidiary upon
execution of this Agreement or upon or following consummation of the
transactions contemplated by this Agreement (either alone or in connection
with the occurrence of any additional acts or events);
(d) any agreement, arrangement or understanding pursuant to which
Sandwich or a Sandwich Subsidiary is obligated to indemnify any director,
officer, employee or agent of Sandwich or a Sandwich Subsidiary;
(e) any agreement, arrangement or understanding to which Sandwich or a
Sandwich Subsidiary is a party or by which any of the same is bound which
limits the freedom of Sandwich or a Sandwich Subsidiary to compete in any
line of business or with any person,
(f) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the Bank Commissioner, the FDIC, the
FRB or any other regulatory agency,
(g) any agreement (other than any agreement with a banking customer for
the provision of banking services entered into by any Sandwich Subsidiary in
the ordinary course of business) that involves a payment or series of
payments of more than $50,000 in any one year from or to Sandwich or any
Sandwich Subsidiary (unless such agreement is cancellable by Sandwich upon
payment of a termination fee of not more than $40,000), or
(h) any other agreement, arrangement or understanding which would be
required to be filed as an exhibit to the Sandwich's Annual Report on Form
10-K under the Exchange Act and which has not been so filed.
4.15.2 Neither Sandwich nor any Sandwich Subsidiary is in material default
or non-compliance under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that with the lapse of time or the giving of
notice, or both, would constitute such a material default or non-compliance.
4.16 BROKERS AND FINDERS. Except as Previously Disclosed, neither
Sandwich nor any Sandwich Subsidiary nor any of their respective directors,
officers or employees, has employed any broker or finder or incurred any
liability for any broker or finder fees or commissions in connection with the
transactions contemplated hereby.
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4.17 INSURANCE. Each of Sandwich and its Subsidiaries is insured for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations. Sandwich
has Previously Disclosed all policies of insurance maintained by it or a
Sandwich Subsidiary as of the date hereof and any claims thereunder in excess of
$50,000 since January 1, 1995. Neither Sandwich nor any Sandwich Subsidiary has
received any notice of termination of any such insurance coverage or material
increase in the premiums therefor or has any reason to believe that any such
insurance coverage will be terminated or the premiums therefor materially
increased.
4.18 LOAN PORTFOLIO. Sandwich has Previously Disclosed all of the loans in
original principal amount in excess of $200,000 of Sandwich or any Sandwich
Subsidiary that as of the date of this Agreement are classified by Sandwich or
any Bank Regulator as "Special Mention", "Substandard", "Doubtful", "Loss" or
"Classified," together with the aggregate principal amount of and accrued and
unpaid interest on such all loans by category, it being understood that no
representation is being made that the FDIC, the Bank Commissioner or any other
Bank Regulator would agree with the loan classifications of Sandwich.
4.19 PROPERTIES. All real and personal property owned by Sandwich or its
Subsidiaries or presently used by any of them in its respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of Sandwich and its Subsidiaries in the ordinary course of
business consistent with their past practices. Sandwich has good and marketable
title free and clear of all liens, encumbrances, charges, defaults or equities
(other than equities of redemption under applicable foreclosure laws) to all of
the material properties and assets, real and personal, reflected on the
consolidated statement of financial condition of Sandwich as of December 31,
1997 included in the Sandwich Financial Statements or acquired after such date,
except (i) liens for current taxes not yet due or payable (ii) pledges to secure
deposits and other liens incurred in the ordinary course of its banking
business, (iii) such imperfections of title, easements and encumbrances, if any,
as are not material in character, amount or extent and (iv) as reflected on the
consolidated statement of financial condition of Sandwich as of December 31,
1997 included in the Sandwich Financial Statements. All real and personal
property which is material to Sandwich's business on a consolidated basis and
leased or licensed by Sandwich or a Sandwich Subsidiary is held pursuant to
leases or licenses which are valid and enforceable in accordance with their
respective terms and no such real property lease will terminate or lapse prior
to the Effective Time.
4.20 LABOR. No work stoppage involving Sandwich or a Sandwich Subsidiary
is pending or, to the best knowledge of Sandwich, threatened. Neither Sandwich
nor a Sandwich Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding involving the
employees of Sandwich or a Sandwich Subsidiary which could have a Material
Adverse Effect on Sandwich. Employees of Sandwich and the Sandwich Subsidiaries
are not represented by any labor union nor are any collective bargaining
agreements otherwise in effect with respect to such employees, and to the best
of Sandwich's knowledge, there have been no efforts to unionize or organize any
employees of Sandwich or any of the Sandwich Subsidiaries during the past five
years.
4.21 REQUIRED VOTE; INAPPLICABILITY OF ANTITAKOVER STATUTES
4.21.1 The affirmative vote of the holders of two thirds of the issued and
outstanding shares of Sandwich Common Stock is necessary to approve this
Agreement and the transactions contemplated hereby on behalf of Sandwich.
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4.21.2 Assuming the accuracy of the representation and warranty of 1855
Bancorp contained in Section 5.2.0 hereof, no "fair price," "moratorium,"
control share acquisition" or other form of antitakeover statute or regulation,
including without limitation Chapters 110D and 110F of the MBCL, is applicable
to this Agreement and the transactions contemplated hereby.
4.22 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as Previously
Disclosed, to the knowledge of Sandwich, no officer or director of Sandwich, or
any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act)
of any such officer or director, (i) has any material interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of Sandwich or any of the Sandwich Subsidiaries or
(ii) is indebted to, or has the right under a line of credit to borrow from,
Sandwich or any Sandwich Subsidiary in an amount exceeding $50,000.
4.23 CERTAIN TRANSACTIONS. Since December 31, 1996, neither Sandwich nor
any Sandwich Subsidiary has been a party to any material off-balance-sheet
transactions involving interest rate and currency swaps, options and futures
contracts, or any other similar derivative transactions, except as Previously
Disclosed.
4.24 DISCLOSURES. None of the representations and warranties of Sandwich
or any of the written information or documents furnished or to be furnished by
Sandwich to 1855 Bancorp in connection with or pursuant to this Agreement or the
consummation of the transactions contemplated hereby, when considered as a
whole, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact required to be stated or necessary
to make any such information or document, in light of the circumstances, not
misleading.
4.25 STANDSTILL AGREEMENTS. Sandwich has Previously Disclosed, and has
provided Compass with true and correct copies of, all standstill agreements (the
"Standstill Agreements") it has entered into pursuant to which any other person
has agreed (i) not to acquire for a period of time any assets or voting
securities of Sandwich, (ii) not to announce or publicly propose any
extraordinary transaction involving Sandwich or its assets or voting securities
or (iii) not to make any solicitation of proxies involving Sandwich's voting
securities. Except as Previously Disclosed, all of such Previously Disclosed
Standstill Agreements remain in full force and effect as of the date hereof,
such Standstill Agreements have not been amended or waived, Sandwich has not
granted any consents thereunder, and, to Sandwich's knowledge, such Standstill
Agreements are enforceable in accordance with their terms. To Sandwich's
knowledge, no party (other than 1855 Bancorp and Compass Bank) to a Standstill
Agreement with Sandwich owns, directly or indirectly, any shares of Sandwich
Common Stock.
4.26 DISCLOSURE SCHEDULE. The Sandwich Disclosure Schedule sets forth,
among other things, disclosures with respect to or exceptions to Sandwich's
representations and warranties in this Article IV. The mere inclusion of an
exception in the Sandwich Disclosure Schedule shall not be deemed an admission
by Sandwich that such exception represents a material fact, event or
circumstance.
4.27 POOLING OF INTERESTS. Sandwich knows of no reason relating to it why
the Merger would not qualify as a "pooling of interests" for accounting purposes
or a tax free reorganization under Section 368 of the Code. Except as Previously
Disclosed, since January 1, 1996, neither Sandwich nor Sandwich Bank has (A)
issued or permitted to be issued any shares of capital stock,
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or securities exercisable for or convertible into shares of capital stock, of
Sandwich, Sandwich Bank or any Sandwich Subsidiaries, other than pursuant to and
as required by the terms of any Sandwich Options that were issued and
outstanding on such date; (B) repurchased, redeemed or otherwise acquired,
directly or indirectly through one or more of its Subsidiaries, any shares of
capital stock of Sandwich, Sandwich Bank or any Sandwich Subsidiary, other than
open market purchases in the ordinary course by Sandwich's Employee Stock
Ownership Plan and its Dividend Reinvestment Plan, none of which purchases would
cause the Merger not to qualify as a pooling of interests; or (C) declared, set
aside, made or paid to the stockholders of Sandwich or Sandwich Bank dividends
or other distributions on the outstanding shares of capital stock of Sandwich or
Sandwich Bank. For purposes of clause (B) above, Sandwich and Sandwich Bank
shall be deemed to include any person that Sandwich or Sandwich Bank has caused
to purchase such shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
1855 Bancorp hereby represents and warrants to Sandwich as follows:
5.1 CAPITAL STRUCTURE. 1855 Bancorp has no capital stock issued and
outstanding as of the date hereof. As of the Effective Time, 1855 Bancorp will
have outstanding such number of shares of Common Stock as are issued and sold in
the Conversion and will not have outstanding any other classes of capital stock.
All shares of 1855 Bancorp Common Stock to be issued in exchange for Shares upon
consummation of the Merger, when issued in accordance with this Agreement, will
be, and the shares of 1855 Bancorp to be issued in connection with the
Conversion will be duly authorized, validly issued, fully paid and
nonassessable.
5.2 ORGANIZATION, STANDING AND AUTHORITY OF 1855 BANCORP. 1855 Bancorp
is a mutual holding company, and will be at the Effective Time a corporation,
duly organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts with full corporate power and authority to own or
lease all of its properties and assets and to carry on its business as now
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed, qualified or in good standing would not
have a Material Adverse Effect on 1855 Bancorp. 1855 Bancorp is duly
registered as a bank holding company under the BHCA and the regulations of the
FRB thereunder. 1855 Bancorp has heretofore delivered to Sandwich true and
complete copies of the Articles of Organization and Bylaws of 1855 Bancorp as in
effect as of the date hereof.
5.3 OWNERSHIP OF THE 1855 BANCORP SUBSIDIARIES. 1855 Bancorp has
Previously Disclosed each direct or indirect 1855 Bancorp Subsidiary. The
outstanding shares of capital stock of each 1855 Bancorp Subsidiary have been
duly authorized and validly issued, are fully paid and nonassessable and are
directly or indirectly owned by 1855 Bancorp free and clear of all liens,
claims, encumbrances, charges, pledges, restrictions or rights of third parties
of any kind whatsoever. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of any 1855 Bancorp
Subsidiary and there are no agreements, understandings or commitments relating
to the right of 1855 Bancorp to vote or to dispose of said shares or other
ownership interests.
5.4 ORGANIZATION, STANDING AND AUTHORITY OF THE 1855 BANCORP SUBSIDIARIES.
Each of the 1855 Bancorp Subsidiaries is a corporation duly organized, validly
existing and in good
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standing under the laws of the jurisdiction in which it is organized. Each of
the 1855 Bancorp Subsidiaries (i) has full power and authority to own or lease
all of its properties and assets and to carry on its business as now conducted,
and (ii) is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
on 1855 Bancorp. The deposit accounts of Compass Bank are insured by the BIF or,
in the case of certain deposits, the SAIF, to the maximum extent permitted by
the FDIA, and by the Depositors Insurance Fund for amounts in excess of FDIC
limits. Compass Bank has paid all premiums and assessments required by the FDIC
and the Depositors Insurance Fund.
5.5 AUTHORIZED AND EFFECTIVE AGREEMENT.
5.5.1 1855 Bancorp has all requisite corporate power and authority to enter
into this Agreement and (subject to receipt of all necessary governmental
approvals and 1855 Bancorp's Corporators' approval of the Conversion) to perform
all of its obligations under this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of 1855 Bancorp and Compass Bank, except for the approval of the
Conversion by 1855 Bancorp's Corporators and the approval of a specific plan of
Conversion by 1855 Bancorp's Board of Trustees (the Board of Trustees has
already approved the Conversion). This Agreement has been duly and validly
executed and delivered by 1855 Bancorp and, assuming due authorization,
execution and delivery by Sandwich, constitutes a legal, valid and binding
obligation of 1855 Bancorp which is enforceable against 1855 Bancorp in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
5.52 Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Conversion)
nor compliance by 1855 Bancorp with any of the provisions hereof (i) does or
will conflict with or result in a breach of any provisions of the Articles of
Organization or Bylaws of 1855 Bancorp or the equivalent documents of any 1855
Bancorp Subsidiary, (ii) violate, conflict with or result in a breach of any
term, condition or provision of, or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon any
property or asset of 1855 Bancorp or any 1855 Bancorp Subsidiary pursuant to,
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which 1855 Bancorp or any 1855
Bancorp Subsidiary is a party, or by which any of their respective properties or
assets may be bound or affected, or (iii) subject to receipt of all required
governmental, corporator and shareholder approvals, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to 1855 Bancorp or
any 1855 Bancorp Subsidiary.
5.5.3 Except for (i) the filing of applications and notices with, and the
consents and approvals of, as applicable, the FRB, the FDIC, the Massachusetts
Board, the MHPF, the Depositors Insurance Fund, and the Bank Commissioner, (ii)
the filing and effectiveness of a Form S-1 Registration Statement with the SEC
in connection with the Conversion, (iii) the filing and effectiveness of a Form
S-4 Registration Statement with the SEC in connection with the Merger, (iii)
compliance with applicable state securities or "blue sky" laws, (iv) the
approval of the
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Conversion by the requisite vote of the Corporators of 1855 Bancorp, (v) the
filing of Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts pursuant to the MBCL in connection with the Merger and (vi) review
of the Merger by the DOJ under federal antitrust laws, and except for such
filings, registrations, consents or approvals as are Previously Disclosed, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on the part of 1855 Bancorp or any
1855 Bancorp Subsidiary in connection with the execution and delivery by 1855
Bancorp of this Agreement and the consummation by 1855 Bancorp of the
transactions contemplated hereby.
5.5.4 As of the date hereof, 1855 Bancorp is not aware of any reasons
relating to 1855 Bancorp or any of its Subsidiaries (including without
limitation Community Reinvestment Act compliance) why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by 1855 Bancorp after the Effective Time of the business of each of
1855 Bancorp and Sandwich as such business is carried on immediately prior to
the Effective Time, free of any conditions or requirements which, in the
reasonable opinion of 1855 Bancorp, could have a Material Adverse Effect on 1855
Bancorp or Sandwich or materially impair the value of Sandwich and Sandwich Bank
to 1855 Bancorp.
5.6 REGULATORY REPORTS
5.6.1 1855 Bancorp is not currently required to file any Securities
Documents with the SEC.
5.6.2 Since January 1, 1993, each of 1855 Bancorp and Compass Bank has duly
filed with the FRB, the FDIC, and the Bank Commissioner, as the case may be, in
correct form the reports required to be filed under applicable laws and
regulations and such reports were in all material respects complete and accurate
and in compliance with the requirements of applicable laws and regulations. In
connection with the most recent examinations of 1855 Bancorp and Compass Bank by
the FRB, the FDIC or the Bank Commissioner, neither 1855 Bancorp nor Compass
Bank was required to correct or change any action, procedure or proceeding which
1855 Bancorp or Compass Bank believes has not been corrected or changed as
required as of the date hereof in all material respects.
5.7 FINANCIAL STATEMENTS
5.7.1 1855 Bancorp has previously delivered or made available to Sandwich
accurate and complete copies of the 1855 Bancorp Financial Statements which, in
the case of the consolidated statements of financial condition of 1855 Bancorp
as of October 31, 1997, 1996 and 1995, and the consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
ended October 31, 1997, 1996 and 1995 are accompanied by the audit reports of
Arthur Andersen, independent public accountants with respect to 1855 Bancorp.
The 1855 Bancorp Financial Statements referred to herein, as well as the 1855
Bancorp Financial Statements to be delivered pursuant to Section 7.2 hereof,
fairly present or will fairly present, as the case may be, the consolidated
financial condition of 1855 Bancorp as of the respective dates set forth
therein, and the consolidated results of operations, shareholders' equity and
cash flows of 1855 Bancorp for the respective periods or as of the respective
dates set forth therein.
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5.7.2 Each of the 1855 Bancorp Financial Statements referred to in
Section 5.7.1 has been or will be, as the case may be, prepared in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except as stated therein. The audits of 1855 Bancorp and the
1855 Bancorp Subsidiaries have been conducted in all material respects in
accordance with generally accepted auditing standards. The books and records
of 1855 Bancorp and the 1855 Bancorp Subsidiaries are being maintained in
material compliance with applicable legal and accounting requirements, and all
such books and records accurately reflect in all material respects all dealings
and transactions in respect of the business, assets, liabilities and affairs of
1855 Bancorp and the 1855 Bancorp Subsidiaries. The minute books of 1855 Bancorp
and each of its subsidiaries contain complete and accurate records of all
meetings and other corporate actions authorized at such meetings held or taken
since January 1, 1993 to date of its stockholders and Board of Directors.
5.7.3 Except and to the extent (i) reflected, disclosed or provided for
in the consolidated statement of financial condition of 1855 Bancorp as of
October 31, 1997 (including related notes) and (ii) of liabilities incurred
since October 31, 1997 in the ordinary course of business, neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has any liabilities, whether absolute, accrued,
contingent or otherwise, material to the financial condition, results of
operations or business of 1855 Bancorp on a consolidated basis.
5.8 MATERIAL ADVERSE CHANGE. Since October 31, 1997, (i) 1855 Bancorp and
its Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses in connection with this
Agreement, and excluding the transactions contemplated hereby) and (ii) no event
has occurred or circumstance arisen that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on 1855 Bancorp.
5.9 ENVIRONMENTAL MATTERS. Except as Previously Disclosed:
5.9.1 To the best of 1855 Bancorp's knowledge, 1855 Bancorp and the 1855
Bancorp Subsidiaries are in material compliance with all Environmental Laws.
Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has received any
communication alleging that 1855 Bancorp or any 1855 Bancorp Subsidiary is not
in such compliance and, to the best knowledge of 1855 Bancorp, there are no
present circumstances that would prevent or interfere with the continuation of
such compliance.
5.9.2 To the best of 1855 Bancorp's knowledge, none of the properties
owned, leased or operated by 1855 Bancorp or the 1855 Bancorp Subsidiaries, or
in which Sandwich or any Sandwich Subsidiary has a lien or other security
interest, has been or is in violation of or liable under any Environmental Law.
5.9.3 To the best of 1855 Bancorp's knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any material Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
liability arising under any Environmental Law against 1855 Bancorp or any 1855
Bancorp Subsidiary or against any person or entity whose liability for any
Environmental Claim 1855 Bancorp or any 1855 Bancorp Subsidiary has or may have
retained or assumed either contractually or by operation of law.
5.10 TAX MATTERS. 1855 Bancorp and the 1855 Bancorp Subsidiaries have
timely filed all federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
required by applicable law to be filed by them (including,
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without limitation, estimated tax returns, income tax returns, information
returns and withholding and employment tax returns) and have paid, or where
payment is not required to have been made, have set up an adequate reserve or
accrual for the payment of, all material taxes required to be paid in respect of
the periods covered by such returns and, as of the Effective Time, will have
paid, or where payment is not required to have been made, will have set up an
adequate reserve or accrual for the payment of, all material taxes for any
subsequent periods ending on or prior to the Effective Time. Neither 1855
Bancorp nor any of the 1855 Bancorp Subsidiaries will have any material
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established. As of the date hereof, no audit, examination or
deficiency or refund litigation with respect to any federal, state and local
(and, if applicable, foreign) income, franchise, bank, excise, real property,
personal property and other tax returns filed by 1855 Bancorp and the 1855
Bancorp Subsidiaries is pending or, to the best of 1855 Bancorp's knowledge,
threatened.
5.11 LEGAL PROCEEDINGS. Except as Previously Disclosed, there are no
actions, suits, claims, governmental investigations or proceedings instituted,
pending or, to the best knowledge of the senior officers and directors of 1855
Bancorp or any 1855 Subsidiary, threatened against 1855 Bancorp or any 1855
Bancorp Subsidiary or against any asset, interest or right of 1855 Bancorp or
any 1855 Bancorp Subsidiary, or against any officer, director or employee of any
of them, and neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is a party to
any order, judgment or decree.
5.12 COMPLIANCE WITH LAWS.
5.12.1 Each of 1855 Bancorp and each of the 1855 Bancorp Subsidiaries has
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, federal, state, local
and foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as it is presently being conducted and the
absence of which could reasonably be expected to have a Material Adverse Effect
on 1855 Bancorp; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect; and to the best knowledge of 1855
Bancorp, no suspension or cancellation of any of the same is threatened.
5.12.2 Neither 1855 Bancorp nor any of the 1855 Bancorp Subsidiaries is in
violation of its respective Articles of Organization, Charter or other
chartering instrument or Bylaws, or of any applicable federal, state or local
law or ordinance or any order, rule or regulation of any federal, state, local
or other governmental agency or body (including, without limitation, all banking
(including without limitation all regulatory capital requirements), securities,
municipal securities, safety, health, environmental, zoning, anti-
discrimination, antitrust, and wage and hour laws, ordinances, orders, rules and
regulations), or in default with respect to any order, writ, injunction or
decree of any court, or in default under any order, license, regulation or
demand of any governmental agency, any of which violations or defaults could
reasonably be expected to have a Material Adverse Effect on 1855 Bancorp; and
neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has received any notice or
communication from any federal, state or local governmental authority asserting
that 1855 Bancorp or any 1855 Bancorp Subsidiary is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on 1855 Bancorp. Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is subject
to any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than those
of general applicability to all banks or holding companies thereof),
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and none of them has received any written communication requesting that it enter
into any of the foregoing. No regulatory agency has initiated any proceeding or,
to the best knowledge of 1855 Bancorp, investigation into the business or
operations of 1855 Bancorp or any of the 1855 Bancorp Subsidiaries since prior
to December 31, 1992. 1855 Bancorp has not received any objection from any
regulatory agency to 1855 Bancorp's response to any violation, criticism or
exception with respect to any report or statement relating to any examinations
of 1855 Bancorp or any of the 1855 Bancorp Subsidiaries.
5.13 CERTAIN INFORMATION. None of the information relating to 1855
Bancorp and its Subsidiaries to be included or incorporated by reference in (i)
the Conversion Prospectus will, at the time such prospectus is mailed to
subscribers (and at the time the related Form S-1 and any amendments thereto
become effective under the Securities Act), contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) the Proxy Statement-Prospectus, as of the date(s) such
Proxy Statement-Prospectus is mailed to shareholders of Sandwich (and at the
time the related Form S-4 and any amendments thereto become effective under the
Securities Act), and up to and including the date of the meeting of shareholders
to which such Proxy Statement-Prospectus relates, will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided that information as of a later date shall be
deemed to modify information as of an earlier date.
5.14 EMPLOYEE BENEFIT PLANS
5.14.1 1855 Bancorp has Previously Disclosed all stock option, employee
stock purchase and stock bonus plans, qualified pension or profit-sharing plans,
any deferred compensation, bonus or group insurance contract or any other
incentive, health and welfare or employee benefit plan or agreement maintained
for the benefit of employees or former employees of 1855 Bancorp or any 1855
Bancorp Subsidiary (the "1855 Bancorp Employee Plans"), whether written or oral.
5.14.2 None of 1855 Bancorp, any 1855 Bancorp Subsidiary, any pension plan
maintained by any of them and qualified under Section 401 of the Code or, to the
best of 1855 Bancorp's knowledge, any fiduciary of such plan has incurred any
material liability to the PBGC or the Internal Revenue Service with respect to
any employees of 1855 Bancorp or any 1855 Bancorp Subsidiary. To the best of
1855 Bancorp's knowledge, no reportable event under Section 4043(b) of ERISA has
occurred with respect to any such pension plan.
5.14.3 Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary participates
in or has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multi-employer plan (as such term is defined in
ERISA).
5.13.4 A favorable determination letter has been issued by the Internal
Revenue Service with respect to each 1855 Bancorp Employee Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (an "1855
Bancorp Pension Plan") which is intended to qualify under Section 401 of the
Code to the effect that such plan is qualified under Section 401 of the Code and
the trust associated with such employee pension plan is tax exempt under Section
501 of the Code. No such letter has been revoked or, to the best of 1855
Bancorp's knowledge, is threatened to be revoked and 1855 Bancorp does not know
of any ground on which such revocation
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may be based. Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary has any
liability under any such plan that is not reflected on the consolidated
statement of financial condition of 1855 Bancorp at October 31, 1997 included in
the 1855 Bancorp Financial Statements, other than liabilities incurred in the
ordinary course of business in connection therewith subsequent to the date
thereof.
5.14.5 To the best of 1855 Bancorp's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any 1855 Bancorp Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on 1855 Bancorp.
5.14.6 Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each 1855 Bancorp
Employee Plan or ERISA; to the best of 1855 Bancorp's knowledge, no accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code), whether or not waived, exists with respect to any 1855 Bancorp Pension
Plan, and there is no "unfunded current liability" (as defined in Section 412 of
the Code) with respect to any 1855 Bancorp Pension Plan.
5.14.7 To the best of 1855 Bancorp's knowledge, 1855 Bancorp Employee
Plans have been operated in compliance in all material respects with the
applicable provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder and all other applicable
governmental laws and regulations.
5.14.8 There are no pending or, to the best knowledge of 1855 Bancorp,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the 1855 Bancorp Employee Plans or any trust related thereto or
any fiduciary thereof.
5.15 CERTAIN CONTRACTS. Neither 1855 Bancorp nor any 1855 Bancorp
Subsidiary is in material default or in non-compliance under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party or by which its assets, business or operations may be
bound or affected, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event that
with the lapse of time or the giving of notice, or both, would constitute such a
default or non-compliance.
5.16 BROKERS AND FINDERS. Except as Previously Disclosed, neither 1855
Bancorp nor any 1855 Bancorp Subsidiary, nor any of their respective directors,
officers or employees, has employed any broker or finder or incurred any
liability for any broker or finder fees or commissions in connection with the
transactions contemplated hereby.
5.17 INSURANCE. 1855 Bancorp and each 1855 Bancorp Subsidiary is insured
for reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable laws and regulations.
5.18 PROPERTIES. All real and personal property owned by 1855 Bancorp or
any 1855 Bancorp Subsidiary or presently used by any of them in its respective
business is in an adequate condition (ordinary wear and tear excepted) and is
sufficient to carry on its business in the ordinary
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course of business consistent with their past practices. 1855 Bancorp has good
and marketable title free and clear of all liens, encumbrances, charges,
defaults or equities (other than equities of redemption under applicable
foreclosure laws) to all of the material properties and assets, real and
personal, reflected on the consolidated statement of financial condition of 1855
Bancorp as of October 31, 1997 included in the 1855 Bancorp Financial Statements
or acquired after such date, except (i) liens for current taxes not yet due or
payable (ii) pledges to secure deposits and other liens incurred in the ordinary
course of its banking business, (iii) such imperfections of title, easements and
encumbrances, if any, as are not material in character, amount or extent and
(iv) as reflected on the consolidated statement of financial condition of 1855
Bancorp as of October 31, 1997 included in the 1855 Bancorp Financial
Statements. All real and personal property which is material to 1855 Bancorp's
business on a consolidated basis and leased or licensed by 1855 Bancorp or an
1855 Bancorp Subsidiary is held pursuant to leases or licenses which are valid
and enforceable in accordance with their respective terms and no such real
property lease will terminate or lapse prior to the Effective Time.
5.19 LABOR. No work stoppage involving 1855 Bancorp or any 1855 Bancorp
Subsidiary is pending or, to the best knowledge of 1855 Bancorp, threatened.
Neither 1855 Bancorp nor any 1855 Bancorp Subsidiary is involved in, or
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding involving its employees which could have a Material
Adverse Effect on 1855 Bancorp. Employees of 1855 Bancorp and the 1855 Bancorp
Subsidiaries are not represented by any labor union nor are any collective
bargaining agreements otherwise in effect with respect to such employees, and to
the best of 1855 Bancorp's knowledge, there have been no efforts to unionize or
organize any employees of 1855 Bancorp or any 1855 Bancorp Subsidiary during the
past five years.
5.20 OWNERSHIP OF SANDWICH COMMON STOCK. As of the date hereof, neither
1855 Bancorp nor, to its best knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially own, directly
or indirectly, or (ii) are parties to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of Sandwich Common Stock which in the aggregate represent 5%
or more of the outstanding shares of Sandwich Common Stock (other than shares
held in a fiduciary capacity and beneficially owned by third parties, shares
taken in consideration of debts previously contracted or in the case of 1855
Bancorp shares which may be acquired pursuant to the Sandwich Option Agreement).
5.21 CERTAIN TRANSACTIONS. Since December 31, 1996, neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has been a party to any material off-balance-
sheet transactions involving interest rate and currency swaps, options and
futures contracts, or any other similar derivative transactions, except as
Previously Disclosed.
5.22 DISCLOSURES. None of the representations and warranties of 1855
Bancorp or any of the written information or documents furnished or to be
furnished by 1855 Bancorp to Sandwich in connection with or pursuant to this
Agreement or the consummation of the transactions contemplated hereby, when
considered as a whole, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact required to be
stated or necessary to make any such information or document, in light of the
circumstances, not misleading.
5.23 DISCLOSURE SCHEDULE. The 1855 Bancorp Disclosure Schedule sets
forth, among other things, disclosures with respect to or exceptions to 1855
Bancorp's representations and
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warranties in this Article V. The mere inclusion of an exception in the 1855
Bancorp Disclosure Schedule shall not be deemed an admission by 1855 Bancorp
that such exception represents a material fact, event or circumstance.
5.24 POOLING OF INTERESTS. Neither 1855 Bancorp nor Compass Bank knows
of any reason relating to it why the Merger would not qualify as a "pooling of
interests" for accounting purposes or a tax free reorganization under Section
368 of the Code.
5.25 MERGER SUB. Upon its formation, Merger Sub will be a corporation,
duly organized, validly existing and in good standing under the laws of
Massachusetts, all of the outstanding capital stock of which is, or will be
prior to the Effective Time, owned directly or indirectly by 1855 Bancorp free
and clear of any lien, charge or other encumbrance. From and after its
incorporation, Merger Sub has not and will not engage in any activities other
than in connection with or as contemplated by this Agreement.
5.25.1 Merger Sub has, or will have prior to the Effective Time, all
corporate power and authority to consummate the transactions contemplated
hereunder and carry out all of its obliga tions with respect to such
transactions. The consummation of the transactions contemplated hereby has been,
or will have been prior to the Closing, duly and validly authorized by all
necessary corporate action in respect thereof on the part of Merger Sub.
ARTICLE VI
COVENANTS OF SANDWICH
6.1 CONDUCT OF BUSINESS.
6.1.1 AFFIRMATIVE COVENANTS. During the period from the date of this
Agreement to the Effective Time, except with the written consent of 1855
Bancorp, Sandwich will operate its business, and it will cause each of the
Sandwich Subsidiaries to operate its business, only in the usual, regular and
ordinary course of business; use reasonable efforts to preserve intact its
business organization and assets and maintain its rights and franchises; and
take no action which would (i) materially adversely affect the ability of 1855
Bancorp or Sandwich to obtain any necessary approvals of governmental
authorities required for the transactions contemplated hereby or materially
increase the period of time necessary to obtain such approvals, or (ii)
materially adversely affect its ability to perform its covenants and agreements
under this Agreement.
6.1.2 NEGATIVE COVENANTS. Sandwich agrees that from the date of this
Agreement to the Effective Time, except as otherwise specifically permitted or
required by this Agreement, or consented to by 1855 Bancorp in writing (which
consent shall not be unreasonably withheld), Sandwich will not, and will cause
each of the Sandwich Subsidiaries not to:
(a) change or waive any provision of its Charter or By-laws;
(b) change the number of shares of its authorized or issued capital
stock (except for the issuance of Sandwich Common Stock pursuant to the
Sandwich Option Agreement or upon the exercise of outstanding Sandwich
Options under the Sandwich Stock Option Plans, as contemplated by
Section 4.1 hereof);
(c) issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to the authorized or
issued capital stock of Sandwich or any of the Sandwich Subsidiaries, or any
securities convertible into shares of
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such stock; except that (i) Sandwich may issue shares of Sandwich Common
Stock or permit treasury shares to become outstanding to satisfy presently
outstanding options under and in accordance with the terms of the Sandwich
Stock Option Plans and (ii) Sandwich may issue shares of Sandwich Common
Stock to 1855 Bancorp in accordance with the terms of the Sandwich Option
Agreement;
(d) effect any recapitalization, reclassification, stock dividend, stock
split or like change in capitalization, or redeem, repurchase or otherwise
acquire any shares of its capital stock;
(e) declare or pay any dividends or other distributions with respect to
its capital stock except for a quarterly cash dividend not in excess of $0.35
per share, declared and paid in accordance with applicable law, regulation
and contractual and regulatory commitments and for dividends paid by any
Sandwich Subsidiary to Sandwich;
(f) enter into, amend in any material respect or terminate any contract
or agreement (including without limitation any settlement agreement with
respect to litigation) except in the ordinary course of business consistent
with past practice; provided, however, that Sandwich shall have the right, on
or before the Effective Time, to amend (i) its Supplemental Retirement Plans
to nullify section 10.01(b) thereof, (ii) its defined benefit Pension Plan to
ensure that any excess funding projected as of the Effective Time inures
solely to the benefit of Sandwich's employees who are plan participants (but
only to the extent that 1855 Bancorp receives confirmation from CBERA, or
otherwise receives confirmation, in each case reasonably satisfactory to it,
that such amendment will not result in any liability, contingent or
otherwise, to 1855 Bancorp or its Subsidiaries), and (iii) each employment
agreement to permit the employee who is party to the agreement to elect, more
than 90 days before the Effective Time, to receive severance benefits in
designated annual installments over a future period of up to two years after
the Effective Time, with interest accruing at the prevailing one-year
constant maturity treasury rate;
(g) amend (either orally or in writing), terminate, waive or provide
consent under any Standstill Agreement in a manner that permits any party
thereto to purchase any Sandwich Common Stock, or, except as the fiduciary
duties of the Sandwich Board of Directors require and after giving prior
written notice to 1855 Bancorp, otherwise amend (either orally or in
writing), terminate, waive or provide consent under any Standstill Agreement;
(h) except in the ordinary course of business consistent with past
practice, incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money
whether or not evidenced by a note, bond, debenture or similar instrument
(other than FHLB advances not exceeding 110% of the December 31, 1997 level),
or acquire any equity, debt, or other investment securities;
(i) make any capital expenditures in excess of $25,000 individually or
$100,000 in the aggregate, other than pursuant to Previously Disclosed
binding commitments existing on the date hereof;
(j) make or commit to make any commercial or commercial real estate loan
or loans to one borrower (including such borrower's related interests) in an
aggregate principal balance (or with an aggregate commitment) of $1,000,000
or more;
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(k) grant any increase in rates of compensation to its employees, except
merit increases in accordance with past practices and general increases to
employees as a class in accordance with past practice or as required by law;
grant any increase in rates of compensation to, or pay or agree to pay any
bonus or severance to, or provide any other new employee benefit or incentive
to its directors or to its officers who are currently covered by employment
or severance agreements with Sandwich except for nondiscretionary payments
required by such agreements and except for increases in officer compensation
rates by no more than 4.5% on an aggregate basis; enter into any employment,
severance or similar agreements or arrangements with any director or
employee; adopt or amend in any material respect or terminate any employee
benefit plan, pension plan or incentive plan except as required by law or the
terms of such plan or as provided in Section 6.1.2, or permit the vesting of
any material amount of benefits under any such plan other than pursuant to
the provisions thereof as in effect on the date of this Agreement; or make
any contributions to Sandwich's deferred compensation plans, supplemental
executive retirement plans, grantor trust, defined benefit Pension Plan or
401(k) Plan not in the ordinary course of business consistent with past
practice; or make any contributions to Sandwich's Employee Stock Ownership
Plan, other than contributions, based on Sandwich's accrual levels in effect
for 1998 on the date of this Agreement, for the period ending on the
Effective Time; or make any cash bonus payments pursuant to Sandwich's
Management Incentive Compensation Plan, other than (i) accrued but unpaid
amounts from March through December 1997 and amounts to be accrued in January
and February 1998 equal to $24,167 per month, and (ii) the budgeted amount
accruing from March 1, 1998 through the earlier to occur of December 31, 1998
or the Effective Time (it being understood that the monthly budgeted amount
is equal to $24,167 and that such amount will be paid prior to the Effective
Time to then-current employees of Sandwich or any Subsidiary); or make any
contributions to Sandwich's Grantor Trust other than nondiscretionary
contributions required by the terms of the applicable Benefit Plan;
(l) make application for the opening or closing of any, or open or close
any, branch or automated banking facility;
(m) make any equity investment or commitment to make such an investment
in real estate or in any real estate development project, other than in
connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business
consistent with customary banking practices;
(n) except as the fiduciary duties of the Board of Directors otherwise
requires (as determined in good faith upon the advice of legal counsel),
merge into, consolidate with, affiliate with, or be purchased or acquired by,
any other Person, or permit any other to be merged, consolidated or
affiliated with it or be purchased or acquired by it, or, except to realize
upon collateral in the ordinary course of its business, acquire a significant
portion of the assets of any other Person, or sell a significant portion of
its assets;
(o) make any material change in its accounting methods or practices,
except changes as may be required by GAAP or by regulatory requirements;
(p) enter into any off-balance sheet transaction involving interest rate
and currency swaps, options and futures contracts, or any other similar
derivative transactions;
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(q) knowingly take any action that would result in the representations
and warranties of Sandwich contained in this Agreement not being true and
correct on the date of this Agreement or at any future date on or prior to
the Closing Date;
(r) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, including, without limitation,
cashing out or accelerating any Sandwich Options, except for automatic
acceleration in accordance with the terms of such Sandwich Options; or
(s) agree to do any of the foregoing.
6.2 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, Sandwich will cause one or more of its
representatives to confer with representatives of 1855 Bancorp and report the
general status of its ongoing operations at such times as 1855 Bancorp may
reasonably request. Sandwich will promptly notify 1855 Bancorp of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving Sandwich. Sandwich will also provide 1855 Bancorp such
information with respect to such events as 1855 Bancorp may reasonably request
from time to time. As soon as reasonably available, but in no event more than 45
days after the end of each calendar quarter ending after the date of this
Agreement (other than the last quarter of each fiscal year ending December 31),
the Sandwich will deliver to 1855 Bancorp its quarterly report on Form 10-Q
under the Exchange Act, and, as soon as reasonably available, but in no event
more than 90 days after the end of each fiscal year, Sandwich will deliver to
1855 Bancorp its Annual Report on Form 10-K. Within 25 days after the end of
each month, Sandwich will deliver to 1855 Bancorp a consolidated balance sheet
and a consolidated statement of operations, without related notes, for such
month.
6.3 ACCESS TO PROPERTIES AND RECORDS. Sandwich shall permit 1855 Bancorp
reasonable access upon reasonable notice to its properties and those of the
Sandwich Subsidiaries, and shall disclose and make available to 1855 Bancorp
during normal business hours all of its books, papers and records relating to
the assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and stockholders'
meetings, organizational documents, by-laws, material contracts and agreements,
filings with any regulatory authority, litigation files, plans affecting
employees, and any other business activities or prospects in which 1855 Bancorp
may have a reasonable interest; provided, however, that Sandwich shall not be
required to take any action that would provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights or business interests or confidences of any customer or other person or
would result in the waiver by it of the privilege protecting communications
between it and any of its counsel. Sandwich shall provide and shall request its
auditors to provide 1855 Bancorp with such historical financial information
regarding it (and related audit reports and consents) as 1855 Bancorp may
reasonably request for securities disclosure purposes.
6.4 FINANCIAL AND OTHER STATEMENTS.
6.4.1 Promptly upon receipt thereof, Sandwich will furnish to 1855 Bancorp
copies of each annual, interim or special audit of the books of Sandwich and the
Sandwich Subsidiaries made
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by its independent accountants and copies of all internal control reports
submitted to Sandwich by such accountants in connection with each annual,
interim or special audit of the books of Sandwich and the Sandwich Subsidiaries
made by such accountants.
6.4.2 As soon as practicable, Sandwich will furnish to 1855 Bancorp copies
of all such financial statements and reports as it or any Subsidiary shall send
to its stockholders, the SEC, the Bank Commissioner, the FDIC or any other
regulatory authority, except as legally prohibited thereby.
6.4.3 Sandwich will advise 1855 Bancorp promptly of the receipt of any
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of Sandwich or any of the Sandwich
Subsidiaries.
6.4.4 With reasonable promptness, Sandwich will furnish to 1855 Bancorp
such additional financial data as 1855 Bancorp may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
6.5 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time,
Sandwich will promptly supplement or amend the Disclosure Schedules delivered in
connection herewith pursuant to Article IV with respect to any material matter
hereafter arising which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
6.6 CONSENTS AND APPROVALS OF THIRD PARTIES. Sandwich shall use all
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, Sandwich shall utilize the services of a professional proxy
soliciting firm to help obtain the shareholder vote required to be obtained by
it hereunder.
6.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Sandwich agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, Sandwich agrees to take all
such actions as 1855 Bancorp may reasonably request in order to enforce its
rights under, and hereby grants 1855 Bancorp the irrevocable right and authority
to act as Sandwich's agent for purposes of enforcing its rights under, all
Standstill Agreements to the extent that any other party to any Standstill
Agreement purchases or attempts to purchase any shares of Sandwich Common Stock
in violation thereof.
6.8 FAILURE TO FULFILL CONDITIONS. In the event that Sandwich determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will promptly notify 1855 Bancorp.
6.9 NO SOLICITATION. Unless and until this Agreement shall have been
properly terminated by either party pursuant to Section 111 hereof, neither
Sandwich nor any of its subsidiaries shall (and Sandwich and Sandwich Bank shall
use all commercially reasonable efforts to cause its
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representatives, including, but not limited to, investment bankers, attorneys
and accountants, not to), directly or indirectly, encourage, solicit, initiate
or participate in any discussions or negotiations with, or, provide any
information to, any corporation, partnership, person or other entity or group
(other than 1855 Bancorp and its affiliates or Representatives) concerning any
merger, tender offer, sale of substantial assets, sale of shares of capital
stock or debt securities or similar transaction involving Sandwich or Sandwich
Bank (an "Acquisition Transaction"); provided, however that Sandwich and its
representatives shall be permitted to participate in discussions or negotiations
with, or provide information to, any other corporation, partnership, person or
other entity or group with respect to an Acquisition Transaction if the Board of
Directors of Sandwich determines (in good faith upon the advice of outside
counsel) that their fiduciary duties require them to do so. Notwithstanding the
foregoing, nothing contained in this Section 6.9 shall prohibit Sandwich or its
Board of Directors from taking and disclosing to Sandwich's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2(a) promulgated under the Exchange Act or from making such disclosure
to Sandwich's stockholders which, in the judgment of the Board of Directors
(upon the advice of counsel), may be required under applicable law or is
necessary in order to comply with its fiduciary obligations. Sandwich will
immediately communicate to 1855 Bancorp the terms of any proposal, discussion,
negotiation or inquiry relating to an Acquisition Transaction and the identity
of the party making such proposal or inquiry which it may receive in respect of
any such transaction (which shall mean that any such communication shall be
delivered no less promptly than by telephone within 24 hours of Sandwich's
receipt of any such proposal or inquiry) or its receipt of any request for
information from the FRB, the DOJ, or any other governmental agency or authority
with respect to a proposed Acquisition Transaction. Sandwich shall continue to
consult with 1855 Bancorp after receipt of such proposal or commencement of such
discussion or negotiation relating to an Acquisition Transaction, and will not
take any action with respect to such proposed Acquisition Transaction except
after reasonable consultation with 1855 Bancorp.
6.10 CEASE NEGOTIATIONS. Sandwich hereby agrees to cease all pending
discussions or negotiations with other interested persons relating to a possible
merger with or acquisition of Sandwich, and to instruct all such persons to
immediately return to Sandwich all copies of the evaluation materials provided
to such persons by Sandwich, without retaining any copy thereof, and to destroy
any notes such persons or their representatives may have prepared relating to a
possible combination with Sandwich, as required by the terms of the Standstill
Agreements between such parties and Sandwich; provided, however, that the
foregoing shall not be deemed to prevent Sandwich from acting in the future in
the manner permitted by Section 6.9.
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except with the written consent of Sandwich and
except as provided below, 1855 Bancorp will take no action which would (i)
materially adversely affect the ability of 1855 Bancorp or Sandwich to obtain
any necessary approvals of governmental authorities required for the transac
tions contemplated hereby or materially increase the period of time necessary to
obtain such approvals, or (ii) materially adversely affect its ability to
perform its covenants and agreements under this Agreement, (iii) disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 3.6.8 of the Code; or (iv) result in the
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representations and warranties of 1855 Bancorp contained in this Agreement not
being true and correct on the date of this Agreement or at any future date on or
prior to the Closing Date; provided that nothing herein contained shall preclude
1855 Bancorp from exercising its rights under the Sandwich Option Agreement or
taking any action Previously Disclosed, and provided further, that nothing
herein shall preclude 1855 Bancorp from electing to convert its charter to a
federal mutual holding company charter, subject to applicable law and
regulation.
7.2 CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, 1855 Bancorp will cause one or more of its
representatives to confer with represen tatives of Sandwich and report the
general status of its ongoing operations at such times as Sandwich may
reasonably request. 1855 Bancorp will promptly notify Sandwich of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving 1855 Bancorp. 1855 Bancorp will also provide Sandwich such
information with respect to such events as Sandwich may reasonably request from
time to time. As soon as reasonably available, but in no event more than 45 days
after the end of each calendar quarter ending after the date of this Agreement
(other than the last quarter of each fiscal year ending October 31), the 1855
Bancorp will deliver to Sandwich a consolidated balance sheet and a consolidated
statement of operations, without related notes, for such quarter prepared in
accordance with generally accepted accounting principles, and within 25 days
after the end of each month, 1855 Bancorp will deliver to Sandwich a
consolidated balance sheet and a consolidated statement of operations, without
related notes, for such month prepared in accordance with generally accepted
accounting principles.
7.3 ACCESS TO PROPERTIES AND RECORDS. 1855 Bancorp shall permit Sandwich
reasonable access upon reasonable notice to its properties and those of its
subsidiaries, and shall disclose and make available to Sandwich during normal
business hours all of its books, papers and records relating to the assets,
stock ownership, properties, operations, obligations and liabilities, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings, organizational
documents, by-laws, material contracts and agreements, filings with any
regulatory authority, litigation files, plans affecting employees, and any other
business activities or prospects in which Sandwich may have a reasonable
interest; provided, however, that 1855 Bancorp shall not be required to take any
action that would provide access to or to disclose information where such access
or disclosure would violate or prejudice the rights or business interests or
confidences of any customer or other person or would result in the waiver by it
of the privilege protecting communications between it and any of its counsel.
7.4 FINANCIAL AND OTHER STATEMENTS.
7.4.1 Promptly upon receipt thereof, 1855 Bancorp will furnish to Sandwich
copies of each annual, interim or special audit of the books of 1855 Bancorp and
its subsidiaries made by its independent accountants and copies of all internal
control reports submitted to 1855 Bancorp by such accountants in connection with
each annual, interim or special audit of the books of 1855 Bancorp and its
subsidiaries made by such accountants.
7.4.2 As soon as practicable, 1855 Bancorp will furnish to Sandwich copies
of all such financial statements and reports as it or any Subsidiary shall send
to the Bank Commissioner, the FDIC, the FRB or any other regulatory authority,
except as legally prohibited thereby.
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7.4.3 1855 Bancorp will advise Sandwich promptly of the receipt of any
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of 1855 Bancorp or any of its
subsidiaries.
7.4.4 With reasonable promptness, 1855 Bancorp will furnish to Sandwich
such additional financial data as Sandwich may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
7.5 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective
Time, 1855 Bancorp will promptly supplement or amend the Disclosure Schedules
delivered in connection herewith pursuant to Article V with respect to any
material matter hereafter arising which, if existing, occur ring or known at the
date of this Agreement, would have been required to be set forth or described in
such Disclosure Schedules or which is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby. No supplement or
amendment to such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
7.6 CONSENTS AND APPROVALS OF THIRD PARTIES. 1855 Bancorp shall use all
reasonable efforts to obtain as soon as practicable all consents and approvals
of any other Persons necessary or desirable for the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
approval of its Corporators of the Conversion.
7.7 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, 1855 Bancorp agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
7.8 FAILURE TO FULFILL CONDITIONS. In the event that 1855 Bancorp
determines that a condition to its obligation to complete the Merger cannot be
fulfilled and that it will not waive that condition, it will promptly notify
Sandwich.
7.9 EMPLOYEE BENEFITS.
7.9.1 All employees of Sandwich and its Subsidiaries as of the Effective
Time shall become employees of 1855 Bancorp or an 1855 Bancorp Subsidiary as of
the Effective Time. Nothing in this Agreement shall give any employee of
Sandwich or its Subsidiaries a right to continuing employment with 1855 Bancorp
or any Subsidiary thereof after the Effective Time. Any employee of Sandwich or
any Sandwich Subsidiary whose employment with 1855 Bancorp or any 1855 Bancorp
Subsidiary is terminated by 1855 Bancorp within one year after the Effective
Time shall be entitled to receive (i) a lump-sum severance benefit in an amount
equal to two-weeks' pay for each year of employment (with partial years of
service included in the calculation on a pro-rated basis), up to a maximum of 26
weeks' pay, and (ii) continuation of health benefits, on the same terms and
conditions applicable to 1855 Bancorp's active employees, for the same number of
weeks factored into the calculation of severance payments, and thereafter COBRA
benefits for an additional period of time determined as though the Sandwich
employee terminates employment upon expiration of the period covered by said
continued health benefits.
7.9.2 As soon as practicable after the Effective Time, 1855 Bancorp shall
provide or cause to be provided to all employees of Sandwich and any Sandwich
Subsidiary who remain employed by 1855 Bancorp or any 1855 Bancorp Subsidiary
after the Effective Time with
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employee benefits which, in the aggregate, are no less favorable than those
generally afforded to other em ployees of 1855 Bancorp or the 1855 Bancorp
Subsidiaries holding similar positions, subject to the terms and conditions
under which those employee benefits are made available to such employees,
provided, however, that (i) for purposes of determining eligibility for and
vesting of such employee benefits only (and not for pension benefit accrual
purposes), service with Sandwich or any Sandwich Subsidiary prior to the
Effective Time shall be treated as service with an "employer" as if such persons
had been employees of 1855 Bancorp, to the extent permissible under the terms of
1855 Bancorp's Employee Plans, (ii) this Section 7.9 shall not be construed to
limit the ability of 1855 Bancorp and its Subsidiaries to terminate the
employment of any employee or to review employee benefits programs from time to
time and to make such changes as they deem appropriate, and (iii) 1855 Bancorp
or a Subsidiary shall continue to provide post-retirement medical benefits to
former employees of Sandwich who as of the Effective Time are receiving post-
retirement medical benefits in accordance with Sandwich's Previously Disclosed
retiree health care Plans I, II, and III, (iv) 1855 Bancorp shall honor any and
all vacation leave (but not sick leave) accrued by Sandwich's employees, except
to the extent of any duplication of benefits, and (v) no preexisting condition
exclusion that is currently inapplicable to a Sandwich employee and/or the
employee's covered dependents shall affect their rights to health benefits or
coverage under 1855 Bancorp's plans, to the extent permissible under such plans.
7.9.3 Sandwich has Previously Disclosed to 1855 Bancorp certain employment
and change of control agreements, deferred compensation plans, Grantor Trust
Agreement, Supplemental Retirement Plans and Split Dollar Insurance Agreements
(collectively, "Benefit Agreements") and the Sandwich Employee Stock Ownership
Plan (the "ESOP"). Following the Effective Time, 1855 Bancorp shall honor or
cause its Subsidiaries to honor in accordance with their terms all such
Previously Disclosed Benefit Agreements and the ESOP and assume or cause its
Subsidiaries to assume all duties, liabilities and obligations under such
agreements and arrangements. 1855 Bancorp agrees that (i) the consummation of
the transactions contemplated hereby constitutes a "Change in Control" as
defined in the Benefit Agreements, and (ii) each of Sandwich's officers who is
party to an employment agreement with Sandwich will be deemed to have suffered a
material change in their responsibilities and supervision as of the Effective
Time, it being understood that the President of Sandwich shall terminate
employment as of the Effective Time and receive payments under Section 11(a) of
his Employment at such time.
7.10 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
7.10.1 1855 Bancorp shall maintain, or shall cause Compass Bank to
maintain, in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by
Sandwich (provided, that 1855 Bancorp may substitute therefor policies of at
least the same coverage containing terms and conditions which are not materially
less favorable) with respect to matters occurring prior to the Effective Time;
provided, however, that in no event shall 1855 Bancorp be required to expend
pursuant to this Section 7.10.1 more than $60,000 in the aggregate. In
connection with the foregoing, Sandwich agrees to provide such insurer or
substitute insurer with such representations as such insurer may request with
respect to the reporting of any prior claims.
7.10.2 From and after the Effective Time, 1855 Bancorp shall, or shall
cause Compass Bank to, indemnify, defend and hold harmless each person who is
now, or who has been at any time before the date hereof or who becomes before
the Effective Time, an officer or director
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of Sandwich or the Sandwich Subsidiaries or any of their respective subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorney's fees), liabilities or judgments or amounts that are paid
in settlement (which settlement shall require the prior written consent of 1855
Bancorp, which consent shall not be unreasonably withheld) of or in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, or administrative (each a "Claim"), in which an Indemnified Party is,
or is threatened to be made, a party or witness in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or employee of Sandwich or any of its subsidiaries if such
Claim pertains to any matter of fact arising, existing or occurring before the
Effective Time (including, without limitation, the Merger and the other
transactions contemplated hereby), regardless of whether such Claim is asserted
or claimed before, or at or after, the Effective Time (the "Indemnified
Liabilities"), to the fullest extent permitted under applicable state or federal
law in effect as of the date hereof or as amended applicable to a time before
the Effective Time and under Sandwich's and Sandwich Bank's Articles of
Organization or Charter and By-Laws. 1855 Bancorp shall pay expenses in advance
of the final disposition of any such action or proceeding to each Indemnified
Party to the full extent permitted by applicable state or federal law in effect
as of the date hereof or as amended applicable to a time before the Effective
Time upon receipt of an undertaking to repay such advance payments if he shall
be adjudicated or determined to be not entitled to indemnification in the manner
set forth below. Any Indemnified Party wishing to claim indemnification under
this Section 7.10.2 upon learning of any Claim, shall notify 1855 Bancorp (but
the failure so to notify 1855 Bancorp shall not relieve it from any liability
which it may have under this Section 7.10.2, except to the extent such failure
materially prejudices 1855 Bancorp) and shall deliver to 1855 Bancorp the
undertaking referred to in the previous sentence. In the event of any such Claim
(whether arising before or after the Effective Time) (1) 1855 Bancorp shall have
the right to assume the defense thereof (in which event the Indemnified Parties
will cooperate in the defense of any such matter) and upon such assumption 1855
Bancorp shall not be liable to any Indemnified Party for any legal expenses of
other counsel or any other expenses subsequently incurred by any Indemnified
Party in connection with the defense thereof, except that if 1855 Bancorp elects
not to assume such defense, or counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are or may be (whether or not any
have yet actually arisen) issues which raise conflicts of interest between 1855
Bancorp and the Indemnified Parties, the Indemnified Parties may retain counsel
reasonably satisfactory to them, and 1855 Bancorp shall pay the reasonable fees
and expenses of such counsel for the Indemnified Parties, (2) 1855 Bancorp shall
be obligated pursuant to this paragraph to pay for only one firm of counsel for
all Indemnified Parties whose reasonable fees and expenses shall be paid
promptly as statements are received, (3) 1855 Bancorp shall not be liable for
any settlement effected without its prior written consent (which consent shall
not be unreasonably withheld) and (4) no Indemnified Party shall be entitled to
indemnification hereunder with respect to a matter as to which (x) he shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of Sandwich or any
Subsidiary, or (y) in the event that a proceeding is compromised or settled so
as to impose any liability or obligation upon an Indemnified Party, if there is
a determination that with respect to said matter said Indemnified Party did not
act in good faith in the reasonable belief that his action was in the best
interests of Sandwich or any Subsidiary. The determination shall be made by a
majority vote of the Directors of 1855 Bancorp who were formerly directors of
Sandwich and who are not involved in such proceeding (the "Former Sandwich
Directors"), or, if a majority of the Former Sandwich Directors are involved in
the proceeding, by a committee of three
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disinterested Former Sandwich Directors chosen by all of the Former Sandwich
Directors for the purpose of making such determination.
7.10.3 In the event that either 1855 Bancorp or Compass Bank or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving bank or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of 1855 Bancorp shall assume the obligations set
forth in this Section 7.10.
7.10.4 The obligations of 1855 Bancorp provided under this Section 7.10 are
intended to be enforceable against 1855 Bancorp directly by the Indemnified
Parties and shall be binding on all respective successors and permitted assigns
of 1855 Bancorp.
7.11 MERGER SUB. Prior to the Effective Time, 1855 Bancorp will take any
and all necessary action to cause (i) Merger Sub to be organized, (ii) Merger
Sub to become a direct or indirect wholly-owned subsidiary of 1855 Bancorp,
(iii) the directors and stockholder or stock holders of Merger Sub to approve
the transactions contemplated by this Agreement, and (iv) Merger Sub to execute
one or more counterparts of this Agreement and to deliver at least one such
counterpart so executed to Sandwich, whereupon Merger Sub shall become a party
to and be bound by this Agreement.
7.12 STOCK LISTING. 1855 Bancorp agrees to list on the Stock Exchange
(or such other national securities exchange on which the shares of 1855 Bancorp
Common Stock shall be listed as of the date of consummation of the Merger),
subject to official notice of issuance, the shares of 1855 Common Stock to be
issued in the Merger.
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 SANDWICH SPECIAL MEETING. Sandwich will (i) as promptly as practicable
after the Merger Registration Statement is declared effective by the SEC, take
all steps necessary to duly call, give notice of, convene and hold a meeting of
its stockholders (the "Sandwich Stockholders Meeting") for the purpose of
approving this Agreement and the Merger, and for such other purposes as may be,
in Sandwich's reasonable judgment, necessary or desirable, (ii) subject to the
fiduciary responsibility of the Board of Directors of Sandwich as advised by
counsel, recommend to its stockholders the approval of the aforementioned
matters to be submitted by it to its stockholders, and (iii) cooperate and
consult with 1855 Bancorp with respect to each of the foregoing matters.
8.2 PROXY STATEMENT-PROSPECTUS.
8.2.1 For the purposes (x) of registering 1855 Bancorp's Common Stock to be
issued to holders of Sandwich Common Stock in connection with the Merger with
the SEC under the Securities Act and applicable state securities laws and (y) of
holding the Sandwich shareholders' meeting, 1855 Bancorp and Sandwich shall
cooperate in the preparation of a registration statement (such registration
statement, together with all and any amendments and supplements thereto, being
herein referred to as the "Merger Registration Statement"), including a proxy
statement/prospectus or statements satisfying all applicable requirements of
applicable state securities and banking laws, and of the Securities Act and the
Exchange Act, and the rules and regulations thereunder (such
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proxy statement/prospectus in the form mailed by Sandwich to the Sandwich
shareholders, together with any and all amendments or supplements thereto, being
herein referred to as the "Proxy Statement-Prospectus"). 1855 Bancorp shall
file the Merger Registration Statement with the SEC. Each of 1855 Bancorp and
Sandwich shall use their best efforts to have the Merger Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and Sandwich shall thereafter promptly mail the Proxy Statement-
Prospectus to its stockholders. 1855 Bancorp shall also use its best efforts to
obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement, and
Sandwich shall furnish all information concerning Sandwich and the holders of
Sandwich Common Stock as may be reasonably requested in connection with any such
action.
8.2.2 The parties shall provide each other with any information concerning
itself that the other party may reasonably request in connection with the Proxy
Statement-Prospectus and 1855 Bancorp shall notify Sandwich promptly of the
receipt of any comments of the SEC with respect to the Proxy Statement-
Prospectus and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to Sandwich promptly
copies of all correspondence between 1855 Bancorp or any representative of 1855
Bancorp and the SEC. 1855 Bancorp shall give Sandwich and its counsel the
opportunity to review and comment on the Proxy Statement -Prospectus prior to
its being filed with the SEC and shall give Sandwich and its counsel the
opportunity to review and comment on all amendments and supplements to the Proxy
Statement-Prospectus and all responses to requests for additional information
and replies to comments prior to their being filed with, or sent to, the SEC.
Each of 1855 Bancorp and Sandwich agrees to use all reasonable efforts, after
consultation with the other party hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement-Prospectus
and all required amendments and supplements thereto to be mailed to the holders
of Sandwich Common Stock entitled to vote at the Sandwich Stockholders Meeting
referred to in Section 81 hereof at the earliest practicable time.
8.2.3 Sandwich and 1855 Bancorp shall promptly notify the other party if
at any time it becomes aware that the Proxy Statement-Prospectus or the Merger
Registration Statement contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. In such event, Sandwich and 1855 Bancorp shall
cooperate in the preparation of a supplement or amendment to such Proxy
Statement-Prospectus which corrects such misstatement or omission, and shall
cause an amended Merger Registration Statement to be filed with the SEC and an
amended Proxy Statement-Prospectus to be mailed to Sandwich's stockholders.
Sandwich and 1855 Bancorp shall each provide to the other a "comfort" letter
from its independent certified public accountant, dated as of the date of the
Proxy Statement-Prospectus and updated as of the date of consummation of the
Merger, with respect to certain financial information regarding Sandwich and
1855 Bancorp, respectively, each in form and substance which is customary in
transactions such as the Merger.
8.3 1855 BANCORP CONVERSION FROM MUTUAL TO STOCK FORM. Commencing
promptly after the date of this Agreement, 1855 Bancorp and Compass Bank will
take all reasonable steps neces sary to effect the Conversion and 1855 Bancorp
shall use its best efforts to satisfy the conditions to closing set forth in
Section 9.2.5. In addition, without limiting the generality of the foregoing,
1855 Bancorp shall cause the following to be done:
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8.3.1 1855 Bancorp shall duly call, give notice of, convene and hold a
special meeting of its Board of Corporators as soon as practicable for the
purpose of approving the Conversion. The Board of Trustees of 1855 Bancorp will
recommend to the Corporators the approval of the Conversion.
8.3.2 1855 Bancorp will use all reasonable efforts to prepare and file all
required regulatory applications required in connection with the Conversion,
including, without limitation, filing applications with the Bank Commissioner,
the FDIC and the FRB.
8.3.3 1855 Bancorp shall prepare as promptly as practicable, and Sandwich
shall co-operate in the preparation of, a prospectus (the "Conversion
Prospectus") meeting all requirements of applicable federal and state securities
and banking laws and regulations. Such Conversion Prospectus shall be
incorporated into a Form S-1 Registration Statement (the "Form S-1") satisfying
all applicable requirements of the Securities Act, and the rules and regulations
thereunder. 1855 Bancorp shall file the Form S-1 with the SEC. Each of 1855
Bancorp and Sandwich shall use their reasonable best efforts to have the Form S-
1 declared effective under the Securities Act as promptly as practicable after
such filing, and 1855 Bancorp shall thereafter promptly mail the Conversion
Prospectus to its qualified depositors.
8.3.4 Sandwich shall provide 1855 Bancorp with any information concerning
it that 1855 Bancorp may reasonably request in connection with the Conversion
Prospectus, and 1855 Bancorp shall notify Sandwich promptly of the receipt of
any comments of the SEC, the FDIC or the Bank Commissioner with respect to the
Conversion Prospectus and of any requests by the SEC, the FDIC or the Bank
Commissioner for any amendment or supplement thereto or for additional
information, and shall provide to Sandwich promptly copies of all correspondence
between 1855 Bancorp or any representative of 1855 Bancorp and the SEC, the FDIC
or the Bank Commissioner. 1855 Bancorp shall give Sandwich and its counsel the
opportunity to review and comment on the Conversion Prospectus prior to its
being filed with the SEC, the Bank Commissioner and the FDIC and shall give
Sandwich and its counsel the opportunity to review and comment on all amendments
and supplements to the Conversion Prospectus and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC, the Bank Commissioner, and the FDIC. Each of 1855 Bancorp
and Sandwich agrees to use all reasonable efforts, after consultation with the
other party hereto, to respond promptly to all such comments of and requests by
the Bank Commissioner, FDIC and the SEC and to cause the Conversion Prospectus
and all required amendments and supplements thereto to be mailed to the
qualified depositors of Compass Bank at the earliest practicable time.
8.3.5 Sandwich shall promptly notify 1855 Bancorp if at any time it becomes
aware that the Conversion Prospectus or the Form S-1 contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. In such event,
Sandwich and 1855 Bancorp shall cooperate in the preparation of a supplement or
amendment to such Conversion Prospectus, which corrects such misstatement or
omission, and shall cause an amended Form S-1 to be filed with the SEC.
Sandwich shall provide to 1855 Bancorp a "comfort" letter from the independent
certified public accountants for Sandwich, dated as of the date of the
Conversion Prospectus and updated as of the date of consummation of the
Conversion, with respect to certain financial information regarding Sandwich,
each in form and substance which is customary in transactions such as the
Conversion, and shall cause its counsel to
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deliver to the placement agent for the Conversion such opinions as 1855 Bancorp
may reasonably request.
8.4 REGULATORY APPROVALS. Each of Sandwich and 1855 Bancorp will
cooperate with the other and use all reasonable efforts to promptly prepare all
necessary documentation, to effect all necessary filings and to obtain all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary to consummate the transactions contemplated by
this Agreement, including without limitation the Merger, the Bank Merger and the
Conversion. Sandwich and 1855 Bancorp will furnish each other and each other's
counsel with all information concerning themselves, their subsidiaries,
directors, officers and stockholders and such other matters as may be necessary
or advisable in connection with the Conversion Prospectus, the Proxy Statement-
Prospectus and any application, petition or any other statement or application
made by or on behalf of Sandwich or 1855 Bancorp to any governmental body in
connection with the Conversion, the Merger, the Bank Merger, and the other
transactions contemplated by this Agree ment. Sandwich and 1855 Bancorp shall
have the right to review and approve in advance all charac terizations of the
information relating to 1855 Bancorp or Sandwich, as the case may be, and any of
their respective subsidiaries, which appear in any filing made in connection
with the transactions contemplated by this Agreement with any governmental body.
In addition, Sandwich and 1855 Bancorp shall each furnish to the other for
review a copy of each such filing made in connection with the transactions
contemplated by this Agreement with any governmental body prior to its filing.
8.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS.
8.5.1 Sandwich shall use all reasonable efforts to cause each director,
executive officer and other person who is an "affiliate" (for purposes of Rule
145 under the Securities Act and for purposes of qualifying the Merger for
"pooling of interests" accounting treatment) of Sandwich to deliver to 1855
Bancorp, as soon as practicable after the date of this Agreement, and prior to
the date of the shareholders meeting called by Sandwich to approve this
Agreement, a written agreement, in the form of Exhibit C hereto, providing that
such person will not sell, pledge, transfer or otherwise dispose of any shares
of 1855 Common Stock or Sandwich Common Stock now or hereafter held by such
"affiliate", including, without limitation, the shares of 1855 Common Stock to
be received by such "affiliate" in the Merger: (1) otherwise than in compliance
with the applicable provisions of the Securities Act and the rules and
regulations thereunder or (2) during the period commencing 30 days prior to the
consummation of the Merger and ending at the time of the publication of
financial results covering at least 30 days of combined operations of 1855
Bancorp and Sandwich.
8.5.2 1855 Bancorp shall use its best efforts to publish no later than
thirty (30) days after the end of the first month after the Effective Time in
which there are at least thirty (30) days of post-Merger combined operations
(which month may be the month in which the Effective Time occurs), combined
sales and net income figures as contemplated by and in accordance with the terms
of SEC Accounting Series Release No. 135.
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the
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Pre-Closing Date of the following conditions, none of which may be waived:
9.1.1 STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in accordance with applicable law,
Articles of Organization, By-laws and NASD policy by the requisite vote of the
stockholders of Sandwich.
9.1.2 INJUNCTIONS. None of the parties hereto shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consum mation of the transactions contemplated by this
Agreement.
9.1.3 REGULATORY APPROVALS. All necessary approvals, authorizations and
consents of all governmental bodies required to consummate the transactions
contemplated by this Agreement shall have been obtained and shall remain in full
force and effect and all waiting periods relating to such approvals,
authorizations or consents shall have expired; and no such approval,
authorization or consent shall include any condition or requirement, not
reasonably foreseen as of the date of this Agreement, that would, in the good
faith reasonable judgment of the Board of Directors of 1855 Bancorp and
Sandwich, materially and adversely affect the business, operations, financial
condition, property or assets of the combined enterprise or of Sandwich or
Sandwich Bank or otherwise materially impair the value of Sandwich or Sandwich
Bank to 1855 Bancorp.
9.1.4 EFFECTIVENESS OF MERGER REGISTRATION STATEMENT. The Merger
Registration Statement shall have become effective under the Securities Act and
no stop order suspending the effectiveness of the Merger Registration Statement
shall have been issued, and no proceedings for that purpose shall have been
initiated or threatened by the SEC and, if the offer and sale of 1855 Common
Stock in the Merger is subject to the blue sky laws of any state, shall not be
subject to a stop order of any state securities commissioner.
9.1.5 STOCK EXCHANGE LISTING. The shares of 1855 Common Stock to be
issued in the Merger shall have been authorized for listing on the Stock
Exchange, subject to official notice of issuance.
9.1.6 TAX OPINION. On the basis of facts, representations and assumptions
which shall be consistent with the state of facts existing at the Pre-Closing
Date, each of 1855 Bancorp and Sandwich shall have received an opinion of
counsel reasonably acceptable in form and substance to 1855 Bancorp and Sandwich
dated as of the Pre-Closing Date, substantially to the effect that, for federal
income tax purposes:
(a) The Merger and the Bank Merger, when consummated in accordance with
the terms hereof, either will constitute a reorganization within the meaning
of Section 368(a) of the Code or will be treated as part of a reorganization
within the meaning of Section 368(a) of the Code,
(b) No gain or loss will be recognized by 1855 Bancorp, Compass,
Sandwich or Sandwich Bank by reason of the Merger or the Bank Merger,
(c) The exchange of Sandwich Common Stock to the extent exchanged for
1855 Common Stock will not give rise to recognition of gain or loss for
federal income tax purposes to the shareholders of Sandwich,
(d) The basis of the Sandwich Common Stock to be received (including any
fractional shares deemed received for tax purposes) by a Sandwich shareholder
will be the
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same as the basis of the Sandwich Common Stock surrendered pursuant to the
Merger in exchange therefor, and
(e) The holding period of the shares of 1855 Bancorp Sandwich Common
Stock to be received by a shareholder of Sandwich will include the period
during which the shareholder held the shares of Sandwich Common Stock
surrendered in exchange therefor, provided the Sandwich Common Stock
surrendered is held as a capital asset at the Effective Time.
Each of 1855 Bancorp and Sandwich shall provide a letter setting forth the
facts, assumptions and representations on which such counsel may rely in
rendering its opinion.
9.1.7 CONVERSION. 1855 Bancorp shall have consummated the Conversion,
and such Conversion shall have resulted in net proceeds sufficient to enable
Compass Bank to remain "well-capitalized" under applicable federal banking law
and otherwise to meet regulatory capital requirements, in each case after giving
effect to the Merger.
9.2 CONDITIONS TO THE OBLIGATIONS OF 1855 BANCORP UNDER THIS AGREEMENT.
The obligations of 1855 Bancorp under this Agreement shall be further subject to
the satisfaction, at or prior to the Pre-Closing, of the following conditions:
9.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Sandwich set forth in Article IV hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Pre-Closing
Date as though made on and as of the Pre-Closing Date (or on the date when made
in the case of any representation and warranty which specifically relates to
an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by 1855 Bancorp; provided, however, that (i) in
determining whether or not the condition contained in this Section 9.2.1 shall
be satisfied, no effect shall be given to any exceptions in such representations
and warranties relating to materiality or Material Adverse Effect and (ii) the
condition contained in this Section 9.2.1 shall be deemed to be satisfied unless
the failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on
Sandwich and the Sandwich Subsidiaries, taken as a whole; and Sandwich shall
have delivered to 1855 Bancorp a certificate of Sandwich to such effect signed
by the Chief Executive Officer and the Chief Financial Officer of Sandwich as of
the Effective Time.
9.2.2 AGREEMENTS AND COVENANTS. As of the Pre-Closing Date, Sandwich shall
have performed in all material respects all obligations and complied in all
material respects with all agreements or covenants of Sandwich to be performed
or complied with by it at or prior to the Effective Date under this Agreement,
except to the extent that any failure to perform or comply shall not
individually, or in the aggregate, have a Material Adverse Effect on Sandwich
and the Sandwich Subsidiaries, taken as a whole, or materially adversely affect
consummation of the Merger and other transactions contemplated hereby, and 1855
Bancorp shall have received a certificate signed on behalf of Sandwich by the
Chief Executive Officer and Chief Financial Officer of Sandwich to such effect
dated as of the Effective Time.
9.2.3 PERMITS, AUTHORIZATIONS, ETC. Sandwich and the Sandwich Subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approv als required for the lawful consummation of the
Merger by Sandwich, the failure to obtain which would have a Material Adverse
Effect on Sandwich and the Sandwich Subsidiaries, taken as a whole.
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9.2.4 LEGAL OPINION. 1855 Bancorp shall have received an opinion, dated
the Pre-Closing Date, from Housley Kantarian and Bronstein P.C., counsel to
Sandwich, in the form attached hereto as Exhibit D.
9.2.5 POOLING OF INTERESTS. 1855 Bancorp shall have received a letter from
Arthur Andersen LLP, addressed to 1855 Bancorp, to the effect that the Merger
will qualify for "pooling of interests" accounting treatment.
9.2.6 ACCOUNTANTS' LETTER. 1855 Bancorp shall have received a "comfort"
letter from the independent certified public accountants for Sandwich, dated (i)
the effective date of the Merger Registration Statement and (ii) the Pre-Closing
Date, with respect to certain financial information regarding Sandwich, each in
form and substance which is customary in transactions of the nature contemplated
by this Agreement.
Sandwich will furnish 1855 Bancorp with such certificates of its officers or
others and such other documents to evidence fulfillment of the conditions set
forth in this Section 9.2 as 1855 Bancorp may reasonably request.
9.3 CONDITIONS TO THE OBLIGATIONS OF SANDWICH UNDER THIS AGREEMENT. The
obligations of Sandwich under this Agreement shall be further subject to the
satisfaction of the conditions set forth in Sections 9.3.1 through 9.3.5 at or
prior to the Pre-Closing and the satisfaction of the condition set forth in
Section 9.3.6 at or prior to the Closing:
9.3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of 1855 Bancorp set forth in Article V hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Pre-Closing
Date as though made on and as of the Pre-Closing Date (or on the date when
made in the case of any representation and warranty which specifically relates
to an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by Sandwich; provided, however, that (i) in determining
whether or not the condition contained in this Section 9.3.1 shall be satisfied,
no effect shall be given to any exceptions in such representations and
warranties relating to materiality or Material Adverse Effect and (ii) the
condition contained in this Section 9.3.1 shall be deemed to be satisfied unless
the failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on 1855
Bancorp; and 1855 Bancorp shall have delivered to Sandwich a certificate of 1855
Bancorp to such effect signed by the Chief Executive Officer and the Chief
Financial Officer of 1855 Bancorp as of the Effective Time;
9.3.2 AGREEMENTS AND COVENANTS. As of the Pre-Closing Date, 1855 Bancorp
shall have performed in all material respects all obligations and complied in
all material respects with all agreements or covenants of 1855 Bancorp to be
performed or complied with by it at or prior to the Effective Date under this
Agreement except to the extent that any failure to perform or comply shall not
individually, or in the aggregate, have a Material Adverse Effect on 1855
Bancorp and the 1855 Bancorp Subsidiaries, taken as a whole, or materially
adversely affect consummation of the Merger and other transactions contemplated
hereby, and Sandwich shall have received a certificate signed on behalf of 1855
Bancorp by the Chief Executive Officer and Chief Financial Officer of 1855
Bancorp to such effect dated as of the Effective Time.
9.3.3 PERMITS, AUTHORIZATIONS, ETC. 1855 Bancorp and its subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required for the lawful consummation of the
Merger by 1855 Bancorp, the failure to obtain which
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would have a Material Adverse Effect on 1855 Bancorp and its subsidiaries, taken
as a whole.
9.3.4 ACCOUNTANTS' LETTER. Sandwich shall have received a "comfort" letter
from the independent certified public accountants for 1855 Bancorp, dated (i)
the effective date of the Merger Registration Statement and (ii) the Pre-Closing
Date, with respect to certain financial information regarding 1855 Bancorp, each
in form and substance which is customary in transactions of the nature
contemplated by this Agreement.
9.3.5 LEGAL OPINION. Sandwich shall have received an opinion from Foley,
Hoag & Eliot LLP, counsel to 1855 Bancorp, dated the Pre-Closing Date, in the
form attached hereto as Exhibit E.
9.3.6 PAYMENT OF MERGER CONSIDERATION. 1855 Bancorp shall have delivered
the Exchange Fund to the Exchange Agent on or before the Closing Date and the
Exchange Agent shall provide Sandwich with a certificate evidencing such
delivery.
1855 Bancorp will furnish Sandwich with such certificates of its officers
or others and such other documents to evidence fulfillment of the conditions set
forth in this Section 9.3 as Sandwich may reasonably request.
ARTICLE X
THE CLOSING
10.1 TIME AND PLACE. Subject to the provisions of Articles IX and XI
hereof, the Closing of the transactions contemplated hereby shall take place at
the offices of Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts at 10:00 a.m. on the tenth trading day following consummation of
the Conversion, or at such other place, date or time as 1855 Bancorp and
Sandwich may mutually agree upon. A pre-closing of the transactions
contemplated hereby (the "Pre-Closing") shall take place at the offices of
Foley, Hoag & Eliot LLP, One Post Office Square, Boston, Massachusetts at 10:00
a.m. on the date of consummation of the Conversion.
10.2 DELIVERIES AT THE PRE-CLOSING AND THE CLOSING. At the Pre-Closing
there shall be delivered to 1855 Bancorp and Sandwich the opinions,
certificates, and other documents and instruments required to be delivered at
the Pre-Closing under Article IX hereof. At the Closing there shall be delivered
to Sandwich the Merger Consideration required to be delivered at the Closing
under Section 9.3.6 hereof.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Pre-Closing Date, whether before or after approval of the Merger by the
stockholders of Sandwich:
11.1.1 At any time by the mutual written agreement of 1855 Bancorp and
Sandwich;
11.1.2 By either Sandwich or 1855 Bancorp (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach by its nature cannot be cured prior to the
Pre-Closing Date or shall not have been cured within 30 business days after
written notic eby 1855 Bancorp to Sandwich (or by Sandwich to 1855 Bancorp) of
such breach (for
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purposes of this Section 11.1.2 a material breach shall be deemed to be a breach
which has, either individually or in the aggregate, a Material Adverse Effect
on the party making such representations or warranties (provided, that no
effect shall be given to any qualification relating to materiality or a
Material Adverse Effect in such representations and warranties) or a Material
Adverse Effect on the business, operations, financial condition, property or
assets of the combined enterprise or which materially adversely affects
consummation of the Merger and the other transactions contemplated hereby,
including the Conversion);
11.1.3 By either Sandwich or 1855 Bancorp (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material failure
to perform or comply with any of the covenants or agreements set forth in this
Agreement on the part of the other party, which failure by its nature cannot be
cured prior to the Pre-Closing Date or shall not have been cured within 30
business days after written notice by 1855 Bancorp to Sandwich (or by Sandwich
to 1855 Bancorp) of such failure (for purposes of this Section 11.1.3 a material
failure to perform or comply shall be deemed to be a failure which has, either
individually or in the aggregate, a Material Adverse Effect on the party so
failing or on the business, operations, financial condition, property or assets
of the combined enterprise or which materially adversely affects consummation of
the Merger and the other transactions contemplated hereby, including the
Conversion);
11.1.4 At the election of either 1855 Bancorp or Sandwich, if the Closing
shall not have occurred on or before February 20, 1999 (the "Termination Date"),
or such later date as shall have been agreed to in writing by 1855 Bancorp and
Sandwich; provided, that no party may terminate this Agreement pursuant to this
Section 11.1.4 if the failure of the Closing to have occurred on or before said
date was due to such party's breach of any of its obligations under this
Agreement, and provided, further, that the Termination Date may be extended for
an additional one-month period by either party by written notice to the other
party (given not later than one week prior to the Termination Date) if the
Closing shall not have occurred because of failure to have obtained approval
from one or more regulatory authorities whose approval is required in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, in connection with the Conversion) under circumstances in which
neither party has the right to terminate this Agreement pursuant to Section
11.1.6 hereof;
11.1.5 By either Sandwich or 1855 Bancorp if the stockholders of Sandwich
shall have voted at the Sandwich stockholders meeting on the transactions
contemplated by this Agreement and such vote shall not have been sufficient to
approve such transactions;
11.1.6 By either Sandwich or 1855 Bancorp (i) if final action has been
taken by a regulatory authority whose approval is required in connection with
this Agreement and the transactions contemplated hereby (other than the
Conversion), which final action (x) has become unappealable and (y) does not
approve this Agreement or the transactions contemplated hereby, or (ii) if any
court of competent jurisdiction or other governmental authority shall have
issued an order, decree, ruling or taken any other action restraining, enjoining
or otherwise prohibiting the Merger or the Bank Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
11.1.7 By either Sandwich or 1855 Bancorp (i) if final action has been
taken by a regulatory authority whose approval is required in connection with
the Conversion, which final action (x) has become unappealable and (y) does not
approve the Conversion, or (ii) if any court of
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competent jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Conversion and such order, decree, ruling or other
action shall have become final and nonappealable;
11.1.8 By Sandwich or 1855 Bancorp if a Payment Event occurs; or
11.1.9 By the Board of Directors of either party (provided, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) in the event that any
of the conditions precedent to the obligations of such party to consummate the
Merger cannot be satisfied or fulfilled by the date specified in Section 11.1.4
of this Agreement.
It is the intention of the parties that following completion of the Pre-Closing,
which completion will be acknowledged in writing by the parties at such time,
neither party shall have the right to terminate this Agreement at any time
thereafter. If, after the Pre-Closing Date, any party hereto shall attempt to
terminate this Agreement or shall fail to take any action necessary to effect
the consummation of the Merger (including, without limitation, 1855 Bancorp's
obligation to satisfy the condition set forth in Section 9.3.6), the other party
shall be entitled to injunctive relief to enforce this Agreement, and the first
party hereby agrees not to contest any judicial proceeding seeking the granting
of such an injunction.
11.2 EFFECT OF TERMINATION.
11.2.1 In the event of termination of this Agreement pursuant to any
provision of Section 11.1, this Agreement shall forthwith become void and have
no further force, except that (i) the provisions of Sections 1.1, 11.3, 11.4,
12.1, 12.2, 12.6, 12.9, 12.10, this Section 11.2, and any other Section which,
by its terms, relates to post-termination rights or obligations, shall survive
such termination of this Agreement and remain in full force and effect.
11.2.2 If this Agreement is terminated, expenses and damages of the parties
hereto shall be determined as follows:
(a) Subject to Sections 11.3 and 11.4, termination of this Agreement
pursuant to Section 11.1 (other than termination pursuant to Sections 11.1.2
and 11.1.3 as a result of a willful breach or gross negligence by a party
hereto) shall be without liability, cost or expense on the part of any
party to the other.
(b) In the event of a termination of this Agreement pursuant to Section
11.1.2 or 11.1.3 hereof resulting from the willful conduct or gross
negligence of a party, such party shall be obligated to reimburse the other
party for up to $1,000,000 of out-of-pocket costs and expenses, including,
without limitation, reasonable legal, accounting and investment banking fees
and expenses, incurred by such other party in connection with the entering
into of this Agreement and the carrying out of any and all acts contemplated
hereunder (collectively referred to as "Costs"). The payment of Costs is
not an exclusive remedy, but is in addition to any other rights or remedies
available to the parties hereto at law or in equity or as is contemplated
herein. Notwithstanding anything to the contrary herein, if (i) Sandwich
makes the payment contemplated in Section 11.4 of this Agreement or (ii) if
1855 Bancorp makes the payment contemplated in Section 11.3 of this
Agreement, such party shall not have any further liability to the other
party (or its Subsidiaries), whether for Costs, breach or otherwise.
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11.2.3 Except as provided in Sections 11.2.2, 11.3 and 11.4, whether or
not the Merger is consummated, all Costs incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such costs and expenses.
11.2.4 In no event shall any officer, agent or director of Sandwich, any
Sandwich Subsidiary, 1855 Bancorp or any 1855 Bancorp Subsidiary, be personally
liable thereunder for any default by any party in any of its obligations
hereunder unless any such default was intentionally caused by such officer,
agent or director.
11.3 1855 BANCORP SPECIAL PAYMENT. As a condition of Sandwich's
willingness to, and in order to induce Sandwich to, enter into this Agreement,
and to reimburse Sandwich for incurring the damages, costs and expenses related
to entering into this Agreement and consummating the transactions contemplated
by this Agreement, 1855 Bancorp hereby agrees to pay to Sandwich, as liquidated
damages and in lieu of any other rights or remedies under this Agreement, a
payment in the amount of $6,000,000 (the "Special Payment") if and only if (i)
the Merger is not consummated and the Agreement is terminated in accordance
with its terms due to the failure of the condition set forth in Section 9.1.7 of
this Agreement, or (ii) the Agreement is terminated pursuant to Section 11.1.7
or (iii) 1855 Bancorp otherwise does not consummate the Conversion by no later
than February 20, 1999 (subject to the one month extension contemplated in
Section 11.1.4 herein), or (iv) Sandwich has terminated this Agreement in
accordance with Section 11.1.2 or 11.1.3 because 1855 Bancorp has intentionally
or willfully breached any of its representations or warranties herein or
intentionally and willfully failed to perform or comply with any of its
covenants or agreements herein, to such extent as to permit such termination
(such reasons for termination being hereinafter referred to as the
"Special Payment Event"). It is understood and agreed that 1855 Bancorp does
not intend to (and shall not be obligated to) consummate the Conversion unless
the conditions to its obligations to consummate the Merger have been satisfied
on or before the Pre-Closing Date. Notwithstanding the foregoing, 1855 Bancorp
shall have no obligation to make any Special Payment to Sandwich if the Special
Payment Event is primarily due to a breach of a representation or warranty of
Sandwich (subject to the standard set forth in Section 9.2.1 of this Agreement)
or a breach by Sandwich of one or more covenants in this Agreement (subject to
the standard set forth in Section 9.2.2 of this Agreement), which breach of
representation, warranty or covenant directly or adversely affects 1855
Bancorp's ability to consummate the Merger or satisfy the condition set forth
in Section of this 9.1.7 Agreement.
11.3.1 PAYMENTS REQUIRED. Any payment required to be made under this
Section 11.3 shall be paid by 1855 Bancorp to Sandwich by wire transfer of
immediately available funds to an account designated by Sandwich within five
business days after demand by Sandwich.
11.3.2 EXCLUSIVITY OF REMEDY. Notwithstanding anything to the contrary set
forth in this Agreement, if 1855 Bancorp pays or causes to be paid to Sandwich
the Special Payment, neither 1855 Bancorp nor Compass Bank will have any further
obligations or liabilities to Sandwich or Sandwich Bank with respect to this
Agreement or the transactions contemplated by this Agreement.
11.4 SANDWICH CHANGE IN CONTROL EXPENSE FEE. As a condition of 1855
Bancorp's willingness to, and in order to induce 1855 Bancorp to, enter into
this Agreement, and to reimburse 1855 Bancorp for incurring the damages, costs
and expenses related to entering into this Agreement and consummating the
transactions contemplated by this Agreement, Sandwich hereby agrees to pay to
1855 Bancorp, as liquidated damages, and in lieu of any other rights or remedies
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under this Agreement, a payment in the amount of $6,000,000 (the "Expense Fee")
if and only if a Payment Event (as hereinafter defined) shall have occurred
before the Expense Fee Termination Date (as hereinafter defined) determined in
accordance with Section 11.4.3.
11.4.1 "PAYMENT EVENT" shall mean any of the following events:
(a) Without 1855 Bancorp's prior written consent, Sandwich shall have
authorized, proposed, or entered into, or publicly announced an intention to
authorize, propose, or enter into an agreement with any person (other than
1855 Bancorp or any 1855 Bancorp Subsidiary) to effect (A) a merger,
consolidation or similar transaction involving Sandwich or any Sandwich
Subsidiary, (B) the disposition, by sale, lease, exchange or otherwise, of
assets of Sandwich or any Sandwich Subsidiary representing in either case 15%
or more of the consolidated assets of Sandwich and the Sandwich Subsidiaries,
or (C) the issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 15% or more of the voting power of Sandwich or any Sandwich
Subsidiary (any of the foregoing a "Change of Control Transaction"); or
(b) any person (other than 1855 Bancorp or any 1855 Bancorp Subsidiary)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
13(d)(3) of the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Sandwich Common Stock.
11.4.2 A "TIME EXTENSION EVENT" means any of the following events:
(a) any person (other than 1855 Bancorp or any 1855 Bancorp Subsidiary)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
any shares of Sandwich Common Stock such that, upon consummation of such
offer, such person would own or control 10% or more of the then outstanding
shares of Sandwich Common Stock (such an offer being referred to herein as
a "Tender Offer" and an "Exchange Offer," respectively); or
(b) following the public announcement of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place), the holders of
Sandwich Common Stock shall not have approved this Agreement at the meeting
of such stockholders held for the purpose of voting on this Agreement (the
term ""Acquisition Proposal" is defined to mean (x) a bona fide proposal by
any person (other than 1855 Bancorp or any subsidiary of 1855 Bancorp) shall
have been made to Sandwich or its stockholders to engage in a Change of
Control Transaction, (y) any person (other than 1855 Bancorp or any
subsidiary of 1855 Bancorp) shall have stated its intention to Sandwich or
its stockholders to make a proposal to engage in a Change of Control
Transaction if this Agreement terminates or (z) any person (other than 1855
Bancorp or any subsidiary of 1855 Bancorp) shall have filed an application or
notice with any Governmental Entity to engage in a Change of Control
Transaction); or
(c) following the occurrence of an Acquisition Proposal (which the
parties hereto acknowledge has already taken place):
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(i) the meeting of Sandwich stockholders held for the purpose of
voting on this Agreement shall not have been held or shall have been
canceled prior to termination of this Agreement,
(ii) Sandwich's Board of Directors shall have withdrawn or
modified in a manner adverse to 1855 Bancorp the recommendation of
Sandwich's Board of Directors with respect to this Agreement and the
Merger;
(iii) Sandwich shall have willfully or intentionally breached
any representation, warranty, covenant or obligation contained in this
Agreement and such breach would entitle 1855 Bancorp to terminate this
Agreement under Section 11.1.2 or 11.1.3 hereof (without regard to the
cure period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms of
this Agreement); or
(iv) The Merger shall not have been consummated by reason of failure
of the pooling of interests condition, and such failure is the result
of the actions of a party not affiliated with either 1855 Bancorp or
Sandwich.
11.4.3 DURATION OF 1855 BANCORP'S RIGHTS WITH RESPECT TO EXPENSE FEE.
Notwithstanding any other provision of this Agreement, the provisions of this
Section 11.4 shall remain in effect and shall be enforceable by 1855 Bancorp or
any successor in interest until the "Expense Fee Termination Date", which shall
be the earliest to occur of:
(a) The Effective Time of the Merger,
(b) The date that is 12 months after termination of this Agreement
following the occurrence of a Time Extension Event;
(c) The date on which the Agreement is terminated in accordance with
its terms, but only if such termination takes place prior to the occurrence
of a Payment Event or a Time Extension Event.
11.4.4 PAYMENTS REQUIRED. Any payment required to be made under this
Section 11.4 shall be paid by Sandwich to 1855 Bancorp by wire transfer of
immediately available funds to an account designated by 1855 Bancorp within
five business days after demand by 1855 Bancorp. In the event of a termination
under circumstances that would trigger a payment under this Section 11.4, the
standstill provisions contained in the Confidentiality Agreement shall
terminate.
11.4.5 EXCLUSIVITY OF REMEDY. Notwithstanding anything to the contrary set
forth in this Agreement, if Sandwich pays or causes to be paid to 1855 Bancorp
or to Compass Bank the Expense Fee, neither Sandwich nor Sandwich Bank will have
any further obligations or liabilities to 1855 Bancorp or Compass Bank with
respect to this Agreement or the transactions contemplated by this Agreement.
11.5 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at any
time prior to the Effective Time (whether before or after approval thereof by
the stockholders of Sandwich), the parties hereto may (a) amend this Agreement,
(b) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (c) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (d)
waive compliance with any of the agreements or conditions contained herein;
provided, however, that
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after any approval of this Agreement and the transactions contemplated hereby by
the stockholders of Sandwich, there may not be, without further approval of such
stockholders, any amendment of this Agreement which reduces the amount or
changes the form of consideration to be delivered to Sandwich's stockholders
pursuant to this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with re spect to, any subsequent or other failure.
ARTICLE XII
MISCELLANEOUS
CONFIDENTIALITY. Except as specifically set forth herein, 1855 Bancorp and
Sandwich mutually agree to be bound by the terms of the Confidentiality
Agreements, as amended, previously executed by the parties hereto, which
Agreements and any amendments thereto are hereby incorporated herein by
reference. The parties hereto agree that such Confidentiality Agreements, as
amended, shall continue in accordance with their respective terms,
notwithstanding the termination of this Agreement.
12.1 PUBLIC ANNOUNCEMENTS. Sandwich and 1855 Bancorp shall cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement, except as
may be otherwise required by law, and neither Sandwich nor 1855 Bancorp shall
issue any joint news releases with respect to this Agreement unless such news
releases have been mutually agreed upon by the parties hereto, except as
required by law.
12.3 SURVIVAL. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Date other
than covenants that by their terms are to survive or be performed after the
Effective Date.
12.4 NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered by receipted hand delivery or
mailed by prepaid registered or certified mail (return receipt requested) or by
cable, telegram, telex or fax addressed as follows:
If to Sandwich or Sandwich Bank, to:
100 Old King's Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
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If to 1855 Bancorp or to Compass Bank, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
12.5 PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party, and that (except as otherwise
expressly provided in this Agreement or as is contemplated in Section 7.9 of
this Agreement) nothing in this Agreement is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement.
12.6 COMPLETE AGREEMENT. This Agreement, including the Exhibits and
Disclosure Schedules hereto and the documents and other writings referred to
herein or therein or delivered pursuant hereto or thereto, together with the
Stock Option Agreement and the Confidentiality Agreement, as amended, referred
to in Section 12.1, contains the entire agreement and understanding of the
parties with respect to its subject matter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties
other than those expressly set forth herein or therein. This Agreement
supersedes all prior agreements and understandings (other than the
Confidentiality Agreements referred to in Section 12.1 hereof) between the
parties, both written and oral, with respect to its subject matter, including
without limitation the Original Agreement.
12.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
12.8 SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent
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jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement and the parties shall use their
reasonable efforts to substitute a valid, legal and enforceable provision which,
insofar as practical, implements the purposes and intents of this Agreement.
12.9 GOVERNING LAW. This Agreement shall be governed by the laws of
Massachusetts, without giving effect to its principles of conflicts of laws.
12.10 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. The recitals hereto constitute an integral
part of this Agreement. References to Sections include subsections, which are
part of the related Section (e.g., a section numbered "Section 5.5.1" would be
part of "Section 5.5" and references to "Section 5.5" would also refer to
material contained in the subsection described as "Section 5.5.1"). The table of
contents, index and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the Recitals to this Agreement.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, 1855 Bancorp, Compass Bank, Sandwich and Sandwich Bank
have caused this Agreement to be executed under seal by their duly authorized
officers as of the date first set forth above.
THE 1855 BANCORP
[SEAL] By: /s/ Kevin G. Champagne
-----------------------------------------------
President and CEO
[SEAL] By: /s/ Francis S. Mascianica
-------------------------------------------------
Treasurer
COMPASS BANK FOR SAVINGS
[SEAL] By: /s/ Kevin G. Champagne
-----------------------------------------------
President and CEO
[SEAL] By: /s/ Francis S. Mascianica
-----------------------------------------------
Treasurer
SANDWICH BANCORP, INC.
[SEAL] By: /s/ Frederic D. Legate
-----------------------------------------------
President and CEO
[SEAL] By: /s/ George L. Larson
-----------------------------------------------
Treasurer
THE SANDWICH CO-OPERATIVE BANK
[SEAL] By: /s/ Frederic D. Legate
-----------------------------------------------
President and CEO
[SEAL] By: /s/ George L. Larson
--------------------------------------------------
Treasurer
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EXHIBIT A
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of March __, 1998 (the "Agreement"),
by and between Sandwich Bancorp, Inc. ("Issuer"), a Massachusetts corporation
and bank holding company and the parent of the Sandwich Co-operative Bank, a
Massachusetts co-operative bank ("Sandwich Bank"), and The 1855 Bancorp
("Grantee"), a Massachusetts mutual holding company and the parent of Compass
Bank For Savings, a Massachusetts savings bank ("Compass Bank").
WITNESSETH:
WHEREAS, Issuer, Grantee, Compass Bank and Sandwich Bank have entered
into an Amended and Restated Affiliation and Merger Agreement dated as of March
23, 1998 (the "Affiliation Agreement"), providing for, among other things, the
merger of Issuer with Grantee or an Affiliate of Grantee (the "Merger"); and
WHEREAS, as a condition and inducement to Grantee's execution of the
Affiliation Agreement, Grantee has required that Issuer agree, and Issuer has
agreed, to grant to Grantee the Option (as hereinafter defined); and
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Affiliation Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1 DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Affiliation
Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 387,107 shares (as adjusted as set forth herein, the "Option
Shares," which shall include the Option Shares before and after any transfer of
such Option Shares) of Common Stock, par value $1.00 per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
of $57.00, provided, however, that in no event shall the number of Option Shares
for which the Option is exercisable exceed 19.9% of the issued and outstanding
shares of Issuer Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Issuer Common Stock that
may be received upon the exercise of the Option and the Purchase Price are
subject to adjustment as herein set forth.
3. EXERCISE OF OPTION.
(a) Grantee or Holder (as hereinafter defined) may exercise the
Option, in whole or in part, at any time and from time to time following the
occurrence of a Purchase Event (as hereinafter defined) and before an Exercise
Termination Event (as hereinafter defined). Each of the following shall be an
"Exercise Termination Event":
(i) The Effective Time (as defined in the Affiliation Agreement) of the
Merger,
(ii) The passage of 12 months after termination of the Affiliation Agreement
following the occurrence of a Purchase Event or a Preliminary Purchase Event;
<PAGE>
(iii) The date on which the Affiliation Agreement is terminated in
accordance with its terms, but only if such termination takes place prior to
the occurrence of a Purchase Event or a Preliminary Purchase Event; and
(iv) The passage of 12 months after the Affiliation Agreement is terminated
by Grantee pursuant to Section 11.1.2 or 11.1.3 of the Affiliation Agreement.
Any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable laws, including without limitation the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and the Bank Merger Act, as
amended ("Bank Merger Act"). The term "Holder" shall mean the holder or holders
of the Option from time to time (subject to the limitations contained in Section
12(h)). The Grantee is the initial Holder. The rights set forth in Section 8
hereof shall terminate when the right to exercise the Option terminates (other
than as a result of a complete exercise of the Option) as set forth above.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended or publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
(A) a merger, consolidation or similar transaction involving Issuer or any of
its subsidiaries, (B) the disposition, by sale, lease, exchange or otherwise,
of assets of Issuer or any Issuer Subsidiary representing in either case 15%
or more of the consolidated assets of Issuer and the Issuer Subsidiaries, or
(C) the issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 15% or more of the voting power of Issuer or any of the Issuer
Subsidiaries (any of the foregoing an "Acquisition Transaction"); or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in Section
13(d)(3) of the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of
the following events:
(i) any person (other than Grantee or any subsidiary of Grantee)
shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
any shares of Issuer Common Stock such that, upon consummation of such offer,
such person would own or control 10% or more of the then outstanding shares
of Issuer Common Stock (such an offer being referred to herein as a "Tender
Offer" and an "Exchange Offer," respectively); or
(ii) following the public announcement of an Acquisition Proposal
(which the parties hereto acknowledge has already taken place), the holders
of Issuer Common Stock shall not have approved the Affiliation Agreement at
the meeting of such stockholders held for the purpose of voting on the
Affiliation Agreement (the term ""Acquisition Proposal" is defined to mean
(x) a bona fide proposal by any person (other than Grantee or any subsidiary
of Grantee) shall have been made to Issuer or its stockholders to engage in a
Acquisition Transaction, (y) any person (other than Grantee or any subsidiary
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of Grantee) shall have stated its intention to Issuer or its stockholders to
make a proposal to engage in a Acquisition Transaction if the Affiliation
Agreement terminates or (z) any person (other than Grantee or any subsidiary
of Grantee) shall have filed an application or notice with any Governmental
Entity to engage in a Acquisition Transaction); or
(iii) following the occurrence of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place):
(A) the meeting of Issuer stockholders held for the purpose of
voting on the Affiliation Agreement shall not have been held or shall have
been canceled prior to termination of the Affiliation Agreement,
(B) Issuer's Board of Directors shall have withdrawn or modified,
or publicly announced its intention to withdraw or modify, in a manner
adverse to Grantee the recommendation of Issuer's Board of Directors with
respect to the Affiliation Agreement and the Merger;
(C) Issuer shall have breached any representation, warranty,
covenant or obligation contained in the Affiliation Agreement and such breach
would entitle Grantee to terminate the Affiliation Agreement under Section
11.1.2 or 11.1.3 of the Affiliation Agreement (without regard to the cure
period provided for therein unless such cure is promptly effected without
jeopardizing consummation of the Merger pursuant to the terms of the
Affiliation Agreement); or
(D) The Merger shall not have been consummated by reason of
failure of the pooling of interests condition, and such failure is the
result of the actions of a party not affiliated with either Grantee or
Issuer; or
(iv) any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have (x) acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or (y) filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or otherwise to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Preliminary Purchase Event or Purchase Event, it being understood that
the giving of such notice by Issuer shall not be a condition to the right of
Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send
to Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise, and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the
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<PAGE>
Federal Deposit Insurance Corporation, the Massachusetts Division of Banks, or
any other Governmental Entity is required in connection with such purchase,
Issuer shall cooperate with Grantee in the filing of the required notice of
application for approval and the obtaining of such approval and the Closing
shall occur immediately following such regulatory approvals (and any mandatory
waiting periods). Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender this
Agreement to Issuer at the address of Issuer specified in Section 12(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever and subject to no preemptive rights, and (B) if the Option is
exercised in part only, an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the shares of Issuer
Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a
letter agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable
law, certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
MARCH 23, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY ISSUER OF A WRITTEN REQUEST
THEREFOR.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if Holder shall have delivered to Issuer a copy of a letter from the staff of
the SEC, or an opinion of counsel, in form and substance reasonably satisfactory
to Issuer, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(d) Upon the giving by Holder to Issuer of the written notice of
exercise of the Option provided for under Section 3(e), the tender of the
applicable purchase price in immediately available funds and the tender of this
Agreement to Issuer, Holder shall be deemed to be the holder
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of record of the shares of Issuer Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Issuer Common Stock shall not then
be actually delivered to Holder.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock so that the Option may be exercised without
requiring Issuer's stockholders to approve an increase in the number of
authorized shares of Issuer Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Issuer
Common Stock, (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification, reporting
and waiting period requirements and (B) in the event prior approval of or notice
to any Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of Issuer Common Stock pursuant hereto, and (iv) promptly to take
all action provided herein to protect the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby
represents and warrants to Grantee (and Holder, if different than Grantee) as
follows:
(a) CORPORATE POWER AND AUTHORITY. Issuer has all requisite corporate
power and authority to enter into this Agreement, and subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer, and this Agreement has been duly
executed and delivered by Issuer.
(b) NO VIOLATIONS. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Issuer
with any of the provisions hereof will not (i) conflict with or result in a
breach of any provision of its Articles of Organization or Bylaws or a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond, debenture,
mortgage, indenture, license, material agreement or other material instrument or
obligation to which Issuer is a party, or by which it or any of its properties
or assets may be bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Issuer or any of its properties or
assets.
(c) AUTHORIZED STOCK. Issuer has taken all necessary corporate and
other action to authorize and reserve and to permit it to issue, and at all
times from the date hereof until the obligation to deliver Issuer Common Stock
upon the exercise of the Option terminates, will have reserved for issuance upon
exercise of the Option that number of shares of Issuer Common Stock equal to the
maximum number of shares of Issuer Common Stock at any time and from time to
time purchasable upon exercise of the Option, and all such shares, upon issuance
pursuant to the Option, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever and not subject to any
preemptive rights.
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6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby
represents and warrants to Issuer as follows:
(a) CORPORATE POWER AND AUTHORITY. Grantee has all requisite
corporate power and authority to enter into this Agreement and, subject to any
approvals or consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Grantee, and this Agreement
has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Issuer Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transactions so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of
the number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Holder, of any of (x) the Acquiring Corporation (as
hereinafter defined), (y) any person that controls the Acquiring Corporation or
(z) in the case of a merger described in clause (ii), Issuer (such person being
referred to as "Substitute Option Issuer").
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(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Holder. Substitute Option Issuer also shall enter
into an agreement with Holder in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock (as hereinafter defined) as is equal to the
Assigned Value (as hereinafter defined) multiplied by the number of shares of
Issuer Common Stock for which the Option was theretofore exercisable, divided by
the Average Price (as hereinafter defined). The exercise price of Substitute
Option per share of Substitute Common Stock (the "Substitute Option Price")
shall then be equal to the Purchase Price multiplied by a fraction in which the
numerator is the number of shares of Issuer Common Stock for which the Option
was theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all of
Issuer's assets (or a substantial part of the assets of its subsidiaries
taken as a whole).
(2) "Substitute Common Stock" shall mean the shares of capital
stock (or similar equity interest) with the greatest voting power in respect
of the election of directors (or persons similarly responsible for the
direction of the business and affairs) of the Substitute Option Issuer.
(3) "Assigned Value" shall mean the highest of (w) the price per
share of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made (other than by Holder), (x) the price per share of
Issuer Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (y) the highest closing price for shares of Issuer Common Stock
within the six-month period immediately preceding the consolidation, merger
or sale in question and (z) in the event of a sale of all or substantially
all of Issuer's assets or deposits, an amount equal to (i) the sum of the
price paid in such sale for such assets (and/or deposits) and the current
market value of the remaining assets of Issuer, as determined by a
nationally-recognized investment banking firm selected by the Holder and
reasonably acceptable to the Issuer, divided by (ii) the number of shares of
Issuer Common Stock outstanding at such time. In the event that a Tender
Offer or an Exchange Offer is made for Issuer Common Stock or an agreement is
entered into for a merger or consolidation involving consideration other than
cash, the value of the securities or other property issuable or deliverable
in exchange for Issuer Common Stock shall be determined by a nationally-
recognized investment banking firm selected by Holder and reasonably
acceptable to the Issuer.
(4) "Average Price" shall mean the average closing price of a
share of Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by Issuer, the person merging into Issuer or by
any company which controls such person, as Holder may elect.
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(f) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this Section 7(f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this Section 7(f) over (ii) the value of the Substitute Option
after giving effect to the limitation in the first sentence of this Section
7(f). This difference in value shall be determined by a nationally-recognized
investment banking firm selected by Holder and reasonably acceptable to the
Issuer.
(g) Issuer shall not enter into any transaction described in Section
7(b) unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder and take
all other actions that may be necessary so that the provisions of this Section 7
are given full force and effect (including, without limitation, any action that
may be necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights by reason of
the issuance or exercise of the Substitute Option and the shares of Substitute
Common Stock are otherwise in no way distinguishable from or have lesser
economic value (other than any diminution in value resulting from the fact that
the shares of Substitute Common Stock are restricted securities, as defined in
Rule 144 under the Securities Act or any successor provision) than other shares
of common stock issued by Substitute Option Issuer).
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) At the request of Holder at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 12
months immediately thereafter, Issuer shall repurchase from Holder (i) the
Option and (ii) all shares of Issuer Common Stock purchased by Holder pursuant
hereto with respect to which Holder then has beneficial ownership. The date on
which Holder exercises its rights under this Section 8 is referred to as the
"Request Date." Such repurchase shall be at an aggregate price (the "Section 8
Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid (or, in the
case of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Holder then has beneficial ownership, multiplied by the
number of such shares.
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(b) If Holder exercises its rights under this Section 8, Issuer
shall, within 10 business days after the Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment Holder shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Holder then has beneficial ownership, and shall
warrant that it has sole record and beneficial ownership of such shares and that
the same are then free and clear of all liens, claims, charges and encumbrances
of any kind whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board, the Federal Deposit
Insurance Corporation, the Massachusetts Division of Banks or any other
Governmental Entity is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole or
in part, or to require that Issuer deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the
other in the filing of any such notice or application and the obtaining of any
such approval). If the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Massachusetts Division of Banks or any other Governmental
Entity disapproves of any part of Issuer's proposed repurchase pursuant to this
Section 8, Issuer shall promptly give notice of such fact to Holder. If the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the
Massachusetts Division of Banks or any other Governmental Entity prohibits the
repurchase in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the Massachusetts
Division of Banks or other Governmental Entity, determine whether the repurchase
should apply to the Option and/or Option Shares and to what extent to each, and
Holder shall thereupon have the right to exercise the Option as to the number of
Option Shares for which the Option was exercisable at the Request Date less the
sum of the number of shares covered by the Option in respect of which payment
has been made pursuant to Section 8(a)(ii) and the number of shares covered by
the portion of the Option (if any) that has been repurchased. Holder shall
notify Issuer of its determination under the preceding sentence within five
business days of receipt of notice of disapproval of the repurchase. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option Shares
under this Section 8 shall terminate upon the occurrence of an Exercise
Termination Event unless a Purchase Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i), (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing sales
price per share of Issuer Common Stock quoted on the Nasdaq Stock Market's
National Market ("NASDAQ/NMS") (or if Issuer Common Stock is not quoted on
NASDAQ/NMS, the highest bid price per share as quoted on the principal trading
market or securities exchange on which such shares are traded, as reported by a
recognized source chosen by Holder) during the 60 business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized investment banking firm selected
by Holder and reasonably acceptable to the Issuer, divided by the number of
shares of Issuer Common Stock outstanding at the time of such sale. If the
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consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally-
recognized investment banking firm selected by Holder and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of this
Option.
(d) As used herein, a "Repurchase Event" shall occur if (i) any
person (other than Grantee or any subsidiary of Grantee) shall have acquired
beneficial ownership of (as such term is defined in Rule 13d-3 promulgated under
the Exchange Act), or the right to acquire beneficial ownership of, or any
"group" (as such term is defined in Section 13(d)(3) of the Exchange Act) shall
have been formed which beneficially owns or has the right to acquire beneficial
ownership of, 50% or more of the then outstanding shares of Issuer Common Stock,
or (ii) any of the transactions described in Section 7(b)(i), Section 7(b)(ii)
or Section 7(b)(iii) shall be consummated.
9. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. Issuer shall, subject to the
conditions of Section 9(c), at the request of Grantee (whether on its own behalf
or on behalf of any subsequent Holder of this Option (or part thereof) or any
of the shares of Issuer Common Stock issued pursuant hereto), as expeditiously
as possible prepare and file a registration statement under the Securities Act
if such registration is necessary in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other securities that
have been acquired by or are issuable to Holder upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Holder in such request, including without limitation a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and Issuer shall use its best efforts to qualify such shares or other
securities for sale under any applicable state securities laws.
(b) ADDITIONAL REGISTRATION RIGHTS. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Holder of
its intention to do so and, upon the written request of Holder given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Holder), Issuer will cause all such shares for which a Holder
shall have requested participation in such registration to be so registered and
included in such underwritten public offering; provided, however, that Issuer
may elect to not cause any such shares to be so registered (i) if the
underwriters in good faith object for valid business reasons, or (ii) in the
case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4 under the Securities Act or any successor form;
provided, further, however, that such election pursuant to clause (i) may only
be made one time. If some but not all the shares of Issuer Common Stock with
respect to which Issuer shall have received requests for registration pursuant
to this Section 9(b) shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Holders permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested to
be registered by each such Holder bears to the total number of shares requested
to be registered by all such Holders then desiring to have Issuer Common Stock
registered for sale.
(c) CONDITIONS TO REQUIRED REGISTRATION. Issuer shall use all
reasonable efforts to cause each registration statement referred to in Section
9(a) to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement
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effective; provided, however, that Issuer may delay any registration of Option
Shares required pursuant to Section 9(a) for a period not exceeding 90 days if
Issuer shall in good faith determine that any such registration would adversely
affect an offering or contemplated offering of other securities by Issuer, and
Issuer shall not be required to register Option Shares under the Securities Act
pursuant to Section 9(a):
(i) prior to the earliest of (A) termination of the Affiliation
Agreement pursuant to Article XI thereof, and (B) a Purchase Event or a
Preliminary Purchase Event;
(ii) on more than one occasion during any calendar year and on
more than two occasions in total;
(iii) within 90 days after the effective date of a registration
referred to in Section 9(b) pursuant to which the Holder or Holders concerned
were afforded the opportunity to register such shares under the Securities
Act and such shares were registered as requested; and
(iv) unless a request therefor is made to Issuer by the Holder or
Holders of at least 25% or more of the aggregate number of Option Shares
(including shares of Issuer Common Stock issuable upon exercise of the
Option) then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain
the effectiveness of any registration statement after the expiration of nine
months from the effective date of such registration statement. Issuer shall use
all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares, provided, however, that Issuer
shall not be required to consent to general jurisdiction or to qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer be obligated to effect more
than two registrations pursuant to this Section 9 by reason of the fact that
there shall be more than one Holder as a result of any assignment or division of
this Agreement.
(d) EXPENSES. Issuer will pay all expenses (including without
limitation registration fees, qualification fees, blue sky fees and expenses,
accounting expenses, legal expenses and printing expenses incurred by it) in
connection with the first registration pursuant to Section 9(a) or (b) and all
other qualifications, notifications or exemptions pursuant to Section 9(a) or
(b). Underwriting discounts and commissions relating to Option Shares, fees and
disbursements of counsel to the Holder(s) of Option Shares being registered and
any other expenses incurred by such Holder(s) in connection with any such
registration shall be borne by such Holder(s).
(e) INDEMNIFICATION. In connection with any registration under
Section 9(a) or (b), Issuer hereby indemnifies each Holder, and each underwriter
thereof, including each person, if any, who controls such Holder or underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission,
or alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any
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untrue statement or alleged untrue statement that was included by Issuer in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such indemnified
party expressly for use therein, and Issuer and each officer, director and
controlling person of Issuer shall be indemnified by such Holder, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such Holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this Section 9(e)
of notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 9(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but,
except to the extent of any actual prejudice to the indemnifying party, the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 9(e). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel reasonably satisfactory
to the indemnified party, or (iii) the indemnified party has been advised by
counsel that one or more legal defenses may be available to the indemnifying
party that may be contrary to the interest of the indemnified party, in which
case the indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such counsel.
No indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 9(e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, the selling Holders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the selling Holders and the
underwriters in connection with the statement or omissions which results in such
expenses, losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The amount paid or payable by a party as a result of
the expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall the selling Holders be responsible, in
the aggregate, for any amount in excess of the net offering proceeds
attributable to its Option Shares included in the offering. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(g) of the
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Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any obligation by any Holder to
indemnify shall be several and not joint with other Holders.
In connection with any registration pursuant to Section 9(a) or (b)
above, Issuer and each selling Holder (other than Grantee) shall enter into an
agreement containing the indemnification provisions of this Section 9(e).
(f) MISCELLANEOUS REPORTING. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Holder(s) in accordance
with and to the extent permitted by any rule or regulation permitting
nonregistered sales of securities promulgated by the Commission from time to
time, including, without limitation, Rule 144A. Issuer shall at its expense
provide the Holder with any information necessary in connection with the
completion and filing of any reports or forms required to be filed by them under
the Securities Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
(g) ISSUE TAXES. Issuer will pay all stamp taxes in connection with
the issuance and the sale of the Option Shares and in connection with the
exercise of the Option, and will save any Holder harmless, without limitation as
to time, against any and all liabilities, with respect to all such taxes.
10. QUOTATION; LISTING. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then authorized for
quotation or trading or listing on NASDAQ/NMS or any securities exchange,
Issuer, upon the request of Holder, will promptly file an application, if
required, to authorize for quotation or trading or listing the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
NASDAQ/NMS or such other securities exchange and will use its best efforts to
obtain approval, if required, of such quotation or listing as soon as
practicable.
11. DIVISION OF OPTION. Upon the occurrence of a Purchase Event or a
Preliminary Purchase Event, this Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of the Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 9, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
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(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; SEVERABILITY.
This Agreement, together with the Affiliation Agreement and the other documents
and instruments referred to herein and therein, between Grantee and Issuer (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (ii) is not intended to confer upon any person other
than the parties hereto (other than the indemnified parties under Section 9(e)
and any transferee of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 12(h)) any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency 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. If for any reason such court or
regulatory agency determines that the Option does not permit Holder to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section
7), it is the express intention of Issuer to allow Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts without regard to
any applicable conflicts of law rules.
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or sent by overnight mail service or mailed by registered or
certified mail (return receipt requested) postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
If to Grantee:
100 Old King's Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19/th/ Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
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If to Grantee, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
(g) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Purchase Event shall have occurred prior to an Exercise Termination
Event, Grantee, subject to the express provisions hereof, may assign in whole or
in part its rights and obligations hereunder; provided, however, that until the
date 15 days following the date on which the Federal Reserve Board approves an
application by Grantee under the BHCA to acquire the shares of Issuer Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the
Federal Reserve Board.
(i) FURTHER ASSURANCES. In the event of any exercise of the Option by
Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement
may be enforced by either party through specific performance, injunctive relief
and other equitable relief. Both parties further agree to waive any requirement
for the securing or posting of any bond in
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<PAGE>
connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
(k) EXTENSION OF EXERCISE TIME PERIODS FOR REGULATORY COMPLIANCE. The time
periods set forth in this Agreement for the exercise by Grantee or the Holder to
exercise its rights with respect to the Option or a Substitute Option or with
respect to repurchase of the Option shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights and
for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
Attest: SANDWICH BANCORP, INC.
By:
- --------------------------------------- -----------------------------------
Name: Frederic D. Legate
Title: President and Chief
Executive Officer
THE 1855 BANCORP
Attest:
By:
- --------------------------------------- -----------------------------------
Name: Kevin G. Champagne
Title: President and Chief
Executive Officer
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<PAGE>
EXHIBIT B
FORM OF VOTING AGREEMENT
March , 1998
The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02741-2101
Ladies and Gentlemen
The undersigned is a director of Sandwich Bancorp ("Sandwich") and is the
beneficial holder of shares of common stock of Sandwich ("Sandwich Common
Stock").
Sandwich and The 1855 Bancorp ("1855 Bancorp") are considering the
execution of an Amended and Restated Affiliation and Merger Agreement
("Agreement") contemplating the merger of a newly formed special-purpose
subsidiary of 1855 Bancorp with and into Sandwich, with Sandwich as the
surviving corporation of the merger (the "Merger"), such execution being subject
in the case of 1855 Bancorp to the execution and delivery of this letter
agreement ("letter agreement"). In consideration of the substantial expenses
that 1855 Bancorp will incur in connection with the transactions contemplated by
the Agreement and in order to induce 1855 Bancorp to execute the Agreement and
to proceed to incur such expenses, the undersigned agrees and undertakes, in his
capacity as a shareholder of Sandwich and not in his capacity as a director of
Sandwich, as follows:
1. The undersigned, while this letter agreement is in effect, shall vote or
cause to be voted all of the Shares of Sandwich Common Stock that the
undersigned shall be entitled to so vote, whether such Shares are beneficially
owned by the undersigned on the date of this letter agreement or are
subsequently acquired, whether pursuant to the exercise of stock options or
otherwise, at the Special Meeting of Sandwich's stockholders to be called and
held following the date hereof, for the approval of the Agreement and the
Merger.
2. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in addition to
any other relief which may be available, 1855 Bancorp shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damages.
3. The foregoing restrictions shall not apply to shares with respect to
which the undersigned may have voting power as a fiduciary for others. In
addition, this letter agreement shall only apply to actions taken by the
undersigned in his capacity as a shareholder of Sandwich and shall not in any
way limit or affect actions the undersigned may take in his capacity as a
director of Sandwich.
4. This letter agreement shall automatically terminate upon termination of
the Agreement in accordance with its terms.
<PAGE>
5. This letter agreement shall supersede the letter agreement between the
undersigned and 1855 Bancorp dated February 2, 1998, which prior letter
agreement is hereby terminated.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
---------------------------------------------
Signature
---------------------------------------------
Name (please print)
Accepted and agreed to as of
the date first above written:
THE 1855 BANCORP
By:
---------------------------------
Its
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<PAGE>
EXHIBIT C
AFFILIATES AGREEMENT
March 23, 1998
The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02741-2101
Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
Sandwich Bancorp, Inc., a Massachusetts corporation (the "Company"), for
purposes of paragraphs (c) and (d) of Rule 145 of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act")
and for purposes of generally accepted accounting principles ("GAAP") as such
term relates to pooling of interests accounting treatment for certain business
combinations under GAAP and the interpretations of the SEC or its staff,
including, without limitation, Section 201.01 of the SEC's Codification of
Financial Reporting Policies ("Section 201.01") and the SEC's Staff Accounting
Bulletin No. 65.
The 1855 Bancorp ("1855 Bancorp") and the Company have entered into an
Amended and Restated Affiliation and Merger Agreement, dated as of March 23,
1998 (the "Merger Agreement"). Upon consummation of the merger contemplated by
the Merger Agreement (the "Merger"), I may receive shares of common stock of
1855 Bancorp ("1855 Bancorp Common Stock") in exchange for my shares of common
stock, par value $1.00 per share, of the Company ("Company Common Stock"). This
agreement is hereinafter referred to as the "Letter Agreement."
A. I represent and warrant to, and agree with, 1855 Bancorp as follows:
1. I have read this Letter Agreement and the Merger Agreement and have
discussed their requirements and other applicable limitations upon my ability to
sell, pledge, transfer or otherwise dispose of share of 1855 Bancorp Common
Stock, and any other capital stock of 1855 Bancorp and Company Common Stock, to
the extent I felt necessary, with my counsel or counsel for the Company.
2. I shall not make any offer, sale, pledge, transfer or other
disposition in violation of the Act or the rules and regulations of the SEC
thereunder of the shares of 1855 Bancorp Common Stock I receive pursuant to the
Merger.
3. Notwithstanding the foregoing and any other agreements on my part in
connection with the 1855 Bancorp Common Stock, any other capital stock of 1855
Bancorp
<PAGE>
The 1855 Bancorp
Page 2
and Company Common Stock, I hereby agree that, without the consent of
1855 Bancorp, I will not sell or otherwise reduce my risk relative to any shares
of Company Common Stock, 1855 Bancorp Common Stock or any other capital stock of
1855 Bancorp during the period beginning thirty days prior to the effective date
of the Merger and continuing until financial results covering at least thirty
days of combined operations have been published following the effective date of
the Merger within the meaning of Section 201.01.
B. I understand and agree that:
1. I have been advised that any issuance of shares of 1855 Bancorp
Common Stock to me pursuant to the Merger will be registered with the SEC. I
have also been advised, however, that, because I may be an "affiliate" of the
Company at the time the Merger will be submitted for a vote of the stockholders
of the Company and my disposition of such shares has not been registered under
the Act, I must hold such shares indefinitely unless (i) such disposition of
such shares is subject to an effective registration statement and to the
availability of a prospectus under the Act, (ii) a sale of such shares is made
in conformity with the provisions of Rule 145(d) under the Act, (iii) a sale of
such shares is made following expiration of the restrictive period set forth in
Rule 145(d) or (iv) in an opinion of counsel, in form and substance reasonably
satisfactory to 1855 Bancorp, some other exemption from registration is
available with respect to any such proposed disposition of such shares.
2. Stop transfer instructions will be given to the transfer agents of
the Company and 1855 Bancorp with respect to the shares of the Company Common
Stock and the shares of 1855 Bancorp Common Stock and any other capital stock in
connection with the restrictions set forth herein, and there will be placed on
the certificate representing shares of 1855 Bancorp Common Stock I receive
pursuant to the Merger, or any certificates delivered in substitution therefor,
a legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933
applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an agreement between the
registered holder hereof and The 1855 Bancorp, a copy of which
agreement is on file at the principal offices of The 1855 Bancorp. A
copy of such agreement shall be provided to the holder hereof without
charge upon receipt by The 1855 Bancorp of a written request.
3. Unless a transfer of my shares of 1855 Bancorp Common Stock is a
sale made in conformity with the provisions of Rule 145(d), made following
expiration of the restrictive period set forth in Rule 145(d) or made pursuant
to any effective registration statement under the Act, 1855 Bancorp reserves the
right to put an appropriate legend on the certificate issued to my transferee.
<PAGE>
The 1855 Bancorp
Page 3
It is understood and agreed that this Letter Agreement shall terminate and
be of no further force and effect if the Merger Agreement is terminated in
accordance with its terms. It is also understood and agreed that this Letter
Agreement shall terminate and be of no further force and effect and the stop
transfer instructions set forth in Paragraph B.2. above shall be lifted
forthwith upon the later of (i) such time as financial results covering at least
thirty days of combined operations following the effective date of the Merger
have been published within the meaning of Section 201.01 and (ii) delivery by
the undersigned to 1855 Bancorp of a copy of a letter from the staff of the SEC,
an opinion of counsel in form and substance reasonably satisfactory to 1855
Bancorp, or other evidence reasonably satisfactory to 1855 Bancorp, to the
effect that a transfer of my shares of 1855 Bancorp Common Stock will not
violate the Act or any of the rules and regulations of the SEC thereunder. In
addition, it is understood and agreed that the legend set forth in Paragraph
B.2. above shall be removed forthwith from the certificate or certificates
representing my shares of 1855 Bancorp Common Stock upon expiration of the
restrictive period set forth in Rule 145(d) or if I shall have delivered to 1855
Bancorp a copy of a letter from the staff of the SEC, an opinion of counsel in
form and substance reasonably satisfactory to 1855 Bancorp, or other evidence
satisfactory to 1855 Bancorp that a transfer of my shares of 1855 Bancorp Common
Stock represented by such certificate or certificates will be a sale made in
conformity with the provisions of Rule 145(d), or made pursuant to an effective
registration statement under the Act.
4. I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse=s occupying my home,
(iii), any trust or estate in which I, my spouse or any such relative owns at
least 10% beneficial interest or of which any of us serves as trustee, executor
or in any similar capacity and (iv) any corporation or other organization in
which I, my spouse or any such relative owns at least 10% of any class of equity
securities or of the equity interest.
5. I further recognize that in the event I become a director or officer
of 1855 Bancorp upon consummation of the Merger, any sale of 1855 Bancorp stock
by me may be subject to liability pursuant to Section 16 (b) of the Securities
Exchange Act of 1934, as amended.
6. Execution of this Letter Agreement should not be construed as an
admission on my part that I am an "affiliate" of the Company as described in the
first paragraph of this Letter Agreement or as a waiver of any rights I may have
to object to any claim that I am such an affiliate on or after the date of this
Letter Agreement.
* * * * *
<PAGE>
The 1855 Bancorp
Page 4
This Letter Agreement shall be binding on my heirs, legal representative
and successors.
Very truly yours,
______________________________
Signature
______________________________
Name (Please Print)
Accepted as of the date first above
written
THE 1855 BANCORP
By:__________________________________
Name:
Title:
EXHIBIT 10.9
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
Stock Option Agreement, dated as of March 23, 1998 (the "Agreement"), by
and between Sandwich Bancorp, Inc. ("Issuer"), a Massachusetts corporation and
bank holding company and the parent of the Sandwich Co-operative Bank, a
Massachusetts co-operative bank ("Sandwich Bank"), and The 1855 Bancorp
("Grantee"), a Massachusetts mutual holding company and the parent of Compass
Bank For Savings, a Massachusetts savings bank ("Compass Bank").
WITNESSETH:
WHEREAS, Issuer, Grantee, Compass Bank and Sandwich Bank have entered into
an Amended and Restated Affiliation and Merger Agreement dated as of March 23,
1998 (the "Affiliation Agreement"), providing for, among other things, the
merger of Issuer with Grantee or an Affiliate of Grantee (the "Merger"); and
WHEREAS, as a condition and inducement to Grantee's execution of the
Affiliation Agreement, Grantee has required that Issuer agree, and Issuer has
agreed, to grant to Grantee the Option (as hereinafter defined); and
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Affiliation Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1 DEFINED TERMS. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Affiliation Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 387,107 shares (as adjusted as set forth herein, the "Option Shares,"
which shall include the Option Shares before and after any transfer of such
Option Shares) of Common Stock, par value $1.00 per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
of $57.00, provided, however, that in no event shall the number of Option Shares
for which the Option is exercisable exceed 19.9% of the issued and outstanding
shares of Issuer Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Issuer Common Stock that
may be received upon the exercise of the Option and the Purchase Price are
subject to adjustment as herein set forth.
3. EXERCISE OF OPTION.
(a) Grantee or Holder (as hereinafter defined) may exercise the Option, in
whole or in part, at any time and from time to time following the occurrence of
a Purchase Event (as hereinafter defined) and before an Exercise Termination
Event (as hereinafter defined). Each of the following shall be an "Exercise
Termination Event":
(i) The Effective Time (as defined in the Affiliation Agreement) of the
Merger,
(ii) The passage of 12 months after termination of the Affiliation
Agreement following the occurrence of a Purchase Event or a Preliminary
Purchase Event;
<PAGE>
(iii) The date on which the Affiliation Agreement is terminated in
accordance with its terms, but only if such termination takes place prior
to the occurrence of a Purchase Event or a Preliminary Purchase Event; and
(iv) The passage of 12 months after the Affiliation Agreement is
terminated by Grantee pursuant to Section 11.1.2 or 11.1.3 of the
Affiliation Agreement.
Any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable laws, including without limitation the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and the Bank Merger Act, as
amended ("Bank Merger Act"). The term "Holder" shall mean the holder or holders
of the Option from time to time (subject to the limitations contained in Section
12(h)). The Grantee is the initial Holder. The rights set forth in Section 8
hereof shall terminate when the right to exercise the Option terminates (other
than as a result of a complete exercise of the Option) as set forth above.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended or publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
(A) a merger, consolidation or similar transaction involving Issuer or any
of its subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets of Issuer or any Issuer Subsidiary representing in
either case 15% or more of the consolidated assets of Issuer and the Issuer
Subsidiaries, or (C) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities representing 15% or more of the voting power of Issuer or any of
the Issuer Subsidiaries (any of the foregoing an "Acquisition
Transaction"); or
(ii) any person (other than Grantee or any subsidiary of Grantee) shall
have acquired beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act) of or the right to acquire beneficial
ownership of, or any "group" (as such term is defined in Section 13(d)(3)
of the Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities Act
with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 10% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a "Tender Offer"
and an "Exchange Offer," respectively); or
(ii) following the public announcement of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place), the holders of
Issuer Common Stock shall not have approved the Affiliation Agreement at
the meeting of such stockholders held for the purpose of voting on the
Affiliation Agreement (the term "Acquisition Proposal" is defined to mean
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<PAGE>
(x) a bona fide proposal by any person (other than Grantee or any
subsidiary of Grantee) shall have been made to Issuer or its stockholders
to engage in a Acquisition Transaction, (y) any person (other than Grantee
or any subsidiary of Grantee) shall have stated its intention to Issuer or
its stockholders to make a proposal to engage in a Acquisition Transaction
if the Affiliation Agreement terminates or (z) any person (other than
Grantee or any subsidiary of Grantee) shall have filed an application or
notice with any Governmental Entity to engage in a Acquisition
Transaction); or
(iii) following the occurrence of an Acquisition Proposal (which the
parties hereto acknowledge has already taken place):
(A) the meeting of Issuer stockholders held for the purpose of voting
on the Affiliation Agreement shall not have been held or shall have been
canceled prior to termination of the Affiliation Agreement,
(B) Issuer's Board of Directors shall have withdrawn or modified, or
publicly announced its intention to withdraw or modify, in a manner
adverse to Grantee the recommendation of Issuer's Board of Directors
with respect to the Affiliation Agreement and the Merger;
(C) Issuer shall have breached any representation, warranty,
covenant or obligation contained in the Affiliation Agreement and such
breach would entitle Grantee to terminate the Affiliation Agreement
under Section 11.1.2 or 11.1.3 of the Affiliation Agreement (without
regard to the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the Merger
pursuant to the terms of the Affiliation Agreement); or
(D) The Merger shall not have been consummated by reason of failure
of the pooling of interests condition, and such failure is the result of
the actions of a party not affiliated with either Grantee or Issuer; or
(iv) any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior
written consent, shall have (x) acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or (y) filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or otherwise to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Holder
to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
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<PAGE>
purchase pursuant to such exercise, and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the Federal Deposit Insurance Corporation,
the Massachusetts Division of Banks, or any other Governmental Entity is
required in connection with such purchase, Issuer shall cooperate with Grantee
in the filing of the required notice of application for approval and the
obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods). Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to Issuer at the address of Issuer specified in Section 12(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever and subject to no preemptive rights, and (B) if the Option is
exercised in part only, an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the shares of Issuer
Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a
letter agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF MARCH
23, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY ISSUER OF A WRITTEN REQUEST
THEREFOR.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if Holder shall have delivered to Issuer a copy of a letter from the staff of
the SEC, or an opinion of counsel, in form and substance reasonably satisfactory
to Issuer, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
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<PAGE>
(d) Upon the giving by Holder to Issuer of the written notice of exercise
of the Option provided for under Section 3(e), the tender of the applicable
purchase price in immediately available funds and the tender of this Agreement
to Issuer, Holder shall be deemed to be the holder of record of the shares of
Issuer Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such shares of Issuer Common Stock shall not then be actually delivered to
Holder.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock so that the Option may be exercised without
requiring Issuer's stockholders to approve an increase in the number of
authorized shares of Issuer Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Issuer
Common Stock, (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer, (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification, reporting
and waiting period requirements and (B) in the event prior approval of or notice
to any Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively to
issue shares of Issuer Common Stock pursuant hereto, and (iv) promptly to take
all action provided herein to protect the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) CORPORATE POWER AND AUTHORITY. Issuer has all requisite corporate
power and authority to enter into this Agreement, and subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer, and this Agreement has been duly
executed and delivered by Issuer.
(b) NO VIOLATIONS. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Issuer
with any of the provisions hereof will not (i) conflict with or result in a
breach of any provision of its Articles of Organization or Bylaws or a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond, debenture,
mortgage, indenture, license, material agreement or other material instrument or
obligation to which Issuer is a party, or by which it or any of its properties
or assets may be bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Issuer or any of its properties or
assets.
(c) AUTHORIZED STOCK. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and at all times from
the date hereof until the obligation to deliver Issuer Common Stock upon the
exercise of the Option terminates, will have
-5-
<PAGE>
reserved for issuance upon exercise of the Option that number of shares of
Issuer Common Stock equal to the maximum number of shares of Issuer Common Stock
at any time and from time to time purchasable upon exercise of the Option, and
all such shares, upon issuance pursuant to the Option, will be duly and validly
issued, fully paid and nonassessable, and will be delivered free and clear of
all liens, claims, charges and encumbrances of any kind or nature whatsoever and
not subject to any preemptive rights.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
and warrants to Issuer as follows:
(a) CORPORATE POWER AND AUTHORITY. Grantee has all requisite corporate
power and authority to enter into this Agreement and, subject to any approvals
or consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee, and this Agreement has been duly
executed and delivered by Grantee.
(b) The Option is not being, and any shares of Issuer Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the 1933 Act.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transactions so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of Issuer Common Stock previously issued pursuant hereto, equals 19.9% of
the number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the
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agreement governing such transaction shall make proper provisions so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Holder, of any of (x) the
Acquiring Corporation (as hereinafter defined), (y) any person that controls
the Acquiring Corporation or (z) in the case of a merger described in clause
(ii), Issuer (such person being referred to as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Holder. Substitute Option Issuer also shall enter
into an agreement with Holder in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of Substitute Option
per share of Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Purchase Price multiplied by a fraction in which the numerator
is the number of shares of Issuer Common Stock for which the Option was
theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all of
Issuer's assets (or a substantial part of the assets of its subsidiaries
taken as a whole).
(2) "Substitute Common Stock" shall mean the shares of capital stock
(or similar equity interest) with the greatest voting power in respect of
the election of directors (or persons similarly responsible for the
direction of the business and affairs) of the Substitute Option Issuer.
(3) "Assigned Value" shall mean the highest of (w) the price per share
of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made (other than by Holder), (x) the price per share of
Issuer Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (y) the highest closing price for shares of Issuer Common
Stock within the six-month period immediately preceding the consolidation,
merger or sale in question and (z) in the event of a sale of all or
substantially all of Issuer's assets or deposits, an amount equal to (i)
the sum of the price paid in such sale for such assets (and/or deposits)
and the current market value of the remaining assets of Issuer, as
determined by a nationally-recognized investment banking firm selected by
the Holder and reasonably acceptable to the Issuer, divided by (ii) the
number of shares of Issuer Common Stock outstanding at such time. In the
event that a Tender Offer or an Exchange Offer is made for Issuer Common
Stock or an agreement is entered into for a merger or consolidation
involving consideration other than cash, the value of the securities or
other property issuable or deliverable in exchange for Issuer Common Stock
shall be determined
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by a nationally-recognized investment banking firm selected by Holder and
reasonably acceptable to the Issuer.
(4) "Average Price" shall mean the average closing price of a share of
Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by Issuer, the person merging into Issuer
or by any company which controls such person, as Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this Section 7(f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this Section 7(f) over (ii) the value of the Substitute Option
after giving effect to the limitation in the first sentence of this Section
7(f). This difference in value shall be determined by a nationally-recognized
investment banking firm selected by Holder and reasonably acceptable to the
Issuer.
(g) Issuer shall not enter into any transaction described in Section 7(b)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder and take
all other actions that may be necessary so that the provisions of this Section 7
are given full force and effect (including, without limitation, any action that
may be necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights by reason of
the issuance or exercise of the Substitute Option and the shares of Substitute
Common Stock are otherwise in no way distinguishable from or have lesser
economic value (other than any diminution in value resulting from the fact that
the shares of Substitute Common Stock are restricted securities, as defined in
Rule 144 under the Securities Act or any successor provision) than other shares
of common stock issued by Substitute Option Issuer).
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) At the request of Holder at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 12
months immediately thereafter, Issuer shall repurchase from Holder (i) the
Option and (ii) all shares of Issuer Common Stock purchased by Holder pursuant
hereto with respect to which Holder then has beneficial ownership. The date on
which Holder exercises its rights under this Section 8 is referred to as the
"Request Date." Such repurchase shall be at an aggregate price (the "Section 8
Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Holder then has beneficial ownership;
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(ii) the excess, if any, of (x) the Applicable Price (as defined below)
for each share of Issuer Common Stock over (y) the Purchase Price (subject
to adjustment pursuant to Section 7), multiplied by the number of shares of
Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Holder then has beneficial ownership, multiplied by
the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer shall,
within 10 business days after the Request Date, pay the Section 8 Repurchase
Consideration to Holder in immediately available funds, and contemporaneously
with such payment Holder shall surrender to Issuer the Option and the
certificates evidencing the shares of Issuer Common Stock purchased thereunder
with respect to which Holder then has beneficial ownership, and shall warrant
that it has sole record and beneficial ownership of such shares and that the
same are then free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board, the Federal Deposit
Insurance Corporation, the Massachusetts Division of Banks or any other
Governmental Entity is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole or
in part, or to require that Issuer deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
approval). If the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Massachusetts Division of Banks or any other Governmental
Entity disapproves of any part of Issuer's proposed repurchase pursuant to this
Section 8, Issuer shall promptly give notice of such fact to Holder. If the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the
Massachusetts Division of Banks or any other Governmental Entity prohibits the
repurchase in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by the Federal
Reserve Board, the Federal Deposit Insurance Corporation, the Massachusetts
Division of Banks or other Governmental Entity, determine whether the repurchase
should apply to the Option and/or Option Shares and to what extent to each, and
Holder shall thereupon have the right to exercise the Option as to the number of
Option Shares for which the Option was exercisable at the Request Date less the
sum of the number of shares covered by the Option in respect of which payment
has been made pursuant to Section 8(a)(ii) and the number of shares covered by
the portion of the Option (if any) that has been repurchased. Holder shall
notify Issuer of its determination under the preceding sentence within five
business days of receipt of notice of disapproval of the repurchase. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option Shares
under this Section 8 shall terminate upon the occurrence of an Exercise
Termination Event unless a Purchase Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
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(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i), (ii) the price
per share of Issuer Common Stock received by holders of Issuer Common Stock in
connection with any merger or other business combination transaction described
in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the highest closing sales
price per share of Issuer Common Stock quoted on the Nasdaq Stock Market's
National Market ("NASDAQ/NMS") (or if Issuer Common Stock is not quoted on
NASDAQ/NMS, the highest bid price per share as quoted on the principal trading
market or securities exchange on which such shares are traded, as reported by a
recognized source chosen by Holder) during the 60 business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized investment banking firm selected
by Holder and reasonably acceptable to the Issuer, divided by the number of
shares of Issuer Common Stock outstanding at the time of such sale. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally-
recognized investment banking firm selected by Holder and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of this
Option.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any subsidiary of Grantee) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), or the right to acquire beneficial ownership of, or any "group"
(as such term is defined in Section 13(d)(3) of the Exchange Act) shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 50% or more of the then outstanding shares of Issuer Common Stock,
or (ii) any of the transactions described in Section 7(b)(i), Section 7(b)(ii)
or Section 7(b)(iii) shall be consummated.
9. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. Issuer shall, subject to the conditions
of Section 9(c), at the request of Grantee (whether on its own behalf or on
behalf of any subsequent Holder of this Option (or part thereof) or any of the
shares of Issuer Common Stock issued pursuant hereto), as expeditiously as
possible prepare and file a registration statement under the Securities Act if
such registration is necessary in order to permit the sale or other disposition
of any or all shares of Issuer Common Stock or other securities that have been
acquired by or are issuable to Holder upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Holder in such
request, including without limitation a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities for sale under
any applicable state securities laws.
(b) ADDITIONAL REGISTRATION RIGHTS. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to Holder of
its intention to do so and, upon the written request of Holder given within 30
days after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Holder), Issuer will cause all such shares for which a Holder
shall have requested participation in such registration to be
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so registered and included in such underwritten public offering; provided,
however, that Issuer may elect to not cause any such shares to be so registered
(i) if the underwriters in good faith object for valid business reasons, or (ii)
in the case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4 under the Securities Act or any successor form;
provided, further, however, that such election pursuant to clause (i) may only
be made one time. If some but not all the shares of Issuer Common Stock with
respect to which Issuer shall have received requests for registration pursuant
to this Section 9(b) shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Holders permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested to
be registered by each such Holder bears to the total number of shares requested
to be registered by all such Holders then desiring to have Issuer Common Stock
registered for sale.
(c) CONDITIONS TO REQUIRED REGISTRATION. Issuer shall use all reasonable
efforts to cause each registration statement referred to in Section 9(a) to
become effective and to obtain all consents or waivers of other parties which
are required therefor and to keep such registration statement effective;
provided, however, that Issuer may delay any registration of Option Shares
required pursuant to Section 9(a) for a period not exceeding 90 days if Issuer
shall in good faith determine that any such registration would adversely affect
an offering or contemplated offering of other securities by Issuer, and Issuer
shall not be required to register Option Shares under the Securities Act
pursuant to Section 9(a):
(i) prior to the earliest of (A) termination of the Affiliation
Agreement pursuant to Article XI thereof, and (B) a Purchase Event or a
Preliminary Purchase Event;
(ii) on more than one occasion during any calendar year and on more
than two occasions in total;
(iii) within 90 days after the effective date of a registration
referred to in Section 9(b) pursuant to which the Holder or Holders
concerned were afforded the opportunity to register such shares under the
Securities Act and such shares were registered as requested; and
(iv) unless a request therefor is made to Issuer by the Holder or
Holders of at least 25% or more of the aggregate number of Option Shares
(including shares of Issuer Common Stock issuable upon exercise of the
Option) then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares, provided, however, that Issuer shall not
be required to consent to general jurisdiction or to qualify to do business in
any state where it is not otherwise required to so consent to such jurisdiction
or to so qualify to do business. Notwithstanding anything to the contrary
contained herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 9 by reason of the fact that there shall
be more than one Holder as a result of any assignment or division of this
Agreement.
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(d) EXPENSES. Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses, accounting
expenses, legal expenses and printing expenses incurred by it) in connection
with the first registration pursuant to Section 9(a) or (b) and all other
qualifications, notifications or exemptions pursuant to Section 9(a) or (b).
Underwriting discounts and commissions relating to Option Shares, fees and
disbursements of counsel to the Holder(s) of Option Shares being registered and
any other expenses incurred by such Holder(s) in connection with any such
registration shall be borne by such Holder(s).
(e) INDEMNIFICATION. In connection with any registration under Section
9(a) or (b), Issuer hereby indemnifies each Holder, and each underwriter
thereof, including each person, if any, who controls such Holder or underwriter
within the meaning of Section 15 of the Securities Act, against all expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission,
or alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer and each officer, director and controlling person of Issuer shall be
indemnified by such Holder, or by such underwriter, as the case may be, for all
such expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to Issuer by such Holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 9(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 9(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but,
except to the extent of any actual prejudice to the indemnifying party, the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 9(e). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and reasonably satisfactory
to such indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party agrees to pay the same, (ii) the indemnifying party fails to
assume the defense of such action with counsel reasonably satisfactory to the
indemnified party, or (iii) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party that
may be contrary to the interest of the indemnified party, in which case the
indemnifying party shall be entitled to assume the defense of
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such action notwithstanding its obligation to bear fees and expenses of such
counsel. No indemnifying party shall be liable for any settlement entered into
without its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 9(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the selling Holders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the selling Holders and the
underwriters in connection with the statement or omissions which results in such
expenses, losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The amount paid or payable by a party as a result of
the expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall the selling Holders be responsible, in
the aggregate, for any amount in excess of the net offering proceeds
attributable to its Option Shares included in the offering. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(g) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any obligation by any Holder to
indemnify shall be several and not joint with other Holders.
In connection with any registration pursuant to Section 9(a) or (b) above,
Issuer and each selling Holder (other than Grantee) shall enter into an
agreement containing the indemnification provisions of this Section 9(e).
(f) MISCELLANEOUS REPORTING. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Holder(s) in accordance
with and to the extent permitted by any rule or regulation permitting
nonregistered sales of securities promulgated by the Commission from time to
time, including, without limitation, Rule 144A. Issuer shall at its expense
provide the Holder with any information necessary in connection with the
completion and filing of any reports or forms required to be filed by them under
the Securities Act or the Exchange Act, or required pursuant to any state
securities laws or the rules of any stock exchange.
(g) ISSUE TAXES. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save any Holder harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. QUOTATION; LISTING. If Issuer Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on NASDAQ/NMS or any securities exchange, Issuer, upon the
request of Holder, will promptly file an application, if required, to authorize
for quotation or trading or listing the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option on NASDAQ/NMS or such
other securities exchange and will use its best efforts to obtain approval, if
required, of such quotation or listing as soon as practicable.
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11. DIVISION OF OPTION. Upon the occurrence of a Purchase Event or a
Preliminary Purchase Event, this Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of the Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 9, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived
at any time by the party that is entitled to the benefits of such provision.
This Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(c) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; SEVERABILITY. This
Agreement, together with the Affiliation Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (ii) is not intended to confer upon any person other
than the parties hereto (other than the indemnified parties under Section 9(e)
and any transferee of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 12(h)) any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency 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. If for any reason such court or
regulatory agency determines that the Option does not permit Holder to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section
7), it is the express intention of Issuer to allow Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible
without any amendment or modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts without regard to
any applicable conflicts of law rules.
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(e) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or sent by overnight mail service or mailed by registered or
certified mail (return receipt requested) postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
If to Grantee:
100 Old King=s Highway
Sandwich, Massachusetts 02563
Attention: President
Fax: (508) 833-0005
With required copes to each of :
Harry K. Kantarian, Esq.
Leonard S. Volin, Esq.
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.
Suite 700
Washington, D.C. 29936
Fax: (202) 822-9611
If to Grantee, to:
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Attention: President
Fax: (508) 984-6212
With required copies to each of:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
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(g) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Purchase Event shall have occurred prior to an Exercise Termination
Event, Grantee, subject to the express provisions hereof, may assign in whole or
in part its rights and obligations hereunder; provided, however, that until the
date 15 days following the date on which the Federal Reserve Board approves an
application by Grantee under the BHCA to acquire the shares of Issuer Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the
Federal Reserve Board.
(i) FURTHER ASSURANCES. In the event of any exercise of the Option by
Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement
may be enforced by either party through specific performance, injunctive relief
and other equitable relief. Both parties further agree to waive any requirement
for the securing or posting of any bond in connection with the obtaining of any
such equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
(k) EXTENSION OF EXERCISE TIME PERIODS FOR REGULATORY COMPLIANCE. The time
periods set forth in this Agreement for the exercise by Grantee or the Holder to
exercise its rights with respect to the Option or a Substitute Option or with
respect to repurchase of the Option shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights and
for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise.
-16-
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
Attest: SANDWICH BANCORP, INC.
/s/ Pamela J. Buttrick By: /s/ Frederic D. Legate
- ----------------------------------- ----------------------------------
Name: Frederic D. Legate
Title: President and Chief
Executive Officer
THE 1855 BANCORP
Attest:
/s/ Marilyn H. Parkinson By: /s/ Kevin G. Champagne
- ------------------------------------ -------------------------------
Name: Kevin G. Champagne
Title: President and Chief
Executive Officer
-17-
Exhibit 10.12
COMPASS BANK FOR SAVINGS
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I
GENERAL
-------
1.1 Introduction. The Compass Bank for Savings Executive Deferred
Compensation Plan (the "Deferred Compensation Plan") is established effective as
of October 1, 1995 to provide eligible officers the opportunity to defer salary
and bonus compensation under a voluntary salary reduction agreement. The
Deferred Compensation Plan also provides benefits corresponding to the Matching
contributions that would have been allocated to the Participant's accounts under
the Compass Bank for Savings 401(k) Retirement Plan (the "Savings Investment
Plan") but for limitations on the benefits that may be provided under the
Savings Investment Plan.
1.2 Definitions: Unless otherwise defined, all terms used in this
Deferred Compensation Plan shall have the same meaning as those terms used in
the Savings Investment Plan.
1.3 No Right to Corporate Assets. This Deferred Compensation Plan is
unfunded, and the Employers will not be required to set aside, segregate, or
deposit any funds or assets of any kind to meet their obligations hereunder.
Nothing in this Deferred Compensation Plan will give a Participant, a
Participant's beneficiary or any other person any equity or other interest in
the assets of the Employers, or create a trust or a fiduciary relationship of
any kind between the Employers and any such person. Any rights that a
Participant, beneficiary or other person may have under this Deferred
Compensation Plan will be solely those of a general unsecured creditor of the
Employers. Notwithstanding the foregoing, the Employers may establish a grantor
trust of which they are treated as the owners under Section 671 of the Internal
Revenue Code to provide for the payment of benefits hereunder.
1.4 Nonalienation of Benefits. The rights and benefits of a Participant
under this Deferred Compensation Plan are personal to the Participant. No
interest, right or claim under this Deferred Compensation Plan and no
distribution therefrom will be assignable, transferable or subject to sale,
mortgage, pledge, hypothecation, anticipation, garnishment, attachment,
execution or levy, except by designation of beneficiary.
1.5 Binding Effect of Plan. This Deferred Compensation Plan will be
binding upon and inure to the benefit of Participants and designated
beneficiaries and their heirs, executors and administrators, and to the benefit
of the Employers and their assigns and successors in interest.
<PAGE>
ARTICLE II.
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.1 Eligibility. The President of Compass Bank for Savings and other
senior management employees of the Employers from time to time designated by the
President are eligible to participate in the Plan (an "Eligible Executive").
2.2 Voluntary Deferrals. An Eligible Executive may elect to contribute
under this Deferred Compensation Plan on a voluntary salary reduction basis from
1% to 15%, in whole percentages, of such Executive's gross salary and from 1% to
100%, in whole percentages, of such Executive's discretionary bonus otherwise
payable in cash for the year. All such contributions shall be referred to in the
Plan as "salary reduction contributions." Each Eligible Executive who makes an
election to make salary deferral contributions under this Article II shall be
deemed a Participant.
2.3 Salary Reduction Elections. A voluntary salary reduction election
must be made in writing on or before the December 31 preceding the year during
which the compensation is to be earned, except that elections for the first year
of eligibility of newly Eligible Executives must be made within 30 days of the
date of initial eligibility. All elections must be in writing and are
irrevocable after the effective date of the election. An election is effective
only with respect to compensation earned after the election and is effective
through December 31 of the year to which it applies. The election will also
specify the form of distribution elected by the Participant.
ARTICLE III.
DEFERRED COMPENSATION BENEFITS
------------------------------
3.1 Salary Reduction Benefits. A Participant's enrollment in this
Deferred Compensation Plan will constitute an agreement to reduce his salary
and/or bonus and defer compensation in the amount indicated in his voluntary
salary reduction election.
3.2 Matching Contributions. Each employee of the Employer who
participates in the Savings Investment Plan and for whom Matching Contributions
under such plan are restricted by operation of Sections 401(k), 401(m) and 415
of the Code or by the limitations of the Savings Investment Plan that restrict
the amount of [Salary Deferrals] of Highly Compensated Employees, will be
entitled to a matching contribution allocation under the Plan for the year equal
to the difference between:
(a) the Matching Contribution that would have
been made for the year on the Participant's
Salary Deferrals under the Savings
Investment Plan based on the Matching
Contribution schedule in effect under the
Savings Investment Plan, but determined
without regard to (1) the limitations on
Annual Additions under the Savings
Investment Plan pursuant to Section 415 of
the Code or (2) the nondiscrimination tests
under Sections 401(k) and 401(m) of the Code
applicable to Salary Deferrals and Matching
Contributions under the Savings Investment
Plan; and
2
<PAGE>
(b) the Matching contribution allocated to a
Participant's account under the Savings
Investment Plan for the year.
ARTICLE IV.
ACCOUNTS AND CREDITS
--------------------
4.1 Establishment of Accounts. For bookkeeping purposes only, each
Participant will have each of the following accounts as are appropriate:
1. a Salary Reduction Account
2. a Matching Account
Credits and charges to such accounts will be made as provided in the Plan.
4.2 Credits to Salary Reduction Contribution Account. Salary reduction
contributions will be credited to a Participant's Salary Reduction Account as of
the date the amount would otherwise have been paid to the Participant. The
amount credited to a Participant's Salary Reduction Account may be reduced to
reflect the amount needed to satisfy any tax withholding obligations
attributable to the contribution if not otherwise paid by the Participant.
4.3 Credits to Matching Account. Matching Contributions will be
credited to the Matching Account as of the date such amounts would have been
credited under the Savings Investment Plan.
4.4 Crediting Earnings. Earnings will be credited to each Participant's
accounts in accordance with such method of determining earnings as may from time
to time be established by the Salary Committee of the Board of Directors of
Compass Bank For Savings (the "Committee"). In the event of a Change in Control
of Compass Bank For Savings, the method of determining earnings with respect to
amounts credited to the Plan for any year up to and including the year of the
change in control may not result in an earnings rate that is less favorable than
the rate that would apply under the method as in effect immediately before the
Change in Control. For purposes of this section, a "Change in Control" means
either of the following:
1. a change in control of a nature that would be
required to be reported by The 1855 Bancorp (the
"Company") or Compass Bank For Savings in response to
Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of
1934, as amended ("Exchange Act" ), whether or not
the Company or Compass Bank For Savings in fact is
required to comply with Regulation 14A thereunder; or
2. the acquisition of "control" as defined in the Bank
Holding Company Act of 1956, as amended or the
regulations thereunder, or as defined in the Change
in Bank Control Act of 1978 or the regulations
thereunder, of the Company or Compass Bank For
Savings by any person, company or other entity,
provided that, without limitation, such a Change in
Control shall be deemed to have occurred if (1) any
"person" (as such term is used in Section 13(d) and
14(d) of the Exchange Act)
3
<PAGE>
other than a trustee or other fiduciary holding
securities under an employee benefit plan of the
Company or Compass Bank For Savings or a corporation
owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as
their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing
25% or more of the combined voting power of the
Company's then outstanding securities; or (2) during
any period of two consecutive years (not including
any period prior to the effective date of this plan),
individuals who at the beginning of such period
constitute the Board and any new director (other than
a director designated by a person who has entered
into an agreement with the Company to effect a
transaction described in clauses (1) or (3) of this
Subsection) whose election by the Board or nomination
for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of
the directors then still in offer who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a
majority thereof, or (3) the stockholders of the
Company approve a merger or consolidation of the
Company with any other corporation, other than a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) at least two-thirds (2/3) of the combined
voting power of the voting securities of the Company
or such surviving entity outstanding immediately
after such merger or consolidation, or the
stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all the Company's assets.
ARTICLE V.
DISTRIBUTIONS
-------------
5.1 Distributions. Distributions to a Participant shall be made upon
the earliest of a Participant's retirement, death or other termination of
employment in accordance with the form of benefit requested by the Participant
in his voluntary salary reduction deferral election, subject, however, to the
discretion of the Committee to use any form of payment it determines. If no form
of distribution is elected, the Committee may distribute benefits at a time and
in a form that most closely approximates the form and time of distributions to
the Participant under the Savings Investment Plan.
5.2 Designation of Beneficiary. A Participant may designate one or more
Beneficiaries to receive any portion of the amount remaining in his accounts as
of the date of death and may revoke or change such a designation at any time. If
the Participant names two or more Beneficiaries, distribution to them will be in
such proportions as the Participant designates or, if the Participant does not
so designate, in equal shares. Any designation of beneficiary will be in writing
on such form as the Committee may prescribe and will be effective upon filing
with the Committee. Any portion of a distribution payable upon the death of a
Participant which is not disposed of by a designation of beneficiary, for any
reason whatsoever, will be paid to the Participant's spouse if living at his
death, otherwise equally to the
4
<PAGE>
Participant's natural and adopted children (and the issue of a deceased child by
right of representation), otherwise to the Participant's estate.
5.3 Hardship Withdrawals. Upon request of a Participant or beneficiary,
the Committee may in its discretion permit a withdrawal of all or a portion of
the Participant's accounts in the event of a financial hardship caused by an
unforeseeable emergency. An unforeseeable emergency is an unanticipated
emergency that is caused by an event beyond the control of the Participant or
Beneficiary and that would result in severe financial hardship if early
withdrawal were not permitted. The Committee may approve a withdrawal only to
the extent needed to meet the emergency.
ARTICLE VI.
AMENDMENT AND TERMINATION
-------------------------
6.1 Amendment. Except as provided in Section 4.4, Compass Bank For
Savings may, without the consent of any Participant, beneficiary or other
person, amend this Deferred Compensation Plan at any time and from time to time;
provided, however, that no amendment will reduce the amount then credited to the
accounts of an Participant at the time of the amendment.
6.2 Termination. Compass Bank For Savings may terminate this Deferred
Compensation Plan at any time. Upon termination of the Plan, payments from a
Participants' accounts will be made in the manner and at the time prescribed in
Section 5.1, provided that Compass Bank For Savings may, in its discretion,
distribute a Participant's account in a lump sum as soon as practicable after
the date the Deferred Compensation Plan is terminated.
6.3 Actions on Behalf of Compass Bank for Savings. Any actions which
Compass Bank for Savings may be entitled to take under this Article VI or
otherwise under the Plan shall be taken in the sole discretion of the Board of
Directors of Compass Bank for Savings, unless the Board has delegated its
authority to a Committee thereof or to one or more named officers of Compass
Bank for Savings.
ARTICLE VII.
ADMINISTRATION
--------------
7.1 Administration. This Deferred Compensation Plan will be
administered by the Committee who will have sole responsibility for its
interpretation.
7.2 Interpretation. The portion of this Deferred Compensation Plan that
provides benefits in excess of the restrictions on Annual Additions under the
Savings Investment Plan is intended to be an "excess benefit plan" as defined in
Section 2(36) of ERISA. The portion of the Plan that provides all other benefits
is intended to be a Deferred Compensation Plan for a select group of management
or highly compensated employees as provided in Sections 201(2), 301(a)(3) and
401(a)(1) of ERISA. The Plan will be interpreted in a manner that comports with
the foregoing intentions. To the extent not governed by federal law, this
Deferred Compensation Plan will be construed, enforced and administered
according to the laws of the Commonwealth of Massachusetts.
5
<PAGE>
7.3 Claims Procedure. Any request for benefits by a Participant or
Beneficiary will be filed in writing with the Committee. Within a reasonable
period after receipt of a claim, the Committee will provide written notice to
any claimant whose claim has been wholly or partly denied, including: (a) the
reasons for the denial, (b) the Plan provisions on which the denial is based,
(c) any additional material or information necessary to perfect the claim and
the reasons it is necessary, and (d) the Plan's claims review procedure. A
claimant will be given a full and fair review by the Committee of the denial of
his claim if he requests a review in writing within 60 days after notification
of the denial. The claimant may review pertinent documents and may submit issues
and comments orally, in writing and will include specific reasons for the
decision and references to the Plan provision on which the decision is based.
EXECUTED this day of 1995.
COMPASS BANK FOR SAVINGS
By:_____________________
6
<PAGE>
- --------------------------------------------------------------------------------
COMPASS BANK FOR SAVINGS
EXECUTIVE DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION FORM
AND ELECTION AS TO FORM OF PAYMENT
- --------------------------------------------------------------------------------
Executive's Name:_______________________________________________________________
Effective Date of Election:_________________________ Plan Year: _____________
I, the Executive whose signature appears below, hereby elect to
participate in Compass Bank For Savings Executive Deferred Compensation Plan
(the "Plan"):
I hereby elect that my eligible Compensation from the Company shall be
contributed and continued until the end of the Plan Year as follows:
[ ] VOLUNTARY SALARY DEFERRAL _________ percent not to exceed 15%
of Eligible Compensation.
[ ] VOLUNTARY DISCRETIONARY BONUS DEFERRAL ___________ percent not
to exceed 100%.
I understand that the Plan Year commences on January I and ends on
December 31 of each year;
In addition to the above deferrals, I understand that the Company shall
make a matching contribution in the same amount and manner as the Company's
qualified 401(k) retirement plan to my account in this Executive Deferred
Compensation Plan only to the extent that I am participating in the Company's
qualified 401(k) retirement plan and I do not receive the full amount of the
matching contribution under the Company's qualified 401(k) retirement plan as a
result of the imposition of either IRS or Plan limits. I understand that no
matching contribution shall be made on my salary and bonus deferrals under the
Plan. I understand that I shall be one hundred percent (100%) vested in all of
my Deferred Compensation, subject to the forfeiture provision included in the
Plan, and my rights as an unsecured general creditor for any claim I may have
against the assets of the Company. I further understand that for the purposes of
the Plan, my Eligible Compensation means my salary paid or accrued by the
Company for the Plan Year but does not include my discretionary bonus, which is
subject to the separate election above.
1
<PAGE>
I hereby understand that the rate of return on my Deferred Compensation
shall be determined under Section 5 of the Plan. I further understand that the
Company is under no obligation to create a trust or fund on my behalf, and the
Company may, in its discretion, record such amounts in a bookkeeping entry on my
behalf.
I hereby understand that this Deferral Election Form is legally binding
and irrevocable with respect to compensation earned while it is in effect, and
such election hereunder shall continue in effect until the end of the applicable
Plan Year.
I understand that in the event of my termination of serving as
Executive for the Company for any reason, or in the event the Plan is terminated
or discontinued, this Deferral Election Form shall thereupon terminate.
I understand that this Deferral Election Form is subject to the terms
and conditions of the Plan, as from time to time may be amended, and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts, and shall take effect as a sealed instrument under the laws of
said Commonwealth.
ELECTION AS TO FORM OF PAYMENT
------------------------------
(TO BE COMPLETED ONLY IF YOU ARE A NEW PARTICIPANT IN THE PLAN)
I hereby elect to have my benefit under the Plan payable with respect
to this and all subsequent Deferral Election Forms to be paid in the form
indicated below, subject to the discretion of the Company to use any form of
payment determined by it:
( ) In a single-sum payment in cash.
( ) In annual cash installments for a period of ______ years (not to
exceed 5).
( ) In a single sum payment in cash on _______________ (date)
(or termination of employment if earlier).
I understand that unless otherwise determined by the Company, the above
Election As To Form of Payment is irrevocable and applies to all future payments
to be made to me under the Plan.
I further understand that distribution of benefits to my designated
Beneficiary or Beneficiaries shall be made in accordance with the method of
distribution selected above, subject to the discretion of the Company and
authorized under the terms of the Plan.
2
<PAGE>
IN WITNESS WHEREOF, this Deferral Election Form and Election as to Form
of Payment is hereby executed as of ______________, 199____ by the Executive
whose signature appears below.
WITNESS:__________________________ EXECUTIVE:_________________________
DATE:______________________________
3
Exhibit 10.13
COMPASS BANK
- RABBI TRUST -
FOR
DEFERRED COMPENSATION PLAN
<PAGE>
Trust Under The Compass Bank DEFERRED COMPENSATION PLAN
(a) This Agreement made this 12th day of February, 1998 by and between COMPASS
BANK [Company] and NORTHEAST RETIREMENT SERVICES, INC. [Trustee];
(b) WHEREAS, Company has adopted the nonqualified deferred compensation Plan:
Compass Bank DEFERRED COMPENSATION PLAN established October 1, 1995 (Date)
(c) WHEREAS, Company has incurred or expects to incur liability under the terms
of such Plan with respect to the individuals participating in such Plan.
(d) WHEREAS, Company wishes to establish a trust (hereinafter called "Trustor")
and to contribute to the Trust assets that shall be held therein, subject to the
claims of Company's Insolvency, as herein defined, until paid to Plan
participants and their beneficiaries in such manner and at such times as
specified in the Plan;
(e) WHEREAS, it is the intention of the partes that this Trust shall constitute
an unfunded arrangement and shall not affect the status of the Plan as an
unfunded plan maintained for the purpose of providing deferred compensation for
a select group of management or highly compensated employees for purposes of
Title I of the Employee Retirement Income Security Act of 1974;
(f) WHEREAS, it is the intention of Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
- ---------------------------------
(a) Company hereby deposits with Trustee in trust $184,397.83, which
shall become the principal of the Trust to be held, administered and disposed of
by Trustee as provided in this Trust Agreement
(b) The trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust of which Company is the
grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of Company and shall be Used exclusively for
the uses and purposes of Plan participants and general creditors as herein set
forth. Plan participants and their beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plan(s) and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against Company.
Any assets held by the Trust will be subject to the claims of Company's general
creditors under Federal and state law in the event of Insolvency, as defined in
Section 3 (a) herein.
1
<PAGE>
RABBI TRUST PROVISIONS
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries
- ----------------------------------------------------------------
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect to each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plan(s)), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan participants
and their beneficiaries in accordance with such payment schedule. The Trustee
shall make Provision for the reporting and withholding of any Federal, state or
local taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan(s) and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan(s) shall be determined by Company or such party as it
shall designate under the Plan(s), and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan(s).
(c) Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan(s).
Company shall notify Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if principal of the Trust and any earnings thereon,
are not sufficient to make payments of benefits in accordance with the terms of
the Plan(s), Company shall make the balance of each such payment as it falls
due. Trustee shall notify Company where principal and earnings are not
sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary when
- ------------------------------------------------------------------------------
Company is Insolvent
- --------------------
(a) Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust as provided in
Section 1 (d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under Federal and state law as set forth
below.
1. The Board of Trustees and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in writing
to Trustee that Company has become Insolvent, Trustee shall determine whether
Company has become Insolvent and, pending such determination, Trustee shall
discontinue payment of benefits to Plan participants or their beneficiaries.
2
<PAGE>
RABBI TRUST PROVISIONS
2. Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to be a
creditor alleging that Company is Insolvent, Trustee shall have no duty to
inquire whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and that
provides Trustee with a reasonable basis for making a determination concerning
Company's solvency.
3. If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of general creditors of Company with respect to benefits due
under the Plan(s) or otherwise.
4. Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not Insolvent (or is
no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3 (b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance less the aggregate amount of any payments made to
Plan participants or their beneficiaries by Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. Investment Authority
- -------------------------------
Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with assets of
the Trust shall be exercised by Trustee or the person designated by Trustee, and
shall in no event be exercisable by or rest with Plan participants. The Company
shall authorize the Trustee to act upon receipt of written communication by any
two of the following officers: Kevin G. Champagne, Pres. &CEO, Arthur W. Short,
EVP&COO, John D. Kelleher, EVP and Francis S. Mascianica, Jr., SVP&Treasurer.
Section 5. Disposition of Income
- --------------------------------
During the term of this Trust all income received by the Trust net of
expenses and taxes, shall be accumulated and reinvested.
Section 6. Responsibility of Trustee
- ------------------------------------
(a) Trustee shall act with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Plan(s) or this Trust and is given in
writing by Company. In the event of a dispute between Company and a party,
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
3
<PAGE>
RABBI TRUST PROVISIONS
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust Company agrees to indemnity Trustee against Trustee's
costs, expenses, and liabilities (including, without limitation, attorneys' fees
and expenses) relating thereto and to be primarily liable for such payments. If
Company does not pay such costs, expenses, and liabilities in a reasonably
timely manner, Trustee may obtain payment from the Trust.
(c) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(d) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
4
<PAGE>
RABBI TRUST PROVISIONS
Section 7. Compensation and Expenses of Trustee
- -----------------------------------------------
Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
Section 8. Resignation and Removal of Trustee
- ---------------------------------------------
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days' notice or upon
shorter notice accepted by Trustee.
(c) Upon a Change of Control, as defined herein, Trustee may not be
removed by Company for 10 year(s).
(d) If Trustee resigns within 10 year(s) after a Change of Control, as
defined herein, Company shall apply to a court of competent jurisdiction for the
appointment of a successor Trustee or for instructions.
(e) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless Company extends the time limit.
(f) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with section 11 hereof, by the effective date or resignation or
removal under paragraphs (a) [or (b)] of this section. If no such appointment
has been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 9. Amendment or Termination
- -----------------------------------
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan(s) or shall make the Trust
revocable after it has become irrevocable in accordance with section 1 (b)
hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan(s).
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan(s), Company may terminate
this Trust prior to the time all benefit payments under the Plan(s) have been
made. All assets in the Trust at termination shall be returned to Company.
5
<PAGE>
RABBI TRUST PROVISIONS
Section 10. Miscellaneous
- -------------------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
(d) For purposes of this Trust, Change of Control shall mean:
the purchase or other acquisition by any person, entity, or group of
persons, within the meaning of section 13 (d) or 14 (d) of the
Securities Exchange Act of 1934 ("Act"), or any comparable successor
provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 30 percent or more of either the
outstanding shares of common stock or the combined voting power of
Company's then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were stockholders of Company immediately prior to
such reorganization, merger, or consolidation, do not immediately
thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged, or consolidated Company's then outstanding
securities, or a liquidation or dissolution of Company or of the sale
of all or substantially all of Company's assets".)
Section 14. Effective Date
- --------------------------
The effective date of this Trust Agreement shall be October 1, 1997.
6
<PAGE>
RABBI TRUST PROVISIONS
IN WITNESS WHEREOF, the parties hereto have executed this Trust
Agreement as of the date first above written.
The Trustee The Company
NORTHEAST RETIREMENT SERVICES, INC. COMPASS BANK
By: /s/ [signed] By: /s/ Arthur W. Short
------------------------------- -----------------------------
(Authorized Officer of Grantor)
Title: President Title: EVP/COO
------------------------------- -----------------------------
Witness: Witness:
-------------------------- -------------------------
(CORPORATE SEAL) COMMONWEALTH OF MASSACHUSETTS
ss.
/s/ [signed]
Notary Public Personally appeared before me and made oath
My Commission Expires: 2-19-99 that the above, by him subscribed, is true.
Before me,
/s/ [signed]
Notary Public
My Commission Expires: September 9, 1999
7
Exhibit 21
SUBSIDIARIES OF SEACOAST FINANCIAL SERVICES CORPORATION
The following corporation is a wholly-owned subsidiary of Seacoast
Financial Services Corporation:
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Compass Bank for Savings Massachusetts
(doing business as CompassBank)
The following corporations are wholly-owned subsidiaries of Compass
Bank for Savings:
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Compass Bank Securities Corporation Massachusetts
Compass Credit Corporation Massachusetts
Buffinton Brook Realty Corporation Massachusetts
The 1855 Corporation Massachusetts
Compass Preferred Capital Corporation Massachusetts
The following corporations are wholly-owned subsidiaries of The 1855
Corporation:
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Purchase Corporation Massachusetts
North Front Street, Inc. Massachusetts
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 1998
Exhibit 23.2
[LETTERHEAD OF RP FINANCIAL, LC.]
May 14, 1998
Board of Directors
The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02740-2101
Gentlemen:
We hereby consent to the use of our firm's name incorporated by
reference in the Registration Statement on Form S-1 of The 1855 Bancorp ("1855
Bancorp") and any amendments thereto filed by 1855 Bancorp with the Securities
and Exchange Commission in order to effect 1855 Bancorp's conversion from a
mutual holding company form to a stock holding company form and related offering
for sale of shares of its common stock. We also hereby consent to the inclusion
of, summary of and references to our Appraisal Report and our statement
concerning subscription rights prepared by us and incorporated by reference in
such filing.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ Ronald S. Riggins
Ronald S. Riggins
President
Exhibit 23.4
Consent of Independent Accountants
The Board of Directors
Sandwich Bancorp, Inc.
We consent to the incorporation by reference in the Registration
Statement to be filed on Form S-1 of Seacoast Financial Services Corporation of
our report dated January 26, 1998 and March 23, 1998 relating to the
consolidated balance sheets of Sandwich Bancorp, Inc. and subsidiaries as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, changes in stockholders equity and cash flows for each of the years
in the three year period ended December 31, 1997, which report appears in the
December 31, 1997 annual report on Form 10-K of Sandwich Bancorp, Inc. We also
consent to the reference to our firm under the heading "Experts" in the
Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
May 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 4-MOS
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1998
<PERIOD-START> NOV-01-1996 NOV-01-1997
<PERIOD-END> OCT-31-1997 FEB-28-1998
<EXCHANGE-RATE> 1 1
<CASH> 25,611 27,282
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 7,150 15,973
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 214,472 210,207
<INVESTMENTS-CARRYING> 12,633 12,322
<INVESTMENTS-MARKET> 12,694 12,387
<LOANS> 824,474 854,904
<ALLOWANCE> 10,642 10,747
<TOTAL-ASSETS> 1,106,590 1,143,559
<DEPOSITS> 937,948 951,449
<SHORT-TERM> 9,697 11,382
<LIABILITIES-OTHER> 9,798 10,439
<LONG-TERM> 51,006 67,171
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 98,141 103,118
<TOTAL-LIABILITIES-AND-EQUITY> 1,106,590 1,143,559
<INTEREST-LOAN> 65,499 23,320
<INTEREST-INVEST> 13,298 4,512
<INTEREST-OTHER> 1,235 491
<INTEREST-TOTAL> 80,032 28,323
<INTEREST-DEPOSIT> 36,109 12,571
<INTEREST-EXPENSE> 39,831 14,064
<INTEREST-INCOME-NET> 40,201 14,259
<LOAN-LOSSES> 1,865 183
<SECURITIES-GAINS> 37 (7)
<EXPENSE-OTHER> 8,868 24,810
<INCOME-PRETAX> 19,469 7,433
<INCOME-PRE-EXTRAORDINARY> 19,469 7,433
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,784 4,410
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 3.95 3.97<F1>
<LOANS-NON> 10,925 9,885
<LOANS-PAST> 489 575
<LOANS-TROUBLED> 130 559<F2>
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 10,334 10,642
<CHARGE-OFFS> 1,934 215
<RECOVERIES> 377 137
<ALLOWANCE-CLOSE> 10,642 10,747
<ALLOWANCE-DOMESTIC> 10,642 10,747
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
<F1>Percent is based upon annualized net interest margin.
<F2>Represents accruing restructured loans.
</FN>
</TABLE>
Exhibit 99.1
[LETTERHEAD OF RP FINANCIAL, LC.]
April 6, 1998
Mr. Kevin G. Champagne
President and Chief Executive Officer
Compass Bank for Savings, Subsidiary of The 1855 Bancorp
791 Purchase Street
New Bedford, Massachusetts 02740-6300
Dear Mr. Champagne:
This letter sets forth the agreement between Compass Bank for Savings
("Compass" or the "Bank"), subsidiary of The 1855 Bancorp, New Bedford,
Massachusetts ("Bancorp" or the 'Mutual Holding Company"), and RP Financial, LC.
("RP Financial") for independent conversion appraisal services pertaining to the
mutual-stock- stock conversion of Bancorp and the stock acquisition of Sandwich
Bancorp, Sandwich, Massachusetts ("Sandwich"). The specific appraisal services
to be rendered by RP Financial are described below. These appraisal services
will be rendered by a team of two senior consultants on staff and will be
directed by the undersigned.
Description of Appraisal Services
Prior to preparing the appraisal report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
operations, financial condition, profitability, market area, risks and various
internal and external factors of Compass and Sandwich, all of which will be
considered in estimating the pro forma market value of the Bank. In addition, RP
Financial will evaluate the anticipated expected synergies and costs as well as
accounting and other adjustments resulting from the merger.
RP Financial will prepare a detailed written valuation report of Bank
which will be fully consistent with applicable federal regulatory guidelines and
standard pro forma valuation practices. The appraisal report will include an
analysis of the Bank's financial condition and operating results, as well as an
assessment of the Bank's interest rate risk, credit risk and liquidity risk,
including an analysis on a pro forma basis taking into account the related
merger transaction. The appraisal report will describe the Bank's business
strategies, market area, prospects for the future and the intended use of
proceeds, incorporating the merger transaction. A peer group analysis relative
to comparable publicly-traded savings institutions will be conducted for the
purpose of determining appropriate valuation adjustments for the Bank relative
to the peer group.
We will review pertinent sections of the Bank's prospectus and hold
discussions with the Bank to obtain necessary data and information for the
appraisal report, including the impact of key deal elements on the pro forma
market value, such as dividend policy, use of proceeds and reinvestment rate,
tax rate, offering expenses, characteristics of stock plans, the structure of
any contribution to a charitable foundation immediately following the offering
and the pro forma impact of the merger transaction.
<PAGE>
Mr. Kevin G. Champagne
April 6, 1998
Page 2
The appraisal report will establish a midpoint pro forma market value.
The appraisal report may be periodically updated throughout the conversion
process as appropriate. There will be at least one updated valuation which would
be prepared at the time of the closing of the stock offering.
RP Financial agrees to deliver the appraisal report and subsequent
updates, in writing, to the Bank at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates. RP Financial expects to formally
present the appraisal report, including the appraisal methodology, peer group
selection and assumptions, to the Board of Directors for review and acceptance.
Fee Structure and Payment Schedule
The Bank agrees to pay RP Financial a fixed fee of $45,000 for
preparation and delivery of the original appraisal report and a $5,000 fee for
each subsequent appraisal update, plus reimbursable expenses. Payment of these
fees shall be made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $40,000 upon delivery of the completed original appraisal report;
and,
o $5,000 upon completion of each subsequent valuation update that
may be required.
The Bank will reimburse RP Financial for reasonable out-of-pocket
expenses incurred in preparation of the valuation. Such out-of-pocket expenses
will likely include travel, printing, telephone, facsimile, shipping, computer
and data services. RP Financial will agree to limit reimbursable expenses to an
amount not to exceed $10,000 in conjunction with the appraisal and business
planning engagements, subject to written authorization from the Bank to exceed
to such level.
In the event the Bank shall, for any reason, discontinue the proposed
transaction prior to delivery of the completed documents set forth above and
payment of the respective progress payment fees, the Bank agrees to compensate
RP Financial according to RP Financial's standard billing rates for consulting
services based on accumulated and verifiable time expenses, not to exceed the
respective fee caps noted above, after applying full credit to the initial
$5,000 retainer fee towards such payment. RP Financial's standard billing rates
range from $75 per hour for research associates to $250 per hour for managing
directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by the Bank and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to conversion
appraisal, changes in the structure of the merger terms, major changes in
management or procedures, operating policies or philosophies, and excessive
delays or suspension of processing of conversion or merger applications by the
regulators such that completion of the conversion transaction requires the
preparation by RP Financial of a new appraisal.
Representations and Warranties
The Bank and RP Financial agree to the following:
<PAGE>
Mr. Kevin G. Champagne
April 6, 1998
Page 3
1. The Bank agrees to make available or to supply to RP Financial such
information with respect to its business and financial condition as RP Financial
may reasonably request in order to provide the aforesaid valuation. Such
information heretofore or hereafter supplied or made available to RP Financial
shall include: annual financial statements, periodic regulatory filings and
material agreements, debt instruments, off balance sheet assets or liabilities,
commitments and contingencies, unrealized gains or losses and corporate books
and records. All information provided by the Bank to RP Financial shall remain
strictly confidential (unless such information is otherwise made available to
the public), and if the conversion is not consummated or the services of RP
Financial are terminated hereunder, RP Financial shall upon request promptly
return to the Bank the original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or in response to informational requests by
RP Financial fail to state a material fact necessary to make the statements
therein not false or misleading in light of the circumstances under which they
were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by the Bank to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by the Bank to RP Financial; or (iii) any action or omission to act by the Bank,
or the Bank's respective officers, directors, employees or agents which action
or omission is undertaken in bad faith or negligent. The Bank will be under no
obligation to indemnify RP Financial hereunder if a court determines that RP
Financial was negligent or acted in bad faith with respect to any actions or
omissions of RP Financial related to a matter for which indemnification is
sought hereunder. Reasonable time devoted by RP Financial to situations for
which indemnification is provided hereunder, shall be an indemnificable cost
payable by the Bank at the normal hourly professional rate chargeable by such
employee.
(b) RP Financial shall give written notice to the Bank of such
claim or facts within thirty days of the assertion of any claim or discovery of
material facts upon which the RP Financial intends to base a claim for
indemnification hereunder. In the event the Bank elects, within seven days of
the receipt of the original notice thereof, to contest such claim by written
notice to RP Financial, the Bank shall not be obligated to make payments under
Section 3(c), but RP Financial will be entitled to be paid any amounts payable
by the Bank hereunder, together with interest on such costs from the date
incurred at the annual rate of prime plus two percent within five days after the
final determination of such contest either by written acknowledgment of the Bank
or a final judgment of a court of competent jurisdiction, unless it is
determined in accordance with Section 3(c) hereof that RP Financial is not
entitled to indemnity hereunder. If the Bank does not so elect to contest a
claim for indemnification by RP Financial hereunder, RP Financial shall (subject
to the Bank's receipt of the written statement and undertaking under Section
3(c) hereof) be paid promptly and in any event within thirty days after receipt
by the Bank of billing statements or invoices for which RP Financial is entitled
to reimbursement under Section 3(c) hereof.
(c) Subject to the Bank's right to contest under Section 3(b)
hereof, the Bank shall pay for or reimburse the reasonable expenses, including
attorneys' fees, incurred by RP Financial in advance of the final
<PAGE>
Mr. Kevin G. Champagne
April 6, 1998
Page 4
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Bank: (1) a written statement of RP Financial's
good faith belief that it is entitled to indemnification hereunder; and (2) a
written undertaking to repay the advance if it ultimately is determined in a
final adjudication of such proceeding that it or he is not entitled to such
indemnification.
(d) In the event the Bank does not pay any indemnified loss or
make advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the Bank
in one or more additional capacities, and that the terms of the original
engagement may be embodied in one or more separate agreements. The provisions of
Paragraph 3 herein shall apply to the original engagement, any such additional
engagement, any modification of the original engagement or such additional
engagement and shall remain in full force and effect following the completion or
termination of RP Financial's engagement(s). This agreement constitutes the
entire understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may not
be modified, supplemented or amended except by written agreement executed by
both parties.
Compass and RP Financial are not affiliated, and neither Compass nor RP
Financial has an economic interest in, or is held in common with, the other and
has not derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other.
* * * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Sincerely,
/s/ Ronald S. Riggins
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: Kevin G. Champagne /s/ Kevin G. Champagne
----------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Compass Bank for Savings,
Subsidiary of The 1855 Bancorp
New Bedford, Massachusetts
Date Executed: March 31, 1998
Exhibit 99.4
THE 1855 BANCORP, INC..
STOCK ORDER FORM
Please read and complete this Stock Order Form.
Instructions are included on the reverse side of this form.
================================================================================
DEADLINE FOR DELIVERY
10:00 a.m., Boston Time, on______, 1998
Please mail the completed Stock Order Form in the enclosed business reply
envelope to the address listed below or hand-deliver to any Compass Bank for
Savings office. Copies and facsimiles of Stock Order Forms will not be accepted.
(1) NUMBER OF SHARES
________________________________________________________________________________
(1) Number of Shares Price per Share Total Amount Due
x $10.00 =
___________________ ____________________
$
___________________ ____________________
(25 Share Minimum)
________________________________________________________________________________
FOR OFFICE USE ONLY
____________ __________ ___________ ____________
Date Rec'd Batch # Order # Deposit
________________________________________________________________________________
(2) METHOD OF PAYMENT
________________________________________________________________________________
[ ] Enclosed is a check or money order payable to The 1855 Bancorp, Inc. for
$_______________.
[ ] I authorize Compass Bank to make the withdrawal(s) from the Compass Bank
savings or certificate account(s)* listed below, and understand that the
amounts I authorize below will not otherwise be available to me once this
Stock Order Form is submitted: (There is no early withdrawal penalty for
the purchase of stock.)
Account Number(s) Amount(s)
______________________ $______________
______________________ $______________
______________________ $______________
______________________ $______________
Total Withdrawal: $______________
*Note: You may not make direct withdrawal authorizations from
checking or money market accounts
________________________________________________________________________________
(3) PURCHASER INFORMATION
________________________________________________________________________________
[ ] Check here if you are a Compass Bank for Savings director, officer, or
trustee or employee, or a member of their immediate household.
Check the box which applies.
(a) [ ] Eligible Account Holder - Check here if you were a depositor with
at least $50 at Compass Bank for Savings on 12/31/96. List below
any account(s) you had at that date.
(b) [ ] Supplemental Eligible Account Holder - Check here if you were not
a depositor on 12/31/96, but you were a depositor with at least
$50 at Compass Bank for Savings on 6/30/97. List below any
account(s) you had at that date.
(c) [ ] Check here if you were not a Compass Bank for Savings depositor
with at least $50 on deposit on either 12/31/96 or 6/30/97.
Account Title Account Number(s)
------------- -----------------
(Name(s) on Account(s) on the
applicable Eligible Date)
______________________________________ __________________
______________________________________ __________________
______________________________________ __________________
If additional space is needed, please submit a separate page.
________________________________________________________________________________
(4) STOCK REGISTRATION (Please Print Clearly--The registration information you
list below will be used for subsequent mailings, and for the registration of
stock certificates. Please make sure the information is complete and legible. If
registering shares in more than one name, please list address and phone number
of the first person on the registration).
________________________________________________________________________________
(First Name, Middle Initial, Last Name) Social Security No./Tax ID# (certificate
will show only this number)
________________________________________________________________________________
(First Name, Middle Initial, Last Name) Social Security No./Tax ID#
________________________________________________________________________________
(Street Address) (Daytime Phone Number)
________________________________________________________________________________
(City, State, Zip Code) (Evening Phone Number)
________________________________________________________________________________
(5) FORM OF STOCK OWNERSHIP (check one - see reverse side of this Form for
ownership definitions)
[ ] Individual [ ] Joint Tenants
[ ] Tenants in Common [ ] Uniform Transfer to Minors
[ ] IRA (for broker use only) [ ] Corporation
[ ] Fiduciary (Under Agreement Dated , 199_) [ ] Other___________________
________________________________________________________________________________
(6) NASD AFFILIATION (Check and initial only if applicable.)
________________________________________________________________________________
[ ] Check here and initial below if you are a member of the NASD ("National
Association of Securities Dealers") or a person associated with an NASD member
or a member of the immediate family of any such person to whose support such
person contributes, directly or indirectly, or if you have an account in which
an NASD member, or person associated with an NASD member, has a beneficial
interest. I agree (i) not to sell, transfer or hypothecate the stock for a
period of three months following issuance; and (ii) to report this subscription
in writing to the applicable NASD member I am associated with within one day of
payment for the stock. _______ (Please initial)
________________________________________________________________________________
(7) ACKNOWLEDGMENT, CONSENT TO ACQUISITION OF SANDWICH AND SIGNATURE (VERY
IMPORTANT)
________________________________________________________________________________
I (we) acknowledge receipt of the Prospectus dated ________, 1998, and I(we)
have read the terms and conditions described therein (including the section
entitled "Risk Factors"). I(we) understand that, after receipt by The 1855
Bancorp, Inc., this order may not be modified or withdrawn without the consent
of The 1855 Bancorp, Inc. I(we) hereby certify that the shares which are being
subscribed for are for my(our) account only, and that I(we) have no present
agreement or understanding regarding any subsequent sale or transfer of such
shares and I(we) confirm that my(our) order does not conflict with the purchase
limitation and ownership limitation provisions in the Plan of Conversion. I(we)
acknowledge that the common stock being ordered is not a deposit or savings
account, is not insured by the FDIC, the Depositors Insurance Fund and is not
guaranteed by Compass Bank for Savings, The 1855 Bancorp, Inc. or any government
agency. Under penalties of perjury, I(we) certify that (1) the Social Security
#(s) or Tax ID#(s) given above is(are) correct; and (2) I(we) am(are) not
subject to backup withholding tax. (You must cross out #2 above if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding because of underreporting interest or dividends on your tax return.)
I(we) acknowledge (1) that the conversion of The 1855 Bancorp, Inc. from mutual
holding company to stock holding company form will not be consummated, and that
no common stock of The 1855 Bancorp, Inc. will be issued, unless at the time
such conversion is scheduled to be consummated all pre-conditions to the closing
of the merger (the "Merger") of Sandwich Bancorp, Inc. with The 1855 Bancorp,
Inc. (other than the issuance of The 1855 Bancorp, Inc. common stock to the
Sandwich Bancorp, Inc. stockholders) have been satisfied or waived and (2) that
I(we) understand and agree that by submitting this Stock Order Form I am (we
are) approving the Merger and voting by written consent, in accordance with
M.G.L. ch. 156B, ss.43, all of the common stock purchased hereby in favor of the
Merger.
Please sign and date this form. Only one signature is required, unless
authorizing a withdrawal from a Compass Bank for Savings deposit account
requiring more than one signature to withdraw funds. If signing as a custodian,
corporate officer, etc., please include your full title.
________________________________________________________________________________
Signature Title(if applicable) Date
________________________________________________________________________________
Signature Title (if applicable) Date
THIS ORDER NOT VALID UNLESS SIGNED-- WE RECOMMEND RETAINING A COPY OF THIS FORM
FOR YOUR RECORDS
________________________________________________________________________________
QUESTIONS? Please call (508) ___-____ or (800 ___-____
from 9:00 am to 4:00 pm, Monday-Friday
Stock Information Center: Compass Bank for Savings headquarters -
791 Purchase Street, New Bedford, MA 02741
________________________________________________________________________________
THE SHARES OF COMMON STOCK ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL
INVESTED. (OVER)
<PAGE>
STOCK ORDER FORM INSTRUCTIONS
-----------------------------
(1) NUMBER OF SHARES -- Indicate the number of shares of The 1855 Bancorp, Inc.
common stock that you wish to purchase and indicate the amount due. The minimum
purchase is 25 shares or $250. No individual person may purchase more than
$750,000 in aggregate in the Offering (which consists of the Subscription,
Community and, if necessary, Syndicated Community Offering). No person may
purchase in the Community Offering more than $750,000. There is also a group
purchase limitation whereby no person, together with his/her associates or group
of persons acting in concert, may purchase in aggregate no more than $1.5
million in the Offering (which consists of the Subscription Offering, Community
Offering and, if necessary, Syndicated Community Offering). The categories of
the Offering are described in the Prospectus. The 1855 Bancorp, Inc. reserves
the right to accept or reject orders placed in the Community Offering.
(2) METHOD OF PAYMENT -- Payment for shares may be made by check or money order
payable to The 1855 Bancorp, Inc. Funds received in this form of payment will be
cashed immediately and deposited into a separate account established for the
purposes of this Offering. You will earn interest at Compass Bank's passbook
rate (currently ___%) from the time funds are received until the Offering is
consummated.
You may pay for your shares by withdrawal from your Compass Bank for Savings
passbook savings or certificate of deposit account(s). Indicate the account
number(s) and the amount(s) to be withdrawn. You may not authorize direct
withdrawals from checking or money market accounts. These funds will be
unavailable to you from the time this Stock Order Form is received until the
Offering is consummated, however the funds will continue to earn interest at the
account's contractual rate until the Offering is consummated. Please contact the
Stock Information Center early in the Offering period, if you are intending to
utilize your Compass Bank for Savings IRA or Keogh funds (or any other IRA
funds) to make your stock purchase.
(3) PURCHASER INFORMATION -- Check the applicable box. This information is very
important because eligibility dates are utilized to prioritize your order in the
event that we receive more stock orders for more than the available stock. List
the name(s) on the deposit account(s) and account number(s) that you held at the
applicable date. Please see the portion of the Prospectus entitled "The
Offerings" for a detailed explanation of how shares will be allocated in the
event the Offering is oversubscribed. Failure to complete this section,
completing this section incorrectly or omitting information in this section
could result in loss of all or part of your stock allocation.
(4) STOCK REGISTRATION -- Please CLEARLY PRINT the name(s) and address in which
you want the stock certificate registered and mailed. If you are exercising
subscription rights by purchasing in the Subscription Offering as a Compass Bank
for Savings (i) eligible depositor as of 12/31/96 or (ii) eligible depositor as
of 6/30/97, you must register the stock in the name of at least one of the
account holders listed on your account as of the applicable date. However,
adding the name(s) of other persons who are not account holders, or were account
holders at a later eligibility date than yourself, will be a violation of your
subscription right and will result in a loss of your purchase priority. NOTE:
ONE STOCK CERTIFICATE WILL BE GENERATED PER ORDER FORM. IF VARIOUS REGISTRATIONS
AND SHARE AMOUNTS ARE DESIRED ON VARIOUS CERTIFICATES, A SEPARATE STOCK ORDER
FORM MUST BE COMPLETED FOR EACH CERTIFICATE DESIRED.
Enter the Social Security Number or Tax ID Number of the registered owner(s).
The first number listed will be identified with the stock certificate for tax
purposes. Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
(5) FORM OF STOCK OWNERSHIP -- Please check the one type of ownership applicable
to your registration. An explanation of each follows:
GUIDELINES FOR REGISTERING STOCK
--------------------------------
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stockholder registrations which we will utilize in the
issuance of your The 1855 Bancorp, Inc. stock certificate(s). If you have any
questions, please consult your legal advisor.
Stock ownership must be registered in one of the following manners:
________________________________________________________________________________
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words
of limitation that do not affect ownership rights such as
"special account," "single man," "personal property," etc. If
the stock is held individually upon the individual's death,
the stock will be owned by the individual's estate and
distributed as indicated by the individual's will or
otherwise in accordance with law.
________________________________________________________________________________
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types
of joint ownership. Names should be joined by "and;" do not
connect with "or." Omit titles such as "Mrs.," "Dr.," etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and
not as Tenants in Common may be specified to identify two or
more owners where ownership is intended to pass automatically
to the surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to
identify two or more owners. When stock is held as tenancy
in common, upon the death of one co-tenant, ownership of
the stock will be held by the surviving co-tenant(s) and
by the heirs of the deceased co-tenant. All parties must
agree to the transfer or sale of shares held in this form
of ownership.
________________________________________________________________________________
UNIFORM Stock may be held in the name of a custodian for a minor
TRANSFER TO under the Uniform Transfers to Minors laws of the
MINORS: individual states. There may be only one custodian and one
minor designated on a stock certificate. The standard
abbreviation of custodian is "CUST," while the description
"Uniform Transfers to Minors Act" is abbreviated "UNIF TRAN
MIN ACT." Standard U.S. Postal Service state abbreviations
should be used to describe the appropriate state. For
example, stock held by John P. Jones under the Uniform
Transfers to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT MA
________________________________________________________________________________
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary(ies):
- If an individual, list the first given
name, middle initial and last name.
- If a corporation, list the corporate title.
- If an individual and a corporation, list
the corporation's title before the individual.
2. The fiduciary capacity: Administrator, Conservator,
Committee, Executor, Trustee, Personal Representative,
Custodian.
3. The type of document governing the fiduciary relationship.
Generally, such relationships are either under a form of
living trust agreement or pursuant to a court order.
Without a document establishing a fiduciary relationship,
your stock may not be registered in a fiduciary capacity.
4. The date of the document governing the relationship. The
date of the document need not be used in the description
of a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator OR
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
(6) NASD AFFILIATION -- Check the box and initial, if applicable.
(7) ACKNOWLEDGMENT AND SIGNATURE -- Stock Order Forms submitted without a
signature will not be accepted. Only one signature is required, unless the
method of payment section of this form includes authorization to withdraw from a
Compass Bank for Savings account requiring more than one signature for
withdrawal. If signing as a custodian, trustee, corporate officer, etc., please
include your title. If exercising a Power of Attorney, you must submit a copy of
the POA agreement with this form.
